PARTY CITY CORPORPORATION
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES
EXCHANGE ACT OF 1934 (Amendment No. )
Filed by the Registrant þ
Filed by a Party other than the
Registrant o
Check the appropriate box:
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Preliminary Proxy Statement |
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Confidential, For Use of the Commission Only (as permitted by
Rule 14a-6(e)(2)) |
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Definitive Proxy Statement |
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Definitive Additional Materials |
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Soliciting Material Pursuant to §240.14a-12 |
PARTY CITY CORPORATION
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
Payment of Filing Fee (Check the appropriate box):
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No fee required. |
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Fee computed on table below per Exchange Act
Rules 14a-6(i)(1) and 0-11. |
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(1) |
Title of each class of securities to which transaction applies:
Common stock, par value $0.01 per share, of Party City
Corporation (the Party City common stock) |
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(2) |
Aggregate number of securities to which transaction applies:
17,319,386 shares of Party City common stock
3,092,516 options to purchase shares of Party City common stock
with an exercise price of less than $17.50
29,230 shares of Party City common stock issuable pursuant
to the employee stock purchase plan
5,420 shares of Party City common stock issuable pursuant
to the management stock purchase plan
2,496,000 warrants to purchase shares of Party City common
stock with an exercise price of less than $17.50. |
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(3) |
Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on
which the filing fee is calculated and state how it was
determined):
$17.50 per share of Party City common stock
$17.50 minus weighted average price of $11.83 per share of
outstanding options to purchase shares of Party City common
stock with an exercise price of less than $17.50
$17.50 minus weighted average price of $11.98 per share of
Party City common stock issuable pursuant to the employee stock
purchase plan
$17.50 minus weighted average price of $10.56 per share of
Party City common stock issuable pursuant to the management
stock purchase plan
$17.50 minus weighted average price of $1.07 per share of
outstanding warrants to purchase shares of Party City common
stock with an exercise price of less than $17.50 |
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Proposed maximum aggregate value of transaction:
$361,794,450 |
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Total fee paid:
$42,583 |
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Fee paid previously with preliminary materials. |
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Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for
which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the Form or
Schedule and the date of its filing. |
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(1) |
Amount Previously Paid: |
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(2) |
Form, Schedule or Registration Statement No.: |
PARTY CITY CORPORATION
400 Commons Way
Rockaway, New Jersey 07866
November 7, 2005
Dear Stockholder:
You are cordially invited to attend a special meeting of the
stockholders of Party City Corporation, which will be held at
the Sheraton Parsippany, 199 Smith Road, Parsippany, NJ 07054,
on December 7, 2005, beginning at 1:00 p.m., local time.
On September 26, 2005, the board of directors of Party City
approved, and Party City entered into an Agreement and Plan of
Merger (which we refer to, as amended, as the merger
agreement) with Amscan Holdings, Inc. and its wholly owned
subsidiary, BWP Acquisition, Inc. Amscan Holdings, Inc. and BWP
Acquisition, Inc. are currently indirectly owned by investment
funds affiliated with Berkshire Partners LLC and Weston
Presidio. If the merger is completed, Party City will become a
wholly owned subsidiary of Amscan Holdings, Inc., and you will
be entitled to receive $17.50 in cash, without interest, for
each share of Party City common stock that you own. A copy of
the merger agreement is attached as Annex A to the
accompanying proxy statement, and you are encouraged to read it
in its entirety. At the special meeting, we will ask you to
consider and vote on a proposal to adopt the merger agreement.
After careful consideration, our board of directors has
unanimously approved the merger agreement and the board of
directors and its special committee determined that the merger
and the merger agreement are fair to, advisable and in the best
interests of our company and our stockholders. The special
committee and our board of directors unanimously recommend that
you vote FOR the adoption of the merger
agreement. In reaching their respective determinations, the
special committee and our board of directors considered a number
of factors, as described in the accompanying proxy statement.
The accompanying proxy statement provides you with information
about the proposed merger and the special meeting. We urge you
to read these materials carefully. You may also obtain
additional information about Party City from documents filed
with the Securities and Exchange Commission.
Regardless of the number of shares you own, your vote is very
important. The merger cannot be completed unless the merger
agreement is adopted by the affirmative vote of the holders of a
majority of the outstanding shares of Party City common stock
entitled to vote. If you fail to vote on the merger agreement,
the effect will be the same as a vote against the adoption of
the merger agreement.
Whether or not you are able to attend the special meeting in
person, please complete, sign and date the enclosed proxy card
and return it in the envelope provided or submit your proxy by
telephone or over the internet following the instructions on the
proxy card as soon as possible. This action will not limit your
right to vote in person if you wish to attend the special
meeting and vote in person.
Thank you for your cooperation and your continued support of
Party City Corporation.
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Sincerely, |
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/s/ Ralph D. Dillon |
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Ralph D. Dillon |
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Non-Executive Chairman of the Board |
Neither the Securities and Exchange Commission nor any state
securities regulatory agency has approved or disapproved the
merger, passed upon the merits or fairness of the merger or
passed upon the adequacy or accuracy of the disclosure in this
document. Any representation to the contrary is a criminal
offence.
This proxy statement is dated November 7, 2005 and is first
being mailed to stockholders on or about November 7, 2005.
PARTY CITY CORPORATION
400 Commons Way
Rockaway, New Jersey 07866
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held On December 7, 2005
To Our Stockholders:
We will hold a special meeting of the stockholders of Party City
Corporation at the Sheraton Parsippany, 199 Smith Road,
Parsippany, NJ 07054, on December 7, 2005, beginning at
1:00 p.m., local time, for the following purposes:
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1. To consider and vote on a proposal to adopt the
Agreement and Plan of Merger, dated as of September 26,
2005, as amended, by and among Amscan Holdings, Inc., BWP
Acquisition, Inc. and Party City Corporation, which provides for
the merger of BWP Acquisition, Inc., a wholly-owned subsidiary
of Amscan Holdings, Inc., with and into Party City Corporation,
with Party City Corporation continuing as the surviving
corporation in the merger, and the conversion of each
outstanding share of common stock of Party City Corporation
(other than shares held (i) as treasury shares or by any
subsidiary of Party City Corporation or (ii) by Amscan
Holdings, Inc., BWP Acquisition, Inc. or any subsidiary of BWP
Acquisition, Inc.) into the right to receive $17.50 in cash,
without interest; |
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2. To approve the adjournment or postponement of the
special meeting, if necessary or appropriate, to solicit
additional proxies if there are insufficient votes at the time
of the meeting to adopt the merger agreement; and |
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3. To transact such other business as may properly come
before the special meeting or any adjournment or postponement
thereof, including to consider any procedural matters incident
to the conduct of the special meeting. |
Only holders of record of our common stock as of the close of
business on November 2, 2005 are entitled to notice of, and
to vote at, the special meeting and any adjournment or
postponement of the special meeting.
You are cordially invited to attend the meeting in person.
Your vote is important, regardless of the number of shares of
our common stock you own. The adoption of the merger agreement
requires the approval of the holders of a majority of the
outstanding shares of our common stock entitled to vote. The
proposal to adjourn or postpone the meeting, if necessary, to
permit further solicitation of proxies, requires the affirmative
vote of the holders of a majority of the shares of our common
stock present or represented by proxy at the special meeting and
voting on the matter. Even if you plan to attend the meeting in
person, we request that you complete, sign, date and return the
enclosed proxy to ensure that your shares will be represented at
the meeting if you are unable to attend. If you sign, date and
mail your proxy card without indicating how you wish to vote,
your vote will be counted as a vote in favor of the adoption of
the merger agreement, in favor of the proposal to adjourn or
postpone the meeting, if necessary, to permit further
solicitation of proxies, and in accordance with the
recommendation of the board of directors on any other matters
properly brought before the meeting for a vote.
If you fail to vote by proxy (whether by mail, by telephone or
over the internet) or in person, it will have the same effect as
a vote against the adoption of the merger agreement, but will
not affect the outcome of the vote regarding the adjournment or
postponement of the meeting, if necessary, to permit further
solicitation of proxies. If you are a stockholder of record and
do attend the meeting and wish to vote in person, you may
withdraw your proxy and vote in person.
Holders of our common stock are entitled to appraisal rights
under the General Corporation Law of the State of Delaware in
connection with the merger. See Appraisal Rights on
page 49.
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By Order of the Board of Directors, |
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/s/ Joseph J. Zepf |
Rockaway, New Jersey
November 7, 2005
PROPOSED MERGER YOUR VOTE IS IMPORTANT.
WHETHER OR NOT YOU ARE ABLE TO ATTEND THE SPECIAL MEETING,
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND
RETURN IT IN THE ENVELOPE PROVIDED AS SOON AS POSSIBLE. NO
POSTAGE NEED BE AFFIXED IF THE PROXY CARD IS MAILED IN THE
UNITED STATES. GIVING YOUR PROXY NOW WILL NOT AFFECT YOUR RIGHT
TO VOTE IN PERSON IF YOU ATTEND THE MEETING.
Please do not send your Party City Corporation common stock
certificates to us at this time. If the merger is completed, you
will be sent instructions regarding surrender of your
certificates.
TABLE OF CONTENTS
TABLE OF CONTENTS
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SUMMARY TERM SHEET
The following summary term sheet highlights selected
information from this proxy statement and may not contain all of
the information that may be important to you. Accordingly, we
encourage you to read carefully this entire proxy statement, its
annexes and the documents referred to or incorporated by
reference in this proxy statement. You may obtain information
incorporated by reference in this proxy statement without charge
by following the instructions under Where You Can Find
More Information beginning on page 59.
In this proxy statement, unless the context requires
otherwise, the terms Party City,
company, corporation, we,
our, ours and us refer to
Party City Corporation and its subsidiaries, and the term the
merger agreement refers to the agreement and plan of
merger, dated as of September 26, 2005, as amended, by and
among Amscan Holdings, Inc., BWP Acquisition, Inc. and Party
City Corporation. Unless otherwise specifically set forth
herein, references to the date of the merger
agreement refer to the initial date of the agreement,
September 26, 2005. We refer to AAH Holdings Corporation
herein as AAH Holdings.
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Parties Involved in the Proposed Transaction |
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Party City Corporation |
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400 Commons Way |
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Rockaway, New Jersey 07866 |
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(973) 983-0888 |
Party City Corporation is based in Rockaway, New Jersey and was
incorporated in the State of Delaware in 1996. Party City is
Americas largest party goods chain. Party City operates
retail party supplies stores in the United States and sells
franchises on an individual store and area franchise basis
throughout the United States and Puerto Rico. Party City is
publicly traded on The Nasdaq National Market under the symbol
PCTY.
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Amscan Holdings, Inc. |
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80 Grasslands Road |
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Elmsford, New York 10523 |
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(914) 345-2020 |
Amscan Holdings, Inc., a corporation organized under the laws of
the State of Delaware, is a direct wholly owned subsidiary of
AAH Holdings, which is primarily owned by the private equity
investment firms of Berkshire Partners LLC and Weston Presidio.
Amscan Holdings, Inc. designs, manufactures and distributes
decorative party goods, including paper and plastic tableware,
accessories and novelties. Amscan Holdings, Inc. also designs
and distributes home, baby, wedding and other gift items.
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BWP Acquisition, Inc. |
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c/o Berkshire Partners LLC |
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One Boston Place |
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Boston, MA 02108 |
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(617) 227-0500 |
BWP Acquisition, Inc., is a newly formed Delaware corporation
and a wholly-owned subsidiary of Amscan Holdings, Inc. Amscan
Holdings, Inc. formed BWP Acquisition, Inc. for the purpose of
entering into the merger agreement and consummating the
transactions contemplated by the merger agreement.
On September 26, 2005, the board of directors of Party City
approved, and Party City entered into, a merger agreement with
Amscan Holdings, Inc. and its wholly owned subsidiary, BWP
Acquisition, Inc. Amscan Holdings, Inc. and BWP Acquisition,
Inc. are currently indirectly owned by investment funds
affiliated with Berkshire Partners LLC and Weston Presidio. If
the merger is completed, Party City will become a wholly owned
subsidiary of Amscan Holdings, Inc., and each stockholder will
be entitled to receive $17.50 in cash, without interest, for
each share of Party City common stock owned prior to the merger.
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Date, Time and Place (page 15) |
The special meeting will be held on December 7, 2005, at
the Sheraton Parsippany, 199 Smith Road, Parsippany, NJ
07054, at 1:00 p.m., local time.
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Matters to be Considered (page 15) |
You will be asked to consider and vote upon a proposal to adopt
the merger agreement that we have entered into with Amscan
Holdings, Inc. and BWP Acquisition, Inc., a proposal to adjourn
or postpone the meeting, if necessary or appropriate, to permit
the further solicitation of proxies to adopt the merger
agreement and to consider any other matters that may properly
come before the meeting, including any procedural matters in
connection with the special meeting.
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Recommendation of Special Committee to Board of Directors
(page 15) |
Our board of directors established a special committee comprised
of certain independent and disinterested members of our board of
directors. The special committee was given full authority of the
board of directors, including the authority to, among other
things, consider, evaluate, negotiate or solicit any offer to
purchase all of our outstanding stock or substantially all of
our assets on such terms and conditions as it deemed to be in
the best interests of us and our stockholders.
The special committee and our board of directors have
unanimously determined that the merger, the merger agreement and
the voting agreement are fair to, and in the best interests of,
our stockholders. The special committee and our board of
directors approved the merger agreement and the transactions
contemplated thereby, including the merger, and the related
agreements, and recommended that our stockholders vote to adopt
the merger agreement.
If you owned shares of our common stock at the close of business
on November 2, 2005, the record date for the special
meeting, you are entitled to notice of, and to vote at, the
special meeting. You have one vote for each share of our common
stock that you own on the record date. As of the close of
business on the record date, there were 19,796,956 shares
of our common stock outstanding and entitled to be voted at the
special meeting.
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Required Vote and Voting Agreement (page 15) |
Adoption of the merger agreement requires the affirmative vote
of the holders of a majority of our outstanding shares of common
stock entitled to vote at the special meeting. The proposal to
adjourn or postpone the meeting, if necessary or appropriate, to
permit the further solicitation of proxies requires the
affirmative vote of the holders of a majority of the shares of
our common stock present or represented by proxy and voting on
the matter. Failure to vote by proxy either by mail or in person
will have the same effect as a vote AGAINST the
adoption of the merger agreement but will have no effect on the
proposal to adjourn or postpone the meeting. At the request of
Amscan Holdings, Inc., Michael E. Tennenbaum, Tennenbaum Capital
Partners, LLC, Tennenbaum & Co., LLC, Special Value
Bond Fund, LLC, Special Value Absolute Return Fund, LLC and
Special Value Bond Fund II, LLC (collectively
Tennenbaum) have entered into a voting agreement
pursuant to which Tennenbaum has agreed to vote its shares of
Party City common stock FOR adoption of the merger
agreement. As of the record date, such holders represent
approximately 28.0% of the voting power of the Party City common
stock.
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Voting by Proxy (page 16) |
You may vote by proxy by completing, signing, dating and
returning the enclosed proxy card, or by telephone or over the
internet by following the directions on the proxy card. If you
hold your shares through a broker or other nominee, you should
follow the procedures provided by your broker or nominee.
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Revocability of Proxy (page 16) |
You may revoke your proxy at any time before it is voted. If you
have not submitted a proxy through your broker or nominee, you
may revoke your proxy by:
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submitting another properly completed proxy (including by
telephone or over the internet) bearing a later date; |
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giving written notice of revocation to any of the persons named
as proxies or to the Secretary of Party City; or |
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voting in person at the special meeting. |
Simply attending the special meeting will not constitute
revocation of your proxy. If your shares are held in street
name, you should follow the instructions of your broker or
nominee regarding revocation of proxies.
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Structure of the Merger (page 36) |
Upon the terms and subject to the conditions of the merger
agreement, BWP Acquisition, Inc., a wholly owned subsidiary of
Amscan Holdings, Inc., will be merged with and into us. We will
be the surviving corporation. As a result of the merger, we will
cease to be a publicly traded company and will become a wholly
owned subsidiary of Amscan Holdings, Inc. The merger agreement
is attached as Annex A to this proxy statement. Please read
it carefully.
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What You Will Receive in the Merger (page 37) |
Each holder of shares of our common stock (other than shares
held in our treasury, owned by our direct or indirect
subsidiaries and owned by Amscan Holdings, Inc., BWP
Acquisition, Inc. or any other wholly owned subsidiary of Amscan
Holdings, Inc. or BWP Acquisition, Inc. or held by shareholders
who are entitled to and who properly exercise dissenters
rights in compliance with all of the required procedures under
the Delaware General Corporation Law) will be entitled to
receive $17.50 in cash, without interest and less any applicable
withholding taxes, for each share of our common stock held
immediately prior to the merger.
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Party City Stock Options and Warrants
(page 38) |
Prior to the effective time of the merger, the merger agreement
provides that each unexpired and unexercised option, restricted
stock unit or similar rights to purchase shares of Party City
common stock, whether or not then exercisable or vested, shall
become cancelled and the holder of any such cancelled option or
restricted stock unit will be entitled to receive a cash payment
(less any applicable withholding taxes) equal to the product of
(1) the total number of shares of Party City common stock
subject to the option, restricted stock unit or similar right
multiplied by (2) the excess, if any, of $17.50 over the
exercise price per share of Party City common stock under such
option, restricted stock unit or similar right. On and after the
date of the merger agreement, no future offer periods may be
commenced under our employee stock purchase plan, and any
offering period in progress on the date of the merger agreement
shall terminate on the earlier of December 30, 2005 and the
effective time of the merger. Any accumulated contributions that
are required in accordance with the terms of the employee stock
purchase plan to be applied to the purchase of our common stock
must be so applied no later than the effective time of the
merger.
Prior to the effective time of the merger, the merger agreement
provides that Party City will take all necessary actions to
provide that all unexpired and unexercised warrants to purchase
shares of our common stock shall be cancelled. In consideration
for the cancellation, the holders of such warrants will be
entitled to receive a cash payment (less any applicable
withholding taxes) equal to the product of (1) the total
number of shares of common stock subject to the warrant, whether
or not then exercisable, multiplied by (2) the excess, if
any, of $17.50 over the exercise price per share of Party City
common stock subject to the warrant. In addition, the voting
agreement provides that, at the request of Amscan Holdings, Inc.
at any time prior to the record date for the special meeting,
Special Value Bond Fund, LLC, an affiliate of
Tennenbaum & Co., LLC,
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must exercise its warrant in full to
purchase 2,496,000 shares of common stock immediately
prior to the record date. Special Value Bond Fund, LLC exercised
this warrant in full, pursuant to the net exercise provisions of
the warrant, and received 2,332,952 shares of common stock
on November 2, 2005.
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Recommendation to Stockholders (page 20) |
The special committee and our board of directors have determined
that the merger agreement and the merger are advisable and in
the best interests of Party City and its stockholders.
Accordingly, our board of directors has unanimously approved the
merger agreement, the voting agreement and the merger and our
board of directors and the special committee recommend that you
vote FOR the adoption of the merger agreement.
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Opinion of Our Financial Advisor (page 22) |
In connection with the merger, our financial advisor, Credit
Suisse First Boston LLC, delivered a written opinion, dated
September 26, 2005, to the Party City board of directors as
to the fairness, from a financial point of view and as of the
date of such opinion, of the merger consideration. The full text
of Credit Suisse First Bostons written opinion is attached
to this proxy statement as Annex B. We encourage you to
read this opinion carefully in its entirety for a description of
the procedures followed, assumptions made, matters considered
and limitations on the scope of review undertaken. Credit
Suisse First Bostons opinion was provided to the Party
City board of directors in connection with its evaluation of the
merger consideration, does not address any other aspect of the
proposed merger and does not constitute a recommendation to any
stockholder as to how such stockholder should vote or act with
respect to any matters relating to the merger.
Party City and Amscan Holdings, Inc. estimate that the total
amount of funds necessary to consummate the merger and the
related transactions will be approximately $360 million.
These funds will come principally from debt financing arranged
by Amscan Holdings, Inc. and BWP Acquisition, Inc. In addition,
Amscan Holdings, Inc.s parent, AAH Holdings, has obtained
equity commitments of $68.2 million and $34.2 million
from funds affiliated with Berkshire Partners LLC and Weston
Presidio, respectively.
See The Merger Financing beginning on
page 28.
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Voting Agreement (page 34) |
Concurrently with the execution and delivery of the merger
agreement, Amscan Holdings, Inc. and Tennenbaum have entered
into a voting agreement pursuant to which Tennenbaum will vote
all of its shares of common stock that it is entitled to vote in
favor of the merger and the merger agreement. In addition,
Tennenbaum has agreed to vote its shares of common stock against
any competing acquisition proposal. Under the voting agreement,
Tennenbaum has granted to and appointed, until the termination
date of the voting agreement, Amscan Holdings, Inc. (including
its President and Secretary) and any designee of Amscan
Holdings, Inc. its irrevocable proxy and attorney-in-fact (with
full power of substitution) to vote its shares of common stock
in accordance with the voting agreement. In addition, the voting
agreement requires Special Value Bond Fund, LLC, an affiliate of
Tennenbaum & Co., LLC, to exercise in full its warrant
to purchase common stock under certain conditions. Special Value
Bond Fund, LLC exercised this warrant in full, pursuant to the
net exercise provisions of the warrant, and received
2,332,952 shares of common stock on November 2, 2005.
The voting agreement terminates upon the earlier of (i) the
effective time of the merger, (ii) the termination of the
merger agreement or (iii) written notice of termination of
the voting agreement by Amscan Holdings, Inc. to Tennenbaum.
Upon termination of the merger agreement pursuant to certain
conditions, and the subsequent sale or other disposition of
Tennenbaums shares to a third party, Tennenbaum will be
required to pay to Amscan Holdings, Inc. an amount equal to 50%
of any increase in consideration paid to Tennenbaum in respect
of their shares over the amounts that would be otherwise payable
pursuant to the merger agreement. For a full description of the
voting agreement or to review a copy of the voting agreement,
see our Current Report on Form 8-K, and the exhibits
thereto, filed with the Securities and Exchange Commission on
September 27, 2005.
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As of the record date, Tennenbaum beneficially held an aggregate
of 5,537,872 shares of our common stock (excluding
options), representing approximately 28.0% of the votes eligible
to be cast at the special meeting.
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Conditions to the Merger (page 46) |
We and Amscan Holdings, Inc. will not complete the merger unless
a number of conditions are satisfied or waived. These conditions
include:
Conditions to each partys obligations:
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the adoption of the merger agreement by our stockholders; |
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the expiration or termination of the applicable waiting periods
under the Hart-Scott Rodino Antitrust Improvements Act of
1976, as amended, which we refer to as the HSR Act; |
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no statute, rule, regulation, order, decree, judgment,
injunction or arbitration award or finding or other order or
ruling of a governmental entity, court or arbitrator preventing
or prohibiting the consummation of the merger; |
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any consent or approval from each federal and material state and
foreign governmental entity having been obtained where the
failure to do so would constitute a material violation of law or
subject any party to the merger agreement to any material fine
or other materially adverse consequence, provided that this
condition will not apply as a condition to a partys
obligation to close if such partys failure to fulfill its
obligations under the merger agreement is the cause of the
failure to obtain such consent or approval; |
Conditions to our obligations:
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the representations and warranties of Amscan Holdings, Inc. and
BWP Acquisition, Inc. in the merger agreement must be true
and correct at the effective time of the merger (ignoring any
materiality or similar qualifiers), except for failures of such
representations and warranties to be so true and correct which,
individually or in the aggregate, do not have a material adverse
effect on the ability of Amscan Holdings, Inc. or BWP
Acquisition, Inc. to perform their obligations under the merger
agreement or that would not prevent or materially impede,
interfere with, hinder or delay the consummation of the merger; |
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Amscan Holdings, Inc. and BWP Acquisition, Inc. each having
performed or complied in all material respects with all
agreements and covenants required by the merger agreement to be
performed or complied with by it on or prior to the effective
time of the merger; |
Conditions to the obligations of Amscan Holdings, Inc. and
BWP Acquisition, Inc.:
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certain of our representations and warranties in the merger
agreement must be true and correct in all material respects at
the effective time of the merger, certain of our representations
and warranties in the merger agreement must be true and correct
at the effective time of the merger (ignoring any materiality or
similar qualifiers) except where the failure of such
representations and warranties to be true and correct will not
result in fees, costs, charges, losses, expenses or other
amounts attributable to or payable by Amscan Holdings, Inc., BWP
Acquisition, Inc. or the surviving corporation in excess of
certain thresholds, and certain of our representations and
warranties as must be true and correct at the effective time of
the merger (ignoring any materiality or similar qualifiers)
except for the failure of such representations and warranties to
be true and correct which, individually or in the aggregate, do
not result in, and could not reasonably be expected to result
in, a material adverse effect on us; |
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the receipt by the parties to the merger agreement of the
proceeds of the debt financing pursuant to the commitment
letters with respect to the debt financing, or alternate debt
financing in the same amounts and on terms and conditions no
less favorable to Amscan Holdings, Inc. and BWP Acquisition,
Inc. than those included in such debt commitment letters; |
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the absence of any material adverse effect on us since
September 26, 2005; and |
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Party City having performed or complied in all material respects
with all agreements and covenants required by the merger
agreement to be performed or complied with by it on or prior to
the effective time of the merger. |
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No Solicitation (page 43) |
We have agreed that we will not:
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solicit, initiate, propose or knowingly encourage or facilitate
any takeover proposal; |
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enter into any agreement or agreement in principle with respect
to a takeover proposal; or |
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initiate or participate in any way in negotiations or
discussions regarding, or furnish or disclose to any third
person any information with respect to or in connection with any
takeover proposal. |
However, prior to the adoption by the stockholders of the merger
agreement, we would be permitted to respond to a bona fide,
written takeover proposal that is made after the date of the
merger agreement and that did not result from a breach of the no
solicitation provisions of the merger agreement on our part if
our board of directors or the special committee determines in
good faith after consulting with our legal counsel and financial
advisor, that the proposal is or could reasonably be expected to
lead to a superior proposal and if our board of directors or the
special committee determines in good faith after consulting with
our outside legal counsel that it is required to do so to comply
with its fiduciary obligations under applicable law. In such
case, we may:
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furnish information with respect to Party City to the third
party who made the takeover proposal pursuant to a customary
confidentiality agreement no less favorable to us than our
confidentiality agreement with Amscan Holdings, Inc.; provided
that all such information has previously been provided to Amscan
Holdings, Inc. or is provided to Amscan Holdings, Inc. prior to,
or concurrently with, the time it is provided to such third
party; and |
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participate in discussions and negotiations regarding such
takeover proposal. |
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Termination of the Merger Agreement (page 47) |
The merger agreement may be terminated and the merger may be
abandoned at any time prior to the effective time by action
taken or authorized by the board of directors of the terminating
party or parties, notwithstanding any requisite adoption of the
merger agreement by our stockholders, and whether before or
after our stockholders have adopted the merger agreement, as
follows:
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by mutual written consent of BWP Acquisition, Inc. and us; |
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by either Amscan Holdings, Inc. or us if the effective time
shall not have occurred on or before March 31, 2006, unless
the failure to consummate the merger is the result of a breach
of the merger agreement by the party seeking to terminate the
merger agreement, and the conditions relating to the last
termination right described under this section do not apply; |
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by Amscan Holdings, Inc. if our board of directors or the
special committee (1) withdraws, modifies or changes, in a
manner adverse to Amscan Holdings, Inc., its recommendation
concerning the merger, (2) approves, adopts or recommends a
takeover proposal or superior proposal; (3) allows us to
enter into any agreement constituting or relating to, or that is
intended to or would be reasonably expected to result in a
takeover proposal or (4) take a position contemplated by
Rule 14e-2(a) of the Securities Exchange Act of 1934, as
amended, other than recommending rejection of a takeover
proposal. We refer to these events as an adverse
recommendation change; |
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by us if, prior to the special meeting of our stockholders to
approve the merger agreement and the merger, solely in response
to an unsolicited bona fide written takeover proposal from a
third party, our board of directors or the special committee
makes an adverse recommendation change under the following
circumstances: |
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our board of directors or the special committee is required do
so in order to comply with its fiduciary duties to our
stockholders under applicable law; |
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our board of directors or the special committee determines in
good faith (after consultation with its outside legal counsel
and financial advisor) that such takeover proposal is a superior
proposal; |
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we and our board of directors or the special committee are not
otherwise in violation of the takeover proposal section of the
merger agreement; |
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Amscan Holdings, Inc. has been given three business days notice
of our board of directors or the special committees
intention to make such an adverse recommendation change and our
board of directors or the special committee has considered in
good faith any changes to the merger agreement proposed during
such three business day period by Amscan Holdings, Inc. and our
board of directors or the special committee shall not have
determined that the third partys takeover proposal would
no longer constitute a superior proposal if Amscan Holdings,
Inc.s changes were to be given effect; and |
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we pay Amscan Holdings, Inc. a termination fee of
$15 million; |
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by either Amscan Holdings, Inc. or us if the merger agreement
fails to receive stockholder approval; |
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by either Amscan Holdings, Inc., BWP Acquisition, Inc. or us if
any court or governmental entity shall have issued an order,
decree or ruling or taken any other action permanently
enjoining, restraining or otherwise prohibiting the merger and
such order, decree, ruling or other action shall have become
final and nonappealable; |
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by Amscan Holdings, Inc. if (1) any of our representations
and warranties in the merger agreement are or become untrue or
inaccurate, or (2) we breach any of our covenants or
agreements in the merger agreement, and, in either such case, we
cannot satisfy the applicable condition to close and such breach
has not been, or cannot be, cured within the earlier of
30 days after notice to us or March 31, 2006; |
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by us if (1) any of the representations and warranties of
either Amscan Holdings, Inc. or BWP Acquisition, Inc. in the
merger agreement are or become untrue or inaccurate, or
(2) Amscan Holdings, Inc. or BWP Acquisition, Inc. breach
any of their respective covenants or agreements in the merger
agreement, and, in either such case, Amscan Holdings, Inc. or
BWP Acquisition, Inc. cannot satisfy the applicable condition to
close and such breach has not been, or cannot be, cured within
the earlier of 30 days after notice to us or March 31,
2006; |
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by us, if the commitment letters for the debt financing have
been withdrawn or the lenders for such debt financing notify
Amscan Holdings, Inc. that the conditions set forth in such
commitment letters cannot or will not be satisfied, and Amscan
Holdings, Inc. is unable to secure alternate commitments for the
debt financing to the reasonable satisfaction of our board of
directors within thirty calendar days; or |
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by us or Amscan Holdings, Inc., if (1) the closing shall
not have occurred on or before March 31, 2006, (2) we
are not otherwise in breach of the merger agreement, (3) we
have satisfied (or are immediately capable of satisfying) all of
the conditions to closing that we have responsibility to fulfill
and (4) the only condition to closing that cannot be
satisfied is the condition for the consummation of the debt
financing. |
Termination Fees
(page 48)
In specified circumstances, if the merger agreement is
terminated before the effective time of the merger, we must pay
Amscan Holdings, Inc. a termination fee of $15 million. See
The Merger Agreement (Proposal 1)
Termination Fees.
Regulatory Matters
(page 33)
Under the provisions of the HSR Act, we and Amscan Holdings,
Inc. may not complete the merger until we have made certain
filings with the Federal Trade Commission and the United States
Department of Justice and the applicable waiting period has
expired or been terminated. We and Amscan Holdings, Inc. filed
pre-merger notifications with the U.S. antitrust
authorities pursuant to the HSR Act effective October 7,
2005, and the waiting period will expire at 11:59 p.m. on
November 7, 2005, unless lengthened.
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Appraisal Rights
(page 49)
Under Delaware law, if you do not vote for adoption of the
merger agreement and prior to the stockholder vote on the merger
you make a written demand for appraisal of your shares of common
stock and you strictly comply with the other requirements of the
General Corporation Law of the State of Delaware, you may elect
to receive, in cash, the judicially determined fair value of
your shares of stock in lieu of the $17.50 per share merger
consideration. This value could be more or less than or the same
as the cash merger consideration.
To exercise appraisal rights, a holder must demand and perfect
the rights in accordance with Section 262 of the General
Corporation Law of the State of Delaware, the full text of which
is set forth in Annex C to this proxy statement. Your
failure to follow the procedures set forth in Section 262
will result in the loss of your appraisal rights.
Procedures for Receiving
Merger Consideration (page 37)
As soon as practicable after the effective time of the merger,
an exchange agent will mail a letter of transmittal and
instructions to you and the other Party City stockholders. The
letter of transmittal and instructions will tell you how to
surrender your stock certificates in exchange for the merger
consideration. You should not return your stock certificates
with the enclosed proxy card, and you should not forward your
stock certificates to the exchange agent without a letter of
transmittal.
Tax Considerations for Party
City Shareholders (page 33)
Generally, the merger will be a taxable transaction to our
shareholders that are U.S. persons for U.S. federal
income tax purposes. A holder of Party City common stock
receiving cash in the merger in exchange for the holders
shares of Party City common stock generally will recognize gain
or loss for U.S. federal income tax purposes in an amount
equal to the difference, if any, between the amount of cash
received in the merger and the holders adjusted tax basis
in the Party City common stock surrendered. Under
U.S. federal income tax law, a holder may be subject to
information reporting on cash received in the merger unless an
exemption applies. Backup withholding may also apply (currently
at a rate of 28%) with respect to the amount of cash received in
the merger, unless the holder provides proof of an applicable
exemption or a correct taxpayer identification number, and
otherwise complies with the applicable requirements of the
backup withholding rules. Each holder should consult the
holders own tax advisor for a full understanding of how
the merger will affect the holders federal, state and
local taxes. See Material U.S. Federal Income Tax
Consequences.
Market Price of Party City
Stock (page 52)
Our common stock is listed on The Nasdaq National Market
(Nasdaq) under the trading symbol PCTY.
On September 26, 2005, which was the last trading day
before we announced the merger, our common stock closed at
$12.28 per share. On November 4, 2005, which was the
last trading day before this proxy statement was printed, the
Party Citys common stock closed at $16.12 per share.
Interests of Certain Persons
in the Merger (page 29)
Our directors and executive officers have interests in the
merger that may be in addition to, or different from, the
interests of our stockholders.
Some or all of our executive officers may be given an
opportunity to participate in an equity incentive plan following
the effective time of the merger. Participating executive
officers would hold equity interests in AAH Holdings or its
subsidiaries through such plan.
Amscan Holdings, Inc. has agreed that, for a period of six years
following the effective time of the merger, it and the surviving
corporation will indemnify and hold harmless our current and
former directors and officers on the date of the merger
agreement for acts or omissions occurring at or prior to the
effective time of the merger to the same extent that we
indemnified such directors and officers (as of the effective
time of the merger agreement). However, Amscan Holdings, Inc.
will only indemnify and hold harmless such directors
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and officers for acts or omissions occurring in connection with
the approval of the merger agreement and consummation of the
transactions contemplated thereby to the extent permitted by law.
Amscan Holdings, Inc. has also agreed to cause the surviving
corporation to maintain in effect for a period of six years
following the effective time of the merger, an insurance and
indemnification policy for our current directors and officers
covering events occurring prior to the effective time of the
merger that is no less favorable in the aggregate than our
policy in effect on the date of the merger agreement or, if such
coverage is not available, the best coverage available. However,
the surviving corporation is not required to pay annual premiums
for such policies in excess of 200% of the last annual payment
that we made for our current policy prior to the date of the
merger agreement. The preceding requirements may be satisfied by
prepaid policies obtained prior to the effective time of the
merger.
QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE
MERGER
The following questions and answers are provided for your
convenience, and briefly address some commonly asked questions
about the proposed merger and the Party City special meeting of
stockholders. You should still carefully read this entire proxy
statement, including each of the annexes.
The Special Meeting
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Q: |
Why am I receiving these materials? |
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A: |
You are receiving this proxy statement and proxy card because
you own shares of common stock, par value $0.01 per share,
of Party City Corporation (common stock). Our board
of directors is providing these materials to give you
information for use in determining how to vote in connection
with the special meeting of shareholders. |
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When and where is the special meeting? |
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A: |
The special meeting of shareholders will be held at
1:00 p.m., local time, on December 7, 2005 at the
Sheraton Parsippany, 199 Smith Road, Parsippany, NJ 07054. |
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Q: |
Who is soliciting my proxy? |
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This proxy is being solicited by our board of directors. |
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What matters will be voted on at the special meeting? |
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You will be asked to vote on the following proposals: |
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to adopt the merger agreement, which provides for the merger of
BWP Acquisition, Inc. with and into Party City with Party City
continuing as the surviving corporation in the merger, and the
conversion of each outstanding share of common stock of Party
City (other than shares held (i) as treasury shares or by
any subsidiary of Party City, (ii) by Amscan Holdings,
Inc., BWP Acquisition, Inc. or any subsidiary of BWP
Acquisition, Inc. or (iii) by shareholders who are entitled
to and who properly exercise dissenters rights in
compliance with all of the required procedures under the
Delaware General Corporation Law) into the right to receive
$17.50 in cash, without interest; |
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to approve the adjournment or postponement of the meeting, if
necessary, to permit the further solicitation of proxies if
there are not sufficient votes at the time of the meeting to
adopt the merger agreement; and |
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to act on other matters and transact such other business, as may
properly come before the meeting. |
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Q: |
How do the special committee and Party Citys board of
directors recommend that I vote on the proposals? |
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A: |
The special committee and our board of directors each recommend
that you vote: |
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FOR the proposal to adopt the merger
agreement; and |
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FOR the adjournment or postponement of the meeting,
if necessary, to permit the further solicitation of proxies. |
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Q: |
What vote is required for Party Citys stockholders to
adopt the merger agreement? |
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A: |
To adopt the merger agreement, holders of a majority of the
outstanding shares of our common stock must vote FOR
adoption of the merger agreement. At the request of Amscan
Holdings, Inc., Michael E. Tennenbaum, Tennenbaum Capital
Partners, LLC, Tennenbaum & Co., LLC, Special Value
Bond Fund, LLC, Special Value Absolute Return Fund, LLC and
Special Value Bond Fund II, LLC and their affiliates who
hold shares of Party City common stock have entered into a
voting agreement pursuant to which they have agreed to vote
their shares of Party City common stock FOR adoption
of the merger agreement. |
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What vote is required for Party Citys stockholders to
approve the proposal to adjourn or postpone the special meeting,
if necessary, to permit the further solicitation of proxies? |
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A: |
The proposal to adjourn or postpone the meeting, if necessary,
to permit the further solicitation of proxies requires the
affirmative vote of the holders of a majority of the shares of
our common stock present or represented by proxy and voting on
the matter. |
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Q: |
Who is entitled to vote at the special meeting? |
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A: |
Holders of record of our common stock as of the close of
business on November 2, 2005, the record date for the
special meeting, are entitled to receive notice of and to vote
at the special meeting. On the record date,
19,796,956 shares of our common stock, held by
approximately 361 holders of record, were outstanding and
entitled to vote. You may vote all shares you owned as of the
record date. You are entitled to one vote per share. |
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Q: |
What should I do now? |
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A: |
After carefully reading and considering the information
contained in this proxy statement, please vote your shares by
completing, signing, dating and returning the enclosed proxy
card, or by telephone or over the internet. You can also attend
the special meeting and vote in person. Do NOT enclose or return
your stock certificate(s) with your proxy. |
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Q: |
If my shares are held in street name by my
broker, will my broker vote my shares for me? |
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A: |
Your broker will only be permitted to vote your shares on the
adoption of the merger agreement if you instruct your broker how
to vote. You should follow the procedures provided by your
broker regarding the voting of your shares. If you do not
instruct your broker to vote your shares on the adoption of the
merger agreement or the proposal to solicit additional proxies,
if necessary, to adopt the merger agreement, your shares will
not be voted. |
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Q: |
How do I vote my shares of Party City common stock? |
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A: |
Before you vote, you should carefully read and consider the
information contained in or incorporated by reference in this
proxy statement, including the appendices. You should also
determine whether you hold your shares of Party City common
stock directly in your name as a registered shareholder or
through a broker or other nominee because this will determine
the procedure that you must follow in order to vote. If you are
a registered holder of Party City common stock (that is, if you
hold your Party City common stock in certificate form), you may
vote in any of the following ways: |
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by mail complete, sign and date the enclosed proxy
card and return it in the enclosed postage-prepaid envelope as
soon as possible; |
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by telephone or over the internet follow the
instructions included with your proxy card. The deadline for
voting by telephone or over the internet is 11:59 p.m., New
York City time on December 6, 2005; or |
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in person at the special meeting. |
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Even if you plan to attend the special meeting in person,
however, we request that you complete, sign and date the
enclosed proxy card and return it in the enclosed
postage-prepaid envelope as soon as possible to be sure your
shares will be represented at the special meeting if you are
unable to attend. This action will not limit your right to vote
in person if you attend the special meeting. |
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Q: |
How are votes counted? |
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A: |
For the proposal to adopt the merger agreement, you may
vote FOR, AGAINST or ABSTAIN. Abstentions will not be
counted as votes cast or shares voting on the proposal to adopt
the merger agreement, but will count for the purpose of
determining whether a quorum is present. If you abstain, it will
have the same effect as if you vote against the adoption of the
merger agreement. In addition, if your shares are held in the
name of a broker or other nominee, your broker or other nominee
will not be entitled to vote your shares in the absence of
specific instructions. These non-voted shares, or broker
non-votes, will be counted for purposes of determining a quorum,
but will have the effect of a vote against the adoption of the
merger agreement. |
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For the proposal to adjourn or postpone the meeting, if
necessary, to permit the further solicitation of proxies, you
may vote FOR, AGAINST or ABSTAIN. Although abstentions and
broker non-votes will count for the purpose of determining
whether a quorum is present, abstentions and broker non-votes
will not count as votes cast or shares voting on the proposal to
adjourn or postpone the meeting. As a result, abstentions and
broker non-votes will have no effect on the vote to adjourn or
postpone the meeting, which requires the vote of the holders of
a majority of the shares present or represented by proxy and
voting on the matter. |
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If you sign your proxy card without indicating your vote, your
shares will be voted FOR the adoption of the merger
agreement and FOR adjournment or postponement of the
meeting, if necessary, to permit the further solicitation of
proxies, and in accordance with the recommendations of our board
of directors on any other matters properly brought before the
meeting for a vote. |
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Q: |
When should I send in my proxy card? |
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A: |
You should send in your proxy card as soon as possible so that
your shares will be voted at the special meeting. |
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Q: |
May I change my vote after I have mailed my signed proxy
card? |
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A: |
Yes. You may change your vote at any time before your proxy is
voted at the special meeting. You can do this in one of three
ways. First, you can send a written, dated notice to the
Secretary of Party City stating that you would like to revoke
your proxy. Second, you can complete, date and submit a new
proxy card by mail, by telephone or over the internet. Third,
you can attend the meeting and vote in person. Your attendance
alone will not revoke your proxy. If you have instructed a
broker to vote your shares, the procedures for changing your
vote described above will not apply, and you must instead follow
the directions received from your broker to change those
instructions. |
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May I vote in person? |
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A: |
Yes. You may attend the special meeting of stockholders and vote
your shares of common stock in person. If you hold shares in
street name, you must provide a legal proxy executed
by your bank or broker in order to vote your shares at the
meeting. |
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Q: |
What does it mean if I receive more than one set of
materials? |
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A: |
This means you own shares of Party City common stock that are
registered under different names. For example, you may own some
shares directly as a shareholder of record and other shares
through a broker or you may own shares through more than one
broker. In these situations, you will receive multiple sets of
proxy materials. You must complete, sign, date and return all of
the proxy cards or follow the instructions for any alternative
voting procedure on each of the proxy cards that you receive in
order to vote all of the shares you own. Each proxy card you
receive comes with its own prepaid return envelope; if you vote
by mail, make sure you return each proxy card in the return
envelope that accompanies that proxy card. |
The Merger
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Q: |
What is the proposed transaction? |
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A: |
The proposed transaction is the acquisition of Party City by
Amscan Holdings, Inc., a Delaware corporation whose indirect
owners currently consist of investment funds affiliated with
Berkshire Partners LLC and Weston Presidio, pursuant to an
agreement and plan of merger, dated as of September 26,
2005, as amended, among us, Amscan Holdings, Inc. and BWP
Acquisition, Inc. Amscan Holdings, Inc. will acquire us by
merging BWP Acquisition, Inc. with and into us. We will be the
surviving corporation. If the proposed transaction is completed,
we will cease to be a publicly traded company and will instead
become a wholly owned subsidiary of Amscan Holdings, Inc. |
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Q: |
If the merger is completed, what will I be entitled to
receive for my shares of Party City common stock and when will I
receive it? |
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A: |
You will be entitled to receive $17.50 in cash, without interest
and less any applicable withholding taxes, for each share of our
common stock that you own. |
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After the merger closes, we will arrange for a letter of
transmittal to be sent to each of our stockholders. The merger
consideration will be paid to each stockholder once that
stockholder submits the letter of transmittal, properly endorsed
stock certificates and any other required documentation. |
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Prior to the effective time of the merger, the merger agreement
provides that each unexpired and unexercised option, warrant,
restricted stock unit or similar rights to purchase shares of
Party City common stock, whether or not then exercisable or
vested, shall become cancelled and the holder of any such
cancelled option, warrant or restricted stock unit will be
entitled to receive a cash payment (less any applicable
withholding taxes) equal to the product of (1) the total
number of shares of Party City common stock subject to the
option, warrant, restricted stock unit or similar right
multiplied by (2) the excess, if any, of $17.50 over the
exercise price per share of Party City common stock under such
option, warrant, restricted stock unit or similar right. |
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Q: |
Am I entitled to appraisal rights? |
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A: |
Under the General Corporation Law of the State of Delaware,
holders of Party City common stock who do not vote in favor of
adopting the merger agreement will have the right to seek
appraisal of the fair value of their shares as determined by the
Delaware Court of Chancery if the merger is completed, but only
if they submit a written demand for an appraisal prior to the
vote on the adoption of the merger agreement at the special
meeting and they comply with the Delaware law procedures and
requirements, which are summarized in this proxy statement. This
appraisal amount could be more than, the same as, or less than
the amount a stockholder would be entitled to receive under the
terms of the merger agreement. For additional information about
appraisal rights, see Appraisal Rights beginning on
page 49 of this proxy statement. |
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Q: |
Why are the special committee and the Party City board of
directors recommending the merger? |
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A: |
The special committee and our board of directors believe that
the merger and the merger agreement and the voting agreement are
advisable and in the best interests of Party City and its
stockholders and unanimously recommend that you vote
FOR the adoption of the merger agreement. To review
their |
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reasons for recommending the merger, see the section entitled
The Merger Reasons for the Merger and
Recommendation of the Special Committee and the Board of
Directors on pages 20 through 22 of this proxy
statement. |
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Why was a special committee established? |
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A: |
A special committee of the board of directors was established by
the Party City board of directors for the purpose of reviewing,
evaluating and, as appropriate, negotiating a possible
transaction relating a the sale of, or business combination
involving Party City. The special committee is comprised of
three independent and disinterested directors. A disinterested
director was determined to be a director would have no interest
in any sale transaction different than the interests of the
unaffiliated Party City shareholders (except with respect to the
acceleration of vesting of options to acquire Party City common
stock received by all directors). |
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Q: |
Is the merger subject to the satisfaction of any
conditions? |
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A: |
Yes. Before the completion of the transactions contemplated by
the merger agreement, a number of closing conditions must be
satisfied or waived. These conditions are described in this
proxy statement under The Merger Agreement
(Proposal 1) Conditions to the Merger
beginning on page 46. These conditions include, among
others, obtaining all necessary regulatory approvals to complete
the merger, obtaining shareholder and other necessary consents
and approvals and Amscan Holdings, Inc.s receipt of debt
financing to complete the merger. If these conditions are not
satisfied or waived, the merger will not be completed even if
shareholders vote to approve the merger agreement. |
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Q: |
Will the merger be a taxable transaction to me? |
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A: |
Yes. The receipt of cash for shares of Party City common stock
pursuant to the merger will be a taxable transaction for
U.S. federal income tax purposes. In general, you will
recognize gain or loss equal to the difference between the
amount of cash you receive and the adjusted tax basis of your
shares of our common stock. See the section entitled
Material U.S. Federal Income Tax Consequences
on pages 33 through 35 of this proxy statement for a more
detailed explanation of the tax consequences of the merger. You
should consult your tax advisor on how specific tax consequences
of the merger apply to you. |
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Q: |
When is the merger expected to be completed? |
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A: |
We are working to complete the merger as quickly as possible. We
currently expect to complete the merger promptly after the
special meeting and after all the conditions to the merger are
satisfied or waived, including stockholder adoption of the
merger agreement at the special meeting and expiration or
termination of the waiting period under U.S. antitrust law.
We and Amscan Holdings, Inc. filed pre-merger notifications with
the U.S. antitrust authorities pursuant to the HSR Act,
effective October 7, 2005, and the waiting period will
expire at 11:59 p.m. on November 7, 2005, unless lengthened. |
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Q: |
Should I send in my Party City stock certificates now? |
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A: |
No. After the merger is completed, the exchange agent will
send you written instructions for exchanging your Party City
stock certificates for cash. You must return your Party City
stock certificates as described in the instructions. You will
receive your cash payment as soon as practicable after our
exchange agent receives your Party City stock certificates and
any completed documents required in the instructions. PLEASE
DO NOT SEND IN YOUR PARTY CITY STOCK CERTIFICATES NOW. |
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Q: |
What should I do if I have questions? |
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A: |
If you have more questions about the special meeting, the merger
or this proxy statement, or would like additional copies of this
proxy statement or the proxy card, you should contact D.F.
King & Co., Inc., our proxy solicitor, toll-free at
1-888-628-1041. |
13
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement, and the documents to which we refer you in
this proxy statement, contain forward-looking statements about
our plans, objectives, expectations and intentions.
Forward-looking statements include information concerning
possible or assumed future results of operations of our company,
the expected completion and timing of the merger and other
information relating to the merger. You can identify these
statements by words such as expect,
anticipate, intend, could,
should, target, plan,
believe, seek, estimate,
may, will and continue or
similar words. You should read statements that contain these
words carefully. They discuss our future expectations or state
other forward-looking information, and may involve known and
unknown risks over which we have no control, including, without
limitation:
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our ability to satisfy the conditions to complete the merger; |
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the ability to consummate the proposed transaction due to the
failure to obtain stockholder approval; |
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the failure to consummate the necessary financing arrangements
set forth in a commitment letter received by Amscan Holdings,
Inc. and BWP Acquisition, Inc. or the failure to satisfy other
conditions to the closing of the proposed transaction; |
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the actual terms of financing that must be obtained for
completion of the merger; |
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the ability to recognize the benefits of the transaction; |
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intense competition in Party Citys industry; |
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changes in government regulation; |
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receipt of necessary approvals under applicable antitrust laws
and other relevant regulatory authorities; |
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the occurrence of any event, change or other circumstance that
could give rise to the termination of the merger agreement; |
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the outcome of any legal proceeding that has been or may be
instituted against us and others following the announcement of
the merger agreement; |
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the amount of the costs, fees, expenses and charges related to
the merger; |
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general economic and market conditions, including changes in
consumer spending patterns; |
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the effect of war, political unrest, terrorism or catastrophic
events; |
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the effect of the announcement of the merger on our client
relationships, operating results and business generally,
including the ability to retain and attract key employees; |
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the failure of the merger to close for any other reason; |
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failure to manage the integration of acquired companies; and |
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other factors described in Party Citys annual report on
Form 10-K for the year ended July 2, 2005 filed with
the Securities and Exchange Commission, which we refer to as the
SEC. |
See Where You Can Find More Information on
page 59. You should not place undue reliance on
forward-looking statements. We cannot guarantee any future
results, levels of activity, performance or achievements. The
statements made in this proxy statement represent our views as
of the date of this proxy statement, and you should not assume
that the statements made herein remain accurate as of any future
date. Moreover, we assume no obligation to update
forward-looking statements or update the reasons actual results
could differ materially from those anticipated in
forward-looking statements, except as required by law.
14
THE SPECIAL MEETING OF PARTY CITY STOCKHOLDERS
We are furnishing this proxy statement to you, as a stockholder
of Party City, as part of the solicitation of proxies by our
board of directors for use at the special meeting of
stockholders.
Date, Time, Place and Purpose of the Special Meeting
This proxy statement is being furnished to our stockholders in
connection with the solicitation of proxies by our board of
directors for use at the special meeting to be held on
December 7, 2005, beginning at 1:00 p.m. local time at
the Sheraton Parsippany, 199 Smith Road, Parsippany, NJ
07054. The purpose of the special meeting is:
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to consider and vote on a proposal to adopt the Agreement and
Plan of Merger, dated as of September 26, 2005, as amended,
by and among Amscan Holdings, Inc., BWP Acquisition, Inc.
and Party City Corporation, which provides for the merger of
BWP Acquisition, Inc., a wholly-owned subsidiary of Amscan
Holdings, Inc., with and into Party City Corporation, with Party
City Corporation continuing as the surviving corporation in the
merger, and the conversion of each outstanding share of common
stock of Party City Corporation (other than shares held
(i) as treasury shares or by any subsidiary of Party City
Corporation or (ii) by Amscan Holdings, Inc.,
BWP Acquisition, Inc. or any subsidiary of
BWP Acquisition, Inc.) into the right to receive $17.50 in
cash, without interest; |
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to approve the adjournment or postponement of the special
meeting, if necessary or appropriate, to solicit additional
proxies if there are insufficient votes at the time of the
meeting to adopt the merger agreement; and |
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to transact such other business as may properly come before the
special meeting or any adjournment or postponement thereof,
including any procedural matters incident to the conduct of the
special meeting. |
The special committee and our board of directors have, by
unanimous votes, determined that the merger agreement and the
merger are advisable and in the best interests of Party City and
its stockholders and have approved the merger agreement and the
merger. The special committee and our board of directors
unanimously recommend that our stockholders vote FOR
adoption of the merger agreement.
Record Date; Quorum
The holders of record of shares of our common stock as of the
close of business on November 2, 2005, which is the record
date for the special meeting, are entitled to receive notice of
and to vote at the special meeting.
On the record date, there were 19,796,956 shares of our
common stock outstanding held by approximately 361 stockholders
of record. Holders of a majority of the shares of our common
stock issued and outstanding as of the record date must be
present in person or represented by proxy at the special meeting
to constitute a quorum to transact business at the special
meeting. Both abstentions and broker non-votes will
be counted as present for purposes of determining the existence
of a quorum. In the event that a quorum is not present at the
special meeting, we currently expect that we will adjourn or
postpone the meeting to solicit additional proxies.
Vote Required
Adoption of the merger agreement requires the affirmative vote
of the holders of a majority of the shares of our common stock
outstanding on the record date and entitled to vote. The
proposal to adjourn or postpone the meeting, if necessary or
appropriate, to permit the further solicitation of proxies
requires the affirmative vote of the holders of a majority of
the shares of our common stock present or represented by proxy
at the special meeting and voting on the matter. At the request
of Amscan Holdings, Inc., Tennenbaum and their affiliates who
hold shares of Party City common stock have entered into a
voting agreement pursuant to which they have agreed to vote
their shares of Party City common stock FOR adoption
of the merger agreement.
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Each holder of a share of our common stock is entitled to one
vote per share. Failure to vote your proxy (by returning a
properly executed proxy card or by telephone or over the
internet) or to vote in person will not count as votes cast or
shares voting on the proposals. Abstentions, however, will count
for the purpose of determining whether a quorum is present. If
you abstain, it has the same effect as a vote
AGAINST the adoption of the merger agreement, but
will have no effect on the vote to adjourn or postpone the
meeting, which requires the vote of the holders of a majority of
the shares present or represented by proxy at the special
meeting and voting on the matter.
Brokers or other nominees who hold shares of our common stock in
street name for customers who are the beneficial
owners of such shares may not give a proxy to vote those
customers shares in the absence of specific instructions
from those customers. These non-voted shares of our common
stock, or broker non-votes, will be counted for the purpose of
determining whether a quorum is present, but will not be counted
as votes cast or shares voting. Accordingly, broker non-votes
will have the same effect as votes AGAINST adoption
of the merger agreement, but will not affect the outcome of the
vote to adjourn or postpone the meeting to solicit additional
proxies.
Voting by Directors and Executive Officers
As of November 2, 2005, the record date for the special
meeting, the directors and executive officers of Party City,
held and are entitled to vote, in the aggregate,
5,816,364 shares of our common stock (excluding options),
representing approximately 29.4% of the outstanding shares of
our common stock. Tennenbaum and their affiliates who hold
shares of Party City common stock have entered into a voting
agreement with Amscan Holdings, Inc., pursuant to which they
have agreed to vote their shares of Party City common stock
FOR adoption of the merger agreement.
Voting
Stockholders may vote their shares by attending the special
meeting and voting their shares of our common stock in person,
or by completing the enclosed proxy card, signing and dating it
and mailing it in the enclosed postage-prepaid envelope, or by
telephone or over the internet by following the instructions on
the proxy card. All shares of our common stock represented by
properly executed proxies received in time for the special
meeting will be voted at the special meeting in the manner
specified by the holder. If a written proxy card is signed by a
stockholder and returned without instructions, the shares of our
common stock represented by the proxy will be voted
FOR the adoption of the merger agreement and
FOR adjournment or postponement of the meeting, if
necessary, to permit the further solicitation of proxies, and in
accordance with the recommendations of our board of directors on
any other matters properly brought before the meeting for a vote.
Stockholders who have questions or requests for assistance in
completing and submitting proxy cards should contact D.F.
King & Co., Inc., our proxy solicitor, toll-free at
1-888-628-1041.
Stockholders who hold their shares of Party City common stock in
street name, meaning in the name of a bank, broker
or other person who is the record holder, must either direct the
record holder of their shares of our common stock how to vote
their shares or obtain a proxy from the record holder to vote
their shares at the special meeting.
Revocability of Proxies
You can revoke your proxy at any time before it is voted at the
special meeting by:
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submitting another properly completed proxy (including by
telephone or over the internet) bearing a later date; |
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giving written notice of revocation to any of the persons named
as proxies or to the Secretary of Party City; or |
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voting in person at the special meeting. |
If your shares of our common stock are held in the name of a
bank, broker, trustee or other holder of record, you must follow
the instructions of your broker or other holder of record to
revoke a previously given proxy.
Solicitation of Proxies
In addition to solicitation by mail, our directors, officers and
employees may solicit proxies by telephone, other electronic
means, including facsimile, or in person. These people will not
receive any additional compensation for their services, but we
will reimburse them for their out-of-pocket expenses. We will
reimburse banks, brokers, nominees, custodians and fiduciaries
for their reasonable expenses in forwarding copies of this proxy
statement to the beneficial owners of shares of our common stock
and in obtaining voting instructions from those owners.
We have retained D.F. King & Co., Inc. to assist in the
solicitation of proxies by mail, telephone or other electronic
means, or in person, for a fee of $7,500 plus expenses relating
to the solicitation.
Other Business
We are not currently aware of any business to be acted upon at
the special meeting other than the matters discussed in this
proxy statement. Under our bylaws, business transacted at the
special meeting is limited to matters relating to the purposes
stated in the notice of special meeting, which is provided at
the beginning of this proxy statement. If other matters do
properly come before the special meeting, or at any adjournment
or postponement of the special meeting, we intend that shares of
our common stock represented by properly submitted proxies will
be voted by and at the discretion of the persons named as
proxies on the proxy card. In addition, the grant of a proxy
will confer discretionary authority on the persons named as
proxies on the proxy card to vote in accordance with their best
judgment on procedural matters incident to the conduct of the
special meeting, such as a motion to adjourn in the absence of a
quorum or a motion to adjourn for other reasons, including to
solicit additional votes in favor of adoption of the merger
agreement.
Adjournments and Postponements
Although it is not currently expected, the special meeting may
be adjourned or postponed for the purpose of soliciting
additional proxies. If the special meeting is adjourned to a
different place, date or time, Party City need not give notice
of the new place, date or time if the new place, date or time is
announced at the meeting before adjournment or postponement,
unless a new record date is or must be set for the adjourned
meeting. Our board of directors must fix a new record date if
the meeting is adjourned to a date more than 30 days after
the date fixed for the original meeting. Any adjournment or
postponement of the special meeting for the purpose of
soliciting additional proxies will allow Party Citys
shareholders who have already sent in their proxies to revoke
them at any time prior to their use at the special meeting as
adjourned or postponed.
Attending the Special Meeting
In order to attend the special meeting in person, you must be a
shareholder of record on the record date, hold a valid proxy
from a record holder or be an invited guest of Party City. You
will be asked to provide proper identification at the
registration desk on the day of the meeting or any adjournment
or postponement of the meeting.
17
THE MERGER
This discussion of the merger is qualified by reference to
the merger agreement, which is attached to this proxy statement
as Annex A. You should read the entire merger agreement
carefully as it is the legal document that governs the
merger.
Background of the Merger
During the last calendar quarter of 2004, at the request of AAH
Holdings, certain members of our board of directors met with
representatives of AAH Holdings and discussed if there was a
mutual interest in considering a transaction, including a
merger, between Party City and AAH Holdings. Party City was
familiar with AAH Holdings since Amscan, Inc., a subsidiary of
AAH Holdings, supplies party products to Party City. At such
time, our board determined a transaction may be advisable if the
consideration to be received in such transaction resulted in a
significant premium over the then closing price of our common
stock. In January 2005, AAH Holdings entered into a
non-disclosure agreement with Party City and received limited
diligence materials with respect to us. During the first
calendar quarter of 2005, Party City received another
unsolicited strategic inquiry. At a meeting of our board of
directors on March 24, 2005, these inquiries were discussed
and since Party City had received two unsolicited strategic
inquiries, our board of directors unanimously approved forming a
special committee of the board of directors, comprised solely of
independent directors Walter Salmon, L.R. Jalenak and Franklin
Johnson, to evaluate strategic alternatives. At the same
meeting, the board also authorized the special committee to
select and work with legal and financial advisors in connection
with Party Citys evaluation of strategic alternatives. The
special committee subsequently approved retaining
Latham & Watkins LLP as Party Citys legal counsel
and Credit Suisse First Boston LLC as Party Citys
financial advisor.
During the months of May and June 2005, in accordance with
special committees instructions, our financial advisor
contacted third parties to solicit their interest in a possible
transaction with Party City. Approximately 71 parties, including
private equity firms and potential strategic buyers, were
contacted, including AAH Holdings.
During the weeks of June 27 through July 19, 2005, 28
parties, including AAH Holdings, executed non-disclosure
agreements with Party City and were sent a confidential
information memorandum and public information packages
concerning Party City. On August 3, 2005, four parties
submitted preliminary indications of interest in acquiring Party
City, but these indications of interest did not include an
indication of interest from the other party that contacted Party
City in the first calendar quarter of 2005 regarding a strategic
inquiry. The indications of interest ranged from $13.00 to
$16.50 per share, in cash, and included several conditions,
including the completion of due diligence and the ability to
obtain financing for the aggregate purchase consideration. The
indications of interest included an indication of interest from
AAH Holdings, which submitted a preliminary indication of
interest for between $15.00 and $16.00 per share, in cash.
The range of this indication of interest was subject to similar
considerations to the other indications of interest.
At a meeting of our board of directors on August 5, 2005,
with our legal and financial advisors in attendance, our board
discussed the solicitation process conducted to date and the
indications of interest that had been received. Our board agreed
that follow-up meetings should be scheduled between each of the
parties that submitted an indication of interest, on one hand,
and Party Citys management, on the other hand, to provide
bidders with additional information concerning Party City. These
meetings were initially scheduled to take place in September
2005.
On August 8, 2005, Party City received a revised proposal
from AAH Holdings. AAH Holdings revised proposal reflected
a purchase price for Party City of $18.00 per share in
cash. AAH Holdings indicated that this substantially higher
offer would only be available if Party City granted AAH Holdings
an exclusive period to conduct due diligence and negotiate a
definitive purchase agreement. AAH Holdings indication of
interest was the highest per share dollar amount offered for
Party City.
A meeting of our board of directors was held on August 9,
2005, with our legal and financial advisors in attendance. At
this meeting, the board was informed of AAH Holdings
revised proposal and request for an exclusive due diligence
review period to confirm its proposal. Given that AAH
Holdings proposal was, in the view of our board and
special committee, the highest per share dollar amount and
better in terms of AAH
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Holdings willingness to proceed quickly with respect to
due diligence and negotiation of a definitive purchase agreement
than the other indications of interest received, our board
authorized our legal counsel to negotiate a limited exclusivity
agreement, subject to certain parameters, with AAH
Holdings representatives.
On August 10, 2005, Party City executed an exclusivity
agreement with AAH Holdings whereby AAH Holdings was granted an
exclusive period, expiring on August 25, 2005, to conduct
additional due diligence in order to confirm its $18.00 per
share offer price. Therefore, at this time, since AAH
Holdings revised proposal was conditioned upon grant of
this exclusive period, any discussions, including seeking higher
indications of interest, with the other parties that submitted
indications of interest were suspended.
On August 16 through August 18, 2005, representatives
of AAH Holdings met with our management. Concurrently, AAH
Holdings advisors, including Ropes & Gray LLP,
conducted additional due diligence on Party City. A draft merger
agreement prepared by our legal counsel was sent to AAH Holdings
on August 18, 2005.
On August 25, 2005, AAH Holdings submitted a revised
written proposal to Party City. As part of its revised proposal,
AAH Holdings submitted a proposed revised draft merger agreement
and delivered commitment letters from a third party lender to
provide the debt financing necessary for the merger. AAH
Holdings proposal was conditioned on completion of its
remaining due diligence review of Party City. Additionally, the
proposal contemplated that (i) Tennenbaum Capital Partners,
LLC and its affiliates would execute a voting agreement
agreeing, among other things, to vote their shares in favor of
the merger and (ii) AAH Holdings would be granted an
additional exclusivity period to conduct its due diligence
review and negotiations.
On August 26, 2005, our board of directors and the special
committee met jointly, with our legal and financial advisors in
attendance, to discuss the revised proposal from AAH Holdings.
Our board discussed seeking a termination fee from AAH Holdings
payable to Party City under certain circumstances, upon
termination of the merger agreement. The board and the special
committee also discussed Party Citys response to certain
matters pertaining to the financing and commitment letters
obtained by AAH Holdings, and, in particular, certain due
diligence conditions and conditions to closing that the board
and the special committee determined to negotiate further in an
effort to narrow such conditions. To that end, the board
instructed our financial advisor to discuss with AAH Holdings
the additional due diligence it would require, with a goal of
narrowing the scope of such diligence requirement as much as
possible. The board and the special committee also instructed
our legal and financial advisors to negotiate terms and
conditions in AAH Holdings commitment letters with respect
to the debt financing for the merger consideration that would be
more favorable to Party City. The board and the special
committee thereafter approved the extension of the exclusivity
period for AAH Holdings to conduct its due diligence and
negotiations to September 16, 2005.
Negotiations with AAH Holdings concerning the matters identified
by our board and the special committee at their joint
August 26th meeting occurred between August 26,
2005 and August 28, 2005. On August 29, 2005, AAH
Holdings submitted a further revised written proposal to reflect
certain points that had been agreed to as a result of those
negotiations, including a provision whereby, in the event of a
termination of the merger agreement under certain circumstances,
AAH Holdings would pay Party City a termination fee equal to 5%
of the annual system-wide sales of products from certain
affiliates of AAH Holdings to Party City for a three-year
period. Again, AAH Holdings proposal was conditioned on
completion of its remaining due diligence review of Party City.
Our legal counsel, Latham & Watkins, and AAH
Holdings legal counsel, Ropes & Gray, discussed
technical changes to AAH Holdings proposal on
August 30 and August 31, 2005. On August 31,
2005, Party City and AAH Holdings executed a revised exclusivity
agreement pursuant to which AAH Holdings was granted an
exclusive period until September 16, 2005 to finalize its
due diligence and negotiations. Subsequently, the scheduled
meetings between each of the other parties that submitted an
indication of interest, on one hand, and Party Citys
Management, on the other hand, were canceled.
From August 31, 2005 through September 16, 2005,
representatives of the special committee and AAH Holdings
negotiated the terms and conditions, and exchanged drafts, of
the merger agreement.
On September 16, 2005, our board and the special committee
met jointly, with our legal and financial advisors in
attendance, to discuss the status of negotiations with respect
to the proposed transaction. At this
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meeting, Latham & Watkins reviewed with the board and
the special committee certain terms of the proposed merger
agreement then under negotiation. Given the continued progress
of negotiations with AAH Holdings, the board and the special
committee agreed to extend the exclusivity period with AAH
Holdings to 6:00 p.m., New York City time, on
September 22, 2005.
On September 21, 2005, our board and the special committee
met jointly again with our legal and financial advisors to
discuss the status of negotiations with respect to the proposed
transaction. At this meeting, our legal counsel reviewed with
the board and the special committee material terms of the merger
agreement and our financial advisor reviewed with the board and
the special committee financial aspects of the proposed merger.
On September 23, 2005, AAH Holdings informed our financial
advisor that, based on its completion of its financial and legal
due diligence review of Party City and the transaction
documents, it had reduced its offer price to $17.25 in cash per
share. The reduction in price was not attributable to operations
of the business, but was principally due to the review by AAH
Holdings of information that had not been disclosed earlier in
the due diligence process given its confidential nature.
On September 25, 2005, our board and the special committee
met jointly with our legal and financial advisors to discuss AAH
Holdings revised offer price. The board and the special
committee rejected the $17.25 offer price and instructed our
financial advisor to so inform AAH Holdings. The board and the
special committee instructed our financial advisor to continue
to negotiate with AAH Holdings in order to seek better terms for
the proposed merger.
On September 26, 2005, after further negotiations with AAH
Holdings, AAH Holdings offered a purchase price of $17.50 in
cash per share. In the evening of September 26, 2005, our
board and the special committee met again with Latham &
Watkins and Credit Suisse First Boston to discuss the final
proposed terms of the merger. At this meeting, Latham &
Watkins reviewed with the board material terms of the merger
agreement. Also at this meeting, Credit Suisse First Boston
reviewed with the board its financial analysis of the merger
consideration and rendered to the board an oral opinion,
confirmed by delivery of a written opinion dated the same date,
to the effect that, as of that date and based on and subject to
various matters described in its opinion, the per share merger
consideration of $17.50 in cash was fair, from a financial point
of view, to holders of Party City common stock, other than
Tennenbaum & Co., LLC and its affiliates. After full
discussion, our board and the special committee unanimously
determined that the merger, the merger agreement and the voting
agreement were fair to, and in the best interests of, our
stockholders and approved the merger agreement and the
transactions contemplated thereby, and the related agreements
and recommended that our stockholders adopt the merger agreement.
Reasons for the Merger and Recommendation of the Special
Committee and the Board of Directors
After careful consideration, our special committee and our board
of directors, in each case by unanimous vote of all its members
at a meeting duly called, determined that the merger, the merger
agreement and the voting agreement are fair to, and in the best
interests of, our stockholders. The special committee and our
board of directors recommended that our stockholders vote
FOR the adoption of the merger agreement. In
evaluating the merger, the special committee and the board of
directors consulted with our management and legal and financial
advisors, and reviewed a significant amount of information and
considered a number of factors, including the following:
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the value of the consideration to be received by our
stockholders pursuant to the merger agreement, including the
fact that stockholders will receive the consideration in cash,
which provides certainty of value to our stockholders; |
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the $17.50 per share to be paid as the consideration in the
merger represents premiums of approximately 32.7% to the average
closing price of our common stock for the 90 trading days prior
to the announcement of the transaction, approximately 29.6% to
the average closing price of our common stock for the 60 trading
days prior to announcement, approximately 32.2% to the average
closing price |
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of our common stock for the 30 trading days prior to
announcement, and approximately 42.5% to the closing price of
our common stock on the day immediately prior to announcement; |
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the merger is the result of an active solicitation process in
which approximately 71 private equity firms and strategic buyers
were contacted to solicit indications of interest for a possible
transaction with us; |
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the fact that, subject to compliance with the terms and
conditions of the merger agreement, we are permitted to
terminate the merger agreement, prior to the adoption of the
merger agreement by the stockholders at the meeting, in order to
approve an alternative transaction proposed by a third party
that is a superior proposal as defined in the merger
agreement; |
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the cash merger price of $17.50 per share represents a
premium of approximately 92.9% over the highest purchase price
of $9.07 that we paid in purchases of our common stock during
the past three years, as described under Transactions in
Shares of Common Stock; |
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the historical market prices and volatility in trading
information with respect to our common stock, including the
possibility that if we remain as a publicly owned corporation,
in the event of a decline in the market price of our common
stock or the stock market in general, the price that might be
received by holders of our common stock in the open market or in
a future transaction might be less than the $17.50 per
share cash price to be paid in the merger; |
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historical and current information concerning our business,
financial performance and condition, operations, management and
competitive position, and current industry, economic and market
conditions, including our prospects if we were to remain an
independent company; |
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the efforts made by the special committee and our board of
directors and our advisors to negotiate and execute a merger
agreement favorable to us; |
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the financial presentation of Credit Suisse First Boston,
including its opinion (attached as Annex B hereto), dated
September 26, 2005, to the Party City board as to the
fairness, from a financial point of view and as of the date of
its opinion, of the merger consideration, as more fully
described below under the caption Opinion of
Our Financial Advisor; |
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the terms of the equity financing and debt financing commitment
letters obtained by Amscan Holdings, Inc. and BWP Acquisition,
Inc.; |
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the fact that we would be entitled to a termination fee, paid
annually for three years in an amount equal to 5% of our and our
affiliates and franchisees total cash expenditures
for goods or services supplied by Amscan Holdings, Inc., Amscan,
Inc. or any of its subsidiaries to us or our subsidiaries, in
the event we terminated the merger agreement because of a breach
of the agreement by Amscan Holdings, Inc. or BWP Acquisition,
Inc. (assuming we were not in material breach of any
representation, warranty, covenant or agreement); and |
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the fact that under Delaware law, our stockholders have the
right to demand appraisal of their shares. |
In the course of its deliberations, the special committee and
our board of directors also considered a variety of risks and
other countervailing factors concerning the merger agreement and
the merger, including the following:
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the fact that the obligation of Amscan Holdings, Inc. and BWP
Acquisition, Inc. to complete the merger is conditioned upon the
receipt of proceeds of the debt financing on the terms set forth
in the debt commitment letter and that Amscan Holdings, Inc. and
BWP Acquisition, Inc. may not be able to secure financing for a
variety of reasons, including reasons beyond the control of
Amscan Holdings, Inc. and BWP Acquisition, Inc.; |
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the risks and costs to us if the merger does not close,
including the diversion of management and employee attention,
employee attrition and the effect on our business relationships
and clients; |
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the restrictions that the merger agreement imposes on actively
soliciting competing bids, and the fact that we would be
obligated to pay the $15 million termination fee to Amscan
Holdings, Inc. under certain circumstances; |
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the fact that we would no longer exist as an independent,
publicly traded company and our stockholders would no longer
participate in any of the future earnings or growth of Party
City and would not benefit from any appreciation in value of
Party City; |
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the possibility that, although the merger provides our
shareholders the opportunity to realize a premium over the price
at which our common stock traded prior to public announcement of
the merger, the price of our common stock might increase in the
future to a price greater than $17.50 per share; |
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the fact that gains from an all-cash transaction would be
taxable to our stockholders for U.S. federal income tax
purposes; |
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the restrictions on the conduct of our business prior to the
completion of the merger, which may delay or prevent us from
undertaking business opportunities that may arise pending
completion of the merger; and |
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the interests of our directors and officers in the merger
described below under Interests of Certain
Persons in the Merger. |
The foregoing discussion of the factors considered by the
special committee and our board of directors is not intended to
be exhaustive, but does set forth the principal factors
considered by the special committee and our board of directors.
The special committee and our board of directors each
collectively reached the unanimous conclusion to recommend the
merger agreement, the voting agreement and the merger in light
of the various factors described above and other factors that
each member of the special committee and our board of directors
believed were appropriate. In view of the wide variety of
factors considered by the special committee and our board of
directors in connection with their evaluation of the merger and
the complexity of these matters, the special committee and our
board of directors did not consider it practical, and did not
attempt, to quantify, rank or otherwise assign relative weights
to the specific factors it considered in reaching its decision
and did not undertake to make any specific determination as to
whether any particular factor, or any aspect of any particular
factor, was favorable or unfavorable to the ultimate
determination of the special committee and our board of
directors. Rather, the special committee and our board of
directors made their recommendation based on the totality of
information presented to them and the investigation conducted by
them. In considering the factors discussed above, individual
directors may have given different weights to different factors.
After evaluating these factors, the special committee and our
board of directors determined that the merger agreement and the
voting agreement were advisable, fair to and in the best
interests of, our stockholders. Accordingly, the special
committee and our board of directors each unanimously
recommended the merger agreement, the voting agreement and the
merger.
The special committee and our board of directors unanimously
recommend that you vote FOR the adoption of the
merger agreement.
Opinion of Our Financial Advisor
We retained Credit Suisse First Boston to act as our financial
advisor in connection with the merger. In connection with Credit
Suisse First Bostons engagement, we requested that Credit
Suisse First Boston evaluate the fairness, from a financial
point of view, of the merger consideration. On
September 26, 2005, at a meeting of the Party City board of
directors held to evaluate the proposed merger, Credit Suisse
First Boston rendered to the Party City board of directors an
oral opinion, which opinion was confirmed by delivery of a
written opinion dated September 26, 2005, to the effect
that, as of that date and based on and subject to various
matters described in its opinion, the merger consideration was
fair, from a financial point of view, to holders of Party City
common stock, other than Tennenbaum & Co., LLC and its
affiliates.
22
The full text of Credit Suisse First Bostons written
opinion, dated September 26, 2005, to the Party City board
of directors, which sets forth, among other things, the
procedures followed, assumptions made, matters considered and
limitations on the scope of review undertaken by Credit Suisse
First Boston in rendering its opinion, is attached as
Annex B and is incorporated into this proxy statement by
reference in its entirety. Holders of Party City common stock
are encouraged to read this opinion carefully in its entirety.
Credit Suisse First Bostons opinion was provided to the
Party City board of directors in connection with its evaluation
of the merger consideration and relates only to the fairness,
from a financial point of view, of the merger consideration to
the holders of Party City common stock, other than
Tennenbaum & Co., LLC and its affiliates. Credit Suisse
First Bostons opinion does not address any other aspect of
the proposed merger and does not constitute a recommendation to
any stockholder as to how such stockholder should vote or act
with respect to any matters relating to the merger. The summary
of Credit Suisse First Bostons opinion in this proxy
statement is qualified in its entirety by reference to the full
text of the opinion.
In arriving at its opinion, Credit Suisse First Boston reviewed
the merger agreement as well as certain publicly available
business and financial information relating to Party City.
Credit Suisse First Boston also reviewed certain other
information relating to Party City, including financial
forecasts, provided to or discussed with Credit Suisse First
Boston by Party City, and met with Party Citys management
to discuss Party Citys business and prospects. Credit
Suisse First Boston also considered certain financial and stock
market data of Party City and compared that data with similar
data for other publicly held companies in businesses Credit
Suisse First Boston deemed similar to Party City and considered,
to the extent publicly available, the financial terms of certain
other business combinations and transactions which have been
effected or announced. Credit Suisse First Boston also
considered such other information, financial studies, analyses
and investigations and financial, economic and market criteria
which it deemed relevant.
In connection with its review, Credit Suisse First Boston did
not assume any responsibility for independent verification of
any of the foregoing information and relied on such information
being complete and accurate in all material respects. With
respect to the financial forecasts for Party City which Credit
Suisse First Boston reviewed, Party Citys management
advised Credit Suisse First Boston, and Credit Suisse First
Boston assumed, that such forecasts were reasonably prepared on
bases reflecting the best currently available estimates and
judgments of Party Citys management as to Party
Citys future financial performance. Credit Suisse First
Boston also assumed, with Party Citys consent, that in the
course of obtaining any necessary regulatory or third party
consents, approvals or agreements for the merger, no
modification, delay, limitation, restriction or condition would
be imposed that would have an adverse effect on Party City or
the merger and that the merger would be consummated in
accordance with the terms of the merger agreement without
waiver, modification, amendment or adjustment of any material
term, condition or agreement therein. In addition, Credit Suisse
First Boston was not requested to make, and did not make, an
independent evaluation or appraisal of Party Citys assets
or liabilities (contingent or otherwise) and Credit Suisse First
Boston was not furnished with any such evaluations or
appraisals. Credit Suisse First Bostons opinion addressed
only the fairness, from a financial point of view, to the
holders of Party City common stock, other than
Tennenbaum & Co., LLC and its affiliates, of the merger
consideration and does not address any other aspect or
implication of the merger or any other agreement, arrangement or
understanding entered into in connection with the merger or
otherwise. Credit Suisse First Bostons opinion was
necessarily based upon information made available to it as of
the date of its opinion and financial, economic, market and
other conditions as they existed and could be evaluated on the
date of its opinion. Credit Suisse First Bostons opinion
did not address the relative merits of the merger as compared to
other business strategies or transactions that might be
available to Party City, nor did it address the underlying
business decision of Party City to proceed with the merger.
Except as described above, Party City imposed no other
limitations on Credit Suisse First Boston with respect to the
investigations made or procedures followed in rendering its
opinion.
In preparing its opinion to the Party City board of directors,
Credit Suisse First Boston performed a variety of financial and
comparative analyses, including those described below. The
summary of Credit Suisse First Bostons analyses described
below is not a complete description of the analyses underlying
Credit Suisse First Bostons opinion. The preparation of a
fairness opinion is a complex process involving various
determinations as to the most appropriate and relevant methods
of financial analysis and the application of
23
those methods to the particular circumstances and, therefore, a
fairness opinion is not readily susceptible to partial analysis
or summary description. In arriving at its opinion, Credit
Suisse First Boston made qualitative judgments with respect to
the analyses and factors that it considered. Credit Suisse First
Boston arrived at its ultimate opinion based on the results of
all analyses undertaken by it and assessed as a whole and did
not draw, in isolation, conclusions from or with regard to any
one factor or method of analysis. Accordingly, Credit Suisse
First Boston believes that its analyses must be considered as a
whole and that selecting portions of its analyses and factors or
focusing on information presented in tabular format, without
considering all analyses and factors or the narrative
description of the analyses, could create a misleading or
incomplete view of the processes underlying its analyses and
opinion.
In its analyses, Credit Suisse First Boston considered industry
performance, general business, economic, market and financial
conditions and other matters, many of which are beyond Party
Citys control. No company, transaction or business used in
Credit Suisse First Bostons analyses as a comparison is
identical to Party City or the proposed merger, and an
evaluation of the results of those analyses is not entirely
mathematical. Rather, the analyses involve complex
considerations and judgments concerning financial and operating
characteristics and other factors that could affect the
acquisition, public trading or other values of the companies,
business segments or transactions analyzed. The estimates
contained in Credit Suisse First Bostons analyses and the
ranges of valuations resulting from any particular analysis are
not necessarily indicative of actual values or predictive of
future results or values, which may be significantly more or
less favorable than those suggested by the analyses. In
addition, analyses relating to the value of businesses or
securities do not purport to be appraisals or to reflect the
prices at which businesses or securities actually may be sold.
Accordingly, the estimates used in, and the results derived
from, Credit Suisse First Bostons analyses are inherently
subject to substantial uncertainty.
Credit Suisse First Boston was not requested to, and it did not,
recommend the specific form or amount of consideration payable
in the proposed merger, which consideration was determined
through negotiation between Party City and Amscan Holdings, Inc.
Credit Suisse First Bostons opinion and financial analyses
were only one of many factors considered by the Party City board
of directors in its evaluation of the proposed merger and should
not be viewed as determinative of the views of the Party City
board of directors, special committee or management with respect
to the merger or the merger consideration.
The following is a summary of the material financial analyses
reviewed with the Party City board of directors in connection
with Credit Suisse First Bostons opinion dated
September 26, 2005. The financial analyses summarized
below include information presented in tabular format. In order
to fully understand Credit Suisse First Bostons financial
analyses, the tables must be read together with the text of each
summary. The tables alone do not constitute a complete
description of the financial analyses. Considering the data in
the tables below without considering the full narrative
description of the financial analyses, including the
methodologies and assumptions underlying the analyses, could
create a misleading or incomplete view of Credit Suisse First
Bostons financial analyses. Estimated financial data
for Party City prepared by Party Citys management and
utilized in the analyses described below excluded non-recurring
charges.
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Selected Companies Analysis |
Credit Suisse First Boston reviewed the market values and
trading multiples of Party City and the following five selected
publicly held companies in the party goods and specialty retail
industry:
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Celebrate Express, Inc. |
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Factory Card & Party Outlet Corp. |
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Big Lots, Inc. |
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Claires Stores, Inc. |
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Dollar Tree Stores, Inc. |
Credit Suisse First Boston compared, among other things,
enterprise values, calculated as equity value plus debt,
minority interests, preferred stock and all out-of-the-money
convertibles, less cash and cash
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equivalents, as a multiple of calendar years 2005 and 2006
estimated earnings before interest, taxes, depreciation and
amortization, commonly referred to as EBITDA. Credit Suisse
First Boston then applied ranges of selected multiples of
calendar years 2005 and 2006 estimated EBITDA derived from the
selected companies to corresponding financial data of Party
City. All multiples were based on closing stock prices on
September 23, 2005. Financial data for the selected
companies were based on selected publicly available research
analysts estimates, public filings and other publicly
available information. Financial data for Party City were based
on public filings of Party City and internal estimates of Party
Citys management. This analysis indicated the following
approximate implied per share equity reference range for Party
City, as compared to the per share merger consideration:
Implied Per Share Equity
Reference Range for Party City
$12.00 - $16.00
Per Share
Merger Consideration
$17.50
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Selected Acquisitions Analysis |
Credit Suisse First Boston reviewed the transaction value
multiples in the following 24 selected transactions in the
specialty retail industry for which public information was
available:
Acquiror
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GameStop Corp. |
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OSIM International/JW Childs Associates,L.P./Temasek Holdings
(Private) Limited |
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Bain Capital Partners LLC/Kohlberg Kravis
Roberts & Co./Vornado Realty Trust |
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Movie Gallery, Inc. |
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Dicks Sporting Goods, Inc. |
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Circuit City Stores, Inc. |
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CompUSA Inc. |
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Boise Cascade Corporation |
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Gart Sports Company |
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Advance Auto Parts, Inc. |
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Tweeter Home Entertainment Group, Inc. |
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Gart Sports Company |
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Luxottica Group S.p.A. |
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Bain Capital Partners LLC |
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Leonard Green & Partners, L.P./ Texas Pacific Group |
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May Department Stores Company |
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Barnes & Noble, Inc. |
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Grupo Sanborns, S.A. de C.V. |
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Barnes & Noble, Inc. |
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Freeman Spogli & Co. |
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Lowes Companies, Inc. |
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Toys R Us, Inc. |
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Staples, Inc. |
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Sears, Roebuck and Co. |
Target
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Electronics Boutique Holdings Corp. |
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Brookstone, Inc. |
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Toys R Us, Inc. |
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Hollywood Entertainment Corporation |
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Galyans Trading Company, Inc. |
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InterTAN, Inc. |
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Good Guys, Inc. |
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OfficeMax, Inc. |
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The Sports Authority, Inc. |
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Discount Auto Parts, Inc. |
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Sound Advice, Inc. |
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Oshman Sporting Goods, Inc. |
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Sunglass Hut International, Inc. |
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KB Toys, Inc. |
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Petco Animal Supplies, Inc. |
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Davids Bridal, Inc. |
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Funco, Inc. |
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CompUSA Inc. |
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Babbages Etc. LLC |
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Galyans Trading Company, Inc. |
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Eagle Hardware & Garden, Inc. |
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Baby Superstore, Inc. |
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Office Depot, Inc. |
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Orchard Supply Hardware Stores Corporation |
Credit Suisse First Boston compared, among other things,
transaction values in the selected transactions as multiples of
latest 12 months EBITDA. Credit Suisse First Boston then
applied ranges of selected multiples of latest 12 months
EBITDA derived from the selected transactions to Party
Citys fiscal year 2005 EBITDA. Multiples for the selected
transactions were based on publicly available information.
Financial data for Party
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City were based on public filings of Party City. This analysis
indicated the following approximate implied per share equity
reference range for Party City, as compared to the per share
merger consideration:
Implied per Share Equity
Reference Range for Party City
$14.00 - $18.00
Per Share
Merger Consideration
$17.50
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Discounted Cash Flow Analysis |
Credit Suisse First Boston calculated the estimated present
value of the standalone, unlevered, after-tax free cash flows
that Party City could generate over fiscal years 2006 through
2010, based on internal estimates of Party Citys
management. Credit Suisse First Boston calculated a range of
estimated terminal values for Party City by multiplying Party
Citys fiscal year 2010 estimated EBITDA by selected
multiples ranging from 6.5x to 8.5x. The estimated after-tax
free cash flows and terminal values were then discounted to the
present value using discount rates ranging from 13.0% to 14.5%.
This analysis indicated the following approximate implied per
share equity reference range for Party City, as compared to the
per share merger consideration:
Implied per Share Equity
Reference Range for Party City
$16.50 - $22.00
Per Share
Merger Consideration
$17.50
In rendering its opinion, Credit Suisse First Boston also
reviewed and considered other factors, including:
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theoretical purchase prices that could be paid by a hypothetical
financial buyer in a leveraged buyout of Party City; |
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the premiums paid in acquisitions of domestic companies with
transaction values of $200 million to $500 million
announced between September 26, 2002 and September 25,
2005, and the per share prices implied for Party City based on a
selected range of premiums derived from such acquisitions; |
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historical trading prices and trading volumes of Party City
common stock over the two-year period ended September 23,
2005; and |
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publicly available research analysts reports for Party
City. |
Party City selected Credit Suisse First Boston based on Credit
Suisse First Bostons qualifications, experience and
reputation. Credit Suisse First Boston is an internationally
recognized investment banking firm and is regularly engaged in
the valuation of businesses and securities in connection with
mergers and acquisitions, leveraged buyouts, negotiated
underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and
valuations for corporate and other purposes.
Credit Suisse First Boston and its affiliates in the past have
provided, currently are providing and in the future may provide,
investment banking and other financial services unrelated to the
proposed merger to Amscan Holdings, Inc. and to private
investment funds whose affiliates are stockholders of Amscan
Holdings, Inc. and their respective affiliates, for which
services Credit Suisse First Boston and its affiliates have
received, and would expect to receive, compensation. In
addition, certain private investment funds affiliated or
associated with Credit Suisse First Boston have invested in
private equity funds managed or advised by affiliates of Amscan
Holdings, Inc. Credit Suisse First Boston is a full service
securities firm engaged in securities trading and brokerage
activities as well as providing investment banking and other
financial services. In the ordinary course of Credit Suisse
First Bostons business, Credit Suisse First Boston and its
affiliates may acquire, hold or sell, for its and its
affiliates own accounts and the accounts of customers,
equity, debt and other securities and financial instruments
(including bank loans and other obligations) of Party City,
Amscan Holdings, Inc. and their respective affiliates and,
accordingly, may at any time hold a long or short
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position in such securities, as well as provide investment
banking and other financial services to such companies.
Party City has agreed to pay Credit Suisse First Boston
customary fees for its financial advisory services in connection
with the merger, a portion of which was payable upon the
rendering of its opinion and a significant portion of which is
contingent upon consummation of the merger. Party City has
agreed to reimburse Credit Suisse First Boston for its
reasonable expenses, including the fees and expenses of legal
counsel and any other advisor retained by Credit Suisse First
Boston, and to indemnify Credit Suisse First Boston against
liabilities, including liabilities under the federal securities
laws, arising out of its engagement.
Certain Effects of the Merger
If the merger agreement and the merger are approved by our
shareholders and the other conditions to the closing of the
merger are either satisfied or waived, BWP Acquisition, Inc.
will be merged with and into Party City, and Party City will be
the surviving corporation. If the merger is completed, Party
City will cease to be a publicly traded company and will become
a wholly owned subsidiary of Amscan Holdings, Inc.
At the effective time of the merger, each share of our common
stock issued and outstanding immediately prior to the effective
time of the merger (other than shares held in our treasury,
owned by our direct or indirect subsidiaries and owned by Amscan
Holdings, Inc., BWP Acquisition, Inc. or any other wholly owned
subsidiary of Amscan Holdings, Inc. or BWP Acquisition, Inc. or
held by shareholders who are entitled to and who properly
exercise dissenters rights in compliance with all of the
required procedures under the Delaware General Corporation Law)
will be converted into the right to receive $17.50 in cash,
without interest, less any required withholding taxes.
Prior to the effective time of the merger, the merger agreement
provides that each unexpired and unexercised option, restricted
stock unit or similar rights to purchase shares of Party City
common stock, whether or not then exercisable or vested, shall
become cancelled and the holder of any such cancelled option or
restricted stock unit will be entitled to receive a cash payment
(less any applicable withholding taxes) equal to the product of
(1) the total number of shares of Party City common stock
subject to the option or restricted stock unit multiplied by
(2) the excess, if any, of $17.50 over the exercise price
per share of Party City common stock under such option, less any
applicable withholding taxes.
Prior to the effective time of the merger, the merger agreement
provides that Party City will take all necessary actions to
provide that all unexpired and unexercised warrants to purchase
shares of our common stock shall be cancelled. In consideration
for the cancellation, the holders of such warrants will be
entitled to receive a cash payment (less any applicable
withholding taxes) equal to the product of (1) the total
number of shares of common stock subject to the warrant, whether
or not then exercisable, multiplied by (2) the excess, if
any, of $17.50 over the exercise price per share of Party City
common stock subject to the warrant.
At the effective time of the merger, our current shareholders
will cease to have ownership interests in our company or rights
as our shareholders. Therefore, our current shareholders will
not participate in any of our future earnings or growth and will
not benefit from any appreciation in our value.
Our common stock is currently registered under the Exchange Act
and is quoted on The Nasdaq National Market under the symbol
PCTY. As a result of the merger, we will no longer
be a publicly traded company, and there will be no public market
for our common stock. After the merger, our common stock will be
delisted from The Nasdaq National Market, and price quotations
with respect to sales of shares of common stock in the public
market will no longer be available. In addition, registration of
our common stock under the Exchange Act will be terminated. This
termination will make certain provisions of the Exchange Act,
such as the requirement of furnishing a proxy or information
statement in connection with shareholders meetings, no
longer applicable to us. After the effective time of the merger,
we will also no longer be required to file periodic reports with
the Securities and Exchange Commission on account of our common
stock.
At the effective time of the merger, the directors of BWP
Acquisition, Inc. will become the initial directors of the
surviving corporation, and the officers of Party City will
become the initial officers of the surviving corporation.
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The certificate of incorporation and bylaws of the surviving
corporation will be amended in their entirety to contain the
provisions set forth in the certificate of incorporation and
bylaws of BWP Acquisition, Inc. as of the effective time of the
merger.
Effects on Party City if the Merger is Not Completed
In the event that the merger agreement is not adopted by Party
Citys stockholders or if the merger is not completed for
any other reason, stockholders will not receive any payment for
their shares in connection with the merger. Instead, Party City
will remain an independent public company and its common stock
will continue to be listed and traded on The Nasdaq National
Market. In addition, if the merger is not completed, we expect
that management will operate the business in a manner similar to
that in which it is being operated today and that Party City
stockholders will continue to be subject to the same risks and
opportunities as they currently are, and general industry,
economic and market conditions. Accordingly, if the merger is
not consummated, there can be no assurance as to the effect of
these risks and opportunities on the future value of your Party
City shares. From time to time, Party Citys board of
directors will evaluate and review the business operations,
properties, dividend policy and capitalization of Party City,
among other things, make such changes as are deemed appropriate
and continue to seek to identify strategic alternatives to
maximize stockholder value.
In addition, if the merger agreement is not adopted by Party
Citys stockholders or if the merger is not consummated for
any other reason, Party City will be subject to a number of
material risks, including:
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Failure to complete the merger could negatively impact the
market price of Party City common stock. |
If the merger is not completed, the market price of the Party
City common stock could decrease for the following reasons:
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the market price of Party Citys common stock may decline
to the extent that the current market price of its shares
reflects a market assumption that the merger will be completed; |
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costs relating to the merger, such as legal, accounting and
financial advisory fees, and, in specified circumstances, a
termination fee of $15 million, must be paid even though
the merger has not completed, and will be expensed in the fiscal
period in which termination occurs; and |
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the diversion of managements attention from the day to day
business of Party City and the potential disruption to its
employees and its relationships with suppliers during the period
before the termination of the merger may make it difficult for
Party City to regain its financial and market positions after
such a termination. |
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Until the merger is completed or the merger agreement is
terminated, Party City may not be able to enter into a merger or
business combination with another party at a favorable price
because of restrictions in the merger agreement. |
Unless or until the merger agreement is terminated, subject to
specified exceptions, Party City is restricted from entering
into or soliciting, initiating, proposing, encouraging or
facilitating any inquiries or proposals that may lead to a
proposal or offer for an alternative transaction with any person
or entity other than Amscan Holdings, Inc. As a result of these
restrictions, Party City may not be able to enter into an
alternative transaction at a more favorable price, if at all,
without incurring potentially significant liability to Amscan
Holdings, Inc. See The Merger Agreement
(Proposal 1) No Solicitation.
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Uncertainties associated with the merger may cause Party
City to lose key personnel. |
Our current and prospective employees may be uncertain about
their future roles and relationships with Party City following
the completion of the merger. This uncertainty may adversely
affect our ability to attract and retain key management and
marketing and technical personnel.
28
Delisting and Deregistration of Party City Common Stock
If the merger is completed, Party City common stock will be
delisted from The Nasdaq National Market and deregistered under
the Exchange Act. After the effective time of the merger, Party
City will also no longer be required to file periodic reports
with the SEC on account of its common stock.
Financing
The total amount of funds necessary to complete the merger and
the related transactions is anticipated to be $360 million.
The following arrangements are intended to provide all of the
necessary financing for the merger.
Pursuant to equity commitment letters from funds affiliated with
Berkshire Partners LLC and Weston Presidio (the
investors), the proceeds of which would constitute
the equity portion of the merger financing, funds affiliated
with Berkshire Partners LLC have agreed to contribute up to
$68.2 million in cash to AAH Holdings and funds affiliated
with Weston Presidio have agreed to contribute up to
$34.2 million in cash to AAH Holdings, for the purpose of
funding in part the merger. The commitments of the investors are
subject to the consummation of the merger, and the
investors equity commitment will terminate upon the
termination of the merger agreement. Under the terms of the
commitments, the investors have the right to allocate a portion
of their investments to co-investors or affiliates under certain
circumstances. As a result, the investor group could ultimately
include additional equity participants.
AAH Holdings and Amscan Holdings, Inc. have received a debt
commitment letter, dated as of September 26, 2005, from
Goldman Sachs Credit Partners L.P. (GSCP), Banc of
America Securities LLC (BAS) and Bank of America,
N.A. The debt commitment letter contemplates:
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up to $400.0 million of term loans under a first lien
facility with a maturity of seven years; |
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up to $75.0 million of revolving loan commitments under a
first lien facility with a maturity of six years; and |
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up to $65 million of loans under a second lien facility
with a maturity of eight years. |
The proceeds of the term loan facilities and up to
$5.0 million of revolving loans are expected to be
available to finance the merger, repay or refinance certain
existing debt of Amscan Holdings, Inc. and its subsidiaries and
to pay fees and expenses incurred in connection with the merger
on the closing date. Thereafter, revolving loans would be
available for ongoing working capital and general corporate
purposes. The contemplated revolving credit facility would also
include a letter of credit subfacility and a swingline
subfacility, in each case in amounts to be determined. The
documentation governing the facilities has not been finalized
and the actual terms, amounts and uses of the facilities may
differ from those described in this proxy statement. AAH
Holdings and Amscan Holdings, Inc. expect to use these
facilities, but may use alternative financing to finance all or
any portion of the merger and related fees and expenses.
The debt commitment letter conditions the availability of the
facilities upon the consummation of the merger by March 31,
2006, as well as other customary conditions including, among
other things, (i) since July 2, 2005, the absence of
any event, change, effect, development or occurrence that has
had or could reasonably be expected to have a material adverse
effect (as defined in the merger agreement); (ii) the
consummation of the merger in accordance with the merger
agreement (and the absence of any amendment or waiver thereto
without with the consent or waiver of the joint lead arrangers);
(iii) receipt by AAH Holdings of not less than
$100.0 million in equity from affiliates of Berkshire
Partners LLC and Weston Presidio; (iv) execution of
satisfactory definitive documentation; (v) compliance with
a maximum specified ratio of total debt to pro forma
consolidated adjusted EBITDA; and (vi) the accuracy of
representations and warranties and the absence of any event of
default under the definitive documentation.
29
The debt commitment letter provides for GSCP and BAS to act as
joint lead arrangers for the facilities and GSCP to act as sole
syndication agent for the facilities. The administrative agent
for the first lien facilities would be an institution to be
determined. The debt commitment letter provides for GSCP to be
the administrative agent for the second lien facility and for
BAS to be the documentation agent for the facilities.
The debt commitment letter provides for all obligations under
the facilities to be guaranteed by AAH Holdings and each of the
existing and future domestic (and, to the extent no repatriation
of earnings would result therefrom and subject to requirements
of law, foreign) subsidiaries of Amscan Holdings, Inc. and would
be secured by substantially all present and future assets of
Amscan Holdings, Inc. and each other guarantor.
The facilities are expected to include certain customary
representations and warranties, mandatory prepayment provisions,
affirmative and negative covenants, and financial covenants
consisting a minimum interest coverage ratio, a maximum total
leverage ratio and a maximum capital expenditures covenant. In
addition, the facilities are expected to contain customary
events of default, including payment defaults, breach of
representations and warranties, covenant defaults,
cross-defaults to certain indebtedness, certain bankruptcy,
ERISA and change of control events, material judgments and
invalidity of any guaranty or loan document governing the
facilities. If such an event of default occurs, the lenders
under the facilities will be entitled to take various actions,
including the acceleration of amounts due under the facilities,
termination of commitments thereunder and all actions permitted
to be taken by a secured creditor.
Any borrowings under the facilities are expected to be incurred
in compliance with the applicable terms of the indenture
governing the 8.75% senior subordinated notes due 2014
dated as of April 30, 2004 among Amscan Holdings, Inc.,
each of the guarantors party thereto and The Bank of New York,
as trustee.
Interests of Certain Persons in the Merger
In considering the recommendation of our board of directors with
respect to the merger agreement and the merger, holders of
shares of our common stock should be aware that our directors
and executive officers have interests in the merger that may be
different from, or in addition to, those of our shareholders
generally. These interests may create potential conflicts of
interest. Our board of directors was aware of these potential
conflicts of interest and considered them, among other matters,
in reaching its decision to approve and adopt the merger
agreement and the merger and to recommend that our shareholders
vote to approve the merger agreement and the merger.
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Party City Stockholdings and Stock Options |
The table below sets forth, as of November 2, 2005, certain
information with respect to the shares, options and warrants
held by each of our directors and executive officers, and the
value thereof in the merger. All dollar amounts are gross
amounts and do not reflect deductions for any applicable
withholding taxes. In each case with respect to options and
warrants, the value is calculated by multiplying the number of
shares subject to each option or warrant by the amount, if any,
by which $17.50 exceeds the exercise price of the option or
warrant. The table sets forth:
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the number of shares of our common stock currently held and the
amount of cash that will be paid in respect of such shares upon
consummation of the merger; |
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the number of shares subject to options and restricted stock
units, whether vested or not vested, and the amount of cash that
will be paid in consideration for the cancellation of such
options and units upon consummation of the merger; |
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the number of shares subject to unexpired and unexercised
warrants and the amount of cash that will be paid in
consideration for the cancellation of such warrants upon
consummation of the merger; and |
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the total amount of cash that will be received by such person in
respect of such shares, options and warrants upon consummation
of the merger. |
30
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Options that will | |
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Vest as a Result | |
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Common Stock | |
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Options Vested | |
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of the Merger | |
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Warrants(a) |
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Name |
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Shares | |
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Consideration | |
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Shares | |
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Value | |
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Shares | |
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Value | |
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Shares | |
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Value |
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Shares | |
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Total Value | |
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Non-Employee Directors:
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Ralph D. Dillon
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195,000 |
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$ |
3,412,500 |
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562,940 |
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$ |
4,428,743 |
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$ |
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$ |
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757,940 |
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$ |
7,841,243 |
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Michael E. Tennenbaum
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5,537,872 |
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$ |
96,912,760 |
(a) |
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58,000 |
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$ |
456,823 |
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$ |
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5,595,872 |
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$ |
97,369,583 |
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L.R. Jalenak, Jr.
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65,965 |
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$ |
1,154,388 |
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58,000 |
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$ |
508,623 |
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$ |
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$ |
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123,965 |
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$ |
1,663,011 |
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Franklin R. Johnson
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$ |
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33,333 |
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$ |
152,954 |
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6,667 |
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$ |
42,002 |
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$ |
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40,000 |
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$ |
194,956 |
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Howard Levkowitz
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13,527 |
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$ |
236,723 |
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58,000 |
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$ |
488,823 |
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$ |
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$ |
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71,527 |
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$ |
725,546 |
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Walter Salmon
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4,000 |
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$ |
70,000 |
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55,000 |
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$ |
360,523 |
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$ |
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$ |
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59,000 |
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$ |
430,523 |
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Executive Officers:
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Richard H. Griner
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$ |
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90,000 |
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$ |
389,393 |
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137,300 |
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$ |
673,406 |
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$ |
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227,300 |
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$ |
1,062,799 |
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Lisa Laube
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$ |
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30,000 |
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$ |
15,000 |
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125,000 |
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$ |
192,700 |
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$ |
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155,000 |
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$ |
207,700 |
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Gregg A. Melnick
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$ |
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15,000 |
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$ |
52,500 |
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45,000 |
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$ |
157,500 |
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$ |
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60,000 |
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$ |
210,000 |
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Steven Skiba
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$ |
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18,943 |
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$ |
79,871 |
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65,229 |
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$ |
291,784 |
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$ |
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84,172 |
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$ |
371,655 |
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Nancy Pedot(b)
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4,697 |
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$ |
82,198 |
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302,055 |
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$ |
1,803,136 |
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$ |
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$ |
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306,752 |
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$ |
1,885,334 |
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All directors and executive officers as a group
(11 persons)
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5,821,061 |
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$ |
101,868,569 |
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1,281,271 |
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$ |
8,736,389 |
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379,196 |
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$ |
1,357,392 |
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$ |
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7,481,528 |
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$ |
111,962,350 |
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(a) |
Warrants held of record by Special Value Bond Fund, LLC and
beneficially held by Michael Tennenbaum were exercised pursuant
to the net exercise provisions of the warrant for
2,332,952 shares of common stock on November 2, 2005. |
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(b) |
Nancy Pedot resigned as chief executive officer as of
March 30, 2005. |
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All non-employee directors will receive cash in respect of their
options in the amounts set forth above, less applicable
withholding taxes. Executive officers will also be able to
receive cash in respect of their options in the amounts set
forth above (less applicable withholding taxes) by exercising
their options prior to closing. Options held by executive
officers and other employees of Party City (other than de
minimis holders) that are not exercised prior to the effective
time of the merger will be cashed out in the merger for the
difference between the per share merger consideration and their
respective exercise price.
Additionally, the voting agreement provides that, at the request
of Amscan Holdings, Inc. at any time prior to the record date
for the special meeting, Special Value Bond Fund, LLC, an
affiliate of Tennenbaum & Co., LLC, must exercise its
warrant in full to purchase 2,496,000 shares of common
stock immediately prior to the record date. Special Value Bond
Fund, LLC exercised this warrant in full, pursuant to the net
exercise provisions of the warrant, and received 2,332,952
shares of common stock on November 2, 2005.
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Compensation of Special Committee |
Each member of the special committee will receive a total fee in
the amount of $15,000 for attending meetings on any day (other
than a day on which a meeting of the special committee was held)
on which each member of the special committee devoted a
meaningful portion of his or her day to the affairs of the
special committee as consideration for his or her service on the
special committee. Receipt of this compensation will not be
contingent on the special committees approval of the
merger agreement. Each members out-of-pocket expenses will
also be reimbursed.
Some or all or our executive officers may be given an
opportunity to participate in an equity incentive plan following
the effective time of the merger. Participating executive
officers would hold equity interests in AAH Holdings or its
subsidiaries through such plan.
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Indemnification and Insurance |
Amscan Holdings, Inc. has agreed that, for a period of six years
following the effective time of the merger, it and the surviving
corporation will indemnify and hold harmless our current and
former directors and officers for acts or omissions occurring at
or prior to the effective time or the merger to the same extent
that we indemnified such directors and officers; provided that,
Amscan Holdings, Inc. will indemnify and hold
31
harmless such directors and officers for acts or omissions
occurring in connection with the approval of the merger
agreement and consummation of the transactions contemplated
thereby to the fullest extent permitted by law.
Amscan Holdings, Inc. has also agreed to cause the surviving
corporation to maintain in effect for a period of six years
following the effective time of the merger, an insurance and
indemnification policy for our current directors and officers
covering events occurring prior to the effective time of the
merger that is no less favorable than our current policy or, if
such coverage are not available, the best coverage available;
provided that, the surviving corporation is not required to pay
annual premiums for such policies in excess of 200% of the last
annual payment that we made for our current policy prior to the
date of the merger agreement. The preceding requirements may be
satisfied by prepaid policies obtained prior to the effective
time of the merger.
On June 30, 2005, we entered into Retention Bonus and
Severance Agreements (referred to in this section as the
RBS agreements) with Messrs. Griner, Melnick
and Skiba, Ms. Laube and certain other employees. The RBS
Agreements provide that each such employee will be paid a
one-time, lump sum retention payment of a specified amount if
(a) there is a change in control, such as the merger, or a
change in CEO (each a qualifying event) within three
years of the effective date of the RBS agreements and
(b) such employee remains employed by us or the surviving
entity for six months after the qualifying event. The retention
payments, if any, to which the executive officers may become
entitled vary from $132,925 to $186,759, and total $657,184. In
addition, the RBS agreements provide that each such employee
will be paid a lump sum severance payment of a specified amount
if (a) there is a qualifying event and (b) the
employee is terminated by us without cause or resigns for good
reason (as defined in the RBS agreements) after the qualifying
event and before the second anniversary of the closing date of
the qualifying event. The severance payments, if any, to which
the executive officers may become entitled would equal the sum
of two-times their then-current base salary, a pro rata portion
of the executives annual performance bonus and the amount
of any unpaid retention payments. We will also pay the employer
portion of any COBRA continuation coverage timely elected by
such employee and will provide such employee with outplacement
assistance for three months by a vendor of the our choice (up to
a reasonable cost to be established by us). The RBS agreements
also provide for a gross-up payment with respect to certain
payments treated as excess parachute payments under
Sections 280G and 4999 of the Internal Revenue Code. The
RBS Agreements impose non-competition and non-solicitation
restrictive covenants for the later of the severance period or
six months following the employees termination.
The employment agreements for Messrs. Griner and Melnick
provide that such executives shall be entitled to terminate
their employment for good reason within 30 or 90 days,
respectively, following a change in control, such as the merger,
and receive their then-current base salary for a period of
26 weeks. The severance payments provided under such
employment agreements shall be provided only to the extent they
are not duplicative to those provided under the RBS agreements
for such executive officers.
Fees and Expenses of the Merger
We will incur, and will be responsible for paying,
transaction-related fees and expenses. In addition, if the
merger agreement is terminated under certain circumstances,
Party City will be obligated to pay a termination fee of
$15 million as directed by Amscan Holdings, Inc. See
The Merger Agreement (Proposal 1)
Termination Fees.
Certain Projections
In connection with AAH Holdings due diligence review of
Party City and in the course of the negotiations between Party
City and AAH Holdings, Party City provided AAH Holdings with
certain non-public business and financial information about
Party City. This information included Party Citys fiscal
year 2005 estimates prior to the filing of our Annual Report on
Form 10-K for the fiscal year ended July 2, 2005
32
and projections for fiscal years 2006 through 2009
(collectively, the projections). The projections,
dated July 2005, included, but were not limited to, estimates of
total revenues, net income before interest and taxes (EBIT), net
income and net income before interest, taxes and depreciation
and amortization (EBITDA). These projections do not give effect
to the merger or the financing of the merger.
The projections are summarized below and included consolidated
information for both franchise and retail segments:
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Projections | |
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($ in millions) |
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FY2005 | |
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FY2006 | |
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FY2007 | |
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FY2008 | |
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FY2009 | |
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Total revenues
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$ |
503.7 |
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$ |
566.2 |
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$ |
647.6 |
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$ |
754.4 |
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$ |
871.6 |
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EBIT
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$ |
8.3 |
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$ |
18.2 |
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$ |
29.0 |
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$ |
47.1 |
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$ |
61.2 |
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Net income
|
|
$ |
4.9 |
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$ |
11.0 |
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$ |
17.4 |
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$ |
28.0 |
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$ |
36.5 |
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EBITDA
|
|
$ |
25.4 |
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$ |
35.8 |
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$ |
49.1 |
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$ |
69.4 |
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$ |
87.2 |
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In preparing the above projections, Party City made a number of
assumptions, including the following same store
sales will grow at a cumulative 5.5% average growth rate over
the projection period with continued improvements in gross
margins. Additionally, these projections assume a return to an
aggressive company-owned new store growth program assuming 15
new stores opening in fiscal year 2006. Thereafter, the
company-owned store base is assumed to grow by approximately 40%
and the franchise-owned store base is assumed to grow by
approximately 20% by the end of fiscal year 2009. No assurances
can be given that Party City will achieve the projected same
store sales growth, improvements in gross margins, or will be
able to locate, open and successfully operate the number of new
stores that are projected or expand its franchise network as
contemplated. Although presented with numerical specificity,
these projections reflect numerous assumptions and estimates as
to future events made by Party Citys management that Party
Citys management believed were reasonable at the time the
projections were prepared and other factors such as industry
performance and general business, economic, regulatory, market
and financial conditions, all of which are difficult to predict
and beyond the control of Party Citys management.
Accordingly, there can be no assurance that the projections will
be realized, and actual results may be materially greater or
less than those reflected in the projections. You should review
our Annual Report on Form 10-K for the fiscal year ended
July 2, 2005 for a discussion of our business and risk
factors with respect to our business. In addition, under the
terms of the merger agreement, we are limited to opening 15 new
stores until the merger is completed. See The Merger
Agreement (Proposal 1) Covenants Relating to
the Conduct of Our Business.
Party City does not, as a matter of course, publicly disclose
projections of future revenues, earnings or other results. The
projections were not prepared with a view to public disclosure
and are included in this proxy statement only because such
information was made available to AAH Holdings. Party City also
provided its financial advisor with these projections in
connection with its financial analysis of the merger
consideration. The projections were not prepared with a view to
compliance with published guidelines of the Securities and
Exchange Commission or the guidelines established by the
American Institute of Certified Public Accountants for
preparation and presentation of prospective financial
information. The projections included in this proxy statement
have been prepared by, and are the responsibility of, Party
Citys management. Deloitte & Touche LLP has
neither examined nor compiled the projections and, accordingly,
Deloitte & Touche LLP does not express an opinion or
any other form of assurance with respect thereto. The
Deloitte & Touche LLP report incorporated by reference
in this proxy statement relates to Party Citys historical
financial information. It does not extend to the projections and
should not be read to do so. The inclusion of the projections in
this proxy statement should not be regarded as an indication
that such projections will be predictive of actual future
results, and the projections should not be relied upon as such.
No representation is made by Party City, AAH Holdings or their
respective affiliates or representatives to any security holder
of Party City regarding the ultimate performance of Party City
compared to the information contained in the projections. Party
City does not intend to update or otherwise revise the
projections to reflect circumstances existing after the date
when made or to reflect the occurrence of future events even in
the event that any or all of the assumptions underlying the
projections are shown to be in error.
33
With respect to our fiscal 2005 projections dated July 2005, we
now made publicly available our actual results of operations for
the fiscal year ended July 2, 2005. You should review our
Annual Report on Form 10-K, filed on September 15,
2005, for the fiscal year ended on July 2, 2005 to obtain
this information.
Voting Agreement
Concurrently with the execution and delivery of the merger
agreement, Amscan Holdings, Inc. and Tennenbaum have entered
into a voting agreement pursuant to which Tennenbaum will vote
all of its shares of common stock that it is entitled to vote in
favor of the merger and the merger agreement. In addition,
Tennenbaum has agreed to vote its shares of common stock against
any competing acquisition proposal. Under the voting agreement,
Tennenbaum has granted to and appointed, until the termination
date of the voting agreement, Amscan Holdings, Inc. (including
its President and Secretary) and any designee of Amscan
Holdings, Inc. its irrevocable proxy and attorney-in-fact (with
full power of substitution) to vote its shares of common stock
in accordance with the voting agreement. In addition, the voting
agreement requires Special Value Bond Fund, LLC, an affiliate of
Tennenbaum & Co., LLC, to exercise in full its warrant
to purchase common stock under certain conditions. Special Value
Bond Fund, LLC exercised this warrant in full, pursuant to the
net exercise provisions of the warrant, and received 2,332,952
shares of common stock on November 2, 2005. The voting
agreement terminates upon the earlier of (i) the effective
time of the merger, (ii) the termination of the merger
agreement or (iii) written notice of termination of the
voting agreement by Amscan Holdings, Inc. to Tennenbaum. Upon
termination of the merger agreement pursuant to certain
conditions, and the subsequent sale or other disposition of
Tennenbaums shares to a third party, Tennenbaum will be
required to pay to Amscan Holdings, Inc. an amount equal to 50%
of any increase in consideration paid to Tennenbaum in respect
of their shares over the amounts that would be otherwise payable
pursuant to the merger agreement. For a full description of the
voting agreement or to review a copy of the voting agreement,
see our current report on Form 8-K, and the exhibits
thereto, filed with the Securities and Exchange Commission on
September 26, 2005.
As of the record date, Tennenbaum beneficially held an aggregate
of 5,537,872 shares of our common stock (excluding options),
representing approximately 28.0% of the votes eligible to be
cast at the special meeting.
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REGULATORY MATTERS
Mergers and acquisitions that may have an impact in the United
States are subject to review by the Department of Justice and
the Federal Trade Commission to determine whether they comply
with applicable antitrust laws. Under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the
rules and regulations promulgated thereunder, which we refer to
as the HSR Act, mergers and acquisitions that meet certain
jurisdictional thresholds, such as the present transaction, may
not be completed until the expiration of a waiting period that
follows the filing of notification forms by both parties to the
transaction with the Department of Justice and the Federal Trade
Commission. The initial waiting period is 30 days, but this
period may be shortened if the reviewing agency grants
early termination of the waiting period, or it may
be lengthened if the reviewing agency determines that an indepth
investigation is required and issues a formal request for
additional information and documentary material. We and Amscan
Holdings, Inc. filed pre-merger notifications with the
U.S. antitrust authorities pursuant to the HSR Act
effective October 7, 2005, and the waiting period will
expire at 11:59 p.m. on November 7, 2005, unless
lengthened.
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material
U.S. federal income tax consequences of the merger. This
discussion is based upon the provisions of the Internal Revenue
Code of 1986, as amended, which we refer to as the Code, the
regulations promulgated under the Code, and judicial and
administrative decisions and rulings in effect as of the date of
this proxy statement, all of which are subject to change or
varying interpretation, possibly with retroactive effect. Any
such changes could affect the accuracy of the statements and
conclusions set forth herein.
This discussion does not address all aspects of
U.S. federal income taxation that may be relevant to a
holder of common stock in light of the stockholders
particular circumstances, nor does it discuss the special
considerations applicable to those holders of common stock
subject to special rules, such as stockholders whose functional
currency is not the United States dollar, stockholders subject
to the alternative minimum tax, stockholders who are financial
institutions or broker-dealers, mutual funds, partnerships or
other pass-through entities for U.S. federal income tax
purposes (except to note that if a partnership or other entity
taxable as a partnership for U.S. federal income tax
purposes holds our common stock, the tax treatment of a partner
will generally depend on the status of the partners and
activities of the partnership), tax-exempt organizations,
insurance companies, dealers in securities or foreign
currencies, traders in securities who elect mark to market
method of accounting, controlled foreign corporations, passive
foreign investment companies, expatriates, stockholders who
acquired their common stock through the exercise of options or
similar derivative securities or stockholders who hold their
common stock as part of a straddle, constructive sale or
conversion transaction. This discussion also does not address
the U.S. federal income tax consequences to holders of our
common stock who acquired their shares through stock option or
stock purchase plan programs or in other compensatory
arrangements. This discussion assumes that holders of our common
stock hold their shares as capital assets within the meaning of
Section 1221 of the Code (generally property held for
investment). No party to the merger will seek an opinion of
counsel or a ruling from the Internal Revenue Service with
respect to the U.S. federal income tax consequences
discussed herein and accordingly there can be no assurance that
the Internal Revenue Service will agree with the positions
described in this proxy statement.
We intend this discussion to provide only a general summary of
the material U.S. federal income tax consequences of the
merger. We do not intend it to be a complete analysis or
description of all potential U.S. federal income tax
consequences of the merger. We also do not address foreign,
state or local tax consequences of the merger. We urge you to
consult your own tax advisor to determine the particular tax
consequences to you (including the application and effect of any
state, local or foreign income and other tax laws) of the
receipt of cash in exchange for shares of our common stock
pursuant to the merger or upon the exercise of appraisal rights,
in light of your individual circumstances.
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For purposes of this discussion, we use the term
U.S. holder to mean:
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a citizen or individual resident of the U.S. for
U.S. federal income tax purposes; |
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a corporation, or other entity taxable as a corporation for
U.S. federal income tax purposes, created or organized in
or under the laws of the U.S. or any state or the District
of Columbia; |
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a trust if it (1) is subject to the primary supervision of
a court within the U.S. and one or more U.S. persons have
the authority to control all substantial decisions of the trust
or (2) has a valid election in effect under applicable
U.S. Treasury regulations to be treated as a
U.S. person; or |
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an estate that is subject to U.S. federal income tax on all
of its income regardless of source. |
A non-U.S. holder is a person (other than a partnership or
other entity taxable as a partnership for U.S. federal
income tax purposes) that is not a U.S. holder.
U.S. Holders
The receipt of cash for shares of common stock pursuant to the
merger or upon the exercise of appraisal rights in connection
with the merger will be a taxable transaction to
U.S. holders for U.S. federal income tax purposes. A
U.S. holder will generally recognize gain or loss for
U.S. federal income tax purposes equal to the difference,
if any, between the amount of cash received and the
U.S. holders adjusted tax basis for the shares
surrendered. Generally, such gain or loss will be capital gain
or loss. Gain or loss will be determined separately for each
block of shares (i.e., shares acquired at the same cost in a
single transaction) that are surrendered for cash pursuant to,
or in connection with, the merger.
Capital gain recognized from the disposition of common stock
held for more than one year will be long-term capital gain and,
in the case of U.S. holders who are individuals, will be
subject to tax at a maximum U.S. federal income tax rate of
15%. Capital gain recognized from the disposition of common
stock held for one year or less will be short-term capital gain
subject to tax at ordinary income tax rates. In general, capital
losses are deductible only against capital gains and are not
available to offset ordinary income. However, individual
taxpayers are permitted to offset a limited amount of net
capital losses annually against ordinary income, and unused net
capital losses may be carried forward to subsequent tax years.
Under the Code, a U.S. holder of our common stock may be
subject, under certain circumstances, to information reporting
on the cash received in the merger or upon the exercise of
appraisal rights in connection with the merger unless such
U.S. holder is a corporation or other exempt recipient. In
addition, the exchange agent generally is required to and will
withhold 28% of all payments to which a stockholder or other
payee is entitled, unless the stockholder or other payee
(1) is a corporation or comes within other exempt
categories and demonstrates this fact or (2) provides its
correct tax identification number (social security number in the
case of an individual, or employer identification number in the
case of other stockholders), certifies under penalties of
perjury that the number is correct (or properly certifies that
it is awaiting a taxpayer identification number), certifies as
to no loss of exemption from backup withholding and otherwise
complies with the applicable requirements of the backup
withholding rules. Each U.S. holder should complete, sign
and return to the exchange agent the substitute Form W-9
that each stockholder will receive with the letter of
transmittal following completion of the merger to provide the
information and certification necessary to avoid backup
withholding, unless an applicable exemption exists and is proved
in a manner satisfactory to the exchange agent. Backup
withholding is not an additional tax. Generally, any amounts
withheld under the backup withholding rules described above can
be refunded or credited against a payees U.S. federal
income tax liability, if any, provided that the required
information is furnished to the Internal Revenue Service in a
timely manner. You should consult your own tax advisor as to the
qualifications for exemption from backup withholding and the
procedures for obtaining such exemption.
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Non-U.S. Holders
Any gain realized on the receipt of cash in the merger or upon
the exercise of appraisal rights in connection with the merger
by a non-U.S. holder generally will not be subject to
U.S. federal income tax or U.S. withholding tax unless:
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the gain is effectively connected with a U.S. trade or
business (and, if an applicable income tax treaty so provides,
is attributable to a permanent establishment or a fixed base
maintained by such non-U.S. holder), in which case the
non-U.S. holder generally will be taxed like a
U.S. holder (as discussed above under
U.S. Holders). In addition, if the
non-U.S. holder is a foreign corporation, the branch
profits tax (which is imposed at a 30% rate or such lower rate
as may be specified by an applicable income tax treaty) may
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the non-U.S. holder is a nonresident alien individual who
is present in the U.S. for 183 days or more in the
taxable year of the merger and certain other conditions are met,
in which case the non-U.S. holder may be subject to a 30%
tax on the non-U.S. holders net gain realized in the
merger, which may be offset by U.S. source capital losses
of the non-U.S. holder, if any; or |
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we are or have been a United States real property holding
corporation for U.S. federal income tax purposes and
the non-U.S. holder owned more than 5% of our common stock
at any time during the five years preceding the merger, in which
case the purchaser of our stock may withhold 10% of the cash
payable to the non-U.S. holder in connection with the
merger and the non-U.S. holder generally will be taxed like
a U.S. holder (as discussed above under
U.S. Holders). We do not believe that we are or
have been a United States real property holding
corporation for U.S. federal income tax purposes. |
Information reporting and, depending on the circumstances,
backup withholding (currently at a rate of 28%) will apply to
the cash received in the merger or upon the exercise of
appraisal rights in connection with the merger, unless the
non-U.S. holder certifies under penalties of perjury that
it is a non-U.S. holder (and the payor does not have actual
knowledge or reason to know that the holder is a United States
person as defined under the Code) or such holder otherwise
establishes an exemption. Each non-U.S. holder should
complete, sign and return to the exchange agent a certification
of foreign status on the applicable Form W-8 in order to
provide the information and certification necessary to avoid
backup withholding, unless an applicable exemption exists and is
proved in a manner satisfactory to the exchange agent. Backup
withholding is not an additional tax and any amounts withheld
under the backup withholding rules may be refunded or credited
against a non-U.S. holders U.S. federal income
tax liability, if any, provided that such non-U.S. holder
furnishes the required information to the Internal Revenue
Service in a timely manner. You should consult your own tax
advisor as to the qualifications for exemption from backup
withholding and the procedures for obtaining such exemption.
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THE MERGER AGREEMENT (PROPOSAL 1)
This section of the proxy statement describes the material
provisions of the merger agreement, as amended, which we
collectively refer to herein as the merger agreement, but does
not purport to describe all the provisions of the merger
agreement. The following summary is qualified in its entirety by
reference to the complete text of the merger agreement, which is
attached as Annex A to this proxy statement and is
incorporated into this proxy statement by reference. We urge you
to read the full text of the merger agreement because it is the
legal document that governs the merger. The merger agreement has
been included to provide you with information regarding its
terms. It is not intended to provide you with any other factual
information about us. Such information can be found elsewhere in
this proxy statement and in the other public filings we make
with the SEC, which are available without charge at
www.sec.gov.
The terms of the merger agreement (such as the
representations and warranties) are intended to govern the
contractual rights and relationships, and allocate risks,
between the parties in relation to the merger. The merger
agreement contains representations and warranties Party City,
Amscan Holdings, Inc. and BWP Acquisition, Inc. made to each
other as of specific dates. The representations and warranties
were negotiated between the parties with the principal purpose
of setting forth their respective rights with respect to their
obligations to complete the merger and may be subject to
important limitations and qualifications as set forth therein,
including a contractual standard of materiality different from
that generally applicable under federal securities laws.
Form of the Merger
If all of the conditions to the merger are satisfied or waived
in accordance with the merger agreement, BWP Acquisition, Inc.,
a wholly owned subsidiary of Amscan Holdings, Inc. created
solely for the purpose of engaging in the transactions
contemplated by the merger agreement, will merge with and into
Party City. The separate corporate existence of BWP Acquisition,
Inc. will cease, and Party City will survive the merger and will
become a wholly owned subsidiary of Amscan Holdings, Inc. We
sometimes refer to Party City after the merger as the surviving
corporation.
Structure
At the effective time of the merger, BWP Acquisition, Inc. will
merge with and into Party City. Upon completion of the merger,
BWP Acquisition, Inc. will cease to exist as a separate entity
and Party City will continue as the surviving corporation. All
of Party Citys and BWP Acquisition, Inc.s
properties, rights, privileges, powers and franchises, and all
of their debts, liabilities and duties will become those of the
surviving corporation. Following the completion of the merger,
Party Citys common stock will be delisted from The Nasdaq
National Market, deregistered under the Exchange Act and no
longer publicly traded.
Effective Time
The effective time of the merger will occur at the time that we
file a certificate of merger with the Secretary of State of the
State of Delaware (or at such later time as is specified in the
certificate of merger) on the closing date of the merger. The
closing date will occur no later than the second business day
after the satisfaction of each partys obligations to
effect the merger. We intend to complete the merger as promptly
as practicable, subject to receipt of stockholder approval and
all requisite regulatory approvals. We refer to the time at
which the merger is completed as the effective time. Although we
expect to complete the merger by the fourth quarter of 2005 or
the first quarter of 2006, we cannot specify when, or assure you
that, we, Amscan Holdings, Inc. and BWP Acquisition, Inc. will
satisfy or waive all conditions to the merger.
Certificate of Incorporation and Bylaws
The certificate of incorporation and bylaws of the surviving
corporation will be amended in their entirety to contain the
provisions set forth in the certificate of incorporation and
bylaws of BWP Acquisition, Inc. as of the effective time of the
merger.
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Board of Directors and Officers of the Surviving
Corporation
The directors of BWP Acquisition, Inc. immediately prior to the
merger will become the directors of the surviving corporation
following the merger. Our officers will continue to be the
officers of the surviving corporation following the merger.
Consideration to be Received in the Merger
At the effective time of the merger, each share of our common
stock issued and outstanding immediately prior to the effective
time of the merger will automatically be cancelled, extinguished
and converted into the right to receive $17.50 in cash, without
interest and less any applicable withholding taxes, other than
shares of common stock:
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owned by us in our treasury immediately prior to the effective
time of the merger, all of which will be cancelled without any
payment; |
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owned by any of our direct or indirect subsidiaries immediately
prior to the effective time of the merger, all of which will be
cancelled without any payment; |
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owned by Amscan Holdings, Inc., BWP Acquisition, Inc. or any
other wholly owned subsidiary of Amscan Holdings, Inc. or BWP
Acquisition, Inc. immediately prior to the effective time of the
merger, all of which will be cancelled without any
payment; and |
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held by a stockholder who is entitled to demand and has made a
proper demand for appraisal of such shares in accordance with
the General Corporation Law of the State of Delaware and has not
voted in favor of or consented to the merger, until such time as
such holder fails to perfect, effectively waives, withdraws, or
otherwise loses such holders appraisal rights under the
General Corporation Laws of the State of Delaware. |
At the effective time of the merger, each share of BWP
Acquisition, Inc. issued and outstanding immediately prior to
the effective time of the merger will be converted into and
become one share of common stock of the surviving corporation.
The exchange agent, the surviving corporation or Amscan
Holdings, Inc. shall be entitled to deduct and withhold from the
consideration otherwise payable to any holder of shares of our
common stock any applicable withholding taxes that it is
required to deduct and withhold with respect to making such
payment under the Code, or any other applicable state, local or
foreign tax law. Our stockholders are entitled to assert
appraisal rights instead of receiving the merger consideration.
For a description of these appraisal rights, please see
Appraisal Rights.
You should not send your Party City stock certificates to the
exchange agent until you have received transmittal materials
from the exchange agent. Do not return your Party City stock
certificates with the enclosed proxy.
If any of your certificates representing common stock have been
lost or destroyed, you will be entitled to obtain the merger
consideration after you present to the surviving corporation or
exchange agent satisfactory evidence of ownership of the shares
of common stock and appropriate indemnification.
From the effective time of the merger, our stock transfer books
will be closed and there will be no further registration of
transfers of outstanding shares of our common stock.
Payment Procedures
At the effective time of the merger, Amscan Holdings, Inc. or
BWP Acquisition, Inc. will irrevocably deposit sufficient cash
to an exchange agent in order to permit the payment of the
merger consideration in exchange for certificates representing
shares of our common stock. Promptly after the effective time of
the merger, Amscan Holdings, Inc. shall instruct the exchange
agent to mail to each stockholder who was, immediately prior to
the effective time of the merger, a holder of record of shares
of outstanding Party City common stock, a letter of transmittal
and instructions for use in effecting the surrender of the stock
certificate
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in exchange for the merger consideration. The exchange agent
will pay the merger consideration, less any applicable
withholding taxes, to our stockholders promptly following the
exchange agents receipt of the stock certificates and
properly completed letter of transmittal. No interest will be
paid or accrued on the cash payable upon the surrender or any
such stock certificate. The surviving corporation will be
entitled to cause the exchange agent to deliver to it any funds
that have not been distributed within six months after the
effective time of the merger. After that date, holders of
certificates who have not complied with the instructions to
exchange their certificates will be entitled to look only to the
surviving corporation for payment of the applicable merger
consideration, without interest.
Stock Options and Warrants
Prior to the effective time of the merger, the merger agreement
provides that each unexpired and unexercised option, restricted
stock unit or similar rights to purchase shares of Party City
common stock, whether or not then exercisable or vested, shall
become cancelled and the holder of any such cancelled option or
restricted stock unit will be entitled to receive a cash payment
(less any applicable withholding taxes) equal to the product of
(1) the total number of shares of Party City common stock
subject to the option or restricted stock unit multiplied by
(2) the excess, if any, of $17.50 over the exercise price
per share of Party City common stock under such option, less any
applicable withholding taxes. On and after the date of the
merger agreement, no future offer periods may be commenced under
our employee stock purchase plan, and any offering period in
progress on the date of the merger agreement shall terminate on
the earlier of December 30, 3005 and the effective time of
the merger. Any accumulated contributions that are required in
accordance with the terms of the employee stock purchase plan to
be applied to the purchase of our common stock must be so
applied no later than the effective time of the merger.
Prior to the effective time of the merger, the merger agreement
provides that Party City will take all necessary actions to
provide that all unexpired and unexercised warrants to purchase
shares of our common stock shall be cancelled. In consideration
for the cancellation, the holders of such warrants will be
entitled to receive a cash payment (less any applicable
withholding taxes) equal to the product of (1) the total
number of shares of common stock subject to the warrant, whether
or not then exercisable, multiplied by (2) the excess, if
any, of $17.50 over the exercise price per share of Party City
common stock subject to the warrant. In addition, the voting
agreement provides that, at the request of Amscan Holdings, Inc.
at any time prior to the record date for the special meeting,
Special Value Bond Fund, LLC, an affiliate of
Tennenbaum & Co., LLC, must exercise its warrant in
full to purchase 2,496,000 shares of common stock
immediately prior to the record date. Special Value Bond Fund,
LLC exercised this warrant in full, pursuant to the net exercise
provisions of the warrant, and received 2,332,952 shares of
common stock on November 2, 2005.
Representations and Warranties
The merger agreement contains representations and warranties
made by us to Amscan Holdings, Inc. and BWP Acquisition, Inc.
and representations and warranties made by Amscan Holdings, Inc.
and BWP Acquisition, Inc. to us. The assertions embodied in
those representations and warranties were made solely for
purposes of the merger agreement and may be subject to important
qualifications and limitations. Moreover, some of those
representations and warranties may not be accurate or complete
as of any particular date because they are subject to a
contractual standard of materiality different from that
generally applicable to public disclosures to shareholders or
used for the purpose of allocating risk between the parties to
the merger agreement. For the foregoing reasons, you should not
rely on the representations and warranties contained in the
merger agreement as statements of factual information.
The merger agreement contains customary representations and
warranties that we made to Amscan Holdings, Inc. and BWP
Acquisition, Inc. regarding, among other things:
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corporate matters, including due organization, power and
qualification; |
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our certificate of incorporation and bylaws; |
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our capitalization and related matters; |
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authorization, execution, delivery and performance and the
enforceability of the merger agreement and related matters; |
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accordance with our books and records, fair presentation of our
financial information filed with the SEC and conformity with
generally accepted accounting principles of all financial
statements; |
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absence of material adverse changes, material adverse effects on
us or certain other significant changes or events, each from
July 2, 2005; |
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filing of all required documents with the SEC, the compliance
(at the time of filing) of our filings with the SEC with
applicable federal securities law requirements, the accuracy (at
the time of filing) of information contained in documents that
we have filed with the SEC, our timely response to letters of
the SEC staff, and the absence to our knowledge of SEC review
of, or outstanding comments with respect to, such filings; |
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the presence of effective disclosure controls and procedures; |
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identification and disclosure to our auditors and the audit
committee of our board of directors and to Amscan Holdings, Inc.
of any significant deficiencies and material weaknesses in our
internal controls and any fraud involving management or
employees having a significant role in our internal controls
over financial reporting; |
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absence of outstanding loans to any of our directors or
executive officers; |
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identification of governmental or other filings and consents
required in connection with the merger; |
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absence of conflicts with, or violations of, organizational
documents, laws, judgments, decrees or orders of governmental
entities, or other obligations as a result of the entry into the
merger agreement and the consummation of the transactions
contemplated by the merger agreement; |
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litigation matters; |
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employment and labor matters; |
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possession of permits and compliance with law; |
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brokers fees; |
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tax matters; |
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employee benefits; |
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intellectual property; |
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environmental matters; |
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requisite corporate approvals; |
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state takeover statutes; |
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our material contracts; |
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accuracy of information in our definitive proxy statement; |
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owned and leased property; |
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receipt of an opinion from our financial advisor; |
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except as set forth in our filings with the SEC or contemplated
by the merger agreement, absence of material transactions with
executive officers, directors, subsidiaries or owners of 5% or
more of our common stock; |
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insurance; |
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commercial relationships; and |
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transaction fees and expenses. |
In addition, each of Amscan Holdings, Inc. and BWP Acquisition,
Inc. made representations and warranties to us regarding, among
other things:
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corporate matters, including due organization, power and
qualification; |
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authorization, execution, delivery and performance and the
enforceability of the merger agreement and related matters; |
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capitalization of BWP Acquisition, Inc.; |
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absence of conflicts with, or violations of, organizational
documents, laws, judgments, decrees or orders of governmental
entities, or other obligations as a result of the entry into the
merger agreement and the consummation of the transactions
contemplated by the merger agreement; |
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any required governmental or other filings or consents; |
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accuracy of information provided by them for inclusion in our
definitive proxy statement; |
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that the debt and equity commitment letters received by Amscan
Holdings, Inc. are in full force and effect; |
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brokers fees; |
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prior operations of BWP Acquisition, Inc.; and |
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litigation matters. |
Many of our representations and warranties are qualified by a
material adverse effect standard. A material adverse
effect means, with respect to us, any event, change,
effect, development, occurrence or state of fact that either
individually or in the aggregate, when taken together with all
other events, changes, effects, developments, occurrences or
states of fact (i) is materially adverse to our and our
subsidiaries business, assets, operations, properties,
condition (financial or otherwise), liabilities or results of
operations taken as a whole, or (ii) materially and
adversely affects our ability to consummate the merger or
prevent or delay the consummation of the merger, except that the
following, either alone or in combination, will not be taken
into account in determining a material adverse effect:
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any adverse change, effect, event, occurrence, state of facts or
development attributable to the announcement or pendency of the
merger or merger agreement, the identity of Amscan Holdings,
Inc. or BWP Acquisition, Inc., actions taken in compliance with
the merger agreement or with Amscan Holdings, Inc.s
consent, including, without limitation, the impact on our
relationships with certain third parties; |
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any adverse change, effect, event, occurrence, state of facts or
development attributable to conditions generally affecting
(I) the retail party supply industry or (II) the
United States or world economy, except in each case, any adverse
change, effect, event, occurrence, state of facts or development
that has a disproportionate effect on us; or |
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any adverse change, effect, event, occurrence, state of facts or
development arising from or relating to any change in generally
acceptable accounting principles GAAP or change in applicable
laws. |
Covenants Relating to the Conduct of Our Business
From the date of the merger agreement through immediately prior
to the effective time of the merger, we have agreed, subject to
certain exceptions, and have agreed to cause our subsidiaries,
to operate our business and the businesses of our subsidiaries
in the ordinary course consistent with past practice and use
commercially reasonable efforts to preserve intact our
businesses, properties and assets and material business
organizations, the services of our officers and employees and
relationships with third parties.
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During the same period, we have also agreed that, subject to
certain exceptions, we will not take certain actions without the
prior written consent of Amscan Holdings, Inc., including:
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amend our certificate of incorporation or bylaws; |
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increase the number of directors or elect, appoint or hire new
directors or officers; |
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declare or pay any dividend or other distribution; |
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issue or otherwise dispose of or encumber, or agree to issue or
otherwise dispose of or encumber, (A) any shares of our
capital stock or other securities or rights to acquire any
shares of our capital stock or other securities, other than the
issuance of shares of common stock pursuant to the exercise of
outstanding options and warrants and other than the award of new
employee options to purchase not more than 50,000 shares of
common stock to new employees in the ordinary course of business
and consistent with past practice or (B) any of our
material assets; |
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change the number of shares of capital stock, other than in
connection with outstanding options and warrants, or grant or
accelerate the exercisability of any option, warrant or other
right to purchase capital stock, other than acceleration in
connection with the merger pursuant to the terms of such options; |
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repurchase, repay, cancel or incur any indebtedness except as in
the ordinary course of business in accordance with past practice
or incurred under existing indebtedness agreements; |
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make any material tax elections, amend any tax returns, settle
any material tax liability, change any material method of tax
accounting or waive any statute of limitations in respect of a
material amount of taxes or agree to any extension of time with
respect to an assessment or deficiency for a material amount of
Taxes other than pursuant to extensions of time to file tax
returns in the ordinary course of business; |
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make any material change in accounting method; |
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split, combine, subdivide or reclassify any capital stock, issue
any other security in respect of such shares, or redeem,
purchase, or otherwise acquire any of our or our subsidiaries
security interests; |
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acquire, agree to acquire or enter into any other arrangement to
acquire (including by merger, consolidation, or acquisition of
stock or assets or any other manner) any corporation or business
organization or any division thereof; |
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adopt or amend any bonus, profit sharing, compensation, stock
option or other employee benefit plan or other arrangement for
the benefit of any employee, director or former director or
employee; |
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increase the compensation or fringe benefits of any director,
officer, employee or former director, officer or employee; |
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pay any benefit not required by any existing arrangement, other
than increases in compensation (other than directors and
officers) and arrangements for new employees (other than
officers) in the ordinary course of business consistent with
past practice; |
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grant to employees any new or modified severance (other than
under the severance or termination policies in effect on the
date of the merger agreement) or increase or accelerate any
benefits payable under severance or termination policies in
effect on the date of the merger agreement; |
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authorize, or make any commitment with respect to, any capital
expenditure or acquire any property or asset which is in excess
of $250,000 individually, or $1,000,000 in the aggregate, except
as reflected in our 2006 capital expenditures budget previously
provided to Amscan Holdings, Inc.; |
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enter into any new line of business; |
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make investments in persons other than wholly owned subsidiaries; |
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sell, transfer, mortgage, pledge, lease, license or otherwise
encumber any material intellectual property, except for
non-exclusive and non-transferable licenses granted in the
ordinary course of business consistent with past practice in
connection with advertising or marketing; |
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fail to pay any fee, take any action or make any filing
reasonably necessary to maintain our ownership of the material
intellectual property owned by us; |
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adopt a plan of liquidation, dissolution, restructuring,
recapitalization or reorganization; |
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modify, amend or terminate, or waive, release or assign any
material rights or claims with respect to any confidentiality or
standstill agreement relating to a business combination
involving us or our subsidiaries other than to the extent
necessary to permit the submission of a written takeover
proposal made in accordance with the merger agreement; |
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pay, discharge, waive, settle or satisfy any claim, liability or
obligation, other than in the ordinary course of business
consistent with past practice which does not exceed $200,000; |
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except as permitted in the immediately preceding bullet point,
pay, discharge, waive, release, assign, settle or compromise any
pending or threatened action, suit, arbitration or other legal,
administrative or other governmental investigation or proceeding
(i) in respect of any matter requiring payment by us or our
subsidiaries in excess of $200,000 individually or $500,000 in
the aggregate or entailing any admission of liability by us or
our subsidiaries or any material non-monetary relief or
(ii) that is brought by any holder of our securities; |
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enter into, amend, modify, cancel or consent to the termination
of any material contract or amend, waive, modify, cancel or
consent to the termination of our or our subsidiaries
rights thereunder; |
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amend, modify or waive any of our existing takeover defenses or
take any action to render any state takeover statutes
inapplicable to any other transaction other than the merger; |
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enter into, amend, modify, cancel or terminate any lease,
sublease, license to use or occupy real property, any contract
for information technology, any distribution agreement, any
franchise agreement or store development agreement, or close or
relocate any franchised store, subject to certain thresholds; |
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open any stores other than as included in our 2006 capital
expenditure budget and otherwise in accordance with the merger
agreement; |
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take certain other actions listed or described in the disclosure
schedules to the merger agreement; or |
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authorize or agree to do any of the things described above or
anything that would make any our representations or warranties
untrue or incorrect in any material respect. |
Covenant Relating to the Conduct of Amscan Holdings,
Inc.s Business
From the date of the merger agreement to the effective time of
the merger (or earlier termination of the merger agreement),
Amscan Holdings, Inc. has agreed that it will not, and will not
permit any of its affiliates and subsidiaries to, without our
prior written consent, amend, modify cancel or terminate any
contract, whether written or oral, by and between us, on the one
hand, and it or its affiliates or subsidiaries, on the other
hand, whereby such amended or modified terms would be materially
less favorable to us than those in effect as of the date of the
merger agreement.
No Solicitation
We have agreed that we and our subsidiaries will not, authorize
or permit our officers, directors or employees, and we shall
direct our representatives not to, directly or indirectly:
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solicit, initiate, propose or knowingly encourage or facilitate
any takeover proposal; |
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enter into any agreement or agreement in principle with respect
to a takeover proposal; or |
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initiate or participate in any way in any negotiations or
discussions regarding, or furnish or disclose to any person any
information with respect to or in connection with any takeover
proposal. |
However, prior to the adoption by the stockholders of the merger
agreement, we would be permitted to respond to a bona fide,
written takeover proposal that is made after the date of the
merger agreement and that did not result from a breach of the no
solicitation provisions of the merger agreement on our part by
furnishing nonpublic information to, or negotiating with, any
third party making such a proposal, if our board of directors or
the special committee determines in good faith after consulting
with our legal counsel and financial advisor, that the proposal
is or could reasonably be expected to lead to a superior
proposal and if our board of directors or the special committee
determines in good faith after consulting with our outside legal
counsel that it is required to do so to comply with its
fiduciary obligations under applicable law. In such case, we may:
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furnish information with respect to Party City to the third
party who made the takeover proposal pursuant to a customary
confidentiality agreement no less favorable to us than our
confidentiality agreement with Amscan Holdings, Inc.; provided
that all such information has previously been provided to Amscan
Holdings, Inc. or is provided to Amscan Holdings, Inc. prior to,
or concurrently with, the time it is provided to such third
party; and |
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participate in discussions and negotiations regarding such
takeover proposal. |
We have agreed to promptly (and in any event within one business
day) advise Amscan Holdings, Inc. orally and in writing of our
receipt of any request for information or any takeover proposal
(including the identity of the person making such request or
takeover proposal) and the material terms and conditions of such
request or takeover proposal. Promptly upon determination by our
board of directors or special committee that a takeover proposal
constitutes a superior proposal, we must deliver to Amscan
Holdings, Inc. a written notice advising it that the our board
of directors or special committee has made such determination,
specifying the material terms and conditions of such superior
proposal and the identity of the person making such superior
proposal.
We have further agreed that our board of directors and our
special committee will not and will not publicly propose to:
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withdraw, modify or change in a manner adverse to Amscan
Holdings, Inc. (or fail within seven days of the merger
agreement to publicly make) the recommendation that our
stockholders approve the merger agreement and the merger; |
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approve, adopt or recommend a takeover proposal or superior
proposal; |
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allow us or any of our subsidiaries to enter into any letter of
intent, memorandum of understanding, agreement in principle,
option agreement, joint venture agreement, acquisition agreement
or similar agreement constituting or relating to, or that is
intended to or would be reasonably expected to result in a
takeover proposal; or |
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take a position that recommends a bidders tender offer or
remains neutral toward a bidders tender offer under
Rule 14e-2(a) of the Exchange Act |
(any of the actions and any other position of our board of
directors or the special committee contemplated by
Rule 14e-2(a) of the Exchange act other than recommending
rejection of such takeover proposal are an adverse
recommendation change). However, prior to the special
meeting, solely in response to an unsolicited bona fide written
takeover proposal, our board of directors or the special
committee may make an adverse recommendation change if:
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it is required to do so in order to comply with its fiduciary
duties to our stockholders under applicable law; |
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it determines in good faith (after consultation with it its
outside legal counsel and financial advisor) that such takeover
proposal is a superior proposal; and |
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we or it is not otherwise in violation of the takeover proposal
section of the merger agreement; provided, that our board of
directors or special committee will not make an adverse
recommendation change unless: |
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(1) we have given Amscan Holdings, Inc. three business days
prior written notice of our intention to take such action and
(2)(a) our board of directors or special committee shall
have considered in good faith any proposed changes to the merger
agreement proposed in writing by Amscan Holdings, Inc. during
such three business day business period and not have determined
that the superior proposal would no longer constitute a superior
proposal if such changes were to be given effect, (b) we
have complied in all material respects with our obligations
under the takeover proposal section of the merger agreement and
(c) we have terminated the merger agreement in accordance
with the relevant provision of the merger agreement in
accordance with the relevant sections of the merger agreement
and will pay Amscan Holdings, Inc. the $15 million
termination fee discussed below under
Termination Fees. |
Nothing contained in the merger agreement prohibits us or our
board of directors or special committee from (1) taking and
disclosing to our stockholders a position contemplated by
Rule 14e-2(a) promulgated under the Exchange Act or
(2) making any disclosure to our stockholders if, in the
good faith judgment of our board of directors or special
committee, such disclosure would be necessary under applicable
law (including Rule 14d-9 and Rule 14e-2(a)
promulgated under the Exchange Act).
A takeover proposal means any inquiry, proposal or
offer relating to (1) any business combination with or any
direct or indirect acquisition, in a single transaction or a
series of transactions and whether by way of a merger,
consolidation, business combination, reorganization, share
exchange, sale of assets, recapitalization, liquidation,
dissolution or similar transaction or otherwise, of (a) our
company, (b) 25% or more of any class of our outstanding
capital stock or any other of our or our subsidiaries
voting securities (c) 25% or more of the fair market value
of our and our subsidiaries assets taken as a whole;
(2) any tender offer (including a self-tender offer) or
exchange offer, as defined pursuant to the Exchange Act, that,
if consummated, would result in any person or group beneficially
owning 25% or more of any class of our capital stock or the
filing with the SEC of a Schedule TO or a registration
statement under the Securities Act in connection therewith or
(3) any combination of the foregoing.
A superior proposal means any bona fide written
takeover proposal (with all of the percentages included in the
definition of takeover proposal increased to 80%) not solicited
or initiated in violation of the merger agreement which our
board of directors or special committee determines in good faith
(after consultation with our financial advisor and our outside
legal counsel) (1) to be more favorable to the our
stockholders from a financial point of view than the
transactions provided for in the merger agreement, (2) is
reasonably capable of being consummated and (3) for which
third party financing, to the extent required, is then committed
consistent with market standards under similar circumstances.
Stockholders Meeting
We have agreed that unless the merger agreement has been
terminated in accordance with its terms, we will be obligated to
hold a meeting of our stockholders to vote on the proposal to
adopt the merger agreement. Subject to the non-solicitation
provision of the merger agreement, our board of directors or
special committee will recommend that our stockholders vote to
approve this merger agreement and the merger.
Indemnification and Insurance
Amscan Holdings, Inc. has agreed that, for a period of six years
following the effective time of the merger, it and the surviving
corporation will indemnify and hold harmless our current and
former directors and officers for acts or omissions occurring at
or prior to the effective time or the merger to the same extent
that we indemnified such directors and officers; provided that,
Amscan Holdings, Inc. will indemnify and hold harmless such
directors and officers for acts or omissions occurring in
connection with the approval of the merger agreement and
consummation of the transactions contemplated thereby to the
fullest extent permitted by law.
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Amscan Holdings, Inc. has also agreed to cause the surviving
corporation to maintain in effect for a period of six years
following the effective time of the merger, an insurance and
indemnification policy for our current directors and officers
covering events occurring prior to the effective time of the
merger that is no less favorable than our current policy or, if
such coverage are not available, the best coverage available;
provided that, the surviving corporation is not required to pay
annual premiums for such policies in excess of 200% of the last
annual payment that we made for our current policy prior to the
date of the merger agreement. The preceding requirements may be
satisfied by prepaid policies obtained prior to the effective
time of the merger.
Benefit Arrangements
Amscan Holdings, Inc. has agreed that, for a period of one year
following the effective time of the merger, our employees and
officers and the employees and officers of our subsidiaries as
of the closing date of the merger will receive (1) salary
and bonus opportunity, at Amscan Holdings, Inc.s sole
option, which is either (i) no less favorable in the
aggregate than in effect immediately prior to the effective time
of the merger or (ii) no less favorable than that provided
to similarly situated employees of Amscan Holdings, Inc. and
(2) benefits and other terms and conditions of employment
that are, at Amscan Holdings, Inc.s sole option
(i) substantially similar in the aggregate to the benefits
and other terms and conditions (other than equity-based
compensation) they were entitled to immediately prior to the
effective time of the merger or (ii) no less favorable in
the aggregate than that provided to similarly situated employees
of Amscan Holdings, Inc. In addition, Amscan Holdings, Inc. has
agreed that, for a period of one year following the effective
time of the merger, it will, or it will cause the surviving
corporation to, keep in effect all severance and retention
plans, practices and policies applicable to our employees and
officers as of the date of the merger agreement.
Amscan Holdings, Inc. agreed that it will, from and after the
closing of the merger, or it will cause the surviving
corporation to, honor, pay, perform and satisfy all liabilities,
obligations and responsibilities to, or in respect of, our
current and former employees and officers, as of the closing of
the merger arising under or in connection with any company
benefit plan.
Amscan Holdings, Inc. agreed that it will, or it will cause the
surviving corporation to, with respect to employee benefit
plans, programs, policies and arrangements established or
maintained by Amscan Holdings, Inc. or its affiliates (including
the surviving corporation and its subsidiaries) for the benefit
of our current or former employees (and their eligible
dependents), give credit to our current or former employees (and
their eligible dependents) for their service with us and our
subsidiaries (i) for all purposes of eligibility to
participate and vesting (but not benefit accrual under a
deferred benefit pension plan) to the extent such service was
taken into account under a corresponding company benefit plan,
and (ii) to the extent permitted by the plan maintained by
Amscan Holdings, Inc., for purposes of satisfying any waiting
periods, evidence of insurability requirements, or the
application of any pre-existing condition limitations and given
credit for amounts paid under a corresponding company benefit
plan during the same period for purposes of applying
deductibles, co-payments and out-of-pocket maximums as though
such amounts had been paid in accordance with the terms and
conditions of the plans, programs, policies and arrangements
maintained by Amscan Holdings, Inc. Amscan Holdings, Inc. will
not credit to current or former employees (or their eligible
dependents) service or other amounts to the extent the crediting
of such service or other amounts would result in the duplication
of benefits.
Conditions to the Merger
Our and Amscan Holdings, Inc.s obligations to effect the
merger and other transactions contemplated by the merger
agreement are subject to the satisfaction or waiver of the
following conditions:
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our stockholders must have approved the merger and the merger
agreement; |
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no governmental entity nor any federal or state court or
arbitrator shall have enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, executive order, decree,
judgment, injunction or arbitration award or finding or other
order that is in effect and prevents or prohibits consummation
of the merger or other transactions contemplated by the merger
agreement; |
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receipt of satisfactory evidence of consent or approval from
each federal and material state and foreign governmental entity
required to give such consent or approval in connection with the
merger agreement or transactions contemplated thereby, where
failure to obtain such consent or approval would constitute a
material violation of law or subject any party to the merger
agreement to any material fine or other material adverse
consequence, provided that this condition will not apply as a
condition to a partys obligation to close if such
partys failure to fulfill its obligations under the merger
agreement is the cause of the failure to obtain such consent or
approval; and |
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the applicable waiting periods under the HSR Act must have
expired or been terminated; |
In addition, our obligation to effect the merger and other
transactions contemplated by the merger agreement is subject to
the satisfaction or waiver of the following conditions:
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the representations and warranties of Amscan Holdings, Inc. and
BWP Acquisition, Inc. set forth in the merger agreement must be
true and correct at the effective time of the merger (ignoring
any materiality or similar qualifiers) as though made on and as
of such date and time (except to the extent that any such
representation and warranty expressly speaks as of an earlier
date, in which case such representation and warranty shall be
true and correct as of such earlier date), except for failures
of such representations and warranties to be so true and correct
which, individually or in the aggregate, do not have a material
adverse effect on the ability of Amscan Holdings, Inc. or BWP
Acquisition, Inc. to perform their obligations under the merger
agreement or that would not prevent or materially impede,
interfere with, hinder or delay the consummation of the
merger; and |
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Amscan Holdings, Inc. and BWP Acquisition, Inc. must have
performed or complied in all material respects with all
agreements and covenants required to be performed by them under
the merger agreement prior to the effective time of the merger. |
In addition, the obligations of Amscan Holdings, Inc. and BWP
Acquisition, Inc. to effect the merger and other transactions
contemplated by the merger agreement is subject to the
satisfaction or waiver of the following conditions:
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our representations and warranties in the merger agreement as to
corporate authorization relative to the merger agreement, the
binding nature of the merger agreement and state takeover
statutes not restricting the merger must be true and correct in
all material respects at the effective time of the merger as
though made on and as of such date and time (except to the
extent that any such representation and warranty expressly
speaks as of an earlier date, in which case such representation
and warranty shall be true and correct as of such earlier date); |
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our other representations and warranties in the merger agreement
must be true and correct at the effective time of the merger
(ignoring any materiality or similar qualifiers) as though made
on and as of such date and time (except to the extent that any
such representation and warranty expressly speaks as of an
earlier date, in which case such representation and warranty
shall be true and correct as of such earlier date), except: |
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with respect to our representations and warranties as to our
capitalization, where the failure of such representations and
warranties to be true and correct will not result in fees,
costs, charges, losses, expenses or other amounts attributable
to or payable by Amscan Holdings, Inc., BWP Acquisition, Inc. or
the surviving corporation in excess of $100,000; |
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with respect to our representations and warranties as to
affiliate transactions, where the failure of such
representations and warranties to be true and correct will not
result in fees, costs, charges, losses, expenses or other
amounts attributable to or payable by Amscan Holdings Inc., BWP
Acquisition, Inc. or the surviving corporation in excess of
$50,000; and |
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with respect to our other representations and warranties, for
the failure of such representations and warranties to be true
and correct which, individually or in the aggregate, do not
result in, and could not reasonably be expected to result in, a
material adverse effect on us. |
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we must have performed, in all material respects, all agreements
and covenants required to be performed by us under the merger
agreement prior to the effective time of the merger; |
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the debt financing pursuant to the commitment letters shall have
been consummated, or Amscan Holdings, Inc. shall have received
the proceeds of alternate debt financing in the same amount and
on terms and conditions no less favorable to Amscan Holdings,
Inc. and BWP Acquisition, Inc. than those contained in such
commitment letters; and |
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there must not have occurred any material adverse effect on us
since September 26, 2005. |
Termination of the Merger Agreement
The merger agreement may be terminated and the merger may be
abandoned at any time prior to the effective time by action
taken or authorized by the board of directors of the terminating
party or parties, notwithstanding any requisite adoption of the
merger agreement by our stockholders, and whether before or
after our stockholders have adopted the merger agreement, as
follows:
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by mutual written consent of BWP Acquisition, Inc. and us; |
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by either Amscan Holdings, Inc. or us if the effective time
shall not have occurred on or before March 31, 2006, unless
the failure to consummate the merger is the result of a breach
of the merger agreement by the party seeking to terminate the
merger agreement, and the conditions relating to the last
termination right described under this section do not apply; |
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by Amscan Holdings, Inc. if our board of directors or the
special committee (1) withdraws, modifies or changes, in a
manner adverse to Amscan Holdings, Inc., its recommendation
concerning the merger, (2) approves, adopts or recommends a
takeover proposal or superior proposal; (3) allows us to
enter into any agreement constituting or relating to, or that is
intended to or would be reasonably expected to result in a
takeover proposal or (4) take a position contemplated by
Rule 14e2(a) of the Securities Exchange Act of 1934,
as amended, other than recommending rejection of a takeover
proposal. We refer to these events as an adverse
recommendation change; |
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by us if, prior to the special meeting of our stockholders to
approve the merger agreement and the merger, solely in response
to an unsolicited bona fide written takeover proposal from a
third party, our board of directors or the special committee
makes an adverse recommendation change under the following
circumstances: |
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our board of directors or the special committee is required do
so in order to comply with its fiduciary duties to our
stockholders under applicable law; |
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our board of directors or the special committee determines in
good faith (after consultation with its outside legal counsel
and financial advisor) that such takeover proposal is a superior
proposal; |
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we and our board of directors or the special committee are not
otherwise in violation of the takeover proposal section of the
merger agreement; |
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Amscan Holdings, Inc. has been given three business days notice
of our board of directors or the special committees
intention to make such an adverse recommendation change and our
board of directors or the special committee has considered in
good faith any changes to the merger agreement proposed during
such three business day period by Amscan Holdings, Inc. and our
board of directors or the special committee shall not have
determined that the third partys takeover proposal would
no longer constitute a superior proposal if Amscan Holdings,
Inc.s changes were to be given effect; and |
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we pay Amscan Holdings, Inc. a termination fee of
$15 million; |
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by either Amscan Holdings, Inc. or us if the merger agreement
fails to receive stockholder approval; |
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by either Amscan Holdings, Inc., BWP Acquisition, Inc. or us if
any court or governmental entity shall have issued an order,
decree or ruling or taken any other action permanently
enjoining, restraining or |
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otherwise prohibiting the merger and such order, decree, ruling
or other action shall have become final and nonappealable; |
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by Amscan Holdings, Inc. if (1) any of our representations
and warranties in the merger agreement are or become untrue or
inaccurate, or (2) we breach any of our covenants or
agreements in the merger agreement, and, in either such case, we
cannot satisfy the applicable condition to close and such breach
has not been, or cannot be, cured within the earlier of
30 days after notice to us or March 31, 2006; |
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by us if (1) any of the representations and warranties of
either Amscan Holdings, Inc. or BWP Acquisition, Inc. in the
merger agreement are or become untrue or inaccurate, or
(2) Amscan Holdings, Inc. or BWP Acquisition, Inc. breach
any of their respective covenants or agreements in the merger
agreement, and, in either such case, Amscan Holdings, Inc. or
BWP Acquisition, Inc. cannot satisfy the applicable condition to
close and such breach has not been, or cannot be, cured within
the earlier of 30 days after notice to us or March 31,
2006; |
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by us, if the commitment letters for the debt financing have
been withdrawn or the lenders for such debt financing notify
Amscan Holdings, Inc. that the conditions set forth in such
commitment letters cannot or will not be satisfied, and Amscan
Holdings, Inc. is unable to secure alternate commitments for the
debt financing to the reasonable satisfaction of our board of
directors within thirty calendar days; or |
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by us or Amscan Holdings, Inc., if (1) the closing shall
not have occurred on or before March 31, 2006, (2) we
are not otherwise in breach of the merger agreement, (3) we
have satisfied (or are immediately capable of satisfying) all of
the conditions to closing that we have responsibility to fulfill
and (4) the only condition to closing that cannot be
satisfied is the condition for the consummation of the debt
financing. |
Termination Fees
We will be required to pay Amscan Holdings, Inc. a termination
fee of $15 million if any of the following occurs in
connection with the termination of the merger agreement:
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the merger agreement is terminated: |
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by us or Amscan Holdings, Inc. because the closing has not
occurred prior to March 31, 2006 (other than by reason of a
breach of the merger agreement by the party seeking to terminate
the merger agreement or under the circumstances detailed in last
termination right described under the section entitled
Termination of the Merger Agreement), or
because the merger agreement fails to receive stockholder
approval at the special meeting, or |
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by Amscan Holdings, Inc. because (1) any of our
representations and warranties in the merger agreement are or
become untrue or inaccurate, or (2) we breach any of our
covenants or agreements in the merger agreement, and, in either
such case, we cannot satisfy the applicable condition to close
and such breach has not been, or cannot be, cured within the
earlier of 30 days after notice to us or March 31,
2006, |
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in each case, only if (A) at or prior to the date of
termination, a takeover proposal shall have been commenced or
publicly proposed or disclosed to our board of directors or the
special committee, and (B) within 12 months after such
termination, we enter into a definitive agreement with respect
to or consummate a takeover proposal (provided that, for this
purpose, the reference in the definition of takeover proposal to
25% will be replaced by 50%). However, we will not be required
to pay the termination fee as a result of the termination by us
or Amscan Holdings, Inc. because of the failure to consummate
the merger by March 31, 2006 under the circumstances
described in the foregoing sentence if we or Amscan Holdings,
Inc. could have terminated the merger agreement under the
circumstances described in the last termination right described
under the section entitled Termination of the
Merger Agreement. |
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Amscan Holdings, Inc. terminates the merger agreement as a
result of our board of directors or the special committee making
an adverse recommendation change; |
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we terminate the merger agreement, because our board of
directors or the special committee makes an adverse
recommendation change in accordance with the provisions
discussed in Termination of the Merger Agreement. |
Amscan Holdings, Inc. shall, for a period of three
(3) years, pay us an amount equal to five percent (5%) of
our and our affiliates and franchisees total cash
expenditures for goods or services supplied by Amscan Holdings,
Inc., Amscan, Inc. or any of its subsidiaries to us or our
subsidiaries for such annual period, with payments made annually
within forty-five (45) days of each anniversary of such
termination, if we terminate the merger agreement because:
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(a) any of the representations and warranties of either
Amscan Holdings, Inc. or BWP Acquisition, Inc. in the merger
agreement are or become untrue or inaccurate, or (b) Amscan
Holdings, Inc. or BWP Acquisition, Inc. breaches any of their
respective covenants or agreements in the merger agreement, and,
in either such case, Amscan Holdings, Inc. or BWP Acquisition,
Inc. cannot satisfy the applicable condition to close and such
breach has not been, or cannot be, cured within the earlier of
30 days after notice to us of such breach or March 31,
2006; |
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the commitment letters for the debt financing have been
withdrawn or the lenders for such debt financing notify Amscan
Holdings, Inc. that the conditions set forth in such commitment
letters cannot or will not be satisfied, and Amscan Holdings,
Inc. is unable to secure alternate commitments for the debt
financing to the reasonable satisfaction of our board of
directors within thirty calendar days; or |
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(1) the closing shall not have occurred on or before
March 31, 2006, (2) we are not otherwise in breach of
the merger agreement, (3) we have satisfied (or are
immediately capable of satisfying) all of the conditions to
closing that we have responsibility to fulfill and (4) the only
condition to closing that cannot be satisfied is the condition
for the consummation of the debt financing. |
Amendment
The parties may amend the merger agreement at any time before
the effective time of the merger, provided, however, after
stockholder approval has been obtained, the parties may not
amend the merger agreement in a manner that by law, or in
accordance with the rules of any relevant stock exchange,
requires further approval by our stockholders without obtaining
such further approval.
APPRAISAL RIGHTS
Delaware law entitles the holders of shares of our common stock
who follow the procedures specified in Section 262 of the
General Corporation Law of the State of Delaware to have their
shares appraised by the Delaware Court of Chancery, which we
refer to as the Chancery Court, and to receive fair
value of these shares, exclusive of any element of value
arising from the accomplishment or expectation of the merger,
together with a fair rate of interest, if any, as of completion
of the merger in place of the merger consideration, as
determined by the Chancery Court.
In order to exercise appraisal rights, a holder must demand and
perfect the rights in accordance with Section 262. If you
fail to comply with the specific requirements of
Section 262, you will be entitled to receive the cash
payment for your shares as provided in the merger agreement, but
you will have no appraisal rights with respect to your shares.
The following description is intended as a brief summary of the
material provisions of the Delaware statutory procedures
required to be followed in order to dissent from the merger and
perfect appraisal rights. This summary, however, is not a
complete statement of all applicable requirements and is
qualified in its entirety by reference to Section 262 of
the General Corporation Law of the State of Delaware, the full
text of which appears in Annex C to this proxy statement.
This summary does not constitute legal advice, nor does it
constitute a recommendation that you exercise your rights to
appraisal under Section 262.
51
Section 262 requires that, where a merger agreement is to
be submitted for adoption at a stockholders meeting,
stockholders on the record date for the meeting be notified not
less than 20 days before the meeting that appraisal rights
will be available. A copy of Section 262 must be included
with the notice. This proxy statement constitutes our notice to
the holders of shares of our common stock of the availability of
appraisal rights in connection with the merger in compliance
with the requirements of Section 262. If you wish to
consider exercising your appraisal rights, you should carefully
review the text of Section 262 contained in Annex C to
this proxy statement, since failure to timely and properly
comply with the requirements of Section 262 will result in
the loss of your appraisal rights under Delaware law.
If you elect to demand appraisal of your shares, you must:
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be a holder of record of shares of our common stock on the date
that the written demand for appraisal is made, and you must
continue to hold the shares of record through the effective date
of the merger; |
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deliver to us a written demand for appraisal of your shares of
Party City common stock before the vote of stockholders with
respect to the adoption of the merger agreement is
taken; and |
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not vote in favor of the adoption of the merger agreement. |
If you vote for the adoption of the merger agreement, you will
not be eligible to exercise appraisal rights in respect of the
shares so voted and such a vote will nullify any demand for
appraisal you may have made. Neither voting (in person or by
proxy) against, abstaining from voting on nor failing to vote on
the proposal to adopt the merger agreement will constitute a
written demand for appraisal within the meaning of
Section 262 of the General Corporation Law of the State of
Delaware. The written demand for appraisal must be in addition
to and separate from any proxy or vote. If the written demand
for appraisal is made in accordance with the requirements of
Delaware law, failure to vote against the proposal to adopt the
merger agreement (i.e., abstaining) will not operate as a waiver
of the stockholders appraisal rights.
Only a holder of record of shares of our common stock who
continuously holds such shares through the date of the merger is
entitled to assert appraisal rights for the shares of common
stock registered in that holders name. A demand for
appraisal should be executed by or on behalf of the holder of
record, fully and correctly, as his, her or its name appears on
his, her or its stock certificates, and must state that such
person intends thereby to demand appraisal of his, her or its
shares of our common stock in connection with the merger. If the
shares of our common stock are owned of record in a fiduciary
capacity, such as by a trustee, guardian or custodian, execution
of the demand should be made in that capacity, and if the shares
of common stock are owned of record by more than one person, as
in a joint tenancy and tenancy in common, the demand should be
executed by or on behalf of all joint owners. An authorized
agent, including an agent for two or more joint owners, may
execute a demand for appraisal on behalf of a holder of record;
however, the agent must identify the record owner or owners and
expressly disclose the fact that, in executing the demand, the
agent is acting as an agent for such owner or owners. A record
holder, such as a broker who holds shares of our common stock as
nominee for several beneficial owners, may exercise appraisal
rights with respect to the shares of our common stock held for
one or more beneficial owners while not exercising such rights
with respect to the shares of our common stock held for other
beneficial owners; in such case, however, the written demand
should set forth the number of shares of our common stock as to
which appraisal is sought, and where no number of shares of our
common stock is expressly mentioned, the demand will be presumed
to cover all shares of our common stock which are held in the
name of the record owner. A beneficial owner who does not hold
the shares of record may not make an appraisal demand but must
have the record holder submit such demand.
Stockholders who hold their shares of our common stock in
brokerage accounts or other nominee forms and who wish to
exercise appraisal rights are urged to consult with their
brokers to determine the appropriate procedures for the making
of a demand for appraisal by such a nominee.
All demands for appraisal must be made in writing and addressed
to the Secretary of Party City at 400 Commons Way,
Rockaway, New Jersey, before the stockholder vote on the
adoption of the merger agreement is taken at the special
meeting. The demand must reasonably inform us of the identity of
the holder and the intention of the holder to demand appraisal
of his, her or its shares of common stock. If your shares of
52
our common stock are held through a broker, bank, nominee or
other third party, and you wish to demand appraisal rights, you
must act promptly to instruct the applicable broker, bank,
nominee or other third party to follow the steps summarized in
this section.
Within ten days after the effective date of the merger, the
surviving corporation must give written notice of the date the
merger became effective to each holder who has properly filed a
written demand for appraisal and has not voted in favor of the
adoption of the merger agreement. At any time within
60 days after the effective date of the merger, any holder
who has demanded an appraisal has the right to withdraw the
demand and to accept the cash payment specified by the merger
agreement for his or her shares of our common stock. Within
120 days after the effective date of the merger, either the
surviving corporation or any holder who has complied with the
requirements of Section 262 and who is otherwise entitled
to appraisal rights may file a petition in the Delaware Court of
Chancery demanding a determination of the fair value of the
shares of our common stock held by all holders entitled to
appraisal. Neither Amscan Holdings, Inc. nor we have any
intention or obligation to file such a petition. Accordingly,
the failure of a holder to file a petition in the Chancery Court
demanding a determination of the fair value of the shares within
120 days after the effective date of the merger could
nullify the holders previously written demand for
appraisal. Within 120 days after the effective date of the
merger, any holder of our common stock who has complied with the
requirements for exercise of appraisal rights under
Section 262 will be entitled, upon written request, to
receive from the surviving corporation a statement setting forth
the aggregate number of shares not voted in favor of the merger
and with respect to which demands for appraisal have been
received and the aggregate number of holders of such shares. The
statement must be mailed to such holder within ten days after a
written request for the statement has been received by the
surviving corporation.
If a petition for appraisal is duly filed by a holder and a copy
of the petition is delivered to the surviving corporation, the
surviving corporation will then be obligated, within
20 days after receiving service of a copy of the petition,
to provide the Chancery Court with a duly verified list
containing the names and addresses of all holders who have
demanded an appraisal of their shares of our common stock and
with whom agreements as to the value of their shares of our
common stock have not been reached by the surviving corporation.
After notice to dissenting holders of the time and place of the
hearing of the petition, the Chancery Court is empowered to
conduct such a hearing. At the hearing, the Chancery Court will
determine those holders who have complied with Section 262
and who have become entitled to appraisal rights. The Chancery
Court may require the holders who have demanded an appraisal for
their shares of our common stock to submit their stock
certificates to the Register in Chancery of the Chancery Court
for notation of the pendency of the appraisal proceedings; if
any stockholder fails to comply with that direction, the
Chancery Court may dismiss the proceedings as to that holder.
After determination of the holders entitled to appraisal of
their shares of our common stock, the Chancery Court will
appraise the shares, determining their fair value exclusive of
any element of value arising from the accomplishment or
expectation of the merger, together with a fair rate of
interest, if any. When the fair value is determined, the
Chancery Court will direct the payment of the value, with
interest accrued during the pendency of the proceeding, if
determined by the Chancery Court, by the surviving corporation
to the holders entitled to receive payment, upon surrender by
such holders of the certificates representing the applicable
shares of our common stock.
In determining fair value and the fair rate of interest, if any,
the Chancery Court is required to take into account all relevant
factors. In Weinberger v. UOP, Inc., 497 A.2d 701
(Del. 1983), the Supreme Court of Delaware discussed the factors
that could be considered in determining fair value in an
appraisal proceeding, stating that proof of value by any
techniques or methods that are generally considered acceptable
in the financial community and otherwise admissible in
court should be considered, and that fair price
obviously requires consideration of all relevant factors
involving the value of a company. The Delaware Supreme
Court stated that, in making this determination of fair value,
the court must consider market value, asset value,
dividends, earnings prospects, the nature of the enterprise and
any other facts which were known or which could be ascertained
as of the date of the merger and which throw any light on future
prospects of the merged corporation. Section 262
provides that fair value is to be exclusive of any element
of value arising from the accomplishment or expectation of the
merger. In Cede & Co. v. Technicolor,
Inc., 684 A.2d 289 (Del. 1986),
53
the Delaware Supreme Court stated that such exclusion is a
narrow exclusion [that] does not encompass known elements
of value, but which rather applies only to the speculative
elements of value arising from such accomplishment or
expectation. In Weinberger, the Supreme Court of Delaware
also stated that elements of future value, including the
nature of the enterprise, which are known or susceptible of
proof as of the date of the merger and not the product of
speculation, may be considered. You should be aware that
the fair value of your shares of Party City common stock as
determined under Section 262 could be more, the same, or
less than the value that you are entitled to receive under the
terms of the merger agreement.
Costs of the appraisal proceeding may be imposed upon the
parties participating in the appraisal proceeding by the
Chancery Court as the Chancery Court deems equitable in the
circumstances. However, costs do not include attorneys and
expert witness fees. Each dissenting holder is responsible for
his, her or its attorneys and expert witness expenses,
although, upon the application of a holder, the Chancery Court
may order all or a portion of the expenses incurred by any
holder in connection with the appraisal proceeding, including,
without limitation, reasonable attorneys fees and the fees
and expenses of experts, to be charged pro rata against the
value of all shares of our common stock entitled to appraisal.
Any holder who has demanded appraisal rights will not, from and
after the effective date of the merger, be entitled to vote
shares of Party City common stock subject to such demand for any
purpose or to receive payments of dividends or any other
distribution with respect to those shares, other than dividends
or other distributions payable to our stockholders of record at
a date prior to the effective date of the merger; however, if a
holder delivers a written withdrawal of his, her or its demand
for appraisal and an acceptance of the merger within
60 days after the effective date of the merger, then the
right of that holder to appraisal will cease and that holder
will be entitled to receive the cash payment for his, her or its
shares of our common stock pursuant to the merger agreement. Any
withdrawal of a demand for appraisal made more than 60 days
after the effective date of the merger may only be made with the
written approval of the surviving corporation. Notwithstanding
the foregoing, no appraisal proceeding in the Chancery Court
will be dismissed as to any holder without the approval of the
Chancery Court and such approval may be subject to conditions
the Chancery Court deems just. If no petition for appraisal is
filed with the Chancery Court within 120 days after the
effective date of the merger, holders rights to appraisal
shall cease, and all holders of shares of Party City common
stock will be entitled to receive the consideration offered
pursuant to the merger agreement.
In view of the complexity of Section 262, holders of
shares of our common stock who may wish to pursue appraisal
rights should promptly consult their legal advisors.
MARKET PRICE AND DIVIDEND DATA
Our common stock has traded on the Nasdaq National Market under
the symbol PCTY since its re-listing in July 2001.
From July 1999 until its re-listing on the Nasdaq National
Market, our common stock was traded on the OTC
Bulletin Board, an electronic quotation service for NASD
Market Makers. From March 1996 until July 1999 our common stock
was traded on the Nasdaq National Market.
The closing sales price of our common stock as reported on the
Nasdaq National Market on September 26, 2005, which was the
last trading day before we announced the merger, was $12.28. On
November 4, 2005, which is the latest practicable trading
day before this proxy statement was printed, the closing sales
price for our common stock as reported on the Nasdaq National
Market was $16.12.
If the merger is consummated, our common stock will be delisted
from The Nasdaq National Market, there will be no further public
market for shares of our common stock and each share of our
common stock will be converted into the right to receive $17.50
in cash, without interest and less any applicable withholding
taxes.
54
The following table sets forth the high and low trading prices
of our common stock for each quarter of the latest two fiscal
years:
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High | |
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Low | |
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Fiscal year ended July 3, 2004:
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First Quarter
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$ |
12.18 |
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$ |
9.56 |
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Second Quarter
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15.00 |
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11.83 |
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Third Quarter
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15.47 |
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11.31 |
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Fourth Quarter
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17.32 |
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11.25 |
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Fiscal year ended July 2, 2005:
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First Quarter
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$ |
15.25 |
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$ |
11.25 |
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Second Quarter
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15.63 |
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12.15 |
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Third Quarter
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16.39 |
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11.33 |
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Fourth Quarter
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14.67 |
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11.39 |
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Fiscal year ending July 1, 2006:
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First Quarter
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$ |
17.01 |
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$ |
12.08 |
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You are encouraged to obtain current market quotations for Party
City common stock in connection with voting your shares.
At November 2, 2005, the number of holders of record of our
common stock was 361.
We have never paid cash dividends on our capital stock and do
not intend to pay cash dividends in the foreseeable future. We
expect that earnings will be retained for the continued growth
and development of our business. Future dividends, if any, will
depend upon our earnings, financial condition, working capital
requirements, compliance with covenants in agreements to which
we are or may be subject, future prospects and any other factors
deemed relevant by our board of directors. Under various
agreements to which we are a party, principally under the a loan
agreement with Wells Fargo, there are restrictions on paying out
dividends.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth information regarding the
beneficial ownership of Party Citys common stock, as of
November 2, 2005, for individuals or entities in the
following categories: (i) each person known by the Company
to be a beneficial owner of more than 5% of the common stock;
(ii) each director; (iii) each executive officer named
in our annual report on form 10-K for the fiscal year ended
July 2, 2005; and (iv) all directors and executive
officers as a group. Beneficial ownership of shares,
as defined in the Securities and Exchange Act of 1934, generally
includes any shares over which a person exercises sole or shared
voting or investment power, including but not limited to the
right to acquire such shares within 60 days. For purposes
of calculating the percentage of outstanding shares held by each
person named below, any shares that such person has the right to
acquire within 60 days are deemed to be outstanding, but
not for the purposes of calculating the percentage ownership of
any other person. Except as indicated by footnote, each of the
stockholders has sole voting and investment power with respect
to the shares beneficially owned. Unless otherwise noted in the
table, the address for each of the stockholders is
c/o Party City Corporation, 400 Commons Way, Rockaway,
New Jersey 07866.
Except as indicated by footnote, each of the executive officers
and directors has sole voting and investment power with respect
to the common stock beneficially owned; see the SEC filings
referred to in the respective footnotes for the voting and
investment power for the other stockholders set forth below. In
addition, except as indicated by footnote, the address for each
of the stockholders is c/o Party City Corporation,
400 Commons Way, Rockaway, New Jersey 07866.
55
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Shares Beneficially Owned | |
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Name of Beneficial Owner |
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Number | |
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Percent | |
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Michael E. Tennenbaum, Amscan Holdings, Inc., et al
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5,595,872 |
(1)(2) |
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28.2 |
% |
Tennenbaum Capital Partners, LLC and Tennenbaum & Co.,
LLC
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5,537,872 |
(1) |
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28.0 |
% |
Reid S. Walker and G. Stacy Smith
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2,135,780 |
(3) |
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10.8 |
% |
UBS AG, et al
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1,253,491 |
(4) |
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6.3 |
% |
Sidney and Jenny Craig
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1,219,202 |
(5) |
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6.2 |
% |
Bank of America Corporation, et al
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1,062,300 |
(6) |
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5.4 |
% |
Ralph D. Dillon
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757,940 |
(7) |
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3.7 |
% |
L.R. Jalenak, Jr.
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123,965 |
(8) |
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* |
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Franklin R. Johnson
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33,333 |
(9) |
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* |
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Howard Levkowitz
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71,527 |
(10) |
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* |
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Walter Salmon
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59,000 |
(11) |
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* |
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Richard H. Griner
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90,000 |
(12) |
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* |
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Lisa Laube
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30,000 |
(13) |
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* |
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Gregg A. Melnick
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15,000 |
(14) |
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* |
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Steven Skiba
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31,393 |
(15) |
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* |
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All directors and executive officers as a group (10 persons)
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32.7 |
% |
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(1) |
The shares of common stock are owned by Tennenbaum Capital
Partners, LLC (TCP, formerly known as Special Value
Investment Management, LLC) and Tennenbaum & Co., LLC
(TCO) as follows: 2,332,952 shares are owned of
record by Special Value Bond Fund, LLC (SVBF);
2,813,420 shares of common stock are owned of record by
Special Value Absolute Return Fund, LLC (SVAR);
318,000 shares of common stock are owned of record by
Special Value Bond Fund II, LLC (SVBF II);
25,000 shares of common stock are owned of record by a
separate account managed by TCP; and 48,500 shares of
common stock are owned of record by TCO. For purposes of the
table above, we have attributed the 48,500 shares of common
stock owned by TCO to be beneficially owned by TCP. |
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The managing member of SVBF is SVIM/ MSM, LLC (SVIM/
MSM) and the managing member of SVBF II is SVIM/
MSM II, LLC (SVIM/ MSM II). The managing
member of both SVIM/ MSM and SVIM/ MSM II is TCO. The
managing member of SVAR is SVAR/ MM, LLC (SVAR/ MM),
and the managing member of SVAR/ MM is TCP. The managing member
of TCP is TCO. The managing member of TCO is Michael E.
Tennenbaum. See Amendment No. 8 to Schedule 13D, filed
with the SEC on September 28, 2005, for a description of
each entitys voting and investment power. Following the
date of such Amendment No. 8 to Schedule 13D, (i) SVBF
exercised its warrant pursuant to the net exercise provisions,
resulting in the issuance of 2,332,952 shares rather than
2,496,000 shares and (ii) Tennenbaum & Co.,
LLC disposed of 65,561 shares. The principal business
address for TCP and TCO is 2951 28th St., Suite 1000,
Santa Monica, CA 90405. |
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(2) |
As the managing member of TCO, Mr. Tennenbaum shares voting
and investment power for all of the shares of common stock owned
of record by the TCP and TCO (see also footnote 1). The
table also includes 58,000 shares of common stock subject
to outstanding options that are owned by Mr. Tennenbaum. |
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On September 26, 2005, Mr. Tennenbaum, TCP, TCO, SVBF,
SVAR and SVBF II entered into a Voting Agreement with Amscan
Holdings, Inc. (AHI) in connection with an Agreement
and Plan of Merger as of the same date thereof. By reason of the
Voting Agreement, AHI may be deemed to have acquired beneficial
ownership of all of shares of common stock beneficially owned by
Mr. Tennenbaum and such entities. In addition, by virtue of
their direct and indirect ownership of AHIs capital stock,
AAH Holdings, Berkshire Fund V, Limited Partnership
(Fund V), Berkshire Fund VI, Limited
Partnership (Fund VI) and Berkshire Investors
LLC (BI LLC) may be deemed to have acquired |
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beneficial ownership of such shares as well. The principal
business address of AHI and AAH Holdings is 80 Grasslands
Road, Elmsford, NY 10523. The principal business address of
Fund V, Fund VI and BI LLC is One Boston Place,
Suite 3300, Boston, Massachusetts 02108. |
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(3) |
As reported by Reid S. Walker and G. Stacy Smith in the Second
Amendment to the Schedule 13D filed with the SEC on
September 16, 2005. For purposes of the table above, we
have attributed the 1,000 shares of common stock directly
owned by Reid S. Walker to be beneficially owned by
G. Stacy Smith. The principal business address for
Reid S. Walker and G. Stacy Smith is 300 Crescent
Court, Suite 880 Dallas, Texas 75201. |
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(4) |
As reported by UBS AG, UBS Americas Inc. and UBS Global Asset
Management (Americas) Inc. in the Schedule 13G filed with
the SEC on February 17, 2005. The principal business for
(i) UBS AG is Bahnhofstrasse 45, P.O. Box CH-8021,
Zurich, Switzerland, (ii) UBS Americas Inc. is 677
Washington Blvd, Stamford, Connecticut 06901, and (iii) UBS
Global Asset Management (Americas) Inc. is One North Wacker,
Chicago, Illinois 60606. |
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(5) |
As reported by Sidney and Jenny Craig in the Second Amendment to
the Schedule 13G filed with the SEC on August 7, 2003.
The principal business address for Sidney and Jenny Craig is
16092 San Dieguito, P.O. Box 675532, Rancho
Santa Fe, CA 92067. |
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(6) |
As reported by Bank of America Corporation, Fleet National Bank,
Columbia Management Group, Inc. and Columbia Management
Advisors, Inc. in the Schedule 13G filed with the SEC on
February 11, 2005. The principal business address for each
of the entities is 100 North Tryon Street, Floor 25, Bank
of America Corporate Center, Charlotte, NC 28255. |
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(7) |
Includes 562,940 shares of common stock subject to
outstanding options. |
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(8) |
Includes 58,000 shares of common stock subject to
outstanding options. |
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(9) |
Includes 33,333 shares of common stock subject to
outstanding options. |
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(10) |
Includes 58,000 shares of common stock subject to
outstanding options. |
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(11) |
Includes 55,000 shares of common stock subject to
outstanding options. |
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(12) |
Includes 90,000 shares of common stock subject to
outstanding options. |
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(13) |
Includes 30,000 shares of common stock subject to
outstanding options. |
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(14) |
Includes 15,000 shares of common stock subject to
outstanding options. |
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(15) |
Includes 31,393 shares of common stock subject to
outstanding options. |
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TRANSACTIONS IN SHARES OF COMMON STOCK
Issuer Purchases of Equity Securities
In September 2001, the Board of Directors authorized the Company
to repurchase up to $15 million of its outstanding common
stock at a price not to exceed $7.00 per share, which was
amended on February 7, 2003 to a price not to exceed
$10.00 per share. The stock repurchases are made at the
discretion of management. During Fiscal 2003, the Company
repurchased 463,012 shares for an aggregate amount of
$4.1 million or 27.4% of the total amount authorized to be
purchased. There were no shares purchased in Fiscal 2005, Fiscal
2004 and through the first quarter of Fiscal 2006 under the
stock repurchase plan. As of July 2, 2005, the Company had
purchased 747,012 shares for an aggregate amount of
$5.9 million or 39.6% of the total amount authorized to be
purchased.
Purchases by AAH Holdings, Amscan Holdings, Inc. and BWP
Acquisition, Inc.
None of AAH Holdings, Amscan Holdings, Inc. and BWP Acquisition,
Inc., has held of record any shares of our common stock during
the past eighteen months or currently holds of record any shares
of our common stock.
57
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On August 16, 1999, Tennenbaum & Co., LLC
(TCO) purchased $2,250,000 in aggregate principal
amount of the Companys 13.0% Secured Notes due 2002,
$4.5 million in aggregate principal amount of the
Companys 14.0% Secured Notes due 2004 and Warrants to
purchase 3,096,000 shares of the Companys stock.
TCO then transferred all of these Secured Notes and the Warrants
to Special Value Bond Fund, LLC (SVBF) effective as
of September 1, 1999. Then on January 14, 2000, SVBF
purchased $3,250,000 in aggregate principal amount of the
Companys 14.0% Secured Notes due 2002. On
November 20, 2000, Special Value Bond Fund II, LLC,
(SVBF II) purchased $10.0 million in
aggregate principal amount of the Companys 12.5% Secured
Notes due 2003 (the A Notes) and
$5.0 million in aggregate principal amount of the
Companys 13.0% Secured Notes due 2003 (the B
Notes). Subsequently on November 20, 2000,
SVBF II sold $5.0 million in aggregate principal
amount of the A Notes and $2.5 million in aggregate
principal amount of the B Notes to other Company investors. The
managing member of SVBF II is SVIM/ MSM II, LLC
(SVIM/ MSM II) and the managing member of SVIM/
MSM II is TCO. The managing member of SVBF is SVIM/ MSM,
LLC (SVIM/ MSM) and the managing member of SVIM/ MSM
is TCO. The managing member of TCO is Michael E. Tennenbaum, the
Companys Vice Chairman of the Board of Directors. During
Fiscal 2003 and Fiscal 2002, Secured Notes totaling
$3.9 million and $9.3 million were repaid,
respectively. For the fiscal years ended June 28, 2003 and
June 29, 2002, the Company paid $1.0 million and
$2.3 million of interest related to these Notes,
respectively.
On November 2, 1999, Ralph Dillon, the Non-Executive
Chairman of the Board of Directors, purchased $167,000 in
aggregate principal amount of the Companys 13.0% Secured
Notes due 2002, $333,000 in aggregate principal amount of the
Companys 14.0% Secured Notes due 2004, and Warrants to
purchase 229,333 shares of the Companys stock
from one of the Investors for a total purchase price of
$498,000. During Fiscal 2003 and Fiscal 2002, the Secured Notes
totaling $333,000 and $167,000 were repaid, respectively. In
Fiscal 2003 and Fiscal 2002, the Company paid $78,000 and
$80,000 of interest related to these Notes, respectively.
On June 22, 2001, the Company granted options for
90,000 shares of the Companys common stock to Ralph
Dillon as compensation for his services to the Company. These
options were granted at $6.25 per share and vested upon
issuance. In addition, on each of January 12, 2002,
July 12, 2002, January 12, 2003 and July 12, 2004
additional grants of options for 50,000 shares of the
Companys common stock were made to Mr. Dillon, which
options had an exercise price of $9.38, $17.00, $17.00 and
$17.00, respectively. All of these options vested upon issuance.
Compensation expensed was recorded for all grants. Compensation
expense included in the statement of income for Fiscal 2005,
2004 and 2003 was $5,000 , $101,000 and $154,000, respectively.
The Company entered into an oral consulting agreement
(Oral Agreement) with Mr. Dillon in 1999
pursuant to which Mr. Dillon receives a consulting fee of
$10,000 per month in exchange for advising and consulting
with the Company regarding strategic planning, general
operations and merchandising programs. From September 18,
2003 to January 12, 2004, this monthly amount was increased
to $20,000 per month during which time Mr. Dillon
assumed the responsibility of conducting a search for a
permanent Chief Executive Officer. During the term of the
Consulting Agreement defined below, the Oral Agreement shall be
suspended and Mr. Dillon will receive no fees thereunder.
Upon the termination of the Consulting Agreement, the Oral
Agreement shall be reinstated, provided however that either
party may terminate the Oral Agreement at any time upon notice
to the other party. Mr. Dillon also received $50,000 in
Fiscal 2004 for assuming additional responsibilities during the
transition of hiring a permanent Chief Executive Officer.
On April 12, 2005, the Company entered into a consulting
agreement (the Consulting Agreement) with Dillon
Associates Retail Consultants (DARC) and it is the
parties intention that Ralph D. Dillon, Non-Executive
Chairman of the Board of Directors of the Company and principal
of DARC, provide the Company with strategic business, management
and financial advice pursuant to the Consulting Agreement.
Notwithstanding that, the Consulting Agreement does not affect
Mr. Dillons duties, obligations or authority as a
director of the Company. The term of the Consulting Agreement is
from March 21, 2005 through June 30, 2005, provided
that the term is automatically be extended for successive ninety
day periods unless
58
either party provides written notice to the other not later than
thirty days prior to the expiration of the term then in effect.
Pursuant to the Consulting Agreement, the Company will pay
Mr. Dillon a consulting fee of $700 per hour (the
Hourly Fee), which includes reasonable travel time
incurred by Mr. Dillon pursuant to the Consulting
Agreement. The Company will pay Mr. Dillon the Hourly Fee
on the first business day of each month based on Mr. Dillon
providing proper accounts for hours worked under the Consulting
Agreement. In addition, the Company will provide medical and
dental benefit plan coverage (or payment of an amount sufficient
to purchase such coverage) to Mr. Dillon and his spouse, to
the same degree available to senior executives of the Company,
and such provision will continue through the date of the
recipients respective deaths.
Jason Craig and Steven Craig, sons of Sidney Craig, President of
Craig Enterprises, Inc., own and operate six and five Party City
franchised stores, respectively, located in California. During
Fiscal 2005, pursuant to the terms of their respective franchise
agreements with the Company Jason Craig paid the Company
$816,000 and Steven Craig paid the Company $690,000. Craig
Enterprises, Inc. owns 1,107,000 shares of common stock as
reported in the Second Amendment to Schedule 13G filed by
Craig Enterprises, Inc. with the SEC on August 7, 2003.
Sidney and Jenny Craig own an additional 112,202 shares of
common stock directly.
DIRECTORS AND EXECUTIVE OFFICERS OF PARTY CITY
Ralph D. Dillon has been the Non-Executive Chairman of
the Board of Directors since December 10, 1999 and has been
a director of the Company since October 1, 1999. Prior to
becoming a director of the Company, Mr. Dillon served as
Chief Executive Officer of Cost Plus, Inc., a specialty retailer
of casual home living and entertainment products, from September
1990 to February 1998, President of Cost Plus from September
1990 to August 1995 and Chairman of the Board of Cost Plus from
August 1995 to February 1998. He also served as a director of
Cost Plus from September 1990 to May 1999 and has served as an
advisor to the Chief Executive Officer of Cost Plus from May
1998 to September 2005.
Michael E. Tennenbaum has been a director of the Company
since October 5, 2000, has been the Vice-Chairman of the
Board of Directors since October 1, 2002 and was appointed
a member of the Executive Committee on March 30, 2005.
Mr. Tennenbaum has been the Managing Member of
Tennenbaum & Co., LLC since its inception in June 1996.
Tennenbaum & Co., LLC is the Managing Member of
Tennenbaum Capital Partners, LLC, an investment management
company focused on special situation investments. From February
1993 until June 1996, Mr. Tennenbaum was a Senior Managing
Director of Bear, Stearns & Co., Inc. and also held the
position of Vice Chairman, Investment Banking.
Mr. Tennenbaum currently is Chairman of the Board of
Directors of Pemco Aviation Group, Inc., Chairman of the Board
of Directors of Anacomp, Inc. and is also a director of various
privately-held companies.
L.R. Jalenak, Jr. has been a director of the Company
since February 17, 2000. Prior to becoming a director of
the Company, Mr. Jalenak was Chairman of the Board of Cleo
Inc., a manufacturer of Christmas wrapping paper and related
products, from 1990 until his retirement in December 1993. From
1977 to 1990, he was President of Cleo Inc. Mr. Jalenak is
also a director of Special Value Expansion Fund, LLC, an
investment fund managed by Tennenbaum Capital Partners, LLC.
Mr. Jalenak also serves on the board of a non-public
Professional Employment Organization and on the Boards of
Directors of several not-for-profit entities. Mr. Jalenak
also retired this year from Memphis Light, Gas and Water
Division, a Memphis, Tennessee utility company, where he served
as Commissioner and also retired this year as Director of
Memphis Networx.
Franklin R. Johnson has been a director of the Company
since August 25, 2003. From March 2000 to the present,
Mr. Johnson has been a business consultant and expert
witness. From May 1997 to March 2000, Mr. Johnson was
Senior Vice President and Chief Financial Officer of Rysher
Entertainment, Inc. Prior to May 1997, Mr. Johnson was a
partner at Price Waterhouse & Co. Mr. Johnson is
also a director of Special Value Opportunities Fund, LLC, an
investment fund managed by Tennenbaum Capital Partners, LLC.
Mr. Johnson serves on the Board of Directors of Reliance
Steel & Aluminum Co.
59
Howard Levkowitz has been a director of the Company since
August 17, 1999. Mr. Levkowitz has been a Managing
Partner of Tennenbaum Capital Partners, LLC, an investment
management company focused on special situation investments,
since 1999 and since 1997, has been a principal of
Tennenbaum & Co., LLC (with which Tennenbaum Capital
Partners, LLC is affiliated). He was an attorney with Dewey
Ballantine LLP from 1993 to 1997.
Walter J. Salmon has been a director of the Company since
July 25, 2001. Mr. Salmon is presently the Stanley
Roth, Sr., Professor of Retailing, Emeritus, at the Harvard
University Graduate School of Business Administration. He has
been a member of the Harvard Business School faculty since 1956.
Professor Salmon presently serves on the boards of The Neiman
Marcus Group, PETsMART, Inc., Stage Stores, Cumberland Farms and
the Harvard Business School Publishing Company.
Richard H. Griner was appointed Chief Operating Officer
on January 12, 2004 and was appointed a member of the
Executive Committee on March 30, 2005. Mr. Griner was
a director of the Company since September 6, 2002, but
resigned from the Board when he became the Companys Chief
Operating Officer. Prior to retirement from Omni Fitness, Inc.,
the specialty fitness equipment chain, Mr. Griner served as
President from April 2001 until June 2003. Prior to joining Omni
Fitness, Mr. Griner served from 1996 to 2000 as President
and Chief Operating Officer of Trend-Lines, Inc. and from 1986
to 1995 as Senior Vice President of Operations for Family Dollar
Stores, Inc.
Lisa Laube was appointed Chief Merchandising Officer on
April 26, 2004 and was appointed a member of the Executive
Committee on March 30, 2005. Prior to this appointment,
Ms. Laube served since 2002 as Vice President of
Merchandising of The White Barn Candle Company, a division of
the Bath and Body Works unit of Limited Brands, Inc. Previously,
Ms. Laube held a number of positions at Linens n
Things, Inc. from 1996 to 2002, rising through the buying
organization to become, in 1998, Vice President/ General
Merchandise Manager of decorative accessories, tabletop and
seasonal merchandise. Between 1985 and 1996, Ms. Laube
worked for several divisions of Federated Department Stores,
Inc., concluding in the position of Senior Buyer at Macys
East, where she was responsible for several home departments.
Gregg A. Melnick was appointed Senior Vice President and
Chief Financial Officer on September 16, 2004 and was
appointed a member of the Executive Committee on March 30,
2005. Prior to this appointment, Mr. Melnick served as Vice
President of Business Unit Finance and Treasury at Dow
Jones & Company, Inc., since 2001. Previously, from
2000 to 2001, Mr. Melnick was the Chief Financial Officer
of Susan Dell, Inc. For more than five years prior to 2000,
Mr. Melnick held a series of progressively more responsible
financial positions with Liz Claiborne, Inc., ultimately serving
as Vice President and Group Finance Director for the
companys emerging business units. Mr. Melnick began
his career in the audit practice of Arthur Andersen.
Steven Skiba was appointed Vice President and Chief
Information Officer on November 29, 2002 and was appointed
a member of the Executive Committee on March 30, 2005.
Prior to joining the Company, Mr. Skiba was the Vice
President, Management Information Systems, and Chief Technology
Officer at Transworld Entertainment from January 1997 through
November 2002.
DESCRIPTION OF PARTY CITY CORPORATION
Party City Corporation is based in Rockaway, New Jersey and was
incorporated in the State of Delaware in 1996. Party City is
Americas largest party goods chain. Party City operates
retail party supplies stores in the United States and sells
franchises on an individual store and area franchise basis
throughout the United States and Puerto Rico. Party City is
publicly traded on The Nasdaq National Market under the symbol
PCTY.
DESCRIPTION OF AMSCAN HOLDINGS, INC.
Amscan Holdings, Inc., a corporation organized under the laws of
the State of Delaware, is a direct wholly owned subsidiary of
AAH Holdings, which is primarily owned by the private equity
investment firms of Berkshire Partners LLC and Weston Presidio.
Amscan Holdings, Inc. designs, manufactures and distributes
60
decorative party goods, including paper and plastic tableware,
accessories and novelties. Amscan Holdings, Inc. also designs
and distributes home, baby, wedding and other gift items.
DESCRIPTION OF BWP ACQUISITION, INC.
BWP Acquisition, Inc., is a newly formed Delaware corporation
and a wholly-owned subsidiary of Amscan Holdings, Inc. Amscan
Holdings, Inc. formed BWP Acquisition, Inc. for the purpose of
entering into the merger agreement and consummating the
transactions contemplated by the merger agreement.
ADJOURNMENT OR POSTPONEMENT OF THE SPECIAL MEETING
(PROPOSAL 2)
If there are insufficient votes at the time of the special
meeting to adopt the merger agreement, we may propose to adjourn
or postpone our special meeting, if a quorum is present, for a
period of not more than 30 days for the purpose of
soliciting additional proxies to adopt the merger agreement. We
currently do not intend to propose adjournment or postponement
at our special meeting if there are sufficient votes to adopt
the merger agreement. If approval of the proposal to adjourn or
postpone our special meeting for the purpose of soliciting
additional proxies is submitted to our stockholders for
approval, such approval requires the affirmative vote of the
holders of a majority of the shares of our common stock present
or represented by proxy and voting on the matter.
FUTURE STOCKHOLDER PROPOSALS
If the merger is consummated, we will not have public
stockholders and there will be no public participation in any
future meetings of stockholders. However, if the merger is not
completed, we expect to hold our 2005 annual meeting of
stockholders. If such meeting is held, stockholder proposals
submitted pursuant to Rule 14a-8 under the Exchange Act for
inclusion in our proxy statement for our 2005 annual meeting
should be sent to us at Party City Corporation, 400 Commons Way,
Rockaway, New Jersey 07866, Attention: Secretary, and we must
have received such proposals no later than June 13, 2005.
All stockholder proposals must also meet the requirements set
forth in the rules and regulations of the SEC in order to be
eligible for inclusion in our proxy statement for our 2005
annual meeting of stockholders.
If a stockholder of Party City wishes to present a proposal
before the 2005 annual meeting, but does not wish to have the
proposal considered for inclusion in our proxy statement and
proxy, such stockholder must also give written notice to the
secretary of Party City at the address noted above. The
secretary must receive such notice not less than 60 days
nor more than 90 days prior to the 2005 annual meeting;
provided that, in the event that less than 70 days
notice or prior public disclosure of the date of the 2005 annual
meeting is given or made, notice by the stockholder must be
received not later than the close of business on the
10th day following the date on which such notice of the
date of the meeting was mailed or such public disclosure was
made, whichever occurs first. If a stockholder fails to provide
timely notice of a proposal to be presented at the 2005 annual
meeting, the proxies designated by the board of directors will
have discretionary authority to vote on any such proposal.
HOUSEHOLDING OF SPECIAL MEETING MATERIALS
Some banks, brokers and other nominee record holders may be
participating in the practice of householding proxy
statements and annual reports. This means that only one copy of
our proxy statement may have been sent to multiple stockholders
in your household. We will promptly deliver a separate copy of
the proxy statement or annual report to you if you write or call
us at the following address or phone number: Party City
Corporation, 400 Commons Way, Rockaway, New Jersey 07866,
Attention: Investor Relations, (973) 983-0888 ext. 8333. If
you would like to receive separate copies of annual reports or
proxy statements in the future, or if you are receiving multiple
copies and would like to receive only one copy for your
household, you should contact your bank, broker or other nominee
holder, or you may contact us at the above address and phone
number.
61
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements
and other information with the SEC under the Exchange Act. You
may read and copy this information at, or obtain copies of this
information by mail from, the SECs Public Reference Room,
100 F Street, N.E., Room 1580, Washington, D.C. 20549,
at prescribed rates. Please call the SEC at 1-800-SEC-0330 for
further information about the public reference room.
Our filings with the SEC are also available to the public from
commercial document retrieval services and at the web site
maintained by the SEC at www.sec.gov.
Incorporation by Reference
The SEC allows us to incorporate by reference information into
this proxy statement. This means that we can disclose important
information to you by referring you to another document filed
separately with the SEC. The information incorporated by
reference into this proxy statement is considered a part of this
proxy statement, and information that we file later with the
SEC, prior to the closing of the merger, will automatically
update and supersede the previously filed information and be
incorporated by reference into this proxy statement.
We incorporate by reference into this proxy statement the
documents listed below and any filings we make with the SEC
under Sections 13(a), 13(c), 14 or 15(d) of the Exchange
Act after the date of this proxy statement and prior to the date
of the special meeting:
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Our Annual Report on Form 10-K for our fiscal year ended
July 2, 2005; and |
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Our Current Reports on Form 8-K filed on July 5, 2005,
July 19, 2005, August 1, 2005, August 15, 2005,
as amended September 1, 2005, September 27, 2005 and
October 11, 2005. |
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Any person, including any beneficial owner, to whom this proxy
statement is delivered may request copies of reports, proxy
statements or other information concerning us, without charge,
by written or telephonic request directed to us at Party City
Corporation, 400 Commons Way, Rockaway, NJ 07866, Attention:
Secretary. If you would like to request documents, please do so
by November 30, 2005, in order to receive them before the
special meeting. You should be sure to include your complete
name and address in your request.
No persons have been authorized to give any information or to
make any representations other than those contained in this
proxy statement and, if given or made, such information or
representations must not be relied upon as having been
authorized by us or any other person. This proxy statement is
dated November 7, 2005. You should not assume that the
information contained in this proxy statement is accurate as of
any date other than that date, and the mailing of this proxy
statement to stockholders shall not create any implication to
the contrary.
This proxy statement contains a description of representations
and warranties made in the merger agreement. Representations and
warranties are also set forth in contracts and other documents,
including the merger agreement, that are attached or filed as
annexes to this proxy or are incorporated by reference into this
document. These representations and warranties were made only
for the purposes of such contracts or other documents and solely
for the benefit of the parties to such contracts or other
documents as of specific dates, may be subject to important
limitations and qualifications agreed to by the contracting
parties (including Party City Corporation, Amscan Holdings, Inc.
and BWP Acquisition, Inc.), and may not be complete.
Furthermore, these representations and warranties may have been
made for the purposes of allocating contractual risk between the
parties to such contract or other document instead of
establishing these matters as facts, and may or may not have
been accurate as of any specific date and do not purport to be
accurate as of the date of this proxy statement. Accordingly,
you should not rely upon the descriptions of representations and
warranties contained in this proxy statement or the actual
representations and warranties contained in such contracts and
other documents, including the merger agreement, as statements
of factual information.
62
YOUR VOTE IS IMPORTANT. Whether or not you plan to attend the
special meeting, please sign and date the enclosed proxy card
and return it promptly in the envelope provided as described in
the enclosed proxy card. Giving your proxy now will not affect
your right to vote in person if you attend the meeting.
If you have any questions about this proxy statement, the
special meeting or the merger or need assistance with the voting
procedures, you should contact D.F. King & Co., Inc.,
our proxy solicitor, toll-free at 1-888-628-1041.
This proxy statement does not constitute an offer to sell, or
a solicitation of an offer to buy, any securities, or the
solicitation of a proxy, in any jurisdiction to or from any
person to whom it is not lawful to make any offer or
solicitation in that jurisdiction. The delivery of this proxy
statement should not create an implication that there has been
no change in the affairs of Party City since the date of this
proxy statement or that the information herein is correct as of
any later date.
Shareholders should not rely on information other than that
contained or incorporated by reference in this proxy statement.
Party City has not authorized anyone to provide information that
is different from that contained in this proxy statement. This
proxy statement is dated November 7, 2005. No assumption
should be made that the information contained in this proxy
statement is accurate as of any date other than that date, and
the mailing of this proxy statement will not create any
implication to the contrary. Notwithstanding the foregoing, in
the event of any material change in any of the information
previously disclosed, Party City will, where relevant and if
required by applicable law, update such information through a
supplement to this proxy statement to the extent necessary.
63
Annex A
The merger agreement has been included to provide you with
information regarding its terms. It is not intended to provide
any other factual information about Party City, Amscan Holdings,
Inc. or BWP Acquisition, Inc. Such information can be found
elsewhere in this proxy statement and in the public filings
Party City makes with the Securities and Exchange Commission,
which are available without charge at www.sec.gov.
The terms of the merger agreement (such as the
representations and warranties) are intended to govern the
contractual rights and relationships, and allocate risks,
between the parties in relation to the merger. The merger
agreement contains representations and warranties Party City,
Amscan Holdings, Inc. and BWP Acquisition, Inc. made to each
other as of specific dates. The representations and warranties
were negotiated between the parties with the principal purpose
of setting forth their respective rights with respect to their
obligations to complete the merger and may be subject to
important limitations and qualifications as set forth therein,
including a contractual standard of materiality different from
that generally applicable under federal securities laws. The
assertions, embodied in the representations and warranties made
in the merger agreement are qualified by information in
confidential disclosure schedules that Party City, Amscan
Holdings, Inc. and BWP Acquisition, Inc. have exchanged in
connection with signing the merger agreement. While neither
Party City, Amscan Holdings, Inc. nor BWP Acquisition, Inc.
believe that the disclosure schedules contain information that
the securities laws require to be publicly disclosed, the
disclosure schedules do contain information that modifies,
qualifies and creates exceptions to the representations and
warranties set forth in the attached merger agreement.
Accordingly, you should not rely on the representations and
warranties as characterizations of the actual state of facts,
since they are modified by the underlying disclosure schedules.
Moreover, information concerning the subject matter of the
representations and warranties may have changed since the date
of the merger agreement, which subsequent information may or may
not be fully reflected in Party Citys public
disclosures.
AGREEMENT AND PLAN OF MERGER
Dated as of September 26, 2005
by and among
AMSCAN HOLDINGS, INC.,
BWP ACQUISITION, INC.
AND
PARTY CITY CORPORATION,
as amended
October 11, 2005
TABLE OF CONTENTS
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ARTICLE 1. Definitions
and Interpretation
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Section 1.1 Definitions
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A-2 |
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Section 1.2 Interpretation
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ARTICLE 2. Merger
and Organization
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A-10 |
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Section 2.1 The
Merger
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Section 2.2 Effective
Time
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Section 2.3 Effect
of Merger
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Section 2.4 Certificate
of Incorporation; By-laws
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Section 2.5 Directors
and Officers
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ARTICLE 3. Conversion
of Securities; Exchange of Certificates
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Section 3.1 Conversion
of Securities
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A-11 |
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Section 3.2 Payment
of Cash for Company Common Stock
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A-12 |
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Section 3.3 Exchange
of Merger Sub Common Stock Certificate
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Section 3.4 Stock
Transfer Books
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Section 3.5 Stock
Options
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Section 3.6 Warrants
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A-16 |
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ARTICLE 4. Additional
Agreements in Connection with the Merger
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Section 4.1 Stockholders
Approval
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Section 4.2 Proxy
Materials
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Section 4.3 Commercially
Reasonable Efforts; Consents; Other Filings
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Section 4.4 Financing
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Section 4.5 Conduct
of Business by Company Pending the Merger
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Section 4.6 Access
to Companys Books and Records
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Section 4.7 Takeover
Proposals
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Section 4.8 Director
and Officer Protection
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Section 4.9 Payment
of Expenses
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Section 4.10 Employee
Benefits
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Section 4.11 Public
Announcements
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Section 4.12 Certain
Actions and Proceedings
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Section 4.13 Director
Resignations
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Section 4.14 Conduct
of Business by Parent
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ARTICLE 5. Representations
and Warranties of Company
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Section 5.1 Organization
and Good Standing
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Section 5.2 Subsidiaries
and Investments
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Section 5.3 Authorization;
Binding Agreement
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Section 5.4 Capitalization
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Section 5.5 Financial
Statements
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Section 5.6 Absence
of Certain Changes or Events
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Section 5.7 Company
SEC Documents
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A-32 |
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Section 5.8 Governmental
and Other Consents and Approvals
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Section 5.9 No
Violation
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Section 5.10 Litigation
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Section 5.11 Employment
and Labor Matters
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Section 5.12 Governmental
Approvals; Compliance with Law
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Section 5.13 Brokers
and Finders
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Section 5.14 Taxes
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Section 5.15 Employee
Benefits
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A-36 |
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Section 5.16 Intellectual
Property
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A-38 |
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Section 5.17 Environmental
Matters
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Section 5.18 Required
Vote
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Section 5.19 State
Takeover Statutes
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Section 5.20 Material
Contracts
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Section 5.21 Information
in Proxy Statement
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Section 5.22 Properties
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Section 5.23 Opinion
of Financial Advisor
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Section 5.24 Affiliate
Transactions
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Section 5.25 Insurance
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A-42 |
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Section 5.26 Commercial
Relationships
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Section 5.27 Fees
and Expenses
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ARTICLE 6. Representations
and Warranties of Merger Sub and Parent
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A-43 |
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Section 6.1 Organization
and Good Standing
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Section 6.2 Authorization;
Binding Agreement
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A-43 |
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Section 6.3 Capitalization
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Section 6.4 No
Violation
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A-44 |
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Section 6.5 Governmental
and Other Consents and Approvals
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Section 6.6 Proxy
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A-45 |
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Section 6.7 Financing
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Section 6.8 Brokers
and Finders
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Section 6.9 No
Prior Activities
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A-46 |
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Section 6.10 Litigation
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A-46 |
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ARTICLE 7. Conditions
|
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A-46 |
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Section 7.1 Conditions
to Each Partys Obligation to Effect the Merger
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Section 7.2 Conditions
to Obligation of the Company to Effect the Merger
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Section 7.3 Conditions
to Obligations of Parent and Merger Sub to Effect the Merger
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ARTICLE 8. Termination;
Non-survival of Representations, Warranties and Covenants;
Waiver and Amendment
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Section 8.1 Termination
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Section 8.2 Non-Survival
of Representations, Warranties and Covenants
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Section 8.3 Amendment
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Section 8.4 Waiver
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A-51 |
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Section 8.5 Effect
of Termination
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Section 8.6 Certain
Payments
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ARTICLE 9. General
Agreements
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A-52 |
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Section 9.1 Notice
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A-52 |
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Section 9.2 Entire
Agreement
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A-54 |
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Section 9.3 Parties
in Interest
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Section 9.4 Headings
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Section 9.5 Severability
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Section 9.6 Successors
and Assigns
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Section 9.7 Governing
Law
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A-55 |
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Section 9.8 Costs
and Expenses
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Section 9.9 Counterparts
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Section 9.10 Specific
Performance
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Section 9.11 Assignments
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Section 9.12 Jurisdiction
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Section 9.13 Waiver
of Jury Trial
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A-iii
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this Agreement)
dated as of September 26, 2005 by and among Amscan
Holdings, Inc., a Delaware corporation
(Parent), BWP Acquisition, Inc., a Delaware
corporation and a wholly owned subsidiary of Parent
(Merger Sub), and Party City Corporation, a
Delaware corporation (the Company). Parent,
Merger Sub and the Company may be referred to herein
collectively as the Parties and individually
as a Party. Capitalized terms not otherwise
defined herein shall have the meaning ascribed to such terms in
Article I hereof.
RECITALS
WHEREAS, the respective Boards of Directors of Parent, Merger
Sub and the Company have approved and declared advisable the
merger of Merger Sub with and into the Company (the
Merger) upon the terms and subject to the
conditions set forth herein and in the Certificate of Merger in
substantially the form attached hereto as Exhibit A
(the Certificate of Merger), and in
accordance with the Delaware General Corporation Law (the
DGCL);
WHEREAS, the respective Boards of Directors of the Parent and
Merger Sub have approved and adopted this Agreement;
WHEREAS, the Board of Directors and a special committee of the
Board of Directors of the Company (the Special
Committee) have unanimously determined that the Merger
is advisable and in the best interests of the Company and its
public shareholders, (ii) approved and adopted this
Agreement, and (iii) have recommended to the stockholders
of the Company to vote to approve this Agreement and the
Merger; and
WHEREAS, concurrently with the execution and delivery of this
Agreement and as a condition to Parents and Merger
Subs willingness to enter into this Agreement, each of
Michael E. Tennenbaum, Tennenbaum Capital Partners, LLC,
Tennenbaum & Co., LLC, Special Value Bond Fund, LLC,
Special Value Absolute Return Fund, LLC and Special Value Bond
Fund II, LLC (the Principal
Stockholders), Parent and Merger Sub will enter into a
voting and stock sale agreement, in the form attached hereto as
Exhibit B (the Voting Agreement),
pursuant to which, among other things, such Principal
Stockholder will agree to vote its Shares (as defined herein) in
favor of approval and adoption of this Agreement and the
transactions contemplated hereby (including the Merger), upon
the terms and subject to the conditions set forth in the Voting
Agreement.
NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants and agreements
set forth in this Agreement and intending to be legally bound
hereby, the Parties agree as follows:
ARTICLE 1.
Definitions and Interpretation
Section 1.1 Definitions.
For all purposes of this Agreement, except as otherwise
expressly provided or unless the context clearly requires
otherwise:
Affiliate means, with respect to any Person,
another Person that directly or indirectly through one or more
intermediaries controls, is controlled by, or is under common
control with, the first Person. For purposes of this definition,
a Subsidiary of a Person shall be deemed to be an Affiliate of
such Person and the term control, controlled
by or under common control with means the
power, direct or indirect, to direct or cause the direction of
the management and policies of a Person, whether through the
ownership of voting capital stock, by contract, as trustee or
executor, or otherwise.
Agreement shall have the meaning set forth in
the Preamble.
Annual Period shall have the meaning set
forth in Section 8.6(c).
Breakup Fee shall have the meaning set forth
in Section 8.6(a).
Business Day means a day other than Saturday,
Sunday or other day on which commercial banks in New York, New
York are authorized or required by Law to be closed.
Cash Merger Consideration shall have the
meaning set forth in Section 3.1(a).
Certificate(s) shall have the meaning set
forth in Section 3.2(b).
Certificate of Merger shall have the meaning
set forth in the Recitals.
Closing shall have the meaning set forth in
Section 2.2.
Closing Date means the day of the Closing.
Code means the United States Internal Revenue
Code of 1986, as amended.
Commitments shall have the meaning set forth
in Section 6.7.
Company shall have the meaning set forth in
the Preamble.
Company Adverse Recommendation Change shall
have the meaning set forth in Section 4.7(b).
Company Benefit Plans shall have the meaning
set forth in Section 5.15(a).
Company By-laws means the by-laws of the
Company, as amended to the date of this Agreement.
A-2
Company Charter means the certificate of
incorporation of the Company, as amended to the date of this
Agreement.
Company Common Stock shall have the meaning
set forth in Section 3.1(a).
Company Employees shall have the meaning set
forth in Section 4.10(a).
Company ERISA Affiliate shall have the
meaning set forth in Section 5.15(c).
Company Material Adverse Change or
Company Material Adverse Effect means any
event, change, effect, development, occurrence or state of fact
that either individually or in the aggregate, when taken
together with all other events, changes, effects, developments,
occurrences or states of facts (i) is materially adverse to
the business, assets, operations, properties, condition
(financial or otherwise), liabilities or results of operations
of the Company and its Subsidiaries taken as a whole, or
(ii) materially and adversely affects the ability of the
Company to consummate the Merger or prevent or delay the
consummation of the Merger; provided, however,
that none of the following shall be deemed, either alone or in
combination, to constitute, and none of the following shall be
taken into account in determining whether there has been or will
be, a Company Material Adverse Effect: (a) any adverse
change, effect, event, occurrence, state of facts or development
to the extent primarily attributable to (I) the
announcement or pendency of this Agreement or the Merger,
(II) the identity of Parent or Merger Sub or (III) any
actions taken in compliance herewith or otherwise with the
consent of Parent, including, without limitation, the impact on
the relationships of the Company with any customer, vendor,
distributor, supplier, franchisee, landlord, tenant, consultant,
employee or independent contractor with whom the Company has any
relationship; (b) any adverse change, effect, event,
occurrence, state of facts or development attributable to
conditions generally affecting (I) the retail party supply
industry or (II) the United States or world economy as a
whole including, but not limited to, changes in economic,
financial market, regulatory or political conditions, whether
resulting from acts of terrorism, war or otherwise, except in
each case, any adverse change, effect, event, occurrence, state
of facts or development that has had or is reasonably likely to
have a disproportionate effect on the Company and its
Subsidiaries taken as a whole as compared to other Persons in
the industry in which the Company and its Subsidiaries conduct
their business; or (c) any adverse change, effect, event,
occurrence, state of facts or development arising from or
relating to any change in GAAP or any change in applicable Laws,
in each case, proposed, adopted or enacted after the date hereof
or the interpretation or enforcement thereof.
Company Options shall have the meaning set
forth in Section 3.5(a).
Company Recommendation shall have the meaning
set forth in Section 4.1.
Company SEC Documents means all forms,
schedules, statements, reports and other documents filed by the
Company or any of its Subsidiaries under the Securities Act or
the Exchange Act or otherwise filed by the Company or any of its
Subsidiaries with, or furnished by the Company or any of its
Subsidiaries to, the SEC, in each case since June 30, 2002
and prior to the Effective Time, collectively, as the same may
been amended or restated and including all exhibits and
schedules thereto and documents incorporated by reference
therein.
A-3
Company Share or Company
Shares shall have the meaning set forth in
Section 3.1(a).
Company Stockholder Approval shall have the
meaning set forth in Section 5.3(a).
Company Stock Option Plans shall have the
meaning set forth in Section 3.5(a).
Company Warrant Agreement shall have the
meaning set forth in Section 3.6.
Company Warrants shall have the meaning set
forth in Section 3.6.
Confidentiality Agreement shall have the
meaning set forth in Section 4.6.
Constituent Corporations shall have the
meaning set forth in Section 2.1.
Contract means any contract, lease, license,
indenture, note, bond, mortgage, agreement, permission, consent,
sales order, purchase order, quotation, entitlement, concession,
franchise, instrument, undertaking, commitment, understanding or
other arrangement (whether written or oral).
Debt Financing shall have the meaning set
forth in Section 6.7.
D&O Insurance shall have the meaning set
forth in Section 4.8(b).
DGCL shall have the meaning set forth in the
Recitals.
Definitive Proxy Statement shall have the
meaning set forth in Section 4.2(a).
Disclosure Schedules shall have the meaning
set forth in the Preamble to Article 5.
Dissenting Shares shall have the meaning set
forth in Section 3.1(e).
Effective Time shall have the meaning set
forth in Section 2.2.
Environmental Laws means all Laws relating to
the protection of the environment or to occupational health and
safety.
Environmental Permits means all permits,
licenses, registrations and other governmental authorizations
required for the Company and the operations of Companys
facilities and otherwise to conduct its business under
Environmental Laws.
ERISA shall have the meaning set forth in
Section 5.15(a).
Exchange means the Nasdaq National Market.
Exchange Act means the Securities Exchange
Act of 1934, as amended.
Exchange Agent shall have the meaning set
forth in Section 3.2(a).
A-4
Expenses shall mean all reasonable and
documented out-of-pocket expenses (including, without
limitation, all reasonable fees and expenses of counsel,
accountants, investment bankers, experts and consultants to a
Party hereto) incurred by a Party or on its behalf in connection
with or related to the sale of the Company, including, without
limitation, expenses in connection with due diligence, the
auction of the Company and the authorization, preparation,
negotiation, execution and performance of this Agreement and the
transactions contemplated hereby, the preparation, printing,
filing and mailing of the Definitive Proxy Statement and the
solicitation of stockholder approval, and any fees paid in
connection with any required filings with any Governmental
Entity.
Financial Statements shall have the meaning
set forth in Section 5.5.
Financing shall have the meaning set forth in
Section 6.7.
Financing Withdrawal Date shall have the
meaning set forth in Section 8.1(i).
GAAP means accounting principles generally
accepted in the United States of America.
Governmental Approvals shall have the meaning
set forth in Section 5.12.
Governmental Entity means any domestic
(federal, state or local) or foreign governmental (or political
subdivision thereof), administrative, executive, judicial,
legislative, police, taxing or regulatory authority, agency or
commission, or any court or tribunal, arbitrator or arbitral
body.
HSR Act shall have the meaning set forth in
Section 4.3.
Indebtedness means, with respect to any
Person at any date, without duplication: all liabilities or
obligations, whether primary or secondary or absolute or
contingent of such Person (a) for borrowed money or in
respect of loans or advances, (b) evidenced by bonds,
debentures, notes or other similar instruments or debt
securities, (c) in respect of letters of credit and
bankers acceptances issued for the account of such Person,
(d) in the nature of guarantees of such Person in
connection with any of the foregoing or the following,
(e) under capital lease obligations of such Person,
(f) for the deferred purchase price of property or services
with respect to which such Person is liable, contingently or
otherwise, as obligor or otherwise (other than trade payables
incurred in the ordinary course of business), and (g) the
extent secured by any property of such Person (other than any
(i) security interest on trade payables imposed in the
ordinary course of business solely by the operation of Law,
(ii) Liens for current taxes and assessments not yet past
due, (iii) inchoate mechanics and materialmens
Liens for construction in progress or (iv) workmens,
repairmens, warehousemens and carriers Liens
arising in the ordinary course of business consistent with past
practice).
Information Technology shall have the meaning
set forth in Section 4.5(s).
Intellectual Property means the entire right,
title and interest in and to all proprietary rights of every
kind and nature, pertaining to or deriving from
(i) patents, copyrights, mask work rights, technology,
know-how, processes, trade secrets, algorithms, inventions,
works,
A-5
proprietary data, databases, formulae, research and development
data and computer software or firmware; (ii) trademarks,
trade names, service marks, service names, brands, domain names,
trade dress and logos, and the goodwill and activities
associated therewith (Trademarks); (iii) rights
of privacy and publicity, moral rights, and proprietary rights
of any kind or nature, however denominated, throughout the world
in all media now known or hereafter created; and (iv) any
and all registrations, applications, recordings, licenses,
common-law rights and contractual obligations relating to any of
the foregoing.
Investment means, with respect to any Person,
any corporation, association, general or limited partnership,
company, limited liability company, trust, joint venture,
organization or other entity in which such Person owns, directly
or indirectly, an equity or similar interest, or an interest
convertible into or exchangeable or exercisable for an equity or
similar interest, of less than 50%.
knowledge shall have the meaning set forth in
Section 1.2(j).
Law means any foreign or domestic law,
statute, code, ordinance, rule, regulation, judgment, decree,
writ, injunction or order of any Governmental Entity.
Liens means pledges, liens, charges,
mortgages, encumbrances and security interests of any kind or
nature whatsoever.
Material Contracts shall have the meaning set
forth in Section 5.20.
Merger shall have the meaning set forth in
the Recitals.
Merger Sub shall have the meaning set forth
in the Recitals.
Merger Sub Common Stock shall have the
meaning set forth in Section 3.1(c).
Option Payment shall have the meaning set
forth in Section 3.5(a).
Owned Intellectual Property shall have the
meaning set forth in Section 5.16(e).
Parent shall have the meaning set forth in
the Preamble.
Parent Material Adverse Effect means an
event, change, effect, development, state of fact or occurrence
that individually or in the aggregate, when taken with all other
events, changes, effects, developments, states of facts and
occurrences, is or would reasonably be expected to materially
and adversely affect the ability of the Parent or Merger Sub to
consummate the Merger; provided, that no change or effect
resulting from any of the following shall be deemed, either
alone or in combination, to constitute a Parent Material Adverse
Effect: (a) any adverse change, effect, event, occurrence,
state of facts or development attributable to conditions
generally affecting (I) the retail party supply industry or
(II) the United States or world economy as a whole
including, but not limited to, changes in economic, financial
market, regulatory or political conditions, whether resulting
from acts of terrorism, war or otherwise, except in each case,
any adverse change, effect, event, occurrence, state of facts or
development that has had or is reasonably likely to have a
disproportionate effect on Parent and its
A-6
Subsidiaries taken as a whole as compared to other Persons in
the industry in which Parent and its Subsidiaries conduct their
business; or (b) any adverse change, effect, event,
occurrence, state of facts or development arising from or
relating to any change in GAAP or any change in applicable Laws,
in each case, proposed, adopted or enacted after the date hereof
or the interpretation or enforcement thereof.
Party and Parties shall
have the meanings set forth in the Preamble.
Permit means licenses, franchises, permits,
consents, approvals, orders, certificates, authorizations,
declarations and filings.
Permitted Investments shall have the meaning
set forth in Section 3.2(a).
Permitted Liens means (i) Liens for
current taxes and assessments not yet past due,
(ii) inchoate mechanics and materialmens Liens
for construction in progress, (iii) workmens,
repairmens, warehousemens and carriers Liens
arising in the ordinary course of business of the Company or
such Subsidiary consistent with past practice, and (iv) all
Liens and other imperfections of title (including matters of
record) and encumbrances that do not materially interfere with
the conduct of the business of the Company and the Subsidiaries,
taken as a whole.
Person means a natural person, partnership,
limited partnership, corporation, limited liability company,
business trust, joint stock company, trust, unincorporated
association, joint venture, Governmental Entity or other entity
or organization.
Preliminary Proxy Statement shall have the
meaning set forth in Section 4.2(a).
Prime Rate means the prime rate of interest
published in the Money Rates column of the Eastern
Edition of The Wall Street Journal (or the average of
such rates if more than one rate is indicated) on the date of
termination of this Agreement pursuant to Section 8.1.
Principal Stockholders shall have the meaning
set forth in the Recitals.
Proxy Statement shall have the meaning set
forth in Section 4.2(b).
Real Property shall have the meaning set
forth in Section 5.22(b).
Real Property Leases shall have the meaning
set forth in Section 5.22(b).
Representatives shall have the meaning set
forth in Section 4.7(a).
Sarbanes-Oxley Act shall have the meaning set
forth in Section 5.7(a).
Scheduled Intellectual Property shall have
the meaning set forth in Section 5.16(a).
Section 409A shall have the meaning set
forth in Section 5.15(g).
SEC shall have the meaning set forth in
Section 4.2(a).
Securities Act means the Securities Act of
1933, as amended.
A-7
Special Committee shall have the meaning set
forth in the Recitals.
Special Meeting shall have the meaning set
forth in Section 4.1.
Subsidiary means, with respect to any Person,
any corporation or other entity, whether incorporated or
unincorporated, of which (a) 50% or more of the securities
or other interests having by their terms ordinary voting power
to elect a majority of the Board of Directors or other similar
supervising body is directly or indirectly owned or controlled
by such Person or by any one or more of its Subsidiaries, or by
such Person and one or more of its Subsidiaries or (b) such
Person or any other Subsidiary of such Person is a general
partner (including any such partnership where such Person or any
Subsidiary of such Person does not have a majority of the voting
interest in such partnership).
Superior Proposal means a bona fide written
Takeover Proposal (with all of the percentages included in the
definition of Takeover Proposal increased to 80%) not solicited
or initiated in violation of this Agreement, which the
Companys Board of Directors or Special Committee
determines in good faith (after consultation with a financial
advisor of nationally recognized reputation and its outside
legal counsel) (i) to be more favorable (taking into
account, among other things, the Person or group of Persons
making such Takeover Proposal and all legal, financial,
regulatory, fiduciary and other aspects of this Agreement and
such Takeover Proposal, including any conditions relating to
financing, regulatory approvals or other events or circumstances
beyond the control of the Party invoking the condition and
taking into account any revisions made or proposed in writing by
Parent or Merger Sub prior to the time of determination) to the
holders of Company Common Stock from a financial point of view
than the transactions provided for in this Agreement,
(ii) is reasonably capable of being consummated, and
(iii) for which third party financing, to the extent
required, is then committed consistent with market standards
under similar circumstances determined using the proper exercise
of the Companys Board of Directors fiduciary duties
to the shareholders of the Company under applicable Law.
Surviving Corporation shall have the meaning
set forth in Section 2.1.
Takeover Proposal means any inquiry, proposal
or offer relating to (A) any business combination with or
any direct or indirect acquisition, in a single transaction or a
series of transactions and whether by way of a merger,
consolidation, business combination, reorganization, share
exchange, sale of assets, recapitalization, liquidation,
dissolution or similar transaction or otherwise, of (i) the
Company, (ii) twenty-five (25) percent or more of any
class of the Companys outstanding shares of capital stock
or any other voting securities of the Company or its
Subsidiaries (iii) 25% or more of the fair market value of
the assets of the Company and its Subsidiaries taken as a whole;
(B) any tender offer (including a self-tender offer) or
exchange offer, as defined pursuant to the Exchange Act, that,
if consummated, would result in any Person or group beneficially
owning 25% or more of any class of the capital stock of the
Company or the filing with the SEC of a Schedule TO or a
registration statement under the Securities Act in connection
therewith, or (C) any combination of the foregoing.
Tax or Taxes means
(a) any and all federal, state, local and foreign income,
gross receipts, payroll, employment, excise, stamp, customs
duties, capital stock, franchise, profits,
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withholding, social security, unemployment, real property,
personal property, sales, use, transfer, value added,
alternative or add-on minimum, estimated, or other taxes
(together with interest, penalties and additions to tax imposed
with respect thereto) imposed by any Governmental Entity
(whether or not measured in whole or in part by net income and
including any fee, assessment or other charge in the nature of
or in lieu of any tax), whether disputed or not, and
(b) any liability for the payment of any amount of the type
described in clause (a) as a result of the Company
or of its Subsidiaries being a successor to or transferee of any
other corporation at any time on or prior to the date of the
Closing, and any interest, penalties, additions to tax (whether
imposed by law, contractual agreement or otherwise) and any
liability in respect of any tax as a result of being a member of
any affiliated, consolidated, combined, unitary or similar group.
Tax Returns means any report or return
(including any information return) or statement or other
documents (including any attachment thereto and any amendment
thereof) required to be filed with any Governmental Entity with
respect to Taxes.
Termination Date means March 31, 2006.
Voting Agreement shall have the meaning set forth in
the Recitals.
Warrant Payment shall have the meaning set forth in
Section 3.6.
Section 1.2 Interpretation.
(a) The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
(b) Whenever the words include,
includes or including are used in this
Agreement, they shall be deemed to be followed by the words
without limitation.
(c) The words hereof, herein and
herewith and words of similar import shall, unless
otherwise stated, be construed to refer to this Agreement as a
whole and not to any particular provision of this Agreement, and
article, section, recitals, paragraph, exhibit and schedule
references are to the articles, sections, recitals, paragraphs,
exhibits and schedules of this Agreement unless otherwise
specified.
(d) The meaning assigned to each term defined herein shall
be equally applicable to both the singular and the plural forms
of such term, and words denoting any gender shall include all
genders. Where a word or phrase is defined herein, each of its
other grammatical forms shall have a corresponding meaning.
(e) A reference to any Party or to any party to any other
contract or document shall include such partys successors
and permitted assigns.
(f) A reference to any legislation or to any provision of
any legislation shall include any amendment to, and any
modification or re-enactment thereof, any legislative provision
substituted therefore and all rules, regulations and statutory
instruments issued thereunder or pursuant thereto.
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(g) The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an
ambiguity or question of intent or interpretation arises, this
Agreement shall be construed as if drafted jointly by the
Parties, and no presumption or burden of proof shall arise
favoring or disfavoring any Party by virtue of the authorship of
any provisions of this Agreement.
(h) The words ordinary course of business shall
be construed to mean consistent in nature, scope and magnitude
with past practices.
(i) The words currently, presently
and words of similar meaning shall mean as of the date hereof
and as of the Effective Time.
(j) As used herein, knowledge (or words to such
effect) of the Company shall mean actual knowledge of the
executive officers of the Company, as the case may be, after
reasonable inquiry, and knowledge (or words to such
effect) of the Parent or Merger Sub shall mean the actual
knowledge of their executive officers, after reasonable inquiry.
ARTICLE 2.
Merger and Organization
Section 2.1 The
Merger.
Upon the terms and subject to satisfaction or waiver of the
conditions set forth in this Agreement and in accordance with
the DGCL, at the Effective Time, Merger Sub shall be merged with
and into the Company. As a result of the Merger, the separate
corporate existence of Merger Sub shall cease and the Company
shall continue as the surviving corporation of the Merger (the
Surviving Corporation). Merger Sub and the
Company are herein sometimes referred to as the
Constituent Corporations.
Section 2.2 Effective
Time.
If this Agreement is not terminated pursuant to Article 8
hereof, the closing of the Merger (the
Closing) shall take place at the offices of
Latham & Watkins LLP, 885 Third Avenue,
Suite 1000, New York, New York 10022 at 10:00 a.m.,
New York City time, as soon as practicable, but in no event
later than the second Business Day after the satisfaction or
waiver of the conditions set forth in Article 7 (other than
(a) those conditions that are waived in accordance with the
terms of this Agreement by the Party or Parties for whose
benefit such conditions exist and (b) any such conditions,
which by their terms, are not capable of being satisfied until
the Closing), or at such other place or at such other date as
the Parties may mutually agree. Upon the terms and subject to
the conditions set forth in this Agreement, at the Closing, the
Parties shall cause the Merger to be consummated by filing the
Certificate of Merger with the Secretary of State of the State
of Delaware, in such form as required by, and executed in
accordance with, the relevant provisions of the DGCL (the date
and time of the filing of the Certificate of Merger with the
Secretary of State of the State of Delaware, or such later time
as is specified in the Certificate of Merger and as is agreed to
by the Parties hereto, being the Effective
Time) and shall make all other filings or recordings
required under the DGCL in connection with the Merger.
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Section 2.3 Effect
of Merger.
At the Effective Time, the effect of the Merger shall be as
provided in Section 259 of the DGCL. Without limiting the
generality of the foregoing, at the Effective Time, except as
otherwise provided herein, all the property, rights, privileges,
powers and franchises of the Company and Merger Sub shall vest
in the Surviving Corporation, and all debts, liabilities and
duties of the Company and Merger Sub shall become the debts,
liabilities and duties of the Surviving Corporation. If at any
time after the Effective Time any further action is necessary to
vest in the Surviving Corporation the title to all property or
rights of Merger Sub or the Company, the authorized officers and
directors of the Surviving Corporation are fully authorized in
the name of Merger Sub or the Company, as the case may be, to
take, and shall take, any and all such lawful action.
Section 2.4 Certificate
of Incorporation; By-laws.
The Certificate of Merger shall provide that, at the Effective
Time, the certificate of incorporation and the by-laws of the
Surviving Corporation shall be amended in their entirety to
contain the provisions set forth in the certificate of
incorporation and the by-laws of Merger Sub, each as in effect
immediately prior to the Effective Time, until thereafter
changed or amended as provided therein or by applicable Law.
Section 2.5 Directors
and Officers.
The directors of Merger Sub immediately prior to the Effective
Time shall be the initial directors of the Surviving
Corporation, each to hold office in accordance with the
certificate of incorporation and by-laws of the Surviving
Corporation. The officers of the Company immediately prior to
the Effective Time shall be the initial officers of the
Surviving Corporation, each to hold office in accordance with
the certificate of incorporation and by-laws of the Surviving
Corporation.
ARTICLE 3.
Conversion of Securities; Exchange of Certificates
Section 3.1 Conversion
of Securities.
At the Effective Time, pursuant to this Agreement and by virtue
of the Merger and without any action on the part of Merger Sub,
the Company or the holders of any of the following securities:
(a) Each share of common stock, par value $.01 per
share, of the Company (Company Common Stock)
(shares of Company Common Stock being hereinafter collectively
referred to as Company Shares and
individually as a Company Share) issued and
outstanding immediately prior to the Effective Time (other than
any Company Shares to be cancelled pursuant to
Section 3.1(b) and any Dissenting Shares shall be
cancelled, extinguished and shall be converted automatically
into the right to receive an amount equal to $17.50 in cash,
without interest (the Cash Merger
Consideration), payable to the holder thereof, as
provided in Section 3.2, upon surrender of the certificate
formerly representing the Company Shares being
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converted into the right to receive the Cash Merger
Consideration, less any required withholding Taxes.
(b) Each Company Share held in the treasury of Company,
each Company Share owned by any direct or indirect subsidiary of
the Company and each Company Share owned by Parent, Merger Sub
or any wholly-owned subsidiary of Parent or Merger Sub, if any,
immediately prior to the Effective Time shall be cancelled and
extinguished without any conversion thereof and no payment or
distribution shall be made with respect thereto.
(c) Each share of Merger Subs common stock,
$.01 par value (Merger Sub Common
Stock), issued and outstanding immediately prior to
the Effective Time shall be converted into and be exchanged for
one newly issued, fully paid and nonassessable share of common
stock of the Surviving Corporation.
(d) If between the date of this Agreement and the Effective
Time the outstanding shares of Company Common Stock shall have
been changed into a different number of shares or a different
class, by reason of any stock dividend, subdivision,
reclassification, recapitalization, split, combination or
exchange of shares, or rights issued in respect of the Company
Shares, the Cash Merger Consideration shall be correspondingly
adjusted to reflect such stock dividend, subdivision,
reclassification, recapitalization, split, combination or
exchange of shares or the rights issued in respect thereof.
(e) Notwithstanding anything in this Agreement to the
contrary, Company Shares that are issued and outstanding
immediately prior to the Effective Time and which are held by
holders of Company Shares who have not voted in favor of or
consented to the Merger and who have properly demanded and
perfected their rights to be paid the fair value of such Company
Shares in accordance with Section 262 of the DGCL (the
Dissenting Shares) shall not be converted
into or exchangeable for the right to receive the Cash Merger
Consideration, and the holders thereof shall be entitled to only
such rights as are granted by Section 262 of the DGCL;
provided, however, that if any such stockholder of
Company shall fail to perfect or shall effectively waive,
withdraw or lose such stockholders rights under
Section 262 of the DGCL, such stockholders Company
Shares in respect of which the stockholder would otherwise be
entitled to receive fair value under Section 262 of the
DGCL shall be treated as a share that had been converted as of
the Effective Time into the right to receive the Cash Merger
Consideration in accordance with this Section 3.1. The
Company shall give prompt notice to Merger Sub of any notices of
dissent, demands for payment of fair value or other
communications or actions received by the Company with respect
to shares of Company Common Stock, and Merger Sub shall have the
right to participate in and approve all negotiations and
proceedings with respect thereto. The Company shall not, except
with the prior written consent of Merger Sub, make any payment
with respect to, or settle or offer to settle, any such demands.
Section 3.2 Payment
of Cash for Company Common Stock.
(a) At the Effective Time, Parent or Merger Sub shall
irrevocably deposit or cause to be deposited with a bank or
trust company designated by Parent and reasonably satisfactory
to the Company (the Exchange Agent), as agent
for the holders of shares of Company Common Stock, cash in the
aggregate amount required to effect conversion of shares
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of Company Common Stock into the Cash Merger Consideration at
the Effective Time pursuant to Section 3.1(a) hereof.
Pending distribution pursuant to Section 3.2(b) hereof of
the cash deposited with the Exchange Agent, such cash shall be
held in trust for the benefit of the holders of Company Common
Stock and the fund shall not be used for any other purposes, and
Parent and the Surviving Corporation may direct the Exchange
Agent to invest such cash, provided that such investments
(i) shall be obligations of or guaranteed by the United
States of America, commercial paper obligations receiving the
highest rating from either Moodys Investors Services, Inc.
or Standard & Poors Corporation, or certificates
of deposit, bank repurchase agreements or bankers acceptances of
domestic commercial banks with capital exceeding $250,000,000
(collectively Permitted Investments) or money
market funds which are invested solely in Permitted Investments
and (ii) shall have maturities that will not prevent or
delay payments to be made pursuant to Section 3.2(b)
hereof. Each holder of a certificate or certificates
representing shares of Company Common Stock cancelled on the
Effective Time pursuant to Section 3.1(a) hereof may
thereafter surrender such certificate or certificates to the
Exchange Agent, as agent for such holder of shares of Company
Common Stock, which shall effect the exchange of such
certificate or certificates on such holders behalf for a
period ending six months after the Effective Time. Any interest
and other income resulting from such investments shall be paid
to Parent.
(b) Promptly after the Effective Time, Parent shall
instruct the Exchange Agent to mail to each holder of record of
a certificate or certificates which immediately prior to the
Effective Time represented outstanding shares of Company Common
Stock (the Certificates) (i) a letter of
transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall
pass, only upon proper delivery of the Certificates to the
Exchange Agent and shall be in customary form) and
(ii) instructions for use in effecting the surrender of the
Certificates in exchange for the Cash Merger Consideration. Upon
surrender of a Certificate for cancellation to the Exchange
Agent together with such letter of transmittal, properly
completed and duly executed, and such other documents as may be
required pursuant to such instructions, the holder of such
Certificate shall be entitled to receive in exchange therefor
the Cash Merger Consideration which such holder has the right to
receive in respect of the shares of Company Common Stock
formerly represented by such Certificate, and the Certificate so
surrendered shall forthwith be canceled. Until surrendered as
contemplated by this Section 3.2(b), each Certificate shall
be deemed at any time after the Effective Time to represent only
the right to receive upon such surrender the Cash Merger
Consideration. No interest shall be paid or will accrue on any
cash payable to holders of Certificates pursuant to the
provisions of this Article 3.
(c) If any cash deposited with the Exchange Agent for
purposes of payment in exchange for shares of Company Common
Stock remains unclaimed following the expiration of six
(6) months after the Effective Time, such cash shall be
delivered to the Surviving Corporation by the Exchange Agent,
and thereafter the Exchange Agent shall not be liable to any
Persons claiming any amount of such cash, and the surrender and
exchange shall be effected directly with the Surviving
Corporation (subject to applicable abandoned property, escheat
and similar Laws). No interest shall accrue or be payable with
respect to any amounts which any such holder shall be so
entitled to receive. The Surviving Corporation or the Exchange
Agent shall be authorized to pay the cash attributable to any
Certificate theretofore issued which has been lost or destroyed,
upon receipt of satisfactory evidence of ownership of the shares
of
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Company Common Stock represented thereby and of appropriate
indemnification (including, if required by the Surviving
Corporation, the posting by such Person of a bond).
(d) None of Parent, the Surviving Corporation or the
Exchange Agent shall be liable to any Person in respect of any
shares of retained Company Common Stock (or dividends or
distributions with respect thereto) or cash delivered to a
public official pursuant to any applicable abandoned property,
escheat or similar Law.
(e) If payment is to be made to a Person other than the
Person in whose name a surrendered certificate, which prior to
the Effective Time shall have represented any shares of Company
Common Stock, is registered, it shall be a condition to such
payment that the certificate so surrendered shall be endorsed or
shall otherwise be in proper form for transfer, and that the
Person requesting such payment shall have paid any transfer and
other Taxes required by reason of such payment in a name other
than that of the registered holder of the certificate
surrendered or shall have established to the satisfaction of the
Surviving Corporation or the Exchange Agent that such Tax either
has been paid or is not payable.
(f) From and after the Effective Time, the holders of
shares of Company Common Stock outstanding immediately prior to
the Effective Time shall cease to have any rights with respect
to such shares of Company Common Stock except as otherwise
provided herein or by Law. All Cash Merger Consideration paid in
accordance with the terms hereof shall be deemed to have been
issued in full satisfaction of all rights pertaining to such
shares of Company Common Stock.
(g) After the Effective Time, there shall be no transfers
on the stock transfer books of the Surviving Corporation of any
shares of Company Common Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective
Time, certificates for shares of Company Common Stock are
presented to the Surviving Corporation, they shall be cancelled
and promptly exchanged for the Cash Merger Consideration except
as provided in Section 3.2(e).
(h) Parent, the Surviving Corporation or the Exchange Agent
shall be entitled to deduct and withhold from the consideration
otherwise payable pursuant to this Agreement to any holder of
Company Common Stock such amounts as Parent, the Surviving
Corporation or the Exchange Agent are required to deduct and
withhold under the Code, or any provision of state, local or
foreign tax Law, with respect to the making of such payment. To
the extent that amounts are so withheld by Parent, the Surviving
Corporation or the Exchange Agent, such withheld amounts shall
be treated for all purposes of this Agreement as having been
paid to the holder of Company Common Stock in respect of whom
such deduction and withholding was made by Parent, the Surviving
Corporation or the Exchange Agent.
Section 3.3 Exchange
of Merger Sub Common Stock Certificate.
Immediately after the Effective Time, upon surrender by the
record holder of the certificate, duly endorsed in blank,
representing the shares of Merger Sub Common Stock outstanding
immediately prior to the Effective Time, the Surviving
Corporation shall deliver to such record holder a stock
certificate, registered in such holders name, representing
the number
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of shares of common stock of the Surviving Corporation to which
such record holder is so entitled by virtue of
Section 3.1(c). Such certificate will bear a legend
restricting the transferability of such shares of the Surviving
Corporation except in accordance with applicable federal and
state securities Laws.
Section 3.4 Stock
Transfer Books.
At the Effective Time, the stock transfer books of the Company
shall be closed and thereafter, there shall be no further
registration of transfers of shares of Company Common Stock
theretofore outstanding on the records of the Company. From and
after the Effective Time, the holders of certificates
representing shares of Company Common Stock outstanding
immediately prior to the Effective Time shall cease to have any
rights with respect to such shares of Company Common Stock
except as otherwise provided herein or by Law. On or after the
Effective Time, any Certificates presented to the Exchange Agent
or Parent for any reason shall be converted into the Cash Merger
Consideration.
Section 3.5 Stock
Options.
(a) Prior to the Effective Time, the Board of Directors of
the Company (or, if appropriate, any committee thereof) shall
adopt appropriate resolutions and take all other actions
necessary and appropriate to provide that, immediately prior to
the Effective Time, each unexpired and unexercised option,
restricted stock units or similar rights to purchase Company
Common Stock (the Company Options), under any
equity compensation plan of the Company, including the Amended
and Restated 1994 Stock Option Plan, the Amended and Restated
1999 Stock Incentive Plan, the Management Stock Purchase Plan or
the Employee Stock Purchase Plan (the Company Stock
Option Plans), whether or not then exercisable or
vested, shall be cancelled and, in exchange therefor, each
former holder of any such cancelled Company Option shall be
entitled to receive, in consideration of the cancellation of
such Company Option and in settlement therefor, a payment in
cash (subject to any applicable withholding or other taxes
required by applicable Law to be withheld) of an amount equal to
the product of (i) the total number of shares of Company
Common Stock that were subject to such Company Option
immediately prior to the Effective Time and (ii) the
excess, if any, of the Cash Merger Consideration over the
exercise price per share of such Company Common Stock that were
subject to such Company Option (such amounts payable hereunder
being referred to as the Option Payment).
From and after the Effective Time, any such cancelled Company
Option shall no longer be exercisable by the former holder
thereof, but shall only entitle such holder to the payment of
the Option Payment, and the Company will use commercially
reasonable efforts to obtain all necessary consents to ensure
that former holders of Company Options will have no rights other
than the right to receive the Option Payment. After the
Effective Time, all Company Stock Option Plans shall be
terminated and no further Company Options shall be granted
thereunder.
(b) On and after the date hereof, no future offering
periods will be commenced under the Companys Employee
Stock Purchase Plan. Any offering period in progress on the date
hereof shall terminate on the earlier of December 30, 2005
and the Effective Time, and the Company shall terminate the
Employee Stock Purchase Plan as of the Effective Time. Any
accumulated contributions that are required in accordance with
the terms of
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the Employee Stock Purchase Plan to be applied to the purchase
of Company Common Stock shall be so applied no later than the
Effective Time.
Section 3.6 Warrants.
Prior to the Effective Time, the Board of Directors of the
Company (or, if appropriate, any committee thereof) shall adopt
appropriate resolutions and take all other actions necessary and
appropriate to provide that, immediately prior to the Effective
Time, each unexpired and unexercised warrant or similar rights
to purchase Company Common Stock (the Company
Warrants), under the that certain Warrant to Purchase
Common Stock, dated August 16, 1999, issued to Special
Value Bond Fund, LLC (the Company Warrant
Agreement), whether or not then exercisable, shall be
cancelled and, in exchange therefor, each former holder of any
such cancelled Company Warrants shall be entitled to receive, in
consideration of the cancellation of such Company Warrants and
in settlement therefor, a payment in cash (subject to any
applicable withholding or other taxes required by applicable Law
to be withheld) of an amount equal to the product of
(A) the total number of shares of Company Common Stock that
were subject to such Company Warrants immediately prior to the
Effective Time and (B) the excess, if any, of the Cash
Merger Consideration over the exercise price per share of such
Company Common Stock that were subject to such Company Warrants
(such amounts payable hereunder being referred to as the
Warrant Payment). From and after the
Effective Time, any such cancelled Company Warrants shall no
longer be exercisable by the former holder thereof, but shall
only entitle such holder to the payment of the Warrant Payment.
ARTICLE 4.
Additional Agreements in Connection with the Merger
Section 4.1 Stockholders
Approval.
The Company shall take all actions reasonably necessary in
accordance with applicable Law and its certificate of
incorporation and bylaws to convene a meeting of its
stockholders as promptly as practicable for the purpose of
considering and approving this Agreement and the Merger (the
Special Meeting). Unless this Agreement shall
have been terminated in accordance with Section 8.1,
nothing contained herein shall limit the Companys
obligation to convene and hold the Special Meeting. Subject to
Section 4.7, the Company shall, through its Board of
Directors or the Special Committee, recommend that the
stockholders of the Company vote to approve this Agreement and
the Merger and shall include such recommendation in the
Preliminary Proxy Statement and the Definitive Proxy Statement
(the Company Recommendation).
Section 4.2 Proxy
Materials.
(a) In connection with the Special Meeting, as promptly as
practicable following the date of this Agreement, the Company
shall prepare and file a preliminary proxy statement relating to
the transactions contemplated by this Agreement and the Merger
(the Preliminary Proxy Statement) with the
United States Securities and Exchange Commission (the
SEC) and shall use commercially reasonable
efforts to respond to the comments of the
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SEC and to cause a definitive proxy statement to be mailed to
the Companys stockholders (the Definitive Proxy
Statement) all as soon as reasonably practicable;
provided, that prior to the filing of each of the
Preliminary Proxy Statement and the Definitive Proxy Statement,
the Company shall consult with Merger Sub with respect to such
filings and shall afford Merger Sub reasonable opportunity to
comment thereon. Merger Sub shall provide the Company with any
information for inclusion in the Preliminary Proxy Statement and
the Definitive Proxy Statement which may be required under
applicable Law and which is reasonably requested by the Company.
(b) Each of the Company and Parent shall furnish all
information concerning itself and its Affiliates that is
required to be included in any Preliminary Proxy Statement or in
the Definitive Proxy Statement (collectively, the Proxy
Statement) or that is customarily included in proxy
statements prepared in connection with transactions of the type
contemplated by this Agreement. Each of the Company and Parent
shall use its reasonable best efforts to respond as promptly as
practicable to any comments of the SEC with respect to the Proxy
Statement. Each party shall promptly notify the other party upon
the receipt of any comments from the SEC or its staff or any
request from the SEC or its staff for amendments or supplements
to the Proxy Statement and shall provide the other party with
copies of all correspondence between it and its representatives,
on the one hand, and the SEC and its staff, on the other hand
relating to the Proxy Statement. If at any time prior to the
Special Meeting, any information relating to the Company, Parent
or any of their respective Affiliates, officers or directors,
should be discovered by the Company or Parent which should be
set forth in an amendment or supplement to the Proxy Statement,
so that the Proxy Statement shall not contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which
they are made, not misleading, the party which discovers such
information shall promptly notify the other party, and an
appropriate amendment or supplement describing such information
shall be filed with the SEC and, to the extent required by
applicable Law, disseminated to the shareholders of the Company.
Notwithstanding anything to the contrary stated above, prior to
filing or mailing the Proxy Statement (or, in each case, any
amendment or supplement thereto) or responding to any comments
of the SEC with respect thereto, the party responsible for
filing or mailing such document shall provide the other party an
opportunity to review and comment on such document or response
and shall include in such document or response comments
reasonably proposed by the other party. Subject to
Section 4.7(b), the Proxy Statement shall contain the
recommendation of the Board of Directors or the Special
Committee that the shareholders of the Company vote to adopt and
approve this Agreement and the Merger.
(c) The Company will use reasonable best efforts to solicit
from its shareholders proxies in favor of the adoption of this
Agreement and will take all other action necessary or advisable
to secure the vote or consent of its shareholders required by
applicable Law to obtain such approvals.
(d) The information supplied by Parent for inclusion in the
Proxy Statement shall not, at (i) the time filed with the
SEC, (ii) the time the Proxy Statement (or any amendment
thereof or supplement thereto) is first mailed to the
shareholders of the Company, (iii) the time of the Special
Meeting and (iv) the Effective Time, contain any untrue
statement of a material fact or fail to state any material fact
required to be stated therein or necessary in order to make the
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statements therein, in light of the circumstances under which
they were made, not misleading. If, at any time prior to the
Effective Time, any event or circumstance relating to Parent, or
its officers or directors, that should be set forth in an
amendment or a supplement to the Proxy Statement should be
discovered by Parent, Parent shall promptly inform the Company
thereof. All documents that Parent is responsible for filing
with the SEC in connection with the transactions contemplated by
this Agreement will comply as to form and substance in all
material respects with the applicable requirements of the
Securities Act and the rules and regulations thereunder and the
Exchange Act and the rules and regulations thereunder.
(e) The information supplied by the Company for inclusion
in the Proxy Statement or shall not, at (i) the time filed
with the SEC, (ii) the time the Proxy Statement (or any
amendment thereof or supplement thereto) is first mailed to the
shareholders of the Company, (iii) the time of the Special
Meeting and (iv) the Effective Time, contain any untrue
statement of a material fact or fail to state any material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which
they were made, not misleading. If, at any time prior to the
Effective Time, any event or circumstance relating to the
Company or any Subsidiary of the Company, or their respective
officers or directors, that should be set forth in an amendment
or a supplement to the Proxy Statement should be discovered by
the Company, the Company shall promptly inform Parent. All
documents that the Company is responsible for filing with the
SEC in connection with the transactions contemplated hereby will
comply as to form and substance in all material respects with
the applicable requirements of the Securities Act and the rules
and regulations thereunder and the Exchange Act and the rules
and regulations thereunder.
Section 4.3 Commercially
Reasonable Efforts; Consents; Other Filings.
Upon the terms and subject to the conditions herein provided,
and subject to the terms hereof, each Party hereto shall use
commercially reasonable efforts to take, or cause to be taken,
all actions, and to do, or cause to be done, and to assist and
cooperate with the other Parties hereto in doing, all things
necessary, proper or advisable under applicable Laws and
regulations and their respective certificates of incorporation
and bylaws to consummate and make effective, as soon as
reasonably practicable, the transactions contemplated by this
Agreement, subject, however, to Company Stockholder Approval.
Such actions shall include, without limitation, using
commercially reasonable efforts to (i) defend any lawsuits
or other legal proceedings, whether judicial or administrative
and whether brought derivatively or on behalf of third parties
(including Governmental Entities), challenging this Agreement,
or the consummation of the transactions contemplated thereby or
hereby and (ii) effect all necessary registrations and
filings, including but not limited to any filings required under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, and the rules and regulations promulgated thereunder
(the HSR Act), and submissions of information
requested by Governmental Entities. Upon the terms and subject
to the conditions hereof, each of the Parties shall use
commercially reasonable to take, or cause to be taken, all
reasonable actions and to do, or cause to be done, all things
necessary to satisfy the other conditions of Closing set forth
herein and to cooperate with all reasonable requests made by the
other Parties. Without limiting the generality of the foregoing,
and notwithstanding anything in this Agreement to the contrary,
the Company shall use commercially reasonable efforts to obtain
all consents, amendments to or waivers from other parties under
the terms of all leases and other agreements between the Company
and such parties
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required as a result of the transactions contemplated by this
Agreement and obtain all necessary consents, approvals and
authorizations as are required to be obtained under any federal
or state Law. The Parties shall consult regularly with each
other in advance and from time to time regarding the conduct and
status of any filings with Governmental Entities. In connection
with and without limiting the foregoing, the Company and the
Board of Directors of the Company shall, at the request of
Parent: (i) take all action within its power reasonably
requested by Parent as necessary to ensure that no state
takeover statute or similar statute or regulation is or becomes
applicable to this Agreement and the transactions contemplated
hereby, and (ii) if any state takeover statute or similar
statute or regulation becomes applicable to this Agreement or
the transactions contemplated hereby, take all action within its
power reasonably requested by Parent as necessary to ensure that
the transactions contemplated hereby may be consummated as
promptly as practicable on the terms contemplated by this
Agreement and otherwise to minimize the effect of such statute
or regulation on the transactions contemplated hereby. Nothing
in this Agreement shall be deemed to require any party to waive
any provision of this Agreement or any other substantial rights
or agree to any substantial limitation on its operations or to
dispose of any significant asset or collection of assets.
Between the date hereof and the Closing, the Company shall give
prompt notice to Parent, and Parent shall give prompt notice to
the Company, of (a) the occurrence or non-occurrence of any
event or circumstance the occurrence or non-occurrence of which
would be likely to cause any representation or warranty of such
party contained in this Agreement to be untrue or inaccurate if
made at such time and (b) any failure of the Company or
Parent, as the case may be, to comply with or satisfy any of
such partys covenants, conditions or agreements to be
complied with or satisfied by it hereunder; provided,
however, that the delivery or non-delivery of any notice
required to be sent pursuant to this Section 4.3 shall not
limit or otherwise affect the remedies available hereunder to
the party receiving such notice.
Section 4.4 Financing.
At the cost and expense of the Merger Sub, the Company shall use
commercially reasonable efforts to cooperate and assist Merger
Sub with respect to the Financing (as defined in
Section 6.7). The Company agrees to provide, and shall
cause its Subsidiaries and its and their representatives to
provide on a timely basis, all reasonable cooperation in
connection with the arrangement of the Debt Financing as may be
requested by Parent (provided, that such requested
cooperation does not unreasonably interfere with the ongoing
operations of the Company and its Subsidiaries), including
(i) participation in meetings, drafting sessions and due
diligence sessions, (ii) furnishing Parent and its
financing sources with financial and other pertinent information
regarding the Company as may be reasonably requested by Parent,
including all financial statements and financial data of the
type required by Regulation S-X and Regulation S-K
under the Securities Act, (iii) assisting Parent and its
financing sources in the preparation of (A) an offering
document for any of the Debt Financing and (B) materials
for rating agency presentations, (iv) reasonably
cooperating with the marketing efforts of Parent and its
financing sources for any of the Debt Financing and
(v) providing and executing documents as may be reasonably
requested by Parent, including a certificate of the chief
financial officer of the Company or any of its Subsidiaries with
respect to solvency matters, comfort letters of accountants,
consents of accountants for use of their reports in any
materials relating to the Debt Financing, surveys and title
insurance; provided, that none of the Company or any of
its Subsidiaries shall be required to pay any commitment or
other similar fee or incur any other liability in connection
with the Debt Financing prior to the Effective Time. All
non-public or
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otherwise confidential information regarding the Company
obtained by Parent or its representatives pursuant to this
Section 4.4 shall be kept confidential in accordance with
the Confidentiality Agreement; provided, that Parent and
its representatives shall be permitted to disclose information
as necessary and consistent with customary practices in
connection with the Debt Financing. Parent shall promptly upon
request by the Company reimburse the Company for all Expenses
incurred by the Company and its Subsidiaries in connection with
such cooperation.
Section 4.5 Conduct
of Business by Company Pending the Merger.
The Company covenants and agrees that, from the date hereof to
immediately prior to the Effective Time or earlier termination
of this Agreement as provided herein, except as set forth in
Section 4.5 of the Disclosure Schedules, as otherwise
contemplated by this Agreement, or as Parent otherwise consents
in writing, it shall, and shall cause its Subsidiaries to, act
and carry on their respective businesses in the ordinary course
of business consistent with past practice and use commercially
reasonable efforts to preserve intact their respective
businesses, properties and assets and their current material
business organizations, keep available the services of their
current officers and employees (except for terminations of
employees in the ordinary course of business) and preserve their
material relationships with others having significant business
dealings with them. In addition, and without limiting the
generality of the foregoing, except as otherwise contemplated by
this Agreement or as set forth in Section 4.5 of the
Disclosure Schedules, from the date of this Agreement to the
Effective Time, the Company shall not, and shall not permit any
of its Subsidiaries to, do any of the following without the
prior written consent of Parent:
(a) (i) amend or otherwise change its certificate of
incorporation or bylaws; (ii) increase the number of
directors constituting the Board of Directors of the Company;
(iii) elect or appoint new directors or officers, or hire
any new officers, other than (A) to fill any vacancies on
the board or in any officer position, in each case, as required
by applicable Law (including requirements to maintain listing
under the Exchange or maintain reporting company status under
SEC rules and regulations) to be filled, (B) in the case of
vacancies in officer positions, to fill any such vacancies at
the District Manager level that the Board of Directors of the
Company determines should be filled in order for the Company to
operate in the ordinary course of business consistent with past
practice, or (C) in the case of other vacancies in officer
positions, to fill any such vacancies that the Board of
Directors of the Company determines should be filled in order
for the Company to operate in the ordinary course of business
consistent with past practice at total compensation levels of
less than $100,000 per year; provided, that
(I) any such election or appointment of directors shall not
result in a majority of new directors being elected or appointed
to the Board of Directors as compared to those directors serving
on the Board of Directors as of the date hereof, and
(II) any new employment, compensation, severance or benefit
arrangements for new officers or directors be approved by
Parent; or (iv) declare, set aside or pay any dividend or
other distribution or payment in cash, stock or property in
respect of any of its shares of capital stock;
(b) (i) issue, grant, sell, pledge, dispose of,
transfer, grant or encumber or agree or propose to issue, grant,
sell, pledge, dispose of, transfer, grant or encumber
(A) any shares of capital stock, stock options, warrants,
securities, rights of any kind or ownership
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interest (including phantom interests) or rights to acquire any
such shares, securities or rights or ownership interest of the
Company or its Subsidiaries (except for the issuance of
(x) Company Shares issuable pursuant to employee stock
options and warrants outstanding on the date of this Agreement
in accordance with the terms of such securities or options, and
(y) new employee stock options to acquire not more than
50,000 Company Shares issued to new employees hired by the
Company after the date hereof in the ordinary course of business
consistent with past practice; provided, that such new
options have a per share exercise price equal to or greater than
the Cash Merger Consideration, are issued pursuant to the
Companys Amended and Restated 1999 Stock Incentive Plan,
and have terms that provide for the automatic cancellation of
such options in the Merger at no cost to the Purchaser) or
(B) any material assets of the Company or any of its
Subsidiaries, except for dispositions of inventory in the
ordinary course of business and in a manner consistent with past
practice, or (ii) enter into or modify any contract,
agreement, commitment or arrangement with respect to any of the
foregoing;
(c) make any change in the number of shares of its capital
stock authorized, issued or outstanding (other than issuances of
shares in connection with the exercise of Company Options or
Warrants outstanding on the date hereof) or grant or accelerate
the exercisability of any option, warrant or other right to
purchase shares of its capital stock, other than in the case of
options, acceleration in accordance with the terms of such
options in effect as of the date hereof in connection with the
transactions contemplated hereby;
(d) repurchase, repay, cancel or incur any Indebtedness,
except for borrowings in the ordinary course of business
consistent with past practice incurred under existing
Indebtedness agreements.
(e) make any material Tax election, file any amended Tax
Returns or settle, compromise any material federal, state, local
or foreign income Tax liability, or make any change in any
material method of Tax accounting, or waive any statute of
limitations in respect of a material amount of Taxes or agree to
any extension of time with respect to an assessment or
deficiency for a material amount of Taxes other than pursuant to
extensions of time to file Tax Returns obtained in the ordinary
course of business;
(f) make any material change in its accounting principles
or methods except insofar as may be required by a change in GAAP;
(g) (i) split, combine, subdivide or reclassify any
capital stock or issue or authorize the issuance of any other
securities in respect of, in lieu of or substitution for shares
of its capital stock or (ii) redeem, purchase or otherwise
acquire, directly or indirectly, any capital stock, other equity
interest or other securities of the Company or any of its
Subsidiaries;
(h) acquire or agree to acquire by merging or consolidating
with, or by purchasing a substantial portion of the stock or
assets of,
or by any other manner, or enter into any memorandum of
understanding, letter of intent or other agreement, arrangement
or understanding to acquire any business or any corporation,
partnership, joint venture, association or other business
organization or division thereof;
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(i) adopt or amend (except as may be required by Law or to
avoid adverse Tax consequences) any bonus, profit sharing,
compensation, stock option, pension, retirement, deferred
compensation, employment or other employee benefit plan,
agreement, trust, fund or other arrangement for the benefit or
welfare of any employee, director or former director or employee
or increase the compensation or fringe benefits of any director,
officer, employee or former director officer or employee or pay
any benefit not required by any existing plan, arrangement or
agreement, other than increases in compensation for individuals
(other than directors and officers) and arrangements for new
employees (other than officers) in the ordinary course of
business consistent with past practice;
(j) grant to employees any new or modified severance (other
than providing severance under the severance or termination
policies in effect on the date hereof, solely to the extent such
employees are covered by such policies on the date hereof) or
increase or accelerate any benefits payable under its severance
or termination pay policies in effect on the date hereof;
(k) (i) except in accordance with the Companys
2006 capital expenditure budget previously provided to Parent,
authorize, or make any commitment with respect to, any capital
expenditure or acquire any property or asset not set forth in
the Companys budget in excess of $250,000 individually,
but in no event to exceed $1,000,000 in the aggregate;
(ii) enter into any new line of business; or
(iii) make investments in Persons other than wholly owned
Subsidiaries;
(l) (i) sell or transfer, or mortgage, pledge, lease,
license or otherwise encumber any material Intellectual Property
rights except for non-exclusive and non-transferable licenses
granted in the ordinary course of business consistent with past
practice in connection with advertising or marketing, or
(ii) fail to pay any fee, take any action or make any
filing reasonably necessary to maintain its ownership of
material Intellectual Property of the Company or its
Subsidiaries;
(m) adopt or enter into a plan of complete or partial
liquidation, dissolution, restructuring, recapitalization or
other reorganization of the Company or any of its Subsidiaries
(other than the Merger);
(n) modify, amend or terminate, or waive, release or assign
any material rights or claims with respect to any
confidentiality or standstill agreement to which the Company or
any of its Subsidiaries is a party and which relates to a
business combination involving the Company or any of its
Subsidiaries other than waivers with respect to any existing
confidentiality or standstill agreement solely to the extent
necessary to permit the submission of a written Takeover
Proposal made in accordance with the provisions of
Section 4.7 hereof;
(o) without Parents consent, which consent shall not
be unreasonably withheld, pay, discharge, waive, settle or
satisfy any claim, liability or obligation (absolute, accrued,
asserted or unasserted, contingent or otherwise), other than the
payment, discharge, waiver, settlement or satisfaction, in the
ordinary course of business and consistent with past practice
which does not exceed $200,000 in the aggregate;
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(p) except as otherwise permitted pursuant to
clause (o) above, without Parents consent, which
consent shall not be unreasonably withheld, pay, discharge,
waive, release, assign, settle or compromise any pending or
threatened action, suit, arbitration or other legal,
administrative or other governmental investigation, inquiry or
proceeding (i) in respect of any matter requiring payment
by the Company or any of its Subsidiaries in excess of $200,000
individually or $500,000 in the aggregate or entailing any
admission of liability by the Company or any of its Subsidiaries
or any material non-monetary relief against the Company or any
of its Subsidiaries, or (ii) that is brought by any
current, former or purported holder of any securities of the
Company or any of its Subsidiaries in its capacity as such;
(q) (i) enter into, amend, modify, cancel or consent
to the termination of any Material Contract or any Contract that
would be a Material Contract if in effect on the date of this
Agreement; or (ii) amend, waive, modify, cancel or consent
to the termination of the Companys or any of its
Subsidiarys rights thereunder
(r) amend, modify or waive any of the Companys
existing takeover defenses or take any action to render any
state takeover statutes inapplicable to any transaction other
than the transactions with Parent and Merger Sub contemplated by
this Agreement;
(s) enter into, amend, modify, cancel or terminate
(i) any lease, sublease or license to use or occupy any
real property other than as permitted pursuant to
Section 4.5(t), renewals set forth in Section 4.5(s)
of the Disclosure Schedule on the terms set forth in such
schedule, or amendments or modifications of such leases in the
ordinary course of business, consistent with past practice, with
Parents consent, which consent shall not be unreasonably
withheld; (ii) any Contract for computer software,
firmware, computer hardware, integrated circuits and integrated
circuit masks (collectively, Information
Technology), or to service any Information Technology,
which provides for annual payments in excess of $120,000;
(iii) any distribution agreement which provides for annual
payments by the Company in excess of $180,000; (iv) any
franchise agreement or store development agreement, or close,
relocate or take actions to close or relocate, any franchised
store other than any amendment or modification in connection
with any default of a third party or force majeure event
pursuant to any contract related thereto if Parent shall consent
to such amendment or modification, which consent shall not be
unreasonably withheld;
(t) open any stores other than as included in the
Companys 2006 capital expenditure budget and in accordance
with Section 4.5(k);
(u) take any action listed or described in
Section 4.5(u) of the Disclosure Schedule; and
(v) authorize any, or commit or agree to do any of the
things described in clauses (a) through (u) or
anything which would make any representation or warranty of the
Company in this Agreement untrue or incorrect in any material
respect as of the date hereof and as of the Effective Time, as
if made on such date, except to the extent such representations
and warranties expressly relate to a specific date (in which
case such representations and warranties shall be true and
correct as of such date).
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Section 4.6 Access
to Companys Books and Records.
Upon reasonable notice, the Company shall afford Parent and
Merger Sub and their respective directors, officers, employees
and Representatives reasonable access during normal business
hours to the properties, books, records and personnel of the
Company and such additional information concerning the business
and properties of the Company as Parent or Merger Sub may
reasonably request; provided, however, the Company
may restrict the foregoing access (i) to the extent that
any Law requires the Company to restrict access to any
properties or information and (ii) to the extent that such
access would violate any existing confidentiality or similar
non-disclosure obligation. With respect to the information
disclosed pursuant to this Section 4.6, the Parties shall
comply with, and shall cause their respective directors,
officers, employees and Representatives to comply with, all of
their respective obligations under that certain letter agreement
dated July 11, 2005 by and between Parent and the Company,
the terms of which are incorporated herein by reference (the
Confidentiality Agreement); provided,
that Parent and its representatives shall be permitted to
disclose information as necessary and consistent with customary
practice in connection with the Debt Financing. The Parties
acknowledge that the Confidentiality Agreement shall remain in
full force and effect until the Closing. No investigation by
Parent shall diminish or obviate any of the representations,
warranties, covenants or agreements of the Company contained in
this Agreement.
Section 4.7 Takeover
Proposals.
(a) The Company and its Subsidiaries shall, and shall use
commercially reasonable efforts to cause its and its
Subsidiaries directors, officers and employees to, and
shall direct its investment bankers, financial advisors,
attorneys, accountants and other advisors, agents or
representatives (collectively,
Representatives) retained by it to,
immediately cease and cause to be terminated any discussions or
negotiations with any parties (other than Parent, Merger Sub and
their respective representatives) that may be ongoing as of the
date of this Agreement with respect to a Takeover Proposal. The
Company and its Subsidiaries shall not, and shall not authorize
or permit the officers, directors or employees to, and shall
direct its Representatives not to, directly or indirectly
(i) solicit, initiate, propose or knowingly encourage or
facilitate any Takeover Proposal, (ii) enter into any
agreement or agreement in principle with respect to a Takeover
Proposal, or (iii) initiate or participate in any way in
any negotiations or discussions regarding, or furnish or
disclose to any Person (other than Parent and Merger Sub) any
information with respect to or in connection with or which would
reasonably likely lead to any Takeover Proposal;
provided, however, that at any time prior to
obtaining the Company Stockholder Approval, in response to a
bona fide written Takeover Proposal received after the date
hereof (I) that was not solicited by the Company or a
Representative on its behalf, and (II) that the
Companys Board of Directors or Special Committee
determines in good faith (after consultation with its outside
legal counsel and a financial advisor of nationally recognized
reputation) constitutes, or could reasonably be expected to lead
to, a Superior Proposal, if the Companys Board of
Directors or Special Committee determines in good faith (after
consultation with its outside legal counsel) that it is required
to do so in order to comply with its fiduciary duties to the
shareholders of the Company under applicable Law, then
the Company may, subject to compliance with Section 4.7(b)
in the circumstances set forth therein, (i) furnish
information and/or draft agreements with respect to the Company
to the Person making such Takeover Proposal (and its officers,
directors, employees, accountants, consultants, legal counsel,
advisors,
A-24
agents and other representatives) pursuant to a customary
confidentiality agreement no less favorable to the Company than
the Confidentiality Agreement; provided, that all such
information and the material terms of any such draft agreements
have previously been made available to Parent or is made
available to Parent prior to, or concurrently with, the time it
is provided to such Person and (ii) participate in
discussions or negotiations with the Person making such Takeover
Proposal (and its officers, directors, employees, accountants,
consultants, legal counsel, advisors, agents and other
representatives) regarding such Takeover Proposal.
(b) Except as provided in this Section 4.7(b), the
Companys Board of Directors or Special Committee shall not
and shall not publicly propose to (i) withdraw, modify or
change in a manner adverse to Parent (or fail within seven
(7) days of the date of this Agreement to publicly make)
the Company Recommendation, (ii) approve, adopt or
recommend a Takeover Proposal or Superior Proposal,
(iii) allow the Company or any of its Subsidiaries to enter
into any letter of intent, memorandum of understanding,
agreement in principle, option agreement, joint venture
agreement, acquisition agreement or similar agreement
constituting or relating to, or that is intended to or would be
reasonably expected to result in a Takeover Proposal (other than
any confidentiality agreement as permitted by
paragraph (a) of this Section 4.7) or
(iv) take a position that recommends a bidders tender
offer or remains neutral toward a bidders tender offer
under Rule 14e-2(a) of the Exchange Act (any action
described in clause (i), (ii), (iii) or (iv) and
any other position of the Companys Board of Directors or
Special Committee contemplated by Rule 14e-2(a) of the
Exchange Act other than recommending rejection of such Takeover
Proposal, a Company Adverse Recommendation
Change). Notwithstanding the foregoing, prior to the
Special Meeting, solely in response to an unsolicited bona fide
written Takeover Proposal, the Board of Directors of the Company
or the Special Committee may make a Company Adverse
Recommendation Change if (A) it is required to do so in
order to comply with its fiduciary duties to the shareholders of
the Company under applicable Law, and (B) it determines in
good faith (after consultation with its outside legal counsel
and a financial advisor of nationally recognized reputation)
that such Takeover Proposal is a Superior Proposal, and
(C) it or the Company is not otherwise in violation of this
Section 4.7; provided, that the Board of Directors
or Special Committee of the Company shall not make a Company
Adverse Recommendation Change, unless (I) the Company has
given Parent three (3) Business Days prior written notice
of its intention to take such action and (II) (x) the
Companys Board of Directors or Special Committee shall
have considered in good faith any proposed changes to this
Agreement proposed in writing by Parent during such three
(3) Business Day period and shall not have determined that
the Superior Proposal would no longer constitute a Superior
Proposal if such changes were to be given effect, (y) the
Company has complied in all material respects with its
obligations under this Section 4.7 and (z) the Company
shall have terminated this Agreement in accordance with the
provisions of Section 8.1(d) hereof and the Company shall
pay Parent the Breakup Fee in accordance with Section 8.6.
(c) The Company shall promptly (and in any event within one
Business Day) advise Parent orally and in writing of the
Companys receipt of any request for information or any
Takeover Proposal and the material terms and conditions of such
request or Takeover Proposal (including the identity of the
Person making such request or Takeover Proposal). Promptly upon
determination by the Companys Board of Directors or
Special Committee that a Takeover Proposal constitutes a
Superior Proposal, the Company shall deliver to Parent a written
notice advising it that the Companys Board of Directors or
Special Committee has made such
A-25
determination, specifying the material terms and conditions of
such Superior Proposal and the identity of the Person making
such Superior Proposal.
(d) Nothing contained in this Section 4.7 shall
prohibit the Company or the Companys Board of Directors or
Special Committee from (i) taking and disclosing to the
stockholders of the Company a position contemplated by
Rule 14e-2(a) promulgated under the Exchange Act or
(ii) making any disclosure to the stockholders of the
Company if, in the good faith judgment of the Companys
Board of Directors or Special Committee, such disclosure would
be necessary under applicable Law (including Rule 14d-9 and
Rule 14e-2(a) promulgated under the Exchange Act);
provided, however, that in no event shall this
Section 4.7(d) affect the obligations of the Company
specified in Section 4.7(b).
Section 4.8 Director
and Officer Protection.
(a) Upon and subject to the occurrence of the Effective
Time, for six (6) years from and after the Effective Time,
Parent agrees to, and to cause the Surviving Corporation to,
indemnify and hold harmless all past and present directors and
officers of the Company to the same extent such persons are
indemnified as of the date of this Agreement by the Company
pursuant to the Companys certificate of incorporation and
the Company By-laws and indemnification agreements, if any, in
existence on the date of this Agreement with any directors and
officers of the Company for acts or omissions occurring at or
prior to the Effective Time; provided, however,
that Parent agrees to, and to cause the Surviving Corporation
to, indemnify and hold harmless such persons to the fullest
extent permitted by Law for acts or omissions occurring in
connection with the approval of this Agreement and the
consummation of the transactions contemplated hereby.
(b) For six (6) years from the Effective Time, the
Surviving Corporation shall provide to the Companys
current directors and officers an insurance and indemnification
policy that provides coverage for events occurring prior to the
Effective Time (the D&O Insurance) that
is no less favorable in the aggregate than the Companys
existing policy (true and complete copies which have been
previously provided to Parent) or, if substantially equivalent
insurance coverage is unavailable, the best available coverage;
provided, however, that the Surviving Corporation
shall not be required to pay an annual premium for the D&O
Insurance in excess of 200% of the last annual premium paid
prior to the date of this Agreement. The provisions of the
immediately preceding sentence shall be deemed to have been
satisfied if prepaid policies have been obtained prior to the
Effective Time for purposes of this Section 4.8(b), which
policies provide such directors and officers with coverage for
an aggregate period of six (6) years with respect to claims
arising from facts or events that occurred on or before the
Effective Time, including, without limitation, in respect of the
transactions contemplated by this Agreement, except as set forth
in paragraph (a) hereof. If such prepaid policies have
been obtained prior to the Effective Time, Parent shall, and
shall cause the Surviving Corporation to, maintain such policies
in full force and effect, and continue to honor the obligations
thereunder. The obligations under this Section 4.8 shall
not be terminated or modified in such a manner as to adversely
affect any indemnitee to whom this Section 4.8 applies
without the consent of such affected indemnitee (it being
expressly agreed that the indemnitees to whom this
Section 4.8 applies shall be third party beneficiaries of
this Section 4.8).
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(c) In the event Parent or the Surviving Corporation
(A) consolidates with or merges into any other person and
shall not be the continuing or surviving corporation or entity
of such consolidation or merger or (B) transfers all or
substantially all of its properties and assets to any person,
then, and in each such case, proper provisions shall be made so
that such continuing or surviving corporation or entity or
transferee of such assets, as the case may be, shall assume the
obligations set forth in this Section 4.8.
(d) The Board of Directors of Company, or a committee
thereof consisting of non-employee directors (as such term is
defined for purposes of Rule 16b-3(d) under the Exchange
Act), shall adopt a resolution in advance of the Effective Time
providing that the disposition by the officers and directors of
Company who are subject to the reporting requirements of
Section 16(a) of the Exchange Act of Company Common Stock,
Company Options and Company Warrants, in each case pursuant to
the transactions contemplated hereby is intended to be exempt
pursuant to Rule 16b-3 under the Exchange Act.
Section 4.9 Payment
of Expenses.
At Closing, all expenses of counsel and financial advisors to
and the accountants for the Company shall be paid by the
Surviving Corporation.
Section 4.10 Employee
Benefits.
(a) During the period commencing at the Closing and ending
on the first anniversary of the Effective Time, Parent, Merger
Sub and the Company agree that all employees and officers of the
Company employed by the Company or any of its Subsidiaries as of
the Closing Date (the Company Employees)
shall receive (i) the salary or wage level and bonus
opportunity, to the extent applicable, at the Parents sole
option, which is either (A) no less favorable in the
aggregate than that in effect immediately prior to the Effective
Time or (B) no less favorable than that provided to
similarly situated employees of Parent, and (ii) benefits,
and other terms and conditions of employment that are, at
Parents sole option, (A) substantially similar in the
aggregate to the benefits and other terms and conditions that
they were entitled to receive immediately prior to the Effective
Time (excluding any equity-based compensation plans or
arrangements) or (B) no less favorable in the aggregate
than those provided to similarly situated employees of Parent;
provided, that this Section 4.10(a) shall not be
deemed to (x) be a guarantee of employment to any employee
or officer of the Company or (y) require Parent, the
Company or any of their affiliates to continue to maintain any
particular Company Benefit Plan; and provided,
further, that until the first anniversary of the
Effective Time, Parent, Merger Sub and the Company agree to keep
in effect all severance and retention plans, practices and
policies that are applicable to employees and officers of the
Company as of the date of this Agreement.
(b) Subject to Section 4.10(a), from and after the
Closing, the Company shall continue to honor, pay, perform and
satisfy any and all liabilities, obligations and
responsibilities to, or in respect of, each employee and officer
of the Company, and each former employee and officer of the
Company, as of the Closing arising under the terms of, or in
connection with, any Company Benefit Plan in accordance with the
terms thereof.
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(c) To the extent applicable with respect to employee
benefit plans, programs, policies and arrangements that are
established or maintained by Parent or its affiliates (including
the Company and the Subsidiaries) for the benefit of Company
Employees or former Company Employees (and their eligible
dependents), Company Employees and former Company Employees (and
their eligible dependents) shall be given credit for their
service with the Company and the Subsidiaries (i) for all
purposes of eligibility to participate and vesting (but not
benefit accrual under a defined benefit pension plan) to the
extent such service was taken into account under a corresponding
Company Benefit Plan, and (ii) to the extent permitted by
the plan maintained by the Parent, for purposes of satisfying
any waiting periods, evidence of insurability requirements, or
the application of any pre-existing condition limitations and
shall be given credit for amounts paid under a corresponding
Company Benefit Plan during the same period for purposes of
applying deductibles, co-payments and out-of-pocket maximums as
though such amounts had been paid in accordance with the terms
and conditions of the plans, programs, policies and arrangements
maintained by Parent. Notwithstanding the foregoing provisions
of this Section 4.10(c), service and other amounts shall
not be credited to Company Employees or former Company Employees
(or their eligible dependents) to the extent the crediting of
such service or other amounts would result in the duplication of
benefits.
Section 4.11 Public
Announcements.
Parent and the Company shall consult with each other before
issuing any press release or otherwise making any public
statements with respect to the Merger and shall not issue any
such press release or make any such public statement prior to
such consultation, except as may be required by applicable Law
or any listing agreement with the Exchange, in which case the
issuing party shall use its commercially reasonable efforts to
consult with the other party before issuing any such release or
making any such public statement.
Section 4.12 Certain
Actions and Proceedings.
Until this Agreement is terminated in accordance with
Section 8.1, Parent shall have the right to participate in
the defense of any action, suit or proceeding instituted against
the Company (or any of its directors or officers) before any
court or Governmental Entity or threatened by any Governmental
Entity or any third party, including a Company shareholder, to
restrain, modify or prevent the consummation of the transactions
contemplated by this Agreement, or to seek damages or a
discovery order in connection with such transactions.
Section 4.13 Director
Resignations.
At the Closing the Company shall deliver to Parent evidence
reasonably satisfactory to Parent of the resignation of all
directors of each Subsidiary of the Company, as specified by
Parent reasonably in advance of the Closing, in each case,
effective at the Effective Time.
Section 4.14 Conduct
of Business by Parent.
From the date of this Agreement to the Effective Time or earlier
termination of this Agreement as provided herein, Parent shall
not, and shall not permit any of its Affiliates and Subsidiaries
to, without the prior written consent of the Company, amend,
modify, cancel or terminate any contract, or any terms thereof,
whether written or oral, by and between the
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Company, on one hand, and Parent or any of its Affiliates or
Subsidiaries, on the other hand, whereby such amended or
modified terms would be materially less favorable to the Company
than those terms in effect as of the date hereof.
ARTICLE 5.
Representations and Warranties of Company
Except as set forth in the disclosure schedules attached to this
Agreement (the Disclosure Schedules) (it
being understood that any matter set forth in any Section of the
Disclosure Schedule shall be disclosed with respect to any other
Section of the Disclosure Schedules to the extent such
disclosure in such other Section would be readily apparent on
the face of such disclosure), the Company hereby represents and
warrants to Merger Sub and Parent as follows:
Section 5.1 Organization
and Good Standing.
The Company and each of its Subsidiaries is a corporation duly
organized, validly existing and in good standing under the Laws
of the jurisdiction in which it is organized. The Company and
each of its Subsidiaries and has all requisite power and
authority and possesses all Permits necessary to enable it to
own, lease or otherwise hold its properties and assets and to
conduct its business as presently conducted, other than such
Permits the lack of which, individually or in the aggregate, has
not had, and would not reasonably be expected to have, a Company
Material Adverse Effect. The Company and each of its
Subsidiaries is duly qualified and in good standing as a foreign
corporation authorized to do business in each of the
jurisdictions in which the character of the properties owned or
held under lease by it or the nature of the business transacted
by it makes such qualification necessary, except where the
failure to be so qualified has not had, and would not reasonably
be expected to have, a Company Material Adverse Effect. True and
complete copies of the Company Charter, the Company By-laws and
the charter documents, by-laws and organizational documents (and
in each case all amendments thereto) of each of the
Companys Subsidiaries as in effect immediately prior to
the date hereof have been made available to Parent. Neither the
Company nor any of its Subsidiaries is in violation of any
provision of its certificate of incorporation or by-laws or
similar organizational document, except in the case of
Subsidiaries, where such violations have not had, and would not
reasonably be expected to have, a Company Material Adverse
Effect.
Section 5.2 Subsidiaries
and Investments.
Except as set forth in Section 5.2 of the Disclosure
Schedules, the Company owns directly or indirectly each of the
outstanding shares of capital stock or a 100% ownership
interest, as applicable, of each of its Subsidiaries free and
clear of all Liens. Each of the outstanding shares of capital
stock of each of the Companys Subsidiaries having
corporate form is duly authorized, validly issued, fully paid
and nonassessable. Except as set forth in Section 5.2 of
the Disclosure Schedules, the Company owns directly or
indirectly each of its Investments, if any, free and clear of
all Liens. The following information for each Subsidiary and
each direct or indirect Investment of the Company is set forth
in Section 5.2 of the Disclosure Schedules: (i) its
name and jurisdiction of incorporation or organization;
(ii) its
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authorized capital stock or share capital; and (iii) the
name of each stockholder or owner and the number of issued and
outstanding shares of capital stock or share capital held by it
or the type and amount of any ownership interest.
Section 5.3 Authorization;
Binding Agreement.
(a) The Company has all requisite corporate power and
authority to execute and deliver this Agreement, to perform its
obligations hereunder and to consummate the transactions
contemplated hereby. The execution, delivery and performance by
the Company of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly
authorized by the Companys Board of Directors and the
Special Committee and, except for the affirmative vote of
holders of a majority of outstanding shares of Company Common
Stock to adopt this Agreement and approve the Merger and the
other transactions provided for herein (the Company
Stockholder Approval), no other corporate proceedings
on the part of the Company are necessary to authorize this
Agreement, the Merger and the other transactions contemplated
hereby. This Agreement has been duly and validly executed and
delivered by the Company, and subject to the Company Stockholder
Approval, constitutes the legal, valid and binding agreement of
Company, enforceable against Company in accordance with its
terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or other
Laws, now or hereafter in effect, relating to or limiting
creditors rights generally, and general principles of
equity.
(b) The Board of Directors of the Company, at a meeting
duly called and held prior to execution of this Agreement,
(i) approved and declared advisable this Agreement, the
Merger and the other transactions contemplated hereby,
(ii) determined that this Agreement and the Merger are fair
to and in the best interests of the Company and its
stockholders, (iii) resolved to recommend that the holders
of Company Common Stock approve and adopt this Agreement and the
Merger and (iv) directed that this Agreement be submitted
for consideration by the holders of the Company Common Stock at
a meeting of such stockholders.
Section 5.4 Capitalization.
The authorized capital stock of the Company consists solely of
40,000,000 shares of Company Common Stock. As of
September 26, 2005, 17,319,386 shares of
Company Common Stock were issued and outstanding. As of the date
hereof, (i) 5,598,016 shares of Company Common Stock
were reserved for issuance upon exercise of outstanding Company
Options and Company Warrants (excluding shares of Company Common
Stock issuable under the Management Stock Purchase Plan and the
Employee Stock Purchase Plan as provided in clauses (ii)
and (iii)), (ii) assuming a per share purchase price equal
to the Cash Merger Consideration, 5,420 shares of Company
Common Stock are issuable under the Management Stock Purchase
Plan until termination of such plan, and (iii) assuming a
per share purchase price equal to the Cash Merger Consideration,
a maximum of 29,230 shares of Common Stock will be
purchased under the Employee Stock Purchase Plan until
termination of such plan pursuant to the current offering period
and based on current employee compensation levels.
Section 5.4 of the Disclosure Schedules lists each Company
Option outstanding on the date hereof, the Company Stock Option
Plan under which such Company Option was granted, the number of
shares of Company Common Stock issuable thereunder, the
expiration date and the exercise price thereof.
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Section 5.4 of the Disclosure Schedules also lists each
Company Warrant outstanding on the date hereof and the number of
shares of Company Common Stock issuable thereunder. All of the
issued and outstanding shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid
and nonassessable, and not subject to or issued in violation of
any purchase option, call option, right of first refusal,
preemptive right, subscription right or any similar rights.
Except as contemplated by this Agreement (including, without
limitation, as permitted pursuant to Section 4.5(b) and
except for the Company Options, the Company Warrants and as set
forth on Section 5.4 of the Disclosure Schedules, the
Company neither has nor as of the Effective Time will have
granted any outstanding security, call, option, warrant,
subscription or other right, or entered into any agreement or
commitment which either (a) obligates the Company to issue,
sell or transfer or cause to be issued, delivered or sold any
shares of the capital stock of the Company or (b) restricts
the transfer of, or otherwise encumbers, shares of Company
Common Stock. Except as set forth above as of the date hereof,
no shares of capital stock or other voting securities of the
Company are issued, reserved for issuance or outstanding. Other
than as set forth in this Section 5.4 or in
Section 5.4 of the Disclosure Schedules or as permitted
pursuant to Section 4.5(b), there are no (1) options,
warrants, rights, convertible or exchangeable securities,
phantom stock rights, stock appreciation rights,
stock-based performance units, commitments, contracts,
arrangements or undertakings of any kind to which the Company or
any of its Subsidiaries is a party or by which any of them is
bound (x) obligating the Company or any of its Subsidiaries
to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of capital stock or other equity
interests in, or any security convertible or exercisable for or
exchangeable into any capital stock of or other equity interest
in, the Company or of any of its Subsidiaries,
(y) obligating the Company or any of its Subsidiaries to
issue, grant, extend or enter into any such option, warrant,
call, right, security, commitment, Contract, arrangement or
undertaking or (z) that give any Person the right to
receive any economic benefit or right similar to or derived from
the economic benefits and rights accruing to holders of Company
capital stock, (2) outstanding contractual obligations of
the Company or any of its Subsidiaries to repurchase, redeem or
otherwise acquire any shares of capital stock of the Company or
any of its Subsidiaries or (3) voting trusts or other
agreements or understandings to which the Company or any of its
Subsidiaries is a party with respect to the voting or transfer
of capital stock of the Company or any of its Subsidiaries
(other than the Voting Agreement). All of the outstanding equity
securities of the Company have been offered and issued in
material compliance with applicable federal and state securities
laws.
Section 5.5 Financial
Statements.
All financial statements of Company (including the notes to such
financial statements) included in Companys Annual Report
on Form 10-K for the fiscal year ended July 2, 2005
and any financial statements of the Company filed with the SEC
pursuant to the Exchange Act after the date hereof (the
Financial Statements), (a) are (and in
the case of financial statements filed after the date hereof,
will be) in accordance with the books and records of the Company
in all material respects, (b) present fairly in all
material respects the financial position, results of operations,
changes in stockholders equity and cash flow (as
applicable) of the Company as of the respective dates and for
the respective periods indicated, and (c) have been
prepared in conformity with GAAP applied in all material
respects on a consistent basis through all the periods involved.
The Company has no material liabilities other than
(i) those disclosed in the Financial Statements filed with
the SEC prior to the date hereof, (ii) those arising in the
ordinary
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course of business since July 2, 2005, (iii) that were
incurred under this Agreement or in compliance with the
transactions contemplated hereby, or (iv) as disclosed in
Section 5.5 of the Disclosure Schedules.
Section 5.6 Absence
of Certain Changes or Events.
Since July 2, 2005, (a) there has not occurred any
Company Material Adverse Change, (b) there has not been any
damage, destruction or loss, whether covered by insurance or
not, having or that would reasonably be expected to have, a
Company Material Adverse Effect, (c) the Company and its
Subsidiaries have conducted their business only in the ordinary
course, (d) the Company has not changed its accounting
principles or methods in any material respect except insofar as
may be required by a change in GAAP, (e) there has not been
any declaration, setting aside or payment of any dividend or
other distribution (whether in cash, stock or property) with
respect to Company Common Stock, (f) the Company and its
Subsidiaries have not (i) materially increased the
compensation of any present or former director, officer or
employee of the Company or any of its Subsidiaries (except for
increases in salary or wages in the ordinary course of business
consistent with past practice), (ii) granted any severance
or termination pay to any present or former director or officer
of the Company or its Subsidiaries or, other than in the
ordinary course of business, to any other employee of the
Company or its Subsidiaries or (iii) established any new
Company Benefit Plan and (g) except as disclosed in
Section 5.6 of the Disclosure Schedules, the Company and
its Subsidiaries have not otherwise taken any of the actions
described in Section 4.5 (a)-(u) of this Agreement.
Section 5.7 Company
SEC Documents.
(a) The Company has timely filed with, and furnished or
otherwise transmitted to, the SEC all Company SEC Documents.
Each Company SEC Document (including any financial statements or
schedules included therein) (i) at the time it was filed
complied in all material respects with the requirements of the
Securities Act, Exchange Act and the Sarbanes-Oxley Act of 2002
(the Sarbanes-Oxley Act), as the case may be,
and the rules and regulations of the SEC promulgated thereunder
applicable to such Company SEC Documents, and (ii) did not
at the time it was filed contain any untrue statement of a
material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were
made, not misleading. The Company has timely responded to all
comment letters of the staff of the SEC relating to the Company
SEC Documents, and the SEC has not advised the Company that any
final responses are inadequate, insufficient or otherwise
non-responsive. The Company has made available to Parent true,
correct and complete copies of all correspondence between the
SEC, on the one hand, and the Company and any of its
Subsidiaries, on the other, occurring since June 29, 2003,
and prior to the date hereof and will, reasonably promptly
following the receipt thereof, make available to Parent any such
correspondence sent or received after the date hereof. To the
knowledge of the Company, none of the Company SEC Documents is
the subject of ongoing SEC review or outstanding SEC comment.
(b) The Company has disclosure controls and procedures that
are effective to ensure that material information relating to
the Company, including its Subsidiaries, is made
A-32
known to the Chairman of the Executive Committee of the Board of
Directors of the Company and the Chief Financial Officer of the
Company by others within those entities.
(c) The Company, based on its most recent evaluation prior
to the date hereof, has identified and disclosed to the
Companys auditors and the audit committee of the
Companys Board of Directors and to Parent (i) any
significant deficiencies and material weaknesses in the design
or operation of internal controls over financial reporting which
are reasonably likely to adversely affect the Companys
ability to record, process, summarize and report financial
information, and (ii) any fraud, whether or not material,
that involves management or other employees who have a
significant role in the Companys internal controls over
financial reporting.
(d) There are no outstanding loans made by the Company or
any of its Subsidiaries to any executive officer (as defined in
Rule 3b-7 under the Exchange Act) or director of the
Company.
Section 5.8 Governmental
and Other Consents and Approvals.
Except as set forth in Section 5.8 of the Disclosure
Schedules, subject to the Company Stockholder Approval, no
consent, waiver, approval, license or authorization of or
designation, declaration or filing with any Governmental Entity
or any other Person is required in connection with the execution
or delivery by the Company of this Agreement or the consummation
by the Company or any of its Subsidiaries of the transactions
contemplated hereby, other than (a) filings in the State of
Delaware in accordance with the DGCL, (b) compliance with
and filings required under the HSR Act, and (c) filings
required under the Exchange Act.
Section 5.9 No
Violation.
Except as set forth in Section 5.9 of the Disclosure
Schedules, the execution and delivery of this Agreement, the
filing by the Company of a certificate of merger in connection
with the Merger in the State of Delaware in accordance with the
DGCL, the consummation by the Company of the Merger and the
other transactions contemplated hereby, or compliance by the
Company with any of the provisions hereof, will not:
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(a) |
violate any provision of the Company Charter, the Company
By-laws or the comparable charter or organizational documents of
any Subsidiary of the Company; |
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(b) |
cause the Company or any of its Subsidiaries to violate in any
material respect (i) any Law or any judgment, decree, or
order of any Governmental Entity applicable to the Company or
any of its properties or (ii) the award of any arbitrator
or panel of arbitrators; or |
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(c) |
with or without notice or lapse of time, or both, violate, or be
in conflict with, or constitute a material default under, or
permit the termination of, or give rise to a right of
termination, cancellation or acceleration of or put
right with respect to any obligation or to loss of a material
benefit under, or, except as contemplated by this Agreement,
require the consent of any Person under, or result in the
creation of any material lien upon any property of the Company
under, any agreement, indenture, lease, instrument, permit,
concession, franchise, or license applicable to the Company or
to which the Company is a party or by which the Company |
A-33
(or its properties) may be bound, which, in the case of
clause (c), individually or in the aggregate, have had, or
would reasonably be expected to have a Company Material Adverse
Effect.
Section 5.10 Litigation.
Except as set forth in Section 5.10 of the Disclosure
Schedules or in the Company SEC Reports filed prior to the date
hereof, there is no legal action, suit, arbitration or other
legal, administrative or other governmental investigation,
inquiry or proceeding (whether federal, state, local or foreign)
pending or, to the knowledge of the Company, threatened against
or affecting the Company or any of its Subsidiaries, or any of
their properties, assets, business, or Governmental Approvals
before any Governmental Entity or arbitrator, which,
individually or in the aggregate, could reasonably be expected
(a) to have a Company Material Adverse Effect, or
(b) to materially and adversely affect the ability of
Company to carry out, or prevent or make unduly burdensome, the
Merger or the transactions contemplated by this Agreement nor is
there any judgment, decree, injunction, rule or order of any
Governmental Entity or arbitrator outstanding against the
Company having any such effect. As of the date hereof, there are
no internal investigations or inquiries being conducted by the
Board of Directors of the Company or any committee thereof, or
any third party at the request thereof concerning any material
violation or potential violation of any applicable Laws.
Section 5.11 Employment
and Labor Matters.
Except as set forth on Section 5.11 of the Disclosure
Schedule and except as has not had, and would not reasonably be
expected to have, a Company Material Adverse Effect, there is no
labor strike, labor dispute, labor slow down, work stoppage or
other labor difficulty pending or, to the knowledge of the
Company, threatened against the Company. Except as set forth on
Section 5.11 of the Disclosure Schedule, none of the
employees of the Company is covered by any collective bargaining
agreement, and, to the knowledge of the Company, no
representation petition has been filed by a Company employee or
is pending before the National Labor Relations Board, and no
union organizing campaign is in progress or has been threatened.
Section 5.12 Governmental
Approvals; Compliance with Law.
The Company possesses from the appropriate Governmental Entity,
whether federal, state or local, all licenses, permits,
authorizations, approvals, franchises and rights
(Governmental Approvals) that are necessary
for the Company to engage in the business currently conducted by
it, except in those instances in which failure to possess
Governmental Approvals, individually or in the aggregate, would
not have or would not reasonably be expected to have a Company
Material Adverse Effect. Except as set forth in
Section 5.12 of the Disclosure Schedule, the Company is in
material compliance, with all applicable federal, state and
local Laws.
Section 5.13 Brokers
and Finders.
Except as set forth in Section 5.13 of the Disclosure
Schedules, no broker, finder, financial advisor, investment
banker or other Person is entitled to any brokerage,
finders, financial advisors or other similar fee or
commission in connection with the Merger based upon arrangements
made by or on behalf of the Company. The Company has furnished
to Parent a
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complete and correct copy of any Contract between the Company
and Credit Suisse First Boston LLC.
Section 5.14 Taxes.
(a) Except as has not had, and would not reasonably be
expected to have, a Company Material Adverse Effect and except
as set forth in Section 5.14(a) of the Disclosure
Schedules, (i) the Company and each of its Subsidiaries has
timely filed or caused to be filed or will timely file or cause
to be filed (taking into account any extension of time to file
granted or obtained) all Tax Returns required to be filed by it,
and any such filed Tax Returns are true, correct and complete,
(ii) the Company and each of its Subsidiaries has timely
paid or will timely pay any Taxes due and payable except to the
extent that such Taxes are being contested in good faith and for
which the Company has set aside adequate reserves in accordance
with GAAP, (iii) based upon activities to date, adequate
reserves in accordance with GAAP have been established by the
Company and each of its Subsidiaries for all Taxes not yet due
and payable in respect of taxable periods ending on the date
hereof and (iv) all amounts of Tax required to be withheld
by the Company and each of its Subsidiaries has been or will be
timely withheld and paid over to the appropriate Tax authority.
Neither the Company nor any of its Subsidiaries has received in
the three-year period preceding the date hereof written notice
of any material claim made by any authority in a jurisdiction
where the Company or such Subsidiary does not file Tax Returns
that the Company or such Subsidiary is or may be subject to
taxation by that jurisdiction. To the knowledge of the Company,
neither the Company nor any of its Subsidiaries has commenced
activities in any jurisdiction that will result in an initial
filing of any Tax Return with respect to Taxes imposed by a
Governmental Entity that it had not previously been required to
file in the immediately preceding taxable period.
(b) No deficiency for any material amount of Tax has been
asserted or assessed by any Governmental Entity in writing
against the Company or any of its Subsidiaries (or, to the
knowledge of the Company, has been threatened or proposed),
except for deficiencies which have been satisfied by payment,
settled or been withdrawn or which are being contested in good
faith and are Taxes for which the Company has set aside adequate
reserves in accordance with GAAP. There are no liens for a
material amount of any Taxes, other than liens for current Taxes
and assessments not yet past due or which are being contested in
good faith and for which the Company has set aside adequate
reserves in accordance with GAAP, on the assets of the Company.
(c) (i) Except as set forth in Section 5.14(c) of
the Disclosure Schedules, there are no pending or, to the
knowledge of the Company, threatened audits, examinations,
investigations or other proceedings in respect of a material
amount of Taxes of the Company or any of its Subsidiaries with
respect to which the Company or any of its Subsidiaries has been
notified in writing and (ii) neither the Company nor any of
its Subsidiaries has waived any statute of limitations in
respect of a material amount of Taxes or agreed to any extension
of time with respect to an assessment or deficiency for a
material amount of Taxes (other than pursuant to extensions of
time to file Tax Returns obtained in the ordinary course).
(d) Neither the Company nor any of its Subsidiaries is a
party to or bound by any indemnification, allocation or sharing
agreement with respect to Taxes that could give rise to
A-35
a material payment or indemnification obligation (other than
customary Tax indemnifications contained in credit or other
commercial lending agreements). Neither the Company nor any of
its Subsidiaries has executed any power of attorney with respect
to any Tax, other than powers of attorney that are no longer in
force.
(e) Neither the Company nor any of its Subsidiaries is
required to make any disclosure to the Internal Revenue Service
with respect to (i) a reportable transaction
pursuant to Section 1.6011-4(b)(2) of the Treasury
Regulations promulgated under the Code or (ii) any
confidential corporate tax shelter within the
meaning of Section 6111 of the Code, and the Treasury
regulations promulgated thereunder or comparable provisions of
section law, or (iii) any potentially abusive tax
shelter within the meaning of Section 6112 of the
Code and the Treasury regulations promulgated thereunder or
comparable provision of state law.
(f) Neither the Company nor any of its Subsidiaries
(i) has, except as set forth in Section 5.14(f) of the
Disclosure Schedules, been a member of an affiliated group
filing a consolidated federal income tax return (other than a
group the common parent of which was the Company) or
(ii) has any liability for the Taxes of any Person (other
than the Company) under Treasury Regulation
section 1.1502-6 (or any similar provision of state, local
or foreign law), as a transferee, successor, by contract or
otherwise.
(g) Neither the Company nor any of its Subsidiaries has
been a party to a transaction reported as a reorganization
within the meaning of Section 368 of the Code, or
distributed the stock of another company (or has been
distributed) in a transaction that was purported or intended to
be governed by section 355 or section 361 of the Code.
Section 5.15 Employee
Benefits.
(a) Section 5.15(a) of the Disclosure Schedules
contains a list of all material Company Benefit Plans. For this
purpose, a Company Benefit Plan is any
contract and employment agreement that provide annual base
compensation equal to or exceeding $150,000 and which may not be
terminated at will, or by giving notice of thirty (30) days
or less, without cost or penalty, employee benefit plan,
program, arrangement, funds, policy, or practice, with respect
to which, through which, or under which (1) the Company has
any liability to provide benefits or compensation to or on
behalf of employees, former employees, or independent
contractors of the Company, whether formal or informal, whether
or not written, including but not limited to any employee
benefit plan (within the meaning of Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended
(ERISA)), any multiemployer plan (as defined
in Section 3(37) and Section 4001(a)(3) of ERISA),
stock purchase, stock option, severance, employment, change in
control, fringe benefit, collective bargaining, bonus,
incentive, and deferred compensation arrangement, or
(2) the Company or any Subsidiary has or is reasonably
expected to have any liability (direct or indirect, contingent
or otherwise) (collectively, the Company Benefit
Plans). The Company has made available to Merger Sub a
true and complete copy of the following documents, if
applicable, with respect to each material Company Benefit Plan:
(i) all plan documents, including documents setting forth
the material terms of the Company Benefit Plan and any funding
instrument, or if there are no such documents evidencing the
Company Benefit Plan, a full description of the Company Benefit
Plan, (ii) the ERISA summary plan description and any other
written summary of plan provisions
A-36
provided to participants or beneficiaries for each such Company
Benefit Plan, (iii) the annual report (Form 5500
series), required under ERISA or the Code, filed for the most
recent plan year and most recent financial statements or
periodic accounting of related plan assets with respect to each
Company Benefit Plan, (iv) the most recent favorable
determination letter, opinion, or ruling from the Internal
Revenue Service for each Company Benefit Plan, the assets of
which are held in trust, to the effect that such trust is exempt
from federal income Tax, and (v) copies of the
nondiscrimination tests for the immediately preceding two
calendar years (including without limitation, coverage tests
under Section 410(b) of the Code and nondiscrimination
tests under Section 401(k)(3) of the Code).
(b) Each Company Benefit Plan has at all times been
maintained, by its terms and in operation, in accordance with
the Code, ERISA, and other applicable Laws, except where the
failure to so comply is not reasonably likely to have a Company
Material Adverse Effect. Each Company Benefit Plan that is
intended to be qualified under Section 401(a) of the Code,
and related trust that is intended to be tax-exempt under
Section 501(a) of the Code, has received a favorable
determination letter from the Internal Revenue Service to the
effect that such plan is qualified under the Code and such trust
is tax-exempt, and any such determination letter remains in
effect and has not been revoked and there are no facts and
circumstances that could result in the revocation of such letter
except as may be self-corrected pursuant to Revenue Procedure
2003-44 without material liability to the Company. All
contributions required to be made prior to Closing under the
terms of each Company Benefit Plan, the Code, ERISA, or other
applicable Law have been or will be timely made and to the
extent not presently payable appropriate reserves have been
established for the payment and properly accrued in accordance
with customary accounting practices. Except as set forth in
Section 5.15(b) of the Disclosure Schedules, no Company
Benefit Plan provides for a material increase in benefits on or
after the Closing.
(c) Except as set forth in Section 5.15(c) of the
Disclosure Schedules, each Company Benefit Plan that is an
employee benefit plan as defined in
Section 3(3) of ERISA providing tax-qualified retirement,
or health, life or similar welfare type benefits to employees
generally may be amended or terminated in accordance with its
terms at any time without any material obligation or liability
other than for benefits accrued prior to such amendment or
termination, or as required to be vested pursuant to applicable
Law as a result of such amendment or termination. There are no
material actions, audits, suits, or claims which are pending or
threatened, to the knowledge of the Company against any Company
Benefit Plan, except claims for benefits made in the ordinary
course of the operation of such plans and no facts or
circumstances exist that could reasonably be expected to give
rise to any such actions, suits or claims other than routine
claims for benefits. No governmental investigation of any
Company Benefit Plan is pending or to the knowledge of the
Company threatened. Except as set forth in Section 5.15(c)
of the Disclosure Schedules, none of the assets of any Company
Benefit Plan are invested in employer securities or employer
real property. No non-exempt prohibited transaction
(as such term is defined in ERISA Section 406 and
Section 4975 of the Code) has occurred with respect to any
Company Plan. To the knowledge of the Company, no event has
occurred and no condition exists that would subject the Company,
either directly or by reason of its affiliation with any trade
or business (whether or not incorporated) which together with
the Company is treated as a single employer under
Section 414(b), (c), (m), or (o) of the Code
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(Company ERISA Affiliate), to any material
liability, Tax, or penalty imposed by ERISA, the Code, or other
applicable Law.
(d) Neither the Company nor any Company ERISA Affiliate
maintains, nor has at any time established or maintained, nor
has at any time been obligated to make, or made, contributions
to or under any plan subject to Title IV of ERISA,
including without limitation any single employer
plan as defined in Section 4001(a)(15) of ERISA or
any multiemployer plan as defined in
Section 4001(a)(3) of ERISA.
(e) Except as listed on Section 5.15(e) of the
Disclosure Schedule, no Company Benefit Plan provides
post-retirement or post-termination health benefits and none of
the Company or any Company ERISA Affiliate has any obligations
to provide any post-retirement health benefits, except, in
either case, to the extent required by Section 4980B of the
Code, Part 6 of Title 1 of ERISA or similar provisions
of applicable statutes.
(f) Except as set forth in Section 5.15(f) of the
Disclosure Schedule, the consummation of the transactions
contemplated by this Agreement will neither entitle any current
or former employee or other service provider of the Company or
any Subsidiary to severance benefits or any other payment
(including, without limitation, golden parachute) under any
Company Benefit Plan nor cause any amounts payable under any
Company Benefit Plan to fail to be deductible for federal income
tax purposes by virtue of section 280G of the Code.
(g) No Company Benefit Plan that is a non-qualified
deferred compensation plan subject to Section 409A of the
Code (Section 409A) has been materially
modified (as defined under Section 409A) on or after
October 3, 2004 and all non-qualified deferred compensation
plans have been operated and administered in good faith
compliance with Section 409A and IRS Notice 2005-1 from the
period beginning January 1, 2005 through the date hereof.
Section 5.16 Intellectual
Property.
(a) Section 5.16(a) of the Disclosure Schedules sets
forth a true and complete list of all material registered
copyrights, registered Trademarks (including internet domain
name registrations), common law Trademarks, and patents and all
applications to register any of the foregoing, currently owned
by the Company and its Subsidiaries (collectively,
Scheduled Intellectual Property). The entire
right, title and interest in the Scheduled Intellectual Property
is solely owned by the Company and its Subsidiaries. Each item
listed in Schedule 5.16(a) has been duly registered or
application filed with the appropriate authority. Except as has
not had, and would not reasonably be expected to have, a Company
Material Adverse Effect, all application, renewal or other
similar fees for any such Scheduled Intellectual Property have
been properly paid and are current, and all such registrations
and filings remain in full force and effect. There are no actual
or, to the knowledge of the Company, threatened opposition
proceedings, cancellation proceedings, interference proceedings
or other similar action challenging the validity, existence,
ownership of any portion of the Scheduled Intellectual Property.
None of the Scheduled Intellectual Property has been previously
adjudged to be invalid or unenforceable in whole or in part.
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(b) Except as has not had, and would not reasonably be
expected to have, a Company Material Adverse Effect, each of the
Company and its Subsidiaries owns or has the valid right to use
all Intellectual Property used in the conduct of their business,
free and clear of all liens except for Permitted Liens or liens
securing Indebtedness evidenced by the agreements listed on
Section 5.22(e) of the Disclosure Schedules.
(c) Except as set forth in Section 5.16(c) of the
Disclosure Schedules, no claims are pending or, to the knowledge
of the Company, threatened with regard to the ownership by the
Company or any of its Subsidiaries or the validity or
enforceability of Scheduled Intellectual Property.
(d) Except as set forth in Section 5.16(d) of the
Disclosure Schedules, no claims are pending or, to the knowledge
of the Company, threatened that the conduct of the
Companys or its Subsidiaries respective businesses
has or does infringe, misappropriate or otherwise violate the
Intellectual Property of any Person.
(e) Except as has not had and would not reasonably be
expected to have a Company Material Adverse Effect, with respect
to the Scheduled Intellectual Property, proprietary product
designs, trade secret marketing plans and business methods,
proprietary data, and computer software owned or purported to be
owned by the Company or any Subsidiary (collectively,
Owned Intellectual Property) the Company or a
Subsidiary is the owner of the entire right, title and interest
in and to such Owned Intellectual Property (except for portions
thereof that may consist of embedded third party products
licensed from others) and is entitled to use, sell, license,
transfer, and otherwise exploit such Owned Intellectual Property
in the continued operation of its respective business consistent
with past practice. Except as set forth in Section 5.16(e)
of the Disclosure Schedules, neither the Company nor any
Subsidiary has exclusively licensed any Owned Intellectual
Property to any person. Except as has not had, and would not
reasonably be expected to have, a Company Material Adverse
Effect, the Company and its Subsidiaries have taken commercially
reasonable actions to protect, preserve, and maintain the Owned
Intellectual Property and to maintain the confidentiality of and
restrict the improper use of confidential information.
(f) The Company and its Subsidiaries maintain policies and
procedures regarding data security and privacy that are
commercially reasonable and, in any event, in compliance with
all applicable Laws. There have been no security breaches
relating to, violations of any security policy of the Company or
any of its Subsidiaries regarding any unauthorized access of any
data or information used in the business of the Company. The use
and dissemination by the Company or its Subsidiaries of any and
all data an information concerning individuals is in compliance
with all applicable privacy policies or terms of use of the
Company or any of its Subsidiaries and Laws. The transactions
contemplated to be consummated hereunder as of the Closing will
not violate any privacy policy or terms of use of the Company or
its Subsidiaries, or Laws relating to the use, dissemination, or
transfer of such data or information.
Section 5.17 Environmental
Matters.
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Except for such items that could not, individually or in the
aggregate, reasonably be expected to have a Company Material
Adverse Effect or as set forth in Section 5.17 of the
Disclosure Schedules (i) the Company is in compliance with
Environmental Laws, (ii) the Company possesses all
Environmental Permits that are required to conduct the business
of the Company as it is currently conducted, (iii) the
Company has not received any written claim or notice of
violation from any Environmental Entity alleging that the
Company is in violation of, or liable under, any Environmental
Law, and (iv) to the knowledge of the Company there are no
facts or circumstances that could give rise to any material
liability of the Company under any Environmental Law.
Section 5.18 Required
Vote.
The affirmative vote of a majority of the shares of Company
Common Stock is the only vote of the holders of any class or
series of the Companys securities necessary to approve
this Agreement and the Merger under the DGCL.
Section 5.19 State
Takeover Statutes.
The Company has taken all appropriate actions so that the
restrictions on business combinations contained in
Section 203 of the DGCL will not apply with respect to or
as a result of this Agreement and the transactions contemplated
hereby, including the Merger, without any further action on the
part of the stockholders or the Companys Board of
Directors. True and complete copies of all resolutions of the
Companys Board of Directors reflecting such actions have
been previously provided to Parent. No other takeover statute or
similar statute or regulation enacted under state or federal
laws in the United States is applicable to or purports to be
applicable to the Merger or any other transaction contemplated
by this Agreement.
Section 5.20 Material
Contracts.
Except as filed as exhibits to the Company SEC Documents filed
prior to the date of this Agreement, or as disclosed in
Section 5.20 of the Disclosure Schedules, the Company is
not a party to or bound by any contract (A) any of the
benefits to any party of which will be increased, or the vesting
of the benefits to any party of which will be accelerated, by
the occurrence of any of the transactions contemplated by this
Agreement or (B) which, as of the date hereof, (1) is
a material contract (as such term is defined in
Item 601(b)(10) of Regulation S-K of the SEC),
(2) which involves aggregate expenditures in excess of
$500,000 for non-merchandise materials and is not cancelable
within one year, (3) which contains any non-compete or
exclusivity provisions with respect to any line of business or
geographic area with respect to the Company or any Subsidiary of
the Company, (4) entered into other than in the ordinary
and usual course of business, (5) representing Indebtedness
of the Company or any of its Subsidiaries, (6) with any
Governmental Entity, (7) with any director or officer of
the Company or any Subsidiary of the Company, (8) which
would prohibit or materially delay the consummation of the
Merger or any of the transactions contemplated by this
Agreement, or (10) any Contract for Information Technology,
or for Information Technology services which involves annual
payments in excess of $500,000, (collectively, Material
Contracts). The Company has not received any notice
that any other party is, presently in default in any respect
under any Material Contract except for those defaults which
could not reasonably be expected, either individually or in the
aggregate, to
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have a Company Material Adverse Effect; and there has not
occurred and is presently existing any event that with the lapse
of time or the giving of notice or both would constitute such a
material default.
Section 5.21 Information
in Proxy Statement.
The Definitive Proxy Statement (or any amendment thereof or
supplement thereto), at the date mailed to Company stockholders
and at the time of the Special Meeting, will not contain any
untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in
order to make the statements therein, in light of the
circumstances under which they are made, not misleading,
provided, however, that no representation is made
by the Company with respect to statements made therein based on
information supplied by the Parent or Merger Sub for inclusion
in the Definitive Proxy Statement. The Definitive Proxy
Statement will comply in all material respects with the
provisions of the Exchange Act and the rules and regulations
thereunder and the requirements of the DGCL.
Section 5.22 Properties.
(a) The Company and the Subsidiaries do not own any real
property.
(b) The Company has made available to Parent true and
complete copies of the written agreements with respect to each
leasehold interest in real property leased by, subleased by,
licensed or with respect to which a right to use or occupy has
been granted to the Company or any of the Subsidiaries (whether
or not in use or not in use by the Company or any of the
Subsidiaries) (the Real Property Leases and
such leased real property, the Real
Property). Except for the Real Property Leases, there
are no written or oral subleases, licenses, concessions,
occupancy agreements or other Contracts granting to any other
Person the right of use or occupancy of the Real Property and
there is no Person (other than the Company or a Company
Subsidiary) in possession of the Real Property. With respect to
each Real Property Lease that is a sublease, to the knowledge of
the Company, the representations and warranties set forth in
subsections (c) and (d) below are true and correct
with respect to the underlying lease.
(c) Except as set forth on Section 5.22 of the
Disclosure Schedules, the Real Property Leases do not impose
material restrictions on any portion of the business of the
Company or the Subsidiaries other than radius or use
restrictions that do not materially interfere with the
Companys business. Neither the Company nor any Subsidiary
is obligated to pay any leasing or brokerage commission as a
result of the Merger. The Company has delivered to the Buyer
true, correct and complete copies of the Real Property Leases
including all amendments, modifications, notices or memoranda of
lease thereto and all estoppel certificates or subordinations,
non-disturbance and attornment agreements related thereto.
(d) Except as set forth in Section 5.22(d) of the
Disclosure Schedules, there are no outstanding Contracts for the
purchase of any material Real Property.
(e) The Company holds good and valid leasehold interest in
the Real Property free of all liens except for Permitted Liens
or liens securing Indebtedness evidenced by the agreements
listed on Section 5.22(e) of the Disclosure Schedules or
reflected in the Financial
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Statements filed prior to the date hereof. Other than such
exceptions which as would not have a Company Material Adverse
Effect, all Real Property Leases are in full force and effect
and grant in all respects the leasehold estates or rights of
occupancy or use they purport to grant. There are no existing
defaults (either on the part of the Company or, to the knowledge
of the Company, any other party thereto) under any Real Property
Lease and no event has occurred and is presently existing which,
with notice or the lapse of time, or both, would constitute a
default (either on the part of the Company or, to the knowledge
of the Company, any other party thereto) under any of the Real
Property Leases, except for any of the foregoing which,
individually or in the aggregate, would not have a Company
Material Adverse Effect.
(f) With respect to those Real Property Leases listed on
Section 5.22(f) of the Disclosure Schedule, the Company has
never paid any percentage rent (based on a percentage of gross
sales, revenue, or other financial measure), and the Company is
not obligated to pay any percentage rent.
Section 5.23 Opinion
of Financial Advisor.
The Board of Directors of the Company has received the opinion
of Credit Suisse First Boston LLC, the Companys financial
advisors, to the effect, that as of the date of such opinion,
the Cash Merger Consideration to be received in the Merger by
the holders of the Company Common Stock (other than the
Principal Stockholders and their Affiliates) is fair to such
holders from a financial point of view. An executed copy of such
opinion will promptly be delivered to Parent solely for
information purposes after receipt of a written copy thereof by
the Board of Directors of the Company.
Section 5.24 Affiliate
Transactions.
Except as set forth in the Companys most recent annual
proxy statement filed with the SEC or as set forth on
Section 5.24 of the Disclosure Schedules, no executive
officer or director of the Company or any of its Subsidiaries or
any person owning 5% or more of the Company Common Stock is a
party to any Contract with or binding upon the Company or any of
its Subsidiaries or any of their respective properties or assets
or has any material interest in any material property owned by
the Company or any of its Subsidiaries or has engaged in any
material transaction with any of the foregoing within the last
twelve months.
Section 5.25 Insurance.
The Company maintains in full force and effect, and has
maintained during the immediately preceding three-year period,
policies of insurance that to the knowledge of the Company are
reasonably adequate with respect to all material properties,
assets and business activities of the Company and each of its
Subsidiaries against such casualties, risks, and contingencies
as are customarily insured against by entities owning similar
properties or assets or engaged in similar business activities.
Section 5.26 Commercial
Relationships.
Except as set forth on Section 5.26 of the Disclosure
Schedules, during the last twelve months none of the
Companys, nor any of its Subsidiaries material
customers, suppliers,
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collaborators, distributors, licensors or licensees has canceled
or otherwise terminated its relationship with the Company or any
of its Subsidiaries, except as would not reasonably be expected
to have, individually or in the aggregate, a Company Material
Adverse Effect. To the knowledge of the Company, there is no
plan or intention of any such entity, and the Company has not
received any threat or notice from any such entity, to
terminate, cancel or otherwise materially modify its
relationship with the Company or any of its Subsidiaries.
Section 5.27 Fees
and Expenses.
Section 5.27 of the Disclosure Schedule sets forth
(i) the transaction fees and expenses incurred by the
Company and its Subsidiaries as of the date hereof and
(ii) all transaction fees and expenses that, as of the date
hereof, the Company and its Subsidiaries are obligated to pay,
and (iii) a good faith estimate of all other transaction
fees and expenses that, as of the date hereof, the Company and
the Subsidiaries expect to pay, upon consummation of the
transactions contemplated hereby.
ARTICLE 6.
Representations and Warranties of Merger Sub and Parent
Merger Sub and Parent hereby represent and warrant to the
Company as follows:
Section 6.1 Organization
and Good Standing.
Each of Parent and Merger Sub is a corporation duly organized,
validly existing and in good standing under the laws of the
State of Delaware, and has the requisite power and authority to
own, lease and operate its properties and to carry on its
business as it is now being conducted, except as has not had,
and would not reasonably be expected to have, individually or in
the aggregate, a Parent Material Adverse Effect. Each of Parent
and Merger Sub is duly qualified and is in good standing as a
foreign corporation authorized to do business in each
jurisdiction in which the character of the properties owned or
held under lease by it or the nature of its business transacted
by it makes such qualification necessary, except where the
failure to be so qualified would not have a Parent Material
Adverse Effect.
Section 6.2 Authorization;
Binding Agreement.
Parent and Merger Sub have all requisite corporate power and
authority to execute and deliver this Agreement and to
consummate the Merger and the other transactions contemplated
hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been
duly and validly authorized by each of Parents and Merger
Subs respective Board of Directors, and this Agreement has
been adopted by the stockholders of Merger Sub in accordance
with the DGCL and their respective certificates of incorporation
and bylaws. No other corporate proceedings on the part of Merger
Sub or Parent are necessary to authorize this Agreement, the
Merger and the transaction contemplated hereby. This Agreement
has been duly and validly executed and delivered by Parent and
Merger Sub and constitutes a legal, valid and binding agreement
of Merger Sub and Parent, enforceable against Parent and Merger
Sub in accordance with its terms except as such enforceability
may be limited by bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium or other Laws, now or
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hereafter in effect, relating to or limiting creditors
rights generally, and general principles of equity.
Section 6.3 Capitalization.
The authorized capital stock of Merger Sub consists of
3,000 shares of Merger Sub Common Stock of which 100 are
issued and outstanding on the date hereof and are beneficially
owned by the Parent. All of the shares of Merger Sub Common
Stock outstanding at the Effective Time (i) will have been
duly authorized, validly issued, fully paid and nonassessable
and free of preemptive rights, and (ii) will be
beneficially owned by Parent. Merger Sub has not granted any
outstanding option, warrant, subscription or other right, or
entered into any agreement or commitment which either
(a) obligates Merger Sub to issue, sell, repurchase or
transfer any shares of the capital stock of Merger Sub or
(b) restricts the transfer of, or otherwise encumbers,
shares of Merger Sub Common Stock. Merger Sub has no treasury
stock.
Section 6.4 No
Violation.
Neither the execution and delivery of this Agreement, the filing
of the Certificate of Merger nor the consummation by Merger Sub
and Parent of the transactions contemplated hereby, nor
compliance by Merger Sub with any of the provisions hereof, will:
(a) violate any provision of the charter documents or
bylaws of Merger Sub or Parent;
(b) violate any statute or Law or any judgment, decree or
order of any Governmental Entity applicable to Merger Sub or
Parent or any of their properties; or
(c) with or without notice or lapse of time, or both,
violate, or be in conflict with, or constitute a default under,
or permit the termination of, or give rise to a right of
termination, cancellation or acceleration of or put
right with respect to any obligation or to loss of a material
benefit under, or except as contemplated by this Agreement,
require the consent of any Person under, or result in the
creation of any lien upon any property of Merger Sub or the
Parent under, any agreement, indenture, lease or instrument,
permit, concession, franchise, or license applicable to Merger
Sub or Parent to which Merger Sub or Parent is a party or by
which Merger Sub or the Parent (or its properties) may be bound,
which in the aggregate would have a Parent Material Adverse
Effect.
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Section 6.5 Governmental
and Other Consents and Approvals.
No consent, waiver, approval, license or authorization of or
designation, declaration or filing with any Governmental Entity
or any other Person is required in connection with the execution
or delivery by Merger Sub of this Agreement or the consummation
by Parent or Merger Sub of the Merger or the transactions
contemplated hereby, other than (a) filings in the State of
Delaware in accordance with the DGCL, (b) filings required
under the HSR Act, (c) filings required under the Exchange
Act and (d) such other consents, waivers, approvals,
licenses or authorizations, the failure of which to be obtained
will not have a Parent Material Adverse Effect.
Section 6.6 Proxy.
The information furnished to the Company by Merger Sub and
Parent specifically for inclusion in the Definitive Proxy
Statement or any amendment or supplement thereto, shall, with
respect to the Definitive Proxy Statement at the time the
Definitive Proxy Statement is mailed and at the time of the
Special Meeting, and, with respect to any other documents, at
the time of filing with the SEC and at the time of such Special
Meeting, not contain any 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 light of the
circumstances under which they were made, not misleading.
Section 6.7 Financing.
Parent and Merger Sub have delivered to the Company true and
complete copies of executed commitment letters from
(i) Goldman Sachs Credit Partners L.P., Banc of America
Securities LLC and Bank of America, N.A. dated as of the date
hereof, to provide debt financing in an aggregate amount set
forth therein (the Debt Financing),
(ii) Berkshire Fund VI Limited Partnership and
Berkshire Investors LLC, dated as of the date hereof, to provide
equity financing in an aggregate amount set forth therein, and
(iii) Weston Presidio Capital IV, L.P. and WPC Entrepreneur
Fund II, L.P. dated as of the date hereof, to provide
equity financing in an aggregate amount set forth therein, (such
commitment letters and any commitment letters in substitution
thereof that are reasonably acceptable to the Company, the
Commitments, and the financing to be provided
thereunder, the Financing). The proceeds from
the Financing, together with cash of the Company of
$25 million, constitute all of the financing required to be
provided by Parent and Merger Sub for the consummation of the
Merger and other transactions contemplated by this Agreement,
including any funds necessary to pay the Cash Merger
Consideration and to repay any indebtedness of the Company that
will be repayable (including at the option of the relevant
creditor), and, in each case, all associated costs and expenses,
upon or following consummation of the Merger and other
transactions contemplated herein. The obligations to fund the
Commitments are not subject to any condition other than those
set forth in the Commitments. As of the date hereof, the
Commitments are in full force and effect, have not been
withdrawn or terminated or otherwise amended or modified in any
respect and no Person extending such Commitments has advised
Parent or Merger Sub, and none of Parent or Merger Sub have any
reason to believe, that the Commitments will not lead to the
Financing contemplated by this Agreement. All commitment and
other fees required to be paid under the Commitments on or prior
to the date hereof have been paid.
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Section 6.8 Brokers
and Finders.
Except for Goldman, Sachs & Co., the fees and expenses
of which shall be paid by Parent or Merger Sub, Parent or Merger
Sub has not engaged any broker, finder or investment banker
which engagement would require the payment of any brokerage,
finders or other fees by the Company in connection with
the transactions contemplated hereby.
Section 6.9 No
Prior Activities.
Merger Sub has not incurred, and will not incur, directly or
through any Subsidiary, any liabilities or obligations, except
those incurred in connection with its organization or with the
negotiation of this Agreement and the Financing. Except as
contemplated by this Agreement and the Commitments, Merger Sub
has not engaged in any business activities of any type or kind
whatsoever, or entered into any agreements or arrangements with
any Person or entity, or become subject to or bound by any
obligation or undertaking.
Section 6.10 Litigation.
There is no legal action, suit, arbitration or other legal,
administrative or other governmental investigation, inquiry or
proceeding (whether federal, state, local or foreign) pending
or, to the knowledge of Merger Sub or Parent, threatened against
or affecting Merger Sub or Parent or any of its properties,
assets, business, or Governmental Approvals before any
Governmental Entity or arbitrator, which, individually or in the
aggregate, could reasonably be expected to have a Parent
Material Adverse Effect.
ARTICLE 7.
Conditions
Section 7.1 Conditions
to Each Partys Obligation to Effect the Merger.
The respective obligations of each Party to effect the Merger
and the other transactions contemplated hereby shall be subject
to the satisfaction at or prior to the Effective Time of the
following conditions, any or all of which may be waived, in
whole or in part, to the extent permitted by applicable Law:
(a) This Agreement and the Merger shall have been approved
by the holders of a majority of the outstanding shares of
Company Common Stock entitled to vote thereon in accordance with
DGCL and the organizational documents of the Company;
(b) No Governmental Entity, nor any federal or state court
of competent jurisdiction or arbitrator shall have enacted,
issued, promulgated, enforced or entered any statute, rule,
regulation, executive order, decree, judgment, injunction or
arbitration award or finding or other order (whether temporary,
preliminary or permanent), in any case which is in effect and
which prevents or prohibits consummation of the Merger or any
other transactions contemplated in this Agreement;
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(c) The Company and Merger Sub shall have been furnished
with evidence satisfactory to them of the timely consent or
approval of each federal and material state and foreign
Governmental Entity whose consent or approval is required in
connection with the execution or delivery by the Company of this
Agreement or consummation of the transactions contemplated
hereby, if the failure to obtain any such consent or approval
would constitute a material violation of Law or subject any
Party to any material fine or other material adverse
consequence; provided, however, that this
condition shall not apply as a condition to such Partys
obligation to close if such Partys failure to fulfill its
obligations hereunder shall have been the cause of such failure
to obtain such consent or approval; and
(d) Any applicable waiting period under the HSR Act shall
have expired or early termination shall have been granted.
Section 7.2 Conditions
to Obligation of the Company to Effect the Merger.
The obligations of the Company to effect the Merger and the
other transactions contemplated hereby shall be subject to the
satisfaction at or prior to the Effective Time of the following
additional conditions, any or all of which may be waived, in
whole or in part, by the Company to the extent permitted by
applicable Law:
(a) Representations and Warranties. The
representations and warranties of Parent and Merger Sub set
forth in this Agreement shall be true and correct as of the
Effective Time as if made at and as of the Effective Time
(except for those representations and warranties which address
matters only as of an earlier date which shall have been true
and correct as of such earlier date), disregarding for these
purposes any exception in such representations and warranties
relating to materiality or Parent Material Adverse Effect,
except for such failures to be true and correct which,
individually or in the aggregate, do not have a material adverse
effect on the ability of Parent or Merger Sub to perform its
obligations hereunder or which would not prevent or materially
impede, interfere with, hinder or delay the consummation of the
Merger. The Company shall have received a certificate of the
President or a Vice President of each of Parent and Merger Sub
to that effect; and
(b) Agreements and Covenants. Merger Sub and Parent
shall have performed or complied in all material respects with
all agreement and covenants required to be performed by them
under this Agreement prior to the Effective Time, and the
Company shall have received a certificate from each of Merger
Sub and the Parent signed by its President or a Vice President,
respectively, to that effect.
Section 7.3 Conditions
to Obligations of Parent and Merger Sub to Effect the
Merger.
The obligations of Merger Sub and the Parent to effect the
Merger shall be subject to the satisfaction at or prior to the
Effective Time of the following additional conditions, any or
all of which may be waived, in whole or in part, by Parent or
Merger Sub to the extent permitted by applicable Law:
(a) Representations and Warranties. Other than with
respect to the Section 5.3 (Authorization; Binding
Agreement), 5.4 (Capitalization), 5.13 (Brokers and Finders),
5.19 (State Takeover Statutes), 5.24 (Affiliate Transactions)
and 5.27 (Fees and Expenses), the
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representations and warranties of the Company set forth in this
Agreement shall be true and correct as of the Effective Time as
if made at and as of the Effective Time (except for those
representations and warranties which address matters only as of
an earlier date which shall have been true and correct as of
such earlier date), disregarding for these purposes any
exception in such representations and warranties relating to
materiality or a Company Material Adverse Effect, except for
such failures to be true and correct which, individually or in
the aggregate, do not result in and could not reasonably be
expected to result in a Company Material Adverse Effect. The
representations and warranties of the Company set forth in
Section 5.3 (Authorization; Binding Agreement) and 5.19
(State Takeover Statutes) shall be true and correct as of the
Effective Time as if made at and as of the Effective Time
(except for those representations and warranties which address
matters only as of an earlier date which shall have been true
and correct as of such earlier date), giving effect to all
qualifications in such representations and warranties relating
to materiality or a Company Material Adverse Effect. The
representations and warranties made by the Company in
Section 5.4 (Capitalization) disregarding all
qualifications and exceptions contained herein relating to
materiality or Company Material Adverse Effect or words of
similar import, shall be true and correct on the date hereof and
as of the Effective Time as if made on and as of such dates
(except for representations and warranties that are made as of a
specified date, which shall be true and correct only as of such
specified date), except where the failure of any such
representations and warranties to be so true and correct,
individually or in the aggregate, will not result in fees,
costs, charges, losses, expenses or other amounts attributable
to or payable by Parent, Merger Sub, the Surviving Corporation
or any of their Subsidiaries in excess of $100,000. The
representations and warranties made by the Company in
Section 5.24 (Affiliate Transactions) disregarding all
qualifications and exceptions contained herein relating to
materiality or Company Material Adverse Effect or words of
similar import, shall be true and correct on the date hereof and
as of the Effective Time as if made on and as of such dates
(except for representations and warranties that are made as of a
specified date, which shall be true and correct only as of such
specified date), except where the failure of any such
representations and warranties to be so true and correct,
individually or in the aggregate, will not result in fees,
costs, charges, losses, expenses or other amounts attributable
to or payable by Parent, Merger Sub, the Surviving Corporation
or any of their Subsidiaries in excess of $50,000. The
representations and warranties made by the Company in
Section 5.13 (Brokers and Finders) and 5.27 (Fees and
Expenses) disregarding all qualifications and exceptions
contained herein relating to materiality or Company Material
Adverse Effect or words of similar import, shall be true and
correct on the date hereof and as of the Effective Time as if
made on and as of such dates (except for representations and
warranties that are made as of a specified date, which shall be
true and correct only as of such specified date). Parent shall
have received a certificate of the President or a Vice President
of the Company to that effect.
(b) Agreements and Covenants. The Company shall have
performed in all material respects all agreement and covenants
required to be performed by it under this Agreement prior to the
Effective Time and Parent shall have received a certificate of
the Company signed by the President or a Vice President of the
Company to that effect.
(c) Debt Financing. The Debt Financing contemplated
by the Commitments shall have been consummated on the terms set
forth therein; provided, that in the event the Debt
Financing contemplated in the Commitments shall not have been
consummated on the terms set
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forth therein, Parent shall have received the proceeds of
alternate debt financing in the same amount and on terms and
conditions no less favorable to Parent and Merger Sub than those
included in the Commitments.
(d) No Company Material Adverse Effect. Since the
date of this Agreement there shall have been no Company Material
Adverse Effect.
ARTICLE 8.
Termination; Non-survival Of Representations,
Warranties And Covenants; Waiver And Amendment
Section 8.1 Termination.
This Agreement may be terminated, and the Merger abandoned, at
any time prior to the Effective Time, by action taken or
authorized by the Board of Directors of the terminating party or
parties, whether before or after approval of the matters
presented in connection with the Merger to the stockholders of
the Company:
(a) By mutual written consent of the Constituent
Corporations;
(b) By either the Company or Parent, by giving written
notice to the other Party at any time prior to the Effective
Time if the Closing shall not have occurred on or before the
Termination Date, unless the failure to consummate the Merger is
the result of a breach of this Agreement by the party seeking to
terminate this Agreement and the conditions set forth in
Section 8.1(j) otherwise do not apply;
(c) By Parent, in the event that prior to the obtaining of
the Company Stockholder Approval a Company Adverse
Recommendation Change shall have occurred;
(d) By the Company, in connection with a Superior Proposal,
in accordance with the terms and subject to the conditions of
Section 4.7(b);
(e) By the Company or Parent, by written notice to the
other, if upon a vote at the Special Meeting, any approval of
the stockholders of the Company necessary to consummate the
Merger and the transactions contemplated hereby shall not have
been obtained;
(f) By any of the Parties, by written notice to the other,
if any court of competent jurisdiction or other Governmental
Entity shall have issued an order, decree or ruling or taken any
other action permanently enjoining, restraining or otherwise
prohibiting the Merger and such order, decree, ruling or other
action shall have become final and nonappealable;
(g) By Parent if (i) any of the representations and
warranties of the Company herein are or become untrue or
inaccurate such that Section 7.3(a) would not be satisfied,
or (ii) there has been a breach on the part of the Company
of any of its covenants or agreements herein such that
Section 7.3(b) would not be satisfied and, in each case,
such breach has not been, or cannot be, cured within the earlier
of (x) 30 days after the giving of written notice to
the Company of such breach or (y) the Termination Date;
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(h) By the Company (i) any of the representations and
warranties of Parent or Merger Sub herein are or become untrue
or inaccurate such that Section 7.2(a) would not be
satisfied, or (ii) there has been a breach on the part of
Parent or Merger Sub of any of their respective covenants or
agreements herein such that Section 7.2(b) would not be
satisfied and, in each case, such breach has not been, or cannot
be, cured within earlier of (x) 30 days after the
giving of written notice to the Company of such breach or
(y) the Termination Date;
(i) By the Company, by written notice to Parent, if (A)
(i) the commitment letters with respect to the Debt
Financing have been withdrawn or (ii) the lenders for such
Debt Financing have notified Parent in writing (in such case,
Parent shall promptly notify the Company of such notification)
that the conditions set forth in such commitment letters with
respect to the Debt Financing cannot or will not be satisfied
(the date of such withdrawal or notification, the
Financing Withdrawal Date) and
(B) within thirty (30) calendar days of the Financing
Withdrawal Date, Parent is unable to secure alternate
commitments for the Debt Financing to the reasonable
satisfaction of the Board of Directors of the Company; or
(j) By the Company or Parent, by giving written notice to
the other Party, if (I) the Closing shall not have occurred
on or before the Termination Date; (II) the Company is not
otherwise in breach of this Agreement; (III) the Company
has satisfied (or is immediately capable of satisfying) all of
its conditions to closing under Section 7.1 and 7.3 (other
than those conditions that Parent or Merger Sub have
responsibility to fulfill, including, without limitation,
Section 7.2(a), Section 7.2(b) or
Section 7.3(c)); and (IV) the only condition to
closing that cannot be satisfied is under Section 7.3(c).
Section 8.2 Non-Survival
of Representations, Warranties and Covenants.
The respective representations and warranties of the Company,
Parent and Merger Sub contained herein or in any certificate
delivered pursuant hereto shall expire with, and be terminated
and extinguished upon, consummation of the Merger, and
thereafter neither Surviving Corporation, the Company, Parent
nor Merger Sub or any officer, director or principal thereof
shall be under any liability whatsoever with respect to any such
representation or warranty. This Section 8.2 shall have no
effect upon any other covenant or agreement of the Parties
hereto, whether to be performed before or after the consummation
of the Merger. Parent and Merger Sub agree that, except for the
representations and warranties contained in Article V, the
Company makes no other express or implied representation or
warranty on behalf of the Company and its Subsidiaries and the
Company hereby disclaims any such representation and warranty
whether by the Company, its Subsidiaries, its Affiliates,
officers, directors, employees, agents or representatives or any
other Person, notwithstanding the delivery or disclosure to
Parent or Merger Sub or their respective representatives of any
documentation or other information.
Section 8.3 Amendment.
This Agreement may be amended by the Parties hereto by action
taken by or on behalf of their respective Boards of Directors at
any time prior to the Effective Time; provided,
however, that, after approval of the Merger by the
stockholders of the Company, no amendment may be made without
further stockholder approval which, by Law or in accordance with
the rules of any
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relevant stock exchange, requires further approval by such
stockholders. This Agreement may not be amended except by an
instrument in writing signed by the Parties hereto.
Section 8.4 Waiver.
At any time prior to the Effective Time, whether before or after
the Special Meeting, any Party hereto, by action taken by its
Board of Directors or a committee thereof, may (i) extend
the time for the performance of any of the obligations or other
acts of any other Party hereto or (ii) subject to the
proviso contained in Section 8.3, waive compliance with any
of the agreements of any other Party or with any conditions
(other than those appearing in Section 7.1(a) and (b)) to
its own obligations. Any agreement on the part of a Party hereto
to any such extension or waiver shall be valid only if set forth
in an instrument in writing signed on behalf of such Party by a
duly authorized officer, and, in the case of Company, authorized
by the Special Committee.
Section 8.5 Effect
of Termination.
In the event of the termination of this Agreement under
Section 8.1, this Agreement shall thereafter become void
and have no effect and no Party hereto shall have any liability
to any other Party hereto or its stockholders or directors or
officers in respect thereof, except (A) that the
confidentiality provisions of Section 4.6, the
Confidentiality Agreement, Section 4.11, this
Section 8.5, Section 8.6 and Article 9 shall
survive any such termination if such obligations arose at or
before the time of such termination, (B) with respect to
any liabilities or damages incurred or suffered by a Party as a
result of the willful and material breach by the other Party of
any of its representations, warranties, covenants or other
agreements set forth in this Agreement (other than in the case
of a termination pursuant to Sections 8.1(h), 8.1(i) or
8.1(j)), and (C) with respect to liabilities under the
Voting Agreement to the extent set forth therein.
Section 8.6 Certain
Payments.
(a) In the event that this Agreement is terminated by
either Parent or the Company pursuant to Section 8.1(b),
8.1(e) or by Parent pursuant to Section 8.1(g), the Company
shall pay to Parent in immediately available funds, as directed
by Parent in writing, an amount equal to $15 million
dollars ($15,000,000) (the Breakup Fee);
provided, that the Company shall only be required to pay
the Breakup Fee pursuant to this Section 8.6(a) if
(i) at any time after the date of this Agreement and prior
to such termination, a Takeover Proposal shall have been
commenced or publicly proposed, or disclosed to the Board of
Directors or the Special Committee and (ii) within
12 months after such termination, the Company enters into a
definitive agreement with respect to or consummates a Takeover
Proposal (with all percentages in the definition of Takeover
Proposal increased to fifty (50) percent); provided
further, that the Company shall not be required to pay
the Breakup Fee pursuant to this Section 8.6(a) if this
Agreement is terminated by either Parent or the Company pursuant
to Section 8.1(b) if the Company or Parent may otherwise
terminate this Agreement pursuant to Section 8.1(j).
Payment under this Section 8.6(a) shall be made upon the
earlier of the consummation of such Takeover Proposal and the
ninetieth (90th) day following the entering into by the Company
of the agreement to engage in such Takeover Proposal.
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(b) In the event that this Agreement is terminated by
Parent pursuant to Section 8.1(c) or by the Company
pursuant to 8.1(d), the Company shall pay to Parent, on the date
of such termination, the Breakup Fee in immediately available
funds, as directed by Parent in writing.
(c) In the event that this Agreement is terminated by the
Company pursuant to Section 8.1(h), Section 8.1(i) or
Section 8.1(j), Parent shall, for a period of three
(3) years (where each annual period shall commence on the
date of such termination or the anniversary date of such
termination and end one year later on the day prior to such
anniversary of such termination (each an Annual
Period), pay to the Company in immediately available
funds as directed by the Company in writing, an amount equal to
five percent (5%) of the total cash expenditures of the Company,
its Affiliates and franchisees, in the aggregate, for goods or
services supplied by Parent, Amscan, Inc. or any of its
Subsidiaries to the Company or its Subsidiaries for such Annual
Period. Payments under this Section 8.6(c) shall be made
annually within forty-five (45) days of each anniversary of
such termination.
(d) If either Party fails to promptly make any payment
required under this Section 8.6 and the other Party
commences a suit to collect such payment, such Party shall
indemnify the other Party for its fees and expenses (including
attorneys fees and expenses) incurred in connection with such
suit and shall pay interest on the amount of the payment at the
Prime Rate (or its successors or assigns) in effect on the date
the payment was payable pursuant to this Section 8.6.
Except as provided in Section 8.5 and except for breaches
of the Confidentiality Agreement by Parent, Merger Sub or their
respective Affiliates, the payments made by the Company to
Parent or by Parent to the Company as set forth above shall
represent the sole and exclusive remedy at Law or in equity to
which Parent and Merger Sub or the Company, as the case may be,
and their respective officers, directors, representatives and
Affiliates shall be entitled under this Agreement in the event
this Agreement shall be terminated and payments made in the
circumstances contemplated by subsection (a), (b) or
(c) above. Such payments shall be made without duplication.
Accordingly, neither Parent nor the Company shall be entitled to
payments under this Section 8.6 in more than one instance.
ARTICLE 9.
General Agreements
Section 9.1 Notice.
All notices, requests and other communications to any Party
shall be in writing (including telecopy or similar writing) and
shall be given,
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(a) |
If to Parent or Merger Sub: |
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Amscan Holdings, Inc. |
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80 Grasslands Road |
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Elmsford, New York 10523 |
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Tel: 617-227-0050 |
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Facsimile: 617-227-6105 |
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(b) |
Attn: Robert J. Small, Chairman |
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with copies to: |
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Ropes & Gray LLP |
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One International Place |
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Boston, Massachusetts 02110 |
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Tel: (617) 951-7000 |
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Facsimile: (617) 951-7050 |
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Attn: David C. Chapin, Esq. |
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Shari H. Wolkon, Esq. |
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(b) If to the Company, to: |
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Party City Corporation |
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400 Commons Way |
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Rockaway, NJ 07866 |
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Tel: (973) 453-8780 |
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Facsimile: (973) 983-4677 |
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Attention: Gregg A. Melnick |
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with copies to: |
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Latham & Watkins LLP |
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885 Third Avenue |
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Suite 1000 |
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New York, New York 10022 |
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Tel: (212) 906-1200 |
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Facsimile: (212) 751-4864 |
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Attn: Raymond Y. Lin, Esq. |
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and to: |
Special Committee of the Board of Directors of the Company
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Party City Corporation |
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400 Commons Way |
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Rockaway, NJ 07866 |
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Tel: (973) 983-0888 |
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Facsimile: (973) 983-4776 |
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Attention: Walter Salmon |
or to such other address or telecopier number as such Party may
hereafter specify for the purpose of notice to the other
Parties. Any such notice, request or other communication shall
be deemed to have been given and received on the day on which it
is delivered or telecopied (or, if such day
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is not a Business Day or if the notice or other communication is
not telecopied during business hours, at the place of receipt,
on the next following Business Day); provided, that if
notice or other communication is given by telecopy, such notice
or communication shall also be given by certified mail or by
overnight courier.
Section 9.2 Entire
Agreement.
This Agreement (including the documents and instruments referred
to herein), the Voting Agreement and the Confidentiality
Agreement constitute the entire agreement among the Parties
hereto and their Affiliates and supersedes all other prior
agreements and understandings, both written and oral, among the
Parties with respect to the subject matter hereof and, except as
otherwise expressly provided herein, are not intended to confer
upon any other Person any rights or remedies hereunder;
provided, that if any term of the Confidentiality
Agreement shall conflict with the terms of this Agreement, this
Agreement shall control.
Section 9.3 Parties
in Interest.
This Agreement shall be binding upon and inure solely to the
benefit of each party hereto and their respective successors and
assigns, and nothing in this Agreement, express or implied,
other than pursuant to Article 3 and Section 4.8, is
intended to or shall confer upon any other person any right,
benefit or remedy of any nature whatsoever under or by reason of
this Agreement
Section 9.4 Headings.
The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 9.5 Severability.
If any term or other provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of Law or
public policy, all other conditions and provisions of this
Agreement shall nevertheless remain in full force and effect so
long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or
other provision is invalid, illegal or incapable of being
enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the
end that transactions contemplated hereby are fulfilled to the
extent possible.
Section 9.6 Successors
and Assigns.
This Agreement shall be binding upon and inure to the benefit of
and be enforceable by the respective successors and assigns of
the Parties hereto.
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Section 9.7 Governing
Law.
This Agreement shall be governed in all respects, including
validity, interpretation and effect, by the internal Laws of the
State of Delaware, without giving effect to the principles of
conflict of laws thereof.
Section 9.8 Costs
and Expenses.
Except as otherwise provided herein, all costs and expenses
incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the Party incurring such
expenses.
Section 9.9 Counterparts.
This Agreement may be executed in any number of counterparts,
each of which shall be an original, but all of which together
shall constitute one and the same agreement.
Section 9.10 Specific
Performance.
The Parties hereto agree that irreparable damage would occur in
the event any provision of this Agreement was not performed in
accordance with the terms hereof and that, except as
specifically provided herein, the Parties shall be entitled to
the remedy of specific performance of the terms hereof, in
addition to any other remedy at Law or equity. Each party
further agrees that, in the event of any action for specific
performance in respect of such breach or violation, it will not
assert that the defense that a remedy at law would be adequate.
Section 9.11 Assignments.
No Party shall assign, delegate or otherwise transfer this
Agreement or any of its rights, interests or obligations
hereunder (whether by operation of Law or otherwise) without the
prior written consent of the other Parties except that Merger
Sub may assign, in its sole discretion, any of or all its
rights, interests and obligations under this Agreement to Parent
or to any direct or indirect wholly owned subsidiary of Parent,
but no such assignment shall relieve Merger Sub of any of its
obligations under this Agreement. Any assignment in violation of
the foregoing shall be null and void.
Section 9.12 Jurisdiction.
Except as otherwise expressly provided in this Agreement, the
Parties hereto agree that any suit, action or proceeding seeking
to enforce any provision of, or based on any matter arising out
of or in connection with, this Agreement or the transactions
contemplated hereby shall be brought in the United States
District Court for the District of Delaware or, if such court
does not have jurisdiction over the subject matter of such
proceeding or if such jurisdiction is not available, in the
Court of Chancery of the State of Delaware, County of New
Castle, and each of the Parties hereby consents to the exclusive
jurisdiction of those courts (and of the appropriate appellate
courts therefrom) in any suit, action or proceeding and
irrevocably waives, to the fullest extent permitted by law, any
objection which it may now or hereafter have to the laying of
the venue of any suit, action or proceeding in any of those
courts or that any suit, action or
A-55
proceeding which is brought in any of those courts has been
brought in an inconvenient forum. Process in any suit, action or
proceeding may be served on any party anywhere in the world,
whether within or without the jurisdiction of any of the named
courts. Without limiting the foregoing, each party agrees that
service of process on it by notice as provided in
Section 9.1 shall be deemed effective service of process.
Section 9.13 Waiver
of Jury Trial.
TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW THAT CANNOT BE
WAIVED, THE PARTIES HEREBY WAIVE, AND COVENANT THAT THEY WILL
NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE), ANY
RIGHT TO TRIAL BY JURY IN ANY ACTION ARISING IN WHOLE OR IN
PART UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF
THE CONTEMPLATED TRANSACTIONS, WHETHER NOW EXISTING OR HEREAFTER
ARISING, AND WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE.
THE PARTIES AGREE THAT ANY OF THEM MAY FILE A COPY OF THIS
PARAGRAPH WITH ANY COURT AS WRITTEN EVIDENCE OF THE KNOWING,
VOLUNTARY AND BARGAINED-FOR AGREEMENT AMONG THE PARTIES
IRREVOCABLY TO WAIVE ITS RIGHT TO TRIAL BY JURY IN ANY
PROCEEDING WHATSOEVER BETWEEN THEM RELATING TO THIS AGREEMENT OR
ANY OF THE CONTEMPLATED TRANSACTIONS WILL INSTEAD BE TRIED IN A
COURT OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A
JURY.
[The rest of this page has intentionally been left blank]
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IN WITNESS WHEREOF, the Parties have executed this Agreement by
their duly authorized officers as of the date first above
written.
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PARTY CITY CORPORATION, |
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a Delaware corporation |
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Name: Gregg A. Melnick |
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Title: Chief Financial Officer |
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AMSCAN HOLDINGS, INC., |
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a Delaware corporation |
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Name: Robert J. Small |
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Title: Chairman of the Board |
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BWP ACQUISITION, INC., |
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a Delaware corporation |
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Name: Robert J. Small |
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Title: President |
A-57
Exhibit A
CERTIFICATE OF MERGER
for the merger of
BWP ACQUISITION, INC.
into
PARTY CITY CORPORATION
Pursuant to Section 251(c) of the
Delaware General Corporation Law
The undersigned corporation, organized and existing under and by
virtue of the General Corporation Law of the State of Delaware
(the DGCL), DOES HEREBY CERTIFY:
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First: That the name and state of incorporation of
each of the constituent corporations in the merger is as follows: |
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Name |
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State of Incorporation | |
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BWP Acquisition, Inc.
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Delaware |
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Party City Corporation
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Delaware |
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Second: That an Agreement and Plan of Merger
between the parties to the merger has been approved, adopted,
certified, executed and acknowledged by each of the constituent
corporations in accordance with the requirements of
Section 251 of the Delaware General Corporation Law. |
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Third: That Party City Corporation shall be the
surviving corporation of the merger. |
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Fourth: That upon the effective time of the
merger, the Certificate of Incorporation of Party City
Corporation, being the surviving corporation, shall be amended
and restated in the form attached hereto as
Exhibit A. |
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Fifth: That the executed Agreement and Plan of
Merger is on file at an office of the surviving corporation. The
address of such office is 400 Commons Way, Rockaway, New Jersey
07866. |
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Sixth: That a copy of the Agreement and Plan of
Merger will be furnished by the surviving corporation, on
request and without cost, to any stockholder of any constituent
corporation. |
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Seventh: That this Certificate of Merger
(Certificate) shall be effective at such time as
this Certificate is filed with the Secretary of State of the
State of Delaware in accordance with the provisions of Sections
103 and 251(c) of the DGCL. |
[The remainder of this page is intentionally left blank.]
A-59
IN WITNESS WHEREOF, Party City Corporation. has caused this
Certificate of Merger to be executed by its duly authorized
officer this day of
,
2005.
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ANNEX B
[LETTERHEAD OF CREDIT SUISSE FIRST BOSTON LLC]
September 26, 2005
Board of Directors
Party City Corporation
400 Commons Way
Rockaway, New Jersey 07866
Members of the Board:
You have asked us to advise you with respect to the fairness,
from a financial point of view, to the holders of the common
stock, par value $0.01 per share (Company Common
Stock), of Party City Corporation (the
Company), other than Tennenbaum & Co., LLC and
its affiliates, of the Merger Consideration (as defined below)
to be received by such holders pursuant to the terms of the
Agreement and Plan of Merger, dated as of September 26,
2005 (the Merger Agreement), among Amscan Holdings,
Inc. (Amscan), BWP Acquisition, Inc., a wholly owned
subsidiary of Amscan (Merger Sub), and the Company.
The Merger Agreement provides for, among other things, the
merger of Merger Sub with and into the Company (the
Merger) pursuant to which the Company will be the
surviving corporation and each outstanding share of Company
Common Stock will be converted into the right to receive $17.50
in cash (the Merger Consideration).
In arriving at our opinion, we have reviewed the Merger
Agreement as well as certain publicly available business and
financial information relating to the Company. We also have
reviewed certain other information relating to the Company,
including financial forecasts, provided to or discussed with us
by the Company, and have met with the management of the Company
to discuss the business and prospects of the Company. We also
have considered certain financial and stock market data of the
Company and have compared that data with similar data for other
publicly held companies in businesses we deemed similar to the
Company, and we have considered, to the extent publicly
available, the financial terms of certain other business
combinations and transactions which have been effected or
announced. We also have considered such other information,
financial studies, analyses and investigations and financial,
economic and market criteria which we deemed relevant.
In connection with our review, we have not assumed any
responsibility for independent verification of any of the
foregoing information and have relied on such information being
complete and accurate in all material respects. With respect to
the financial forecasts for the Company which we have reviewed,
the management of the Company has advised us, and we have
assumed, that such forecasts have been reasonably prepared on
bases reflecting the best currently available estimates and
judgments of the Companys management as to the future
financial performance of the Company. We also have assumed, with
your consent, that in the course of obtaining any necessary
regulatory or third party consents, approvals or agreements for
the Merger, no modification, delay, limitation, restriction or
condition will be imposed that would have an adverse effect on
the Company or the Merger and that the Merger will be
consummated in accordance with the terms of the Merger Agreement
without waiver, modification, amendment or adjustment of any
material term, condition or agreement therein. In addition, we
have not been requested to make, and we have not made, an
independent evaluation or appraisal of the assets or liabilities
(contingent or otherwise) of the Company, nor have we been
furnished with any such evaluations or appraisals. Our opinion
addresses only the fairness, from a financial point of view, to
the holders of Company Common Stock, other than
Tennenbaum & Co., LLC and its affiliates, of the Merger
Consideration and does not address any other aspect or
implication of the Merger or any other agreement, arrangement or
understanding entered into in connection with the Merger or
otherwise. Our opinion is necessarily based upon information
made available to us as of the date hereof and financial,
economic, market and other conditions as they exist and can be
evaluated on the date hereof. Our opinion does not address the
relative merits of the Merger as compared to other business
strategies or transactions that
B-1
Board of Directors
Party City Corporation
September 26, 2005
Page 2
might be available to the Company, nor does it address the
underlying business decision of the Company to proceed with the
Merger.
We have acted as financial advisor to the Company in connection
with the Merger and will receive a fee for our services, a
significant portion of which is contingent upon the consummation
of the Merger. We also will receive a fee upon rendering this
opinion. In addition, the Company has agreed to indemnify us for
certain liabilities and other items arising out of our
engagement. From time to time, we and our affiliates in the past
have provided, currently are providing and in the future may
provide, investment banking and other financial services to
Amscan and to private investment funds whose affiliates are
stockholders of Amscan and their respective affiliates, for
which services we have received, and would expect to receive,
compensation. In addition, certain private investment funds
affiliated or associated with us have invested in private equity
funds managed or advised by affiliates of Amscan. We are a full
service securities firm engaged in securities trading and
brokerage activities as well as providing investment banking and
other financial services. In the ordinary course of business, we
and our affiliates may acquire, hold or sell, for our and such
affiliates own accounts and the accounts of customers,
equity, debt and other securities and financial instruments
(including bank loans and other obligations) of the Company,
Amscan and their respective affiliates and, accordingly, may at
any time hold a long or short position in such securities, as
well as provide investment banking and other financial services
to such companies.
It is understood that this letter is for the information of the
Board of Directors of the Company in connection with its
evaluation of the Merger and does not constitute a
recommendation to any stockholder as to how such stockholder
should vote or act on any matter relating to the proposed Merger.
Based upon and subject to the foregoing, it is our opinion that,
as of the date hereof, the Merger Consideration is fair, from a
financial point of view, to the holders of Company Common Stock,
other than Tennenbaum & Co., LLC and its affiliates.
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Very truly yours, |
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CREDIT SUISSE FIRST BOSTON LLC |
B-2
ANNEX C
Section 262 of the General Corporation Law of the State
of Delaware
§ 262. Appraisal rights.
(a) Any stockholder of a corporation of this State who
holds shares of stock on the date of the making of a demand
pursuant to subsection (d) of this section with respect to
such shares, who continuously holds such shares through the
effective date of the merger or consolidation, who has otherwise
complied with subsection (d) of this section and who has
neither voted in favor of the merger or consolidation nor
consented thereto in writing pursuant to § 228 of this
title shall be entitled to an appraisal by the Court of Chancery
of the fair value of the stockholders shares of stock
under the circumstances described in subsections (b) and
(c) of this section. As used in this section, the word
stockholder means a holder of record of stock in a
stock corporation and also a member of record of a nonstock
corporation; the words stock and share
mean and include what is ordinarily meant by those words and
also membership or membership interest of a member of a nonstock
corporation; and the words depository receipt mean a
receipt or other instrument issued by a depository representing
an interest in one or more shares, or fractions thereof, solely
of stock of a corporation, which stock is deposited with the
depository.
(b) Appraisal rights shall be available for the shares of
any class or series of stock of a constituent corporation in a
merger or consolidation to be effected pursuant to
§ 251 (other than a merger effected pursuant to
§ 251(g) of this title), § 252,
§ 254, § 257, § 258,
§ 263 or § 264 of this title:
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(1) Provided, however, that no appraisal rights under this
section shall be available for the shares of any class or series
of stock, which stock, or depository receipts in respect
thereof, at the record date fixed to determine the stockholders
entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national
securities exchange or designated as a national market system
security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or (ii) held of
record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of
the constituent corporation surviving a merger if the merger did
not require for its approval the vote of the stockholders of the
surviving corporation as provided in subsection (f) of
§ 251 of this title. |
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(2) Notwithstanding paragraph (1) of this subsection,
appraisal rights under this section shall be available for the
shares of any class or series of stock of a constituent
corporation if the holders thereof are required by the terms of
an agreement of merger or consolidation pursuant to
§§ 251, 252, 254, 257, 258, 263 and 264 of this
title to accept for such stock anything except: |
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a. Shares of stock of the corporation surviving or
resulting from such merger or consolidation, or depository
receipts in respect thereof; |
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b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock (or
depository receipts in respect thereof) or depository receipts
at the effective date of the merger or consolidation will be
either listed on a national securities exchange or designated as
a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc.
or held of record by more than 2,000 holders; |
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c. Cash in lieu of fractional shares or fractional
depository receipts described in the foregoing
subparagraphs a. and b. of this paragraph; or |
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d. Any combination of the shares of stock, depository
receipts and cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs a.,
b. and c. of this paragraph. |
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(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under § 253 of
this title is not owned by the parent corporation immediately
prior to the merger, appraisal rights shall be available for the
shares of the subsidiary Delaware corporation. |
C-1
(c) Any corporation may provide in its certificate of
incorporation that appraisal rights under this section shall be
available for the shares of any class or series of its stock as
a result of an amendment to its certificate of incorporation,
any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all
of the assets of the corporation. If the certificate of
incorporation contains such a provision, the procedures of this
section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
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(1) If a proposed merger or consolidation for which
appraisal rights are provided under this section is to be
submitted for approval at a meeting of stockholders, the
corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record
date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or (c)
hereof that appraisal rights are available for any or all of the
shares of the constituent corporations, and shall include in
such notice a copy of this section. Each stockholder electing to
demand the appraisal of such stockholders shares shall
deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of such
stockholders shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand
the appraisal of such stockholders shares. A proxy or vote
against the merger or consolidation shall not constitute such a
demand. A stockholder electing to take such action must do so by
a separate written demand as herein provided. Within
10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall
notify each stockholder of each constituent corporation who has
complied with this subsection and has not voted in favor of or
consented to the merger or consolidation of the date that the
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(2) If the merger or consolidation was approved pursuant to
§ 228 or § 253 of this title, then either a
constituent corporation before the effective date of the merger
or consolidation or the surviving or resulting corporation
within 10 days thereafter shall notify each of the holders
of any class or series of stock of such constituent corporation
who are entitled to appraisal rights of the approval of the
merger or consolidation and that appraisal rights are available
for any or all shares of such class or series of stock of such
constituent corporation, and shall include in such notice a copy
of this section. Such notice may, and, if given on or after the
effective date of the merger or consolidation, shall, also
notify such stockholders of the effective date of the merger or
consolidation. Any stockholder entitled to appraisal rights may,
within 20 days after the date of mailing of such notice,
demand in writing from the surviving or resulting corporation
the appraisal of such holders shares. Such demand will be
sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends
thereby to demand the appraisal of such holders shares. If
such notice did not notify stockholders of the effective date of
the merger or consolidation, either (i) each such
constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of
the holders of any class or series of stock of such constituent
corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the
surviving or resulting corporation shall send such a second
notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is
sent more than 20 days following the sending of the first
notice, such second notice need only be sent to each stockholder
who is entitled to appraisal rights and who has demanded
appraisal of such holders shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary
or of the transfer agent of the corporation that is required to
give either notice that such notice has been given shall, in the
absence of fraud, be prima facie evidence of the facts stated
therein. For purposes of determining the stockholders entitled
to receive either notice, each constituent corporation may fix,
in advance, a record date that shall be not more than
10 days prior to the date the notice is given, provided,
that if the notice is given on or after the effective date of
the merger or consolidation, the record date shall be such
effective date. If no record date is fixed and the notice is
given prior to the effective date, the record date shall be the
close of business on the day next preceding the day on which the
notice is given. |
(e) Within 120 days after the effective date of the
merger or consolidation, the surviving or resulting corporation
or any stockholder who has complied with subsections (a)
and (d) hereof and who is otherwise
C-2
entitled to appraisal rights, may file a petition in the Court
of Chancery demanding a determination of the value of the stock
of all such stockholders. Notwithstanding the foregoing, at any
time within 60 days after the effective date of the merger
or consolidation, any stockholder shall have the right to
withdraw such stockholders demand for appraisal and to
accept the terms offered upon the merger or consolidation.
Within 120 days after the effective date of the merger or
consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon
written request, shall be entitled to receive from the
corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of
shares not voted in favor of the merger or consolidation and
with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. Such written
statement shall be mailed to the stockholder within 10 days
after such stockholders written request for such a
statement is received by the surviving or resulting corporation
or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d)
hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder,
service of a copy thereof shall be made upon the surviving or
resulting corporation, which shall within 20 days after
such service file in the office of the Register in Chancery in
which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded
payment for their shares and with whom agreements as to the
value of their shares have not been reached by the surviving or
resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in
Chancery, if so ordered by the Court, shall give notice of the
time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting
corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1
or more publications at least 1 week before the day of the
hearing, in a newspaper of general circulation published in the
City of Wilmington, Delaware or such publication as the Court
deems advisable. The forms of the notices by mail and by
publication shall be approved by the Court, and the costs
thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall
determine the stockholders who have complied with this section
and who have become entitled to appraisal rights. The Court may
require the stockholders who have demanded an appraisal for
their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery
for notation thereon of the pendency of the appraisal
proceedings; and if any stockholder fails to comply with such
direction, the Court may dismiss the proceedings as to such
stockholder.
(h) After determining the stockholders entitled to an
appraisal, the Court shall appraise the shares, determining
their fair value exclusive of any element of value arising from
the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to
be paid upon the amount determined to be the fair value. In
determining such fair value, the Court shall take into account
all relevant factors. In determining the fair rate of interest,
the Court may consider all relevant factors, including the rate
of interest which the surviving or resulting corporation would
have had to pay to borrow money during the pendency of the
proceeding. Upon application by the surviving or resulting
corporation or by any stockholder entitled to participate in the
appraisal proceeding, the Court may, in its discretion, permit
discovery or other pretrial proceedings and may proceed to trial
upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name
appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and
who has submitted such stockholders certificates of stock
to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal
rights under this section.
(i) The Court shall direct the payment of the fair value of
the shares, together with interest, if any, by the surviving or
resulting corporation to the stockholders entitled thereto.
Interest may be simple or compound, as the Court may direct.
Payment shall be so made to each such stockholder, in the case
of holders of uncertificated stock forthwith, and the case of
holders of shares represented by certificates upon the surrender
to the corporation of the certificates representing such stock.
The Courts decree may be enforced as other decrees in the
Court of Chancery may be enforced, whether such surviving or
resulting corporation be a corporation of this State or of any
state.
C-3
(j) The costs of the proceeding may be determined by the
Court and taxed upon the parties as the Court deems equitable in
the circumstances. Upon application of a stockholder, the Court
may order all or a portion of the expenses incurred by any
stockholder in connection with the appraisal proceeding,
including, without limitation, reasonable attorneys fees
and the fees and expenses of experts, to be charged pro rata
against the value of all the shares entitled to an appraisal.
(k) From and after the effective date of the merger or
consolidation, no stockholder who has demanded appraisal rights
as provided in subsection (d) of this section shall be
entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of
record at a date which is prior to the effective date of the
merger or consolidation); provided, however, that if no petition
for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a
written withdrawal of such stockholders demand for an
appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the
merger or consolidation as provided in subsection (e) of
this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal
proceeding in the Court of Chancery shall be dismissed as to any
stockholder without the approval of the Court, and such approval
may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to
which the shares of such objecting stockholders would have been
converted had they assented to the merger or consolidation shall
have the status of authorized and unissued shares of the
surviving or resulting corporation.
C-4
SPECIAL MEETING OF STOCKHOLDERS OF
PARTY CITY CORPORATION
December 7, 2005
Please date, sign and mail
your proxy card in the
envelope provided as soon
as possible.
â Please detach along perforated line and mail in the envelope provided. â
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE þ
TO INCLUDE ANY COMMENTS, USE THE COMMENTS BOX ON THE REVERSE
SIDE OF THIS CARD.
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FOR
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AGAINST
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Adoption of the Agreement and Plan of Merger, dated as of September
26, 2005, as amended, by and among Amscan Holdings, Inc., BWP
Acquisition, Inc. and Party City Corporation, which provides for the
merger of BWP Acquisition, Inc., a wholly-owned subsidiary of Amscan
Holdings, Inc., with and into Party City Corporation, with Party City
Corporation continuing as the surviving corporation in the merger, and
the conversion of each outstanding share of common stock of Party
City Corporation (other than shares held (i) as treasury shares or by
any subsidiary of Party City Corporation or (ii) by Amscan Holdings,
Inc., BWP Acquisition, Inc. or any subsidiary of BWP Acquisition, Inc.)
into the right to receive $17.50 in cash, without interest.
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2.
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Approval of adjournment or postponement of the Special Meeting, if
necessary or appropriate, to solicit additional proxies if there are
insufficient votes at the time of the meeting to adopt the merger agreement.
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The undersigned acknowledges receipt from Party City Corporation prior to the
execution of this
proxy of a Notice of Special Meeting and a proxy statement dated November 7, 2005.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. SHARES
REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION IS
MADE, THE SHARES REPRESENTED WILL BE VOTED FOR THE PROPOSAL. IN THEIR
DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS
AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF.
Mark here if you plan to attend the Special Meeting o
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To change the address on your account, please check the box at right and
indicate your new address in the address space above. Please note that
changes to the registered name(s) on the account may not be submitted via
this method.
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Signature of Stockholder
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Date:
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Signature of Stockholder
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Date:
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Please sign exactly as your name or names appear on this Proxy. When shares are held
jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or
guardian, please give full
title as such. If the signer is a corporation, please sign full corporate name by duly
authorized officer, giving full title as such. If signer is a partnership, please sign in
partnership name by authorized person. |
PARTY CITY CORPORATION
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS
December 7, 2005
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of Party City Corporation hereby appoints Joseph J. Zepf and
Gregg A. Melnick, and each of them, with full power of substitution, proxies to vote the
shares of stock
which the undersigned could vote if personally present at the Special Meeting of Stockholders
of Party
City Corporation to be held on December 7, 2005, at 1:00 p.m., local time, at the Sheraton
Parsippany,
199 Smith Road, Parsippany, NJ 07054 , and at any adjournments thereof. You can revoke your
proxy
at any time before it is voted at the Special Meeting by: (i) submitting another properly
completed proxy
bearing a later date; (ii) giving written notice of revocation to any of the persons named as
proxies or
to the Secretary of Party City Corporation; or (iii) voting in person at the Special Meeting.
If the
undersigned holds any of the shares of common stock in a fiduciary, custodial or joint
capacity or
capacities, this proxy is signed by the undersigned in every such capacity as well as
individually.
(Continued and to be signed on the reverse side)
SPECIAL MEETING OF STOCKHOLDERS OF
PARTY CITY CORPORATION
December 7, 2005
PROXY VOTING INSTRUCTIONS
MAIL Date, sign and mail your proxy card in the
envelope provided as soon as possible.
- OR -
TELEPHONE Call toll-free 1-800-PROXIES
(1-800-776-9437) from any touch-tone telephone
and follow the instructions. Have your proxy card
available when you call.
- OR -
INTERNET Access www.voteproxy.com and
follow the on-screen instructions. Have your proxy
card available when you access the web page.
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COMPANY NUMBER
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ACCOUNT NUMBER
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You may enter your voting instructions at 1-800-PROXIES or www.voteproxy.com up until 11:59 PM
Eastern Time the day before the cut-off or meeting date.
â Please detach along perforated line and mail in the envelope provided IF you are not voting via telephone or the Internet. â
THE
BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 AND
2.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE þ
TO INCLUDE ANY COMMENTS, USE THE COMMENTS BOX ON THE REVERSE
SIDE OF THIS CARD.
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FOR |
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AGAINST |
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1.
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Adoption of the Agreement and Plan of Merger, dated as of September
26, 2005, as amended, by and among Amscan Holdings, Inc., BWP
Acquisition, Inc. and Party City Corporation, which provides for the
merger of BWP Acquisition, Inc., a wholly-owned subsidiary of Amscan
Holdings, Inc., with and into Party City Corporation, with Party City
Corporation continuing as the surviving corporation in the merger, and
the conversion of each outstanding share of common stock of Party
City Corporation (other than shares held (i) as treasury shares or by
any subsidiary of Party City Corporation or (ii) by Amscan Holdings,
Inc., BWP Acquisition, Inc. or any subsidiary of BWP Acquisition, Inc.)
into the right to receive $17.50 in cash, without interest.
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2.
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Approval of adjournment or postponement of the Special Meeting, if
necessary or appropriate, to solicit additional proxies if there are
insufficient votes at the time of the meeting to adopt the merger agreement.
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The undersigned acknowledges receipt from Party City Corporation prior to the execution of this
proxy of a Notice of Special Meeting and a proxy statement dated November 7, 2005.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. SHARES
REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION IS
MADE, THE SHARES REPRESENTED WILL BE VOTED FOR THE PROPOSAL. IN THEIR
DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS
AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF.
Mark here if you plan to attend the Special Meeting o
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To change the address on your account, please check the box at right and
indicate your new address in the address space above. Please note that
changes to the registered name(s) on the account may not be submitted via
this method.
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Signature of Stockholder
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Date:
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Signature of Stockholder
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Date:
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Note: |
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Please sign exactly as your name or names appear on this Proxy. When shares are held
jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or
guardian, please give full
title as such. If the signer is a corporation, please sign full corporate name by duly
authorized officer, giving full title as such. If signer is a partnership, please sign in
partnership name by authorized person. |