☒
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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☐
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Delaware
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46-0539758
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(State or Other Jurisdiction of
Incorporation or Organization)
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(I.R.S. Employer
Identification No.)
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Title of each class
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Trading Symbol(s)
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Name of each exchange on which registered
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Common Stock $0.01 par value
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PRTY
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New York Stock Exchange
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Large accelerated filer
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☐
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Accelerated filer
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☒
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Non-accelerated
filer
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☐
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Smaller reporting company
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☐
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Emerging growth company
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☐
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Page
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Item 1
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1
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Item 1A
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10
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Item 1B
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26
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Item 2
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27
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Item 3
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29
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Item 4
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29
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Item 5
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30
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Item 6
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32
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Item 7
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41
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Item 7A
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68
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Item 8
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70
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Item 9
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122
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Item 9A
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122
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Item 9B
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123
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Item 10
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125
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Item 11
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125
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Item 12
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125
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Item 13
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125
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Item 14
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125
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Item 15
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126
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Item 16
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130
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Item 1.
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Business
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2019
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2018
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2017
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||||||
Stores open at beginning of year
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866
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803
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750
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|||||||||
Stores opened
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5
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15
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16
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|||||||||
Stores acquired from franchisees/others
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6
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58
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44
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|||||||||
Stores closed and sold
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(100
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) |
(10
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) |
(7
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) | ||||||
Stores open at end of year
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777
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866
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803
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|||||||||
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2019
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2018
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2017
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||||||
Stores open at beginning of year
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96
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148
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184
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|||||||||
Stores opened/acquired by existing franchisees
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2
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1
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3
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|||||||||
Stores sold to the Company
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—
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(50
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) |
(36
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) | |||||||
Stores closed or converted to independent stores
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—
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(3
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) |
(3
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) | |||||||
Stores open at end of year
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98
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96
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148
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Channel
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Sales
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(dollars in millions)
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Owned stores and
e-commerce
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$ |
643
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Party City franchised stores and other domestic retailers
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242
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Domestic balloon distributors/retailers
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78
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International balloon distributors
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23
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Other international
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254
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Total wholesale sales
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$ |
1,240
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Category
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Items
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% of Sales
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Tableware
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Plastic Plates, Paper Plates, Plastic Cups, Paper Cups, Paper Napkins, Plastic Cutlery, Table Covers
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26
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% | |||
Costumes & Accessories
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Costumes, Other Wearables, Wigs
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26
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% | |||
Decorations
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Latex Balloons, Piñatas, Crepes, Flags & Banners, Decorative Tissues, Stickers and Confetti, Scene Setters, Garland, Centerpieces
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22
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% | |||
Metallic Balloons
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Bouquets, Standard 18 Inch
Sing-A-Tune,
SuperShapes, Weights
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15
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% | |||
Favors, Stationery & Other
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Party Favors, Gift Bags, Gift Wrap, Invitations, Bows, Stationery
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11
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% |
Everyday
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Seasonal
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Birthdays: Juvenile, General & Milestone
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New Year’s
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Bridal: Engagement, Shower & Wedding
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Valentine’s Day
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Variety of Religious holidays & Occasions
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St. Patrick’s Day
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Baby Shower & Gender Reveal
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Easter
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General Entertaining, Cocktail & Special Events
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Mardi Gras
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Themes: Casino, Tea Party, Retirement, Hollywood,
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Cinco de Mayo
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Decades, Fiesta, Luau, Masquerade & Sports
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Graduation
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Favors, Wearables & Novelties for all occasions
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Summer & Patriotic
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Fall
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Thanksgiving
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Halloween
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Hanukkah
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Christmas
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Location
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Principal Products
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Approximate Square Feet
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||||
Monterrey, Mexico
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Stickers, gift wrap, bags and invites
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355,500
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Newburgh, New York
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Paper napkins and paper cups
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248,000
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||||||
East Providence, Rhode Island
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Plastic plates, cups and bowls
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229,230(1)
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||||||
Louisville, Kentucky
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Paper plates
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213,958
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Tijuana, Mexico
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Piñatas and other party products
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135,000
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Eden Prairie, Minnesota
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Metallic balloons and accessories
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115,600
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Melaka, Malaysia
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Latex balloons
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100,000
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||||||
Los Lunas, New Mexico
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Injection molded plastics
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85,055
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Antananarivo, Madagascar
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Costumes
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41,000
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(1) | The square footage represents an industrial park, which includes a 48,455 square foot office and warehouse. |
Item 1A.
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Risk Factors
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• |
implement our path to becoming a party platform that is a technology-enabled,
one-stop-shop
that provides
end-to-end
services based on predicting customer needs and wants;
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• |
grow our
e-commerce
business;
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• | implement new retail programs that could include but are not limited to loyalty rewards, new formats for existing stores, fewer skus and less inventory; |
• | identify suitable store locations, including temporary lease space for our Halloween City location, the availability of which is largely outside of our control; |
• | negotiate and secure acceptable lease terms, desired tenant allowances and assurances from operators and developers that they can complete the project, which depend in part on the financial resources of the operators and developers; |
• | obtain or maintain adequate capital resources on acceptable terms; |
• | manufacture and source sufficient levels of inventory at acceptable costs; |
• | hire, train and retain an expanded workforce of store managers and other store-level personnel, many of whom are in entry-level or part-time positions with historically high rates of turnover; |
• |
successfully integrate new
stores/e-commerce
operations into our existing control structure and operations, including information system integration;
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• | maintain adequate manufacturing and distribution facilities, information system and other operational system capabilities; |
• | identify and satisfy the merchandise and other preferences of our customers in new geographic areas and markets; |
• | gain brand recognition and acceptance in new markets; and |
• |
address competitive, merchandising, marketing, distribution and other challenges encountered in connection with expansion into new geographic areas and markets, including geographic restrictions on the opening of new
stores/e-commerce
operations based on certain agreements with our franchisees and other business partners.
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• | recessionary or expansive trends in international markets; |
• | changes in foreign currency exchange rates, principally fluctuations in the British Pound Sterling, the Canadian Dollar, the Euro, the Malaysian Ringgit, the Mexican Peso and the Australian Dollar; |
• | hyperinflation or deflation in the foreign countries in which we operate; |
• | work stoppages or other employee rights issues; |
• | the imposition of restrictions on currency conversion or the transfer of funds; |
• | transportation delays and interruptions; |
• | increases in the taxes we pay and other changes in applicable tax laws; |
• | difficulty enforcing our intellectual property and competition against counterfeit goods; |
• |
public health crises, including the occurrence of a contagious disease or illness such as the
COVID-19
outbreak;
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• | legal and regulatory changes and the burdens and costs of our compliance with a variety of laws, including new or additional trade restrictions, tariffs and changes in environmental regulations; and |
• | political and economic instability. |
• | identify suitable acquisition candidates; |
• | consummate acquisitions on acceptable terms; |
• | successfully integrate any acquired business into our operations or successfully manage the operations of any acquired business; or |
• | retain an acquired company’s significant customer relationships, goodwill and key personnel or otherwise realize the intended benefits of an acquisition. |
• | make it more difficult for us to satisfy our obligations with respect to our indebtedness and any failure to comply with the obligations under any of our debt instruments, including restrictive covenants, could result in an event of default under the agreements governing such other indebtedness; |
• | require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing funds available for working capital, capital expenditures, acquisitions, selling and marketing efforts, product development and other purposes; |
• | increase our vulnerability to adverse economic and industry conditions, which could place us at a competitive disadvantage compared to our competitors that have relatively less indebtedness; |
• | limit our flexibility in planning for, or reacting to, changes in our business and the industries in which we operate; |
• | expose us to the risk of increasing rates as certain of our borrowings, including under the Senior Credit Facilities, will be at variable interest rates; |
• |
restrict us from making strategic acquisitions or cause us to make
non-strategic
divestitures; and
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• | limit our ability to borrow additional funds, or to dispose of assets to raise funds, if needed, for working capital, capital expenditures, acquisitions, product development and other corporate purposes. |
• | incurring additional indebtedness or issuing disqualified stock; |
• | paying dividends or distributions on, redeeming, repurchasing or retiring our capital stock; |
• | making payments on, or redeeming, repurchasing or retiring indebtedness; |
• | making investments, loans, advances or acquisitions; |
• | entering into sale and leaseback transactions; |
• | engaging in transactions with affiliates; |
• | creating liens; |
• | transferring or selling assets; |
• | guaranteeing indebtedness; |
• | creating restrictions on the payment of dividends or other amounts to us from our subsidiaries; and |
• | consolidating, merging or transferring all or substantially all of our assets and the assets of our subsidiaries. |
• | the sum of its debts, including contingent liabilities, was greater than the fair saleable value of all of its assets; |
• | the present fair saleable value of its assets was less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature; or |
• | it could not pay its debts as they became due. |
• | advance notice requirements for stockholder proposals and director nominations; |
• | the sole ability of the board of directors to fill a vacancy created by the expansion of the board of directors; |
• | the required approval of holders of at least 75% of our outstanding shares of capital stock entitled to vote generally at an election of the directors to remove directors only for cause; |
• |
the required approval of holders of at least 66
2
/
3
% of our outstanding shares of capital stock entitled to vote at an election of directors to adopt, amend or repeal our bylaws, or amend or repeal certain provisions of our amended and restated certificate of incorporation;
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• | limitations on the ability of stockholders to call special meetings and take action by written consent; and |
• |
provisions that reproduce much of the provisions that limit the ability of “interested stockholders” from engaging in specified business combinations with us absent prior approval of the board of directors or holders of 66
2
/
3
% of our voting stock.
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Item 1B.
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Unresolved Staff Comments
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Item 2.
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Properties
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Location
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Principal Activity
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Square Feet
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Owned or Leased
(With Expiration Date)
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|||
Elmsford, New York
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Executive and other corporate offices, showrooms, design and art production for party products
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146,346 square feet
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Leased(1)
|
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Rockaway, New Jersey
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Retail corporate offices
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106,000 square feet
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Leased (expiration date:
July 31, 2022)
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|||
Antananarivo, Madagascar
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Manufacture of costumes
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41,000 square feet
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Leased (expiration date:
December 31, 2023)
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|||
Dallas, Texas
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Manufacture/personalization of cups and napkins
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54,413 square feet
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Leased (expiration date:
October 31, 2022)
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|||
East Providence, Rhode Island
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Manufacture and distribution of plastic plates, cups and bowls
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229,230 square feet(2)
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Leased (expiration date:
February 28, 2033)
|
|||
Eden Prairie, Minnesota
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Manufacture of metallic balloons and accessories
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115,600 square feet
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Leased (expiration date:
June 30, 2039)
|
|||
Los Lunas, New Mexico
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Manufacture of injection molded plastics
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85,055 square feet
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Leased (expiration date:
6/30/2039)
|
|||
Louisville, Kentucky
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Manufacture and distribution of paper plates
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213,958 square feet
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Leased (expiration date:
March 31, 2025)
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|||
Melaka, Malaysia
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Manufacture and distribution of latex balloons
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100,000 square feet
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Leased (expiration date:
January 31, 2020)
|
|||
Monterrey, Mexico
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Manufacture and distribution of party products
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355,500 square feet
|
Leased (expiration date:
March 3, 2027)
|
|||
Newburgh, New York
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Manufacture of paper napkins and cups
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248,000 square feet
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Leased (expiration date:
July 31, 2027)
|
|||
Tijuana, Mexico
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Manufacture and distribution of party products
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135,000 square feet
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Leased(3)
|
|||
Chester, New York
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Distribution of party products
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896,000 square feet
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Leased (expiration date:
June 30, 2039)
|
|||
Edina, Minnesota
|
Distribution of metallic balloons and accessories
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122,312 square feet
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Leased (expiration date:
March 31, 2021)
|
|||
Kirchheim unter Teck, Germany
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Distribution of party goods
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215,000 square feet
|
Owned
|
|||
Milton Keynes, Buckinghamshire, England
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Distribution of party products throughout Europe
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130,858 square feet
|
Leased (expiration date:
December 31, 2022)
|
|||
Naperville, Illinois
|
Distribution of party goods for
e-commerce
sales
|
440,343 square feet
|
Leased (expiration date:
December 31, 2033)
|
(1) | Property is comprised of two buildings with various lease expiration dates through December 31, 2027. |
(2) | This figure represents an industrial park, which includes a 48,455 square foot office and warehouse. |
(3) | Property is comprised of two buildings with various lease expiration dates through March 31, 2022. |
State
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Company-owned
|
|
Franchise
|
|
Chain-wide
|
|
||||||
Alabama
|
9
|
—
|
9
|
|||||||||
Arizona
|
16
|
—
|
16
|
|||||||||
Arkansas
|
—
|
3
|
3
|
|||||||||
California
|
97
|
17
|
114
|
|||||||||
Colorado
|
14
|
—
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14
|
|||||||||
Connecticut
|
13
|
—
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13
|
|||||||||
Delaware
|
1
|
1
|
2
|
|||||||||
Florida
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64
|
7
|
71
|
|||||||||
Georgia
|
30
|
1
|
31
|
|||||||||
Illinois
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45
|
—
|
45
|
|||||||||
Indiana
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20
|
—
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20
|
|||||||||
Iowa
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9
|
—
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9
|
|||||||||
Kansas
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7
|
—
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7
|
|||||||||
Kentucky
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9
|
—
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9
|
|||||||||
Louisiana
|
12
|
—
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12
|
|||||||||
Maine
|
3
|
—
|
3
|
|||||||||
Maryland
|
22
|
1
|
23
|
|||||||||
Massachusetts
|
21
|
—
|
21
|
|||||||||
Michigan
|
26
|
—
|
26
|
|||||||||
Minnesota
|
15
|
—
|
15
|
|||||||||
Mississippi
|
1
|
2
|
3
|
|||||||||
Missouri
|
18
|
1
|
19
|
|||||||||
Montana
|
—
|
1
|
1
|
|||||||||
Nebraska
|
3
|
—
|
3
|
|||||||||
Nevada
|
6
|
—
|
6
|
|||||||||
New Hampshire
|
5
|
—
|
5
|
|||||||||
New Jersey
|
26
|
2
|
28
|
|||||||||
New Mexico
|
3
|
—
|
3
|
|||||||||
New York
|
51
|
11
|
62
|
|||||||||
North Carolina
|
14
|
5
|
19
|
|||||||||
North Dakota
|
4
|
—
|
4
|
|||||||||
Ohio
|
29
|
—
|
29
|
|||||||||
Oklahoma
|
11
|
—
|
11
|
|||||||||
Oregon
|
1
|
1
|
2
|
|||||||||
Pennsylvania
|
29
|
1
|
30
|
|||||||||
Puerto Rico
|
—
|
5
|
5
|
|||||||||
Rhode Island
|
2
|
—
|
2
|
State
|
Company-owned
|
|
Franchise
|
|
Chain-wide
|
|
||||||
South Carolina
|
9
|
1
|
10
|
|||||||||
Tennessee
|
9
|
7
|
16
|
|||||||||
Texas
|
74
|
14
|
88
|
|||||||||
Vermont
|
1
|
—
|
1
|
|||||||||
Virginia
|
14
|
8
|
22
|
|||||||||
Washington
|
18
|
1
|
19
|
|||||||||
West Virginia
|
4
|
—
|
4
|
|||||||||
Wisconsin
|
12
|
—
|
12
|
|||||||||
Total
|
777
|
90
|
867
|
|||||||||
Item 3.
|
Legal Proceedings
|
Item 4.
|
Mine Safety Disclosures
|
Item 5.
|
Market for Registrant’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities
|
|
(a)
|
|
(b)
|
|
(c)
|
|
||||||
Plan Category
|
Number of
securities to be issued upon exercise of outstanding options, warrants, and rights |
|
Weighted-
average exercise price of outstanding options, warrants and rights |
|
Number of
securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) |
|
||||||
Equity compensation plans approved by security holders
|
7,371,967
|
(1) |
7.67
|
(1) |
5,406,685
|
|||||||
Equity compensation plans not approved by security holders
|
596,000
|
15.60
|
254,000
|
|||||||||
Total
|
7,967,967
|
8.27
|
5,660,685
|
(1) | Column (a) includes 6,318,717 outstanding stock options and 1,053,250 restricted stock units. The restricted stock units amount assumes that the maximum number of shares ultimately vest for awards that are performance-based. Additionally, the stock options amount assumes that all performance-based stock options vest. The weighted-average exercise price in column (b) takes into account the restricted stock units, which have no exercise price. The weighted average exercise price solely with respect to stock options outstanding under the approved plans is $8.95. |
Item 6.
|
Selected Consolidated Financial Data
|
|
Fiscal Year Ended December 31,
|
|||||||||||||||||||
|
2015(1)
|
|
2016(2)
|
|
2017(3)
|
|
2018(4)
|
|
2019(5)
|
|
||||||||||
Income Statement Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Revenues:
|
|
|
|
|
|
|||||||||||||||
Net sales(6)
|
$ |
2,275,122
|
$ |
2,266,386
|
$ |
2,357,986
|
$ |
2,416,442
|
$ |
2,339,510
|
||||||||||
Royalties and franchise fees
|
19,411
|
17,005
|
13,583
|
11,073
|
9,279
|
|||||||||||||||
Total revenues(6)
|
2,294,533
|
2,283,391
|
2,371,569
|
2,427,515
|
2,348,789
|
|||||||||||||||
Expenses:
|
|
|
|
|
|
|||||||||||||||
Cost of sales
|
1,370,884
|
1,350,387
|
1,395,279
|
1,435,358
|
1,500,633
|
|||||||||||||||
Wholesale selling expenses
|
64,260
|
59,956
|
65,356
|
71,502
|
67,103
|
|||||||||||||||
Retail operating expenses
|
401,039
|
408,583
|
415,167
|
425,996
|
440,395
|
|||||||||||||||
Franchise expenses
|
14,394
|
15,213
|
14,957
|
13,214
|
13,152
|
|||||||||||||||
General and administrative expenses
|
151,097
|
152,919
|
168,369
|
172,764
|
177,672
|
|||||||||||||||
Art and development costs
|
20,640
|
22,249
|
23,331
|
23,388
|
23,203
|
|||||||||||||||
Development stage expenses(7)
|
—
|
—
|
8,974
|
7,008
|
10,736
|
|||||||||||||||
Gain on sale/leaseback transaction(11)(p)
|
—
|
—
|
—
|
—
|
(58,381
|
) | ||||||||||||||
Store impairment and restructuring charges
|
—
|
—
|
—
|
—
|
29,038
|
|||||||||||||||
Goodwill and intangibles impairment(11)(r)
|
—
|
—
|
—
|
—
|
562,631
|
|||||||||||||||
Income (loss) from operations
|
272,219
|
274,084
|
280,136
|
278,285
|
(417,393
|
) | ||||||||||||||
Interest expense, net
|
123,361
|
89,380
|
87,366
|
105,706
|
114,899
|
|||||||||||||||
Other expense (income), net(8)
|
130,990
|
(2,010
|
) |
4,626
|
10,982
|
1,871
|
||||||||||||||
Income (loss) before income taxes
|
17,868
|
186,714
|
188,144
|
161,597
|
(534,163
|
) | ||||||||||||||
Income tax expense (benefit)(9)
|
7,409
|
69,237
|
(27,196
|
) |
38,778
|
(1,305
|
) | |||||||||||||
Net income (loss)
|
10,459
|
117,477
|
215,340
|
122,819
|
(532,858
|
) | ||||||||||||||
Add: net income attributable to redeemable securities holder
|
—
|
—
|
—
|
409
|
—
|
|||||||||||||||
Less: net loss attributable to noncontrolling interests
|
—
|
—
|
—
|
(31
|
) |
(363
|
) | |||||||||||||
Net income (loss) attributable to common shareholders of Party City Holdco Inc.
|
$ |
10,459
|
$ |
117,477
|
$ |
215,340
|
$ |
123,259
|
$ |
(532,495
|
) | |||||||||
|
Fiscal Year Ended December 31,
|
|||||||||||||||||||
|
2015(1)
|
|
2016(2)
|
|
2017(3)
|
|
2018(4)
|
|
2019(5)
|
|
||||||||||
Statement of Cash Flow Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net cash provided by (used in)
|
|
|
|
|
|
|||||||||||||||
Operating activities(10)
|
$ |
80,385
|
$ |
257,782
|
$ |
267,883
|
$ |
101,856
|
$ |
43,693
|
||||||||||
Investing activities(10)
|
(100,136
|
) |
(113,733
|
) |
(141,645
|
) |
(150,907
|
) |
163,675
|
|||||||||||
Financing activities(10)
|
18,941
|
(119,740
|
) |
(139,962
|
) |
56,170
|
(237,710
|
) | ||||||||||||
Per Share Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Basic
|
$ |
0.09
|
$ |
0.98
|
$ |
1.81
|
$ |
1.28
|
$ |
(5.71
|
) | |||||||||
Diluted
|
$ |
0.09
|
$ |
0.98
|
$ |
1.79
|
$ |
1.27
|
$ |
(5.71
|
) | |||||||||
Weighted Average
|
|
|
|
|
|
|||||||||||||||
Outstanding basic
|
111,917,168
|
119,381,842
|
118,589,421
|
96,133,144
|
93,295,692
|
|||||||||||||||
Diluted
|
112,943,807
|
120,369,672
|
119,894,021
|
97,271,050
|
93,295,692
|
|||||||||||||||
Cash dividend per common share
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Adjusted EBITDA(11)
|
$ |
380,293
|
$ |
390,049
|
$ |
409,210
|
$ |
400,116
|
$ |
269,189
|
||||||||||
Adjusted net income(11)
|
$ |
114,206
|
$ |
138,277
|
$ |
148,643
|
$ |
156,842
|
$ |
43,414
|
||||||||||
Adjusted net income per common share—diluted(11)
|
$ |
1.01
|
$ |
1.15
|
$ |
1.24
|
$ |
1.61
|
$ |
0.46
|
||||||||||
Number of company-owned Party City stores
|
712
|
750
|
803
|
866
|
777
|
|||||||||||||||
Capital expenditures
|
$ |
78,825
|
$ |
78,825
|
$ |
66,970
|
$ |
85,661
|
$ |
61,733
|
||||||||||
Party City brand comp sales(12)
|
1.5
|
% |
(0.4
|
)% |
(0.7
|
)% |
(0.7
|
)% |
(3.0
|
)% | ||||||||||
Wholesale Share of shelf(13)
|
75.0
|
% |
76.6
|
% |
79.6
|
% |
78.9
|
% |
79.6
|
% | ||||||||||
Balance Sheet Data (at end of period):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Cash and cash equivalents
|
$ |
42,919
|
$ |
64,610
|
$ |
54,291
|
$ |
58,909
|
$ |
34,917
|
||||||||||
Working capital(14)
|
382,788
|
387,565
|
194,632
|
312,398
|
199,203
|
|||||||||||||||
Total assets(14)
|
3,292,403
|
3,393,978
|
3,454,756
|
3,642,347
|
3,595,319
|
|||||||||||||||
Total debt(14)(15)
|
1,786,809
|
1,673,090
|
1,831,440
|
1,938,030
|
1,704,317
|
|||||||||||||||
Redeemable common securities
|
—
|
—
|
3,590
|
3,351
|
3,351
|
|||||||||||||||
Total equity(15)
|
913,017
|
1,016,789
|
968,790
|
1,043,621
|
529,721
|
(1) | The acquisitions of Travis Designs Limited (“Travis”) and Accurate Custom Injection Molding Inc. (“ACIM”) are included in the financial statements from their acquisition dates (first quarter 2015 and third quarter 2015, respectively). |
(2) | The acquisitions of nineteen franchise stores and Festival S.A. are included in the financial statements from their acquisition dates during the first quarter of 2016. |
(3) |
The acquisitions of
thirty-six
franchise stores and Granmark S.A. de C.V. (“Granmark”) are included in the financial statements from their acquisition dates during the first quarter of 2017. The acquisition of Print Appeal, Inc. (“Print Appeal”) is included in the financial statements from its acquisition date during the third quarter of 2017.
|
(4) | The acquisitions of eleven franchise stores are included in the financial statements from their acquisition dates during the first quarter of 2018. Additionally, the acquisitions of thirty-seven franchise stores are included in the financial statements from their acquisition dates during the third quarter of 2018. |
(5) | During the year ended December 31, 2019, the financial statements reflect store impairment and restructuring charges associated with the closure of approximately 55 stores. Refer to (11)(p)(r) for further detail regarding 2019 results. |
(6) |
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2014-09,
“Revenue from Contracts with Customers (Topic 606).” The pronouncement contains a
|
five-step model which replaces most existing revenue recognition guidance. The Company adopted the standard on January 1, 2018 via a modified retrospective approach and recognized the cumulative effect of the adoption by reducing January 1, 2018 retained earnings by $0.1 million. See the Notes to Consolidated Financial Statements of Item 8, “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K for further discussion. |
(7) |
During the first quarter of 2017, the Company and Ampology, a subsidiary of Trivergence, reached an agreement to form a new legal entity (Kazzam, LLC) for the purpose of designing, developing and launching an online exchange platform for party-related services. The website allows consumers to select, schedule and pay for various services (including entertainment, activities and food) all through a single portal. During 2017, 2018 and 2019, Kazzam incurred $9.0 million, $7.0 million and $11.0 million of
start-up
expenses, respectively, which are recorded in development stage expenses in the Company’s consolidated statement of operations and comprehensive (loss) income.
|
(8) |
During April 2015, in conjunction with the Company’s initial public offering, the Company paid a 2% prepayment penalty, or $7.0 million, in order to redeem $350.0 million of senior PIK toggle notes (the “Nextco Notes”) issued by the Company’s wholly-owned subsidiaries, PC Nextco and PC Nextco Finance, Inc., and paid a management agreement termination fee of $30.7 million to affiliates of THL and Advent. The Company recorded the prepayment penalty and termination fee in other expense, net. Additionally, in conjunction with the redemption of the Nextco Notes, the Company wrote off $8.6 million of capitalized debt issuance costs and original issuance discounts. The
write-off
was also recorded in other expense, net.
|
(9)
|
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Act”) was signed into law. The Act significantly changed U.S. tax law, including lowering the U.S. corporate income tax rate from 35% to 21%, effective January 1, 2018, and implementing a
one-time
“deemed repatriation” tax on unremitted earnings accumulated in
non-U.S.
jurisdictions. During 2017 the Company recorded a provisional estimate of the
|
impact of the Act, which included an income tax benefit of $91.0 million related to the remeasurement of its domestic deferred tax liabilities and deferred tax assets due to the lower U.S. corporate tax rate. Additionally, during 2017, the Company recorded an income tax expense of $1.1 million as its provisional estimate of the Transition Tax related to the deemed repatriation of unremitted earnings of foreign subsidiaries. During the fourth quarter of 2018, the Company finalized its assessment of the impact of the Act on the Company’s domestic deferred tax liabilities and deferred tax assets and recorded an additional income tax benefit of $2.0 million. Additionally, during such quarter, the Company finalized its assessment of the Transition Tax and recorded additional income tax expense of $0.2 million. See Note 17, Income Taxes, of Item 8, “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K for further discussion. |
(10)
|
See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity,” for a discussion of cash flows. |
(11)
|
The Company presents adjusted EBITDA, adjusted net income and adjusted net income per common share—diluted as supplemental measures of its operating performance. The Company defines EBITDA as net income (loss) before interest expense, net, income taxes, depreciation and amortization and defines adjusted EBITDA as EBITDA, as further adjusted to eliminate the impact of certain items that the Company does not consider indicative of our core operating performance. These further adjustments are itemized below. Adjusted net income represents the Company’s net income (loss) adjusted for, among other items, intangible asset amortization,
non-cash
purchase accounting adjustments, amortization of deferred financing costs and original issue discounts, refinancing charges, equity based compensation, and impairment charges. Adjusted net income per common share—diluted represents adjusted net income divided by diluted weighted average common shares outstanding. The Company presents these measures as supplemental measures of its operating performance. You are encouraged to evaluate these adjustments and the reasons the Company considers them appropriate for supplemental analysis. In evaluating the measures, you should be aware that in the future the Company may incur expenses that are the same as, or similar to, some of the adjustments in this presentation. The Company’s presentation of adjusted EBITDA, adjusted net income and adjusted net income per common share—diluted should not be construed as an inference that the Company’s future results will be unaffected by unusual or
non-recurring
items. The Company presents the measures because the Company believes they assist investors in comparing the Company’s performance across reporting periods on a consistent basis by eliminating items that the Company does not believe are indicative of its core operating performance. In addition, the Company uses adjusted EBITDA: (i) as a factor in determining incentive compensation, (ii) to evaluate the effectiveness of its business strategies and (iii) because its credit facilities use adjusted EBITDA to measure compliance with certain covenants. The Company also believes that adjusted net income and adjusted net income per common share—diluted are helpful benchmarks to evaluate its operating performance.
|
• | they do not reflect the Company’s cash expenditures or future requirements for capital expenditures or contractual commitments; |
• | they do not reflect changes in, or cash requirements for, the Company’s working capital needs; |
• | adjusted EBITDA does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on the Company’s indebtedness; |
• |
although depreciation and amortization are
non-cash
charges, the assets being depreciated and amortized will often have to be replaced in the future, and adjusted EBITDA does not reflect any cash requirements for such replacements;
|
• |
non-cash
compensation is and will remain a key element of the Company’s overall long-term incentive compensation package, although the Company excludes it as an expense when evaluating its core operating performance for a particular period;
|
• | they do not reflect the impact of certain cash charges resulting from matters the Company considers not to be indicative of its ongoing operations; and |
• | other companies in the Company’s industry may calculate adjusted EBITDA, adjusted net income and adjusted net income per common share differently than the Company does, limiting its usefulness as a comparative measure. |
|
Fiscal Year Ended December 31,
|
|||||||||||||||||||
|
2015
|
|
2016
|
|
2017
|
|
2018
|
|
2019
|
|
||||||||||
Net income (loss)
|
$ |
10,459
|
$ |
117,477
|
$ |
215,340
|
$ |
122,819
|
$ |
(532,858
|
) | |||||||||
Interest expense, net
|
123,361
|
89,380
|
87,366
|
105,706
|
114,899
|
|||||||||||||||
Income taxes
|
7,409
|
69,237
|
(27,196
|
) |
38,778
|
(1,305
|
) | |||||||||||||
Depreciation and amortization
|
80,515
|
83,630
|
85,168
|
78,575
|
81,116
|
|||||||||||||||
EBITDA
|
221,744
|
359,724
|
360,678
|
345,878
|
(338,148
|
) | ||||||||||||||
Non-cash
purchase accounting adjustments
|
4,470
|
4,114
|
7,378
|
6,196
|
3,000
|
|||||||||||||||
Management fee
|
31,627
|
(a) |
—
|
—
|
—
|
—
|
||||||||||||||
Gain on sale/leaseback transaction
|
—
|
—
|
—
|
—
|
(58,381
|
)(p) | ||||||||||||||
Store impairment and restructuring charges
|
852
|
—
|
—
|
—
|
58,778
|
(q) | ||||||||||||||
Goodwill and intangibles impairment
|
—
|
—
|
—
|
—
|
562,631
|
(r) | ||||||||||||||
Other restructuring, retention and severance
|
2,318
|
911
|
9,718
|
(b) |
3,397
|
(b) |
6,460
|
(b) | ||||||||||||
Refinancing charges
|
94,607
|
(c) |
1,458
|
—
|
6,237
|
(c) |
36
|
|||||||||||||
Deferred rent
|
13,407
|
(d) |
18,835
|
(d) |
7,287
|
(d) |
5,351
|
(d) |
(1,796
|
)(d) | ||||||||||
Corporate development expenses
|
1,786
|
(e) |
4,290
|
(e) |
9,401
|
(e) |
11,314
|
(e) |
14,208
|
(e) | ||||||||||
Foreign currency losses (gains)
|
3,691
|
(7,417
|
) |
466
|
24
|
421
|
||||||||||||||
Closed store expense
|
1,901
|
(f) |
3,688
|
(f) |
4,875
|
(f) |
4,211
|
(f) |
4,445
|
(f) | ||||||||||
Stock option expense
|
3,042
|
(g) |
3,853
|
(g) |
5,309
|
(g) |
1,744
|
(g) |
1,319
|
(g) | ||||||||||
Non-employee
equity based compensation
|
—
|
—
|
3,033
|
(h) |
81
|
(h) |
515
|
(h) | ||||||||||||
Restricted stock units expense—time based
|
—
|
—
|
—
|
1,174
|
(i) |
2,033
|
(i) | |||||||||||||
Undistributed loss (income) in equity method investments
|
562
|
314
|
(194
|
) |
(369
|
) |
(472
|
) | ||||||||||||
Non-recurring
consulting charges
|
—
|
—
|
—
|
12,514
|
(j) |
—
|
||||||||||||||
Non-recurring
legal settlements/costs
|
—
|
—
|
—
|
2,380
|
(k) |
8,548
|
(k) | |||||||||||||
(Gain) loss on sale of assets
|
(2,660
|
) |
—
|
—
|
—
|
5,074
|
(t) | |||||||||||||
Hurricane-related costs
|
—
|
—
|
455
|
—
|
—
|
|||||||||||||||
Change-of-control
license premium
|
3,000
|
—
|
—
|
—
|
—
|
|||||||||||||||
Other
|
(54
|
) |
279
|
804
|
(16
|
) |
518
|
|||||||||||||
Adjusted EBITDA
|
$ |
380,293
|
$ |
390,049
|
$ |
409,210
|
$ |
400,116
|
$ |
269,189
|
||||||||||
|
Fiscal Year Ended December 31,
|
|||||||||||||||||||
|
2015
|
|
2016
|
|
2017
|
|
2018
|
|
2019
|
|
||||||||||
Income (loss) before income taxes
|
$ |
17,868
|
$ |
186,714
|
$ |
188,144
|
$ |
161,597
|
$ |
(534,163
|
) | |||||||||
Intangible asset amortization
|
18,885
|
(l) |
17,247
|
(l) |
16,959
|
(l) |
12,271
|
(l) |
14,100
|
(l) | ||||||||||
Non-cash
purchase accounting adjustments
|
6,445
|
5,300
|
9,549
|
6,812
|
4,202
|
|||||||||||||||
Amortization of deferred financing costs and original issuance discounts
|
40,516
|
(c)(m) |
5,818
|
(m) |
4,937
|
(m) |
10,989
|
(c)(m) |
4,722
|
(m) | ||||||||||
Store impairment and restructuring charges
|
—
|
—
|
—
|
—
|
58,778
|
(q) | ||||||||||||||
Goodwill and intangibles impairment
|
—
|
—
|
—
|
—
|
562,631
|
(r) | ||||||||||||||
Management fee
|
31,627
|
(a) |
—
|
—
|
—
|
—
|
||||||||||||||
Refinancing charges
|
65,338
|
(c) |
725
|
(c) |
—
|
—
|
36
|
|||||||||||||
Stock option expense
|
3,042
|
(g) |
3,853
|
(g) |
5,309
|
(g) |
1,744
|
(g) |
1,319
|
(g) | ||||||||||
Non-employee
equity based compensation
|
—
|
—
|
3,033
|
81
|
(h) |
515
|
(h) | |||||||||||||
Non-recurring
consulting charges
|
—
|
—
|
—
|
12,514
|
(j) |
—
|
||||||||||||||
Restructuring
|
—
|
—
|
3,195
|
(b) |
—
|
—
|
||||||||||||||
Other restructuring charges
|
—
|
—
|
3,918
|
(b) |
809
|
(b) |
3,211
|
(b) | ||||||||||||
Hurricane-related costs
|
—
|
—
|
455
|
—
|
—
|
|||||||||||||||
Non-recurring
legal settlements/costs
|
—
|
—
|
—
|
2,380
|
(k) |
6,500
|
||||||||||||||
Impairment charges
|
852
|
—
|
—
|
—
|
—
|
|||||||||||||||
(Gain) on sale of assets
|
(2,660
|
) |
—
|
—
|
—
|
—
|
||||||||||||||
(Gain) on sale-leaseback
|
—
|
—
|
—
|
—
|
(58,381
|
)(p) | ||||||||||||||
(Gain) on sale of Canada retail assets
|
—
|
—
|
—
|
—
|
(2,873
|
)(s) | ||||||||||||||
Change-of-control
license premium
|
3,000
|
—
|
—
|
—
|
—
|
|||||||||||||||
Adjusted income before income taxes
|
184,913
|
219,657
|
235,499
|
209,197
|
60,597
|
|||||||||||||||
Adjusted income taxes
|
70,707
|
(n) |
81,380
|
(n) |
86,856
|
(n)(o) |
52,355
|
(n)(o) |
17,183
|
(n) | ||||||||||
Adjusted net income
|
$ |
114,206
|
$ |
138,277
|
$ |
148,643
|
$ |
156,842
|
$ |
43,414
|
||||||||||
Adjusted net income per common share—diluted
|
$ |
1.01
|
$ |
1.15
|
$ |
1.24
|
$ |
1.61
|
$ |
0.46
|
||||||||||
(a) | In 2012, the Company entered into a management agreement with two of its investors under which the investors provided advice to the Company on, among other things, financing, operations, acquisitions and dispositions. Under the agreement, the investors were paid an annual management fee for such services. In connection with the Company’s initial public offering in April 2015, the management agreement was terminated and the Company paid the investors a termination fee. Such amount, $30.7 million, was recorded in other expense, net. |
(b) | On March 15, 2017, the Company and its then Chairman of the Board of Directors, Gerald Rittenberg, entered into a Transition and Consulting Agreement under which Mr. Rittenberg’s employment as Executive Chairman of the Company terminated effective March 31, 2017. As a result of the agreement, the Company recorded a $3.9 million severance charge in general and administrative expenses during 2017. Such amount is included in “Other Restructuring, Retention and Severance” in the Adjusted EBITDA table above and in “Executive Severance” in the Adjusted Net Income table above. Additionally, during 2017, the Company recorded a $3.2 million severance charge related to a restructuring of its Retail segment. Such amount is included in “Other Restructuring, Retention and Severance” in the Adjusted EBITDA table above and in “Restructuring” in the Adjusted Net Income table above. Further, during 2018, the Company recorded $0.8 million of senior executive severance. Such amount is included in “Other Restructuring, Retention and Severance” in the Adjusted EBITDA table above and in “Executive Severance” in the Adjusted Net Income table above. Finally, the 2017 and 2018 “Other Restructuring, Retention and |
Severance” amounts in the “Adjusted EBITDA” table above also include costs incurred while moving one of the Company’s domestic manufacturing facilities to a new location. For the year ended December 31, 2019, amounts expensed principally relate to executive severance and the
write-off
of inventory for a section of the Company’s Party City stores that were restructured.
|
(c) |
During August 2018, the Company executed a refinancing of its debt portfolio and issued $500 million of new senior notes at an interest rate of 6.625%. The notes will mature in August 2026. The Company used the proceeds from the notes to: (i) reduce the outstanding balance under its existing ABL Facility by $90 million and (ii) voluntarily prepay $400 million of the outstanding balance under its existing Term Loan Credit Agreement. Additionally, as part of the refinancing, the Company extended the maturity of the ABL Facility to August 2023 (subject to a springing maturity at an earlier date if the maturity date of certain of our other debt has not been extended or refinanced). As the partial prepayment of the Term Loan Credit Agreement was in accordance with the terms of such agreement, at the time of such prepayment the Company
wrote-off
a
pro-rata
portion of the existing capitalized deferred financing costs and original issuance discounts, $1.8 million, for investors who did not participate in the new notes. To the extent that investors in the Term Loan Credit Agreement participated in the new notes, the Company assessed whether the refinancing should be accounted for as an extinguishment on a
creditor-by-creditor
basis and
wrote-off
$1.0 million of existing deferred financing costs and original issuance discounts. Additionally, in conjunction with the issuance of the notes, the Company incurred third-party fees (principally banker fees). To the extent that such fees related to investors for whom their original debt was not extinguished, the Company expensed the portion of such fees, $2.3 million in aggregate, that related to such investors. Such amounts are included in “Refinancing Charges” in the “Adjusted EBITDA” table above and in “Amortization of Deferred Financing Costs and Original Issuance Discounts” in the “Adjusted Net Income” table above.
|
(d) | The deferred rent adjustment reflects the difference between accounting for rent and landlord incentives in accordance with GAAP and the Company’s actual cash outlay for such items. |
(e) |
Principally represents third-party costs related to acquisitions (primarily legal expenses and diligence fees). Such costs are excluded from the definition of “Consolidated Adjusted EBITDA” that is utilized for certain covenants in the Company’s credit agreements. Additionally, 2017, 2018, and 2019 include
start-up
costs for Kazzam (see Note 25, Kazzam LLC., of Item 8, “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K for further discussion).
|
(f) | Principally charges incurred related to closing underperforming stores. |
(g) |
Represents
non-cash
charges related to stock options.
|
(h) | Principally represents shares of Kazzam awarded to Ampology as compensation for Ampology’s services. See Note 25, Kazzam LLC., of Item 8, “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K for further discussion. |
(i) |
Non-cash
charges for restricted stock units that vest based on service conditions.
|
(j) |
Primarily
non-recurring
consulting charges related to the Company’s retail operations.
|
(k) |
Non-recurring
legal settlements/costs.
|
(l) |
Represents the
non-cash
amortization of intangible assets.
|
(m) |
Includes the
non-cash
amortization of deferred financing costs, original issuance discounts and capitalized call premiums. Additionally, certain years include charges related to debt refinancings. See note (c) for further discussion.
|
(n) |
Represents income tax expense/benefit after excluding the specific tax impacts for each of the
pre-tax
adjustments. The tax impacts for each of the adjustments were determined by applying to the
pre-tax
adjustments the effective income tax rates for the specific legal entities in which the adjustments were recorded.
|
(o) |
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Act”) was signed into law. The Act significantly changed U.S. tax law, including lowering the U.S. corporate income tax rate from 35% to 21%, effective January 1, 2018, and implementing a
one-time
“deemed repatriation” tax on unremitted earnings accumulated in
non-U.S.
jurisdictions since 1986. Due to the complexities of accounting for the Act, the SEC issued Staff Accounting Bulletin No. 118 which allows entities to include a provisional estimate of the impact of the Act in its 2017 financial statements. Therefore, based on then currently available information, during 2017 the Company recorded a provisional estimate of the impact of the Act, which included an income tax benefit of $91.0 million related to the remeasurement of its domestic deferred tax liabilities and deferred tax assets due to the lower U.S. corporate tax rate. During the fourth quarter of 2018, the Company finalized its assessment of the impact of the Act on such domestic deferred tax liabilities and deferred tax assets and recorded an additional income tax benefit of $2.0 million. As the Act is a significant and
non-recurring
event which is impacting the comparability of the Company’s financial statements, the Company has excluded the impact of the adjustments from its adjusted net income and adjusted earnings per share.
|
(p) | During June 2019, the Company reported a $58.4 million gain from the sale and leaseback of its main distribution center in Chester, New York and its metallic balloons manufacturing facility in Eden Prairie, Minnesota. The aggregate sale price for the three properties was $128.0 million. Simultaneous with the sale, the Company entered into twenty-year leases for each of the facilities. |
(q) | During the year ended December 31, 2019, the Company performed a comprehensive review of its store locations aimed at improving the overall productivity of such locations (“store optimization program”) and made the decision to accelerate the optimization of its store portfolio with the closure of approximately 55 stores which are primarily located in close proximity to other Party City stores. In conjunction with the store optimization program, the Company recorded the following charges: inventory reserves: $21.3 million, operating lease asset impairment: $14.9 million, property plant and equipment impairment: $4.7 million, labor and other costs related to closing the stores: $8.7 million and severance: $0.7 million. The charge for inventory reserves was recorded in cost of sales in the Company’s statement of operations and comprehensive (loss) income. The other charges were recorded in store impairment and restructuring charges in the Company’s statement of operations and comprehensive (loss) income. See Note 3, Store Impairment and Restructuring Charges, of Item 8, “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K for further discussion. Additionally, during the process of liquidating the inventory in such stores, the Company lost margin of $8.5 million. |
(r) |
As a result of a sustained decline in market capitalization, the Company recognized a
non-cash
pre-tax
goodwill impairment charge during the year ended December 31, 2019 of $562.6 million. This includes a non-cash pre-tax trade name intangibles impairment charge of $6.6 million (see Note 4, Goodwill, of Item 8, “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K for further discussion).
|
(s) | The Company recorded a $2.9 million gain on sale of its Canadian-based Party City stores, which is reported in Other expense, net on the Consolidated Statement of Operations and Comprehensive (Loss) Income. |
(t) |
Represents a loss on sale of ownership interest in Punchbowl (see Note 21, Fair Value Measurements, of Item 8, “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K for further discussion) and certain property, plant and equipment, and a
write-off
of goodwill related to the Company’s sale of its Canadian-based Party City stores.
|
(12) |
Party City brand comp sales include North American
e-commerce
sales.
|
(13) |
Represents the percentage of product costs included in cost of goods sold by our Party City stores and North American retail
e-commerce
operations which relate to products supplied by our wholesale operations.
|
(14) |
Amount for 2014 adjusted to reflect the Company’s retrospective adoption during the fourth quarter of 2015 of FASB ASU
2015-03,
“Simplifying the Presentation of Debt Issuance Costs”. Deferred financing costs in the amount of $44.4 million were reclassified from “other assets” to debt as of December 31, 2014.
|
(15) | Excludes redeemable common securities. |
Item 7.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
|
Fiscal Year Ended December 31,
|
|||||||||||||||
|
2019
|
2018
|
||||||||||||||
|
(Dollars in thousands, except per share data)
|
|||||||||||||||
Revenues:
|
|
|
|
|
||||||||||||
Net sales
|
$ |
2,339,510
|
99.6
|
% | $ |
2,416,442
|
99.5
|
% | ||||||||
Royalties and franchise fees
|
9,279
|
0.4
|
11,073
|
0.5
|
||||||||||||
Total revenues
|
2,348,789
|
100.0
|
2,427,515
|
100.0
|
||||||||||||
Expenses:
|
|
|
|
|
||||||||||||
Cost of sales
|
1,500,633
|
63.9
|
1,435,358
|
59.1
|
||||||||||||
Wholesale selling expenses
|
67,103
|
2.9
|
71,502
|
2.9
|
||||||||||||
Retail operating expenses
|
440,395
|
18.7
|
425,996
|
17.5
|
||||||||||||
Franchise expenses
|
13,152
|
0.6
|
13,214
|
0.5
|
||||||||||||
General and administrative expenses
|
177,672
|
7.6
|
172,764
|
7.1
|
||||||||||||
Art and development costs
|
23,203
|
1.0
|
23,388
|
1.0
|
||||||||||||
Development stage expenses
|
10,736
|
0.5
|
7,008
|
0.3
|
||||||||||||
Gain on sale/leaseback transaction
|
(58,381
|
) |
(2.5
|
) |
—
|
0.0
|
||||||||||
Store impairment and restructuring charges
|
29,038
|
1.2
|
—
|
0.0
|
||||||||||||
Goodwill and intangibles impairment
|
562,631
|
24.0
|
—
|
0.0
|
||||||||||||
Total expenses
|
2,766,182
|
117.8
|
2,149,230
|
88.5
|
||||||||||||
(Loss) income from operations
|
(417,393
|
) |
(17.8
|
) |
278,285
|
11.5
|
||||||||||
Interest expense, net
|
114,899
|
4.9
|
105,706
|
4.3
|
||||||||||||
Other expense, net
|
1,871
|
0.1
|
10,982
|
0.4
|
||||||||||||
(Loss) income before income taxes
|
(534,163
|
) |
(22.7
|
) |
161,597
|
6.7
|
||||||||||
Income tax (benefit) expense
|
(1,305
|
) |
(0.1
|
) |
38,778
|
1.6
|
||||||||||
Net (loss) income
|
(532,858
|
) |
(22.7
|
) |
122,819
|
5.1
|
% | |||||||||
Add: Net income attributable to redeemable securities holder
|
—
|
—
|
409
|
—
|
||||||||||||
Less: Net loss attributable to noncontrolling interests
|
(363
|
) |
—
|
(31
|
) |
—
|
||||||||||
Net (loss) income attributable to common shareholders of Party City Holdco Inc.
|
$ |
(532,495
|
) |
(22.7
|
)% | $ |
123,259
|
5.1
|
% | |||||||
Net (loss) income per share attributable to common shareholders of Party City Holdco Inc.—basic
|
$ |
(5.71
|
) |
|
$ |
1.28
|
|
|||||||||
Net (loss) income per share attributable to common shareholders of Party City Holdco Inc.—diluted
|
$ |
(5.71
|
) |
|
$ |
1.27
|
|
|
Fiscal Year Ended December 31,
|
|||||||||||||||
|
2019
|
2018
|
||||||||||||||
|
Dollars in
Thousands |
|
Percentage
of Total Revenues |
|
Dollars in
Thousands |
|
Percentage
of Total Revenues |
|
||||||||
Net Sales:
|
|
|
|
|
||||||||||||
Wholesale
|
$ |
1,240,026
|
52.8
|
% | $ |
1,325,490
|
54.6
|
% | ||||||||
Eliminations
|
(642,652
|
) |
(27.4
|
) |
(711,882
|
) |
(29.3
|
) | ||||||||
Net wholesale
|
597,374
|
25.4
|
613,608
|
25.3
|
||||||||||||
Retail
|
1,742,136
|
74.1
|
1,802,834
|
74.2
|
||||||||||||
Total net sales
|
2,339,510
|
99.6
|
2,416,442
|
99.5
|
||||||||||||
Royalties and franchise fees
|
9,279
|
0.4
|
11,073
|
0.5
|
||||||||||||
Total revenues
|
$ |
2,348,789
|
100.0
|
% | $ |
2,427,515
|
100.0
|
% | ||||||||
|
Fiscal Year Ended December 31,
|
|||||||||||||||
|
2019
|
2018
|
||||||||||||||
|
Dollars in
Thousands
|
|
Percentage
of Net Sales
|
|
Dollars in
Thousands
|
|
Percentage
of Net Sales
|
|
||||||||
Retail
|
$ |
696,439
|
40.0
|
% | $ |
801,349
|
44.4
|
% | ||||||||
Wholesale
|
142,438
|
23.8
|
179,735
|
29.3
|
||||||||||||
Total
|
$ |
838,877
|
35.9
|
% | $ |
981,084
|
40.6
|
% | ||||||||
|
Fiscal Year Ended December 31,
|
|||||||||||||||
|
2018
|
2017
|
||||||||||||||
|
(Dollars in thousands, except per share data)
|
|||||||||||||||
Revenues:
|
|
|
|
|
||||||||||||
Net sales
|
$ |
2,416,442
|
99.5
|
% | $ |
2,357,986
|
99.4
|
% | ||||||||
Royalties and franchise fees
|
11,073
|
0.5
|
13,583
|
0.6
|
||||||||||||
Total revenues
|
2,427,515
|
100.0
|
2,371,569
|
100.0
|
||||||||||||
Expenses:
|
|
|
|
|
||||||||||||
Cost of sales
|
1,435,358
|
59.1
|
1,395,279
|
58.8
|
||||||||||||
Wholesale selling expenses
|
71,502
|
2.9
|
65,356
|
2.8
|
||||||||||||
Retail operating expenses
|
425,996
|
17.5
|
415,167
|
17.5
|
||||||||||||
Franchise expenses
|
13,214
|
0.5
|
14,957
|
0.6
|
||||||||||||
General and administrative expenses
|
172,764
|
7.1
|
168,369
|
7.1
|
||||||||||||
Art and development costs
|
23,388
|
1.0
|
23,331
|
1.0
|
||||||||||||
Development stage expenses
|
7,008
|
0.3
|
8,974
|
0.4
|
||||||||||||
Total expenses
|
2,149,230
|
88.5
|
2,091,433
|
88.2
|
||||||||||||
Income from operations
|
278,285
|
11.5
|
280,136
|
11.8
|
||||||||||||
Interest expense, net
|
105,706
|
4.3
|
87,366
|
3.7
|
||||||||||||
Other expense, net
|
10,982
|
0.4
|
4,626
|
0.2
|
||||||||||||
Income before income taxes
|
161,597
|
6.7
|
188,144
|
7.9
|
||||||||||||
Income tax expense (benefit)
|
38,778
|
1.6
|
(27,196
|
) |
(1.2
|
) | ||||||||||
Net income
|
122,819
|
5.1
|
215,340
|
9.1
|
||||||||||||
Add: Net income attributable to redeemable securities holder
|
409
|
—
|
—
|
—
|
||||||||||||
Less: Net loss attributable to noncontrolling interests
|
(31
|
) |
—
|
—
|
—
|
|||||||||||
Net income attributable to common shareholders of Party City Holdco Inc.
|
$ |
123,259
|
5.1
|
% | $ |
215,340
|
9.1
|
% | ||||||||
Net income per share attributable to common shareholders of Party City Holdco Inc.—basic
|
$ |
1.28
|
|
$ |
1.81
|
|
||||||||||
Net income per share attributable to common shareholders of Party City Holdco Inc.—diluted
|
$ |
1.27
|
|
$ |
1.79
|
|
|
Fiscal Year Ended December 31,
|
|||||||||||||||
|
2018
|
2017
|
||||||||||||||
|
Dollars in
Thousands |
|
Percentage
of Total Revenues |
|
Dollars in
Thousands |
|
Percentage
of Total Revenues |
|
||||||||
Net Sales:
|
|
|
|
|
||||||||||||
Wholesale
|
$ |
1,325,490
|
54.6
|
% | $ |
1,260,089
|
53.1
|
% | ||||||||
Eliminations
|
(711,882
|
) |
(29.3
|
) |
(630,692
|
) |
(26.6
|
) | ||||||||
Net wholesale
|
613,608
|
25.3
|
629,397
|
26.5
|
||||||||||||
Retail
|
1,802,834
|
74.2
|
1,728,589
|
72.9
|
||||||||||||
Total net sales
|
2,416,442
|
99.5
|
2,357,986
|
99.4
|
||||||||||||
Royalties and franchise fees
|
11,073
|
0.5
|
13,583
|
0.6
|
||||||||||||
Total revenues
|
$ |
2,427,515
|
100.0
|
% | $ |
2,371,569
|
100.0
|
% | ||||||||
|
Fiscal Year Ended December 31,
|
|||||||||||||||
|
2018
|
2017
|
||||||||||||||
|
Dollars in
Thousands
|
|
Percentage
of Net Sales
|
|
Dollars in
Thousands
|
|
Percentage
of Net Sales
|
|
||||||||
Retail
|
$ |
801,349
|
44.4
|
% | $ |
763,315
|
44.2
|
% | ||||||||
Wholesale
|
179,735
|
29.3
|
199,392
|
31.7
|
||||||||||||
Total
|
$ |
981,084
|
40.6
|
% | $ |
962,707
|
40.8
|
% | ||||||||
• | incur additional indebtedness; |
• | pay dividends on capital stock or redeem, repurchase or retire capital stock; |
• | make certain investments, loans, advances and acquisitions; |
• | engage in transactions with affiliates; |
• | create liens; and |
• | transfer or sell certain assets. |
• | incur additional indebtedness; |
• | pay dividends on capital stock or redeem, repurchase or retire capital stock; |
• | make certain investments, loans, advances and acquisitions; |
• | engage in transactions with affiliates; |
• | create liens; and |
• | transfer or sell certain assets. |
• | incur additional indebtedness or issue certain disqualified stock and preferred stock; |
• | pay dividends or distributions, redeem or repurchase equity; |
• | prepay subordinated debt or make certain investments; |
• | engage in transactions with affiliates; |
• | consolidate, merge or transfer all or substantially all of PCHI’s assets; |
• | create liens; and |
• | transfer or sell certain assets. |
Twelve-month period beginning on August 15,
|
Percentage
|
|
||
2019
|
101.531
|
% | ||
2020 and thereafter
|
100.000
|
% |
• | incur additional indebtedness or issue certain disqualified stock and preferred stock; |
• | pay dividends or distributions, redeem or repurchase equity; |
• | prepay subordinated debt or make certain investments; |
• | engage in transactions with affiliates; |
• | consolidate, merge or transfer all or substantially all of PCHI’s assets; |
• | create liens; and |
• | transfer or sell certain assets. |
Twelve-month period beginning on August 1,
|
Percentage
|
|
||
2021
|
103.313
|
% | ||
2022
|
101.656
|
% | ||
2023 and thereafter
|
100.000
|
% |
|
Total
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
2024
|
|
Thereafter
|
|
||||||||||||||
Long-term debt obligations(a)
|
$ |
1,573,965
|
$ |
70,462
|
$ |
12,266
|
$ |
641,237
|
$ |
350,000
|
$ |
—
|
$ |
500,000
|
||||||||||||||
Finance lease obligations(a)
|
14,990
|
1,062
|
1,431
|
1,259
|
390
|
521
|
10,327
|
|||||||||||||||||||||
Operating lease obligations(a)
|
1,149,650
|
197,480
|
181,970
|
162,352
|
134,131
|
106,078
|
367,639
|
|||||||||||||||||||||
Transition Tax on unremitted foreign earnings(b)
|
4,205
|
—
|
—
|
—
|
—
|
1,400
|
2,805
|
|||||||||||||||||||||
Minimum product royalty obligations(a)
|
51,738
|
35,525
|
10,393
|
5,820
|
—
|
—
|
—
|
|||||||||||||||||||||
Total contractual obligations
|
$ |
2,794,548
|
$ |
304,529
|
$ |
206,060
|
$ |
810,668
|
$ |
484,521
|
$ |
107,999
|
$ |
880,771
|
||||||||||||||
(a) | See Item 8, “Financial Statements and Supplementary Data,” for further detail. |
(b) | As a result of the Act, the U.S. is transitioning from a worldwide system of international taxation to a territorial tax system, thereby eliminating the U.S. federal tax on foreign earnings. However, the Act |
requires a
one-time
deemed repatriation tax on such earnings and, accordingly, we have recorded a liability related to such requirement. See Note 17, Income Taxes, of Item 8, “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K for further discussion.
|
|
For the Three Months Ended,
|
|||||||||||||||
|
March 31,
|
|
June 30,
|
|
September 30,
|
|
December 31,
|
|
||||||||
2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net sales
|
$ |
511,102
|
$ |
561,702
|
$ |
538,345
|
$ |
728,361
|
||||||||
Royalties and franchise fees
|
2,014
|
2,189
|
1,886
|
3,190
|
||||||||||||
Gross profit
|
172,060
|
208,646
|
164,932
|
293,239
|
||||||||||||
(Loss) income from operations
|
(10,297
|
) |
97,485
|
(277,526
|
) |
(227,055
|
) | |||||||||
Net (loss) income
|
(30,289
|
) |
48,005
|
(281,745
|
) |
(268,829
|
) | |||||||||
Net (loss) income attributable to common
shareholders of Party City Holdco Inc.
|
(30,218
|
) |
48,074
|
(281,533
|
) |
(268,818
|
) | |||||||||
Net (loss) income per share attributable to common shareholders of Party City Holdco Inc.—Basic
|
$ |
(0.32
|
) | $ |
0.52
|
$ |
(3.02
|
) | $ |
(2.88
|
) | |||||
Net (loss) income per share attributable to common shareholders of Party City Holdco Inc.—Diluted
|
$ |
(0.32
|
) | $ |
0.51
|
$ |
(3.02
|
) | $ |
(2.88
|
) |
|
For the Three Months Ended,
|
|||||||||||||||
|
March 31,
|
|
June 30,
|
|
September 30,
|
|
December 31,
|
|
||||||||
2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net sales
|
$ |
505,108
|
$ |
558,101
|
$ |
550,840
|
$ |
802,393
|
||||||||
Royalties and franchise fees
|
2,716
|
2,910
|
2,206
|
3,241
|
||||||||||||
Gross profit
|
188,142
|
228,624
|
201,199
|
363,119
|
||||||||||||
Income from operations
|
22,256
|
65,451
|
31,738
|
158,840
|
||||||||||||
Net (loss) income
|
(1,163
|
) |
28,048
|
(2,440
|
) |
98,374
|
||||||||||
Net (loss) income attributable to common
shareholders of Party City Holdco Inc.
|
(1,133
|
) |
28,487
|
(2,420
|
) |
98,325
|
||||||||||
Net (loss) income per share attributable to common
shareholders of Party City Holdco Inc.—Basic
|
$ |
(0.01
|
) | $ |
0.30
|
$ |
(0.03
|
) | $ |
1.03
|
||||||
Net (loss) income per share attributable to common shareholders of Party City Holdco Inc.—Diluted
|
$ |
(0.01
|
) | $ |
0.29
|
$ |
(0.03
|
) | $ |
1.02
|
|
For the Three Months Ended,
|
|||||||||||||||
|
March 31,
|
|
June 30,
|
|
September 30,
|
|
December 31,
|
|
||||||||
2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net sales
|
$ |
473,963
|
$ |
541,653
|
$ |
557,350
|
$ |
785,020
|
||||||||
Royalties and franchise fees
|
3,036
|
3,225
|
2,759
|
4,563
|
||||||||||||
Gross profit
|
175,244
|
219,753
|
199,827
|
367,883
|
||||||||||||
Income from operations
|
14,671
|
60,699
|
37,388
|
167,378
|
||||||||||||
Net (loss) income
|
(4,683
|
) |
24,982
|
10,084
|
184,957
|
|||||||||||
Net (loss) income attributable to common shareholders of Party City Holdco Inc.
|
(4,683
|
) |
24,982
|
10,084
|
184,957
|
|||||||||||
Net (loss) income per share attributable to common shareholders of Party City Holdco Inc.—Basic
|
$ |
(0.04
|
) | $ |
0.21
|
$ |
0.08
|
$ |
1.59
|
|||||||
Net (loss) income per share attributable to common shareholders of Party City Holdco Inc.—Diluted
|
$ |
(0.04
|
) | $ |
0.21
|
$ |
0.08
|
$ |
1.58
|
Item 7A.
|
Quantitative and Qualitative Disclosures about Market Risk
|
1) |
Certain foreign subsidiaries purchase product or raw materials in U.S. Dollars and sell such product in their local currencies. To the extent that the subsidiaries cannot adjust their local currency selling prices to reflect the strengthening of the U.S. Dollar, the subsidiaries’ gross margins are negatively impacted when the related product is sold. The subsidiaries that are impacted by this risk principally operate in the Canadian dollar, Euro, British Pound Sterling, Australian dollar and Mexican Peso. British Pound Sterling-based subsidiaries purchase approximately $33 million of
USD-denominated
product per year. Euro-based subsidiaries purchase approximately $35 million of
USD-denominated
product per year. Canadian dollar-based subsidiaries purchase approximately $28 million of
USD-denominated
product per year. Australian Dollar-based subsidiaries purchase approximately $12 million of
USD-denominated
product per year. Mexican Peso-based subsidiaries purchase approximately $4 million of
USD-denominated
raw materials/finished goods per year.
|
2) | Certain foreign subsidiaries sell product in U.S. Dollars and manufacture/purchase such product in their local currencies. To the extent that the subsidiaries cannot adjust their selling prices to reflect the weakening of the U.S. Dollar, the subsidiaries’ gross margins are negatively impacted when sales occur. The subsidiaries that are impacted by this risk principally operate in the Malaysian Ringgit. Ringgit-based subsidiaries sell approximately $20 million of product in U.S. Dollars on an annual basis. |
3) | During our financial statement close process, we adjust open receivables and payables that are not in the functional currencies of our subsidiaries to the latest foreign currency exchange rates. These receivables and payables are principally generated through the sales and inventory purchases discussed in points 1. and 2. above. The gains and losses created by such adjustments are primarily recorded in our statement of income. |
4) | Additionally, the financial statements of foreign subsidiaries with functional currencies other than the U.S. Dollar are translated into U.S. Dollars during our financial statement close process. To the extent that the U.S. Dollar fluctuates versus such functional currencies, our consolidated financial statements are impacted. Based on the loss from operations for such subsidiaries for the year ended December 31, 2019, a uniform 10% change in such exchange rates versus the U.S. Dollar would have impacted our consolidated loss from operations for the year by approximately ($0.5) million. |
Item 8.
|
Financial Statements and Supplementary Data
|
71
|
||||
73
|
||||
74
|
||||
75
|
||||
76
|
||||
77
|
||||
|
||||
117
|
||||
121
|
|
Fiscal Year Ended December 31,
|
|||||||||||
|
2019
|
|
2018
|
|
2017
|
|
||||||
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
2,339,510
|
|
|
$
|
2,416,442
|
|
|
$
|
2,357,986
|
|
Royalties and franchise fees
|
|
|
9,279
|
|
|
|
11,073
|
|
|
|
13,583
|
|
Total revenues
|
|
|
2,348,789
|
|
|
|
2,427,515
|
|
|
|
2,371,569
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
1,500,633
|
|
|
|
1,435,358
|
|
|
|
1,395,279
|
|
Wholesale selling expenses
|
|
|
67,103
|
|
|
|
71,502
|
|
|
|
65,356
|
|
Retail operating expenses
|
|
|
440,395
|
|
|
|
425,996
|
|
|
|
415,167
|
|
Franchise expenses
|
|
|
13,152
|
|
|
|
13,214
|
|
|
|
14,957
|
|
General and administrative expenses
|
|
|
177,672
|
|
|
|
172,764
|
|
|
|
168,369
|
|
Art and development costs
|
|
|
23,203
|
|
|
|
23,388
|
|
|
|
23,331
|
|
Development stage expenses
|
|
|
10,736
|
|
|
|
7,008
|
|
|
|
8,974
|
|
Gain on sale/leaseback transaction
|
|
|
(58,381
|
)
|
|
|
—
|
|
|
|
—
|
|
Store impairment and restructuring charges
|
|
|
29,038
|
|
|
|
—
|
|
|
|
—
|
|
Goodwill
and intangibles
impairment
|
|
|
562,631
|
|
|
|
—
|
|
|
|
—
|
|
Total expenses
|
|
|
2,766,182
|
|
|
|
2,149,230
|
|
|
|
2,091,433
|
|
(Loss) income from operations
|
(417,393
|
) |
278,285
|
280,136
|
||||||||
Interest expense, net
|
114,899
|
105,706
|
87,366
|
|||||||||
Other expense, net
|
1,871
|
10,982
|
4,626
|
|||||||||
(Loss) income before income taxes
|
(534,163
|
) |
161,597
|
188,144
|
||||||||
Income tax
expense
(benefit)
|
(1,305
|
) |
38,778
|
(27,196
|
) | |||||||
Net (loss) income
|
(532,858
|
) |
122,819
|
215,340
|
||||||||
Add: Net income attributable to redeemable securities holder
|
—
|
409
|
—
|
|||||||||
Less: Net loss attributable to noncontrolling interests
|
(363
|
) |
(31
|
) |
—
|
|||||||
Net (loss) income attributable to common shareholders of Party City Holdco Inc
|
|
$
|
(532,495
|
)
|
|
$
|
123,259
|
|
|
$
|
215,340
|
|
Net (loss) income per share attributable to common shareholders of Party City Holdco Inc.—Basic
|
$ |
(5.71
|
) | $ |
1.28
|
$ |
1.81
|
|||||
Net (loss) income per share attributable to common shareholders of Party City Holdco Inc.—Diluted
|
$ |
(5.71
|
) | $ |
1.27
|
$ |
1.79
|
|||||
Weighted-average number of common shares—Basic
|
|
|
93,295,692
|
|
|
|
96,133,144
|
|
|
|
118,589,421
|
|
Weighted-average number of common shares—Diluted
|
|
|
93,295,692
|
|
|
|
97,271,050
|
|
|
|
119,894,021
|
|
Other comprehensive (loss) income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency adjustments
|
|
$
|
12,599
|
|
|
$
|
(14,479
|
)
|
|
$
|
17,561
|
|
Cash flow hedges
|
|
|
845
|
|
|
|
1,063
|
|
|
|
(1,140
|
)
|
Other comprehensive income (loss), net
|
|
|
13,444
|
|
|
|
(13,416
|
)
|
|
|
16,421
|
|
Comprehensive
(
income
loss
)
|
|
|
(519,414
|
)
|
|
|
109,403
|
|
|
|
231,761
|
|
Add: Comprehensive income attributable to redeemable securities holder
|
|
|
—
|
|
|
|
409
|
|
|
|
—
|
|
Less: Comprehensive loss attributable to noncontrolling interests
|
|
|
(386
|
)
|
|
|
(64
|
)
|
|
|
—
|
|
Comprehensive (loss) income attributable to common shareholders of Party City Holdco
Inc. |
|
$
|
(519,028
|
)
|
|
$
|
109,876
|
|
|
$
|
231,761
|
|
|
Common
Stock |
|
Additional
Paid-in
Capital
|
|
Retained
Earnings
(
Deficit)
|
|
Accumulated
Other
Comprehensive
Loss
|
|
Total Party
City
Holdco
Inc.
Stockholders’ Equity Before Common Stock
Treasury
|
|
Common
Stock Held In
Treasury
|
|
Total Party
City
Holdco
Inc.
Stockholders
’
Equity
|
|
Non-
Controlling
Interests
|
|
Total
Stockholders
’
Equity
|
|
||||||||||||||||||
Balance at December 31, 2016
|
$ |
1,195
|
$ |
910,167
|
$ |
157,666
|
$ |
(52,239
|
) | $ |
1,016,789
|
$ |
—
|
$ |
1,016,789
|
$ |
—
|
$ |
1,016,789
|
|||||||||||||||||
Net income
|
|
|
215,340
|
|
215,340
|
|
215,340
|
|
215,340
|
|||||||||||||||||||||||||||
Stock option expense
|
|
5,309
|
|
|
5,309
|
|
5,309
|
|
5,309
|
|||||||||||||||||||||||||||
Warrant
|
|
421
|
|
|
421
|
|
421
|
|
421
|
|||||||||||||||||||||||||||
Adjustment to redeemable securities
|
|
|
(410
|
) |
|
(410
|
) |
|
(410
|
) |
|
(410
|
) | |||||||||||||||||||||||
Exercise of stock options
|
3
|
1,295
|
|
|
1,298
|
|
1,298
|
|
1,298
|
|||||||||||||||||||||||||||
Foreign currency adjustments
|
|
|
|
17,561
|
17,561
|
|
17,561
|
|
17,561
|
|||||||||||||||||||||||||||
Treasury stock purchases
|
|
|
|
|
—
|
(286,733
|
) |
(286,733
|
) |
|
(286,733
|
) | ||||||||||||||||||||||||
Acquired noncontrolling interest
|
|
|
|
|
—
|
|
—
|
355
|
355
|
|||||||||||||||||||||||||||
Impact of foreign exchange contracts
|
|
|
|
(1,140
|
) |
(1,140
|
) |
|
(1,140
|
) |
|
(1,140
|
) | |||||||||||||||||||||||
Balance at December 31, 2017
|
$ |
1,198
|
$ |
917,192
|
$ |
372,596
|
$ |
(35,818
|
) | $ |
1,255,168
|
$ |
(286,733
|
) | $ |
968,435
|
$ |
355
|
$ |
968,790
|
||||||||||||||||
Cumulative effect of change in accounting principle, net
|
|
|
(78
|
) |
|
(78
|
) |
|
(78
|
) |
|
(78
|
) | |||||||||||||||||||||||
Balance at December 31, 2017, adjusted
|
$ |
1,198
|
$ |
917,192
|
$ |
372,518
|
$ |
(35,818
|
) | $ |
1,255,090
|
$ |
(286,733
|
) | $ |
968,357
|
$ |
355
|
$ |
968,712
|
||||||||||||||||
Net income
|
|
|
122,850
|
|
122,850
|
|
122,850
|
(31
|
) |
122,819
|
||||||||||||||||||||||||||
Net income attributable to redeemable securities holder
|
|
|
409
|
|
409
|
|
409
|
|
409
|
|||||||||||||||||||||||||||
Stock option expense
|
|
1,744
|
|
|
1,744
|
|
1,744
|
|
1,744
|
|||||||||||||||||||||||||||
Restricted stock units—time-based
|
6
|
1,168
|
|
|
1,174
|
|
1,174
|
|
1,174
|
|||||||||||||||||||||||||||
Directors—non-cash compensation
|
|
196
|
|
|
196
|
|
196
|
|
196
|
|||||||||||||||||||||||||||
Warrant
|
|
(89
|
) |
|
|
(89
|
) |
|
(89
|
) |
|
(89
|
) | |||||||||||||||||||||||
Exercise of stock options
|
4
|
2,265
|
|
|
2,269
|
|
2,269
|
|
2,269
|
|||||||||||||||||||||||||||
Foreign currency adjustments
|
|
|
|
(14,446
|
) |
(14,446
|
) |
|
(14,446
|
) |
(33
|
) |
(14,479
|
) | ||||||||||||||||||||||
Treasury stock purchases
|
|
|
|
|
—
|
(40,197
|
) |
(40,197
|
) |
|
(40,197
|
) | ||||||||||||||||||||||||
Impact of foreign exchange contracts
|
|
|
|
1,063
|
1,063
|
|
1,063
|
|
1,063
|
|||||||||||||||||||||||||||
Balance at December 31, 2018
|
|
$
|
1,208
|
|
|
$
|
922,476
|
|
|
$
|
495,777
|
|
|
$
|
(49,201
|
)
|
|
$
|
1,370,260
|
|
|
$
|
(326,930
|
)
|
|
$
|
1,043,330
|
|
|
$
|
291
|
|
|
$
|
1,043,621
|
|
Cumulative effect of change in accounting principle, net (see Note 2)
|
|
|
—
|
|
|
|
662
|
|
|
|
(503
|
)
|
|
|
—
|
|
|
|
159
|
|
|
|
—
|
|
|
|
159
|
|
|
|
—
|
|
|
|
159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2018, adjusted
|
|
$
|
1,208
|
|
|
$
|
923,138
|
|
|
$
|
495,274
|
|
|
$
|
(49,201
|
)
|
|
$
|
1,370,419
|
|
|
$
|
(326,930
|
)
|
|
$
|
1,043,489
|
|
|
$
|
291
|
|
|
$
|
1,043,780
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
(532,495
|
)
|
|
|
|
|
|
|
(532,495
|
)
|
|
|
|
|
|
|
(532,495
|
)
|
|
|
(363
|
)
|
|
|
(532,858
|
)
|
Stock option expense
|
|
|
|
|
|
|
1,319
|
|
|
|
|
|
|
|
|
|
|
|
1,319
|
|
|
|
|
|
|
|
1,319
|
|
|
|
|
|
|
|
1,319
|
|
Restricted stock units—time-based
|
|
|
|
|
|
|
2,033
|
|
|
|
|
|
|
|
|
|
|
|
2,033
|
|
|
|
|
|
|
|
2,033
|
|
|
|
|
|
|
|
2,033
|
|
Directors—non-cash
compensation
|
|
|
|
|
|
|
313
|
|
|
|
|
|
|
|
|
|
|
|
313
|
|
|
|
|
|
|
|
313
|
|
|
|
|
|
|
|
313
|
|
Warrant
|
|
|
|
|
|
|
515
|
|
|
|
|
|
|
|
|
|
|
|
515
|
|
|
|
|
|
|
|
515
|
|
|
|
|
|
|
|
515
|
|
Exercise of stock options
|
|
|
3
|
|
|
|
1,145
|
|
|
|
|
|
|
|
|
|
|
|
1,148
|
|
|
|
|
|
|
|
1,148
|
|
|
|
|
|
|
|
1,148
|
|
Acquired
non-controlling
interest
|
|
|
|
|
|
|
110
|
|
|
|
|
|
|
|
|
|
|
|
110
|
|
|
|
|
|
|
|
110
|
|
|
|
71
|
|
|
|
181
|
|
Foreign currency adjustments
(see
Note 23)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,622
|
|
|
|
12,622
|
|
|
|
|
|
|
|
12,622
|
|
|
|
(23
|
)
|
|
|
12,599 |
|
Treasury stock purchases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
(156
|
)
|
|
|
(156
|
)
|
|
|
|
|
|
|
(156
|
)
|
Impact of foreign exchange contracts
|
|
|
|
|
|
|
—
|
|
|
|
2
|
|
|
|
845
|
|
|
|
847
|
|
|
|
|
|
|
|
847
|
|
|
|
|
|
|
|
847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2019
|
|
$
|
1,211
|
|
|
$
|
928,573
|
|
|
$
|
(37,219
|
)
|
|
$
|
(35,734
|
)
|
|
$
|
856,831
|
|
|
$
|
(327,086
|
)
|
|
$
|
529,745
|
|
|
$
|
(24
|
)
|
|
$
|
529,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended December 31,
|
|||||||||||
|
2019
|
|
2018
|
|
2017
|
|
||||||
|
|
|
(Adjusted,
Note 2)
|
|
(Adjusted,
Note 2)
|
|
||||||
Cash flows provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(
loss)
|
|
$
|
(532,858
|
) |
|
$
|
122,819
|
|
|
$
|
215,340
|
|
Adjustments to reconcile net
(loss)
income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
|
81,116
|
|
|
|
78,575
|
|
|
|
85,168
|
|
Amortization of deferred financing costs and original issuance discounts
|
|
|
4,722
|
|
|
|
10,989
|
|
|
|
4,937
|
|
Provision for doubtful accounts
|
|
|
2,323
|
|
|
|
1,213
|
|
|
|
560
|
|
Deferred income tax (benefit) expense
|
|
|
(47,366
|
)
|
|
|
4,573
|
|
|
|
(102,651
|
)
|
Deferred rent
|
|
|
—
|
|
|
5,351
|
|
|
|
7,287
|
|
|
Undistributed income in equity method investments
|
|
|
(472
|
)
|
|
|
(369
|
)
|
|
|
(194
|
)
|
Change in operating lease liability/asset
|
|
|
(9,942
|
)
|
|
|
—
|
|
|
|
—
|
|
(Gain) loss on disposal of assets
|
|
|
(59,786
|
)
|
|
|
3
|
|
|
|
475
|
|
Non-cash adjustment
s
for
|
|
|
20,236
|
|
|
|
—
|
|
|
|
—
|
|
Goodwill and intangibles impairment
|
|
|
562,631
|
|
|
|
—
|
|
|
|
—
|
|
Non-employee equity based compensation
|
|
|
515
|
|
|
|
81
|
|
|
|
3,033
|
|
Stock option expense
|
|
|
1,319
|
|
|
|
1,744
|
|
|
|
5,309
|
|
Restricted stock units expense—time-based
|
|
|
2,033
|
|
|
|
1,174
|
|
|
|
—
|
|
Directors—non-cash compensation
|
|
|
313
|
|
|
|
196
|
|
|
|
—
|
|
Changes in operating assets and liabilities, net of effects of acquired businesses:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in accounts receivable
|
|
|
(2,600
|
)
|
|
|
(10,431
|
)
|
|
|
1,153
|
|
Decrease (increase) in inventories
|
|
|
72,385
|
|
|
|
(142,866
|
)
|
|
|
37,175
|
|
Decrease (increase) in prepaid expenses and other current assets
|
|
|
14,741
|
|
|
|
16,666
|
|
|
|
(9,117
|
)
|
(Decrease) increase in accounts payable, accrued expenses and income taxes payable
|
|
|
(65,617
|
)
|
|
|
12,138
|
|
|
|
19,408
|
|
Net cash provided by operating activities
|
|
|
43,693
|
|
|
|
101,856
|
|
|
|
267,883
|
|
Cash flows provided by (used in) investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid in connection with acquisitions, net of cash acquired
|
|
|
(20,878
|
)
|
|
|
(65,301
|
)
|
|
|
(74,710
|
)
|
Capital expenditures
|
|
|
(61,733
|
)
|
|
|
(85,661
|
)
|
|
|
(66,970
|
)
|
Proceeds from disposal of property and equipment
|
|
|
246,286
|
|
|
|
55
|
|
|
|
35
|
|
Net cash provided (used in) investing activities
|
|
|
163,675
|
|
|
|
(150,907
|
)
|
|
|
(141,645
|
)
|
Cash flows (used in) provided by financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of loans, notes payable and long-term obligations
|
|
|
(441,632
|
)
|
|
|
(547,695
|
)
|
|
|
(234,619
|
)
|
Proceeds from loans, notes payable and long-term obligations
|
|
|
203,344
|
|
|
|
652,087
|
|
|
|
380,092
|
|
Exercise of stock options
|
|
|
1,148
|
|
|
|
2,269
|
|
|
|
1,298
|
|
Treasury stock purchases
|
|
|
(156
|
)
|
|
|
(40,197
|
)
|
|
|
(286,733
|
)
|
Debt issuance
and modification
costs
|
|
|
(414
|
)
|
|
|
(10,294
|
)
|
|
|
—
|
|
Net cash
(u
provided by financing activities
s
ed in)
|
|
|
(237,710
|
)
|
|
|
56,170
|
|
|
|
(139,962
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
6,299
|
|
|
|
(2,308
|
)
|
|
|
3,367
|
|
Net (decrease) increase in cash and cash equivalents and restricted cash
|
|
|
(24,043
|
)
|
|
|
4,811
|
|
|
|
(10,357
|
) |
Cash and cash equivalents and restricted cash at beginning of period
|
|
|
59,219
|
|
|
|
54,408
|
|
|
|
64,765
|
|
Cash and cash equivalents and restricted cash at end of period
|
|
$
|
35,176
|
|
|
$
|
59,219
|
|
|
$
|
54,408
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
108,561
|
|
|
$
|
94,472
|
|
|
$
|
76,171
|
|
Income taxes, net of refunds
|
|
$
|
36,093
|
|
|
$
|
59,156
|
|
|
$
|
66,445
|
|
|
Fiscal Year Ended December 31,
|
|||||||||||
|
2019
|
|
2018
|
|
2017
|
|
||||||
Net (loss) income attributable to common shareholders of
Party City
Holdco
Inc.:
|
$ |
(532,495
|
) | $ |
123,259
|
$ |
215,340
|
|||||
Weighted average shares—Basic:
|
93,295,692
|
96,133,144
|
118,589,421
|
|||||||||
Effect of dilutive restricted stock units:
|
—
|
9,661
|
—
|
|||||||||
Effect of dilutive stock options:
|
—
|
1,128,245
|
1,304,600
|
|||||||||
Weighted average shares—Diluted:
|
93,295,692
|
97,271,050
|
119,894,021
|
|||||||||
Net (loss) income per share attributable to common
shareholders of Party City
Holdco
Inc.—Basic:
|
$ |
(5.71
|
) | $ |
1.28
|
$ |
1.81
|
|||||
Net (loss) income per share attributable to common
shareholders of Party City
Holdco
Inc.—Diluted:
|
$ |
(5.71
|
) | $ |
1.27
|
$ |
1.79
|
|||||
|
December 31,
|
|
||
|
2019
|
|
||
Inventory reserves
|
$ |
21,284
|
||
Operating lease asset impairment
|
14,943
|
|||
Property, plant and equipment impairment
|
4,680
|
|||
Labor and other costs incurred closing stores
|
8,754
|
|||
Severance
|
661
|
|||
Total
|
$ |
50,322
|
||
|
Fiscal Year Ended December 31,
|
|||||||
|
2019
|
|
2018
|
|
||||
Wholesale segment:
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
510,490
|
|
|
$
|
513,946
|
|
Granmark acquisition
|
|
|
—
|
|
|
|
(1,115
|
)
|
Print Appeal acquisition
|
|
|
—
|
|
|
|
277
|
|
Other acquisitions
|
|
|
—
|
|
|
|
132
|
|
Allocation of Goodwill from Retail segment
|
|
|
42,230
|
|
|
|
|
|
Goodwill impairment
|
|
|
(60,427
|
)
|
|
|
—
|
|
Foreign currency
translation
|
|
|
1,139
|
|
|
|
(2,750
|
)
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
|
493,432
|
|
|
|
510,490
|
|
Retail segment:
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
|
1,146,460
|
|
|
|
1,105,307
|
|
Store acquisitions
|
|
|
2,557
|
|
|
|
42,801
|
|
Acquisitions
|
|
|
15,375
|
|
|
|
—
|
|
Sale of Canadian-based Party City stores
|
|
|
(48,241
|
)
|
|
|
—
|
|
Allocation of Goodwill
to
Wholesale segment
|
|
|
(42,230
|
)
|
|
|
—
|
|
Goodwill impairment
|
|
|
(495,629
|
)
|
|
|
—
|
|
Foreign currency
translation
|
|
|
606
|
|
|
|
(1,648
|
)
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
|
578,898
|
|
|
|
1,146,460
|
|
|
|
|
|
|
|
|
|
|
Total ending balance, both segments
|
|
$
|
1,072,330
|
|
|
$
|
1,656,950
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|||||||
|
2019
|
|
2018
|
|
||||
Finished goods
|
$ |
606,036
|
$ |
706,327
|
||||
Raw materials
|
34,259
|
33,423
|
||||||
Work in process
|
18,124
|
16,288
|
||||||
|
$ |
658,419
|
$ |
756,038
|
||||
|
December 31,
|
|||||||||||
|
2019
|
|
2018
|
|
Useful lives
|
|
||||||
Machinery and equipment
|
$ |
255,908
|
$ |
216,097
|
3-15
years
|
|||||||
Buildings
|
9,838
|
68,810
|
40 years
|
|||||||||
Data processing equipment
|
92,256
|
82,735
|
3-5
years
|
|||||||||
Leasehold improvements
|
117,894
|
137,508
|
1-10
years
|
|||||||||
Furniture and fixtures
|
168,296
|
191,183
|
5-10
years
|
|||||||||
Land
|
7,047
|
11,069
|
|
|||||||||
|
651,240
|
707,402
|
|
|||||||||
Less: accumulated depreciation
|
(407,668
|
) |
(386,358
|
) |
|
|||||||
|
$ |
243,572
|
$ |
321,044
|
|
|||||||
|
December 31, 2019
|
|||||||||||||||
|
Cost
|
|
Accumulated
Amortization
|
|
Net
Carrying
Value
|
|
Useful lives
|
|
||||||||
Franchise-related intangible assets
|
$ |
77,377
|
$ |
50,658
|
$ |
26,719
|
4-19
years
|
|||||||||
Customer lists and relationships
|
62,144
|
45,940
|
16,204
|
2-20
years
|
||||||||||||
Copyrights and designs
|
31,453
|
29,416
|
2,037
|
5-7
years
|
||||||||||||
Non-compete
agreements
|
500
|
400
|
100
|
5 years
|
||||||||||||
Total
|
$ |
171,473
|
$ |
126,413
|
$ |
45,060
|
|
|||||||||
|
December 31, 2018
|
|||||||||||||||
|
Cost
|
|
Accumulated
Amortization
|
|
Net
Carrying
Value
|
|
Useful lives
|
|
||||||||
Franchise-related intangible assets
|
$ |
77,377
|
$ |
41,877
|
$ |
35,500
|
4-19
years
|
|||||||||
Customer lists and relationships
|
61,405
|
41,167
|
20,238
|
2-20
years
|
||||||||||||
Copyrights and designs
|
26,030
|
25,708
|
322
|
5-7
years
|
||||||||||||
Lease agreements
|
17,830
|
13,926
|
3,904
|
1-17
years
|
||||||||||||
Non-compete
agreements
|
500
|
300
|
200
|
5 years
|
||||||||||||
Total
|
$ |
183,142
|
$ |
122,978
|
$ |
60,164
|
|
|||||||||
|
•
|
incur additional indebtedness;
|
|
•
|
pay dividends on capital stock or redeem, repurchase or retire capital stock;
|
|
•
|
make certain investments, loans, advances and acquisitions;
|
|
•
|
engage in transactions with affiliates;
|
|
•
|
create liens; and
|
|
•
|
transfer or sell certain assets.
|
|
December 31,
|
|||||||
|
2019
|
|
2018
|
|
||||
Senior secured term loan facility (“Term Loan
|
$ |
718,596
|
$ |
791,135
|
||||
6.125% Senior Notes—due 2023
|
347,015
|
346,191
|
||||||
6.625% Senior Notes—due 2026
|
494,910
|
494,138
|
||||||
Finance
lease obligations
|
14,990
|
3,815
|
||||||
Total long-term obligations
|
1,575,511
|
1,635,279
|
||||||
Less: current portion
|
(71,524
|
) |
(13,316
|
) | ||||
Long-term obligations, excluding current portion
|
$ |
1,503,987
|
$ |
1,621,963
|
||||
• | incur additional indebtedness; |
• | pay dividends on capital stock or redeem, repurchase or retire capital stock; |
• | make certain investments, loans, advances and acquisitions; |
• | engage in transactions with affiliates; |
• | create liens; and |
• | transfer or sell certain assets. |
|
•
|
incur additional indebtedness or issue certain disqualified stock and preferred stock;
|
|
•
|
pay dividends or distributions, redeem or repurchase equity;
|
|
•
|
prepay subordinated debt or make certain investments;
|
|
•
|
engage in transactions with affiliates;
|
|
•
|
consolidate, merge or transfer all or substantially all of PCHI’s assets;
|
|
•
|
create liens; and
|
|
•
|
transfer or sell certain assets.
|
Twelve-month period beginning on August 15,
|
Percentage
|
|
||
2019
|
101.531
|
% | ||
2020 and thereafte
r
|
100.000
|
% |
|
•
|
incur additional indebtedness or issue certain disqualified stock and preferred stock;
|
|
•
|
pay dividends or distributions, redeem or repurchase equity;
|
|
•
|
prepay subordinated debt or make certain investments;
|
|
•
|
engage in transactions with affiliates;
|
|
•
|
consolidate, merge or transfer all or substantially all of PCHI’s assets;
|
|
•
|
create liens; and
|
|
•
|
transfer or sell certain assets.
|
Twelve-month period beginning on August 1,
|
Percentage
|
|
||
2021
|
103.313
|
% | ||
2022
|
101.656
|
% | ||
2023 and thereafter
|
100.000
|
% |
|
Long-Term
Debt
|
|
Finance
Lease
Obligations
|
|
Totals
|
|
||||||
2020
|
$
|
70,462
|
$
|
1,062
|
$ |
71,524
|
||||||
2021
|
12,266
|
1,431
|
13,697
|
|||||||||
2022
|
641,237
|
1,259
|
642,496
|
|||||||||
2023
|
350,000
|
390
|
350,390
|
|||||||||
2024
|
—
|
521
|
521
|
|||||||||
Thereafter
|
500,000
|
10,327
|
510,327
|
|||||||||
Long-term obligations
|
$ |
1,573,965
|
$ |
14,990
|
$ |
1,588,955
|
||||||
Common Shares Outstanding at December 31, 2016
|
119,515,894
|
|||
Treasury stock purchases
|
(23,379,567
|
) | ||
Exercise of stock options
|
243,775
|
|||
Common Shares Outstanding at December 31, 2017
|
96,380,102
|
|||
Issuance of restricted shares
|
589,736
|
|||
Treasury stock purchases
|
(3,785,658
|
) | ||
Issuance of shares to directors
|
13,249
|
|||
Exercise of stock options
|
425,505
|
|||
Common Shares Outstanding at December 31, 2018
|
93,622,934
|
|||
Issuance of restricted stock and restricted stock units
|
564,729
|
|||
Treasury stock purchases
|
(15,679
|
) | ||
Vesting of restricted stock and restricted stock units
|
74,292
|
|||
Exercise of stock options
|
215,300
|
|||
Common Shares Outstanding at December 31, 2019
|
94,461,576
|
|||
|
Fiscal Year Ended December 31,
|
|||||||||||
|
2019
|
|
|
2018
|
|
2017
|
|
|||||
Other expense, net consists of the following:
|
|
|
|
|
||||||||
Undistributed (income) in equity method investments
|
$
|
(472
|
)
|
|
$ |
(369
|
) | $ |
(194
|
) | ||
Foreign currency losses
|
421
|
|
24
|
466
|
||||||||
Debt refinancings (see Note
12
)
|
36
|
|
6,237
|
—
|
||||||||
Corporate development expenses
|
2,472
|
|
4,387
|
2,660
|
||||||||
(Gain) on sale of Canada retail assets
|
|
|
(2,873
|
) |
|
|
—
|
|
|
|
—
|
|
Sale of ownership interest in Punchbowl (see Note 21)
|
|
|
2,169
|
|
|
|
—
|
|
|
|
—
|
|
Other, net
|
118
|
|
703
|
1,694
|
||||||||
|
||||||||||||
Other expense
,
net
|
$ |
1,871
|
|
$ |
10,982
|
$ |
4,626
|
|||||
Expected dividend rate
|
—%
|
|||
Risk-free interest rate
|
1.88% to 2.44%
|
|||
Volatility
|
29.06% to 30.78%
|
|||
Expected option term
|
6 years—6.5 years
|
Expected dividend rate
|
—%
|
|||
Risk-free interest rate
|
1.86%
|
|||
Volatility
|
52.00%
|
|||
Expected option term
|
5 years
|
|
Options
|
|
Average
Exercise
Price
|
|
Average Fair
Value of
Time-Based
Options at
Grant Date
|
|
Aggregate
Intrinsic
Value
|
|
Weighted
Average
Remaining
Contractual
Term
(Years)
|
|
||||||||||
Outstanding at December 31, 2016
|
8,461,826
|
|
|
|
|
|||||||||||||||
Granted
|
101,444
|
$ |
14.38
|
4.46
|
|
|
||||||||||||||
Exercised
|
(243,775
|
) |
5.33
|
|
|
|
||||||||||||||
Forfeited
|
(294,734
|
) |
9.47
|
|
|
|
||||||||||||||
Outstanding at December 31, 2017
|
8,024,761
|
8.89
|
|
40,634
|
6.0
|
|||||||||||||||
Granted
|
187,080
|
14.63
|
4.98
|
|
|
|||||||||||||||
Exercised
|
(425,505
|
) |
5.33
|
|
|
|
||||||||||||||
Forfeited
|
(859,162
|
) |
7.84
|
|
|
|
||||||||||||||
Outstanding at December 31, 2018
|
6,927,174
|
9.39
|
|
4,089
|
5.2
|
|||||||||||||||
Granted
|
337,000
|
6.43
|
2.16
|
|
|
|||||||||||||||
Exercised
|
(215,300
|
) |
5.33
|
|
|
|
||||||||||||||
Forfeited
|
(730,157
|
) |
13.00
|
|
|
|
||||||||||||||
Outstanding at December 31, 2019
|
6,318,717
|
8.95
|
|
(41,784
|
) |
4.4
|
||||||||||||||
Exercisable at December 31, 2019
|
2,650,034
|
11.64
|
|
(24,642
|
) |
4.5
|
||||||||||||||
Expected to vest at December 31, 2019 (excluding performance-based options)
|
860,284
|
$ |
12.50
|
|
$ |
(8,743
|
) |
7.6
|
|
Fiscal Year Ended December 31,
|
|||||||||||
|
2019
|
|
2018
|
|
2017
|
|
||||||
Domestic
|
$ |
(572,287
|
) | $ |
132,482
|
$ |
153,280
|
|||||
Foreign
|
38,124
|
29,115
|
34,864
|
|||||||||
Total
|
$ |
(534,163
|
) | $ |
161,597
|
$ |
188,144
|
|||||
|
Fiscal Year Ended December 31,
|
|||||||||||
|
2019
|
|
2018
|
|
2017
|
|
||||||
Current:
|
|
|
|
|||||||||
Federal
|
$ |
28,908
|
$ |
20,609
|
$ |
61,890
|
||||||
State
|
4,613
|
5,726
|
6,267
|
|||||||||
Foreign
|
12,540
|
7,870
|
7,298
|
|||||||||
Total current expense
|
46,061
|
34,205
|
75,455
|
|||||||||
Deferred:
|
|
|
|
|||||||||
Federal
|
(37,166
|
) |
6,194
|
(101,774
|
) | |||||||
State
|
(11,207
|
) |
(880
|
) |
(796
|
) | ||||||
Foreign
|
1,007
|
(741
|
) |
(81
|
) | |||||||
Total deferred (benefit)
expense
|
(47,366
|
) |
4,573
|
(102,651
|
) | |||||||
Income tax (benefit)
expense
|
$ |
(1,305
|
) | $ |
38,778
|
$ |
(27,196
|
) | ||||
|
December 31,
|
|||||||
|
2019
|
|
2018
|
|
||||
Deferred income tax assets:
|
|
|
||||||
Inventory reserves and capitalization
|
$ |
8,659
|
$ |
8,664
|
||||
Allowance for doubtful accounts
|
1,194
|
709
|
||||||
Accrued liabilities
|
8,391
|
7,087
|
||||||
Equity based compensation
|
3,998
|
3,431
|
||||||
Federal tax loss carryforwards
|
525
|
743
|
||||||
State tax loss carryforwards
|
2,703
|
1,554
|
||||||
Foreign tax loss carryforwards
|
15,874
|
14,034
|
||||||
Foreign tax credit carryforwards
|
5,397
|
5,397
|
||||||
Deferred rent and lease incentives
(1)
|
—
|
13,565
|
||||||
Section 163(j) Interest Limitation
|
9,134
|
1,625
|
||||||
Lease Liabilities
|
224,966
|
—
|
||||||
Other
|
2,231
|
1,808
|
||||||
Deferred income tax assets before valuation allowances
|
283,072
|
58,617
|
||||||
Less: valuation allowances
|
(24,623
|
) |
(21,879
|
) | ||||
Deferred income tax assets, net
|
$
|
258,449
|
$ |
36,738
|
||||
Deferred income tax liabilities:
|
|
|
||||||
Depreciation
|
$ |
21,211
|
$ |
23,720
|
||||
Trade Name
|
135,751
|
145,767
|
||||||
Amortization of goodwill and other assets
|
16,111
|
38,712
|
||||||
Foreign earnings expected to be repatriated
|
1,177
|
1,132
|
||||||
Lease Right of Use Assets
|
208,772
|
—
|
||||||
Other
|
1,488
|
826
|
||||||
Deferred income tax liabilities
|
$ |
384,510
|
$ |
210,157
|
||||
(1) | In accordance with ASC 842, deferred rent and lease incentives are part of the Lease Right of Use Assets as of 2019. |
|
Fiscal Year Ended December 31,
|
|||||||||||
|
2019
|
|
2018
|
|
2017
|
|
||||||
Tax provision at U.S. statutory income tax rate
|
21.0
|
% |
21.0
|
% |
35.0
|
% | ||||||
State income tax, net of federal income tax
|
1.0
|
2.4
|
1.9
|
|||||||||
Domestic production activities deduction
|
—
|
—
|
(1.4
|
) | ||||||||
Valuation allowances
|
(0.4
|
) |
0.6
|
2.1
|
||||||||
GILTI and Foreign-Derived Intangible Income
|
(0.6
|
) |
1.1
|
—
|
||||||||
Foreign earnings
|
(1.5
|
) |
0.2
|
(1.7
|
) | |||||||
U.S.—foreign rate differential
|
(0.6
|
) |
0.4
|
(1.9
|
) | |||||||
Transition Tax on unremitted foreign earnings, net
|
—
|
0.1
|
0.6
|
|||||||||
Effect of the Act on Federal deferred income tax assets and liabilities
|
—
|
(1.3
|
) |
(48.4
|
) | |||||||
Goodwill Impairment
|
|
|
(17.9
|
)
|
|
|
—
|
|
|
|
— |
|
Other
|
(0.8
|
) |
(0.5
|
) |
(0.7
|
) | ||||||
Effective income tax rat
e
|
0.2
|
% |
24.0
|
% |
(14.5
|
)% | ||||||
|
Fiscal Year Ended December 31,
|
|||||||||||
|
2019
|
|
2018
|
|
2017
|
|
||||||
Balance at beginning of year
|
$ |
1,320
|
$ |
855
|
$ |
913
|
||||||
Increases related to current period tax positions
|
652
|
40
|
100
|
|||||||||
Increases (decreases) related to prior period tax positions
|
3,030
|
495
|
(158
|
) | ||||||||
Decreases related to settlements
|
—
|
—
|
—
|
|||||||||
Decreases related to lapsing of statutes of limitations
|
(111
|
) |
(70
|
) |
—
|
|||||||
Balance at end of year
|
$ |
4,891
|
$ |
1,320
|
$ |
855
|
||||||
|
Future
Royalty
Payments
|
|
||
2020
|
$ |
35,525
|
||
2021
|
10,393
|
|||
2022
|
5,820
|
|||
Thereafter
|
—
|
|||
|
$ |
51,738
|
||
|
Wholesale
|
|
Retail
|
|
Consolidated
|
|
||||||
Year Ended December 31, 2019
|
|
|
|
|
|
|
|
|
|
|||
Revenues:
|
|
|
|
|||||||||
Net sales
|
$ |
1,240,026
|
$ |
1,742,136
|
$ |
2,982,162
|
||||||
Royalties and franchise fees
|
—
|
9,279
|
9,279
|
|||||||||
Total revenues
|
1,240,026
|
1,751,415
|
2,991,441
|
|||||||||
Eliminations
|
(642,652
|
) |
—
|
(642,652
|
) | |||||||
Net revenues
|
$ |
597,374
|
$ |
1,751,415
|
$ |
2,348,789
|
||||||
Income
(
from operations
loss
)
|
$ |
4,152
|
$ |
(421,545
|
) | $ |
(417,393
|
) | ||||
Interest expense, net
|
|
|
114,899
|
|||||||||
Other expense, net
|
|
|
1,871
|
|||||||||
Loss
before income taxes
|
|
|
$ |
(534,163
|
) | |||||||
Depreciation and amortization
|
$ |
27,845
|
$ |
53,271
|
$ |
81,116
|
||||||
Capital expenditures
|
$ |
29,480
|
$ |
32,253
|
$ |
61,733
|
||||||
Total assets
|
$ |
1,912,522
|
$ |
1,682,797
|
$ |
3,595,319
|
||||||
|
Wholesale
|
|
Retail
|
|
Consolidated
|
|
||||||
Year Ended December 31, 2018
|
|
|
|
|
|
|
|
|
|
|||
Revenues:
|
|
|
|
|||||||||
Net sales
|
$ |
1,325,490
|
$ |
1,802,834
|
$ |
3,128,324
|
||||||
Royalties and franchise fees
|
—
|
11,073
|
11,073
|
|||||||||
Total revenues
|
1,325,490
|
1,813,907
|
3,139,397
|
|||||||||
Eliminations
|
(711,882
|
) |
—
|
(711,882
|
) | |||||||
Net revenues
|
$ |
613,608
|
$ |
1,813,907
|
$ |
2,427,515
|
||||||
Income from operations
|
$ |
45,180
|
$ |
233,105
|
$ |
278,285
|
||||||
Interest expense, net
|
|
|
105,706
|
|||||||||
Other expense, net
|
|
|
10,982
|
|||||||||
Income before income taxes
|
|
|
$ |
161,597
|
||||||||
Depreciation and amortization
|
$ |
28,368
|
$ |
50,207
|
$ |
78,575
|
||||||
Capital expenditures
|
$ |
33,890
|
$ |
51,771
|
$ |
85,661
|
||||||
Total assets
|
$ |
1,346,856
|
$ |
2,295,491
|
$ |
3,642,347
|
||||||
|
Wholesale
|
|
Retail
|
|
Consolidated
|
|
||||||
Year Ended December 31, 2017
|
|
|
|
|
|
|
|
|
|
|||
Revenues:
|
|
|
|
|||||||||
Net sales
|
$ |
1,260,089
|
$ |
1,728,589
|
$ |
2,988,678
|
||||||
Royalties and franchise fees
|
—
|
13,583
|
13,583
|
|||||||||
Total revenues
|
1,260,089
|
1,742,172
|
3,002,261
|
|||||||||
Eliminations
|
(630,692
|
) |
—
|
(630,692
|
) | |||||||
Net revenues
|
$ |
629,397
|
$ |
1,742,172
|
$ |
2,371,569
|
||||||
Income from operations
|
$ |
68,130
|
$ |
212,006
|
$ |
280,136
|
||||||
Interest expense, net
|
|
|
87,366
|
|||||||||
Other income, net
|
|
|
4,626
|
|||||||||
Income before income taxes
|
|
|
$ |
188,144
|
||||||||
Depreciation and amortization
|
$ |
30,520
|
$ |
54,648
|
$ |
85,168
|
||||||
Capital expenditures
|
$ |
32,490
|
$ |
34,480
|
$ |
66,970
|
||||||
|
Domestic
|
|
Foreign
|
|
Eliminations
|
|
Consolidated
|
|||||||||
Year Ended December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Revenues:
|
|
|
|
|
||||||||||||
Net sales to unaffiliated customers
|
$
|
1,968,319
|
$
|
371,191
|
$ |
—
|
$ |
2,339,510
|
||||||||
Net sales between geographic areas
|
57,117
|
86,811
|
(143,928
|
)
|
—
|
|||||||||||
Net sales
|
2,025,436
|
458,002
|
(143,928
|
)
|
2,339,510
|
|||||||||||
Royalties and franchise fees
|
9,279
|
—
|
—
|
9,279
|
||||||||||||
Total revenues
|
$ |
2,034,715
|
$
|
458,002
|
$
|
(143,928
|
)
|
$
|
2,348,789
|
|||||||
(
from operations
L
oss
|
$
|
(412,225
|
)
|
$
|
(5,168
|
)
|
$ |
—
|
$ |
(417,393
|
)
|
|||||
Interest expense, net
|
|
|
|
114,899
|
||||||||||||
Other expense, net
|
|
|
|
1,871
|
||||||||||||
(
Loss
)
|
|
|
|
$ |
(534,163
|
) | ||||||||||
Depreciation and amortization
|
$
|
72,701
|
$
|
8,415
|
|
$ |
81,116
|
|||||||||
Total long-lived assets (excluding goodwill, trade names and other intangible assets, net)
|
$
|
224,692
|
$
|
26,156
|
|
$ |
250,848
|
|||||||||
Total assets
|
$
|
3,317,305
|
$
|
278,014
|
$ |
—
|
$ |
3,595,319
|
||||||||
|
Domestic
|
|
Foreign
|
|
Eliminations
|
|
Consolidated
|
|
||||||||
Year Ended December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revenues:
|
|
|
|
|
||||||||||||
Net sales to unaffiliated customers
|
$ |
2,015,899
|
$ |
400,543
|
$ |
—
|
$ |
2,416,442
|
||||||||
Net sales between geographic areas
|
65,416
|
110,185
|
(175,601
|
) |
—
|
|||||||||||
Net sales
|
2,081,315
|
510,728
|
(175,601
|
) |
2,416,442
|
|||||||||||
Royalties and franchise fees
|
11,073
|
—
|
—
|
11,073
|
||||||||||||
Total revenues
|
$ |
2,092,388
|
$ |
510,728
|
$ |
(175,601
|
) | $ |
2,427,515
|
|||||||
Income from operations
|
$ |
264,440
|
$ |
13,845
|
$ |
—
|
$ |
278,285
|
||||||||
Interest expense, net
|
|
|
|
105,706
|
||||||||||||
Other expense, net
|
|
|
|
10,982
|
||||||||||||
Income before income taxes
|
|
|
|
$ |
161,597
|
|||||||||||
Depreciation and amortization
|
$ |
70,011
|
$ |
8,564
|
|
$ |
78,575
|
|||||||||
Total long-lived assets (excluding goodwill, trade names and other intangible assets, net)
|
$ |
292,632
|
$ |
40,735
|
|
$ |
333,367
|
|||||||||
Total assets
|
$ |
3,339,155
|
$ |
303,192
|
$ |
—
|
$ |
3,642,347
|
||||||||
|
Domestic
|
|
Foreign
|
|
Eliminations
|
|
Consolidated
|
|
||||||||
Year Ended December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revenues:
|
|
|
|
|
||||||||||||
Net sales to unaffiliated customers
|
$ |
1,962,697
|
$ |
395,289
|
$ |
—
|
$ |
2,357,986
|
||||||||
Net sales between geographic areas
|
54,268
|
64,585
|
(118,853
|
) |
—
|
|||||||||||
Net sales
|
2,016,965
|
459,874
|
(118,853
|
) |
2,357,986
|
|||||||||||
Royalties and franchise fees
|
13,583
|
—
|
—
|
13,583
|
||||||||||||
Total revenues
|
$ |
2,030,548
|
$ |
459,874
|
$ |
(118,853
|
) | $ |
2,371,569
|
|||||||
Income from operations
|
$ |
252,270
|
$ |
27,866
|
$ |
—
|
$ |
280,136
|
||||||||
Interest expense, net
|
|
|
|
87,366
|
||||||||||||
Other income, net
|
|
|
|
4,626
|
||||||||||||
Income before income taxes
|
|
|
|
$ |
188,144
|
|||||||||||
Depreciation and amortization
|
$ |
76,970
|
$ |
8,198
|
|
$ |
85,168
|
|||||||||
For the Three Months Ended,
|
||||||||||||||||
2019:
|
March 31,
|
|
June 30,
|
|
September 30,
|
|
December 31,
|
|
||||||||
Revenues:
|
|
|
|
|
||||||||||||
Net sales
|
$ |
511,102
|
$ |
561,702
|
$ |
538,345
|
$ |
728,361
|
||||||||
Royalties and franchise fees
|
2,014
|
2,189
|
1,886
|
3,190
|
||||||||||||
Gross profit
|
172,060
|
208,646
|
164,932
|
293,239
|
||||||||||||
(Loss) income from operations
|
(10,297
|
) |
97,485
|
(277,526
|
) |
(227,055
|
) | |||||||||
Net
(
l
|
(30,289
|
) |
48,005
|
(281,745
|
) |
(268,829
|
) | |||||||||
Net (loss) income attributable to common shareholders of Party City Holdco Inc.
|
(30,218
|
) |
48,074
|
(281,533
|
) |
(268,818
|
) | |||||||||
Net (loss) income per share attributable to common shareholders of Party City Holdco Inc.—Basic
|
$ |
(0.32
|
) | $ |
0.52
|
$ |
(3.02
|
) | $ |
(2.88
|
) | |||||
Net (loss) income per share attributable to common shareholders of Party City Holdco Inc.—Diluted
|
$ |
(0.32
|
) | $ |
0.51
|
$ |
(3.02
|
) | $ |
(2.88
|
) |
|
For the Three Months Ended,
|
|||||||||||||||
2018:
|
March 31,
|
|
June 30,
|
|
September 30,
|
|
December 31,
|
|
||||||||
Revenues:
|
|
|
|
|
||||||||||||
Net sales
|
$ |
505,108
|
$ |
558,101
|
$ |
550,840
|
$ |
802,393
|
||||||||
Royalties and franchise fees
|
2,716
|
2,910
|
2,206
|
3,241
|
||||||||||||
Gross profit
|
188,142
|
228,624
|
201,199
|
363,119
|
||||||||||||
Income from operations
|
22,256
|
65,451
|
31,738
|
158,840
|
||||||||||||
Net (loss) income
|
(1,163
|
) |
28,048
|
(2,440
|
) |
98,374
|
||||||||||
Net (loss) income attributable to common shareholders of Party City Holdco Inc.
|
(1,133
|
) |
28,487
|
(2,420
|
) |
98,325
|
||||||||||
Net (loss) income per share attributable to common
shareholders
of Party City Holdco Inc.—Basic
|
$ |
(0.01
|
) | $ |
0.30
|
$ |
(0.03
|
) | $ |
1.03
|
||||||
Net (loss) income per share attributable to common shareholders of Party City Holdco Inc.—Diluted
|
$ |
(0.01
|
) | $ |
0.29
|
$ |
(0.03
|
) | $ |
1.02
|
•
|
Level 1—Quoted prices in active markets for identical assets or liabilities.
|
|
•
|
Level 2—Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
|
|
•
|
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total as of
December 31,
2018
|
|
||||||||
Derivative assets
|
$ |
—
|
$ |
115
|
$ |
—
|
$ |
115
|
||||||||
Punchbowl put liability
|
—
|
—
|
316
|
316
|
|
Carrying Amount
|
|
Fair Value
|
|
||||
Term Loan Credit Agreement
|
$ |
724,881
|
$ |
668,703
|
||||
6.125% Senior Notes—due 2023
|
347,015
|
348,250
|
||||||
6.625% Senior Notes—due 2026
|
494,910
|
366,250
|
|
Derivative Assets
|
Derivative Liabilities
|
||||||||||||||||||||||||||||||
|
December 31,
2019 |
December 31,
2018 |
December 31,
2019 |
December 31,
2018 |
||||||||||||||||||||||||||||
|
Balance
Sheet
Line
|
|
Fair
Value
|
|
Balance
Sheet
Line
|
|
Fair
Value
|
|
Balance
Sheet
Line
|
|
Fair
Value
|
|
Balance
Sheet
Line
|
|
Fair
Value
|
|
||||||||||||||||
Foreign Exchange Contracts
|
(a) PP
|
$ |
—
|
(a) PP
|
$ |
115
|
(b) AE
|
$ |
—
|
(b) AE
|
$ |
—
|
||||||||||||||||||||
(a)
|
PP = Prepaid expenses and other current assets
|
(b)
|
AE = Accrued expenses
|
Derivative Instrument
|
December 31,
2019
|
|
December 31,
2018
|
|
||||
Foreign Exchange Contracts
|
$ |
300
|
$ |
10,942
|
Year Ended December 31, 2019
|
||||||||||||
Foreign
Currency Adjustments |
|
Impact of
Foreign Exchange Contracts, Net of
Taxes
|
|
Total,
of Taxes
|
|
|||||||
Balance at December 31, 2018
|
$ |
(50,056
|
) | $ |
855
|
$ |
(49,201
|
) | ||||
Other comprehensive income before reclassifications, net of income tax
|
5,725
|
106
|
5,831
|
|||||||||
Amounts reclassified from accumulated other comprehensive loss to the consolidated statement of operations and comprehensive income, net of income tax
|
6,897
|
739
|
7,636
|
|||||||||
Net current-period other comprehensive
income
|
12,622
|
845
|
13,467
|
|||||||||
Balance at December 31, 2019
|
$ |
(37,434
|
) | $ |
1,700
|
$ |
(35,734
|
) | ||||
Year Ended December 31, 2018
|
||||||||||||
Foreign
Currency
Adjustments
|
|
Impact of
Foreign
Exchange
Contracts,
Net of
Taxes
|
|
Total,
of Taxes
|
|
|||||||
Balance at December 31, 2017
|
$ |
(35,610
|
) | $ |
(208
|
) | $ |
(35,818
|
) | |||
Other comprehensive
(
income before reclassifications, net of income tax
loss
)
|
(14,446
|
) |
1,432
|
(13,014
|
) | |||||||
Amounts reclassified from accumulated other comprehensive loss to the consolidated statement of operations and comprehensive income, net of income tax
|
—
|
(369
|
) |
(369
|
) | |||||||
Net current-period other comprehensive
(
income
loss
)
|
(14,446
|
) |
1,063
|
(13,383
|
) | |||||||
Balance at December 31, 2018
|
$ |
(50,056
|
) | $ |
855
|
$ |
(49,201
|
) | ||||
|
Year Ended December 31, 2017
|
|||||||||||
|
Foreign
Currency
Adjustments
|
|
Impact of
Foreign
Exchange
Contracts,
Net of
Taxes
|
|
Total, Net
of Taxes
|
|
||||||
Balance at December 31, 2016
|
$ |
(53,171
|
) | $ |
932
|
$ |
(52,239
|
) | ||||
Other comprehensive
income
(loss) before reclassifications, net of income tax
|
17,561
|
(1,044
|
) |
16,517
|
||||||||
Amounts reclassified from accumulated other comprehensive loss to the consolidated statement of operations and comprehensive income, net of income tax
|
—
|
(96
|
) |
(96
|
) | |||||||
Net current-period other comprehensive income
(loss)
|
17,561
|
(1,140
|
) |
16,421
|
||||||||
Balance at December 31, 2017
|
$ |
(35,610
|
) | $ |
(208
|
) | $ |
(35,818
|
) | |||
Fiscal Year Ended December 31,
|
||||||||||||
2019
|
|
2018
|
|
2017
|
|
|||||||
Retail Net Sales:
|
|
|
|
|||||||||
Party City Stores
|
$ |
1,529,043
|
$ |
1,583,134
|
$ |
1,521,661
|
||||||
Global
E-commerce
|
162,490
|
154,481
|
152,465
|
|||||||||
Temporary Stores
|
50,603
|
65,219
|
54,463
|
|||||||||
Total Retail Net Sales
|
$ |
1,742,136
|
$ |
1,802,834
|
$ |
1,728,589
|
||||||
Royalties and Franchise Fees
|
9,279
|
11,073
|
13,583
|
|||||||||
Total Retail Revenue
|
$ |
1,751,415
|
$ |
1,813,907
|
$ |
1,742,172
|
||||||
Wholesale Net Sales:
|
|
|
|
|||||||||
Domestic
|
$ |
310,042
|
$ |
328,056
|
$ |
351,109
|
||||||
International
|
287,332
|
285,552
|
278,288
|
|||||||||
Total Wholesale Net Sales
|
$ |
597,374
|
$ |
613,608
|
$ |
629,397
|
||||||
Total Consolidated Revenue
|
$ |
2,348,789
|
$ |
2,427,515
|
$ |
2,371,569
|
||||||
|
Future Minimum
Operating Lease
Payments
|
|
||
2020
|
$
|
197,480
|
||
2021
|
181,970
|
|||
2022
|
162,352
|
|||
2023
|
134,131
|
|||
2024
|
106,078
|
|||
Thereafter
|
367,639
|
|||
Total Undiscounted Cash Flows
|
1,149,650
|
|||
Less: Interest
|
|
|
(273,444
|
)
|
|
|
|
|
|
Total Operating Lease Liability
|
|
|
876,206
|
|
Less: Current Operating Lease Liability
|
|
|
(155,471
|
)
|
|
|
|
|
|
Long-Term Operating Lease Liability
|
|
$
|
720,735
|
|
|
|
|
|
|
Fiscal Year Ended December 31,
|
|||||||||||
|
2019
|
|
2018
|
|
2017
|
|
||||||
Equity in net income of subsidiaries
|
$ |
(532,495
|
) | $ |
122,850
|
$ |
215,340
|
|||||
Net income
|
$ |
(532,495
|
) | $ |
122,850
|
$ |
215,340
|
|||||
Add: Net income attributable to redeemable securities holder
|
—
|
409
|
—
|
|||||||||
Net income attributable to common shareholders of Party City Holdco Inc.
|
$ |
(532,495
|
) | $ |
123,259
|
$ |
215,340
|
|||||
Other comprehensive (loss) income, net
|
13,467
|
(13,383
|
) |
16,421
|
||||||||
Comprehensive income
|
(519,028
|
) |
109,467
|
231,761
|
||||||||
Comprehensive income attributable to redeemable securities holder
|
—
|
409
|
—
|
|||||||||
Comprehensive income attributable to common shareholders of Party City Holdco Inc.
|
$ |
(519,028
|
) | $ |
109,876
|
$ |
231,761
|
|||||
|
Fiscal Year Ended December 31,
|
|||||||||||
|
2019
|
|
2018
|
|
2017
|
|
||||||
Cash flows provided by (used in) operating activities:
|
|
|
|
|||||||||
Net income
|
$ |
(532,495
|
) | $ |
122,850
|
$ |
215,340
|
|||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
|
|
|
|
|||||||||
Equity in net income of subsidiaries
|
532,495
|
(122,850
|
) |
(215,340
|
) | |||||||
Change in due to/from affiliates
|
(989
|
) |
37,928
|
285,435
|
||||||||
Net cash (used in) provided by operating activities
|
(989
|
) |
37,928
|
285,435
|
||||||||
Cash flows (used in) provided by financing activities:
|
|
|
|
|||||||||
Treasury stock purchases
|
(156
|
) |
(40,197
|
) |
(286,733
|
) | ||||||
Exercise of stock options
|
1,145
|
2,269
|
1,298
|
|||||||||
Net cash provided by (used in) financing activities
|
989
|
(37,928
|
) |
(285,435
|
) | |||||||
Net change in cash and cash equivalents
|
—
|
—
|
—
|
|||||||||
Cash and cash equivalents at beginning of period
|
—
|
—
|
—
|
|||||||||
Cash and cash equivalents at end of period
|
$ |
—
|
$ |
—
|
$ |
—
|
||||||
|
Beginning
Balance
|
|
Write-Offs
|
|
Additions
|
|
Ending
Balance
|
|
||||||||
Allowance for Doubtful Accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
For the year ended December 31, 2017
|
$ |
2,683
|
$ |
272
|
$ |
560
|
$ |
2,971
|
||||||||
For the year ended December 31, 2018
|
2,971
|
1,251
|
1,213
|
2,933
|
||||||||||||
For the year ended December 31, 2019
|
2,933
|
470
|
2,323
|
4,786
|
||||||||||||
Sales Returns and Allowances:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
For the year ended December 31, 2017
|
$ |
466
|
$ |
83,865
|
$ |
83,879
|
$ |
480
|
||||||||
For the year ended December 31, 2018
|
480
|
86,727
|
86,988
|
741
|
||||||||||||
For the year ended December 31, 2019
|
741
|
83,474
|
83,409
|
676
|
Item 9.
|
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
|
Item 9A.
|
Controls and Procedures
|
• | pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company; |
• | provide reasonable assurance that transactions are recorded as necessary to permit preparation of the consolidated financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and |
• | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the consolidated financial statements. |
Item 9B.
|
Other Information
|
Item 10.
|
Directors, Executive Officers and Corporate Governance
|
Item 11.
|
Executive Compensation
|
Item 12.
|
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|
Item 13.
|
Certain Relationships and Related Party Transactions and Director Independence
|
Item 14.
|
Principal Accountant Fees and Services
|
Item 15.
|
Exhibits and Financial Statement Schedules
|
1. |
Financial Statements
10-K.
|
2. |
Financial Statement Schedules
10-K
and should be read in conjunction with the financial statements and notes thereto contained in Item 8, “Financial Statements and Supplementary Data.”
|
3.
|
Exhibits
|
Exhibit
Number
|
|
Description
|
||
3.1*
|
||||
3.2
|
||||
4.1
|
||||
4.2
|
||||
4.3
|
||||
4.4
|
||||
4.5
|
||||
4.6
|
Exhibit
Number
|
|
Description
|
||
10.18†
|
||||
10.19†
|
||||
10.20†
|
||||
10.21†
|
||||
10.22†
|
||||
10.23†
|
||||
10.24†
|
||||
10.25
|
||||
10.26
|
||||
10.27†
|
||||
10.28†
|
||||
10.29†
|
Exhibit
Number
|
|
Description
|
||
10.30†*
|
||||
21.1*
|
||||
23.1*
|
||||
31.1*
|
||||
31.2*
|
||||
32.1*
|
||||
32.2*
|
||||
101*
|
Interactive Data Files pursuant to Rule 405 of Regulation
S-T:
(i) the Consolidated Balance Sheets at December 31, 2020 and December 31, 2019; (ii) the Consolidated Statements of Operations and Comprehensive (Loss) Income for the years ended December 31, 2019, 2018 and 2017; (iii) the Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2019, 2018 and 2017; (iv) the Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017; and (v) the Notes to the Consolidated Financial Statements.
|
|||
104.1*
|
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
|
† | Management contract of compensatory plan or arrangement |
* | Filed herewith. |
Item 16.
|
Form
10-K
Summary
|
PARTY CITY HOLDCO INC.
|
||
By:
|
/s/ Todd Vogensen
|
|
|
Todd Vogensen
|
|
|
Chief Financial Officer
|
Signature
|
Title
|
Date
|
||
/s/ James M. Harrison
James M. Harrison
|
Chief Executive Officer and Director
(Principal Executive Officer)
|
March 12, 2020
|
||
/s/ Todd Vogensen
Todd Vogensen
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Chief Financial Officer
(Principal Financial Officer)
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March 12, 2020
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||
/s/ Michael A. Correale
Michael A. Correale
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Chief Accounting Officer
(Principal Accounting Officer)
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March 12, 2020
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||
/s/ Norman S. Matthews
Norman S. Matthews
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Chairman of the Board and Director
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March 12, 2020
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||
/s/ Todd M. Abbrecht
Todd M. Abbrecht
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Director
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March 12, 2020
|
||
/s/ Steven J. Collins
Steven J. Collins
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Director
|
March 12, 2020
|
||
/s/ James G. Conroy
James G. Conroy
|
Director
|
March 12, 2020
|
||
/s/ William S. Creekmuir
William S. Creekmuir
|
Director
|
March 12, 2020
|
||
/s/ John A. Frascotti
John A. Frascotti
|
Director
|
March 12, 2020
|
||
/s/ Lisa K. Klinger
Lisa K. Klinger
|
Director
|
March 12, 2020
|
||
/s/ Michelle Millstone-Shroff
Michelle Millstone-Shroff
|
Director
|
March 12, 2020
|
||
/s/ Morry J. Weiss
Morry J. Weiss
|
Director
|
March 12, 2020
|
Exhibit 3.1
CERTIFICATE OF CORRECTION
OF
SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
PARTY CITY HOLDCO INC.
Pursuant to Section 103(f) of the General Corporation Law of the State of Delaware (the General Corporation Law), Party City Holdco Inc. a Delaware corporation (the Corporation).
DOES HEREBY CERTIFY:
FIRST: A Second Amended and Restated Certificate of Incorporation of Party City Holdco Inc. (the Second Amended and Restated Certificate of Incorporation) was filed with the Secretary of State of the State of Delaware on June 6, 2019, and said Second Amended and Restated Certificate of Incorporation requires correction as permitted by subsection (f) of Section 103 of the General Corporation Law.
SECOND: The inaccuracy or defect of such Second Amended and Restated Certificate of Incorporation is that the Second Amended and Restated Certificate of Incorporation inadvertently did not include a provision limiting the liability of the directors of the Corporation pursuant to Section 102(b)(7) of the General Corporation Law, thereby rendering the Second Amended and Restated Certificate of Incorporation an inaccurate record of the corporate action taken.
THIRD: The Second Amended and Restated Certificate of Incorporation is corrected by inserting the following before the existing Article VI, Section (a) and re-lettering the current provisions in Article VI accordingly;
(a) Limitation of Director Liability. To the fullest extent that the DGCL or any other law of the State of Delaware (as they exist on the date hereof or as they may hereafter be amended) permits the limitation or elimination of the liability of directors, no director of the Corporation shall be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. No amendment to, or modification or repeal of, this Article VI shall adversely affect any right or protection of a director of the Corporation existing hereunder with respect to any state of facts existing or act or omission occurring, or any cause of action, suit or claim that, but for this Article VI, would accrue or arise, prior to such amendment, modification or repeal. If the DGCL is amended after this Amended and Restated Certificate of Incorporation is filed with the Secretary of State of the State of Delaware to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the DGCL, as so amended.
FOURTH: The Second Amended and Restated Certificate of Incorporation in its corrected form is attached hereto in its entirety as Exhibit A.
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IN WITNESS WHEREOF, this Certificate of Correction of the Second Amended and Restated Certificate of Incorporation has been signed by a duly authorized officer of the Corporation on December 17, 2019.
PARTY CITY HOLDCO INC. | ||
By: | /s/ Joseph J. Zepf | |
Name; Joseph J. Zepf | ||
Title: Executive Vice President, General Counsel & Secretary |
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EXHIBIT A
SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
PARTY CITY HOLDCO INC.
Party City Holdco Inc. a Delaware corporation (the Corporation), hereby certifies that this Amended and Restated Certificate of Incorporation has been duly adopted in accordance with Sections 242 and 245 of the General Corporation Law of the State of Delaware (the DGCL) and that:
A. The name of the Corporation is: Party City Holdco Inc.
B. The original Certificate of Incorporation of the Corporation was filed with the Secretary of the State of Delaware on May 31, 2012 under the name PC Topco Holdings, Inc. amended on November 25, 2013 and amended on April 2, 2015 (as amended, the Original Certificate of Incorporation).
C. The Amended and Restated Certificate of incorporation (the Amended and Restated Certificate of Incorporation) was filed on April 21, 2015, which amended and restated the Original Certificate of Incorporation.
D. This Second Amended and Restated Certificate of Incorporation (the Second Amended and Restated Certificate of Incorporation) amends and restates the Amended and Restated Certificate of Incorporation.
E. The Certificate of Incorporation of the Corporation upon the filing of this Second Amended and Restated Certificate of Incorporation, shall read in its entirety as follows:
ARTICLE I
NAME
The name of the corporation is Party City Holdco Inc.
ARTICLE II
REGISTERED OFFICE AND AGENT
The address of the Corporations registered office in the State of Delaware is 251 Little Fails Drive, Wilmington, County of New Castle, Delaware 19808. The name of the Corporations registered agent at such address is Corporation Service Company.
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ARTICLE III
PURPOSE
The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the DGCL.
ARTICLE IV
CAPITALIZATION
(a) Authorized Shares. The total number of shares of stock which the Corporation shall have authority to issue is 315,000,000, consisting of 300,000,000 shares of Common Stock, par value $0.01 per share (Common Stock) and 15,000,000 shares of Preferred Stock, par value $0.01 per share (Preferred Stock).
(b) Common Stock. Subject to the powers, preferences and rights of any Preferred Stock, including any series thereof having any preference or priority over, or rights superior to, the Common Stock and except as otherwise provided by law and this Article IV, the holders of the Common Stock shall have and possess all powers and voting and other rights pertaining to the stock of the Corporation.
(i) Voting. Each Holder of Common Stock shall be entitled to one vote for each share of Common Stock held of record by such holder on all matters on which stockholders generally are entitled to vote; provided that, except as otherwise required by law, holders of Common Stock shall not be entitled to vote on any amendment to this Second Amended and Restated Certificate of Incorporation (including, but not limited to, any certificate of designations relating to any series of Preferred Stock) that relates solely to the terms of one or more outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately or together with the holders of one or more other such series, to vote thereon pursuant to this Second Amended and Restated Certificate of Incorporation (including, but not limited to, any certificate of designations relating to any series of Preferred Stock ) or pursuant to the DGCL. There shall be no cumulative voting.
(ii) Dividends. Dividends may be declared and paid on the Common Stock from funds lawfully available therefor as and when determined by the board of directors of the Corporation (the Board of Directors) and subject to any preferential dividend rights of any then outstanding Preferred Stock. Except as otherwise provided by the DGCL or this Second Amended and Restated Certificate of Incorporation, the holders of record of Common Stock shall share ratably in all dividends payable in cash, stock, or otherwise and other distributions.
(iii) No Preemptive Rights. The holders of the Common Stock shall have no preemptive rights to subscribe for any shares of any class of stock of the Corporation whether now or hereafter authorized.
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(iv) No Conversion Rights. The Common Stock shall not be convertible into, or exchangeable for, shares of any other class or classes or of any other series of the same class of the Corporations capital stock.
(v) Liquidation Rights. Upon the dissolution or liquidation of the Corporation, whether voluntary or involuntary, holders of Common Stock will be entitled to receive all assets of the Corporation available for distribution to its stockholders, subject to any preferential rights of any then outstanding Preferred Stock. A merger or consolidation of the Corporation with or into any other corporation or other entity or a sale or conveyance of all or any part of the assets of the Corporation, in any such case which shall not in fact result in the liquidation of the Corporation and the distribution of assets to its stockholders, shall not be deemed to be a voluntary or involuntary liquidation or dissolution or winding up of the Corporation within the meaning of this Article IV(b)(v).
(c) Preferred Stock. Shares of Preferred Stock may be issued in one or more series, from time to time, with each such series to consist of such number of shares and to have such voting powers relative to other classes or series of Preferred Stock, if any, or Common Stock, full or limited, or no voting powers, and such designations, preferences and relative, participating, optional, or other special rights, and the qualifications, limitations or restrictions thereof, as shall be stated in the resolution or resolutions providing for the issuance of such series adopted by the Board of Directors, and the Board of Directors is hereby expressly vested with the authority, to the full extent now or hereafter provided by applicable law, to adopt any such resolution or resolutions. Except as otherwise provided in this Second Amended and Restated Certificate of Incorporation, no vote of the holders of the Preferred Stock or Common Stock shall be a prerequisite to the designation or issuance of any shares of any series of the Preferred Stock authorized by and complying with the conditions of this Second Amended and Restated Certificate of Incorporation, the right to have such vote being expressly waived by all present and future holders of the capital stock of the Corporation. Any shares of Preferred Stock that are redeemed, purchased, or acquired by the Corporation may be reissued except as otherwise provided by law or this Second Amended and Restated Certificate of Incorporation. Different series of Preferred Stock shall not be construed to constitute different classes of shares for the purposes of voting by classes unless expressly provided in the resolution or resolutions providing for the issue of such series adopted by the Board of Directors.
(d) No Class Vote On Changes in Authorized Number of Shares Of Preferred Stock. Subject to the special rights of the holders of any series of Preferred Stock pursuant to the terms of this Second Amended and Restated Certificate of Incorporation, any certificate of designations or any resolution or resolutions providing for the issuance of such series of stock adopted by the Board of Directors, the number of authorized shares of Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the voting power of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting; together as a single class, irrespective of the provisions of Section 242(b)(2) of the DGCL.
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ARTICLE V
BOARD OF DIRECTORS
(a) Number of Directors; Vacancies and Newly Created Directorships. The number of directors constituting the Board of Directors shall be not fewer than three (3) and not more than fifteen (15), each of whom shall be a natural person. All elections of directors shall be determined by a plurality of the votes cast by stockholders entitled to vote in such elections. The number of directors initially shall be nine (9). Subject to the special rights of the holders of any series of Preferred Stock to elect directors, the precise number of directors shall be fixed exclusively pursuant to a resolution adopted by the Board of Directors. Vacancies and newly-created directorships shall be filled exclusively pursuant to a vote of a majority of the directors then in office, although less than a quorum, or by the sole remaining director, except that any vacancy created by the removal of a director by the stockholders for cause shall only be filled in addition to any other vote otherwise required by law, by vote of a majority of the outstanding shares of Common Stock. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. A director elected to fill a vacancy shall be elected for the unexpired term of his or her predecessor in office, and a director chosen to fill a position resulting from an increase in the number of directors shall hold office until the next election of the directors, subject to the election and qualification of his or her successor and to his or her earlier death, resignation or removal
(b) Term. Subject to the special rights of the holders of any class or series of stock to elect directors, commencing at the annual meeting of stockholders in 2019, each director shall be elected annually for terms expiring at the next annual meeting of stockholders until his or her earlier death, resignation or removal The division of directors into classes shall terminate at the annual meeting of stockholders in 2019, from and after which all directors will stand for election annually.
(c) Removal. Subject to the rights of the holders of any series of Preferred Stock to elect directors, any director of the Corporation may be removed with or without cause by the affirmative vote of the holders of at least seventy-five percent (75%) of the voting power of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, at a meeting of the stockholders called for that purpose. For the purpose of this Article V(c), beneficial ownership shall be determined in accordance with Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended.
ARTICLE VI
LIMITATION OF DIRECTOR LIABILITY INDEMNIFICATION AND
ADVANCEMENT OF EXPENSES
(a) Limitation of Director Liability. To the fullest extent that the DGCL or any other law of the State of Delaware (as they exist on the date hereof or as they may hereafter be amended) permits the limitation or elimination of the liability of directors, no director of the Corporation shall be liable to the Corporation or its stockholders for monetary damages for
6
breach of fiduciary duty as a director. No amendment to, or modification or repeal of this Article VI shall adversely affect any right or protection of a director of the Corporation existing hereunder with respect to any state of facts existing or act or omission occurring, or any cause of action, suit or claim that, but for this Article VI, would accrue or arise, prior to such amendment, modification, or repeal. If the DGCL is amended after this Amended and Restated Certificate of Incorporation is filed with the Secretary of State of the State of Delaware to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the DGCL, as so amended.
(b) Indemnification. The Corporation shall indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any person (an Indemnitee) who was or is made, or is threatened to be made, a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a Proceeding), by reason of the fact that he or she, or a person for whom he or she is the legal representative, is or was a director or an officer of the Corporation or, while a director or an officer of the Corporation, is or was serving at the request of the Corporation as a director, officer, employee, member, trustee or agent of another corporation or of a partnership, joint venture, trust, nonprofit entity or other enterprise (including, but not limited to, service with respect to employee benefit plans) (any such entity, an Other Entity), against all liability and loss suffered (including, but not limited to, expenses (including, but not limited to, attorneys fees and expenses), judgments, fines and amounts paid in settlement actually and reasonably incurred by such Indemnitee in connection with such Proceeding). Notwithstanding the preceding sentence, the Corporation shall be required to indemnify an Indemnitee in connection with a Proceeding (or part thereof) commenced by such Indemnitee only if the commencement of such Proceeding (or part thereof) by the indemnitee was authorized by the Board of Directors or the Proceeding (or part thereof) relates to the enforcement of the Corporations obligations under this Article VI(b).
(c) Advancement of Expenses. The Corporation may to the extent permitted by applicable law pay the expenses (including, but not limited to attorneys fees and expenses) incurred by an Indemnitee in defending any proceeding in advance of its final disposition, provided, however, that, to the extent required by law, such payment of expenses in advance of the final disposition of the proceeding shall be made only upon receipt of an undertaking by the Indemnitee to repay all amounts advanced if it should be ultimately determined that the Indemnitee is not entitled to be indemnified under this Article VI or otherwise.
(d) Claims. If a claim for indemnification (following the final disposition of such proceeding) under this Article VI is not paid in full within sixty days after a written claim therefor by the Indemnitee has been received by the Corporation, the indemnitee may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim to the fullest extent permitted by law. In any such action the Corporation shall have the burden of proving that the Indemnitee is not entitled to the requested indemnification under applicable law.
7
(e) Insurance. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, trustee, employee, member, trustee or agent of the Corporation, or was serving at the request of the Corporation as a director, officer, trustee, employee or agent of an Other Entity, against any liability asserted against the person and incurred by the person in any such capacity, or arising out of his or her status as such, whether or not the Corporation would have the power or the obligation to indemnify such person against such liability under the provisions of this Article VI.
(f) Non-Exclusivity of Rights. The rights conferred on any Indemnitee by this Article VI are not exclusive of other rights arising under any bylaw, agreement, vote of directors or stockholders or otherwise, and shall inure to the benefit of the heirs and legal representatives of such Indemnitee.
(g) Amounts Received from an Other Entity. Subject to Article VI(h), the Corporations obligation, if any, to indemnify any Indemnitee who was or is serving at the Corporations request as a director, officer, employee or agent of an Other Entity shall be reduced, by any amount such. Indemnitee may collect as indemnification or advancement of expenses from such Other Entity.
(h) Indemnification Priority. As between the Corporation and any other person (other than an entity directly or indirectly controlled by the Corporation) who provide indemnification and advancement of expenses to the Indemnitees for their service to or on behalf of the Corporation (collectively, the Secondary Indemnitors) (i) the Corporation shall be the full indemnitor of first resort in respect of indemnification or advancement of expenses in connection with any Jointly Indemnifiable Claims (as defined below), pursuant to and in accordance with the terms of this Article VI, irrespective of any right of indemnification, advancement of expenses or other right of recovery any Indemnitee may have from any Secondary Indemnitor (i.e., the Corporations obligations to such Indemnitees are primary and any obligation, of any Secondary Indemnitor to advance expenses or to provide indemnification for the same loss or liability incurred by such. Indemnitees is secondary to the Corporations obligations), (ii) the Corporation shall be required to advance the full amount of expenses incurred by any such Indemnitee and shall be liable for the full amount of all liability and loss suffered by such Indemnitee (including, but not limited to, expenses (including, but not limited to, attorneys fees and expenses), judgments, fines and amounts paid in settlement actually and reasonably incurred by such Indemnitee in connection with such Proceeding), without regard to any rights any such Indemnitee may have against any Secondary Indemnitor, and (iii) the Corporation irrevocably waives, relinquishes and releases each Secondary Indemnitor from any and all claims against such Secondary Indemnitor for contribution, subrogation or any other recovery of any kind in respect thereof. The Corporation shall indemnify each Secondary Indemnitor directly for any amounts that such Secondary Indemnitor pays as indemnification or advancement on behalf of any such Indemnitee and for which such Indemnitee may be entitled to indemnification from the Corporation in connection with Jointly Indemnifiable Claims. No right of indemnification, advancement of expenses or other right of recovery that an Indemnitee may have from any Secondary Indemnitor shall reduce or otherwise alter the rights of the Indemnitee or the obligations of the Corporation hereunder. No advancement or payment by any Secondary Indemnitor on behalf of any such Indemnitee with respect to any claim for which such Indemnitee has sought indemnification from the Corporation shall affect the foregoing and the Secondary Indemnitors shall be subrogated to the extent of such advancement or payment to all of the rights of recovery of such Indemnitee against the Corporation. Each Indemnitee shall
8
execute all papers reasonably required and shall do all things that may be reasonably necessary to secure the rights of such Indemnitees Secondary indemnitors under this Article VI(h), including the execution of such documents as may be necessary to enable the Secondary Indemnitors effectively to bring suit to enforce such rights, including in the right of the Corporation. Each of the Secondary Indemnitors shall be third-party beneficiaries with respect to this Article VI(h) entitled to enforce this Article VI(h). As used in this Article VI(h) the term Jointly Indemnifiable Claims shall be broadly construed and shall include, without limitation, any action, suit, proceeding or other matter for which an Indemnitee shall be entitled to indemnification or advancement of expenses from both a Secondary Indemnitor and the Corporation, whether pursuant to Delaware law, any agreement or certificate of incorporation, bylaws, partnership agreement, operating agreement, certificate of formation, certificate of limited partnership or comparable organizational documents of the Corporation or the Secondary Indemnitors, as applicable.
(i) Amendment or Repeal. Any right to indemnification of any Indemnitee arising hereunder shall not be eliminated or impaired by an amendment to or repeal of this Article VI after the occurrence of the act or omission that is the subject of the civil, criminal, administrative or investigative action, suit, proceeding or other matter for which indemnification or advancement of expenses is sought.
(j) Other Indemnification and Advancement of Expenses. This Article VI shall not limit the right of the Corporation, to the extent and in the manner permitted by law, to indemnify and to advance expenses to persons other than Indemnitees when and as authorized by appropriate corporate action.
(k) Reliance. Indemnitees who after the date of the adoption of this Article VI become or remain an Indemnitee described in Article VI(b) will be conclusively presumed to have relied on the rights contained in this Article VI in entering into or continuing the service. The rights to indemnification conferred in this Article VI will apply to claims made against any Indemnitee described in Article VI(b) arising out of acts or omissions that occurred or occur either before or after the adoption of this Article VI in respect of service as a director or officer of the corporation or other service described in Article VI(b).
ARTICLE VII
ACTION BY CONSENT; SPECIAL MEETINGS OF STOCKHOLDERS
(a) Action by Written Consent. Except as otherwise provided for or fixed by or pursuant to the provisions of this Second Amended and Restated Certificate of Incorporation or any resolution or resolutions of the Board of Directors providing for the Issuance of Preferred Stock, any action, required or permitted to be taken by the stockholders of the Corporation may be effected only at a duly called annual or special meeting of stockholders of the Corporation and may not be effected by any consent in writing by such stockholders.
(b) Special Meetings of Stockholders. Subject to the rights of the holders of any series of Preferred Stock, and to the requirements of applicable law, special meetings of stockholders of the Corporation may be called only by either (a) the Chairman or Vice Chairman of the Board of Directors or (b) the Board of Directors pursuant to a resolution adopted by a majority of the total number of directors which the Corporation would have if there were no vacancies.
9
(c) Election of Directors by Written Ballot. Election of directors need not be by written ballot.
ARTICLE VIII
AMENDMENTS TO THE SECOND AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION AND BYLAWS
(a) Bylaws. In furtherance and not in limitation of the powers conferred by law, the Board of Directors is expressly authorized to make, alter, amend or repeal the Bylaws of the Corporation subject to the power of the stockholders of the Corporation to alter, amend or repeal the Bylaws, provided, that with respect to the powers of stockholders to make, alter, amend or repeal the Bylaws, in addition to any other vote otherwise required by law, the affirmative vote of the holders of at least; sixty-six and two-thirds percent (662⁄3%) of the voting power of the outstanding shares of capital stock of the Corporation, entitled to vote on the subject matter shall be required to make, alter amend or repeal the Bylaws of the Corporation.
(b) Amendments to the Second Amended and Restated Certificate of Incorporation. Notwithstanding any other provision of this Second Amended and Restated Certificate of Incorporation, and notwithstanding that a lesser percentage may be permitted from time to time by applicable law, no provision of this Second Amended and Restated Certificate of Incorporation may be altered, amended or repealed in any respect, nor may any provision or bylaw inconsistent therewith be adopted, unless in addition to any other vote required by this Second Amended and Restated Certificate of Incorporation or otherwise required by law, such alteration, amendment, repeal or adoption is approved by, in addition to any other vote otherwise required by law, the affirmative vote of the holders of at least sixty-six and two-thirds percent (662⁄3%) of the voting power of the outstanding shares of capital stock entitled to vote on the subject matter.
ARTICLE IX
BUSINESS COMBINATIONS
(a) Section 203 of the DGCL. The Corporation hereby expressly elects not to be governed by Section 203 of the DGCL.
(b) Interested Stockholder Transactions. Notwithstanding any other provision in this Second Amended and Restated Certificate of Incorporation to the contrary, the Corporation shall not engage in any Business Combination (as defined below) with any Interested Stockholder (as defined hereinafter) for a period of three years following the time that such stockholder became an Interested Stockholder, unless:
1) |
prior to such time the Board, of Directors approved either the Business Combination or the transaction which resulted in such stockholder becoming an Interested Stockholder; |
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2) |
upon consummation of the transaction which resulted in such stockholder becoming an Interested Stockholder, such stockholder owned at least eighty-five percent (85%) of the Voting Stock (as defined below) of the Corporation outstanding at the time the transaction commenced, excluding for purposes of determining the Voting Stock outstanding (but not the outstanding Voting Stock owned by such stockholder) those shares owned (i) by Persons (as defined below) who are directors and also officers of the Corporation and (ii) employee stock plans of the Corporation in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or |
3) |
at or subsequent to such time the Business Combination is approved by the Board of Directors and authorized at an annual or special meeting of stockholders by the affirmative vote of at least sixty-six and two-thirds percent (662⁄3%) of the outstanding Voting Stock which is not owned by such stockholder. |
(c) Exceptions to Prohibition on Interested Stockholder Transactions. The restrictions contained in this Article IX shall not apply if;
1) |
A stockholder becomes an Interested Stockholder inadvertently and (i) as soon as practicable divests itself of ownership of sufficient shares so that the stockholder ceases to be an Interested Stockholder; and (ii) would not, at any time within the three-year period, immediately prior to a Business Combination between the Corporation and such stockholder, have been an Interested Stockholder but for the inadvertent acquisition of ownership; or |
2) |
the Business Combination is proposed prior to the consummation or abandonment of and subsequent to the earlier of the public announcement or the notice required hereunder of a proposed transaction, which (i) constitutes one of the transactions described in the second sentence of this Article IX(c)(2); (ii) is with or by a Person who either was not an Interested Stockholder during the previous three years or who became an Interested Stockholder with the approval of the Board of Directors; and (iii) is approved or not opposed by a majority of the directors then in office (but not less than one) who were directors prior to any Person becoming an Interested Stockholder during the previous three years or were recommended for election or elected to succeed such directors by a majority of such directors. The proposed transactions referred to in the preceding sentence are limited to (x) a merger or consolidation of the Corporation (except for a merger in respect of which, pursuant to §251(f) of the DGCL, no vote of the stockholders of the Corporation is required); |
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(y) a sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions), whether as part of a dissolution or otherwise, of assets of the Corporation, or of any direct or indirect majority-owned subsidiary of the Corporation (other than to any direct or indirect wholly-owned subsidiary or to the Corporation ) having an aggregate market value equal to fifty percent (50%) or more of either that aggregate market value of all of the assets of the Corporation determined on a consolidated basis or the aggregate market value of all the outstanding Stock (as defined hereinafter) of the Corporation; or (z) a proposed tender or exchange offer for fifty percent (50%) or more of the outstanding Voting Stock of the Corporation. The Corporation shall give not less than 20 days notice to all Interested Stockholders prior to the consummation of any of the transactions described in clause (x) or (y) of the second sentence of this Article IX(c)(2). |
(d) Definitions. As used in this Article IX only and unless otherwise provided by the express terms of this Article IX, the following terms shall have the meanings ascribed to them, as set forth in paragraph (d) of this Article IX:
1) |
Associate. when used to indicate a relationship with any Person, means: (i) any corporation, partnership, unincorporated association or other entity of which such Person is a director, officer or partner or is, directly or indirectly; the owner of twenty percent (20%) or more of any class of Voting Stock; (ii) any trust or other estate in which such Person has at least a twenty percent (20%) beneficial interest or as to which such Person serves as trustee or in a similar fiduciary capacity and (iii) any relative or spouse of such Person, or any relative of such spouse, who has the same residence as such Person: |
2) |
Business Combination means: |
i. |
any merger or consolidation of the Corporation, or any direct or indirect majority-owned subsidiary of the Corporation with (A) the interested Stockholder, or (B) with any Person. If the merger or consolidation is caused by the Interested Stockholder and as a result of such merger or consolidation paragraph (b) of this Article IX is not applicable to the surviving entity; |
ii. |
any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions), except proportionately as a stockholder of the Corporation, to or with the Interested Stockholder, whether as part of a dissolution or otherwise, of assets of the Corporation or of any direct or indirect majority-owned subsidiary of the Corporation which assets have an aggregate market value equal to ten percent (10%) or more of either the aggregate market value of all the assets of the Corporation determined on a consolidated basis or the aggregate market value of all the outstanding Stock of the Corporation; or |
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iii. |
any transaction or series of transactions which results in the issuance or transfer by the Corporation or by any direct or indirect majority-owned subsidiary of the Corporation of ten percent (10%) or more of any class or series of Stock of the Corporation or of such subsidiary to the Interested Stockholder, except: (A) pursuant to the exercise, exchange or conversion of securities exercisable for, exchangeable for or convertible into Stock of the Corporation or any such subsidiary which securities were outstanding prior to the time that the Interested Stockholder became such ; (B) pursuant to a merger under § 251(g) or § 253 of the DGCL; (C) pursuant to a dividend or distribution paid or made, or the exercise, exchange or conversion of securities exercisable or exchangeable for or convertible into Stock of the Corporation or any such subsidiary which security is distributed. pro rata to all holders of a class or series of Stock of the Corporation, subsequent to the time the Interested Stockholder became such; or (D) pursuant to an exchange offer by the Corporation to purchase Stock made on the same terms to all holders of such Stock; |
3) |
Interested Stockholder means any Person (other than the Corporation and any direct or indirect majority-owned subsidiary of the Corporation) that is the owner of fifteen percent (15%) or more of the outstanding Voting Stock of the Corporation, or is an Affiliate or Associate of the Corporation and was the owner of fifteen percent (15%) or more of the outstanding Voting Stock of the Corporation at any time within the three-year period immediately prior to the date on which it is sought to be determined whether such Person is an Interested Stockholder, and the Affiliates and Associates of such Person. Notwithstanding anything in this Article IX to the contrary, the term Interested Stockholder shall not include; (i) investment funds affiliated with Thomas H. Lee Partners, L.P. or their respective Affiliates or Associates; (ii) any Person who would otherwise be an Interested Stockholder because of a transfer, sale, assignment, conveyance, hypothecation, encumbrance, or other disposition of five percent (5%) or more of the outstanding Voting Stock of the Corporation (in one transaction or a series of transactions) by any party specified in the immediately preceding clause (i) to such Person; provided, however, that such Person was not an Interested Stockholder prior to such transfer, sale, assignment, conveyance, hypothecation, encumbrance, or other disposition; or (iii) any Person whose ownership of shares in excess of the fifteen percent (15%) limitation set forth herein is the result of action taken solely by the Corporation, provided that, for purposes of this clause (iii), such Person shall be an Interested Stockholder if thereafter such Person acquires additional shares of Voting Stock of the Corporation, except as a result of further action by the Corporation not caused, directly or indirectly, by such Person; |
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4) |
Owner including the terms own and owned, when used with respect to any Stock, means a Person that individually or with, or through any of its affiliates or associates beneficially owns such Stock, directly or indirectly; or has (i) the right to acquire such Stock (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding, or upon the exercise of conversion rights, exchange rights, warrants or options or otherwise; provided, however, that a Person shall not be deemed the owner of Stock tendered pursuant to a tender or exchange offer made by such Person or any of such Persons Affiliates or Associates until such tendered Stock is accepted for purchase or exchange; or (ii) the right to vote such Stock pursuant to any agreement, arrangement or understanding; provided, however, that a Person shall not be deemed the owner of any Stock because of such Persons right to vote such Stock if the agreement, arrangement or understanding to vote such Stock arises solely from a revocable proxy or consent given in response to a proxy or consent solicitation made to 10 or more Persons; or (iii) has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting (except voting pursuant to a revocable proxy or consent as described in (ii) of this Article IX (d)(4)), or disposing of such Stock with any other Person that beneficially owns, or whose affiliates or associates beneficially own, directly or indirectly, such Stock; provided, that, for the purpose of determining whether a Person is an Interested Stockholder, the Voting Stock of the Corporation deemed to be outstanding shall include Stock deemed to be owned by the Person through; application of this definition of owned but shall not include any other unissued Stock of the Corporation, which may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise; |
5) |
Person means any individual, corporation, partnership, unincorporated association or other entity; |
6) |
Stock means, with respect to any corporation, capital, stock and, with respect to any other entity, any equity interest; and |
7) |
Voting Stock means, with respect to any corporation, Stock of any class or series entitled to vote generally in the election of directors and, with respect to any entity that is not a corporation, any equity interest entitled to vote generally in the election of the governing body of such entity. Every reference to a percentage of Voting Stock shall refer to such percentage of the votes of such Voting Stock. |
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ARTICLE X
RENOUNCEMENT OF CORPORATE OPPORTUNITY
(a) Scope. The provisions of this Article X are set forth to define, to the extent permitted by applicable law, the duties of Exempted Persons (as defined below) to the Corporation with respect to certain classes or categories of business opportunities, Exempted Persons means investment funds affiliated with Thomas H. Lee Partners, L.P. and their respective Affiliates (other than the Corporation and its subsidiaries) and all of their respective partners, principals, directors, officers, members, managers and/or employees, including any of the foregoing who serve as officers or directors of the Corporation.
(b) Competition and Allocation of Corporate Opportunities. The Exempted Persons shall not have any fiduciary duty to refrain from engaging directly or indirectly in the same or similar business activities or lines of business as the Corporation or any of its subsidiaries. To the fullest extent permitted by applicable law, the Corporation, on behalf of itself and its subsidiaries, renounces any interest or expectancy of the Corporation and its subsidiaries in, or in being offered an opportunity to participate in business opportunities that are from time to time presented to the Exempted Persons, even if the opportunity is one that the Corporation or its subsidiaries might reasonably be deemed to have pursued or had the ability or desire to pursue if granted the opportunity to do so, and each such Exempted Person shall have no duty to communicate or offer such business opportunity to the Corporation and, to the fullest extent permitted by applicable law, shall not be liable to the Corporation or any of its subsidiaries for breach of any fiduciary or other duty, as a director or officer or otherwise, by reason of the fact that such Exempted Person pursues or acquires such business opportunity, directs such business opportunity to another person or fails to present such business opportunity, or information regarding such business opportunity, to the Corporation or its subsidiaries.
(c) Certain Matters Deemed Not Corporate Opportunities. In addition to and notwithstanding the foregoing provisions of this Article X, a corporate opportunity shall not be deemed to belong to the Corporation if it is a business opportunity that the Corporation is not financially able or contractually permitted or legally able to undertake, or that is, from its nature, not in the line of the Corporations business or is of no practical advantage to it or that is one in which the Corporation has no interest or reasonable expectancy.
(d) Amendment of this Article. Notwithstanding anything to the contrary elsewhere contained in this Second Amended and Restated Certificate of Incorporation and in addition to any vote required by the DGCL, the affirmative vote of eighty percent (80%) of the voting power of the outstanding shares of capital stock entitled to vote on the adoption, alteration, amendment or repeal of amendments to this Second Amended and Restated Certificate of Incorporation, voting together as a single class, shall be required to alter, amend or repeal or to adopt any provision inconsistent with, this Article X. No amendment or repeal of this Article X shall apply to or have any effect on the liability or alleged liability of any Exempted Person, for or with respect to any activities or opportunities of which such Exempted Person becomes aware prior to such amendment or repeal.
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ARTICLE XI
EXCLUSIVE JURISDICTIC CERTAIN ACTIONS
The Court of Chancery of the State of Delaware shall, to the fullest extent permitted by applicable law, be the sole and exclusive forum for (i) any derivative action, or proceeding brought on behalf of the Corporation, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the Corporation to the Corporation or the Corporations stockholders, (iii) any action asserting a claim against the Corporation arising pursuant to any provision of the DGCL or the Corporations Second Amended and Restated Certificate of Incorporation or bylaws or (iv) any action asserting a claim against the Corporation governed by the internal affairs doctrine, in each such case subject to said Court of Chancery having personal jurisdiction over the indispensable parties named as defendants therein. Any person or entity purchasing or otherwise acquiring any interest in shares of capital stock of the Corporation shall be deemed to have notice of and consented to the provisions of this Article XI.
ARTICLE XII
SEVERABILITY
If any provision or provisions of this Second Amended and Restated Certificate of Incorporation shall be held to be invalid, illegal or unenforceable as applied to any circumstance for any reason whatsoever (i) the validity, legality and enforceability of such provisions in any other circumstance and of the remaining provisions of this Second Amended and Restated Certificate of Incorporation (including, without limitation, each portion of any paragraph of this Second Amended and Restated Certificate of Incorporation containing any such provision held to be invalid, illegal or unenforceable that is not itself held to be invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and (ii) to the fullest extent possible, the provisions of this Second Amended and Restated Certificate of Incorporation (including, without limitation, each such portion of any paragraph of this Second Amended and Restated Certificate of Incorporation containing any such provision held to be invalid, illegal or unenforceable) shall be construed so as to permit the Corporation to protect its directors, officers, employees and agents from personal liability in respect of their good faith service to or for the benefit of the Corporation to the fullest extent permitted by law.
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Exhibit 4.10
DESCRIPTION OF PARTY CITY HOLDCO INCS REGISTERED SECURITIES
PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934
The following is a description of the material terms of the common stock, $0.01 par value per share (the common stock), of Party City Holdco Inc. (the Company, we, our or us), which is the only security of the Company registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (the Exchange Act). This description may not contain all of the information that is important to you. To understand them fully, you should read our second amended and restated certificate of incorporation (the Certificate of Incorporation) and amended and restated bylaws (the Bylaws), copies of which are filed as exhibits to our Annual Report on Form 10-K, as well as the relevant portions of the Delaware General Corporation Law, as amended (DGCL).
Description of Common Stock
General. Our Certificate of Incorporate authorizes the issuance of up to 300,000,000 shares of common stock, par value $0.01. None of our common stock has been designated as non-voting.
Voting Rights. Holders of our common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders and do not have cumulative voting rights. An election of directors by our stockholders shall be determined by a plurality of the votes cast by the stockholders entitled to vote on the election. Holders of common stock are entitled to receive proportionately any dividends as may be declared by our board of directors, subject to any preferential dividend rights of any series of preferred stock that is outstanding at the time of the dividend.
Liquidation and Dissolution. In the event of our liquidation or dissolution, the holders of common stock are entitled to receive proportionately our net assets available for distribution to stockholders after payment of all debts and other liabilities, subject to the prior rights of any outstanding preferred stock.
Rights, Preferences and Privileges. The rights, preferences and privileges of holders of common stock are subject to the rights of the holders of shares of any series of preferred stock that we may designate and issue in the future.
Preemptive Rights. Our common stock is not entitled to preemptive rights and is not subject to conversion, redemption or sinking fund provisions.
Assessment. All outstanding shares of our common stock are fully paid and nonassessable.
Preferred Stock
Under our Certificate of Incorporation, our board of directors has the authority, without further action by our stockholders, except as described below, to issue up to 15,000,000 shares of preferred stock in one or more series and to fix the voting powers, designations, preferences and the relative participating, optional or other special rights and qualifications, limitations and restrictions of each series, including dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences and the number of shares constituting any series. Because the board of directors has the power to establish the preferences and rights of the shares of any additional series of preferred stock, it may afford holders of any preferred stock preferences, powers and rights, including voting and dividend rights, senior to the rights of the holders of the common stock, which could adversely affect the holders of the common stock and could discourage a takeover of us even if a change of control of our company would be beneficial to the interests of our stockholders.
Anti-takeover Effects of the DGCL and our Certificate of Incorporation and Bylaws
Our Certificate of Incorporation and our bylaws contain provisions that may delay, defer or discourage another party from acquiring control of us. We expect that these provisions, which are summarized below, will discourage coercive takeover practices or inadequate takeover bids. These provisions are also designed to encourage persons seeking to acquire control of us to first negotiate with the board of directors, which we believe may result in an improvement of the terms of any such acquisition in favor of our stockholders. However, they also give the board of directors the power to discourage acquisitions that some stockholders may favor.
Board of Directors
Our Certificate of Incorporation provides that the authorized number of directors may be changed only by resolution of the board of directors. A director may be removed with or without cause by the affirmative vote of the holders of at least 75% of the voting power of our outstanding shares of capital stock entitled to vote generally in the election of directors, voting together as a single class. Any vacancy on our board of directors, including a vacancy resulting from an enlargement of our board of directors, may be filled only by vote of a majority of our directors then in office.
Action by Written Consent
The DGCL provides that, unless otherwise stated in a corporations certificate of incorporation, the stockholders may act by written consent without a meeting. Our Certificate of Incorporation provides that any action required or permitted to be taken by our stockholders at an annual meeting or special meeting of the stockholders may only be taken at an annual or special meeting before which it is properly brought, and not by written consent without a meeting.
Special Meeting of Stockholders and Advance Notice Requirements for Stockholder Proposals
Our Certificate of Incorporation and Bylaws provide that, except as otherwise required by law, special meetings of the stockholders can only be called by (a) our chairman or vice chairman of the board of directors or (b) the board of directors through a special resolution.
In addition, our Bylaws require advance notice procedures for stockholder proposals to be brought before an annual meeting of the stockholders, including the nomination of directors. Stockholders at an annual meeting may only consider the proposals specified in the notice of meeting or brought before the meeting by or at the direction of the board of directors or any committee thereof, or by a stockholder of record on the record date for the meeting, who is entitled to vote at the meeting and who has delivered a timely written notice in proper form to our secretary, of the stockholders intention to bring such business before the meeting.
These provisions could have the effect of delaying until the next stockholder meeting any stockholder actions, even if they are favored by the holders of a majority of our outstanding voting securities.
Amendment to Amended and Restated Certificate of Incorporation and Bylaws
The DGCL provides generally that the affirmative vote of a majority of the outstanding stock entitled to vote on amendments to a corporations certificate of incorporation or bylaws is required to approve such amendment, unless a corporations certificate of incorporation or bylaws, as the case may be, requires a greater percentage. Our Bylaws may be amended or repealed by a majority vote of our board of directors or, in addition to any other vote otherwise required by law, by the holders of two thirds of the voting power of our outstanding shares of capital stock entitled to vote. Additionally, the affirmative vote of at least two-thirds of the voting power of the outstanding shares of capital stock entitled to vote on the adoption, alteration, amendment or repeal of our Certificate of Incorporation, voting as a single class, is required to amend or repeal or to adopt any provision of our Certificate of Incorporation.
Renouncement of Corporate Opportunity
Our Certificate of Incorporation provides that we renounce any interest or expectancy in, or in being offered an opportunity to participate in, any business opportunity that may from time to time be presented to Exempted Persons (as defined in the Certificate of Incorporation) and that may be a business opportunity for such Exempted Person, even if the opportunity is one that we might reasonably have pursued or had the ability or desire to pursue if granted the opportunity to do so. No such Exempted Person will be liable to us for breach of any fiduciary or other duty, as a director or officer or otherwise, by reason of the fact that such person, acting in good faith, pursues or acquires any such business opportunity, directs any such business opportunity to another person or fails to present any such business opportunity, or information regarding any such business opportunity, to us. None of the Exempted Persons or their representatives has any duty to refrain from engaging directly or indirectly in the same or similar business activities or lines of business as us or any of our subsidiaries. In addition, the affirmative vote of 80% of the voting power of the outstanding shares of capital stock entitled to vote on the adoption, alteration, amendment or repeal of our Certificate of Incorporation, voting together as a single class, shall be required to alter, amend or repeal, or to adopt any provision inconsistent with provisions related to the Renouncement of Corporate Opportunity.
Business Combinations
We have opted out of Section 203 of the DGCL. However, our Certificate of Incorporation contains similar provisions providing that we may not engage in certain business combinations with any interested stockholder for a three-year period following the time that the stockholder became an interested stockholder, unless:
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prior to such time, our board of directors approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; |
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upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of our voting stock outstanding at the time the transaction commenced, excluding certain shares; or |
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at or subsequent to that time, the business combination is approved by our board of directors and by the affirmative vote of holders of at least 66 2/3% of the outstanding voting stock that is not owned by the interested stockholder. |
Generally, a business combination includes a merger, asset or stock sale or other transaction resulting in a financial benefit to the interested stockholder. Subject to certain exceptions, an interested stockholder is a person who, together with that persons affiliates and associates, owns, or within the previous three years owned, 15% or more of our voting stock.
Under certain circumstances, this provision will make it more difficult for a person who would be an interested stockholder to effect various business combinations with a corporation for a three-year period. This provision may encourage companies interested in acquiring our company to negotiate in advance with our board of directors because the stockholder approval requirement would be avoided if our board of directors approves either the business combination or the transaction which results in the stockholder becoming an interested stockholder. These provisions also may have the effect of preventing changes in our board of directors and may make it more difficult to accomplish transactions which stockholders may otherwise deem to be in their best interests.
Section 102(b)(7) of the DGCL enables a corporation in its certificates of incorporation to eliminate or limit the personal liability of a director for violations of the directors fiduciary duty, except (i) for any breach of the directors duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) for liability of directors for unlawful payment of dividends or unlawful stock purchase or redemptions pursuant to Section 174 of the DGCL or (iv) for any transaction from which a director derived an improper personal benefit. Our Certificate of Incorporation includes a provision that eliminates the personal liability of directors for monetary damages for actions taken as a director to the fullest extent authorized by the DGCL.
Exclusive Jurisdiction for Certain Actions
Our Certificate of Incorporation requires, to the fullest extent permitted by law, that derivative actions brought in the name of the Company, actions against directors, officers and employees for breach of a fiduciary duty and other similar actions, may be brought only in specified courts in the State of Delaware. Although we believe this provision benefits us by providing increased consistency in the application of Delaware law in the types of lawsuits to which it applies, the provision may have the effect of discouraging lawsuits against our directors and officers.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is Computershare Trust Company, N.A.
Listing
Our common stock is listed on the NYSE under the symbol PRTY.
Exhibit 10.2
Execution Version
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
AMENDED AND RESTATED EMPLOYMENT AGREEMENT (Agreement), dated as of the 11th day of March, 2020, by and between Party City Holdings Inc., a Delaware corporation (the Company), Party City Holdco Inc., a Delaware corporation (Holdco), and James M. Harrison (the Executive) and effective as of the date hereof.
WHEREAS, the Executive has served each of the Company and Holdco as Chief Executive Officer pursuant to an Employment Agreement, which was amended and restated effective as of January 1, 2015, amended on May 8, 2017 and again on May 8, 2018 (as amended, the Prior Employment Agreement); and
WHEREAS, the Company, Holdco and the Executive desire to set forth in this new Agreement the terms and conditions under which the Executive will be employed as the Vice Chairman of each of the Company and Holdco effective as of April 1, 2020 (the Effective Date);
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Employment Period. The Company and Holdco shall continue to employ the Executive, and the Executive agrees to, and shall, serve the Company and Holdco, on the terms and conditions set forth in this Agreement, for the period beginning on the Effective Date and ending on December 31, 2021 unless sooner terminated as set forth hereinafter (the Initial Employment Period). At the conclusion of the Initial Employment Period or any Renewal Period (as defined below), such period may be extended for an additional one-year period (any such one-year extension, a Renewal Period) upon mutual written agreement of the Executive and Holdco. The Employment Period shall mean the period that includes the Initial Employment Period and any such mutually agreed upon Renewal Period (if applicable).
2. Position, Duties and Work Location.
(a) During the Employment Period, the Executive shall serve as Vice Chairman of the Company and of Holdco. In such role, the Executive will provide strategic advisory services to Holdco, which services are expected to include identifying and evaluating corporate development opportunities available to Holdco and the Company, conducting reviews of acquisition targets, collaborating with and assisting with the onboarding process of the Chief Financial Officer of Holdco, providing advice regarding the Companys capital structure, enabling the development or further of relationships with licensors, customers or other industry stakeholder and providing counsel and coaching on various initiatives within the consumer products business. The Executive will report to the Board of Directors of Holdco (the Board) and will also perform such duties and responsibilities as are assigned to him by the Board from time to time that are reasonably related to the services described above, with it being understood that such role will not include day-to-day operational responsibilities for managing or leading the business and will not required to attend Executive Leadership Team meetings. During the Employment Period, the Executive will be nominated in 2020 and 2021 to serve as a member of the Board.
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(b) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive shall devote his full attention and time during normal business hours to the business and affairs of the Company and Holdco and shall use his reasonable best efforts to carry out the responsibilities assigned to the Executive faithfully and efficiently. It shall not be considered a violation of the foregoing for the Executive to (i) serve on civic or charitable boards or committees, (ii) deliver lectures, fulfill speaking engagements or teach at educational institutions, (iii) serve on the board of directors of other companies, so long as the Board approves such appointments (such approval not to be unreasonably withheld), or (iv) manage personal investments, so long as such activities do not compete with and are not provided to or for any entity that competes with or intends to compete with Holdco or any of its subsidiaries and affiliates and do not interfere with the performance of the Executives responsibilities as an employee of the Company or Holdco in accordance with this Agreement.
(c) During the Employment Period, (i) the Executives principal place of employment will be the Companys offices in Elmsford, New York, with it being understood that the Executive will generally be in-office two to three days per week (or such lesser amount as is determined by the Company) and otherwise will generally work from his home and (ii) the Executive will be provided with the support of an administrative assistant and will have access to a Company car and driver, in each case, subject such reasonable terms as are determined by the Company or Holdco and, in the case of the Company car and driver, subject to the reasonable availability of such car and driver in light of other business needs.
3. Compensation.
(a) Base Salary. Effective as of the Effective Date, the Executive shall receive from the Company an annual base salary (Annual Base Salary) of $750,000, payable in regular intervals in accordance with the Companys customary payroll practices in effect during the Employment Period.
(b) 2020 Annual Bonus. In addition to the Annual Base Salary, for the Companys 2020 fiscal year only, the Executive shall be eligible to receive annual bonus compensation (the 2020 Bonus) consistent with the Companys bonus plan for key executives as in effect from time to time (the Bonus Plan) and the terms set forth herein. The 2020 Bonus, if any, shall be paid in 2021 at the time annual bonuses are paid to other senior executives of the Company. For the 2020 fiscal year, the target amount of the Annual Bonus shall be $277,169.35 and the maximum amount of the Annual Bonus shall be $554,338.70, with the actual amount of the Annual Bonus, if any, to be determined by the Board or the Compensation Committee of the Board (the Committee) in accordance with the Bonus Plan.
(c) Other Benefits. During the Employment Period: (i) the Executive shall be eligible to participate in all savings and retirement plans, practices, policies and programs of the Company, and shall be entitled to paid vacation, to the same extent and on the same terms and conditions as senior executives; (ii) the Company shall pay on the Executives behalf, disability insurance premiums up to $2,000.00 per month pursuant to which policy the Executive shall be entitled to designate the beneficiary; and (iii) the Executive and/or the Executives family, as the case may be, shall be eligible for participation in, and shall receive all benefits under, all other
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welfare benefit plans, practices, policies and programs provided by the Company (including, to the extent provided, without limitation, medical, prescription, dental, disability, employee life insurance, group life insurance, accidental death and travel accident insurance plans and programs) to the same extent and on the same terms and conditions as senior executives, subject, in each case, to the terms of the applicable welfare benefit plan; provided, however, that nothing in this Agreement shall impose on the Company any obligation to offer to the Executive participation in any stock, stock option, restricted stock, bonus or other incentive award, plan, practice, policy or program, except as expressly provided in Section 3(e)(i) below. The term senior executives means executives of the Company and Holdco at a level of Senior Vice President and above.
(d) Expenses. During the Employment Period, the Executive shall be entitled to receive reimbursement for all reasonable travel and other expenses incurred by the Executive in carrying out the Executives duties under this Agreement; provided that the Executive complies with the policies, practices and procedures of the Company for submission of expense reports, receipts, or similar documentation of such expenses.
(e) Stock Awards.
(i) On the Effective Date, the Executive shall receive a grant of 200,000 stock options with a per share exercise price equal to the greater of (A) $3.00 and (B) the closing price of a share of Holdco common stock on March 31, 2020 (the 2020 Option Grant) under Holdcos equity incentive plan, subject to Executives continued employment through the grant date. The 2020 Option Grant will be eligible to vest as follows: 50% of the 2020 Option Grant will be eligible to vest on December 31, 2020 and the remaining 50% will be eligible to vest on December 31, 2021, subject, in each case, to the Executives continued employment with Holdco and the Company through the applicable vesting date and subject to such other terms as are set forth in an award agreement evidencing such grant. For the avoidance of doubt, the Executive will not be entitled to any other equity or equity-based awards following the Effective Date.
(ii) Notwithstanding anything to the contrary herein or in any other award agreement:
(A) any vested stock options of Holdco that are held by the Executive as of the Effective Date (or that otherwise become vested pursuant to their terms after the Effective Date while the Executive remains employed by the Company and Holdco) shall, subject to their otherwise applicable terms, remain outstanding and exercisable until their expiration date (the Extended Vesting Period) (i.e., the date that is ten (10) years following the applicable date of grant) notwithstanding any termination of the Executives employment following the Effective Date (or, if later, the date on which such stock options vest after the Effective Date but while the Executive remains employed by the Company and Holdco); provided that such stock options will be forfeited for no consideration if the Executives employment is terminated by Holdco or the Company for Cause (or the Board determines in good faith that Cause exists at the time the Executives employment terminates) or the Executive violates the restrictive covenants that apply to him pursuant to Section 8 or 9 below at any time while such options remain outstanding; and
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(B) (x) any restricted stock units (including performance stock units) of Holdco that are held by the Executive as of the Effective Date will continue to be eligible to vest during the Employment Period if the Executive remains employed by the Company and Holdco on the applicable vesting date and (y) subject to the Executives continued employment with the Company and Holdco through December 31, 2021, any restricted stock units (including performance stock units) of Holdco that are scheduled to vest after December 31, 2021, shall, subject to their otherwise applicable terms, continue to be eligible to vest in accordance with their terms as if the Executives employment with the Company and Holdco continued from December 31, 2021 through the applicable vesting date.
(iii) As a condition of the Executives continued employment with the Company pursuant to this Agreement, the Executive hereby agrees that all performance-based options granted pursuant to that certain Nonqualified Stock Option Award Agreement by and between Holdco and the Executive, dated on or about April 1, 2013 will be forfeited as of the Effective Date for no consideration.
4. Termination of Employment. Upon a termination of the Executives employment with the Company and Holdco for any reason, if the Executive is then serving on the Board or in any other capacity with Holdco or its affiliates, unless otherwise agreed in writing by Holdco, his service on the Board (and in any other applicable capacity) will automatically terminate at the time of such termination of employment. The Executive agrees to take any action requested in good faith by Holdco in connection with the foregoing to reflect such cessation of service on the Board (or in any other applicable capacity). In addition:
(a) Death or Permanent Disability. The Executives employment shall terminate automatically upon the Executives death during the Employment Period. The Company or Holdco shall be entitled to terminate the Executives employment because of the Executives Permanent Disability during the Employment Period. Permanent Disability means that the Executive (i) is unable to perform his duties under this Agreement by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months; (ii) is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months receiving income replacement benefits for a period of not less than three months under an accident and health plan covering employees of the Company; or (iii) has been determined to be totally disabled by the Social Security Administration. A termination of the Executives employment by the Company or Holdco for Permanent Disability shall be communicated to the Executive by written notice and shall be effective on the 30th day after receipt of such notice by the Executive (the Disability Effective Date), unless the Executive returns to full-time
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performance of the Executives duties in accordance with the provisions of Section 2 before such 30th day. In the event of a dispute as to whether the Executive has suffered a Permanent Disability, the final determination shall be made by a licensed physician selected by the Board and acceptable to the Executive in the Executives reasonable judgment.
(b) Other than Death or Disability. The Company or Holdco may terminate the Executives employment at any time during the Employment Period with or without Cause upon notice to the Executive.
(c) Good Reason. The Executive may terminate his employment at any time during the Employment Period for Good Reason, upon written notice to the Company setting forth in reasonable detail the nature of such Good Reason, as set forth below. For purposes of this Agreement, Good Reason is defined as any one or more of the following: any attempt to relocate the Executive to a work location that is more than 100 miles from the Companys offices in Elmsford, New York; any material diminution in the nature or scope of the Executives responsibilities or duties as defined under this Agreement (provided that a change in reporting relationships resulting from the direct or indirect control of the Company or Holdco (or a successor corporation) by another corporation or other person(s) shall not be deemed to constitute Good Reason); any material breach by the Company or any affiliate of the Company of any provision of this Agreement or any other written agreement with the Executive, which breach is not cured within twenty (20) days following written notice by the Executive to the Company; or any material failure of the Company to provide the Executive with at least the Annual Base Salary and/or any other compensation or benefits in accordance with the terms of Section 3 hereof, other than an inadvertent failure which is cured within ten (10) business days following written notice from the Executive specifying in reasonable detail the nature of such failure. Notwithstanding the foregoing, the appointment of an interim Vice Chairman during any period of the Executives disability (which may potentially result in a Permanent Disability) will not be considered Good Reason (so long as the Executive continues to be compensated pursuant to the terms of this Agreement), until the occurrence of a Permanent Disability as defined in Section 4(a).
(d) Change in Control. If there occurs a Change in Control (as hereinafter defined) during the Employment Period, and the Executive is not offered employment on substantially similar terms by Holdco or one of its continuing affiliates immediately thereafter, then, for all purposes of this Agreement, the Executives employment shall be deemed to have been terminated by the Company effective as of the date of such Change in Control; provided, however, that neither the Company nor Holdco shall have any obligation to the Executive under this Section 4 if the Executive is hired or offered employment on substantially similar terms by the purchaser of the stock or assets of Holdco or the Company, if the Executives employment hereunder is continued by Holdco or one of its continuing affiliates, or if the Executive does not actually terminate employment. As used herein, a Change in Control shall be deemed to have occurred upon the occurrence of any of the following events:
(i) a change in the ownership of Holdco within the meaning of Treasury Regulation Section 1.409A-3(i)(5)(v) as in effect on the date hereof;
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(ii) a change in the effective control of Holdco within the meaning of Treasury Regulation Section 1.409A-3(i)(5)(vi)(2) as in effect on the date hereof; or
(iii) a change in the ownership of all or substantially all of Holdcos assets.
(e) Date of Termination. The Date of Termination means the date of the Executives death, the Disability Effective Date or the date on which the termination of the Executives employment by the Company and Holdco, or by the Executive, is effective, as the case may be, including by reason of the expiration of the Employment Period.
5. Obligations of the Company Upon Termination.
(a) By the Company Upon the Executives Death or Permanent Disability. If the Executive dies during the Employment Period or the Company or Holdco terminates the Executives employment due to the Executives Permanent Disability, the Company shall pay the Executive or his legal representative the Executives accrued but unpaid cash compensation (the Accrued Obligations), which shall equal the sum of (1) any portion of the Executives Annual Base Salary through the Date of Termination that has not yet been paid; (2) any 2020 Bonus that the Executive has earned pursuant to Section 3(b), if not previously paid; and (3) any accrued but unpaid vacation pay.
The Accrued Obligations shall be paid in cash within thirty (30) days of the Date of Termination, except for the 2020 Bonus which, if not previously paid, shall be paid in accordance with Section 3(b).
(b) By the Company for Cause. If the Executives employment is terminated by the Company or Holdco for Cause (as hereinafter defined), then the Executive shall be entitled to only the payment of the Accrued Obligations, which shall be paid to the Executive in cash in a lump sum within thirty (30) days of the Date of Termination (except for the 2020 Bonus which, if not previously paid, shall be paid in accordance with Section 3(b)) and neither the Company nor Holdco shall have any further obligation under this Agreement. For purposes of this Agreement, Cause shall mean (1) conviction of the Executive by a court of competent jurisdiction of a felony (excluding felonies under the Vehicle and Traffic Code of the State of New York or any similar law of another state within the United States of America); (2) any act of intentional fraud in connection with his duties under this Agreement; (3) any act of gross negligence or willful misconduct with respect to the Executives duties under this Agreement; and (4) any act of willful disobedience in violation of specific reasonable directions of the Board consistent with the Executives duties.
(c) By the Company for any reason other than Cause or by the Executive for Good Reason. If the Executives employment is terminated during the Employment Period (i) by the Company or Holdco other than for Cause, death or Permanent Disability or (ii) by the Executive for Good Reason the Company shall pay to the Executive (A) the Accrued Obligations, which shall be paid to the Executive in cash in a lump sum within thirty (30) days of the Date of Termination (except for the 2020 Bonus which, if not previously paid, shall be paid in accordance with Section 3(b)), (B) the Executive will also be entitled to his then current Annual Base Salary for the remainder of the Employment Period (i.e., the Initial Employment
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Period for any such termination occurring prior to December 31, 2021 or through the end of any applicable one-year Renewal Period, if the Agreement has been renewed by mutual written agreement in accordance with Section 1) paid in accordance with Section 3(a), (C) the 2020 Option Grant and any other then unvested stock options held by the Executive will, subject to their otherwise applicable terms, continue to vest as though the Executive remained employed by the Company and Holdco through each applicable vesting date (to the extent not previously vested), and (D) any restricted stock units (including performance stock units) of Holdco that are held by the Executive, subject to their otherwise applicable terms, shall remain outstanding and eligible to vest as though the Executive remained employed by the Company and Holdco through each applicable vesting date. Notwithstanding anything to the contrary set forth herein, the Executive shall not be entitled to any payment pursuant to clause (B), (C) or (D) of this Section 5(c) unless the Executive shall have, at the written request of the Company or Holdco, executed a release of any and all legal claims in the form attached hereto as Exhibit A (the Release) no later than forty-five (45) days following the Date of Termination and shall not have revoked the Release in accordance with its terms.
(d) By the Executive other than for Good Reason. If during the Employment Period the Executive terminates his employment with the Company and Holdco other than for Good Reason, (x) the Company shall pay the Accrued Obligations to the Executive in a lump sum in cash within thirty (30) days of the Date of Termination (except for the 2020 Bonus which, if not previously paid, shall be paid in accordance with Section 3(b)) and neither the Company nor Holdco shall have any further obligation under this Agreement, and (y) if such termination occurs prior to December 31, 2021, notwithstanding Section 3(e)(ii)(A) of this Agreement, the Extended Vesting Period shall not apply with respect to any stock options granted to or in respect of the Executive and such stock options will be exercisable only to the extent otherwise permitted by their terms.
(e) Expiration of the Term. Unless otherwise terminated pursuant to any of the foregoing clauses of this Section 5, the Executives employment hereunder will automatically terminate at the expiration of the Employment Period and the Company shall pay to the Executive (i) the Accrued Obligations. The Accrued Obligations shall be paid in a lump sum in cash within thirty (30) days of the Date of Termination. Notwithstanding anything to the contrary set forth herein, the Executive shall not be entitled any payment pursuant to clause (ii) of this Section 5(e) unless the Executive shall have, at the written request of the Company, executed the Release no later than forty-five (45) days following the Date of Termination and shall not have revoked the Release in accordance with its terms. Upon expiration of the Employment Period, no Severance Payment will be due and no further Restriction Period shall apply.
(g) Continuing Rights under Benefits Programs. Notwithstanding anything to the contrary set forth herein, upon termination of employment for any reason other than death, termination by the Company for Cause, or termination by the Executive without Good Reason, the Executive shall be entitled to receive at the Executives expense, continued coverage under the Companys health insurance policy comparable to the family coverage received by the Executive at the Date of Termination, so long as the Companys Plan at the Date of Termination and thereafter permits coverage of former employees.
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6. Section 409A. The parties intend for the compensation provided under this Agreement to comply with, or be exempt from, the provisions of Section 409A of the Internal Revenue Code of 1986, as amended (the Code) (together with the regulations thereunder, Section 409A). Notwithstanding the foregoing, in no event shall the Company, Holdco or any of their respective affiliates have any liability to the Executive or to any other person claiming rights under this Agreement relating to the failure or alleged failure of any payment or benefit under this Agreement to comply with, or be exempt from, the provisions of Section 409A.
(a) Definitions. For purposes of this Agreement, all references to termination of employment and similar or correlative phrases shall be construed to require a separation from service (as defined in Section 1.409A-1(h) of the Treasury regulations after giving effect to the presumptions contained therein), and the term specified employee means an individual determined by Holdco to be a specified employee under Treasury regulation Section 1.409A-1(i).
(b) Certain Delayed Payments. If any payment or benefit hereunder constituting nonqualified deferred compensation subject to Section 409A would be subject to subsection (a)(2)(B)(i) of Section 409A (relating to payments made to specified employees of publicly-traded companies upon separation from service), any such payment or benefit to which the Executive would otherwise be entitled during the six (6) month period following the Executives separation from service will instead be provided or paid without interest on the first business day following the expiration of such six (6) month period, or if earlier, the date of the Executives death.
(c) Separate Payments. Each payment made under this Agreement shall be treated as a separate payment.
(d) Reimbursements. Notwithstanding anything to the contrary in this Agreement, any reimbursement that constitutes or could constitute nonqualified deferred compensation subject to Section 409A will be subject to the following additional requirements: (i) the expenses eligible for reimbursement will have been incurred during the term of this Agreement, (ii) the amount of expenses eligible for reimbursement during any calendar year will not affect the expenses eligible for reimbursement in any other taxable year; (iii) reimbursement will be made not later than December 31 of the calendar year following the calendar year in which the expense was incurred; and (iv) the right to reimbursement will not be subject to liquidation or exchange for any other benefit.
7. Full Settlement. The Companys obligations to make the payments provided for in, and otherwise to perform its obligations under, this Agreement shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action that the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and such amounts shall not be reduced, regardless of whether the Executive obtains other employment.
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8. Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company and Holdco all secret or confidential information, knowledge or data relating to the Company, Holdco or any company affiliated with the Company or Holdco and their respective businesses that the Executive obtains during the Executives employment by the Company and Holdco (whether before, during or after the Employment Period) and that is not public knowledge (other than as a result of the Executives violation of this Section 8) (Confidential Information). The Executive shall not communicate, divulge or disseminate Confidential Information at any time during or after the Executives employment with the Company and Holdco, except with the prior written consent of the Company or as otherwise required by law. For the avoidance of doubt, (a) nothing contained in the Agreement or any other agreement containing confidentiality provisions or other restrictive covenants in favor of any the Company or any of its affiliates or subsidiaries shall be construed to limit, restrict or in any other way affect the Executives communicating with any governmental agency or entity, or communicating with any official or staff person of a governmental agency or entity, concerning matters relevant to the governmental agency or entity and (b) the Executive will not be held criminally or civilly liable under any federal or state trade secret law for disclosing a trade secret (i) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney, solely for the purpose of reporting or investigating a suspected violation of law, or (ii) in a complaint or other document filed under seal in a lawsuit or other proceeding; provided that notwithstanding this immunity from liability, the Executive may be held liable if the Executive unlawfully accesses trade secrets by unauthorized means.
9. Noncompetition; Nonsolicitation.
(a) Non-Competition. During the Restriction Period (as hereinafter defined), the Executive shall not directly or indirectly participate in or permit his name directly or indirectly to be used by or become associated with (including as an advisor, representative, agent, promoter, independent contractor, provider of personal services or otherwise) any person, corporation, partnership, firm, association or other enterprise or entity (a person) that is, or intends to be, engaged in any business which is in competition with any business of the Company, Holdco or any of their respective subsidiaries or controlled affiliates in any geographic area in which the Company, Holdco or any of their respective subsidiaries or controlled affiliates operate, compete or are engaged in such business or at such time intend so to operate, compete or become engaged in such business (a Competitor); provided, however, that the foregoing will not prohibit the Executive from participating in or becoming associated with a person if (i) less than 10% of the consolidated gross revenues of such person, together with its affiliates, derive from activities or businesses that are in competition with any business of the Company or any of its subsidiaries or controlled affiliates (a Competitive Business) and (ii) the Executive does not, directly or indirectly, participate in, become associated with, or otherwise have responsibilities that relate to the conduct or operations of, any Competitive Business that is conducted by such person or a division, group, or subsidiary or affiliate of such person. For purposes of this Agreement, the term participate includes any direct or indirect interest, whether as an officer, director, employee, partner, sole proprietor, trustee, beneficiary, agent, representative, independent contractor, consultant, advisor, provider of personal services, creditor, or owner (other than by ownership of less than five percent of the stock of a publicly-held corporation whose stock is traded on a national securities exchange or in an over-the-counter market).
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(b) Non-Solicitation. During the Restriction Period, the Executive shall not, directly or indirectly, encourage or solicit, or assist any other person or firm in encouraging or soliciting, any person that during the three-year period preceding such termination of the Executives employment with the Company and Holdco (or, if such action occurs during the Employment Period, on the date such action was taken) is or was engaged in a business relationship with the Company or Holdco, any of their respective subsidiaries or controlled affiliates to terminate its relationship with the Company or Holdco or any of their respective subsidiaries or controlled affiliates or to engage in a business relationship with a Competitor.
(c) No Hire. During the Restriction Period, the Executive will not, except with the prior written consent of the Company, directly or indirectly, induce any employee of the Company, Holdco or any of their respective subsidiaries or controlled affiliates to terminate employment with such entity, and will not, directly or indirectly, either individually or as owner, agent, employee, consultant or otherwise, employ, offer employment or cause employment to be offered to any person (including employment as an independent contractor) who is or was employed by the Company, Holdco or any of their respective subsidiaries or controlled affiliates unless such person shall have ceased to be employed by such entity for a period of at least twelve months. For purposes of this Section 9(c), employment shall be deemed to include rendering services as an independent contractor and employees shall be deemed to include independent contractors.
(d) Non-Disparagement. Subject to the last sentence of Section 8, during the Restriction Period, the Executive shall not disparage the Company, Holdco or any of their respective officers, directors, shareholders or any of their respective affiliates, disparage their business or professional capabilities, plans or management to any person, or do anything else to affect adversely the good will of the Company, Holdco or any of their affiliates.
(e) Restriction Period. The term Restriction Period as used herein, shall mean the period beginning on the date hereof and ending on the date that is twenty-four (24) months following the date on which the Executives employment with the Company and Holdco terminates for any reason.
(f) Return of Confidential Information. Promptly following the Executives termination of employment, including due to expiration of the Employment Period, the Executive shall return to the Company all property of the Company, Holdco and their respective subsidiaries and affiliates, and all copies thereof, in the Executives possession or under his control, including, without limitation, all Confidential Information in whatever media such Confidential Information is maintained.
(g) Injunctive Relief. The Executive acknowledges and agrees that the Restriction Period and the covenants and obligations of the Executive in Section 8 and this Section 9 with respect to non-competition, nonsolicitation and confidentiality and with respect to the property of the Company and its subsidiaries and controlled affiliates, and the territories covered thereby, are fair and reasonable and the result of negotiation. The Executive further acknowledges and agrees that the covenants and obligations of the Executive in Section 8 and this Section 9 with respect to noncompetition, nonsolicitation and confidentiality and with respect to the property of the Company, Holdco and their respective subsidiaries and controlled
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affiliates, and the territories covered thereby, relate to special, unique and extraordinary matters and that a violation of any of the terms of such covenants and obligations will cause the Company, Holdco and their respective subsidiaries and affiliates irreparable injury for which adequate remedies are not available at law. Therefore, the Executive agrees that the Company and Holdco shall be entitled to an injunction, restraining order or such other equitable relief as a court of competent jurisdiction may deem necessary or appropriate to restrain the Executive from committing any violation of such covenants and obligations. These injunctive remedies are cumulative and are in addition to any other rights and remedies the Company and Holdco may have at law or in equity. If, at the time of enforcement of Section 8 and/or this Section 9, a court holds that any of the restrictions stated herein are unreasonable under circumstances then existing, the parties hereto agree that the maximum period, scope, and/or geographical area legally permissible under such circumstances will be substituted for the period, scope and/or area stated herein.
10. Successors.
(a) This Agreement is personal to the Executive and shall not be assignable by the Executive. This Agreement shall inure to the benefit of and be enforceable by the Executives legal representatives and heirs and successors.
(b) This Agreement shall inure to the benefit of and be binding upon Holdco, the Company and their respective successors and assigns.
11. Section 280G. In the event that the Company undergoes a change in control after it (or any affiliate of the Company, including Holdco, that would be treated, together with the Company, as a single corporation under Section 280G of the Code and the regulations thereunder) has stock that is readily tradeable on an established securities market (within the meaning of Section 280G of the Code and the regulations thereunder), if all, or any portion, of the payments provided under this Agreement, either alone or together with other payments or benefits which the Executive receives or is entitled to receive from the Company or an affiliate, could constitute an excess parachute payment within the meaning of Section 280G of the Code, then the Executive shall be entitled to receive (i) an amount limited so that no portion thereof shall fail to be tax deductible under Section 280G of the Code (the Limited Amount), or (ii) if the amount otherwise payable hereunder (without regard to clause (i)) reduced by the excise tax imposed by Section 4999 of the Code and all other applicable federal, state and local taxes (with income taxes all computed at the highest applicable marginal rate) is greater than the Limited Amount reduced by all taxes applicable thereto (with income taxes all computed at the highest marginal rate), the amount otherwise payable hereunder. If it is determined that the Limited Amount will maximize the Executives after-tax proceeds, payments and benefits shall be reduced to equal the Limited Amount in the following order: (i) first, by reducing cash severance payments, (ii) second, by reducing other payments and benefits to which Q&A 24(c) of Section 1.280G-1 of the Treasury Regulations does not apply, and (iii) finally, by reducing all remaining payments and benefits, with all such reductions done on a pro rata basis. All determinations made pursuant this Section 11 will be made at the Companys expense by the independent public accounting firm most recently serving as the Companys outside auditors or such other accounting or benefits consulting group or firm as the Company may designate.
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12. Miscellaneous.
(a) This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified except by a written agreement executed by the parties hereto or their respective heirs, successors and legal representatives.
(b) All notices and other communications under this Agreement shall be in writing and shall be given by hand delivery to the other party or by overnight courier or by registered or certified mail, return receipt requested, postage prepaid, or by facsimile (with receipt confirmation), addressed as follows:
If to the Executive: | James M. Harrison | |
At his most recent address | ||
shown in the Companys records | ||
If to the Company: | Party City Holdings Inc. | |
80 Grasslands Road | ||
Elmsford, NY 10523 | ||
Attention: Corporate Secretary | ||
Fax no.: (914) 345-2056 |
or to such other address as either party furnishes to the other in writing in accordance with this Section 12(b). Notices and communications shall be effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.
(d) Notwithstanding any other provision of this Agreement, the Company may withhold from amounts payable under this Agreement all federal, state, local and foreign taxes that are required to be withheld by applicable laws or regulations. In addition, the obligations of the Company under this Agreement shall be conditional on compliance with this Section 12(d), and the Company shall, to the extent permitted by law, have the right to deduct any such taxes from any payment otherwise due to the Executive.
(e) Any partys failure to insist upon strict compliance with any provision of, or to assert any right under, this Agreement shall not be deemed to be a waiver of such provision or right or of any other provision of or right under this Agreement.
(f) The Executive acknowledges that this Agreement, together with the Exhibit hereto (and the other agreements referred to herein and therein), supersedes, as of the Effective Date, all other agreements and understandings, both written and oral, between the Executive, on one hand, and the Company and Holdco, on the other, with respect to the subject matter hereof, including, without limitation, the Prior Employment Agreement and any amendments or restatements thereto. The Executive consents to the changes to the terms of his employment as described herein and as of immediately prior to the Effective Date, the Prior Employment Agreement shall terminate automatically and be of no further force and effect.
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(g) This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which shall together constitute one and the same instrument.
(h) Provisions of this Agreement shall survive any termination of employment if so provided herein or if necessary or desirable to accomplish the purposes of other surviving provisions, including, without limitation, the obligations of the Executive under Sections 8 and 9 hereof.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the Executive has hereunto set the Executives hand and, pursuant to the authorization of their respective boards of directors, the Company and Holdco have each caused this Agreement to be executed in its name on its behalf, all as of the day and year first above written.
PARTY CITY HOLDINGS INC. | ||
By: |
/s/ Michael Correale |
|
Name: Michael Correale | ||
Title: Principal Accounting Officer | ||
PARTY CITY HOLDCO INC. | ||
By: |
/s/ Todd Vogensen |
|
Name: Todd Vogensen | ||
Title: Chief Financial Officer
|
||
/s/ James M. Harrison |
||
JAMES M. HARRISON |
[Signature Page to Employment Agreement]
Exhibit A
FORM OF RELEASE OF CLAIMS
This Release of Claims is provided by me, James M. Harrison (or by my designated beneficiary, in the event of my death during my employment), pursuant to the Employment Agreement between me, Party City Holdings, Inc. (the Company) and Party City Holdco Inc. (Holdco) dated as of March 11, 2020 (the Employment Agreement).
This Release of Claims is given in consideration of the severance benefits to be provided to me (or, in the event of my death during my employment, to my designated beneficiary) in connection with the termination of my employment under Section 5 of the Employment Agreement (the Separation Payments), which are conditioned on my signing this Release of Claims and to which I am not otherwise entitled, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged. On my own behalf and that of my heirs, executors, administrators, beneficiaries, representatives and assigns, and all others connected with or claiming through me, I hereby release and forever discharge the Company from any and all causes of action, rights or claims of any type or description, known or unknown, which I have had in the past, now have or might have, through the date of my signing of this Release of Claims. This includes, without limitation, any and all causes of action, rights or claims in any way resulting from, arising out of or connected with my employment by the Company or the termination of that employment or pursuant to any federal, state or local law, regulation or other requirement, including without limitation Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, the Age Discrimination in Employment Act, the fair employment practices statutes of the state or states in which I have provided services to the Company or any other federal, state, local or foreign law, all as amended, any contracts of employment, any tort claims, or any agreements, plans or policies. Nothing in this Release of Claims shall be construed to prohibit me from filing a charge with or participating in any investigation or proceeding conducted by the federal Equal Employment Opportunity Commission or a comparable state or local agency, except that I hereby agree to waive my right to recover monetary damages or other individual relief in any charge, complaint or lawsuit filed by me or by anyone else on my behalf.
For purposes of this Release of Claims, the word Company always includes the Company, Holdco the subsidiaries and affiliates of the Company or Holdco and all of their respective past, present and future officers, directors, trustees, shareholders, employees, employee benefit plans and any of the trustees or administrators thereof, agents, general and limited partners, members, managers, investors, joint venturers, representatives, predecessors, successors and assigns, and all others connected with any of them, both individually and in their official capacities.
Excluded from the scope of this Release of Claims are any rights to benefits that were vested under the Companys employee benefit plans on the date on which my employment with the Company terminated, in accordance with the terms of such plans.
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In signing this Release of Claims, I give the Company assurance that I have returned to the Company any and all documents, materials and information related to the business, whether present or otherwise, of the Company and all keys and other property of the Company that were in my possession or control, all as required by and consistent with Section 9(e) of the Employment Agreement. I agree that I will not, for any purpose, attempt to access or use any computer or computer network or system of the Company, including without limitation their electronic mail systems. I further acknowledge that I have disclosed to the Company all passwords necessary or desirable to enable the Company to access all information which I have password-protected on its computer network or system.
In signing this Release of Claims, I agree that I have been paid in full all compensation due to me, whether for services rendered by me to the Company or otherwise, through the date on which my employment with the Company terminated and that, exclusive only of the Separation Payments, no further compensation of any kind shall be due to me by the Company, whether arising under the Employment Agreement or otherwise, in connection with my employment or the termination thereof. I also agree that except for any right I and my eligible dependents may have to continue participation in the Companys health and dental plans under the federal law commonly known as COBRA, my right to participate in any employee benefit plan of the Company will be determined in accordance with the terms of such plan.
I acknowledge that my eligibility for the Separation Payments is not only contingent on my signing and returning this Release of Claims to the Company in a timely manner and not revoking it thereafter, but also is subject to my compliance with the covenants contained in the Employment Agreement.
In signing this Release of Claims, acknowledge that I have not relied on any promises or representations, express or implied, that are not set forth expressly in this Release of Claims. I further acknowledge that I am waiving and releasing any rights I may have under the Age Discrimination in Employment Act of 1967, as amended (ADEA), and that this waiver and release is knowing and voluntary and is being done with a full understanding of its terms. I agree that the consideration given for this waiver and release is in addition to anything of value to which I was already entitled. I further acknowledge that I have been advised by this writing as required by the ADEA that:
1. I have the right to and am advised by the Company to consult with an attorney prior to executing this Release of Claims; and I acknowledge that I have had sufficient time to consider this Release of Claims and to consult with an attorney, if I wished to do so, or to consult with any other person of my choosing before signing;
2. I may not sign this Release of Claims prior to the termination of my employment, but that I may consider the terms of this Release of Claims for up to twenty-one days (or, if the Company so instructs me in writing, for up to forty-five days) from the later of the date my employment with the Company terminates or the date I receive this Release of Claims;
3. I have seven (7) days following execution of this Release of Claims to revoke this Release of Claims; and
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4. This Release of Claims shall not be effective until the revocation period has expired.
Intending to be legally bound, I have signed this Release of Claims under seal as of the date written below.
Signature: Date signed:
Party City Holdings Inc.
|
Name: |
Title: |
Party City Holdco Inc.
|
Name: |
Title: |
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Exhibit 10.30
Execution Version
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
AMENDED AND RESTATED EMPLOYMENT AGREEMENT (Agreement), dated as of the 11th day of March, 2020, by and between Party City Holdings Inc., a Delaware corporation (the Company), Party City Holdco Inc., a Delaware corporation (Holdco), and Brad Weston (the Executive) and effective as of April 1, 2020 (the Effective Date).
WHEREAS, the Executive has served as President of Holdco and the Chief Executive Officer of Party City Retail Group pursuant to an Employment Agreement (the Prior Employment Agreement) dated July 25, 2019 (the Prior Agreement Effective Date); and
WHEREAS, the Company, Holdco and the Executive desire to set forth in this Agreement the terms and conditions under which the Executive will be employed as the President and Chief Executive Officer of the Company and Holdco, effective as of the Effective Date.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Employment Period. The Company and Holdco shall continue to employ the Executive, and the Executive agrees to, and shall, serve the Company and Holdco, on the terms and conditions set forth in this Agreement, for the period beginning on the Effective Date and ending on December 31, 2022, unless sooner terminated as set forth hereinafter (the Employment Period).
2. Position and Duties.
(a) Beginning on the Effective Date, the Executive shall serve as the President and Chief Executive Officer of the Company and of Holdco with such duties and responsibilities as are assigned to him by the Board of Directors of Holdco (the Board) consistent with his position as President and Chief Executive Officer of the Company and Holdco, including, as the Board may request, without additional compensation, to serve as an officer or director of certain of the subsidiaries and other affiliates of Holdco and/or the Company. During the Employment Period, the Executive shall report to the Board. On the Effective Date, the Executive shall be appointed to the Board.
(b) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive shall devote his full attention and time during normal business hours to the business and affairs of the Company and Holdco and shall use his reasonable best efforts to carry out the responsibilities assigned to the Executive faithfully and efficiently. It shall not be considered a violation of the foregoing for the Executive to (i) serve on civic or charitable boards or committees, (ii) deliver lectures, fulfill speaking engagements or teach at educational institutions, (iii) serve on the board of directors of other companies, so long as the Board approves such appointments (such approval not to be unreasonably withheld), or (iv) manage personal investments, so long as such activities do not compete with and are not provided to or for any entity that competes with or intends to compete with the Company, Holdco or any of their respective subsidiaries and affiliates and do not interfere with the performance of the Executives responsibilities as an employee of the Company or Holdco in accordance with this Agreement.
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3. Compensation and Expense Reimbursements.
(a) Base Salary. Beginning on the Effective Date, the Executive shall receive from the Company an annual base salary of $1,050,000 (as such amount may be increased from time to time, in the sole discretion of the Board or the Compensation Committee of the Board (the Committee), the Annual Base Salary), payable in regular intervals in accordance with the Companys customary payroll practices in effect during the Employment Period.
(b) Annual Bonus. In addition to the Annual Base Salary, during the Employment Period, the Executive shall be eligible to receive annual bonus compensation (the Annual Bonus) consistent with the Companys bonus plan for key executives as in effect from time to time (the Bonus Plan). The Annual Bonus (including any pro rata portion thereof, to the extent payable under this Agreement), if any, shall be paid no later than two and one-half months following the end of the calendar year to which such Annual Bonus corresponds. During the Employment Period, the target amount of the Annual Bonus shall be 100% of the Annual Base Salary (the Target Bonus Amount), with the actual amount of the Annual Bonus, if any, to be determined by the Board or the Committee in accordance with the Bonus Plan. For any applicable year (including calendar year 2020) during which the Annual Base Salary is increased, the Target Annual Bonus shall be determined by appropriately adjusting the Target Annual Bonus based on the relative portions of the year that Annual Base Salary was at each respective level (e.g., for calendar year 2020, the Target Annual Bonus shall be based on the Executive having an Annual Base Salary of $900,000 for the period from January 1, 2020 through March 31, 2020 and $1,050,000 for the remainder of calendar year 2020). Except as otherwise provided in this Agreement, for any year during which the Executive is employed by the Company and Holdco for less than the entire calendar year (including a year in which the Executives employment is terminated), the Annual Bonus, if any, shall be determined based on actual performance, pro-rated for the period during which the Executive was employed during such calendar year (based on the number of days in such calendar year the Executive was so employed divided by 365), as determined in good faith by the Board or the Committee.
(c) Other Benefits; Car Allowance. During the Employment Period: (i) the Executive shall be eligible to participate in all incentive, savings and retirement plans, practices, policies and programs of the Company and shall be entitled to paid vacation, to the same extent and on the same terms and conditions as peer executives; and (ii) the Executive and/or the Executives family, as the case may be, shall be eligible for participation in, and shall receive all benefits under, all other welfare benefit plans, practices, policies and programs provided by the Company (including, to the extent provided, without limitation, medical, prescription, dental, disability, employee life insurance, group life insurance, accidental death and travel accident insurance plans and programs) to the same extent and on the same terms and conditions as peer executives. The term peer executives means the Chief Financial Officer and Senior Vice Presidents of the Company, if such positions exist, and if such positions do not exist, the definition of the term peer executives shall be determined by the Board or the Committee in good faith. During the Employment Period, the Company will pay the Executive a monthly car allowance equal to $650, which will be paid not later than thirty (30) days after the end of the month to which it relates.
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(d) Incentive Equity Grants.
(i) The Executive is eligible to receive incentive equity grants under the Companys equity compensation program for senior executives, subject to the terms of such program as in effect from time to time and with any grants under such program in the discretion of the Board or the Committee.
(ii) Following the Prior Agreement Effective Date, the Executive was be awarded a one-time grant of options to acquire 300,000 shares of Holdcos common stock (the Sign-On Options), which were granted under and subject to the terms of Holdcos Amended and Restated 2012 Omnibus Equity Incentive Plan and a stock option agreement with the Executive.
(e) Relocation Expenses.
(i) The Company has reimbursed or shall reimburse the Executive for reasonable and customary relocation expenses actually incurred by the Executive during the Employment Period as a direct result of his relocation to a location within reasonable commuting distance of the Companys retail division executive offices in Rockaway, NJ or the Companys offices in Elmsford, NY (Relocation Expenses), subject to Company policies and to such reasonable substantiation and documentation as may be specified by the Company, including house-hunting visits for the Executive as reasonably necessary; the cost of packing and moving the Executives household goods and the moving of automobiles to the Executives home in or around Rockaway, NJ or Elmsford, NY; the cost of temporary housing for the Executive and his immediate family in or around Rockaway, NJ or Elmsford, NY (not to exceed 18 months in duration); the cost of temporary storage of the Executives household goods for a reasonable period of time; real estate commissions on the purchase of a new home in or around Rockaway, NJ or Elmsford, NY; reasonable closing costs on a new home that is a reasonable commuting distance from Rockaway, NJ or Elmsford, NY; and airfare to the Rockaway, NJ or Elmsford, NY area for all members of the Executives immediate family. For the avoidance of doubt, such reimbursable Relocation Expenses will not include payment of any losses in connection with any capital transaction, such as the sale of a home. In the event that any of the reimbursements for Relocation Expenses are taxable to the Executive, the Company shall promptly make additional gross up payments to the Executive sufficient to cover such additional taxes (including taxes on the gross-up). The Company has paid or shall pay the Executive any amounts due to him in respect of Relocation Expenses within thirty (30) days after submission of written documentation substantiating such amounts.
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(ii) In the event that the Executive terminates his employment with the Company other than for Good Reason (as defined below), or if the Executives employment is terminated by the Company for Cause (as defined below), the Executive will be required to repay (a) 100% of the gross amount of any Relocation Expenses paid or reimbursed if such termination occurs within one year following the Prior Agreement Effective Date and (b) 50% of the gross amount of Relocation Expenses paid or reimbursed if such termination occurs more than one year from the Prior Agreement Effective Date but within two years following the Prior Agreement Effective Date, which repayment shall be made within thirty (30) days of the date of termination.
(f) Other Expenses. During the Employment Period, the Executive shall be entitled to receive reimbursement for all reasonable travel and other expenses incurred by the Executive in carrying out the Executives duties under this Agreement; provided that the Executive complies with the policies, practices and procedures of the Company for submission of expense reports, receipts, or similar documentation of such expenses.
(g) Indemnification. During and after the Employment Period, the Executive shall be entitled to all rights to indemnification available under the by-laws or certificate of incorporation of Holdco and the Company, or to which he may otherwise be entitled, through the Company, Holdco and/or any of their respective subsidiaries and affiliates, in accordance with their respective terms.
4. Termination of Employment. The Executives employment may be terminated under any of the circumstances described below. If the Executives employment as Chief Executive Officer of Holdco ceases for any reason, the Executive hereby agrees that he will immediately (and automatically be deemed to) tender his resignation as a member of the Board. Unless otherwise agreed in writing by Holdco, upon the termination of the Executives employment with Holdco and Holdings, he will immediately (and automatically be deemed to) resign from all director, officer, committee, manager, employee and other roles with the Company, Holdco and each of their affiliates. Except as expressly provided in Section 5, no payments or benefits shall be due to the Executive in connection with his termination of service as a director, officer, committee member, manager or employee or from any other role.
(a) Death or Permanent Disability. The Executives employment shall terminate automatically upon the Executives death during the Employment Period. The Company or Holdco shall be entitled to terminate the Executives employment because of the Executives Permanent Disability during the Employment Period. Permanent Disability means that the Executive (i) is unable to perform his duties under this Agreement by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months; (ii) is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months receiving income replacement benefits for a period of not less than three months under an accident and health plan covering employees of the Company; or (iii) has been determined to be totally disabled by the Social Security Administration. A termination of the Executives employment by the Company or Holdco for Permanent Disability shall be communicated to the
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Executive by written notice and shall be effective on the 30th day after receipt of such notice by the Executive (the Disability Effective Date), unless the Executive returns to full-time performance of the Executives duties in accordance with the provisions of Section 2 before such 30th day. In the event of a dispute as to whether the Executive has suffered a Permanent Disability, the final determination shall be made by a licensed physician selected by the Board and acceptable to the Executive in the Executives reasonable judgment.
(b) Other than Death or Disability. The Company or Holdco may terminate the Executives employment at any time during the Employment Period with or without Cause upon notice to the Executive.
(c) Good Reason. The Executive may terminate his employment at any time during the Employment Period for Good Reason, upon prior written notice to the Company setting forth in reasonable detail the nature of such Good Reason, as set forth below. For purposes of this Agreement, Good Reason is defined as any one or more of the following: any attempt to relocate the Executive to a work location that is more than 100 miles from the Companys office from which the Executive primarily works; any material diminution in the nature or scope of the Executives responsibilities or duties as defined under this Agreement (provided that a change in reporting relationships resulting from the direct or indirect control of the Company or Holdco (or a successor corporation) by another corporation or other person(s) shall not be deemed to constitute Good Reason); any material breach by the Company or any affiliate of the Company of any provision of this Agreement or any other written agreement with the Executive; or any material failure of the Company to provide the Executive with at least the Annual Base Salary and/or any other compensation or benefits in accordance with the terms of Section 3 hereof, other than an inadvertent failure which is cured within ten (10) business days following written notice from the Executive specifying in reasonable detail the nature of such failure. Notwithstanding the foregoing, the appointment of an interim President and Chief Executive Officer of the Company and/or Holdco during and for any period of the Executives disability (which may potentially result in a Permanent Disability) will not be considered Good Reason (so long as the Executive continues to be compensated pursuant to the terms of this Agreement), until the occurrence of a Permanent Disability as defined in Section 4(a). The Executives employment will only be deemed to have been terminated for Good Reason if he gives written notice to the Company setting forth in reasonable detail the nature of such Good Reason, gives the Company an opportunity to cure such Good Reason event (which cure period shall not be less than fifteen (15) days) and terminates employment within sixty (60) days of the date of the later of the first occurrence and the Executives knowledge of the circumstances giving rise to Good Reason (to the extent the Company has not previously cured the circumstances giving rise to Good Reason).
(d) Change in Control. If there occurs a Change in Control (as hereinafter defined) during the Employment Period, and the Executive is not offered employment on substantially similar terms by Holdco or one of its continuing affiliates immediately thereafter, then, for all purposes of this Agreement, the Executives employment shall be deemed to have been terminated by the Company in a manner qualifying as a Change in Control Termination effective as of the date of such Change in Control; provided, however, that neither the Company nor Holdco shall have any obligation to the Executive under this Section 4 if the
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Executive is hired or offered employment on substantially similar terms by the purchaser of the stock or assets of Holdco or the Company, if the Executives employment hereunder is continued by Holdco or one of its continuing affiliates, or if the Executive does not actually terminate employment. Further, if the Company terminates the Executives employment without Cause or the Executive terminates his employment for Good Reason, in either case, within six (6) months prior to, or twenty-four (24) months following, the consummation of such Change in Control (the Change in Control Protection Period), the Executive shall be deemed to have had a Change in Control Termination. As used herein, a Change in Control shall be deemed to have occurred solely upon the occurrence of any of the following events:
(i) a change in the ownership of Holdco within the meaning of Treasury Regulation Section 1.409A-3(i)(5)(v) as in effect on the date hereof; or
(ii) a change in the ownership of all or substantially all of Holdcos assets within the meaning of Treasury Regulation Section 1.409A-3(i)(5)(vii) as in effect on the date hereof.
(e) Date of Termination. The Date of Termination means the date of the Executives death, the Disability Effective Date or the date on which the termination of the Executives employment by the Company and Holdco, or by the Executive, is effective, as the case may be, including by reason of the expiration of the Employment Period.
5. Obligations of the Company Upon Termination.
(a) By the Company Upon the Executives Death or Permanent Disability. If the Executive dies during the Employment Period or the Company or Holdco terminates the Executives employment due to the Executives Permanent Disability, the Company shall pay the Executive or his legal representative:
(i) One or more payments (the Accrued Obligations) equal (in the aggregate) to the sum of (1) any portion of the Executives Annual Base Salary through the Date of Termination that has not yet been paid; (2) any Annual Bonus that the Executive has earned for a prior full calendar year that has ended prior to the Date of Termination but which has not yet been calculated and paid; (3) any accrued but unpaid vacation pay and (4) any unreimbursed expenses incurred prior to the Date of Termination, including any then unreimbursed car allowance for each month or partial month of employment; and
(ii) a pro rata Annual Bonus.
The Accrued Obligations shall be paid in cash within thirty (30) days of the Date of Termination (other than the amount described in clause (2) of the definition of Accrued Obligations, which shall be paid in accordance with Section 3(b)). Notwithstanding anything to the contrary set forth herein, the Executive shall not be entitled to any payment pursuant to clause (ii) of this Section 5(a) unless the Executive (or the Executives beneficiary previously designated in writing to the Company or, if no such beneficiary has been so designated, the
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Executives estate or representative, as applicable) shall have, at the written request of the Company or Holdco, executed a release of any and all legal claims substantially in the form attached hereto as Exhibit A (which form may be modified by the Company to the extent necessary to reflect execution by a person other than the Executive and to include restrictive covenants that are consistent with those set forth herein) (the Release) no later than twenty-one (21) days (or, if so instructed by the Company, forty-five (45) days) following the Date of Termination and shall not have revoked the Release in accordance with its terms. The Company shall provide the final Release promptly in connection with any termination of the Executives employment hereunder.
(b) By the Company for Cause. If the Executives employment is terminated by the Company or Holdco for Cause (as hereinafter defined), then the Executive shall be entitled to only the payment of the Accrued Obligations, which shall be paid to the Executive in cash in a lump sum within thirty (30) days of the Date of Termination (other than the amount described in clause (2) of the definition of Accrued Obligations, which shall be paid in accordance with Section 3(b)) and neither the Company nor Holdco shall have any further obligation under this Agreement, except as expressly provided herein. For the avoidance of doubt, if the Executives employment is terminated by the Company or Holdco for Cause, or if the Executive resigns at a time when the Executives acts or omissions constituted grounds to terminate the Executives employment for Cause without regard to applicable cure rights, any Sign-On Options that are outstanding as of the Date of Termination, whether or not then vested, shall be forfeited automatically without consideration. For purposes of this Agreement, Cause shall mean (1) conviction of the Executive by a court of competent jurisdiction of a felony (excluding felonies under any state or local vehicle and traffic code); (2) any act of intentional fraud in connection with his duties under this Agreement; (3) any act of gross negligence or willful misconduct with respect to the Executives duties under this Agreement and (4) any act of willful disobedience in violation of specific reasonable directions of the Board or the CEO consistent with the Executives duties; provided, in the case of clause (3) or (4), that the Executive has not cured the circumstances giving rise to Cause within fifteen (15) days of the date the Company gives notice to the Executive of its intent to terminate his employment on such basis.
(c) By the Company for any reason other than Cause or by the Executive for Good Reason. If the Executives employment is terminated during the Employment Period (i) by the Company or Holdco other than for Cause, death or Permanent Disability or (ii) by the Executive for Good Reason, in each case, except if such termination is a Change in Control Termination, (A) the Company shall pay to the Executive the Accrued Obligations, paid in cash within thirty (30) days of the Date of Termination (other than the amount described in clause (2) of the definition of Accrued Obligations, which shall be paid in accordance with Section 3(b)); (B) the Company shall pay to the Executive a pro rata Annual Bonus for the year of termination, calculated and paid in accordance with Section 3(b); (C) the Company shall pay to the Executive a severance payment (the Severance Payment), in an amount equal to two (2) times the Executives then current Annual Base Salary and (D) any Sign-On Options that are outstanding as of the Date of Termination and would have vested during the twenty-four (24) month period immediately following the Date of Termination shall become vested as of the Date of Termination and any vested Sign-On Options outstanding as of such date shall, subject to the
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terms of Holdcos Amended and Restated 2012 Omnibus Equity Incentive Plan (including Section 11.2 thereof), remain outstanding and exercisable for their full term, notwithstanding such termination of employment. Any Sign-On Options that do not vest after application of the preceding sentence shall be immediately forfeited without payment due thereon. The Severance Payment shall be payable in cash in the form of salary continuation over the twenty-four (24) months following the Date of Termination, with the first payment(s) being payable in arrears on the date that is sixty (60) days following the Date of Termination. Notwithstanding anything to the contrary set forth herein, the Executive shall not be entitled to any payment or benefit pursuant to clauses (B), (C) or (D) of this Section 5(c) unless the Executive shall have executed the Release not later than twenty-one (21) days (or, if so instructed by the Company, forty-five (45) days) following the Date of Termination and shall not have revoked the Release in accordance with its terms. The Company shall provide the final Release promptly in connection with any termination of the Executives employment hereunder.
(d) Change in Control Termination. Notwithstanding anything to the contrary set forth herein, in the event of a Change in Control Termination:
(i) the Company shall pay to the Executive the Accrued Obligations;
(ii) the Company shall pay to the Executive:
(A) an amount equal to two (2) times the sum of (1) Executives then current Annual Base Salary and (2) the target Annual Bonus,
(B) an amount equal to a pro rata Annual Bonus for the year of termination, calculated and paid in accordance with Section 3(b), and
(C) provided that the Executive timely elects to continue his coverage in the Companys group health plan under the federal law known as COBRA, a monthly amount equal to that portion of the monthly health premiums for such coverage paid by the Company on behalf of the Executive prior to the date of the Change in Control Termination until the date that is twenty-four (24) months following the date of the Change in Control Termination (the Health Continuation Benefits);
(iii) any Sign-On Options that are outstanding as of the Date of Termination shall immediately become fully vested as of the date of the Change in Control Termination and any vested Sign-On Options outstanding as of such date shall, subject to the terms of Holdcos Amended and Restated 2012 Omnibus Equity Incentive Plan (including Section 11.2 thereof), remain outstanding and exercisable for their full term, notwithstanding such termination of employment; and
(iv) any stock options (other than the Sign-On Options), restricted stock, restricted stock units, performance stock units or similar awards (or any awards or rights issued in exchange for such grants in connection with a Change in Control or otherwise) shall be treated as follows: (A) such awards or rights that vest solely based on the Executives continued service over time shall immediately become fully vested as of the date of the Change in Control
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Termination and (B) such awards or rights that vest upon the occurrence of specified performance metrics, shall be treated as earned and vest as follows: (1) if the full performance period has elapsed as of the date of the Change in Control Termination, such awards and rights shall be earned based on actual achievement of the applicable performance goals, as provided in the applicable award agreement and shall immediately become vested without pro-ration and (2) otherwise, such awards and rights shall be earned based on assumed achievement of the applicable performance goals at 100% of the performance target, as provided in the applicable award agreement, and shall immediately vest as to a prorated portion of each such award or right based on the number of days of the Executives actual employment or other service with the Company prior to the Change in Control Termination during the applicable full performance period; provided, that, if the Executive does not experience a Change in Control Termination prior to the end of the applicable original performance period, such awards and rights shall be earned based on assumed achievement of the applicable performance goals at 100% of the performance target, as provided in the applicable award agreement, and shall be eligible to vest as of the last day of the applicable original performance period without pro-ration, subject to the terms of the applicable award agreement. Any stock options, restricted stock, restricted stock units, performance stock units or similar awards (or any awards or rights issued in exchange for such grants in connection with a Change in Control or otherwise) that do not vest after application of the preceding sentence or clause (iii) hereof shall be immediately forfeited without payment due thereon.
Notwithstanding the foregoing, in the event that the Health Continuation Benefits would subject the Executive or the Company to any tax or penalty under the ACA or Section 105(h) of the Code (as defined below), or applicable subsequent regulations, guidance or successor statutes, the Executive and the Company agree to work together in good faith to restructure the Health Continuation Benefits in a manner that avoids such adverse consequences. All amounts payable hereunder (except the Annual Bonus which is payable in accordance with Section 3(b), the Accrued Obligations, which shall be calculated and paid in a lump sum in cash within thirty (30) days of the date of the Change in Control Termination and the Health Continuation Benefits, which shall be paid as described above in this Section 5(d)) shall be paid in cash in a lump sum on the date that is the later of sixty (60) days following the date of the Change in Control Termination or sixty (60) days following the consummation of the Change in Control (except that, if the Change in Control Termination occurs due to a qualifying termination within six (6) months prior to a Change in Control, such payment will be made over the twenty-four (24) months following the Date of Termination, with the first payment(s) being payable in arrears on the date that is sixty (60) days following the Date of Termination). Notwithstanding anything to the contrary set forth herein, the Executive shall not be entitled to any payment or benefit pursuant to clauses (ii) or (iii) of this Section 5(d) unless the Executive shall have, at the written request of the Company or Holdco, executed the Release no later than twenty-one (21) days (or, if so instructed by the Company, forty-five (45) days) following the date of the Change in Control Termination and shall not have revoked such release in accordance with its terms.
(e) By the Executive other than for Good Reason. If during the Employment Period the Executive terminates his employment with the Company and Holdco other than for Good Reason, the Company shall pay the Accrued Obligations to the Executive in a lump sum in cash within thirty (30) days of the Date of Termination (other than the amount described in clause (2) of the definition of Accrued Obligations, which shall be paid in accordance with Section 3(b)) and neither the Company nor Holdco shall have any further obligation under this Agreement except as expressly provided herein.
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(f) Expiration of the Term. Unless otherwise terminated pursuant to any of the foregoing clauses of this Section 5, the Executives employment hereunder will automatically terminate at the expiration of the Employment Period and the Company shall pay to the Executive the Accrued Obligations; provided, however, that if the Company allows the Executives employment to terminate due to an expiration of the Employment Period occurring during the Change in Control Protection Period, the Executive will be deemed to have had a Change in Control Termination and will be entitled to the payments and benefits described in Section 5(d) above and shall not otherwise receive payment under this Section 5(f). The Accrued Obligations shall be paid to the Executive in a lump sum in cash within thirty (30) days of the Date of Termination (other than the amount described in clause (2) of the definition of Accrued Obligations, which, for the avoidance of doubt, shall be the Annual Bonus for the calendar year in which the Employment Period expires and which shall be paid in accordance with Section 3(b)). Upon expiration of the Employment Period, no Severance Payment will be due and no further Restriction Period shall apply.
6. Section 409A. The parties intend for the compensation provided under this Agreement to comply with, or be exempt from, the provisions of Section 409A of the Internal Revenue Code of 1986, as amended (the Code) (together with the regulations thereunder, Section 409A). Notwithstanding the foregoing, in no event shall the Company, Holdco or any of their respective affiliates have any liability to the Executive or to any other person claiming rights under this Agreement relating to the failure or alleged failure of any payment or benefit under this Agreement to comply with, or be exempt from, the provisions of Section 409A.
(a) Definitions. For purposes of this Agreement, all references to termination of employment and similar or correlative phrases shall be construed to require a separation from service (as defined in Section 1.409A-1(h) of the Treasury regulations after giving effect to the presumptions contained therein), and the term specified employee means an individual determined by Holdco to be a specified employee under Treasury regulation Section 1.409A-1(i).
(b) Certain Delayed Payments. If any payment or benefit hereunder constituting nonqualified deferred compensation subject to Section 409A would be subject to subsection (a)(2)(B)(i) of Section 409A (relating to payments made to specified employees of publicly-traded companies upon separation from service), any such payment or benefit to which the Executive would otherwise be entitled during the six (6) month period following the Executives separation from service will instead be provided or paid without interest on the first business day following the expiration of such six (6) month period, or if earlier, the date of the Executives death.
(c) Separate Payments. Each payment made under this Agreement shall be treated as a separate payment.
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(d) Reimbursements. Notwithstanding anything to the contrary in this Agreement, any reimbursement that constitutes or could constitute nonqualified deferred compensation subject to Section 409A will be subject to the following additional requirements: (i) the expenses eligible for reimbursement will have been incurred during the term of this Agreement, (ii) the amount of expenses eligible for reimbursement during any calendar year will not affect the expenses eligible for reimbursement in any other taxable year; (iii) reimbursement will be made not later than December 31 of the calendar year following the calendar year in which the expense was incurred; and (iv) the right to reimbursement will not be subject to liquidation or exchange for any other benefit. Any tax gross-up payments payable by the Company under Section 3(e)(i) shall be paid not later than the time period provided in Section 1.409A-3(v).
7. Full Settlement. The Companys obligations to make the payments provided for in, and otherwise to perform its obligations under, this Agreement shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action that the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and such amounts shall not be reduced, regardless of whether the Executive obtains other employment.
8. Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company and Holdco all secret or confidential information, knowledge or data relating to the Company, Holdco or any of their affiliates and their respective businesses that the Executive obtains during the Executives employment by the Company and Holdco (whether before, during or after the Employment Period) and that is not public knowledge (other than as a result of the Executives violation of this Section 8) (Confidential Information). The Executive shall not communicate, divulge or disseminate Confidential Information at any time during or after the Executives employment with the Company and Holdco, except with the prior written consent of the Company or as otherwise required by law. For the avoidance of doubt, (a) nothing contained in this Agreement or any other agreement containing confidentiality provisions or other restrictive covenants in favor of any of Holdco, the Company or any affiliate of either of them, shall be construed to limit, restrict or in any other way affect the Executives communicating with any governmental agency or entity, or communicating with any official or staff person of a governmental agency or entity, concerning matters relevant to the governmental agency or entity and (b) the Executive will not be held criminally or civilly liable under any federal or state trade secret law for disclosing a trade secret (i) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney, solely for the purpose of reporting or investigating a suspected violation of law, or (ii) in a complaint or other document filed under seal in a lawsuit or other proceeding; provided that notwithstanding this immunity from liability, the Executive may be held liable if the Executive unlawfully accesses trade secrets by unauthorized means.
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9. Noncompetition; Nonsolicitation.
(a) Noncompetition. During the Employment Period, and following termination of the Executives employment with the Company, Holdco and any of their affiliates, during the Restriction Period (as hereinafter defined), the Executive shall not directly or indirectly participate in or permit his name directly or indirectly to be used by or become associated with (including as an advisor, representative, agent, promoter, independent contractor, provider of personal services or otherwise) any person, corporation, partnership, firm, association or other enterprise or entity (a person) that is, or intends to be, engaged in any business which is in competition with any business of the Company, Holdco or any of their respective subsidiaries or affiliates in any geographic area in which the Company, Holdco or any of their respective subsidiaries or affiliates operate, compete or are engaged in such business or at such time intend so to operate, compete or become engaged in such business (a Competitor); provided, however, that the foregoing will not prohibit the Executive from participating in or becoming associated with a person if (i) less than 10% of the consolidated gross revenues of such person, together with its affiliates, derive from activities or businesses that are in competition with any business of the Company or any of its subsidiaries or affiliates (a Competitive Business) and (ii) the Executive does not, directly or indirectly, participate in, become associated with, or otherwise have responsibilities that relate to the conduct or operations of, any Competitive Business that is conducted by such person or a division, group, or subsidiary or affiliate of such person. For purposes of this Agreement, the term participate includes any direct or indirect interest, whether as an officer, director, employee, partner, sole proprietor, trustee, beneficiary, agent, representative, independent contractor, consultant, advisor, provider of personal services, creditor, or owner (other than by ownership of less than five percent of the stock of a publicly-held corporation whose stock is traded on a national securities exchange or in an over-the-counter market).
(b) Nonsolicitation. During the Employment Period, and during the Restriction Period following termination of employment, the Executive shall not, directly or indirectly, encourage or solicit, or assist any other person or firm in encouraging or soliciting, any person or firm that during the three-year period preceding such termination of the Executives employment with the Company and Holdco (or, if such action occurs during the Employment Period, on the date such action was taken) is or was engaged in a business relationship with the Company or Holdco, any of their respective subsidiaries or affiliates to terminate its relationship with the Company or Holdco or any of their respective subsidiaries or affiliates or, in the case of any such person, to engage in a business relationship with a Competitor.
(c) No Hire. During the Employment Period, and during the Restriction Period following termination of employment, the Executive will not, except with the prior written consent of the Company, directly or indirectly, induce any employee of the Company, Holdco or any of their respective subsidiaries or affiliates to terminate employment with such entity, and will not, directly or indirectly, either individually or as owner, agent, employee, consultant or otherwise, employ, offer employment or cause employment to be offered to any person (including employment as an independent contractor) who is or was employed by the Company, Holdco or any of their respective subsidiaries or affiliates unless such person shall have ceased to be employed by such entity for a period of at least twelve months; provided that the foregoing shall not apply to inducing any employee pursuant to a blanket solicitation not specifically targeted at that employee. For purposes of this Section 9(c), employment shall be deemed to include rendering services as an independent contractor and employees shall be deemed to include independent contractors.
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(d) Restriction Period. The term Restriction Period as used herein, shall mean the 24-month period immediately following the Date of Termination (other than a termination at the expiration of the Employment Period).
(e) Return of Confidential Information. Promptly following the Executives termination of employment, including due to expiration of the Employment Period, the Executive shall return to the Company all property of the Company, Holdco and their respective subsidiaries and affiliates, and all copies thereof, in the Executives possession or under his control, including, without limitation, all Confidential Information in whatever media such Confidential Information is maintained.
(f) Injunctive Relief. The Executive acknowledges and agrees that the Restriction Period and the covenants and obligations of the Executive in Section 8 and this Section 9 with respect to noncompetition, nonsolicitation and confidentiality and with respect to the property of the Company and its subsidiaries and affiliates, and the territories covered thereby, are fair and reasonable and the result of negotiation. The Executive further acknowledges and agrees that the covenants and obligations of the Executive in Section 8 and this Section 9 with respect to noncompetition, nonsolicitation and confidentiality and with respect to the property of the Company, Holdco and their respective subsidiaries and affiliates, and the territories covered thereby, relate to special, unique and extraordinary matters and that a violation of any of the terms of such covenants and obligations will cause the Company, Holdco and their respective subsidiaries and affiliates irreparable injury for which adequate remedies are not available at law. Therefore, the Executive agrees that the Company and Holdco shall be entitled to an injunction, restraining order or such other equitable relief as a court of competent jurisdiction may deem necessary or appropriate to restrain the Executive from committing any violation of such covenants and obligations. These injunctive remedies are cumulative and are in addition to any other rights and remedies the Company and Holdco may have at law or in equity. If, at the time of enforcement of Section 8 and/or this Section 9, a court holds that any of the restrictions stated herein are unreasonable under circumstances then existing, the parties hereto agree that the maximum period, scope, and/or geographical area legally permissible under such circumstances will be substituted for the period, scope and/or area stated herein.
10. Successors.
(a) This Agreement is personal to the Executive and shall not be assignable by the Executive. This Agreement shall inure to the benefit of and be enforceable by the Executives legal representatives and heirs and successors.
(b) This Agreement shall inure to the benefit of and be binding upon Holdco, the Company and their respective successors and assigns.
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11. Section 280G. In the event that the Company undergoes a change in control at a time when it (or any affiliate of the Company, including Holdco, that would be treated, together with the Company, as a single corporation under Section 280G of the Code and the regulations thereunder) has stock that is readily tradeable on an established securities market (within the meaning of Section 280G of the Code and the regulations thereunder), if all, or any portion, of the payments provided under this Agreement, either alone or together with other payments or benefits which the Executive receives or is entitled to receive from the Company or an affiliate, could constitute an excess parachute payment within the meaning of Section 280G of the Code, then the Executive shall be entitled to receive (i) an amount limited so that no portion thereof shall fail to be tax deductible under Section 280G of the Code (the Limited Amount), or (ii) if the amount otherwise payable hereunder, together with the other payments or benefits the Executive is so entitled to receive, (without regard to clause (i)) reduced by the excise tax imposed by Section 4999 of the Code and all other applicable federal, state and local taxes (with income taxes all computed at the highest applicable marginal rate) is greater than the Limited Amount reduced by all taxes applicable thereto (with income taxes all computed at the highest marginal rate), the amount otherwise payable hereunder. If it is determined that the Limited Amount will maximize the Executives after-tax proceeds, payments and benefits shall be reduced to equal the Limited Amount in the following order: (i) first, by reducing cash severance payments, (ii) second, by reducing other payments and benefits to which Q&A 24(c) of Section 1.280G-1 of the Treasury Regulations does not apply, and (iii) finally, by reducing all remaining payments and benefits, with all such reductions done on a pro rata basis. All determinations made pursuant this Section 11 will be made at the Companys expense by the independent public accounting firm most recently serving as the Companys outside auditors or such other accounting or benefits consulting group or firm as the Company may designate.
12. Miscellaneous.
(a) This Agreement shall be governed by, and construed in accordance with, the laws of the State of New Jersey, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified except by a written agreement executed by the parties hereto or their respective heirs, successors and legal representatives.
(b) All notices and other communications under this Agreement shall be in writing and shall be given by hand delivery to the other party or by overnight courier or by registered or certified mail, return receipt requested, postage prepaid, or by facsimile (with receipt confirmation), addressed as follows:
If to the Executive: |
Brad Weston At his most recent address shown in the Companys records
|
|
If to the Company: |
Party City Holdings Inc. 80 Grasslands Road Elmsford, NY 10523 Attention: Corporate Secretary Fax no.: (914) 345-2056 |
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or to such other address as either party furnishes to the other in writing in accordance with this Section 12(b). Notices and communications shall be effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.
(d) Notwithstanding any other provision of this Agreement, the Company may withhold from amounts payable under this Agreement all federal, state, local and foreign taxes that are required to be withheld by applicable laws or regulations. In addition, the obligations of the Company under this Agreement shall be conditional on compliance with this Section 12(d), and the Company shall, to the extent permitted by law, have the right to deduct any such taxes from any payment otherwise due to the Executive.
(e) Any partys failure to insist upon strict compliance with any provision of, or to assert any right under, this Agreement shall not be deemed to be a waiver of such provision or right or of any other provision of or right under this Agreement.
(f) The Executive acknowledges that this Agreement, together with the Exhibit hereto and the other agreements referred to herein except as modified herein or therein, supersedes, as of the Effective Date, all other agreements and understandings, both written and oral, between the Executive, on one hand, and the Company and Holdco, on the other, with respect to the subject matter hereof (including, without limitation, the Prior Employment Agreement).
(g) This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which shall together constitute one and the same instrument.
(h) Provisions of this Agreement shall survive any termination of employment if so provided herein or if necessary or desirable to accomplish the purposes of other surviving provisions, including, without limitation, the obligations of the Executive under Sections 8 and 9 hereof.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the Executive has hereunto set the Executives hand and, pursuant to the authorization of their respective boards of directors, the Company and Holdco have each caused this Agreement to be executed in its name on its behalf, all as of the day and year first above written.
PARTY CITY HOLDINGS INC. | ||
By: | /s/ Jim M. Harrison | |
Name: Jim M. Harrison | ||
Title: Chief Executive Officer | ||
PARTY CITY HOLDCO INC. | ||
By: | /s/ Jim M. Harrison | |
Name: Jim M. Harrison | ||
Title: Chief Executive Officer | ||
/s/ Brad Weston | ||
BRAD WESTON |
[Signature Page to Employment Agreement]
Exhibit A
FORM OF RELEASE OF CLAIMS
This Release of Claims is provided by me, Brad Weston (or by my designated beneficiary or estate, in the event of my death during my employment), pursuant to the Amended and Restated Employment Agreement between me, Party City Holdings, Inc. (the Company) and Party City Holdco Inc. (Holdco) dated as of March 11, 2020 (the Employment Agreement).
This Release of Claims is given in consideration of the severance benefits to be provided to me (or, in the event of my death during my employment, to my designated beneficiary) in connection with the termination of my employment under Section 5 of the Employment Agreement (the Separation Payments), which are conditioned on my signing this Release of Claims and to which I am not otherwise entitled, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged. On my own behalf and that of my heirs, executors, administrators, beneficiaries, representatives and assigns, and all others connected with or claiming through me, I hereby release and forever discharge the Company from any and all causes of action, rights or claims of any type or description, known or unknown, which I have had in the past, now have or might have, through the date of my signing of this Release of Claims. This includes, without limitation, any and all causes of action, rights or claims in any way resulting from, arising out of or connected with my employment by the Company or the termination of that employment or pursuant to any federal, state or local law, regulation or other requirement, including without limitation Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, the Age Discrimination in Employment Act, the fair employment practices statutes of the state or states in which I have provided services to the Company or any other federal, state, local or foreign law, all as amended, any contracts of employment, any tort claims, or any agreements, plans or policies.
For purposes of this Release of Claims, the word Company always includes the Company, Holdco the subsidiaries and affiliates of the Company or Holdco and all of their respective past, present and future officers, directors, trustees, shareholders, employees, employee benefit plans and any of the trustees or administrators thereof, agents, general and limited partners, members, managers, investors, joint venturers, representatives, predecessors, successors and assigns, and all others connected with any of them, both individually and in their official capacities.
Nothing in this Release of Claims shall be construed to prohibit me from filing a charge with or participating in any investigation or proceeding conducted by the federal Equal Employment Opportunity Commission or a comparable state or local agency, except that I hereby agree to waive my right to recover monetary damages or other individual relief in any charge, complaint or lawsuit filed by me or by anyone else on my behalf.
Nothing in this Release of Claims is intended to or does waive or release any rights I may have with respect to (i) coverage under liability insurance or indemnification rights provided or maintained by the Company during, or applicable to, my employment with the Company, or under any other obligation or policy of insurance maintained by the Company in accordance with their respective terms; (ii) any other defense or indemnity right under applicable law; (iii) the enforcement of the right to any payment or benefits due upon the termination of my employment in accordance with the express terms of the Employment Agreement or (iv) any right or claim that cannot, by law, be waived or released through this Release of Claims.
Also excluded from the scope of this Release of Claims is any right to benefits that were vested or eligible for continuation under the Companys employee benefit plans on the date on which my employment with the Company terminated, in accordance with the terms of such plans.
In signing this Release of Claims, I give the Company assurance that I have returned to the Company any and all documents, materials and information related to the business, whether present or otherwise, of the Company and all keys and other property of the Company that were in my possession or control, all as required by and consistent with Section 9(e) of the Employment Agreement. I agree that I will not, for any purpose, attempt to access or use any computer or computer network or system of the Company, including without limitation their electronic mail systems. I further acknowledge that I have disclosed to the Company all passwords necessary or desirable to enable the Company to access all information which I have password-protected on its computer network or system.
In signing this Release of Claims, I agree that I have been paid in full all compensation due to me, whether for services rendered by me to the Company or otherwise, through the date on which my employment with the Company terminated and that, exclusive only of the Separation Payments and the Accrued Obligations, as defined in the Employment Agreement, no further compensation of any kind shall be due to me by the Company, whether arising under the Employment Agreement or otherwise, in connection with my employment or the termination thereof. I also agree that except for any right I and my eligible dependents may have to continue participation in the Companys health and dental plans under the federal law commonly known as COBRA, my right to participate in any employee benefit plan of the Company will be determined in accordance with the terms of such plan.
I acknowledge that my eligibility for the Separation Payments is not only contingent on my signing and returning this Release of Claims to the Company in a timely manner and not revoking it thereafter, but also is subject to my compliance with the covenants contained in the Employment Agreement.
In signing this Release of Claims, acknowledge that I have not relied on any promises or representations, express or implied, that are not set forth expressly in this Release of Claims. I further acknowledge that I am waiving and releasing any rights I may have under the Age Discrimination in Employment Act of 1967, as amended (ADEA), and that this waiver and release is knowing and voluntary and is being done with a full understanding of its terms. I agree that the consideration given for this waiver and release is in addition to anything of value to which I was already entitled. I further acknowledge that I have been advised by this writing as required by the ADEA that:
1. I have the right to and am advised by the Company to consult with an attorney prior to executing this Release of Claims; and I acknowledge that I have had sufficient time to consider this Release of Claims and to consult with an attorney, if I wished to do so, or to consult with any other person of my choosing before signing;
2. I may not sign this Release of Claims prior to the termination of my employment, but that I may consider the terms of this Release of Claims for up to twenty-one (21) days (or, if the Company so instructs, forty-five (45) days) from the later of the date my employment with the Company terminates or the date I receive this Release of Claims;
3. I have seven (7) days following my execution of this Release of Claims to revoke this Release of Claims; and
4. This Release of Claims shall not be effective until the revocation period has expired.
Intending to be legally bound, I have signed this Release of Claims under seal as of the date written below.
Signature: Date signed:
Party City Holdings Inc.
|
Name: |
Title: |
Party City Holdco Inc.
|
Name: |
Title: |
Exhibit 21.1
List of Subsidiaries of Party City Holdco Inc.
Name |
State/Country of Organization or Incorporation |
|
Amscan Asia Limited |
Hong Kong |
|
Amscan Canada Inc. |
Ontario |
|
Amscan Custom Injection Molding, LLC |
Delaware |
|
Amscan de Mexico S.A. de C.V. |
Mexico |
|
Amscan Europe GmbH |
Germany |
|
Amscan Holdings Limited |
United Kingdom |
|
Amscan Inc. |
New York |
|
Amscan International Limited |
United Kingdom |
|
Amscan Mauritius Company Limited |
Mauritius |
|
Amscan NM Land, LLC |
Delaware |
|
Amscan Party Goods Pty. Limited |
Australia |
|
Amscan Purple Sage, LLC |
Delaware |
|
Am-Source, LLC |
Rhode Island |
|
Anagram Eden Prairie Property Holdings LLC |
Delaware |
|
Anagram France S.C.S. |
France |
|
Anagram International Holdings, Inc. |
Minnesota |
|
Anagram International Inc. |
Minnesota |
|
Anagram International LLC |
Nevada |
|
Baja Pacific Paper, S. de R.L. de C.V. |
Mexico |
|
Balloon Agencies Pty Ltd. |
Australia |
|
Christy Dressup Limited |
United Kingdom |
|
Christys By Design Limited |
United Kingdom |
|
Christy Garments and Accessories Limited |
United Kingdom |
|
Convergram de Mexico S. de R.L. (49.9% owned) |
Mexico |
|
Eastlake Manufacturing de Mexico S.A. de C.V. |
Mexico |
|
Everts Malaysia SDN BHD |
Malaysia |
|
Festival S.A. |
Madagascar |
|
Granmark S.A. de C.V. (85% owned) |
Mexico |
|
Guangzhou Christy Trading Company Limited |
China |
|
Kazzam, LLC (26% owned) |
Delaware |
|
Livario GmbH |
Germany |
|
Mindvent AG |
Switzerland |
|
Party City Corporation |
Delaware |
|
Party City Holdings Inc. |
Delaware |
|
Party Delights Ltd. |
United Kingdom |
|
Party HQ Ltd. (65% owned) |
United Kingdom |
|
Party Horizon Inc. |
Delaware |
|
PC Nextco Holdings, LLC |
Delaware |
|
PC Nextco Finance, Inc. |
Delaware |
|
PC Intermediate Holdings, Inc. |
Delaware |
|
PD Retail Group Ltd. (82.5% owned) |
United Kingdom |
|
Print Appeal, Inc. (70% owned) |
Texas |
|
Riethmüller (Polska) Sp.z.o.o. |
Poland |
|
Trisar, Inc. |
California |
|
Webdots GmbH |
Germany |
1
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the following Registration Statements (Form S-3 No. 333-213492, S-8 No. 333-203725) of Party City Holdco Inc. of our reports dated March 12, 2020, with respect to the consolidated financial statements and schedules of Party City Holdco Inc. and the effectiveness of internal control over financial reporting of Party City Holdco Inc. included in this Annual Report (Form 10-K) of Party City Holdco Inc. for the year ended December 31, 2019.
/s/ Ernst & Young LLP
New York, New York
March 12, 2020
Exhibit 31.1
Section 302 Certification
I, James M. Harrison, certify that:
1. |
I have reviewed this annual report on Form 10-K of Party City Holdco Inc.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) |
Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) |
Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. |
The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: March 12, 2020
/s/ James M. Harrison
James M. Harrison
Chief Executive Officer
(Principal Executive Officer)
1
Exhibit 31.2
Section 302 Certification
I, Todd Vogensen, certify that:
1. |
I have reviewed this annual report on Form 10-K of Party City Holdco Inc.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) |
Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) |
Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. |
The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: March 12, 2020
/s/ Todd Vogensen
Todd Vogensen
Chief Financial Officer
(Principal Financial Officer)
1
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Party City Holdco Inc. (the Company) on Form 10-K for the year ended December 31, 2019, as filed with the Securities and Exchange Commission (the Report), I, James M. Harrison, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ James M. Harrison
James M. Harrison
Chief Executive Officer
(Principal Executive Officer)
Date: March 12, 2020
This certification accompanies the Form 10-K to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Party City Holdco Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-K), irrespective of any general incorporation language contained in such filing.
1
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Party City Holdco Inc. (the Company) on Form 10-K for the year ended December 31, 2019, as filed with the Securities and Exchange Commission (the Report), I, Todd Vogensen, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Todd Vogensen
Todd Vogensen
Chief Financial Officer
(Principal Financial Officer)
Date: March 12, 2020
This certification accompanies the Form 10-K to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Party City Holdco Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-K), irrespective of any general incorporation language contained in such filing.
1