Term Loan Credit Agreement

Execution Copy


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TERM LOAN CREDIT AGREEMENT


Dated as of May 25, 2007


Among


AAH HOLDINGS CORPORATION,


AMSCAN HOLDINGS, INC,


THE SUBSIDIARIES OF AMSCAN HOLDINGS, INC.
FROM TIME TO TIME PARTY HERETO,


THE FINANCIAL INSTITUTIONS PARTY HERETO


as the Lenders,


and


CREDIT SUISSE,


as Administrative Agent and Collateral Agent,


----------


CREDIT SUISSE SECURITIES (USA) LLC,
and
BANC OF AMERICA SECURITIES LLC,


as Joint Bookrunners and Joint Lead Arrangers,


BANC OF AMERICA SECURITIES LLC,


as Syndication Agent


and


LEHMAN COMMERCIAL PAPER INC.
as Documentation Agent


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TABLE OF CONTENTS


PAGE
----
ARTICLE 1
DEFINITIONS


Section 1.01. Defined Terms............................................. 5 Section 1.02. Classification of Loans and Borrowings.................... 33 Section 1.03. Terms Generally........................................... 33 Section 1.04. Effectuation of Transactions.............................. 34 Section 1.05. Accounting Terms; GAAP.................................... 34 Section 1.06. Timing of Payment of Performance.......................... 34


ARTICLE 2
THE CREDITS


Section 2.01. Commitments............................................... 34 Section 2.02. Loans and Borrowings...................................... 34 Section 2.03. Request for Borrowing on the Closing Date................. 35 Section 2.04. Funding of the Borrowing on the Closing Date.............. 36 Section 2.05. Type; Interest Elections.................................. 36 Section 2.06. Termination of Commitments................................ 38 Section 2.07. Repayment of Loans; Evidence of Debt...................... 38 Section 2.08. Optional Prepayment of Loans.............................. 39 Section 2.09. Mandatory Prepayment of Term Loans........................ 40 Section 2.10. Fees...................................................... 41 Section 2.11. Interest.................................................. 42 Section 2.12. Alternate Rate of Interest................................ 42 Section 2.13. Increased Costs........................................... 43 Section 2.14. Break Funding Payments.................................... 44 Section 2.15. Taxes..................................................... 44 Section 2.16. Payments Generally; Allocation of Proceeds; Sharing of
Set-offs............................................... 46 Section 2.17. Mitigation Obligations; Replacement of Lenders............ 48 Section 2.18. Illegality................................................ 48 Section 2.19. Incremental Term Loan Commitments......................... 49


ARTICLE 3
REPRESENTATIONS AND WARRANTIES


Section 3.01. Organization; Powers...................................... 51 Section 3.02. Authorization; Enforceability............................. 51 Section 3.03. Governmental Approvals; No Conflicts...................... 51


Section 3.04. Financial Condition; No Material Adverse Change........... 51 Section 3.05. Properties................................................ 52 Section 3.06. Litigation and Environmental Matters...................... 53 Section 3.07. Compliance with Laws and Agreements; Licenses and
Permits................................................ 53 Section 3.08. Investment Company Status................................. 53 Section 3.09. Taxes..................................................... 53 Section 3.10. ERISA..................................................... 53 Section 3.11. Disclosure................................................ 54 Section 3.12. Material Contracts........................................ 54 Section 3.13. Solvency.................................................. 54 Section 3.14. Insurance................................................. 55 Section 3.15. Capitalization and Subsidiaries........................... 55 Section 3.16. Security Interest in Collateral........................... 55 Section 3.17. Labor Disputes............................................ 55 Section 3.18. Federal Reserve Regulations............................... 56 Section 3.19. Senior Debt............................................... 56 Section 3.20. Sanctioned Persons........................................ 56


ARTICLE 4
CONDITIONS


Section 4.01. Closing Date.............................................. 56


ARTICLE 5
AFFIRMATIVE COVENANTS


Section 5.01. Financial Statements and Other Reports.................... 59 Section 5.02. Existence................................................. 63 Section 5.03. Payment of Taxes and Claims............................... 63 Section 5.04. Maintenance of Properties................................. 63 Section 5.05. Insurance................................................. 64 Section 5.06. Inspections............................................... 64 Section 5.07. Lenders Meetings.......................................... 64 Section 5.08. Compliance with Laws...................................... 65 Section 5.09. Environmental............................................. 65 Section 5.10. Maintenance of Ratings.................................... 66 Section 5.11. Use of Proceeds........................................... 66 Section 5.12. Additional Collateral; Further Assurances................. 66 Section 5.13. Post-closing Items........................................ 67


ARTICLE 6
NEGATIVE COVENANTS


Section 6.01. Indebtedness.............................................. 68 Section 6.02. Liens..................................................... 71 Section 6.03. Equitable Lien............................................ 74 Section 6.04. No Further Negative Pledges............................... 74


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Section 6.05. Restricted Junior Payments................................ 75 Section 6.06. Restrictions on Subsidiary Distributions.................. 75 Section 6.07. Investments............................................... 76 Section 6.08. [Reserved]................................................ 78 Section 6.09. Fundamental Changes; Disposition of Assets; Acquisitions.. 78 Section 6.10. Disposal of Subsidiary Interests.......................... 81 Section 6.11. Sales and Lease-backs..................................... 81 Section 6.12. Transactions with Shareholders and Affiliates............. 81 Section 6.13. Conduct of Business....................................... 82 Section 6.14. Amendments or Waivers of Certain Related Agreements....... 82 Section 6.15. Amendments of or Waivers with Respect to Certain
Indebtedness........................................... 82 Section 6.16. Fiscal Year............................................... 82 Section 6.17. Permitted Activities of Holdings.......................... 82


ARTICLE 7
EVENTS OF DEFAULT


Section 7.01. Events of Default......................................... 83


ARTICLE 8
THE AGENTS


ARTICLE 9
MISCELLANEOUS


Section 9.01. Notices................................................... 88 Section 9.02. Waivers; Amendments....................................... 89 Section 9.03. Expenses; Indemnity; Damage Waiver........................ 92 Section 9.04. Successors and Assigns.................................... 93 Section 9.05. Survival.................................................. 98 Section 9.06. Counterparts; Integration; Effectiveness.................. 98 Section 9.07. Severability.............................................. 98 Section 9.08. Right of Setoff........................................... 98 Section 9.09. Governing Law; Jurisdiction; Consent to Service of
Process................................................ 99 Section 9.10. WAIVER OF JURY TRIAL...................................... 99 Section 9.11. Headings.................................................. 100 Section 9.12. Confidentiality........................................... 100 Section 9.13. Several Obligations; Violation of Law..................... 100 Section 9.14. USA PATRIOT Act........................................... 100 Section 9.15. Disclosure................................................ 101 Section 9.16. Appointment for Perfection................................ 101 Section 9.17. Interest Rate Limitation.................................. 101 Section 9.18. INTERCREDITOR AGREEMENT................................... 101 Section 9.19. Designation Of Subsidiaries............................... 102


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ARTICLE 10
LOAN GUARANTY


Section 10.01. Guaranty.................................................. 102 Section 10.02. Guaranty of Payment....................................... 102 Section 10.03. No Discharge or Diminishment of Loan Guaranty............. 102 Section 10.04. Defenses Waived........................................... 103 Section 10.05. Rights of Subrogation..................................... 104 Section 10.06. Reinstatement; Stay of Acceleration....................... 104 Section 10.07. Information............................................... 104 Section 10.08. Taxes..................................................... 104 Section 10.09. Maximum Liability......................................... 104 Section 10.10. Contribution.............................................. 105 Section 10.11. Liability Cumulative...................................... 105 Section 10.12. Release of Loan Guarantors................................ 106


SCHEDULES:


Schedule 1.01(a) -- Mortgaged Properties Schedule 2.01 -- Commitment Schedule Schedule 3.14 -- Insurance Schedule 3.15 -- Capitalization and Subsidiaries Schedule 4.01(b) -- Local Counsel Schedule 6.01(i) -- Existing Indebtedness Schedule 6.01(t) -- Corporate Leases Assigned/Sold/Transferred Schedule 6.02 -- Existing Liens Schedule 6.07 -- Existing Investments Schedule 6.12 -- Transactions with Affiliates Schedule 9.01 -- Borrower's Website Address for Electronic Delivery


EXHIBITS:


Exhibit A -- Form of Administrative Questionnaire Exhibit B -- Form of Assignment and Assumption Exhibit C -- Form of Compliance Certificate Exhibit D -- Joinder Agreement Exhibit E -- Form of Borrowing Request Exhibit F -- Form of Promissory Note Exhibit G -- Form of Interest Election Request


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Execution Copy


TERM LOAN CREDIT AGREEMENT dated as of May 25, 2007 (this "AGREEMENT"), among AMSCAN HOLDINGS, INC., a Delaware corporation (the "BORROWER"), AAH HOLDINGS CORPORATION, a Delaware corporation ("HOLDINGS"), each subsidiary of the Borrower from time to time party hereto, the Lenders (as defined in Article 1), and CREDIT SUISSE, as administrative agent and collateral agent for the Lenders hereunder (in such capacities, the "ADMINISTRATIVE AGENT").


The Borrower has requested the Lenders to extend credit in the form of Term Loans on the Closing Date, in an aggregate principal amount not in excess of $375,000,000. The proceeds of the Term Loans are to be used solely to finance the Existing Debt Refinancing and the Transaction Costs.


The Lenders are willing to extend such credit to the Borrower and its Subsidiaries on the terms and subject to the conditions set forth herein. Accordingly, the parties hereto agree as follows:


ARTICLE 1
DEFINITIONS


Section 1.01. Defined Terms. As used in this Agreement, the following terms have the meanings specified below:


"ABL SECURITY DOCUMENTS" means any and all security agreements, pledge agreements, mortgages and other agreements and documents pursuant to which any Liens are granted by any Loan Party to secure any Indebtedness or other obligations in respect of the Senior Secured Asset-Based Revolving Credit Facility.


"ABR", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Alternate Base Rate.


"ADJUSTED LIBO RATE" means, for any Interest Period, the rate obtained by dividing (a) the LIBO Rate for such Interest Period by (b) a percentage equal to 1 minus the stated maximum rate (stated as a decimal) of all reserves, if any, required to be maintained against "Eurocurrency liabilities" as specified in Regulation D (including any marginal, emergency, special or supplemental reserves).


"ADMINISTRATIVE AGENT" has the meaning assigned to such term in the preamble to this Agreement.


"ADMINISTRATIVE QUESTIONNAIRE" means an Administrative Questionnaire in the form of Exhibit A.


"ADVERSE PROCEEDING" means any action, suit, proceeding (whether administrative, judicial or otherwise), governmental investigation or arbitration (whether or not purportedly on behalf of the Borrower or any of its Subsidiaries) at law or in equity, or before or by any


Term Loan Credit Agreement


Governmental Authority, domestic or foreign (including any Environmental Claims), whether pending or, to the knowledge of the Borrower or any of its Subsidiaries, threatened against or affecting the Borrower or any of its Subsidiaries or any property of the Borrower or any of its Subsidiaries.


"AFFILIATE" means, as applied to any Person, any other Person directly or indirectly controlling, controlled by, or under common control with, that Person. For the purposes of this definition, "CONTROL", (including, with correlative meanings, the terms "CONTROLLING", "CONTROLLED BY" and "UNDER COMMON CONTROL WITH"), as applied to any Person, means the possession, directly or indirectly, of the power (i) to vote 10% or more of the Capital Stock having the ordinary voting power for the election of directors of such Person or (ii) to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities or by contract or otherwise, but excluding any Person that would be an "Affiliate" solely because it is an unrelated portfolio company of either Sponsor.


"AGENTS" means the Administrative Agent and the Collateral Agent.


"ALTERNATE BASE RATE" means, for any day, a rate per annum equal to the greater of (a) the Prime Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. Any change in the Alternate Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective from and including the effective date of such change in the Prime Rate or the Federal Funds Effective Rate, respectively.


"APPLICABLE MARGIN" means, for any day (a) with respect to any LIBO Rate Loan (other than Other Term Loans) 2.25%, (b) with respect to any ABR Loan (other than Other Term Loans) 1.25%, and (c) with respect to any Other Term Loan as specified in the appropriate Incremental Assumption Agreement.


"APPLICABLE PERCENTAGE" means, with respect to any Lender, a percentage equal to a fraction the numerator of which is the aggregate outstanding principal amount of the Loans (or, if no Loans are then outstanding, the Commitment) of such Lender and the denominator of which is the aggregate outstanding principal amount of the Loans (or, if no Loans are then outstanding, the Commitments) of all Lenders.


"APPROVED FUND" means any Person (other than a natural person) that is engaged in making, purchasing, holding or investing in bank loans and similar extensions of credit in the ordinary course and that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.


"ARRANGERS" means Credit Suisse Securities (USA) LLC and Banc of America Securities LLC.


"ASSET SALE" means the sale by Holdings or any of its Subsidiaries to any Person other than the Borrower or any of its wholly-owned Subsidiaries of (i) any of the Capital Stock of any of Holdings' Subsidiaries (including by issuance of such Capital Stock), (ii) substantially all of the assets of any division or line of business of the Borrower or any of its Subsidiaries, or (iii) any other assets (whether tangible or intangible) of the Borrower or any of its Subsidiaries (other


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than (a) inventory sold in the ordinary course of business, (b) sales of Cash Equivalents for the fair market value thereof, and (c) any such other assets to the extent that (x) the aggregate value of such assets sold in any single transaction or related series of transactions is equal to $2,500,000 or less and (y) the aggregate value of such assets sold is equal to $10,000,000 or less in any Fiscal Year).


"ASSIGNMENT AND ASSUMPTION" means an assignment and assumption entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section 9.04), and accepted by the Administrative Agent, in the form of Exhibit B or any other form approved by the Administrative Agent and the Borrower.


"BANKING SERVICES OBLIGATIONS" of the Loan Parties means any and all obligations of the Loan Parties, whether absolute or contingent and however and whenever created, arising, evidenced or acquired (including all renewals, extensions and modifications thereof and substitutions therefor), in connection with Banking Services.


"BANKRUPTCY CODE" means Title 11 of the United States Code entitled "Bankruptcy," as now and hereafter in effect, or any successor statute.


"BERKSHIRE" means Berkshire Partners LLC and shall include any fund affiliated with Berkshire Partners LLC.


"BOARD" means the Board of Governors of the Federal Reserve System of the United States of America.


"BORROWER" has the meaning assigned to such term in the preamble to this Agreement.


"BORROWING" means any Loans of the same Type made, converted or continued on the same date and, in the case of LIBO Rate Loans, as to which a single Interest Period is in effect.


"BORROWING BASE" has the meaning set forth as of the Closing Date in the Senior Secured Asset-Based Revolving Credit Agreement.


"BORROWING REQUEST" means a request by the Borrower for a Borrowing in accordance with Section 2.03 and substantially in the form attached hereto as Exhibit E, or such other form as shall be approved by the Administrative Agent.


"BUSINESS DAY" means any day that is not a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to remain closed; provided that, when used in connection with a LIBO Rate Loan, the term "Business Day" shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market.


"CAPITAL LEASE" means, as applied to any Person, any lease of any property (whether real, personal or mixed) by that Person as lessee that, in conformity with GAAP, is or should be accounted for as a capital lease on the balance sheet of that Person.


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"CAPITAL STOCK" means any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation), including, without limitation, partnership interests and membership interests, and any and all warrants, rights or options to purchase or other arrangements or rights to acquire any of the foregoing.


"CASH" means money, currency or a credit balance in any demand or Deposit Account.


"CASH EQUIVALENTS" means, as at any date of determination, (i) marketable securities (a) issued or directly and unconditionally guaranteed as to interest and principal by the United States Government or (b) issued by any agency of the United States the obligations of which are backed by the full faith and credit of the United States, in each case maturing within one year after such date; (ii) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof, in each case maturing within one year after such date and having, at the time of the acquisition thereof, a rating of at least A-2 from S&P or at least P-2 from Moody's; (iii) commercial paper maturing no more than one year from the date of creation thereof and having, at the time of the acquisition thereof, a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv) certificates of deposit or bankers' acceptances maturing within one year after such date and issued or accepted by any Lender or by any commercial bank organized under the laws of the United States of America or any state thereof or the District of Columbia that has Tier 1 capital (as defined in the regulations of its primary federal banking regulator) of not less than $100,000,000 (each Lender and each commercial bank referred to herein as a "CASH EQUIVALENT BANK"); (v) shares of any money market mutual fund that (a) has substantially all of its assets invested continuously in the types of investments referred to in clauses (i) and (ii) above, (b) has net assets of not less than $250,000,000, and (c) has the highest rating obtainable from either S&P or Moody's; and (vi) with respect to Foreign Subsidiaries, investments of the types described in clause (iv) above issued by a Cash Equivalent Bank or any commercial bank of recognized international standing chartered in the country where such Foreign Subsidiary is domiciled having unimpaired capital and surplus of at least $250,000,000.


"CHANGE IN LAW" means (a) the adoption of any law, rule or regulation after the date of this Agreement, (b) any change in any law, rule or regulation or in the interpretation or application thereof by any Governmental Authority after the date of this Agreement or (c) compliance by any Lender (or, for purposes of Section 2.13(b), by any lending office of such Lender or by such Lender's holding company, if any) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement (other than any such request, guideline or directive to comply with any law, rule or regulation that was in effect on the date of this Agreement).


"CHANGE OF CONTROL" means, at any time, (i) if Sponsor shall cease to beneficially own and control 51% or more of the combined voting power of all of the Capital Stock of Holdings, (ii) any Person or "group" (within the meaning of Rules 13d-3 and 13d-5 under the Exchange Act) other than Sponsor shall have after the Closing Date obtained the power (whether or not exercised) to elect a majority of the members of the board of directors (or similar governing body) of Holdings, (iii) the majority of the seats (other than vacant seats) on the board of directors (or similar governing body) of Holdings cease to be occupied by Persons who either (a) were


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members of the board of directors of Holdings on the Closing Date or (b) were nominated for election by a majority of the board of directors of Holdings, who were either (I) directors on the Closing Date or (II) whose election or nomination for election was previously approved by a majority of such directors or by Sponsor, (iv) Holdings shall cease to own 100% of the Capital Stock of the Borrower or (v) any "change of control" or similar event under the Senior Subordinated Note Indenture shall occur.


"CHARGES" has the meaning assigned to such term in Section 9.17.


"CHESTER DISTRIBUTION CENTER" means the distribution center located at 47 Elizabeth Drive, Chester, New York.


"CHESTER DISTRIBUTION CENTER COLLATERAL" means the land and improvements comprising the Chester Distribution Center.


"CHESTER DISTRIBUTION CENTER PERMANENT FINANCING" means Indebtedness of the Borrower pursuant to that certain mortgage dated December 20, 2001 with the New York Job Development Authority in an individual principal amount, as of the Closing Date, of $7,916,919, the proceeds of which have been used by the Borrower to finance a portion of the construction and development of the Chester Distribution Center.


"CLOSING DATE" means May 25, 2007, which is the date on which the conditions specified in Article 4 are satisfied (or waived in accordance with Section 9.02).


"CODE" means the Internal Revenue Code of 1986, as amended from time to time.


"COLLATERAL" means any and all property of a Loan Party subject to a Lien under the Collateral Documents and any and all other property of any Loan Party, now existing or hereafter acquired, that is or becomes subject to a Lien pursuant to the Collateral Documents in favor of the Collateral Agent, on behalf of itself and the Lenders, to secure the Secured Obligations.


"COLLATERAL AGENT" has the meaning assigned to such term in the preamble to this Agreement.


"COLLATERAL DOCUMENTS" means, collectively, the Pledge and Security Agreement, the Mortgages and any other documents granting a Lien upon the Collateral as security for payment of the Secured Obligations.


"COMMITMENT" means (a) with respect to each Lender, the commitment of such Lender to make Loans as set forth in the Commitment Schedule or in the most recent Assignment and Assumption executed by such Lender or in an Incremental Assumption Agreement and (b) as to all Lenders, the aggregate commitment of all Lenders to make Loans (including Incremental Term Loans, if any), which aggregate commitment shall be $375,000,000 on the Closing Date.


"COMMITMENT SCHEDULE" means Schedule 2.01 attached hereto.


"COMPLIANCE CERTIFICATE" means a Compliance Certificate substantially in the form of Exhibit C.


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