Abl Credit Agreement

Execution Copy


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ABL 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,


CREDIT SUISSE,
as Administrative Agent,


and


BANK OF AMERICA, N.A.,
as Collateral Agent


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CREDIT SUISSE SECURITIES (USA) LLC,
and
BANC OF AMERICA SECURITIES LLC,
as Joint Bookrunners and Joint Lead Arrangers,


BANC OF AMERICA SECURITIES LLC
and
WACHOVIA SECURITIES LLC


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as Co-Syndication Agents


MERRILL LYNCH CAPITAL
and
WELLS FARGO RETAIL FINANCE LLC


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as Co-Documentation Agents


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TABLE OF CONTENTS


PAGE
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ARTICLE 1
DEFINITIONS


Section 1.01. Defined Terms............................................. 1 Section 1.02. Classification of Loans and Borrowings.................... 47 Section 1.03. Terms Generally........................................... 47 Section 1.04. Accounting Terms; GAAP.................................... 48 Section 1.05. Effectuation of Transactions.............................. 48 Section 1.06. Timing of Payment of Performance.......................... 48


ARTICLE 2
THE CREDITS


Section 2.01. Commitments............................................... 48 Section 2.02. Loans and Borrowings...................................... 49 Section 2.03. Requests for Borrowings................................... 50 Section 2.04. Protective Advances....................................... 50 Section 2.05. Swingline Loans........................................... 52 Section 2.06. Letters of Credit......................................... 53 Section 2.07. Funding of Borrowings..................................... 59 Section 2.08. Type; Interest Elections.................................. 60 Section 2.09. Termination and Reduction of Commitments.................. 61 Section 2.10. Repayment of Loans; Evidence of Debt...................... 62 Section 2.11. Prepayment of Loans....................................... 63 Section 2.12. Fees...................................................... 64 Section 2.13. Interest.................................................. 65 Section 2.14. Alternate Rate of Interest................................ 66 Section 2.15. Increased Costs........................................... 66 Section 2.16. Break Funding Payments.................................... 68 Section 2.17. Taxes..................................................... 69 Section 2.18. Payments Generally; Allocation of Proceeds; Sharing of
Set offs.................................................. 71 Section 2.19. Mitigation Obligations; Replacement of Lenders............ 73 Section 2.20. Illegality................................................ 74 Section 2.21. Cash Receipts............................................. 75


ARTICLE 3
REPRESENTATIONS AND WARRANTIES


Section 3.01. Organization; Powers...................................... 77


Section 3.02. Authorization; Enforceability............................. 77 Section 3.03. Governmental Approvals; No Conflicts...................... 78 Section 3.04. Financial Condition; No Material Adverse Change........... 78 Section 3.05. Properties................................................ 79 Section 3.06. Litigation and Environmental Matters...................... 80 Section 3.07. Compliance with Laws and Agreements; Licenses and
Permits................................................... 80 Section 3.08. Investment Company Status................................. 80 Section 3.09. Taxes..................................................... 80 Section 3.10. ERISA..................................................... 81 Section 3.11. Disclosure................................................ 81 Section 3.12. Material Contracts........................................ 81 Section 3.13. Solvency.................................................. 82 Section 3.14. Insurance................................................. 82 Section 3.15. Capitalization and Subsidiaries........................... 82 Section 3.16. Security Interest in Collateral........................... 83 Section 3.17. Labor Disputes............................................ 83 Section 3.18. Federal Reserve Regulations............................... 83 Section 3.19. Senior Debt............................................... 84 Section 3.20. Sanctioned Persons........................................ 84


ARTICLE 4
CONDITIONS


Section 4.01. Closing Date.............................................. 84 Section 4.02. Each Credit Event......................................... 87


ARTICLE 5
AFFIRMATIVE COVENANTS


Section 5.01. Financial Statements and Other Reports.................... 89 Section 5.02. Existence................................................. 94 Section 5.03. Payment of Taxes and Claims............................... 94 Section 5.04. Maintenance of Properties................................. 95 Section 5.05. Insurance................................................. 95 Section 5.06. Inspections............................................... 95 Section 5.07. Lenders Meetings.......................................... 96 Section 5.08. Compliance with Laws...................................... 96 Section 5.09. Environmental............................................. 97 Section 5.10. Maintenance of Ratings.................................... 98 Section 5.11. Use of Proceeds........................................... 98 Section 5.12. Additional Collateral; Further Assurances................. 98 Section 5.13. Post-closing Items........................................ 100


ARTICLE 6
NEGATIVE COVENANTS


Section 6.01. Indebtedness.............................................. 100


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Section 6.02. Liens..................................................... 104 Section 6.03. Equitable Lien............................................ 107 Section 6.04. No Further Negative Pledges............................... 107 Section 6.05. Restricted Junior Payments................................ 108 Section 6.06. Restrictions on Subsidiary Distributions.................. 109 Section 6.07. Investments............................................... 109 Section 6.08. Fundamental Changes; Disposition of Assets;
Acquisitions.............................................. 112 Section 6.09. Disposal of Subsidiary Interests.......................... 115 Section 6.10. Sales and Lease-backs..................................... 115 Section 6.11. Transactions with Shareholders and Affiliates............. 115 Section 6.12. Conduct of Business....................................... 116 Section 6.13. Amendments or Waivers of Certain Related Agreements....... 116 Section 6.14. Amendments of or Waivers with Respect to Certain
Indebtedness.............................................. 116 Section 6.15. Fiscal Year............................................... 117 Section 6.16. Permitted Activities of Holdings.......................... 117 Section 6.17. Consolidated Capital Expenditures......................... 117 Section 6.18. Fixed Charge Coverage Ratio............................... 118


ARTICLE 7
EVENTS OF DEFAULT


Section 7.01. Events of Default......................................... 118


ARTICLE 8
THE AGENTS


ARTICLE 9
MISCELLANEOUS


Section 9.01. Notices................................................... 124 Section 9.02. Waivers; Amendments....................................... 126 Section 9.03. Expenses; Indemnity; Damage Waiver........................ 129 Section 9.04. Successors and Assigns.................................... 131 Section 9.05. Survival.................................................. 138 Section 9.06. Counterparts; Integration; Effectiveness.................. 138 Section 9.07. Severability.............................................. 138 Section 9.08. Right of Setoff........................................... 139 Section 9.09. Governing Law; Jurisdiction; Consent to Service of
Process................................................... 139 Section 9.10. Waiver of Jury Trial...................................... 140 Section 9.11. Headings.................................................. 141 Section 9.12. Confidentiality........................................... 141 Section 9.13. Several Obligations; Violation of Law..................... 141 Section 9.14. USA PATRIOT Act........................................... 142 Section 9.15. Disclosure................................................ 142 Section 9.16. Appointment for Perfection................................ 142


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Section 9.17. Interest Rate Limitation.................................. 142 Section 9.18. Intercreditor Agreement................................... 142 Section 9.19. Designation Of Subsidiaries............................... 143


ARTICLE 10
LOAN GUARANTY


Section 10.01. Guaranty.................................................. 143 Section 10.02. Guaranty of Payment....................................... 144 Section 10.03. No Discharge or Diminishment of Loan Guaranty............. 144 Section 10.04. Defenses Waived........................................... 145 Section 10.05. Rights of Subrogation..................................... 145 Section 10.06. Reinstatement; Stay of Acceleration....................... 145 Section 10.07. Information............................................... 146 Section 10.08. Taxes..................................................... 146 Section 10.09. Maximum Liability......................................... 146 Section 10.10. Contribution.............................................. 147 Section 10.11. Liability Cumulative...................................... 147 Section 10.12. Release of Loan Guarantors................................ 148


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SCHEDULES: Schedule 1.01(a) - Existing Letters of Credit Schedule 1.01(b) - Mortgaged Properties Schedule 2.21(a) - DDAs Schedule 2.21(b) - Credit Card Arrangements Schedule 2.21(c) - Blocked Accounts 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 6.11 - 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 Borrowing Base Certificate Exhibit D - Form of Compliance Certificate Exhibit E - Joinder Agreement Exhibit F - Form of Letter of Credit Request Exhibit G - Form of Borrowing Request Exhibit H - Form of Promissory Note Exhibit I - Form of Interest Election Request


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ABL 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"), the subsidiaries of the Borrower from time to time party hereto, the Lenders (as defined in Article 1), CREDIT SUISSE, as administrative agent for the Lenders hereunder (in such capacity, the "ADMINISTRATIVE AGENT"), and Bank of America, as collateral agent for the Lenders hereunder (in such capacity, the "COLLATERAL AGENT").


The Borrower has requested (a) the Lenders to extend credit in the form of Revolving Loans at any time and from time to time during the Availability Period, in an aggregate principal amount at any time outstanding not in excess of $200,000,000, (b) the Swingline Lender to extend credit, at any time and from time to time during the Availability Period, in the form of Swingline Loans, in an aggregate principal amount at any time outstanding not in excess of $10,000,000 and (c) the Issuing Banks to issue Letters of Credit, in an aggregate face amount at any time outstanding not in excess of $25,000,000, to support payment obligations incurred in the ordinary course of business by the Borrower and its subsidiaries. The proceeds of the Revolving Loans and the Swingline Loans are to be used solely (a) with respect to the Initial Revolving Borrowing, to refinance certain existing indebtedness of the Borrower and its Subsidiaries, to pay Transactions Costs, for working capital adjustments and to replace or backstop letters of credit of the Borrower existing on the Closing Date, and (b) with respect to all other borrowings thereof, for working capital and other general corporate purposes of the Borrower and its subsidiaries.


The Lenders and the Swingline Lender are willing to extend such credit to the Borrower, and the Issuing Banks are willing to issue Letters of Credit for the account of the Borrower and its Subsidiaries, in each case 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:


"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.


"ACCOUNT" has the meaning assigned to such term in the Pledge and Security Agreement.


"ACCOUNT DEBTOR" means any Person obligated on an Account.


"ACH" means automated clearing house transfers.


"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).


"ADJUSTMENT DATE" means the first day of each January, April, July and October, as applicable.


"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 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.


"AGGREGATE COMMITMENTS" means, at any time, the sum of the Commitments at such time. As of the Closing Date, the Aggregate Commitments is $200,000,000.


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"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 PERCENTAGE" means, with respect to any Lender, a percentage equal to a fraction the numerator of which is such Lender's Commitment and the denominator of which is the Aggregate Commitments.


"APPLICABLE RATE" means, for any day, with respect to any ABR Loan or LIBO Rate Loan, the applicable rate per annum set forth below under the caption "LIBO Rate Spread" or "ABR Spread", as the case may be, based upon the Average Historical Excess Availability as of the most recent Adjustment Date; provided that until the first Adjustment Date occurring at least six full months after the Closing Date, the "Applicable Rate" shall be the applicable rate per annum set forth below in Category 2:


AVERAGE HISTORICAL EXCESS AVAILABILITY LIBO RATE SPREAD ABR SPREAD - ----------------------------------------- ---------------- ---------- Category 1 Average Historical Excess Availability
less than $25,000,000 1.50% 0.50%


Category 2 Average Historical Excess Availability
equal to or greater than $25,000,000
but less than $100,000,000 1.25% 0.25%


Category 3 Average Historical Excess Availability
equal to or greater than $100,000,000 1.00% 0.00%


The Applicable Rate shall be adjusted quarterly on a prospective basis on each Adjustment Date based upon the Average Historical Excess Availability in accordance with the table above; provided, however, that if an Event of Default shall have occurred and be continuing at any time a reduction of the Applicable Rate would otherwise be implemented, no such reduction shall be implemented until the date on which such Event of Default shall have been cured or waived; provided further that if a Borrowing Base Certificate is not delivered on a timely basis pursuant to Section 5.01(q), Average Historical Excess Availability shall be deemed to be less than $25,000,000 until a Borrowing Base Certificate is delivered in compliance with Section 5.01(q).


"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


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(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 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.


"AVAILABLE COMMITMENT" means, at any time, the Aggregate Commitments then in effect minus the Revolving Exposure of all Lenders at such time.


"AVAILABILITY PERIOD" means the period from and including the Closing Date to but excluding the Maturity Date.


"AVAILABILITY RESERVES" means, without duplication of any other Reserves or items that are otherwise addressed or excluded through eligibility criteria, such reserves as the Agents from time to time determine in their Permitted Discretion, as being appropriate to reflect any impediments to the realization upon the Collateral consisting of Eligible Inventory, Eligible Credit Card Receivables, or Eligible Trade Receivables included in the Borrowing Base (including claims that the Agents reasonably determine will need to be satisfied in connection with the realization upon such Collateral).


"AVERAGE HISTORICAL EXCESS AVAILABILITY" means, at any Adjustment Date, the average daily Excess Availability for the three (3)-month period immediately preceding such Adjustment Date (with the Borrowing Base at such time for any such day used to determine "Excess Availability" calculated by reference to the most recent Borrowing Base Certificate delivered to the Administrative Agent on or prior to such day pursuant to Section 5.01(q).


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"BANKING SERVICES" means each and any of the following bank services provided to any Loan Party at the written request of such Loan Party by the Administrative Agent, any Lender or any of their Affiliates: (a) commercial credit cards, (b) stored value cards and (c) treasury management services (including, without limitation, controlled disbursement, ACH transactions, return items and interstate depository network services).


"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.


"BANKING SERVICES RESERVES" means all Reserves which the Agents from time to time establish in their Permitted Discretion as being appropriate to reflect reasonably anticipated liabilities and obligations of the Loan Parties in respect of Banking Services then provided or outstanding.


"BANKRUPTCY CODE" means Title 11 of the United States Code (11 U.S.C. Section 101 et seq.).


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


"BLOCKED ACCOUNT AGREEMENT" has the meaning assigned to such term in Section 2.21(c).


"BLOCKED ACCOUNTS" has the meaning assigned to such term in Section 2.21(c).


"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 (a) Revolving 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, (b) Swingline Loan or (c) Protective Advance.


"BORROWING BASE" means, at any time, an amount equal to (a) the Trade Receivables Component plus (b) the Inventory Component plus (c) the Credit Card Receivables Component minus (d) without duplication, the then amount of all Availability Reserves and other Reserves as the Agents may at any time and from time to time in the exercise of their Permitted Discretion establish. The Borrowing Base at any time shall be determined by reference to the most recent


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Borrowing Base Certificate delivered to the Administrative Agent pursuant to Section 5.01(q).


"BORROWING BASE CERTIFICATE" means a certificate, signed and certified as accurate and complete by a Financial Officer of the Borrower, in substantially the form of Exhibit C or another form which is acceptable to the Agents in their reasonable discretion.


"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 G, 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.


"CAPITAL STOCK" means any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ow ...