UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-12
PARTY CITY CORPORATION
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
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previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
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PARTY CITY CORPORATION
NOTICE OF 2004 ANNUAL MEETING OF STOCKHOLDERS
NOVEMBER 11, 2004
TO THE STOCKHOLDERS:
You are cordially invited to attend the 2004 Annual Meeting of Stockholders
(the "Annual Meeting") of Party City Corporation, a Delaware corporation (the
"Company"), which will be held on Thursday, November 11, 2004, at 9:00 a.m.,
Eastern Time, at the Parsippany Hilton, 1 Hilton Court, Parsippany, New Jersey.
The Annual Meeting will be held for the following purposes:
1. To elect seven directors to the Board of Directors, who shall serve
until the 2005 annual meeting of stockholders or until their respective
successors are elected and qualified; and
2. To transact such other business as may properly come before the Annual
Meeting or any adjournment or postponement thereof.
The foregoing items are more fully described in the proxy statement
accompanying this notice.
You are also invited to visit the Company's website,
http://www.partycity.com, at 9:00 a.m., Eastern time, to listen to the live
webcast of the Annual Meeting. An archived copy of the webcast also will be
available on Party City's website through November 26, 2004.
Only stockholders of record at the close of business on September 16, 2004
are entitled to notice of, and to vote at, the Annual Meeting. A complete list
of the stockholders entitled to vote at the Annual Meeting will be open to the
examination of any stockholder, for any purpose relevant to the Annual Meeting,
between the hours of 9:00 a.m. and 5:00 p.m. at the Company's offices at 400
Commons Way, Rockaway, New Jersey 07866 from November 1, 2004 to November 10,
2004, and at the Parsippany Hilton on November 11, 2004. Attendance at the
Annual Meeting will be limited to stockholders and guests of the Company.
STOCKHOLDERS UNABLE TO ATTEND THE MEETING ARE URGED TO COMPLETE, DATE AND
SIGN THE ENCLOSED PROXY CARD AND RETURN IT IN THE ENCLOSED ENVELOPE. THIS WILL
ENSURE THE PRESENCE OF A QUORUM AT THE ANNUAL MEETING AND SAVE THE COMPANY THE
EXPENSE OF ADDITIONAL SOLICITATION. IF YOU ATTEND THE ANNUAL MEETING, YOU MAY
REVOKE YOUR PROXY IN ACCORDANCE WITH THE PROCEDURES SET FORTH IN THE PROXY
STATEMENT AND VOTE IN PERSON.
By Order of the Board of Directors
By: /s/ JOSEPH J. ZEPF, ESQ.
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Joseph J. Zepf, Esq.
Secretary
Rockaway, New Jersey
October 13, 2004
PLEASE MAIL YOUR PROXY CARD OR VOTING INSTRUCTION CARD PROMPTLY
TABLE OF CONTENTS
PAGE
----
About the Annual Meeting.................................... 2
Security Ownership of Certain Beneficial Owners and
Management................................................ 7
Proposal No. 1 -- Election of Directors..................... 10
Board of Directors.......................................... 11
Board of Directors........................................ 11
Committees of the Board of Directors...................... 12
Executive Officers.......................................... 13
Code of Business Conduct and Ethics......................... 14
Compensation of Executive Officers.......................... 15
Summary Compensation Table................................ 15
Option Grants During Fiscal 2004.......................... 16
Aggregate Option Exercises in Fiscal 2004 and July 3, 2004
Option Values.......................................... 17
Employment Agreements and Termination of Employment....... 17
Compensation of Directors................................... 19
Report of the Compensation Committee Regarding Executive
Compensation.............................................. 19
Equity Compensation Plan Information........................ 21
Compensation Committee Interlocks and Insider
Participation............................................. 22
Report of the Audit Committee............................... 23
Independent Auditors Fees and Other Matters................. 24
Audit Committee Pre-Approval Policies and Procedures...... 24
Section 16(a) Beneficial Ownership Reporting Compliance..... 24
Certain Relationships and Related Party Transactions........ 25
Performance Graph........................................... 26
Stockholder Proposals for 2005 Annual Meeting............... 27
Householding................................................ 27
Other Matters............................................... 27
1
PARTY CITY CORPORATION
400 COMMONS WAY
ROCKAWAY, NEW JERSEY 07866
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PROXY STATEMENT
2004 ANNUAL MEETING OF STOCKHOLDERS
NOVEMBER 11, 2004
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ABOUT THE ANNUAL MEETING
Party City Corporation ("Party City" or the "Company") is providing these
proxy materials in connection with Party City's 2004 Annual Meeting of
Stockholders or any adjournment or postponement thereof (the "Annual Meeting")
at 9:00 a.m., Eastern Time, to be held at the Parsippany Hilton, 1 Hilton Court,
Parsippany, New Jersey. This proxy statement, the accompanying proxy card and
the Company's Annual Report on Form 10-K for the year ended July 3, 2004 were
first mailed to stockholders on or about October 15, 2004. This proxy statement
contains important information for you to consider when deciding how to vote on
the matters brought before the Annual Meeting. Please read it carefully.
WHO IS SOLICITING MY VOTE?
The Board of Directors of Party City is soliciting your proxy for use at
the Annual Meeting.
WHAT IS THE PURPOSE OF THE ANNUAL MEETING?
You will be voting on:
- Election of directors; and
- Any other business that may properly come before the Annual Meeting.
WHAT ARE THE BOARD OF DIRECTORS' RECOMMENDATIONS?
The Board of Directors recommends a vote:
- FOR the election of each nominee as director;
- FOR or AGAINST other matters that come before the Annual Meeting, as the
proxy holders deem advisable.
WHO IS ENTITLED TO VOTE AT THE ANNUAL MEETING
The Board of Directors set September 16, 2004 as the record date for the
Annual Meeting (the "record date"). All stockholders who owned Party City common
stock at the close of business on September 16, 2004 may attend and vote at the
Annual Meeting.
HOW MANY VOTES DO I HAVE?
You will have one vote for each share of Party City's common stock you
owned at the close of business on the record date, provided those shares are
either held directly in your name as the stockholder of record or were held for
you as the beneficial owner through a broker, bank or other nominee.
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WHAT IS THE DIFFERENCE BETWEEN HOLDING SHARES AS A STOCKHOLDER OF RECORD AND A
BENEFICIAL OWNER?
Most stockholders of Party City hold their shares through a broker, bank or
other nominee rather than directly in their own name. As summarized below, there
are some distinctions between shares held of record and those owned
beneficially.
Stockholder of Record. If your shares are registered directly in your name
with Party City's transfer agent, American Stock Transfer & Trust Company, you
are considered the stockholder of record with respect to those shares, and these
proxy materials are being sent directly to you by Party City. As the stockholder
of record, you have the right to grant your voting proxy directly to us or to
vote in person at the Annual Meeting. Party City has enclosed a proxy card for
you to use.
Beneficial Owner. If your shares are held in a stock brokerage account or
by a bank or other nominee, you are considered the beneficial owner of shares
held in "street name", and these proxy materials (including a voting instruction
card) are being forwarded to you by your broker, bank or nominee who is
considered the stockholder of record with respect to those shares. As the
beneficial owner, you have the right to direct your broker, bank or nominee on
how to vote and are also invited to attend the Annual Meeting. However, since
you are not the stockholder of record, you may not vote these shares in person
at the Annual Meeting unless you request and obtain a proxy from your broker,
bank or nominee. Your broker, bank or nominee has enclosed a voting instruction
card for you to use in directing the broker, bank or nominee regarding how to
vote your shares.
HOW DO I VOTE?
YOUR VOTE IS IMPORTANT. You may vote by mail or by attending the Annual
Meeting and voting by ballot, all as described below.
VOTE BY MAIL
If you choose to vote by mail, simply mark your proxy card or voting
instruction card, date and sign it, and return it in the postage-paid envelope
provided. If the envelope is missing, please mail your completed proxy card to
Party City Corporation, c/o Joseph J. Zepf, Esq. Vice President, General Counsel
& Secretary, 400 Commons Way, Rockaway, New Jersey 07866, or your completed
voting instruction card to your broker, bank or nominee.
VOTING AT THE ANNUAL MEETING
The method or timing of your vote will not limit your right to vote at the
Annual Meeting if you attend the meeting and vote in person. However, if your
shares are held in the name of a bank, broker or other nominee, you must obtain
a proxy, executed in your favor, from the holder of record to be able to vote at
the Annual Meeting. You should allow yourself enough time prior to the Annual
Meeting to obtain this proxy from the holder of record.
The shares represented by the proxy cards received, properly marked, dated,
signed and not revoked, will be voted at the Annual Meeting.
HOW MANY VOTES CAN BE CAST BY ALL STOCKHOLDERS?
Each share of Party City common stock is entitled to one vote. There is no
cumulative voting. Party City has no other classes of voting securities. The
Company had 17,123,186 shares of common stock outstanding and entitled to vote
on the record date.
HOW MANY VOTES MUST BE PRESENT TO HOLD THE ANNUAL MEETING?
A majority of Party City's outstanding shares as of the record date must be
present at the Annual Meeting in order to hold the Annual Meeting and conduct
business. This is called a "quorum." Shares are counted as present at the Annual
Meeting if you are present and vote in person at the Annual Meeting or a proxy
card has
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been properly submitted by you or on your behalf. Both abstentions and "broker
non-votes" are counted as present for the purpose determining the presence of a
quorum (see "What if I don't vote for some of the items listed on my proxy card
or voting instruction card?" below for an explanation of broker non-votes).
HOW MANY VOTES ARE REQUIRED TO ELECT DIRECTORS?
Directors are elected by a plurality of votes cast. This means that the
seven individuals nominated for election to the Board of Directors who receive
the most "FOR" votes (among votes properly cast in person or by proxy) will be
elected; nominees do not need to receive a majority to be elected. If you
withhold authority to vote with respect to the election of some or all of the
nominees, your shares will not be voted with respect to those nominees
indicated. Your shares will be counted for purposes of determining whether there
is a quorum, but it will have no effect on the election of those nominees.
WHAT IF I DON'T VOTE FOR SOME OF THE ITEMS LISTED ON MY PROXY CARD OR VOTING
INSTRUCTION CARD?
If you return your signed proxy card or voting instruction card in the
enclosed envelope but do not mark selections, it will be voted in accordance
with the recommendations of the Board of Directors. If you indicate a choice
with respect to any matter to be acted upon on your proxy card or voting
instruction card, the shares will be voted in accordance with your instructions.
If you are a beneficial owner and hold your shares in street name through a
broker and do not return the voting instruction card, the broker or other
nominee will determine if it has the discretionary authority to vote on the
particular matter. Under applicable law, brokers have the discretion to vote on
routine matters, such as the uncontested election of directors, but do not have
discretion to vote on non-routine matters, such as amendments to the Certificate
of Incorporation.
If you do not provide voting instructions to your broker and the broker has
indicated on the proxy card that it does not have discretionary authority to
vote on a particular proposal, your shares will be considered "broker non-votes"
with regard to that matter. Broker non-votes will be considered as represented
for purposes of determining a quorum but will not be considered as entitled to
vote with respect to that proposal. Broker non-votes are not counted in the
tabulation of the voting results with respect to the election of directors or
for purposes of determining the number of votes cast with respect to a
particular proposal that requires a majority of the votes cast. However, with
respect to a proposal that requires a majority of the outstanding shares, a
broker non-vote, similar to an abstention, has the same effect as a vote against
the proposal.
CAN I CHANGE OR REVOKE MY VOTE AFTER I RETURN MY PROXY CARD?
Yes. Even if you sign the proxy card or voting instruction card in the form
accompanying this proxy statement, you retain the power to revoke your proxy or
change your vote.
If your shares are held in street name, you must contact the broker, bank
or nominee for instructions on how to revoke your voting instruction card.
If you are a record holder, you can revoke your proxy card at any time
before it is exercised by giving written notice to the Secretary of Party City,
specifying such revocation. As a record holder, you may also change your vote by
timely delivery of a valid, later-dated proxy to the Secretary of the Company or
by voting by ballot at the Annual Meeting. Please note that merely attending the
Annual Meeting without voting will not revoke your proxy card.
WHAT DOES IT MEAN IF I RECEIVE MORE THAN ONE PROXY CARD OR VOTING INSTRUCTION
CARD?
It generally means your shares are registered differently or are in more
than one account. Please provide voting instructions of all proxy cards and
voting instruction cards you receive.
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WILL THE COMPANY'S INDEPENDENT ACCOUNTANTS BE AVAILABLE TO ANSWER QUESTIONS FROM
STOCKHOLDERS?
The Company's independent accountants, Deloitte & Touche LLP, are expected
to be available at the Annual Meeting to respond to appropriate questions from
stockholders.
WHO CAN ATTEND THE ANNUAL MEETING?
All stockholders as of the record date, or their duly appointed proxies,
may attend.
WHAT DO I NEED TO ATTEND THE ANNUAL MEETING AND WHEN SHOULD I ARRIVE?
In order to be admitted to the Annual Meeting, a stockholder must present
proof of ownership of Party City common stock on the record date. Any holder of
a proxy from a stockholder must present the proxy card, properly executed, to be
admitted. Stockholders and proxy holders must also present a form of photo
identification such as a driver's license.
If your shares are held in the name of a bank, broker or other holder of
record, a brokerage statement or letter from a bank or broker is an example of
proof of ownership.
Admission to the Annual Meeting will begin at 8:30 a.m. In order to ensure
that you are seated by the commencement of the Annual Meeting at 9:00 a.m., you
should arrive early.
The Annual Meeting will be held at the Parsippany Hilton, 1 Hilton Court,
Parsippany, New Jersey. When you arrive, signs will direct you to the
appropriate meeting rooms. Please note that due to security reasons, all bags
will be subject to search. No one who does not comply with these security
procedures will be admitted. Cameras and other recording devices will not be
permitted in the meeting rooms.
CAN I LISTEN TO THE ANNUAL MEETING ON THE INTERNET?
Yes. You are invited to visit the Company's website,
http://www.partycity.com, at 9:00 a.m., Eastern time, to listen to the live
webcast of the Annual Meeting. An archived copy of the webcast also will be
available on Party City's website through November 26, 2004.
WHO PAYS FOR THE PROXY SOLICITATION AND HOW WILL PARTY CITY SOLICIT VOTES?
Party City will bear the expense of printing and mailing proxy materials.
In addition to this solicitation of proxies by mail, the Company's directors,
officers and other employees may solicit proxies by personal interview,
telephone, facsimile or email. They will not be paid any additional compensation
for such solicitation. Party City will request brokers and nominees who hold
shares of Party City's common stock in their names to furnish proxy materials to
beneficial owners of the shares. Party City will reimburse such brokers and
nominees for their reasonable expenses incurred in forwarding solicitation
materials to such beneficial owners. Party City has hired Georgeson Shareholder
Communications, Inc. to distribute and solicit proxies. Party City will pay
Georgeson a fee of $1,500, plus reasonable expenses, for these services.
HOW CAN I ACCESS PARTY CITY'S PROXY MATERIALS AND ANNUAL REPORT ELECTRONICALLY?
The "Investor Relations" section of the Company's website
http://www.partycity.com provides access, free of charge, to Securities and
Exchange Commission ("SEC") reports as soon as reasonably practicable after the
Company electronically files such reports with, or furnishes such reports to,
the SEC, including proxy materials, Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q, Current Reports on Form 8-K and amendments to these
reports.
You may also read and copy any materials that Party City files with the SEC
at the SEC's Public Reference Room at 450 Fifth Street, NW, Washington, DC
20549. You may obtain information on the operations of the Public Reference Room
by calling the SEC at 1-800-SEC-0330. The SEC maintains a website that contains
reports, proxy and information statements and other information regarding
issuers that file electronically with the SEC, including Party City, at
http://www.sec.gov.
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IS A LIST OF STOCKHOLDERS AVAILABLE?
The names of stockholders of record entitled to vote at the Annual Meeting
will be available to stockholders entitled to vote at this meeting from November
1, 2004 to November 10, 2004 for any purpose relevant to the meeting. This list
can be viewed between the hours of 9:00 a.m. and 5:00 p.m. at the Company's
principal executive office, located at 400 Commons Way, Rockaway, New Jersey
07866. Please contact Party City's Secretary to make arrangements. This list can
also be reviewed on November 11, 2004 at the Parsippany Hilton.
HOW DO I FIND OUT THE VOTING RESULTS?
Preliminary voting results will be announced at the Annual Meeting, and
final voting results will be published in the Company's Quarterly Report on Form
10-Q for the quarter ending January 1, 2005, which Party City will file with the
SEC. Party City will also post the results of the voting at the "Investor
Relations" section on Party City's website at http://www.partycity.com. After
the Form 10-Q is filed, you may obtain a copy at "Investor
Relations -- Information Request" on Party City's website by contacting Party
City's Investor Relations department at 973-983-0888 ext. 8333 or by writing to
Investor Relations, Party City Corporation, 400 Commons Way, Rockaway, New
Jersey 07866.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of Party City's common stock, as of September 16, 2004, for
individuals or entities in the following categories: (i) each person known by
the Company to be a beneficial owner of more than 5% of the common stock; (ii)
each director/nominee; (iii) each executive officer named in the Summary
Compensation Table on page 15 (each, a "Named Executive Officer"); common stock
and (iv) all directors and executive officers as a group. "Beneficial ownership"
of shares, as defined in the Securities and Exchange Act of 1934, generally
includes any shares over which a person exercises sole or shared voting or
investment power, including but not limited to the right to acquire such shares
within 60 days of the record date. For purposes of calculating the percentage of
outstanding shares held by each person named below, any shares that such person
has the right to acquire within 60 days of the record date are deemed to be
outstanding, but not for the purposes of calculating the percentage ownership of
any other person.
Except as indicated by footnote, each of the stockholders has sole voting
and investment power with respect to the shares beneficially owned. Unless
otherwise noted in the table, the address for each of the stockholders is c/o
Party City Corporation, 400 Commons Way, Rockaway, New Jersey 07866.
SHARES BENEFICIALLY OWNED
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NAME OF BENEFICIAL OWNER NUMBER PERCENT
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Tennenbaum Capital Partners, LLC and Tennenbaum &
Co., LLC......................................... 5,547,781(1) 27.2%
11100 Santa Monica Boulevard, Suite 210
Los Angeles, California 90025
Reid S. Walker and G. Stacy Smith.................. 1,344,683(2) 7.5%
300 Crescent Court, Suite 880
Dallas, Texas 75201
Sidney and Jenny Craig............................. 1,219,202(3) 6.8%
16092 San Dieguito
P.O. Box 675532
Rancho Santa Fe, CA 92067
Jack Futterman..................................... 908,300(4) 5.1%
16315 Vintage Oaks Lane
Delray Beach, FL 33484
Ralph D. Dillon.................................... 741,273(5) 4.0%
Michael E. Tennenbaum.............................. 5,595,781(1)(6) 27.4%
L.R. Jalenak, Jr................................... 113,965(7) *
Franklin R. Johnson................................ 16,667(8) *
Howard Levkowitz................................... 61,527(9) *
Walter Salmon...................................... 49,000(10) *
Nancy Pedot........................................ 262,330(11) 1.4%
Richard H. Griner.................................. 33,333(12) *
Warren Jeffery..................................... 28,750(13) *
Steven Skiba....................................... 7,500(14) *
Linda M. Siluk..................................... 32,577(15) *
All directors and executive officers as a group (12
persons)......................................... 32.2%
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* Less than 1%
(1) The shares of common stock are owned by Tennenbaum Capital Partners, LLC
("TCP", formerly known as Special Value Investment Management, LLC) and
Tennenbaum & Co., LLC ("TCO") as follows: 2,496,000 shares subject to
outstanding warrants to purchase common stock which are exercisable within
60 days of the record date are owned of record by Special Value Bond Fund,
LLC ("SVBF"); 2,594,720 shares of common stock are owned of record by
Special Value Absolute Return
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Fund, LLC ("SVAR"); 318,000 shares of common stock are owned of record by
Special Value Bond Fund II, LLC ("SVBF II"); 25,000 shares of common stock
are owned of record by a separate account managed by TCP; and 114,061
shares of common stock are owned of record by TCO.
The managing member of SVBF is SVIM/MSM, LLC ("SVIM/MSM") and the managing
member of SVBF II is SVIM/MSM II, LLC ("SVIM/MSM II"). The managing member
of both SVIM/MSM and SVIM/MSM II is TCO. The managing member of SVAR is
SVAR/MM, LLC ("SVAR/MM"), and the managing member of SVAR/MM is TCP. The
managing member of TCP is TCO. The managing member of TCO is Michael E.
Tennenbaum.
In addition to managing the separate account, TCP is the investment advisor
to SVBF, SVBF II and SVAR and the separate account. TCP, SVIM/MSM, TCO and
Mr. Tennenbaum share voting and dispositive power for the 2,496,000 shares
subject to outstanding warrants to purchase common stock. TCP, SVIM/MSM II,
TCO and Mr. Tennenbaum share voting and dispositive power for the 318,000
shares. TCP, SVAR/MM, TCO and Mr. Tennenbaum share voting and dispositive
power for the 2,594,720 shares. TCP, TCO and Mr. Tennenbaum share voting
and dispositive power for the 25,000 shares. TCO and Mr. Tennenbaum have
sole voting and dispositive power for the 114,061 shares (see also footnote
6).
(2) As reported by Messrs. Reid S. Walker and G. Stacy Smith on the First
Amendment to the Schedule 13G filed with the SEC on February 13, 2004.
Messrs. Reid S. Walker and G. Stacy Smith, as the control persons for WS
Capital, L.L.C., the general partner of WS Capital Management, L.P., have
voting and dispositive power for 1,127,583 shares of common stock. In
addition, Messrs. Reid S. Walker and G. Stacy Smith, as the control persons
for WSV Management, L.L.C., the general partner of WS Ventures Management,
L.P., have voting and dispositive power for 217,100 shares of common stock.
(3) As reported by Sidney and Jenny Craig on the Second Amendment to their
Schedule 13G filed with the SEC on August 7, 2003 which indicates that
Sidney and Jenny Craig beneficially own 1,219,202 shares of common stock.
Sidney and Jenny Craig own 112,202 shares of common stock directly and
beneficially own 1,107,000 shares of common stock owned directly by Craig
Enterprises, Inc.
(4) As reported by Jack Futterman on the Fourth Amendment to his Schedule 13D
filed with the SEC on April 15, 2004, which indicates Mr. Futterman
beneficially owns 870,300 shares of common stock. Mr. Futterman also
beneficially owns 38,000 shares of common stock subject to outstanding
options which are exercisable within 60 days of the record date.
(5) Includes 546,273 shares of common stock subject to outstanding options
which are exercisable within 60 days of the record date.
(6) As the managing member of TCO, Mr. Tennenbaum shares voting and dispositive
power for all of the shares of common stock owned of record by the TCP
Accounts and TCO (see also footnote 1). Also includes 48,000 shares of
common stock subject to outstanding options which are exercisable within 60
days of the record date that are owned by Mr. Tennenbaum.
(7) Includes 48,000 shares of common stock subject to outstanding options which
are exercisable within 60 days of the record date.
(8) Includes 16,667 shares of common stock subject to outstanding options which
are exercisable within 60 days of the record date.
(9) Includes 48,000 shares of common stock subject to outstanding options which
are exercisable within 60 days of the record date.
(10) Includes 45,000 shares of common stock subject to outstanding options which
are exercisable within 60 days of the record date.
(11) Includes 260,000 shares of common stock subject to outstanding options
which are exercisable within 60 days of the record date.
(12) Includes 33,333 shares of common stock subject to outstanding options which
are exercisable within 60 days of the record date.
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(13) Includes 28,750 shares of common stock subject to outstanding options which
are exercisable within 60 days of the record date.
(14) Includes 7,500 shares of common stock subject to outstanding options which
are exercisable within 60 days of the record date.
(15) Includes 27,625 shares of common stock subject to outstanding options which
are exercisable within 60 days of the record date. On September 15, 2004,
Linda Siluk resigned from the Company as Senior Vice President and Chief
Financial Officer.
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ELECTION OF DIRECTORS
(PROPOSAL NO. 1)
The Company's Board of Directors currently consists of seven members, each
of which has been nominated for election at the Annual Meeting. The Board of
Directors had eight members during the year ended July 3, 2004 ("Fiscal 2004")
until January 12, 2004, when Richard H. Griner resigned as a director and
accepted the position of Chief Operating Officer of the Company.
Seven directors are to be elected at the Annual Meeting to hold office
until the next annual meeting of stockholders. The directors shall serve until
their successors are duly elected and qualified or until any such director
resigns or is removed. Unless otherwise instructed, the "proxy holders" (which
term includes, for purposes of this proxy statement, brokers, banks or nominees
who are record holders and receive duly executed voting instruction cards) will
vote the proxies for seven nominees set forth below. The Company expects that
each of the nominees will be available for election, but if any of them is
unable or unwilling to serve at the time the election occurs, the proxy holders
will vote for the election of another nominee to be designated by the current
Board of Directors. In the event that additional persons are nominated for
election as directors, the proxy holders intend to vote all proxies received by
them in such a manner as will ensure the election of as many of the nominees
listed below as possible.
NOMINEES
The seven nominees are as follows:
SERVED AS
A DIRECTOR
NAME AGE POSITION WITH THE COMPANY SINCE
---- --- ------------------------- ----------
Ralph D. Dillon........ 64 Non-Executive Chairman of the Board of Directors 1999
Michael E.
Tennenbaum........... 69 Vice Chairman of the Board of Directors 2000
L.R. Jalenak, Jr....... 74 Director 2000
Franklin R. Johnson.... 68 Director 2003
Howard Levkowitz....... 37 Director 1999
Nancy Pedot............ 52 Director and Chief Executive Officer 2000
Walter J. Salmon....... 73 Director 2001
RALPH D. DILLON has been the Non-Executive Chairman of the Board of
Directors since December 10, 1999 and has been a director of the Company since
October 1, 1999. Prior to becoming a director of the Company, Mr. Dillon served
as Chief Executive Officer of Cost Plus, Inc., a specialty retailer of casual
home living and entertainment products, from September 1990 to February 1998,
President of Cost Plus from September 1990 to August 1995 and Chairman of the
Board of Cost Plus from August 1995 to February 1998. He also served as a
director of Cost Plus from September 1990 to May 1999 and has served as an
advisor to the Chief Executive Officer of Cost Plus.
MICHAEL E. TENNENBAUM has been a director of the Company since October 5,
2000 and has been the Vice-Chairman of the Board of Directors since October 1,
2002. Mr. Tennenbaum has been the Managing Member of Tennenbaum & Co., LLC since
its inception in June 1996. Tennenbaum & Co., LLC is the Managing Member of
Tennenbaum Capital Partners, LLC, an investment management company focused on
special situation investments. From February 1993 until June 1996, Mr.
Tennenbaum was a Senior Managing Director of Bear, Stearns & Co., Inc. and also
held the position of Vice Chairman, Investment Banking. Mr. Tennenbaum currently
is Chairman of the Board of Directors of Pemco Aviation Group, Inc., Chairman of
the Board of Directors of Anacomp, Inc. and is also a director of various
privately-held companies.
L.R. JALENAK, JR. has been a director of the Company since February 17,
2000. Prior to becoming a director of the Company, Mr. Jalenak was Chairman of
the Board of Cleo Inc., a manufacturer of Christmas wrapping paper and related
products, from 1990 until his retirement in December 1993. From 1977 to 1990, he
was President of Cleo Inc. Mr. Jalenak is a commissioner of Memphis Light, Gas
and Water Division, a Memphis, Tennessee utility company and serves as its
Chairman. Mr. Jalenak is also a director of Special
10
Value Expansion Fund, LLC, an investment fund managed by Tennenbaum Capital
Partners, LLC. Mr. Jalenak also serves on the board of a non-public Professional
Employment Organization and on the Boards of Directors of several not-for-profit
entities.
FRANKLIN R. JOHNSON has been a director of the Company since August 25,
2003. From March 2000 to the present, Mr. Johnson has been a business consultant
and expert witness. From May 1997 to March 2000, Mr. Johnson was Senior Vice
President and Chief Financial Officer of Rysher Entertainment, Inc. Prior to May
1997, Mr. Johnson was a partner at Price Waterhouse & Co. Mr. Johnson is also a
director of Special Value Opportunities Fund, LLC, an investment fund managed by
Tennenbaum Capital Partners, LLC. Mr. Johnson serves on the Board of Directors
of Reliance Steel & Aluminum Co.
HOWARD LEVKOWITZ has been a director of the Company since August 17, 1999.
Mr. Levkowitz has been a Partner in Tennenbaum Capital Partners, LLC, an
investment management company focused on special situation investments, since
1999 and since 1997, has been a principal of Tennenbaum & Co., LLC (with which
Tennenbaum Capital Partners, LLC is affiliated). He was an attorney with Dewey
Ballantine LLP from 1993 to 1997. Mr. Levkowitz also serves as a director of
several privately held companies.
NANCY PEDOT has been the Chief Executive Officer since January 12, 2004,
prior to which she served as the Acting Chief Executive Officer beginning in
April 2003. Ms. Pedot has been a director of the Company since November 27,
2000. Between 1989 and 1993, Ms. Pedot served in various executive positions
with The Gymboree Corporation, a designer, manufacturer and retailer of
children's apparel and accessories that operates a chain of more than 500
stores. She joined Gymboree in 1989 as Senior Vice President of Merchandising
and in 1994 was named President and CEO. Ms. Pedot left Gymboree in 1997 to
devote more time to her family and to pursue personal interests. Ms. Pedot also
serves on the Board of Directors of PETsMART Inc. and on the Boards of Directors
of several not-for-profit entities.
WALTER J. SALMON has been a director of the Company since July 25, 2001.
Mr. Salmon is presently the Stanley Roth, Sr., Professor of Retailing, Emeritus,
at the Harvard University Graduate School of Business Administration. He has
been a member of the Harvard Business School faculty since 1956. Professor
Salmon presently serves on the boards of The Neiman Marcus Group, PETsMART,
Inc., Stage Stores, Cumberland Farms and the Harvard Business School Publishing
Company.
RECOMMENDATION AND VOTE
The election of each nominee as a director requires a plurality of the
votes present at the Annual Meeting and entitled to vote. Votes withheld and
broker non-votes are not counted toward a nominee's total.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THE ELECTION OF EACH OF THE
NOMINEES.
BOARD OF DIRECTORS
BOARD OF DIRECTORS
The Board of Directors is led by Ralph D. Dillon, a Non-Executive Chairman
of the Board, and is comprised of five additional non-employee directors and one
employee director, Nancy Pedot. The Board of Directors has determined that each
of the following directors are independent in accordance with the Nasdaq listing
standards: Michael E. Tennenbaum, L.R. Jalenak, Jr., Franklin R. Johnson, Howard
Levkowitz and Walter J. Salmon.
The Board of Directors holds regularly scheduled meetings each quarter. In
addition to the quarterly meetings, there are typically other regularly
scheduled meetings and several special meetings each year. At each quarterly
meeting, time is set aside for the non-management directors to meet without
management present. The Board of Directors met four times during regularly
scheduled meetings and four times at special meetings during Fiscal 2004. In
addition, the Board of Directors acted once by unanimous written consent. During
Fiscal 2004, all of the directors attended at least 75% of the combined number
of Board meetings and meetings of Committees of which they were members.
11
While the Company does not have a formal policy regarding director
attendance at annual stockholder meetings, directors are strongly encouraged to
attend. All directors attended Party City's annual meeting of stockholders for
the fiscal year ended June 28, 2003 ("Fiscal 2003").
Stockholders may communicate directly with any of the Company's directors,
the non-employee directors as a whole, or the Board of Directors as a whole, by
writing to:
Party City Corporation
c/o Joseph J. Zepf, Esq.
Vice President, General Counsel & Secretary
400 Commons Way
Rockaway, New Jersey 07866.
Such communications will be distributed to the specific director(s)
requested by the stockholder or, if addressed generally to the Board of
Directors, to the members of the Board of Directors as may be appropriate. For
example, if a communication relates to accounting, internal accounting controls
or auditing matters, the communication will be forwarded to the Chairman of the
Company's Audit Committee. Copies of all communications will be provided to all
other directors to the extent appropriate; provided, however, that any such
communications that are considered to be improper for submission to the intended
recipients will not be provided to the directors. Examples of communications
that would be considered improper for submission include, without limitation,
customer complaints, solicitations, communications that do not relate, directly
or indirectly, to the business of the Company or communications that relate to
improper or irrelevant topics.
COMMITTEES OF THE BOARD OF DIRECTORS
The table below sets forth the membership and meeting information for the
Audit, Compensation and Nominating and Corporate Governance Committee during
Fiscal 2004.
NOMINATING AND
NAME AUDIT COMPENSATION CORPORATE GOVERNANCE
---- ----- ------------ --------------------
Ralph D. Dillon.........................
Michael E. Tennenbaum...................
L.R. Jalenak, Jr........................ X Chairman
Franklin R. Johnson..................... Chairman X
Howard Levkowitz........................ Chairman
Nancy Pedot.............................
Walter J. Salmon........................ X X
2004 Meetings......................... 8 8 2
The charters of each of the Committees, which more fully describes the
functions of each Committee, are posted under "Investor Relations -- Corporate
Governance" on Party City's website at http://www.partycity.com.
Audit Committee. The Audit Committee is responsible for evaluating and
recommending independent auditors, reviewing with the independent auditors the
scope and results of the audit engagement and establishing and monitoring the
Company's financial policies and control procedures. See the "Report of the
Audit Committee" contained elsewhere in this proxy statement. The Audit
Committee holds regularly scheduled meetings each quarter. In addition to the
quarterly meetings, there are typically other regularly scheduled meetings and
several special meetings each year.
As required by SEC rules, the Audit Committee has established procedures
for the receipt, retention and treatment of complaints received by the Company
regarding accounting, internal accounting controls or auditing matters, as well
as the confidential and anonymous submission of information, written or oral, by
Company employees regarding questionable accounting or auditing matters.
The Board of Directors has determined that each of the members of the Audit
Committee is independent within the meaning of SEC regulations, the Nasdaq
listing standards and the Audit Committee charter, and has the requisite
financial knowledge and experience. The Board of Directors has also determined
that
12
Franklin R. Johnson qualifies as an "audit committee financial expert" within
the meaning of SEC regulations and that he has the accounting and related
financial management expertise required by the Nasdaq listing standards.
Compensation Committee. The Compensation Committee is responsible for
setting and administering the Company's policies that govern executive
compensation and for establishing the compensation of the Company's executive
officers. The Compensation Committee is also responsible for the administration
of, and grants under, the Company's employee and director compensation plans.
See "Report of the Compensation Committee Regarding Executive Compensation". The
Board of Directors has determined that all of the members of the Compensation
Committee are independent within the meaning of SEC regulations, the Nasdaq
listing standards and the Compensation Committee charter.
Nominating and Corporate Governance Committee. The Nominating and
Corporate Governance Committee is responsible for developing and implementing
policies and practices relating to corporate governance. In addition, this
Committee annually reviews with the Board of Directors the appropriate
characteristics, skills and experience for the Board of Directors as a whole and
its individual members, and recommends to the Board of Directors candidates for
membership in accordance with the qualities presented to the Board of Directors
in such review and the selection criteria outlined in the Committee's charter.
The Nominating and Corporate Governance Committee, in evaluating the
suitability of individual candidates and recommending nominees for election,
takes into account many factors, including a candidate's ability to make
independent analytical inquiries, general understanding of retail businesses,
marketing, finance and other elements relevant to the success of the Company in
today's business environment, and educational and professional background. The
Committee evaluates each individual in the context of the Board of Directors as
a whole, with the objective of assembling a group that can best perpetuate the
success of the Company and represent stockholder interests through the exercise
of sound judgment using its diversity of experience in these various areas. In
searching for qualified director candidates for election and to fill vacancies,
the Board of Directors solicits current directors for the names of potential
qualified candidates and may ask directors to pursue their own business contacts
for the names of potentially qualified candidates. In the future, the Nominating
and Corporate Governance Committee may retain search firms or consult with
outside advisors to assist in the search for qualified candidates.
The Nominating and Corporate Governance Committee does not currently
consider nominees recommended by the Company's stockholders. The Nominating and
Corporate Governance Committee believes that it is in the best position to
identify, review, evaluate and select qualified candidates for Board membership,
based on the comprehensive criteria for membership approved by the Board of
Directors.
The Board of Directors has determined that all of the members of the
Nominating and Corporate Governance Committee are independent within the meaning
of SEC regulations, the Nasdaq listing standards and the Nominating and
Corporate Governance Committee charter.
EXECUTIVE OFFICERS
All executive officers of the Company are elected annually by, and serve at
the discretion of, the Board of Directors. As of October 8, 2004, the Company's
executive officers are as follows:
NAME(1) AGE POSITION(S)
------- --- -----------
Nancy Pedot.......................... 52 Director and Chief Executive Officer
Richard H. Griner.................... 61 Chief Operating Officer
Lisa G. Laube........................ 41 Chief Merchandising Officer
Gregg A. Melnick..................... 35 Senior Vice President and Chief Financial Officer
Warren Jeffery....................... 55 Senior Vice President of Operations
Steven Skiba......................... 49 Vice President and Chief Information Officer
13
NANCY PEDOT. See "Proposal 1 -- Election of Directors -- Nominees."
RICHARD H. GRINER was appointed Chief Operating Officer on January 12,
2004. Mr. Griner was a director of the Company since September 6, 2002, but
resigned from the Board when he became the Company's Chief Operating Officer.
Prior to retirement from Omni Fitness, Inc., the specialty fitness equipment
chain, Mr. Griner served as President from April 2001 until June 2003. Prior to
joining Omni Fitness, Mr. Griner served from 1996 to 2000 as President and Chief
Operating Officer of Trend-Lines, Inc. and from 1986 to 1995 as Senior Vice
President of Operations for Family Dollar Stores, Inc.
LISA LAUBE was appointed Chief Merchandising Officer on April 26, 2004.
Prior to this appointment, Ms. Laube served since 2002 as Vice President of
Merchandising of The White Barn Candle Company, a division of the Bath and Body
Works unit of Limited Brands, Inc. Previously, Ms. Laube held a number of
positions at Linens 'n Things, Inc. from 1996 to 2002, rising through the buying
organization to become, in 1998, Vice President/General Merchandise Manager of
decorative accessories, tabletop and seasonal merchandise. Between 1985 and
1996, Ms. Laube worked for several divisions of Federated Department Stores,
Inc., concluding in the position of Senior Buyer at Macy's East, where she was
responsible for several home departments.
GREGG A. MELNICK was appointed Senior Vice President and Chief Financial
Officer on September 16, 2004. Prior to this appointment, Mr. Melnick served as
Vice President of Business Unit Finance and Treasury at Dow Jones & Company,
Inc., since 2001. Previously, from 2000 to 2001, Mr. Melnick was the Chief
Financial Officer of Susan Dell, Inc. For more than five years prior to 2000,
Mr. Melnick held a series of progressively more responsible financial positions
with Liz Claiborne, Inc., ultimately serving as Vice President and Group Finance
Director for the company's emerging business units. Mr. Melnick began his career
in the audit practice of Arthur Andersen.
WARREN JEFFERY was appointed Senior Vice President of Operations on August
26, 2002. He had previously been the Company's Vice President of Operations
since January 2002. Prior to joining the Company, Mr. Jeffery had been the
Senior Vice President of Pharmacy Management at McKesson Medication Management
from June 2001 to January 2002. He previously held various executive positions
including Executive Vice President Merchandising, Marketing and Logistics,
Senior Vice President Store Operations and Vice President of Store Operations
and Loss Prevention at Phar-Mor Inc., from February 1993 through October 2000.
STEVEN SKIBA was appointed Vice President and Chief Information Officer on
November 29, 2002. Prior to joining the Company, Mr. Skiba was the Vice
President, Management Information Systems, and Chief Technology Officer at
Transworld Entertainment from January 1997 through November 2002.
CODE OF BUSINESS CONDUCT AND ETHICS
The Company has adopted a Code of Business Conduct and Ethics which is
applicable to all employees of the Company, including the principal executive
officer, the principal financial officer and the principal accounting officer
and controller. The Code of Business Conduct and Ethics is posted under
"Investor Relations -- Corporate Governance" on Party City's website at
http://www.partycity.com. The Company intends to post amendments to or waivers
from the Code of Business Conduct and Ethics (to the extent applicable to the
Company's principal executive officer, the principal financial officer and the
principal accounting officer and controller) at this location on its website.
14
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth a summary of the compensation paid by the
Company during Fiscal 2004, 2003 and 2002 to (i) all individuals serving as the
Chief Executive Officer during Fiscal 2004 and (ii) each of the four most highly
compensated executive officers of the Company, other than the Chief Executive
Officer, who were serving as executive officers at July 3, 2004 (the persons
described in clauses (i) and (ii) together, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION -------------
---------------------------------- # SECURITIES
NAME AND FISCAL OTHER ANNUAL UNDERLYING
PRINCIPAL POSITION YEAR(1) SALARY BONUS COMPENSATION STOCK OPTIONS
------------------ ------- -------- -------- ------------ -------------
Nancy Pedot.................................. 2004 $611,539 $144,000 $94,686(2) 665,000
Chief Executive Officer 2003 117,692 -- 29,247(3) 20,000
2002 -- -- -- --
Richard H. Griner............................ 2004 175,481 86,687 3,894(4) 160,000
Chief Operating Officer 2003 -- -- -- --
2002 -- -- -- --
Warren Jeffery............................... 2004 239,548 69,611 8,540(5) 15,000
Senior Vice President 2003 228,408 15,000 8,240(6) 15,000
of Operations 2002 105,577 80,342 68,342(7) 50,000
Steven Skiba................................. 2004 259,892 112,889 25,872(8) 15,772
Vice President, 2003 139,423 43,750 70,845(9) 30,000
Chief Information Officer 2002 -- -- -- --
Linda M. Siluk(10)........................... 2004 237,139 56,779 9,713(11) 25,000
Former Senior Vice President 2003 205,193 15,000 9,758(12) 25,000
and Chief Financial Officer 2002 198,760 100,000 8,629(13) 17,000
---------------
(1) The Company's fiscal year end is the Saturday nearest to June 30.
(2) This amount includes $37,853 in living expenses, $35,171 in automobile
allowances, $17,251 in moving expenses and $4,411 representing the value of
the discount applicable to the purchase of restricted stock units under the
Employee Plan.
(3) This amount includes $21,746 in living expenses and $7,501 in automobile
allowances.
(4) This amount includes $3,894 in automobile allowances.
(5) This amount includes $8,540 in automobile allowances.
(6) This amount includes $8,240 in automobile allowances.
(7) This amount includes $3,894 in automobile allowances and $64,448 for moving
expenses.
(8) This amount includes $9,792 in automobile allowances and $16,080 for moving
expenses.
(9) This amount includes $4,517 in automobile allowances and $66,328 for moving
expenses.
(10) On September 15, 2004, Linda M. Siluk resigned from the Company as Senior
Vice President and Chief Financial Officer.
(11) This amount includes $8,256 in automobile allowances and $1,457
representing the value of the discount applicable to the purchase of
restricted stock units under the Employee Plan.
(12) This amount includes $8,100 in automobile allowances and $1,658
representing the value of the discount applicable to the purchase of
restricted stock units under the Employee Plan.
(13) This amount includes $8,100 in automobile allowances and $529 representing
the value of the discount applicable to the purchase of restricted stock
units under the Employee Plan.
15
OPTION GRANTS DURING FISCAL 2004
The following table presents information regarding grants of options under
our Amended and Restated 1999 Stock Incentive Plan to purchase shares of the
Company's common stock for each of the Named Executive Officers during Fiscal
2004.
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------- VALUE AT ASSUMED
PERCENT OF ANNUAL RATES OF
NUMBER OF TOTAL STOCK PRICE
SECURITIES OPTIONS EXERCISE APPRECIATION FOR
UNDERLYING GRANTED TO PRICE OPTION TERM
OPTIONS EMPLOYEES IN PER EXPIRATION ------------------------
NAME GRANTED(1) FISCAL YEAR SHARE(2) DATE 5% 10%
---- ---------- ------------ -------- ---------- -- ---
Nancy Pedot............... 600,000(3) 41.46% $12.34 2014 $4,656,336 $11,800,069
30,000(4) 2.07% 11.91 2014 253,804 662,119
5,000(5) 0.35% 14.33 2013 45,054 114,177
5,000(5) 0.35% 14.01 2013 44,054 111,642
5,000(5) 0.35% 11.50 2013 36,161 91,640
5,000(5) 0.35% 10.11 2013 31,791 80,564
5,000(5) 0.35% 13.80 2013 43,394 109,968
5,000(5) 0.35% 10.94 2013 34,393 87,158
5,000(5) 0.35% 12.48 2014 39,243 99,450
Richard H. Griner......... 150,000(6) 10.36% 12.34 2014 1,164,084 2,950,017
10,000(5) 0.69% 14.48 2013 91,092 230,844
Warren Jeffery............ 15,000(7) 1.04% 12.16 2014 114,673 290,603
Steven Skiba.............. 15,772(7) 1.09% 12.16 2014 120,574 305,559
Linda M. Siluk............ 25,000(7) 1.73% 12.16 2014 191,121 484,338
---------------
(1) In the event of (i) a merger or consolidation, such that after such merger
or consolidation the Company is not the surviving entity or the ultimate
parent of the surviving entity, (ii) the sale of all or substantially all of
the assets of the Company, or (iii) the reorganization or liquidation of the
Company, the Compensation Committee may, in its sole discretion and upon at
least ten days advance notice to the optionee, cancel any outstanding
options and pay the optionee, in cash or stock, the value of such options
based upon the price per share of stock received or to be received by other
stockholders of the Company upon the occurrence of such event.
(2) The price represents the closing sale price of the underlying common stock
as reported by Nasdaq on the date of grant.
(3) The options vest as follows: (i) 25% of the options vest immediately at
grant date and (ii) 25% per year beginning on the first anniversary of the
grant date and continuing on each subsequent anniversary of the grant date.
(4) The options vested on Ms. Pedot's appointment as permanent Chief Executive
Officer. The right to exercise the options expires on the tenth anniversary
of the grant date.
(5) The options vested immediately on the grant date. The right to exercise the
options expires on the tenth anniversary of the grant date.
(6) The options vest as follows: 50,000 shares shall vest and become exercisable
on January 12, 2005, 33,333 shares shall vest and become exercisable on
January 12, 2006, 33,333 shares shall vest and become exercisable on January
12, 2007 and 33,334 shares shall vest and become exercisable on January 12,
2008.
(7) The options vest at the rate of 25% per year beginning on the first
anniversary of the grant date and continuing on each subsequent anniversary
of the grant date. The right to exercise the options expires on the tenth
anniversary of the grant date.
16
AGGREGATE OPTION EXERCISES IN FISCAL 2004 AND JULY 3, 2004 OPTION VALUES
The following table presents information regarding the value of options
outstanding at July 3, 2004 for each of the Named Executive Officers. There were
no options exercised by the Named Executive Officers during Fiscal 2004.
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
Nancy Pedot................................... 260,000 450,000 $281,393 $72,000
Richard H. Griner............................. 26,666 163,334 -- 24,000
Warren Jeffery................................ 26,875 53,125 126,953 132,113
Linda M. Siluk................................ 22,375 59,625 94,885 73,880
Steven Skiba.................................. 7,500 38,272 -- 5,426
---------------
(1) Value is based upon a closing sale price of $12.50 per share as reported by
Nasdaq on July 2, 2004.
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT
The Company is party to various employment and termination of employment
agreements with its Named Executive Officers.
Richard H. Griner. The Company is party to an employment agreement with
Richard H. Griner, Chief Operating Officer of the Company, dated January 12,
2004 (the "Griner Agreement"). The Griner Agreement provides for Mr. Griner to
serve the Company in such capacity for a three-year term, which commenced
January 12, 2004, which term will automatically renew for one-year periods
thereafter unless either party gives written notice of non-renewal at least 90
days prior to the expiration of the then current term. The Griner Agreement
provides for an annual minimum base salary of $365,000. The Griner Agreement
also provides for an annual non-compete stipend of $65,000; such stipend is
included in Mr. Griner's annual minimum base salary. The Griner Agreement
further provides that Mr. Griner be granted stock options to acquire 150,000
shares of common stock of the Company. Such stock options shall have a term of
ten years from the date of the grant and shall vest and become exercisable,
provided Mr. Griner is employed by the Company on such vesting date, as follows:
50,000 shares shall vest and become exercisable on January 12, 2005: 33,333
shares shall vest and become exercisable on January 12, 2006; 33,333 shares
shall vest and become exercisable on January 12, 2007 and 33,334 shares shall
vest and become exercisable on January 12, 2008. In addition, Mr. Griner is
entitled to receive an annual incentive bonus based upon the attainment of
performance criteria under the Company's annual incentive bonus plan then in
effect. The target amount for such annual incentive bonus is 50% of Mr. Griner's
Salary as of the last day of the respective fiscal year, although the actual
amount of the annual incentive bonus will depend on the satisfaction of the
reasonable performance goals established by the Board of Directors.
The Griner Agreement provides that in the event of the termination of Mr.
Griner's employment on account of his death or disability, his voluntary
resignation or the Company's termination of his employment for cause, the
Company shall pay to Mr. Griner, or his estate on account of his death, in a
lump sum within 10 business days following his termination, all earned but
unpaid then-existing salary and bonus; provided, however, that, whether any
bonus is earned at the time of his termination will be determined by reference
to the terms of the Company's respective bonus or performance-based compensation
plans or programs, if any, or, if not set forth therein, as determined by the
Company in its sole discretion. In the event of the termination of Mr. Griner's
employment by the Company without cause, or a change in control of the Company,
the Company shall pay to Mr. Griner, in a lump sum within 10 business days
following such termination, all earned compensation and continue to pay his
then-existing salary, in accordance with the Company's regular payroll
practices, for 26 weeks.
Warren Jeffery. The Company is party to an employment agreement with
Warren Jeffery, Senior Vice President of Operations of the Company, dated
November 4, 2003 (the "Jeffery Agreement"). The Jeffery
17
Agreement provides for Mr. Jeffery to serve the Company in such capacity for an
initial one-year term, which commenced November 3, 2003, which term will
automatically renew for one-year periods unless either party gives written
notice of non-renewal at least 60 days prior to the expiration of the then
current term. The Jeffery Agreement provides for an annual minimum base salary
of $235,806. The Jeffery Agreement also provides for an annual non-compete
stipend of $10,000; such stipend is included in Mr. Jeffery's annual minimum
base salary. In addition to salary, Mr. Jeffery shall be entitled to earn an
annual incentive bonus based upon the attainment of certain performance criteria
under the Company's annual incentive bonus plan then in effect. The
determination of what level Mr. Jeffery may participate in any Company bonus
plan and the maximum and target bonus that may be earned shall be made by the
CEO, in his or her sole discretion.
The Jeffery Agreement provides that in the event of the termination of Mr.
Jeffery's employment on account of his death or disability, his voluntary
resignation or the Company's termination of his employment for cause, the
Company shall pay to Mr. Jeffery, or his estate on account of his death, in a
lump sum within 10 business days following his termination, all earned but
unpaid then-existing salary and bonus; provided, however, that, whether any
bonus is earned at the time of his termination will be determined by reference
to the terms of the Company's respective bonus or performance-based compensation
plans or programs, if any, or, if not set forth therein, as determined by the
Company in its sole discretion. In the event of the termination of Mr. Jeffery's
employment by the Company without cause, the Company shall pay to Mr. Jeffery,
in a lump sum within 10 business days following such termination, all earned
compensation and continue to pay his then-existing salary, in accordance with
the Company's regular payroll practices, for 26 weeks.
Steven Skiba. The Company is party to an employment agreement with Steven
Skiba, Chief Information Officer of the Company, dated November 29, 2002 (the
"Skiba Agreement"). The Skiba Agreement provides for Mr. Skiba to serve the
Company in such capacity for an initial one-year term, which commenced on
November 29, 2002, which term will automatically renew for one-year periods
unless either party gives written notice at least 60 days prior to the
expiration of the then current term. The Skiba Agreement provides for an annual
minimum base salary of $240,000, the amount of which may be adjusted upward by
the Board of Directors in its sole discretion. The Skiba Agreement also provides
for an annual non-compete stipend of $10,000; such stipend is included in Mr.
Skiba's annual minimum base salary. Further, Mr. Skiba was guaranteed (and
received) a bonus payment of $44,375 at the end of Fiscal 2003. In addition to
salary, Mr. Skiba shall be entitled to earn an annual incentive bonus based on
the attainment of certain performance criteria under the Company's annual
incentive bonus plan then in effect. The determination of at what level Mr.
Skiba may participate in any Company bonus plan and the maximum and target bonus
that may be earned shall be made by the CEO, in his or her sole discretion.
The Skiba Agreement provides that in the event of the termination of Mr.
Skiba's employment on account of his death or disability, his voluntary
resignation or the Company's termination of his employment for cause, the
Company shall pay to Mr. Skiba, or his estate on account of his death, in a lump
sum within 10 business days following his termination, all earned but unpaid
then-existing salary and bonus; provided, however, that, whether any bonus is
earned at the time of his termination will be determined by reference to the
terms of the Company's respective bonus or performance-based compensation plans
or programs, if any, or, if not set forth therein, as determined by the Company
in its sole discretion. In the event of the termination of Mr. Skiba's
employment by the Company without cause, the Company shall pay to Mr. Skiba, in
a lump sum within 10 business days following such termination, all earned
compensation and continue to pay his then-existing salary, in accordance with
the Company's regular payroll practices, for 26 weeks.
Linda M. Siluk. The Company is party to a general release and severance
agreement with Linda M. Siluk, former Senior Vice President and Chief Financial
Officer of the Company, dated September 30, 2004 (The "Siluk Agreement"). In
accordance with the Siluk Agreement, the previous employment agreement between
the Company and Mrs. Siluk was terminated and has no force and effect. The Siluk
Agreement reflects that Ms. Siluk resigned from her position with the Company
effective September 15, 2004. Pursuant to the Siluk Agreement, Ms. Siluk will
receive severance equal to her base salary as of September 15, 2004 for a
minimum period of four months and a maximum period of six months. The Siluk
Agreement provides that, after January 15, 2005, the severance otherwise payable
by the Company shall be reduced on a dollar-for-dollar basis by the amount Ms.
Siluk may earn from future employment during the period from January 16,
18
2005 through March 15, 2005. The Siluk Agreement further states that the Company
shall pay for outplacement services for Ms. Siluk for the six-month period
ending March 15, 2005 at a cost to the Company not to exceed $25,000.
COMPENSATION OF DIRECTORS
Directors who are employees of the Company receive no additional or special
cash stipends for their service as directors. Directors who are not employees of
the Company are entitled to receive an annual retainer of $25,000 and $2,000 for
each Board of Directors' meeting attended. Committee meeting fees are $4,000 and
$2,000 for the Audit Committee chairperson and members, respectively; $3,000 and
$2,000 for the Compensation Committee chairperson and members, respectively;
$2,000 and $1,000 for the Nominating and Corporate Governance Committee
chairperson and members, respectively. In addition, any Board member who is
requested by the Chairman to perform services for the Company that is outside of
the scope of preparing for or attending a meeting will be paid $2,000 per each
eight hours of time spent performing such services. The Company also reimburses
directors for travel and lodging expenses, if any, incurred in connection with
attendance at the Board of Directors and Committee meetings. Directors each
receive an annual grant of 10,000 options on the date of the Annual Meeting for
each fiscal year, which are fully vested at the time of grant.
The Company entered into a consulting arrangement with Mr. Dillon in 1999
pursuant to which Mr. Dillon receives a consulting fee of $10,000 per month in
exchange for advising and consulting with the Company regarding strategic
planning, general operations and merchandising programs. From September 18, 2003
to January 12, 2004, this monthly amount was increased to $20,000 per month
during which time Mr. Dillon assumed the responsibility of conducting a search
for a permanent Chief Executive Officer. Mr. Dillon also received $50,000 in
Fiscal 2004 for assuming additional responsibilities during the transition of
hiring a permanent Chief Executive Officer.
On each of January 12, 2002, July 12, 2002, January 12, 2003 and July 12,
2004, the Company granted options for 50,000 shares of the Company's common
stock to Mr. Dillon, with exercise prices of $9.375, $17.00, $17.00 and $17.00,
respectively. All options vested in full upon issuance.
REPORT OF THE COMPENSATION COMMITTEE
REGARDING EXECUTIVE COMPENSATION
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, that might incorporate future filings,
including this proxy statement, in whole or in part, this Report of the
Compensation Committee Regarding Executive Compensation, shall not be
incorporated by reference into any such filings.
The Compensation Committee of the Board of Directors was formed in 1996 and
is presently composed of Messrs. Jalenak and Salmon. The Compensation Committee
meets at least once annually or more frequently as the Board of Directors may
request. The Compensation Committee's primary responsibilities include the
review and approval of compensation, consisting of salary, bonuses, benefits and
other compensation for the Company's executive officers. The Compensation
Committee is responsible for the administration of the Company's Amended and
Restated 1999 Stock Incentive Plan (the "1999 Plan") and for the grant of stock
options and other awards under such plan, as well as the administration of the
Management Stock Purchase Plan (the "Management Plan") and grants thereunder.
EXECUTIVE OFFICER COMPENSATION
The executive officer compensation programs utilized by the Company are
described below for the purpose of providing a general understanding of the
various components of executive officer compensation. These executive officer
compensation programs are designed to attract, retain and reward highly
qualified executive officers who are important to the Company's success and to
provide incentives relating directly to the financial performance and long-term
growth of the Company. The various components of the executive
19
officer compensation programs used by the Company are, in most cases, the same
as those made available generally to employees of the Company. The following is
a summary of the executive officer compensation programs:
Cash Compensation
Base Salary. Base salaries are established primarily upon an evaluation of
the executive officer's position and contributions to the Company, including (i)
individual performance, (ii) level of responsibility, (iii) technical expertise,
(iv) length of service, (v) Company performance and (vi) industry compensation
levels. The Compensation Committee annually reviews these base salary
compensation levels and makes adjustments based on a subjective evaluation of
the above factors.
Incentive Bonuses. The Company has established a cash-based annual bonus
program to provide annual incentives to the executive officers to meet or exceed
expected performance objectives. This program provides cash compensation, based
on a percentage of base salary, for the achievement of EBITDA targets set by the
Company and, for certain executive officers, the attainment of specific
short-term corporate and individual performance objectives which contribute to
the success of the Company.
Equity Compensation
In order to provide long-term incentives to the executive officers of the
Company and to further align their interests with those of the Company's
stockholders, the Company has implemented several equity-based incentive
compensation plans. Among these plans, the 1999 Plan allows for the grant of
both incentive and nonqualified stock options as well as restricted stock and
other equity-based awards. Equity awards under these plans are granted on a
discretionary basis by the Compensation Committee. The Compensation Committee
makes a subjective determination as to the award recipients and their level of
award after review of the performance factors for the executive officers noted
above for base salary determinations. In order to encourage and reward continued
employment, these awards typically vest over a period of three to four years
after the date of grant.
In June 2001, the Company implemented the Management Plan through which
executive officers may elect to forgo all or a portion of their annual bonus
and, in exchange for such foregone bonus, receive restricted stock units. To
encourage participation in this plan, executives "purchase" restricted stock
units at a price that is 20% to 25% less than the fair market value of shares of
our common stock at the time of "purchase," depending on the amount of bonus
forgone. These forgone bonuses are held by the Company for three or seven years,
as elected by the executive officer, and typically paid out in shares of common
stock.
The Employee Stock Purchase Plan (the "Employee Plan"), which was approved
in November 2001, added yet another mechanism to further align the interests of
all employees, including executive officers, with those of the stockholders of
the Company. The Employee Plan is structured to offer shares of Company common
stock for sale on a bi-annual basis through salary deductions at a 15% discount.
The Management Plan and Employee Plan were adopted after consultation with and
on the recommendation of the executive compensation consulting firm of Watson
Wyatt Worldwide.
CHIEF EXECUTIVE OFFICER COMPENSATION
The Chief Executive Officer of the Company is eligible to participate in
the same executive compensation plans available to other executive officers. The
Compensation Committee's general approach in setting the Chief Executive
Officer's annual compensation (including base salary, annual incentive bonuses
and long-term equity-based incentives) is to seek to be competitive with other
comparably sized companies in the same industry group and to tie a portion of
her annual compensation to the performance of the Company's common stock. This
approach is intended to incentivize the Chief Executive Officer through clearly
defined long-term goals while providing certainty as to that portion of her
compensation that is not performance based.
In conclusion, the Compensation Committee believes that the compensation
policies and practices of the Company as described above are fair and reasonable
and are in keeping with the best interests of the
20
Company, its employees and its stockholders. The Compensation Committee will
continue to review and revise the Company's compensation policies and plans in
light of the Company's needs, market practices and legal and regulatory changes.
INTERNAL REVENUE CODE SECTION 162(M)
Section 162(m) of the Internal Revenue Code, as amended (the "Code"),
generally disallows a tax deduction to public companies for annual compensation
over $1 million paid to each of the Named Executive Officers, except to the
extent such compensation qualifies as "performance-based." None of the Named
Executive Officers has received compensation in excess of the Section 162(m)
limits and all such compensation has been fully deductible by the Company.
Moreover, the Company's stock option plans are structured and administered in a
manner that is intended to comply with the Section 162(m) performance-based
exemption. While the Company's policy has always been to pursue a strategy for
maximizing deductibility of compensation for the Named Executive Officers, it
also believes it is important to maintain the flexibility to take actions it
considers in the best interests of the Company and its stockholders, which may
necessarily be based on considerations in addition to Section 162(m).
The Compensation Committee:
L.R. Jalenak, Jr., Chairman
Walter J. Salmon
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth certain information as of July 3, 2004
concerning our equity compensation plans:
NUMBER OF SECURITIES
AVAILABLE FOR FUTURE
NUMBER OF SECURITIES TO WEIGHTED-AVERAGE ISSUANCE UNDER EQUITY
BE ISSUED UPON EXERCISE OF EXERCISE PRICE OF COMPENSATION PLANS
OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, (EXCLUDING SECURITIES
WARRANTS AND RIGHTS WARRANTS AND RIGHTS REFLECTED IN COLUMN (A))
-------------------------- -------------------- ------------------------
PLAN CATEGORY (A) (B) (C)
------------- -------------------------- -------------------- ------------------------
Equity compensation plans
approved by security
holders(1)..................... 3,044,131(2) $11.36 4,615,159(3)
Equity compensation plans not
approved by security
holders(4)..................... 16,012(5) 8.35 276,213
--------- ------ ---------
Total............................ 3,060,143 $11.34 4,891,372
========= ====== =========
---------------
(1) Consists of the Company's Amended and Restated 1994 Stock Option Plan (the
"1994 Plan"), 1999 Plan, and Employee Plan.
(2) Consists of 379,662 outstanding options for the Company's common stock
pursuant to the 1994 Plan, 2,642,512 outstanding options for the Company's
common stock pursuant to the 1999 Plan and 21,957 shares of the Company's
common stock which will be issued on January 1, 2005 pursuant to the
Employee Plan. Under the Employee Plan, the Company's employees have the
opportunity to purchase shares of the Company's common stock at a discount
through accumulated payroll deductions. The Company's liability to employees
in the Employee Plan is approximately $247,000. The shares which will be
issued in January 2005 will have a purchase price of $11.36 per share.
(3) Consists of 4,520,245 options that remain available for issuance pursuant to
the 1999 Plan and 94,914 shares of the Company's common stock that remain
available for issuance pursuant to the Employee Plan. No additional options
may be issued under the 1994 Plan.
(4) Consists of the Management Plan.
(5) These shares will be issued in future periods as provided for in the
Management Plan.
21
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
The members of the Compensation Committee are L.R. Jalenak, Jr. and Walter
J. Salmon, both independent directors in accordance with SEC regulations, Nasdaq
listing standards and the Compensation Committee charter. Neither member of the
Compensation Committee has been an officer or an employee of Party City. In
addition, during Fiscal 2004, none of Party City's executive officers served on
the board of directors or compensation committee (or committee performing
equivalent functions) of any other company that had one or more executive
officers serving on Party City's Board of Directors or Compensation Committee.
22
REPORT OF THE AUDIT COMMITTEE
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, that might incorporate future filings,
including this Proxy Statement, in whole or in part, this Report of the Audit
Committee shall not be incorporated by reference into any such filings.
The Audit Committee has reviewed the Company's audited consolidated
financial statements for Fiscal 2004 and discussed these financial statements
with management and Deloitte & Touche LLP, its independent accountants.
The Audit Committee also discussed with the independent accountants the
matters required to be discussed by the Statement on Auditing Standards No. 61,
"Codification of Statements on Auditing Standards," as amended, issued by the
Auditing Standards Board of the American Institute of Certified Public
Accountants, with respect to such financial statements. These discussions
included information regarding the scope and results of the audit performed by
Deloitte & Touche LLP.
The independent accountants provided the Audit Committee with the written
disclosures and the letter required by Independence Standards Board Standard No.
1, "Independence Discussions with Audit Committees," as amended. Independence
Standards Board Standard No. 1 requires accountants to disclose annually in
writing all relationships that in the auditor's professional opinion may
reasonably be thought to bear on their independence, confirm their perceived
independence and engage in a discussion of independence. In addition, the Audit
Committee discussed with the independent accountants their independence from the
Company. The Audit Committee also considered whether the independent
accountants' provision of certain other, non-audit related services to the
Company is compatible with maintaining such accountants' independence.
Based on its discussions with management and the independent accountants,
and its review of the representations and information provided by management and
the independent accountants, the Audit Committee recommended to the Board of
Directors that the audited consolidated financial statements of Party City be
included in the Company's Annual Report on Form 10-K for Fiscal 2004.
The Audit Committee:
Franklin R. Johnson, Chairman
and Financial Expert
L.R. Jalenak, Jr.
Walter J. Salmon
23
INDEPENDENT AUDITORS FEES AND OTHER MATTERS
Aggregate fees for professional services rendered for the Company by
Deloitte & Touche, LLP for Fiscal 2004 and 2003 were:
FEE TYPE 2004 2003
-------- ---------- --------
Audit....................................................... $ 523,671 $373,075
Audit-related............................................... 243,700 33,250
Tax......................................................... 252,810 266,040
All other................................................... -- --
---------- --------
Total....................................................... $1,020,181 $672,365
========== ========
Audit Fees. Audit fees for Fiscal 2004 and Fiscal 2003 were $523,671 an
$373,075, respectively, for the annual audit and quarterly reviews of the
consolidated financial statements.
Audit-Related Fees. Audit-related fees are comprised of assurance and
related services that are traditionally performed by the external auditor.
Deloitte & Touche LLP billed the Company $243,700 and $33,250 for Fiscal 2004
and Fiscal 2003, respectively, for audit related professional services,
including employee benefit plan audits, accounting consultations and consent for
the incorporation in our registration statements.
Tax Fees. Tax fees relate primarily to assistance with Federal and state
income tax returns, employee benefit plan returns, personal property tax, sales
and use tax issues, state and local audits and tax compliance matters. Tax fees
for Fiscal 2004 and Fiscal 2003 were $252,810 and $266,040, respectively.
All Other Fees. During Fiscal 2004 and Fiscal 2003, there were no
professional services other than those described above for Fiscal 2004 and
Fiscal 2003, including tax consulting and compliance services and tax due
diligence services.
All internal auditing is performed under the direct control of the Vice
President of Internal Audit who is accountable to the Audit Committee. All
services provided by Deloitte & Touche, LLP have been reviewed with the Audit
Committee and senior management of the Company to confirm that the performance
of such services is consistent with the regulatory requirements for auditor
independence.
A member of Deloitte & Touche LLP will be present at the Annual Meeting of
Stockholders, will have the opportunity to make a statement, and will be
available to respond to appropriate questions by stockholders.
AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES
The Audit Committee does not currently have, and did not have in connection
with the independent auditors' engagement in Fiscal 2004 and Fiscal 2003, any
formal pre-approval policies and procedures in effect. Instead, the Audit
Committee specifically pre-approves each of the services to be rendered by
Deloitte & Touche, LLP in advance of the performance of any services, including
the fees and terms thereof.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires the Company's directors and executive officers, and
persons who have beneficial ownership of more than ten percent of the Company's
common stock, to file reports of ownership and changes of ownership with the SEC
and Nasdaq. Copies of all filed reports are required to be furnished to the
Company pursuant to Section 16(a). Based solely on the reports received by the
Company and on written representations from reporting persons, the Company
believes that the directors, executive officers and greater than ten percent
beneficial owners complied with all Section 16(a) filing requirements during
Fiscal 2004, except that (i) Mr. Dillon, the Non-Executive Chairman of the Board
of Directors, through inadvertence, failed to file a Form 4 for one transaction
on July 11, 2003 relating to the Company's grant of stock options to purchase
50,000 shares of Company common stock. Upon discovery of the oversight, Mr.
Dillon filed a Form 5 on August 17, 2004, and
24
(ii) Messrs. Jeffery and Skiba and Ms. Siluk, through inadvertence, failed to
file Form 4's for transactions dated February 2, 2004 relating to the Company's
grant of stock options to purchase Company common stock. Upon discovery of the
oversight, Messrs. Jeffery and Skiba and Ms. Siluk filed Form 4's on March 9,
2004.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
On August 16, 1999, Special Value Bond Fund II, LLC, ("SVBF II") purchased
$10.0 million in aggregate principal amount of the Company's 12.5% Secured Notes
due 2003 (the "A Notes") and $5.0 million in aggregate principal amount of the
Company's 13.0% Secured Notes due 2003 (the "B Notes"). Subsequently on November
20, 2000, SVBF II sold $5.0 million in aggregate principal amount of the A Notes
and $2.5 million in aggregate principal amount of the B Notes to other Company
investors. In addition, on August 16, 1999, Tennenbaum & Co., LLC ("TCO")
purchased $2,250,000 in aggregate principal amount of the Company's 13.0%
Secured Notes due 2002, $4.5 million in aggregate principal amount of the
Company's 14.0% Secured Notes due 2004 and Warrants to purchase 3,096,000 shares
of the Company's stock. TCO then transferred all of these Secured Notes and the
Warrants to Special Value Bond Fund, LLC ("SVBF") effective as of September 1,
1999. Then on January 14, 2000, SVBF purchased $3,250,000 in aggregate principal
amount of the Company's 14.0% Secured Notes due 2002. The managing member of
SVBF II is SVIM/MSM II, LLC ("SVIM/MSM II") and the managing member of SVIM/ MSM
II is TCO. The managing member of SVBF is SVIM/MSM, LLC ("SVIM/MSM") and the
managing member of SVIM/MSM is TCO. The managing member of TCO is Michael E.
Tennenbaum, the Company's Vice Chairman of the Board of Directors. During Fiscal
2003 and Fiscal 2002, Secured Notes totaling $3.9 million and $9.3 million were
repaid, respectively. For the fiscal years ended June 28, 2003 and June 29,
2002, the Company paid $1.0 million and $2.3 million of interest related to
these Notes, respectively.
On November 2, 1999, Ralph Dillon, the Non-Executive Chairman of the Board
of Directors, purchased $167,000 in aggregate principal amount of the Company's
13.0% Secured Notes due 2002, $333,000 in aggregate principal amount of the
Company's 14.0% Secured Notes due 2004, and Warrants to purchase 229,333 shares
of the Company's stock from one of the Investors for a total purchase price of
$498,000. During Fiscal 2003 and Fiscal 2002, the Secured Notes totaling
$333,000 and $167,000 were repaid, respectively. In Fiscal 2003 and Fiscal 2002,
the Company paid $78,000 and $80,000 of interest related to these Notes,
respectively.
On June 22, 2001, the Company granted options for 90,000 shares of the
Company's common stock to Ralph Dillon as compensation for his services to the
Company. These options were granted at $6.25 per share and vested upon issuance.
In addition, on each of January 12, 2002, July 12, 2002, January 12, 2003 and
July 12, 2004 additional grants of options for 50,000 shares of the Company's
common stock were made to Mr. Dillon, which options had an exercise price of
$9.38, $17.00, $17.00 and $17.00, respectively. All of these options vested upon
issuance. Compensation expensed was recorded for all grants. Compensation
expense included in the statement of income for Fiscal 2004, 2003 and 2002 was
$101,000, $154,000 and $430,000, respectively.
Jason Craig and Steven Craig, sons of Sidney Craig, President of Craig
Enterprises, Inc., own and operate six and five Party City franchised stores,
respectively, located in California. During Fiscal 2004, pursuant to the terms
of their respective franchise agreements with the Company Jason Craig paid the
Company $855,000 and Steven Craig paid the Company $679,000. Craig Enterprises,
Inc. owns 1,107,000 shares of common stock as reported in the Second Amendment
to Schedule 13G filed by Craig Enterprises, Inc. with the SEC on August 7, 2003.
Sidney and Jenny Craig own an additional 112,202 shares of common stock
directly.
25
PERFORMANCE GRAPH
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, that might incorporate future filings,
including this Proxy Statement, in whole or in part, this Performance Graph
shall not be incorporated by reference into any such filings.
The following graph provides a comparison, on a cumulative basis, of the
percentage change from December 31, 1998 through July 2, 2004 in (a) the total
stockholder return on the Company's common stock with (b) the total return on
the common equity of all domestic issuers traded on the NASDAQ National Market
and the NASDAQ SmallCap Market ("NASDAQ Market Index") and (c) the total return
of domestic issuers having the same Standard Industrial Classification ("SIC")
Industry Group Number as the Company (SIC 5943) and traded on the NASDAQ
National Market or Small-Cap Market (the "Industry Index"). Such percentage
change has been measured by dividing: (i) the sum of (A) the cumulative amount
of dividends for the measurement period, assuming dividend reinvestment, and (B)
the difference between the price per share at the end and at the beginning of
the measurement period, by (ii) the price per share at the beginning of the
measurement period. The price of each investment unit has been set at $100 on
December 31, 1998 for purposes of preparing this graph.
The Company's common stock has traded on the NASDAQ National Market under
the symbol "PCTY" since its relisting in July 2001. From July 1999 until its
relisting on the NASDAQ National Market, the common stock was traded on the OTC
Bulletin Board, an electronic quotation service for NASD Market Makers. From
March 1996 until July 1999, the Company's common stock was traded on the NASDAQ
National Market.
(PERFORMANCE GRAPH)
PARTY CITY CORPORATION INDUSTRY INDEX NASDAQ MARKET INDEX
---------------------- -------------- -------------------
12/31/98 100.00 100.00 100.00
7/2/99 26.62 91.84 121.57
6/30/00 18.70 34.63 182.92
6/29/01 39.18 24.96 101.30
6/28/02 112.90 39.65 68.71
6/27/03 72.73 44.09 76.41
7/2/04 86.58 62.74 97.17
26
STOCKHOLDER PROPOSALS FOR 2005 ANNUAL MEETING
Proposals of stockholders of the Company which are intended to be included
in the Company's proxy statement for its 2005 annual meeting of stockholders
must be received by the Secretary of the Company in writing at its principal
executive office no later than June 13, 2005, and must otherwise be in
compliance with the Company's Certificate of Incorporation and Bylaws and with
applicable laws and regulations, including Rule 14a-8 of the Securities and
Exchange Act of 1934.
Unless the stockholder notifies the Company by September 5, 2005 of its
intention to present a stockholder proposal at the 2005 annual meeting in a
manner other than the inclusion of the proposal in the Company's proxy statement
and form of proxy relating to that meeting, the proxy holders named by the
Company may exercise their discretionary voting authority on the matter in
accordance with their best judgment, even though such proposal is not discussed
in the proxy statement.
HOUSEHOLDING
Party City has adopted a procedure approved by the SEC called
"householding." Under this procedure, a householding notice will be sent to
stockholders who have the same address and last name, and they will receive only
one copy of our annual report and proxy statement unless one or more of these
stockholders notifies Party City that they wish to continue receiving individual
copies. This procedure reduces our printing costs and postage fees. Each
stockholder who participates in householding will continue to receive a separate
proxy card or voting instruction card.
If any stockholders in your household wish to receive a separate annual
report and a separate proxy statement, they may call Party City's Investor
Relations group at 973-983-0888 ext. 8333 or write to Investor Relations, Party
City Corporation, 400 Commons Way, Rockaway, New Jersey 07866. See also
"Investor Relations" at http://www.partycity.com. Other stockholders who have
multiple accounts in their names or who share an address with other stockholders
can authorize Party City to discontinue mailings of multiple annual reports and
proxy statements by calling or writing to Investor Relations.
OTHER MATTERS
The Board of Directors knows of no other matters to be brought before the
Annual Meeting. However, if any other matters are properly brought before the
Annual Meeting, the persons appointed in the accompanying proxy intend to vote
the shares represented thereby in accordance with their best judgment.
By Order of the Board of Directors
By: /s/ JOSEPH J. ZEPF
------------------------------------
Joseph J. Zepf
Secretary
27
PROXY
PARTY CITY CORPORATION
400 COMMONS WAY
ROCKAWAY, NJ 07866
ANNUAL MEETING OF STOCKHOLDERS NOVEMBER 11, 2004
PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Joseph J. Zepf and Gregg A. Melnick as
Proxies, each with the power to appoint his substitute and to exercise the
powers set forth in the Proxy Statement dated October 13, 2004 and hereby
authorizes them to represent and vote upon Proposal 1, and in their discretion
upon other matters properly coming before the meeting, all the shares of Common
Stock of PARTY CITY CORPORATION held of record by the undersigned on September
16, 2004, at the annual Meeting of Stockholders to be held on November 11, 2004,
or any adjournment or postponement thereof.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)
ANNUAL MEETING OF STOCKHOLDERS OF
PARTY CITY CORPORATION
NOVEMBER 11, 2004
Please date, sign and mail
your proxy card in the
envelope provided as soon
as possible.
- Please detach along perforated line and mail in the envelope provided. -
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF DIRECTORS.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR
VOTE IN BLUE OR BLACK INK AS SHOWN HERE [X]
1. To elect seven directors to serve until the next annual meeting of
stockholders.
NOMINEES:
[ ] FOR ALL NOMINEES ( ) Ralph D. Dillon
( ) L.R. Jalenak, Jr.
( ) Franklin R. Johnson
[ ] WITHHOLD AUTHORITY ( ) Howard Levkowitz
FOR ALL NOMINEES ( ) Nancy Pedot
( ) Walter J. Salmon
( ) Michael E. Tennenbaum
[ ] FOR ALL EXCEPT
(See instructions below)
INSTRUCTION: To withhold authority to vote for any individual nominee(s),
mark "FOR ALL EXCEPT" and fill in the circle next to each
nominee you wish to withhold, as shown here: (X)
To change the address on your account, please check the [ ]
box at right and indicate your new address in the
address space above. Please note that changes to the
registered name(s) on the account may not be submitted
via this method.
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO DIRECTION INDICATED, THIS PROXY
WILL BE VOTED FOR THE ABOVE-STATED PROPOSAL.
PLEASE COMPLETE, DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED
ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING ON NOVEMBER 11,
2004. IF YOU ATTEND THE ANNUAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, AND
CHANGE YOUR VOTE IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY.
Signature of Stockholder ______________________________ Date: ________________
Signature of Stockholder ______________________________ Date: ________________
NOTE: Please sign exactly as your name or names appear on this Proxy. When
shares are held jointly, each holder should sign. When signing as
executor, administrator, attorney, trustee or guardian, please give full
title as such. If the signer is a corporation, please sign full corporate
name by duly authorized officer, giving full title as such. If signer is a
partnership, please sign in partnership name by authorized person.