Proxy Statement (definitive) (def 14a)

Date : 04/21/2017 @ 1:54PM
Source : Edgar (US Regulatory)
Stock : Party City Holdco Inc. (PRTY)
Quote : 16.0  0.3 (1.91%) @ 6:17PM

Proxy Statement (definitive) (def 14a)

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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

(Amendment No.     )

 

 

Filed by the Registrant  ☒                             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))
  Definitive Proxy Statement
  Definitive Additional Materials
  Soliciting Material Pursuant to §240.14a-12

PARTY CITY HOLDCO INC.

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

  No fee required.
  Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
  1)  

Title of each class of securities to which transaction applies:

 

     

  2)  

Aggregate number of securities to which transaction applies:

 

     

  3)  

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined):

 

     

  4)  

Proposed maximum aggregate value of transaction:

 

     

  5)  

Total fee paid:

 

     

  Fee paid previously with preliminary materials.
  Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
  1)  

Amount Previously Paid:

 

     

  2)  

Form, Schedule or Registration Statement No.:

 

     

  3)  

Filing Party:

 

     

  4)  

Date Filed:

 

     

 

 

 


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LOGO

PARTY CITY HOLDCO INC.

80 Grasslands Road

Elmsford, NY 10523

April 24, 2017

Dear Stockholder:

We cordially invite you to attend our 2017 Annual Meeting of Stockholders on Wednesday, June 7, 2017, at 10:00 a.m. (local time), to be held at 100 Grasslands Road, Elmsford, NY 10523. We hope that you will be able to attend.

Securities and Exchange Commission rules allow companies to furnish proxy materials to their stockholders on the Internet. We are pleased to take advantage of these rules and believe that they enable us to provide you with the information you need, while making delivery more efficient and more environmentally friendly. In accordance with these rules, we have sent a Notice of Internet Availability of Proxy Materials to each of our stockholders providing instructions on how to access our proxy materials and fiscal 2016 Annual Report over the Internet. The Notice of Internet Availability of Proxy Materials also provides instructions on how to vote online or by telephone and includes instructions on how to receive a paper copy of the proxy materials.

Details regarding admission to the meeting and the business to be conducted are described in the Notice of Internet Availability of Proxy Materials you received in the mail and in this proxy statement. We have also made available a copy of our fiscal 2016 Annual Report with this proxy statement. We encourage you to read our fiscal 2016 Annual Report. It includes our audited financial statements and provides information about our business and products.

Your vote is very important to us. Whether or not you plan to attend the meeting in person, your shares should be represented and voted.

 

Sincerely,

LOGO

James M. Harrison

Chief Executive Officer


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PARTY CITY HOLDCO INC.

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD ON JUNE 7, 2017

The Annual Meeting of Stockholders (the “Annual Meeting”) of Party City Holdco Inc. (the “Company” or “Party City”) will be held at 100 Grasslands Road, Elmsford, NY 10523 on Wednesday June 7, 2017, at 10:00 a.m. (local time), for the following purposes as further described in the proxy statement accompanying this notice:

 

  1) To elect the four directors specifically named in this proxy statement, each serving until the 2020 Annual Meeting or until his or her successor has been duly elected and qualified.

 

  2) To ratify the appointment of Ernst & Young LLP as the independent registered public accounting firm of the Company for fiscal 2017.

 

  3) To consider any other business properly brought before the meeting.

Stockholders of record at the close of business on April 12, 2017 are entitled to notice of, and entitled to vote at, the Annual Meeting and any adjournments or postponements thereof.

To attend the Annual Meeting, you must demonstrate that you were a Party City stockholder as of the close of business on April 12, 2017, or hold a valid proxy for the Annual Meeting from such stockholder. The proxy card includes an admission ticket for one stockholder to attend the Annual Meeting. You may alternatively present a brokerage statement showing proof of your ownership of Party City stock as of April 12, 2017. All stockholders must also present a valid form of government-issued picture identification in order to attend. Please arrive a few minutes early to allow time for these procedures.

 

By Order of the Board of Directors
         LOGO

        Joseph J. Zepf

         Secretary

Elmsford, NY

April 24, 2017

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting To Be Held on June 7, 2017: This proxy statement and our fiscal 2016 annual report to stockholders are available at www.proxyvote.com as well as on the Investor Relations section of our website at investor.partycity.com.


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TABLE OF CONTENTS

 

PROXY STATEMENT

     1  

CORPORATE GOVERNANCE

     5  

Leadership of the Board

     5  

Board Independence

     5  

Board Expertise and Diversity

     5  

Risk Oversight

     6  

Board Annual Performance Reviews

     6  

Board Nominees

     6  

Corporate Governance Guidelines and Code of Business Conduct and Ethics

     6  

Communications with Directors

     6  

Board Meetings and Annual Meeting Attendance

     7  

Committees of the Board

     7  

PROPOSAL 1—ELECTION OF DIRECTORS

     9  

General Information

     9  

Nominees for Election for Terms Expiring in 2020 (Class II Directors)

     9  

Members of the Board of Directors Continuing in Office

     10  

Director Compensation for 2016

     12  

EXECUTIVE COMPENSATION

     14  

Executive Officers of the Company

     14  

Compensation Committee Report

     14  

Compensation Discussion and Analysis

     15  

Summary Compensation Table for 2016, 2015 and 2014

     21  

Grants of Plan Based Awards for 2016

     22  

Employment Agreements

     22  

Outstanding Equity Awards at Fiscal Year End for 2016

     24  

Option Exercises and Stock Vested in 2016

     24  

Potential Payments upon Termination or Change in Control for 2016

     25  

Compensation Committee Interlocks and Insider Participation

     28  

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

     29  

CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS

     31  

Related Person Transaction Policy

     31  

Agreements with Management

     32  

Stockholders Agreement

     32  

Registration Rights Agreement

     32  

American Greetings Corporation

     32  

Retail Force, Inc.

     32  

AUDIT COMMITTEE MATTERS

     34  

Audit and Other Fees

     34  

Audit Committee Pre-Approval Policy

     34  

Audit Committee Report

     34  

PROPOSAL 2—RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2017

     36  

OTHER INFORMATION

     37  

Section 16(a) Beneficial Ownership Reporting Compliance

     37  

Stockholder Proposals for 2018 Annual Meeting

     37  

Annual Meeting Advance Notice Requirements

     37  

Householding

     37  

 

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PARTY CITY HOLDCO INC.

ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD ON JUNE 7, 2017

PROXY STATEMENT

General Information

This Proxy Statement is being furnished in connection with the solicitation by the Board of Directors (the “Board of Directors” or the “Board”) of Party City of proxies to be voted at the Annual Meeting. The Annual Meeting will be held at 10:00 a.m. (local time) on Wednesday, June 7, 2017 at 100 Grasslands Road, Elmsford, NY 10523.

Important Notice Regarding the Internet Availability of Proxy Materials. This year, we have saved significant mailing and printing costs by providing proxy materials to you over the Internet in accordance with Securities and Exchange Commission (“SEC”) rules. On or about April 24, 2017, we will mail to our stockholders a Notice of Internet Availability of Proxy Materials containing instructions on how to access this Proxy Statement and our fiscal 2016 Annual Report on Form 10-K online. The Notice of Internet Availability of Proxy Materials, which cannot itself be used to vote your shares, also provides instructions on how to vote by Internet and how to request a paper copy of the proxy materials, if you so desire. The Notice includes a control number that must be entered at the website in order to view the proxy materials. Whether you received the Notice of Internet Availability of Proxy Materials or paper copies of our proxy materials, the Proxy Statement and fiscal 2016 Annual Report on Form 10-K are available to you at www.proxyvote.com.

Who May Vote

The Board has set April 12, 2017 as the record date. As of the record date, 119,527,894 shares of common stock, $0.01 par value per share, of the Company were issued and outstanding. Stockholders are entitled to one vote per share of common stock outstanding on the record date on any matter presented at the Annual Meeting.

How To Vote

By Internet . You can vote over the Internet at www.proxyvote.com by following the instructions on the Notice and proxy card.

By Telephone . You can vote your proxy over the telephone by calling 1-800-690-6903. You must have your Notice and proxy card available when you call.

By Mail . You can vote by mail by signing, dating and mailing the enclosed proxy card in the postage-paid envelope provided. If the envelope is missing, please mail your completed proxy card or voting instruction card to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, New York 11717. If you do not have any of these materials and are the beneficial owner (i.e. hold your shares in street name), you must contact your broker, bank or other nominee to obtain your voting instructions. Please allow sufficient time for delivery if you decide to vote by mail. Further, please do not mail in the Notice, as it is not intended to serve as a voting instrument.

At the Annual Meeting . If you attend the Annual Meeting in person, you may deliver your completed proxy card in person or you may vote by completing a ballot, which will be available at the Annual Meeting. However, if your shares are held in street name, you must obtain a legal 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 stockholder of record.

 

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The shares voted electronically or represented by the proxy cards received, properly marked, dated, signed and not revoked will be voted at the Annual Meeting. Internet voting facilities for stockholders of record will be available 24 hours a day and will close at 11:59 p.m., Eastern Time, on June 6, 2017.

How Proxies Work

The Board of Directors is asking for your proxy. This means you authorize James M. Harrison and Joseph J. Zepf (members of Party City’s management and stockholders of the Company) as proxyholders to vote your shares at the Annual Meeting in the manner you direct. All shares represented by valid proxies received and not revoked before the Annual Meeting will be voted in accordance with the stockholder’s specific voting instructions. If you do not specify how you wish the proxyholders to vote your shares, then they will vote your shares in the manner recommended by the Board on all matters presented in this Proxy Statement and as the proxyholders may determine in their discretion for any other matters properly presented for a vote at the meeting.

Many of our stockholders hold their shares through a broker, bank or other nominee rather than directly in their own names. 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, and the applicable proxy materials 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 if you obtain a legal proxy. Your broker, bank or nominee has enclosed voting instructions for you to use in directing the broker, bank or nominee on how to vote your shares.

You may receive more than one Notice of Internet Availability of Proxy Materials, more than one e-mail (if you have elected electronic delivery of proxy materials) or more than one paper copy of the proxy materials, including multiple copies of this Proxy Statement, multiple proxy cards or voting instruction forms and multiple copies of the fiscal 2016 Annual Report to Stockholders, depending on how you hold your shares. For example, if you are a stockholder of record and your shares are registered in more than one name, you may receive more than one Notice of Internet Availability of Proxy Materials, more than one e-mail or more than one proxy card. If you hold your shares in more than one brokerage account, you may receive a separate Notice of Internet Availability of Proxy Materials, a separate e-mail or a separate voting instruction form for each brokerage account in which you hold your shares. To vote all of your shares, you must vote separately as described above under “How to Vote” for each Notice of Internet Availability of Proxy Materials, e-mail notification or proxy card and/or voting instruction form that you receive.

Quorum

Transaction of business at the Annual Meeting may occur only if a quorum is present. The presence, in person or by proxy, of the holders of a majority of the votes entitled to be cast by the holders of all outstanding common stock of the Company shall constitute a quorum. If a quorum is not reached, the Annual Meeting will be adjourned until a later time.

Revoking Your Proxy or Changing Your Vote

If you are a stockholder of record, you may revoke your proxy or change your vote at any time prior to the taking of the vote at the Annual Meeting by (i) submitting a written notice of revocation to the Company’s Secretary for receipt by the Company’s Secretary at or before the Annual Meeting, to Party City, 80 Grasslands Road, Elmsford, NY 10523, (ii) delivering a proxy bearing a later date using any of the voting methods described above under “How to Vote,” including by phone or via the Internet, and until the applicable deadline for each method specified in the accompanying proxy card or voting instruction form, or (iii) attending the Annual Meeting and voting in person. Attendance at the Annual Meeting will not cause your previously granted proxy to be revoked unless you specifically make that request or vote in person at the meeting. For all methods of voting, the last vote cast will supersede all previous votes.

 

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If you hold your shares through an account with a bank, broker or similar organization, you may change or revoke your voting instructions by following the specific directions provided to you by the holder of record, or, if you have obtained a legal proxy from your bank, broker or other nominee, by attending the Annual Meeting and voting in person.

Votes Needed

The following are the voting requirements for each proposal:

Proposal One: Election of Directors. The election of directors will be determined by a plurality of the votes cast, meaning that the nominees with the greatest number of votes cast, even if less than a majority, will be elected.

Proposal Two: Ratification of the Appointment of Independent Registered Public Accounting Firm. Ratification of the appointment of Ernst & Young LLP (“E&Y”) as the independent registered public accounting firm of the Company for fiscal 2017 requires the affirmative vote of a majority of the votes cast on the proposal at the Annual Meeting in person or by proxy.

Other Items. For any other matters, the affirmative vote of a majority of the votes cast on the item at the Annual Meeting in person or by proxy will be required for approval.

Withhold Votes, Abstentions and Broker Non-Votes

Abstentions and broker non-votes are counted as present or represented for purposes of determining the presence or absence of a quorum for the Annual Meeting. A broker non-vote is a proxy from a brokerage firm or other nominee indicating that such person has not received instructions from the beneficial owner on a particular matter with respect to which the brokerage firm or other nominee does not have discretionary voting power. Shares held by a brokerage firm or other nominee that are not voted on any matter at the meeting are not included in determining whether a quorum is present.

Under the rules and regulations of the New York Stock Exchange (the “NYSE rules”), the proposal to ratify the appointment of E&Y as the Company’s independent registered public accounting firm for fiscal 2017 is considered a “routine” matter, which means that brokerage firms or other nominees may vote in their discretion on this matter on behalf of clients who have not furnished voting instructions. However, the election of directors is a “non-routine” matter under the NYSE rules, which means brokerage firms or other nominees that have not received voting instructions from their clients on this matter may not vote on this proposal.

With respect to Proposal One, the election of directors, only “for” and “withhold” votes may be cast, and broker non-votes will have no effect on the outcome of this proposal. With respect to the ratification of the appointment of E&Y as the Company’s independent registered public accounting firm for fiscal 2017, abstentions will have the same effect as a vote against the matter.

Board’s Voting Recommendations

The Board recommends that you vote your shares:

 

    “FOR ALL” the election of all of the director nominees named in this Proxy Statement to the Board; and

 

    “FOR” the ratification of the appointment of E&Y as the Company’s independent registered public accounting firm for fiscal 2017.

 

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Advisory Vote on Frequency of Say-On-Pay Proposal

In an advisory vote on the frequency of the say-on-pay proposal held at our 2016 Annual Meeting of Stockholders, stockholders voted in favor of holding say-on-pay votes every three years. In light of this result and other factors, the Board of Directors determined that the Company will hold advisory votes on say-on-pay every three years until the next required vote on such frequency. The next advisory say-on-pay vote shall occur at the Annual Meeting of Stockholders to be held in 2019.

Solicitation of Proxies

This solicitation is being made by our Board of Directors. We will bear all costs of this proxy solicitation, including the cost of preparing, printing and delivering materials, the cost of the proxy solicitation and the expenses of brokers, fiduciaries and other nominees who forward proxy materials to stockholders.

Stockholder List

For ten days prior to the Annual Meeting, a complete list of stockholders will be available during regular business hours at our principal executive office, 80 Grasslands Road, Elmsford, New York 10523. A stockholder may examine the list for any legally valid purpose related to the Annual Meeting.

Voting Results

The Company will announce preliminary voting results at the Annual Meeting and publish final voting results in a Current Report on Form 8-K filed with the SEC within four business days of the completion of the Annual Meeting.

Attending In Person

Only stockholders of record as of the close of business on April 12, 2017, their properly designated proxies and guests of the Company may attend the Annual Meeting. You may be asked to present valid photo identification, such as a driver’s license or passport, for admittance. If you are a stockholder of record, your ownership as of the record date will be verified against the list of stockholders of record on the record date prior to your admission to the Annual Meeting. If you are not a stockholder of record, but hold your shares through a bank, broker or similar organization, you must provide proof of beneficial ownership as of the record date, such as your most recent account statement showing ownership as of April 12, 2017. If you do not provide valid photo identification and comply with the other procedures outlined above, you will not be admitted to the Annual Meeting.

Conduct of the Meeting

Pursuant to the Company’s Amended and Restated Bylaws, the Chairman of the Board will act as chairman and preside over the Annual Meeting. The Chairman has broad authority to conduct the meeting in an orderly and timely manner. This authority includes making all rulings on matters of procedure at the Annual Meeting, including recognizing stockholders or proxies who wish to speak, determining the extent of discussion on each item of business and managing disruptions or disorderly conduct.

 

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CORPORATE GOVERANCE

Leadership of the Board

The Board is responsible for the oversight of the Company’s overall strategy and operations. The Board is committed to objective oversight of the Company’s management, especially through its independent leadership and committee membership.

The Company does not have a fixed policy regarding the separation of the offices of Chairman of the Board and Chief Executive Officer and believes that it should maintain the flexibility to select the Chairman of the Board and its Board leadership structure, from time to time, based on the criteria that it deems to be in the best interests of the Company and its stockholders at such time. Currently, the roles of Chief Executive Officer and Chairman of the Board are separate. The Chief Executive Officer is responsible for the general management, oversight, leadership, supervision and control of the day-to-day business and affairs of the Company, and ensures that all directions of the Board are carried into effect. The Chairman is charged with presiding over all meetings of the Board and the Company’s stockholders, and providing advice and counsel to the Chief Executive Officer and other Company officers regarding the Company’s business and operations.

Board Independence

Our Corporate Governance Guidelines provide that our Board shall consist of such number of directors who are independent as is required and determined in accordance with applicable laws and regulations and requirements of the NYSE. The Board evaluates any relationships of each director and nominee with the Company and makes an affirmative determination whether or not such director or nominee is independent. Under our Corporate Governance Guidelines, an “independent” director is one who meets the qualification requirements for being an independent director under applicable laws and the corporate governance listing standards of the NYSE. Our Board reviews any transactions and relationships between each non-management director or any member of his or her immediate family and the Company. The purpose of this review is to determine whether there were any such relationships or transactions and, if so, whether they were inconsistent with a determination that the director was independent. As a result of our review process described above, our Board unanimously determined that each of Messrs. Creekmuir, Matthews, Weiss and Ms. Klinger is independent under the governance and listing standards of the NYSE.

We are classified as a “controlled company” under the rules of the NYSE because more than 50% of our outstanding voting power is held by investment funds affiliated with Thomas H. Lee Partners, L.P. (“THL”) and Advent International Corporation (“Advent” and, together with THL, the “Principal Stockholders”). We rely on the “controlled company” exception relating to the Board of Directors and committee independence requirements under the rules of the NYSE. Pursuant to this exception, we are exempt from the rules that would otherwise require that our Board of Directors consist of a majority of independent directors and that our Compensation Committee and Nominating and Governance Committee be composed entirely of independent directors. The “controlled company” exception does not modify the independence requirements for the audit committee, and we are in compliance with the independence requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules of the NYSE.

Board Expertise and Diversity

We seek to have a Board that represents diversity as to experience, gender and ethnicity/race, but we do not have a formal policy with respect to diversity. We also seek a Board that reflects a range of talents, ages, skills, viewpoints, professional experience, educational background and expertise to provide sound and prudent guidance with respect to our operations and interests. All of our directors are financially literate, and a majority of our Audit Committee is comprised of audit committee financial experts.

 

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Risk Oversight

The Board’s role in the Company’s risk oversight process includes receiving reports from members of senior management on areas of material risk to the Company, including operational, financial, legal and regulatory, and strategic risks. The full Board receives these reports in order to aid its understanding of the Company’s risk identification, risk management and risk mitigation strategies. While the Audit and Compensation Committees are responsible for evaluating certain risks and overseeing the management of such risks, the entire Board is informed of such risks at the Board of Directors meetings, following a given committee meeting. This enables the Board and its committees to coordinate the risk oversight role, particularly with respect to risk interrelationships.

Board Annual Performance Reviews

Our Corporate Governance Guidelines provide that the Nominating and Governance Committee of the Board shall be responsible for periodically, and at least annually, conducting a self-evaluation of the Board as a whole. In addition, the written charters of the Audit Committee, Nominating and Governance Committee, and the Compensation Committee provide that each such committee shall evaluate its performance on an annual basis using criteria that it has developed and shall report to the Board on its findings.

Board Nominees

Pursuant to its charter, our Nominating and Governance Committee is responsible for recommending to the Board candidates to stand for election to the Board at the Company’s annual meeting of stockholders and for recommending candidates to fill vacancies on the Board that may occur between annual meetings of stockholders. The Corporate Governance Guidelines provide that nominees for director shall be selected on the basis of their personal and professional ethics, integrity and values, business acumen and interest in the Company. Board members are expected to become and remain informed about the Company, its business and its industry and prepare for, attend and participate in all Board and applicable committee meetings. The Committee evaluates each individual in the context of the Board as a whole, with the objective of recommending a group that can best perpetuate the success of our business and represent stockholder interests through the exercise of sound judgment using its diversity of experience. In addition, the Committee considers, in light of our business, each director nominee’s experience, qualifications, attributes and skills.

Corporate Governance Guidelines and Code of Business Conduct and Ethics

The Board has adopted Corporate Governance Guidelines setting forth guidelines and standards with respect to the role and composition of the Board, the functioning of the Board and its committees, the compensation of directors, succession planning and management development, the Board’s and its committees’ access to independent advisers and other matters. The Nominating and Governance Committee of the Board reviews and assesses corporate governance developments and recommends to the Board modifications to the Corporate Governance Guidelines as warranted. The Company has also adopted a Corporate Code of Business Conduct and Ethics for its directors, officers and employees. The Corporate Governance Guidelines and Corporate Code of Business Conduct and Ethics are posted on the Company’s website at investor.partycity.com under the Corporate Governance section. If we make any substantive amendment to the Corporate Code of Business Conduct and Ethics or grant any waiver, including any implicit waiver, from a provision of the Corporate Code of Business Conduct and Ethics to certain executive officers, we are obligated to disclose the nature of such amendment or waiver, the name of the person to whom any waiver was granted, and the date of waiver on our website or in a report on Form 8-K.

Communications with Directors

The Company is committed to ensuring that the views of stockholders and other interested parties are heard by the Board or individual directors, as applicable, and that appropriate responses are provided to stockholders in

 

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a timely manner. Stockholders and other interested parties may communicate with any of the directors by sending a letter to the director, c/o Secretary, Party City Holdco Inc., 80 Grasslands Road, Elmsford, New York 10523. All such letters will be promptly forwarded to the respective director by the Secretary.

Board Meetings and Annual Meeting Attendance

In the year ended December 31, 2016, the Board held four meetings. Each of the directors, except Steven J. Collins, attended at least 75% of the meetings of the Board and committees on which he or she was a member. The Company does not have a formal policy regarding director attendance at the annual meeting of stockholders of the Company. Each director who is up for election at the Annual Meeting or who has a term that continues after the Annual Meeting is expected to attend the Annual Meeting.

In addition to regular meetings of the Board, the Company’s non-management directors meet in executive sessions without management participation. The Board has not formally selected a director to preside over the executive sessions of the non-management directors. Instead, at each executive session, the non-management directors designate a presiding director for the session.

Committees of the Board

Our Board has established an Audit Committee, a Compensation Committee and a Nominating and Governance Committee. Each committee operates pursuant to a charter that has been approved by the Board. The current composition of each committee is as follows:

 

    

Audit Committee

   Compensation
Committee
   Nominating and
Governance Committee

William S. Creekmuir

   Chairman      

Lisa K. Klinger

        

Morry J. Weiss

        

Todd M. Abbrecht

      Chairman   

Norman S. Matthews

         Chairman

Joshua M. Nelson

        

Audit Committee

The Audit Committee’s primary duties and responsibilities are to:

 

    appoint, compensate, retain and oversee the work of any registered public accounting firm engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest services and review and appraise the audit efforts of our independent accountants;

 

    review our reports filed with or furnished to the SEC that include financial statements, results or guidance;

 

    establish procedures for the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters;

 

    engage independent counsel and other advisers, as necessary;

 

    determine funding of various services provided by accountants or advisers retained by the Committee;

 

    serve as an independent and objective party to oversee our internal controls and procedures system; and

 

    provide an open avenue of communication among the independent accountants, financial and senior management and the Board of Directors.

The Audit Committee consists of William S. Creekmuir (Chairman), Lisa K. Klinger and Morry J. Weiss. Our Audit Committee has determined that Mr. Creekmuir, Ms. Klinger and Mr. Weiss meet the definition of

 

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“independent director” under the rules of the NYSE and under Rule 10A-3 of the Exchange Act. Our Board has determined that each director appointed to the Audit Committee is financially literate and that each of Mr. Creekmuir and Ms. Klinger is an “audit committee financial expert” within the meaning of the SEC regulations and applicable listing standards of the NYSE. Our Board has adopted a written charter pursuant to which the Audit Committee operates. A copy of the charter is available on our website. The Audit Committee met seven times in fiscal 2016.

Compensation Committee

The Compensation Committee is responsible for:

 

    reviewing and approving corporate and individual goals and objectives relevant to executive officer compensation and evaluating the performance of executive officers in light of the goals and objectives;

 

    reviewing and approving executive officer compensation;

 

    reviewing and approving the Chief Executive Officer’s compensation based upon the Compensation Committee’s evaluation of the Chief Executive Officer’s performance;

 

    making recommendations to the Board of Directors regarding the adoption of new incentive compensation and equity-based plans, and administering our existing incentive compensation and equity-based plans;

 

    making recommendations to the Board of Directors regarding compensation of the members of the Board of Directors and its committees;

 

    reviewing and discussing with management the compensation discussion and analysis to be included in our filings with the SEC and preparing an annual compensation committee report for inclusion in our annual proxy statement;

 

    reviewing and approving generally, any significant non-executive compensation and benefits plans;

 

    analyzing risk as part of the review of our compensation policies and practices for all employees;

 

    reviewing our significant policies, practices and procedures concerning human resource-related matters; and

 

    overseeing any other such matters as the Board of Directors shall deem appropriate from time to time.

The Compensation Committee consists of Todd M. Abbrecht (Chairman), Norman S. Matthews and Joshua M. Nelson. Our Board has adopted a written charter under which the Compensation Committee operates. A copy of the charter is available on our website. The Compensation Committee met twice during fiscal 2016.

Nominating and Governance Committee

The Nominating and Governance Committee is responsible for and oversees:

 

    recruiting and retention of qualified persons to serve on our Board of Directors;

 

    proposing such individuals to the Board of Directors for nomination for election as directors;

 

    evaluating the performance, size and composition of our Board of Directors; and

 

    compliance activities.

The Nominating and Governance Committee consists of Norman S. Matthews (Chairman), Todd M. Abbrecht and Joshua M. Nelson. Our Board has adopted a written charter pursuant to which the Nominating and Governance Committee operates. A copy of the charter is available on our website. The Nominating and Governance Committee met twice during fiscal 2016.

 

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PROPOSAL 1

ELECTION OF DIRECTORS

General Information

Our business and affairs are managed under the direction of our Board of Directors. Our Amended and Restated Certificate of Incorporation provides that our Board of Directors shall consist of at least three directors but no more than 15 directors. Party City has a classified Board consisting of three classes, as required by our Amended and Restated Certificate of Incorporation. Directors of one class are elected each year for a term of three years. As of the date of this Proxy Statement, the Board of Directors consists of 11 members. Four of the directors have terms that expire at this year’s Annual Meeting (Class II), four have terms that expire at the 2018 Annual Meeting (Class III) and three have terms that expire at the 2019 Annual Meeting (Class I).

Our Class I directors are Todd M. Abbrecht, Jefferson M. Case, and Lisa K. Klinger. Our Class II directors are William S. Creekmuir, James M. Harrison, Norman S. Matthews and Joshua M. Nelson. Our Class III directors are Steven J. Collins, Uttam K. Jain, Gerald C. Rittenberg and Morry J. Weiss. At each annual meeting of stockholders, the successors to the directors whose terms will then expire will be elected to serve from the time of election and qualification until the third annual meeting following such election and until their successors are duly elected and qualified or until his or her earlier death, resignation or removal. Any vacancies in our classified Board of Directors will be appointed by the remaining directors, and such newly elected person will serve the remainder of the term of the class to which he or she is appointed. Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as practicable, each class will consist of one-third of the directors.

We seek nominees with established strong professional reputations, sophistication, business acumen and experience in retail and consumer industries. We also seek nominees with experience in substantive areas that are important to our business such as international operations; accounting, finance and capital structure; strategic planning and leadership of complex organizations; human resources and development practices; and strategy and innovation. Our nominees hold or have held senior executive positions in large, complex organizations or in businesses related to important substantive areas, and in these positions have also gained experience in core management skills and substantive areas relevant to our business. Our nominees also have experience serving on boards of directors and board committees of other organizations, and each of our nominees has an understanding of public company corporate governance practices and trends.

In addition, all of our nominees have prior service on our Board, which has provided them with significant exposure to both our business and the industry in which we compete. We believe that all our nominees possess the professional and personal qualifications necessary for board service, and we have highlighted particularly noteworthy attributes for each director in the individual biographies below.

Nominees for Election for Terms Expiring in 2020 (Class II Directors)

The individuals listed below have been nominated by the Board and are standing for election at this year’s Annual Meeting. If elected, they will hold office until our 2020 Annual Meeting of Stockholders and until their successors are duly elected and qualified.

William S. Creekmuir has been a member of our Board since March 2016. Mr. Creekmuir is the owner and President of Pinnacle Search Partners LLC (“Pinnacle”), an executive search firm, and has served in that capacity since December 2015. Mr. Creekmuir served as an Executive Search Consultant of Pinnacle from January 2015 to November 2015. Since October 2011, Mr. Creekmuir has also served as an independent consultant, including with respect to Pinnacle and as the interim Chief Financial Officer of Sleep Innovations, Inc. from October 2013 until April 2014. Prior to his time as an independent consultant, Mr. Creekmuir served as Executive Vice

 

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President and Chief Financial Officer of Simmons Bedding Company from 2000 to 2011 and LADD Furniture, Inc. from 1992 to 2000. Prior to joining LADD Furniture, Inc., Mr. Creekmuir was a partner at KPMG LLP. He also serves on the boards of several for-profit and not-for-profit entities. He holds a BS in business administration from the University of North Carolina at Chapel Hill and he is a certified public accountant. Mr. Creekmuir’s extensive experience in financial executive roles led to the conclusion that he should serve as a director of our Company.

James M. Harrison became our Chief Executive Officer in January 2014 and has served on our Board since July 2012. Mr. Harrison served as our President from December 1997 until January 2015. From March 2002 to July 2012, Mr. Harrison served as our Chief Operating Officer. From February 1997 to March 2002, Mr. Harrison also served as our Chief Financial Officer and Treasurer. From February 1997 to December 1997, Mr. Harrison served as our Secretary. Mr. Harrison’s extensive experience in the decorated party goods industry, his 20-year tenure and his role as our Chief Executive Officer led to the conclusion that he should serve as a director of our Company.

Norman S. Matthews has been a member of our Board since May 2013. Mr. Matthews has worked as an independent consultant and venture capitalist since 1989. From 1978 to 1988, Mr. Matthews served in various senior management positions for Federated Department Stores, Inc., including President from 1987 to 1988. Mr. Matthews currently serves on the board of directors of Henry Schein, Inc., Spectrum Brands, Inc. (as Chairman of its nominating and governance committee) and as Chairman of the Board of The Children’s Place, Inc. Mr. Matthews is director emeritus of The Progressive Corporation, Sunoco, Inc., Toys ‘R’ Us, Inc. and Federated Department Stores, Inc. and a trustee emeritus at the American Museum of Natural History. During the past five years, Mr. Matthews served on the board of directors of Finlay Enterprises, Inc. and The Progressive Corporation. In 2005, Mr. Matthews was named as one of eight outstanding directors by the Outstanding Directors Exchange (an annual award voted on by peer directors and awarded to an outstanding director for the key role he played during a crisis, business transformation or turnaround). Mr. Matthews’ extensive experience in strategic marketing and sales with over 30 years of experience as a senior business leader in marketing and merchandising at large public companies and his valuable expertise in compensation programs and strategy led to the conclusion that he should serve as a director of our Company.

Joshua M. Nelson has been a member of our Board since July 2012. Mr. Nelson is a Managing Director at THL. Prior to joining THL in 2003, Mr. Nelson worked at JPMorgan Partners, the private equity affiliate of JPMorgan Chase. Mr. Nelson also worked at McKinsey & Co. and The Beacon Group, LLC. Mr. Nelson is currently a director of Advanced BioEnergy, LLC, CSafe Global, Curo Health Services, Inc., Healthcare Staffing Services, Intermedix Corporation, inVentiv Health, Inc., Professional Physical Therapy (“ProPT”) and Hawkeye Energy Holdings, LLC. His prior directorships include 1-800 Contacts. Mr. Nelson holds an A.B., summa cum laude, in Politics from Princeton University and an MBA with Honors from Harvard Business School. Mr. Nelson’s experience serving as a director of various companies and his affiliation with THL, whose affiliated funds are entitled to elect a certain number of directors, led to the conclusion that he should serve as a director of our Company.

Your Board of Directors unanimously recommends that you vote FOR ALL nominees as director.

Members of the Board of Directors Continuing in Office

Todd M. Abbrecht has been a member of our Board since July 2012. Mr. Abbrecht is a Managing Director at THL. Prior to joining THL in 1992, Mr. Abbrecht was in the Mergers and Acquisitions department of Credit Suisse First Boston. Mr. Abbrecht is currently a director of Aramark Holdings Corporation, CSafe Global, Curo Health Services, Inc., Fogo de Chão, Healthcare Staffing Services, Intermedix Corporation, inVentiv Health, Inc., PCI Pharma Services and ProPT. His prior directorships include Warner Chilcott plc and Dunkin’ Brands

 

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Group, Inc. Mr. Abbrecht holds a B.S.E. in Finance from the Wharton School of the University of Pennsylvania and an MBA from Harvard Business School. Mr. Abbrecht’s experience serving as a director of various companies and his affiliation with THL, whose affiliated funds are entitled to elect a certain number of directors, led to the conclusion that he should serve as a director of our Company.

Jefferson M. Case has been a member of our Board since July 2012. Mr. Case is a Managing Director at Advent. Mr. Case originally joined Advent in 2001. He left the company in 2004 and attended Harvard Business School, before rejoining Advent in 2006. Prior to joining Advent, Mr. Case worked at Bowles Hollowell Conner / First Union, a leading middle-market M&A investment bank, and in the corporate development group of Danaher Corp. Mr. Case currently serves on the board of directors of International Coffee & Tea, LLC, Noosa Yoghurt, LLC, Serta Simmons Bedding, LLC and Sovos Brands Super Holdings, Inc. and has served on the board of directors of Hudson Group. He holds a B.A. in economics from Davidson College and an MBA from Harvard Business School. Mr. Case’s experience serving as a director of various companies and his affiliation with Advent, whose managed funds’ common stock holdings entitle it to elect a certain number of directors, led to the conclusion that he should serve as a director of our Company.

Lisa K. Klinger has been a member of our Board since June 2015. Ms. Klinger is the Chief Administrative and Financial Officer for Peloton Interactive, Inc. Ms. Klinger also served as Chief Financial Officer and Treasurer for Vince Holding Corp. from December 2012 through June 2015 and Chief Financial Officer and Treasurer of Kellwood Holding Corp. from December 2012 until November 2013, prior to the Vince Holding Corp. initial public offering and related restructuring transactions. Previously, Ms. Klinger served as Executive Vice President and Chief Financial Officer of The Fresh Market, Inc., a specialty food retailer, from 2009 until 2012. Prior to that, Ms. Klinger served as interim Chief Financial Officer of Michael’s Stores during 2008 and Senior Vice President of Finance and Treasurer from 2005 to 2009. Ms. Klinger previously served as Assistant Treasurer at Limited Brands from 2000 to 2005. She holds a B.S.B.A. from Bowling Green State University. Ms. Klinger’s extensive experience in leadership and corporate finance led to the conclusion that she should serve as a director.

Steven J. Collins has been a member of our Board since July 2012. Mr. Collins is a Managing Director at Advent International. Mr. Collins joined Advent in 1995 and rejoined after graduate school in 2000. Mr. Collins is a member of the board of directors of Bojangles’, Kirkland’s, and lululemon athletica, all which are publicly traded, and privately-held retailer Charlotte Russe. He was a member of the board of specialty retailer Five Below from 2010 to 2015. He holds a BA and BS from the University of Pennsylvania and The Wharton School, and an MBA from Harvard Business School. Mr. Collins’ experience serving as a director of various companies and his affiliation with Advent, whose managed funds’ common stock holdings entitle it to elect a certain number of directors, led to the conclusion that he should serve as a director of our Company.

Uttam K. Jain has been a member of our Board since July 2012. Mr. Jain is a Director at THL. Prior to joining THL in 2011, Mr. Jain worked at Riverside Partners and The Boston Consulting Group. Mr. Jain is currently a director of Curo Health Services, Inc. and ProPT. Mr. Jain holds a B.Tech. in Chemical Engineering from the Indian Institute of Technology, Bombay, where he was the recipient of the Institute Silver Medal, an M.S. in Chemical Engineering Practice from Massachusetts Institute of Technology and a MBA, with Honors, from the Wharton School of the University of Pennsylvania. Mr. Jain’s business experience and affiliation with THL, whose affiliated funds are entitled to elect a certain number of directors, led to the conclusion that he should serve as a director of our Company.

Gerald C. Rittenberg has been a member of our Board since July 2012 and has served as a senior advisor to the Company since April 2017. Mr. Rittenberg served as our Executive Chairman from January 2014 through March 2017. From 1997 until January 2014, Mr. Rittenberg served as our Chief Executive Officer. From May 1997 until December 1997, Mr. Rittenberg served as acting Chairman of the Board of Directors of Party City Holdings Inc. From October 1996 until May 1997, Mr. Rittenberg served as our President, and from March 1990 to October 1996 he served as our Executive Vice President of Product Development and Sales. Mr. Rittenberg’s

 

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extensive experience in the decorated party goods industry, his 26-year tenure and his prior experience as our Chief Executive Officer led to the conclusion that he should serve as a director of our Company.

Morry  J. Weiss has been a member of our Board since June 2015. Mr. Weiss is the Chairman of the Board of American Greetings Corporation and has worked there for over 50 years, serving in positions that also include President, Chief Executive Officer, and Chief Operating Officer. He also serves on the board of directors of Cleveland Clinic. Mr. Weiss served as a director of National City Corporation (a publicly-held financial holding company) from 1991 until its sale in 2008. Mr. Weiss attended Wayne State University and earned a BA in Liberal Arts from Case Western Reserve University. Mr. Weiss’ experience as an executive and his extensive experience in the retail industry led to the conclusion that he should serve as a director.

Below is a summary of the entire Board, their ages as of February 28, 2017, the year they were each elected and the year in which their term ends.

 

Name

   Age     

Position

   Director Since      Term Ending  

Class I

           

Todd M. Abbrecht

     48      Director      2012        2019  

Jefferson M. Case

     39      Director      2012        2019  

Lisa K. Klinger

     50      Director      2015        2019  

Class II

           

William S. Creekmuir

     61      Director      2016        2020 (1) 

James M. Harrison

     65      Chief Executive Officer and Director      2012        2020 (1) 

Norman S. Matthews

     84      Director      2013        2020 (1) 

Joshua M. Nelson

     44      Director      2012        2020 (1) 

Class III

           

Steven J. Collins

     48      Director      2012        2018  

Uttam K. Jain

     37      Director      2012        2018  

Gerald C. Rittenberg

     64      Executive Chairman and Director (2)      2012        2018  

Morry J. Weiss

     76      Director      2015        2018  

 

(1) If elected at the Annual Meeting.
(2) As of March 31, 2017, Mr. Rittenberg ceased to be an employee of the Company and now serves as a senior adviser to the Company and as the non-employee Chairman of the Board.

Director Compensation for 2016

Annual Compensation

Directors who are also our employees, or are representatives of the Principal Stockholders, receive no additional compensation for serving as a director. In 2016, there were four non-employee directors who were not affiliated with either THL or Advent on our Board: William S. Creekmuir, Lisa K. Klinger, Norman S. Matthews and Morry J. Weiss. Mr. Creekmuir joined our Board in March 2016.

Under our non-employee director compensation program, each member of our Board who is not an employee and who is not affiliated with THL or Advent will be eligible to receive an annual cash retainer payment of $70,000, payable in arrears on a quarterly basis, and an annual grant of stock options with an aggregate exercise price of $70,000. The annual grant of stock options will vest in full on the earliest of the first anniversary of the date of grant, the termination of the director’s service due to his or her death, or a change in control, subject, in each case, to the director’s continued service as a member of the Board through the vesting date. In addition, under this program, eligible directors will receive the following additional cash payments on an annual basis for service on the committees of our Board, payable in arrears on a quarterly basis: audit committee chair – $15,000; compensation committee chair – $10,000; and nominating and governance committee chair – $10,000.

 

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The following table sets forth the compensation paid to our non-employee directors for the year ended December 31, 2016:

 

Name

   Fees Earned or
Paid in Cash
     Option Awards (1)      Other      Total  

William S. Creekmuir (2)

   $ 66,451      $ 23,875        —        $ 90,326  

Lisa K. Klinger

     70,000        18,462        —          88,462  

Norman S. Matthews

     80,000        18,462        —          98,462  

Lawrence P. Molloy (3)

     38,764        —          —          38,764  

Morry J. Weiss

     70,000        18,462        —          88,462  

Todd M. Abbrecht

     —          —          —          —    

Jefferson M. Case

     —          —          —          —    

Steven J. Collins

     —          —          —          —    

Uttam K. Jain

     —          —          —          —    

Joshua M. Nelson

     —          —          —          —    

 

(1) The dollar values shown reflect the aggregate grant date fair value of stock option awards granted during fiscal 2016 in accordance with FASB Accounting Standards Codification Topic 718 for stock-based compensation, disregarding the effect of estimated forfeitures. These amounts do not represent the actual value that will be received from the awards. The assumptions used in determining the fair values are disclosed in Note 12 to our audited consolidated financial statements that appear in our Annual Report on Form 10-K for the year ended December 31, 2016, which was filed on March 16, 2017. As of December 31, 2016, Mr. Creekmuir, Ms. Klinger, Mr. Matthews and Mr. Weiss held options with respect to 7,417 shares, 8,569 shares, 14,319 shares and 8,569 shares of our common stock, respectively. As of that date, none of the directors representing our Principal Stockholders held any options with respect to our common stock and none of our directors held stock awards.
(2) Mr. Creekmuir was appointed to the Board of Directors in March 2016.
(3) Mr. Molloy resigned from the Board of Directors upon the end of his term at the 2016 Annual Meeting of Stockholders.

 

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EXECUTIVE COMPENSATION

Executive Officers of the Company

Set forth below are the names, ages and positions with the Company of the persons who were serving as executive officers of the Company as of February 28, 2017.

 

Name

   Age   

Position

James M. Harrison

   65    Chief Executive Officer and Director

Daniel J. Sullivan

   48    Chief Financial Officer

Gregg A. Melnick

   47    President

Ryan T. Vero

   47    President, Retail

Michael A. Correale

   59    Chief Accounting Officer

Gerald C. Rittenberg

   64    Executive Chairman and Director

The backgrounds of Messrs. Rittenberg and Harrison are described above under “Proposal 1 Election of Directors—Nominees for Election for Terms Expiring in 2020 (Class II Directors)” and Proposal 1 Election of Directors—Members of the Board of Directors Continuing in Office.” As of March 31, 2017, pursuant to the transition and consulting agreement described below, Mr. Rittenberg ceased to be an employee of the Company and now serves as a senior adviser to the Company and as the non-employee Chairman of the Board.

Daniel J. Sullivan became our Chief Financial Officer in August 2016. Prior to joining the Company, Mr. Sullivan held several senior finance positions with Ahold USA including, most recently, Executive Vice President—Finance and Chief Financial Officer and was a member of their Executive Board. Prior to joining Ahold USA in 2010, Mr. Sullivan spent twelve years at Heineken in executive finance positions both in the United States and Europe, and served as Chief Financial Officer, Chief Operating Officer & Senior Vice President—Strategy for Heineken USA. In the late 1990s, Mr. Sullivan was a controller for Amscan Inc., the US wholesale division of the Company, and prior to that he was with KPMG.

Gregg A. Melnick became our President in January 2015 and became President of Party City Holdings Inc. in October 2014. From March 2011 to September 2014, Mr. Melnick was President of the Party City Retail Group. From May 2010 to February 2011, Mr. Melnick was President of Party City Corporation. Previously, he was Chief Operating Officer from October 2007 to April 2010 and Chief Financial Officer from September 2004 to September 2007 of Party City Corporation.

Ryan T. Vero, became the President, Retail in October 2016. Prior to joining the Company, Mr. Vero served as President, Grocery and Drugstore, at Sears Holdings from November 2012 to October 2016. Prior to joining Sears Holdings, Mr. Vero spent eighteen years at OfficeMax, Inc., most recently serving as its Executive Vice President, Chief Merchandising and Marketing Officer .

Michael A. Correale became our Chief Accounting Officer in August 2016. Prior to that time, Mr. Correale had served as our Chief Financial Officer since March 2002, and Vice President—Finance, from May 1997 to March 2002. Prior to joining the Company, Mr. Correale was the Director of Financial Reporting for Ultramar Corporation and also worked for Ernst  & Young LLP.

Compensation Committee Report

The Compensation Committee has reviewed and discussed the compensation discussion and analysis set forth below with management. Based on these reviews and discussions, the Compensation Committee recommended to the Board that the compensation discussion and analysis be included in this Proxy Statement and incorporated by reference in our Annual Report on From 10-K filed with the SEC for the fiscal year ended December 31, 2016.

 

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Compensation Committee

Todd M. Abbrecht, Chairman

Norman S. Matthews

Joshua M. Nelson

Compensation Discussion and Analysis

This compensation discussion and analysis section provides context for the information contained in the tables following this discussion and is intended to provide information about our fiscal 2016 compensation objectives, programs and policies for James M. Harrison, our Chief Executive Officer, Daniel J. Sullivan, our Chief Financial Officer, Gregg A. Melnick, our President, Ryan T. Vero, our President, Retail, Michael A. Correale, our Chief Accounting Officer and Gerald C. Rittenberg, our former Executive Chairman (collectively, our “Named Executive Officers”).

Compensation Committee and Compensation Consultants

The Compensation Committee is responsible for setting and administering our executive compensation policies and programs and determining the compensation of our executive officers, including our Named Executive Officers. The Compensation Committee also administers our equity incentive plan, the Amended and Restated 2012 Omnibus Equity Incentive Plan (“2012 Plan”). All decisions regarding compensation of our executive officers during fiscal 2016 were made solely by the Compensation Committee, in certain cases, after consultation with our Chief Executive Officer and our former Executive Chairman.

The Compensation Committee has the authority to retain outside executive compensation consultants to assist it in the evaluation of executive officer compensation. The Compensation Committee has the sole authority to retain, at our expense, and terminate any such consultant, including the sole authority to approve such consultant’s fees and other retention terms. In December 2016, the Compensation Committee engaged Semler Brossy as its independent compensation consultant to assist with identifying an appropriate compensation peer group, conducting pay benchmarking, and reviewing our short-and long-term incentive programs and recommending design changes, among other things. Due to the late-year engagement, Semler Brossy did not provide input to the Compensation Committee regarding the compensation of our Named Executive Officers in fiscal 2016. After consideration of the independence assessment factors provided under the listing rules of the NYSE, the Compensation Committee determined that Semler Brossy is independent and that the engagement does not raise any conflicts of interest.

Compensation Philosophy

Our executive compensation program has been designed to motivate, reward, attract and retain the management deemed essential to ensure our success. The program seeks to align executive compensation with our short- and long-term objectives, business strategy and financial performance. We seek to create a sustainable competitive advantage by achieving higher productivity and lower costs than our competitors. Our compensation objectives at all compensation levels are designed to support this goal by:

 

    linking pay to performance to create incentives for our Named Executive Officers to perform their duties at a high level;

 

    ensuring compensation levels and components are actively managed; and

 

    using equity compensation to align employees’ long-term interests with those of our stockholders.

 

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Highlights of 2016 Business Performance

We believe that our Named Executive Officers were instrumental in helping us to drive results for our stockholders in fiscal 2016. We continued to grow our business during fiscal 2016 and positioned ourselves for further growth in the future. Highlights of our fiscal 2016 performance include the following:

 

    Expanded global presence : Opened/acquired 38 Party City stores (net of closures) and acquired the operations of Festival, a costume manufacturer;

 

    Increased adjusted net income: Increased adjusted net income by 21% on a year-over-year basis to $138 million;

 

    Increased adjusted EBITDA : Increased Adjusted EBITDA by 3% on a year-over-year basis to $390 million;

 

    Decreased leverage:  Decreased leverage (net debt/adjusted EBITDA) from 4.6x at the start of the year to 4.1x at the end of the year; and

 

    Increased free cash flow: Generated $308 million of free cash flow, defined as Adjusted EBITDA less capital expenditures as reflected in Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2016, an increase of 2% on a year-over-year basis.

“Adjusted EBITDA” and “adjusted net income” are non-GAAP measures. For a discussion of our use of Adjusted EBITDA and adjusted net income and reconciliations to net income, please refer to “Selected Consolidated Financial Data”, which appears in Item 6 of our Annual Report on Form 10-K for the year ended December 31, 2016, which was filed on March 16, 2017.

Compensation

The Compensation Committee is responsible for evaluating the performance of our Named Executive Officers and determining their compensation. The Compensation Committee meets annually, usually in February or March, to evaluate the performance of our Named Executive Officers, to approve their annual base salaries, subject to the contractual commitments we have made with our Named Executive Officers (as described below), and to determine their annual cash incentive awards for the prior year’s performance and share-based incentive compensation to be effective for the current year. The Compensation Committee may meet at interim dates during the year to review the compensation of a Named Executive Officer or other officer in the event of unforeseen organizational or responsibility changes, including new hires, which occur during the year.

In determining compensation components and levels for our Named Executive Officers, the Compensation Committee considers the scope and responsibility of the officer’s position, our overall financial and operating performance and the officer’s overall performance and future potential. Two of the members of the Compensation Committee are representatives of THL, which owns approximately 55% of our outstanding equity. Thus, unlike the situation at many public companies, the majority of our Compensation Committee is composed of individuals who have a significant and direct stake in the outcome of the decisions through their affiliation with one of our Principal Stockholders. The Compensation Committee members apply their considerable experiences in serving as directors of other companies to devise compensation packages that they believe will attract, retain and provide incentives to the executive talent necessary to manage the Company. Although the Compensation Committee looks to other companies to get a sense of the market for executive compensation in comparable circumstances, it did not engage in any formal benchmarking during fiscal 2016. In fiscal 2017, the Compensation Committee expects to consider recommendations from Semler Brossy, its independent compensation consultant that was engaged in December 2016, in making decisions about the compensation of our Named Executive Officers.

 

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Components of Compensation

The Company’s Named Executive Officer compensation includes both short-term and long-term components. Short-term compensation consists of an officer’s annual base salary and annual incentive cash bonus. Long-term compensation may include grants of stock options or other share-based incentives, as determined by the Compensation Committee.

Compensation is comprised of the following components:

Annual Base Salary

We pay our Named Executive Officers an annual base salary to provide them with a fixed, base level of compensation. Generally, we believe that executive annual base salaries should be near the middle of the range of salaries that our Compensation Committee members have observed for executives in similar positions and with similar responsibilities.

The annual base salaries for each of our Named Executive Officers in fiscal 2016 were generally based on their employment agreements, which were individually negotiated with each Named Executive Officer. As further described under “Narrative Disclosure to Summary Compensation Table and Grant of Plan-Based Awards Table—Employment Agreements”, in connection with our initial public offering, we entered into amended employment agreements with Mr. Rittenberg and Mr. Harrison and entered into new employment agreements with Mr. Correale, effective March 24, 2015 (although Mr. Correale’s agreement replaced an earlier letter agreement with similar terms) and with Mr. Melnick, effective January 1, 2015. At the beginning of fiscal 2016, Messrs. Rittenberg and Harrison each received a 2% increase in annual base salary determined in accordance with their respective employment agreements. Mr. Melnick’s annual base salary increased from $825,000 to $875,000, based on additional responsibilities assigned to Mr. Melnick following his appointment to President in fiscal 2015, as well as an evaluation of his overall performance during the prior year. During fiscal 2016, the Company entered into new employment agreements that were individually negotiated with Mr. Sullivan and Mr. Vero. The Company utilized professional recruiters to identify Mr. Sullivan and Mr. Vero as candidates for their positions and to provide guidance on their annual base salaries and other compensation, which the Compensation Committee members took into account, along with their own experience, in determining the compensation payable under the employment agreements with Mr. Sullivan and Mr. Vero. During fiscal 2016, Mr. Correale received a 2% raise to his annual base salary, which reflected a “cost of living” adjustment consistent with the level of base salary increase provided to other employees of the Company. Annual base salaries are generally reviewed in April of each year and are adjusted from time to time to reflect individual responsibilities, performance and experience, as well as market compensation levels.

Annual Cash Incentive Plan

We have an annual cash incentive plan that is designed to serve as an incentive to drive annual financial performance. As a company with a substantial amount of indebtedness, we believe that Adjusted EBITDA is an important measure of our financial performance and ability to service our indebtedness and we use it as the target metric for our annual cash incentive plan. Adjusted EBITDA is a non-GAAP measure, which is reconciled to net income as described above. In addition, solely for purposes of our annual cash incentive plan, Adjusted EBITDA is further adjusted to eliminate the impact of bonus expense for our senior management ($3,505,000 in fiscal 2016) on Adjusted EBITDA. All references to “Adjusted EBITDA” throughout this “Executive Compensation” section (other than under the “Highlights of 2016 Business Performance” heading) mean Adjusted EBITDA as described in the preceding sentence.

During fiscal 2016, with the exceptions of Mr. Sullivan and Mr. Vero, the target annual bonus for each of our Named Executive Officers was based on a percentage of annual base salary: 80% in the case of Mr. Rittenberg and Mr. Harrison, 75% in the case of Mr. Melnick and 50% in the case of Mr. Correale.

 

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For 25% of the target, the Compensation Committee, with input from our Chief Executive Officer and our former Executive Chairman (other than with respect to their own annual cash bonuses), determines, on a subjective basis, the amount that should be paid. In making the determination, the Compensation Committee evaluates the individual executive’s overall contribution during the prior year, but there are no specific, pre-determined, performance goals. The portion of the incentive award that is determined on a subjective basis is not eligible to be paid at a level that is higher than 25% of the executive’s total target bonus. The remaining 75% of a Named Executive Officer’s target annual bonus depends on our performance against an Adjusted EBITDA target and also requires that the Compensation Committee, with input from Mr. Harrison and Mr. Rittenberg, be satisfied with the contributions made by the executive during the year. Depending on actual Adjusted EBITDA, the portion of the incentive award that is related to Adjusted EBITDA can be paid at a maximum of 200% for Mr. Harrison and Mr. Rittenberg and 150% for Mr. Melnick and Mr. Correale. The target and maximum annual bonus opportunities for Mr. Rittenberg, Mr. Harrison and Mr. Melnick are established in their employment agreements. The target annual bonus opportunity for Mr. Correale is established in his employment agreement.

If actual Adjusted EBITDA equals the target Adjusted EBITDA, Messrs. Harrison, Melnick, Correale and Rittenberg would earn 100% of the Adjusted EBITDA portion of his annual bonus. If actual Adjusted EBITDA is less than 95% of target Adjusted EBITDA, each such Named Executive Officer would earn 0% of the Adjusted EBITDA portion of the annual bonus. If actual Adjusted EBITDA equals 95% of target Adjusted EBITDA, each such Named Executive Officer would earn 50% of the Adjusted EBITDA portion of his annual bonus. If actual Adjusted EBITDA is greater than 95% of target Adjusted EBITDA, but less than 100% of the target, the percentage of the Adjusted EBITDA portion of each such Named Executive Officer’s annual bonus that is earned would be adjusted on a straight-line basis. If actual Adjusted EBITDA equals 112% of target Adjusted EBITDA, each of Messrs. Harrison, Melnick, Correale and Rittenberg would earn 150% of the Adjusted EBITDA portion of his annual bonus. If actual Adjusted EBITDA is greater than 100% of the target, but less than 112% of the target, the percentage of the Adjusted EBITDA portion of each such Named Executive Officer’s annual bonus that is earned would be adjusted on a straight-line basis. If actual Adjusted EBITDA is greater than 112% of the target, Mr. Rittenberg and Mr. Harrison would earn 200% of the Adjusted EBITDA portion of their annual bonuses.

Actual Adjusted EBITDA for fiscal 2016 was achieved at 92.0% of target Adjusted EBITDA. As a result, Messrs. Harrison, Melnick, Correale and Rittenberg did not earn any part of the Adjusted EBITDA portion of their annual bonuses. Based on the their overall contributions during the year and each individual’s ability to influence the Company’s overall financial performance, the Compensation Committee concluded that, for fiscal 2016, each of Messrs. Harrison, Melnick, Correale and Rittenberg had earned 87.4%, 91.4%, 99.9% and 73.2% of the subjective portion of their annual bonuses, respectively.

With respect to Mr. Sullivan and Mr. Vero, in conjunction with the negotiation of their employment agreements, each negotiated a fixed bonus for the fiscal year 2016. Mr. Sullivan’s bonus for fiscal 2016 is $487,500, which represents a make-whole bonus pursuant to his employment contract, paid, in part, to compensate Mr. Sullivan for forfeited annual incentive payments that would have otherwise been paid to him by his former employer. Mr. Vero’s bonus is based on the annual target bonus of 75% applied to the base salary he earned during fiscal 2016, with no adjustments for performance, plus an additional one-time sign-on $50,000, pursuant to his employment agreement. For fiscal 2017, Mr. Sullivan and Mr. Vero will participate in the same annual cash incentive plan that is in effect for our other Named Executives Officers, each with a target annual bonus percentage of 75% of annual base salary and an Adjusted EBITDA portion of their annual bonuses that can be paid at a maximum of 150% of his annual base salary.

Stock-based Incentive Program

During fiscal 2016, Mr. Sullivan and Mr. Vero were the only Named Executive Officers who received equity awards from the Company. Each of Mr. Sullivan and Mr. Vero received a grant of stock options under the

 

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2012 Plan in connection with his commencement of employment with us. In determining the size of the grants made to Mr. Sullivan and Mr. Vero, the Compensation Committee considered the scope and responsibility of each officer’s position, the Compensation Committee’s experience with equity grants made to executives of other companies with which they are affiliated, the guidance of professional recruiters and the size of grants previously made to other executive officers of the Company. In determining that our other Named Executive Officers would not receive equity grants in fiscal 2016, our Compensation Committee considered the fact that significant equity grants were made in fiscal 2015 to each of the then Named Executive Officers, in connection with the Company’s initial public offering.

The Compensation Committee uses the 2012 Plan as an important component of our overall compensation program because it helps retain key employees, aligns their financial interests with the interests of our stockholders, and rewards the achievement of our long-term strategic goals. Stock options provide our key employees with the opportunity to purchase and maintain an equity interest in the Company and to share in the appreciation in the value of our stock.

The Compensation Committee has used both time-based awards and performance-based awards to provide what it believes are the appropriate incentives for our Named Executive Officers and other key employees. In fiscal 2016, all stock options granted to our Named Executive Officers were time-based. Time-based stock options help to retain executives, who must be employed by us at the time the award vests. In addition, because we set the exercise price of stock options at the fair market value of the common stock at the time of grant, our stock price must increase, thereby benefiting all stockholders, before the awards have any value. In the past we have granted performance-based awards that vest if specified investment returns are achieved by THL and certain service requirements are met. Awards of this type are held by Mr. Harrison, Mr. Melnick, Mr. Correale and Mr. Rittenberg. These awards were design to align the interests of our executives with those of our owners when we were privately held and to motivate our executives to achieve a successful exit event for these owners.

See “Outstanding Equity Awards at Fiscal Year End for 2016” below for a discussion of the vesting of the outstanding options.

Severance and Change in Control Arrangements

We provide severance protection to our Named Executive Officers in their employment agreements and, in certain cases, through their option agreements. These severance protections are described below under “Potential Payments upon Termination or Change in Control.” Our severance protections are designed to retain the services of our Named Executive Officers and resulted from prior negotiations regarding their employment arrangements. We believe the level of severance payments we provide is appropriate and within the range of competitive practice.

Stock options granted to employees during fiscal 2016 do not have single trigger acceleration on a change of control; rather, the options would vest in full upon the termination of the executive’s employment without cause within the first year following the change of control. As described below under “Potential Payments Upon Termination or Change in Control—Effect of Change of Control on Stock Options”, a change of control will fully accelerate the vesting of certain older time-based options and result in the satisfaction of a portion of the time-based component that applies to older performance-based options.

Other Benefits and Perquisites

Each Named Executive Officer is also eligible to participate in our broad-based employee benefit plans for U.S.-based employees, such as medical, dental, group life, disability and accidental death and dismemberment insurance. Under our tax-qualified defined contribution plans, our Named Executive Officers and generally all full-time domestic exempt and non-exempt employees who meet certain length-of-service and age requirements, as defined in such plans, may contribute a portion of their compensation to the plan on a pre-tax basis and receive

 

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an employer matching contribution ranging from approximately 11% to 100% of the employee contributions, not to exceed a range of 5% to 6% of the employee’s annual salary. In addition, our tax-qualified defined contribution plans provide for annual discretionary contributions to be credited to participants’ accounts. Our Named Executive Officers participate in the benefit plans on the same basis as our other employees. The annual value of the contributions to our tax-qualified defined contribution plans for each Named Executive Officer is reflected in the “All Other Compensation” column of the Summary Compensation Table below. We also provide Mr. Harrison, Mr. Correale and Mr. Rittenberg with certain supplemental disability insurance benefits and Mr. Melnick with certain supplemental life insurance benefits. These benefits are only made available to a select group of executives and senior employees and the premium amounts paid by the Company for these benefits are included in the “All Other Compensation” column of the Summary Compensation Table below. Mr. Sullivan and Mr. Vero were not yet eligible to receive such supplemental benefits based on their dates of employment.

During fiscal 2016, Mr. Harrison and Mr. Rittenberg drove automobiles owned by the Company. Mr. Sullivan, Mr. Melnick, Mr. Vero and Mr. Correale each receive an allowance to cover the cost of his respective automobile. The annual value of the automobile usage and the allowance are reported as taxable income to the executive and are reflected in the “All Other Compensation” column of the Summary Compensation Table below. The Compensation Committee believes that the cost of providing these automobile-related benefits is reasonable relative to its value to our Named Executive Officers.

Employment Agreements

As further described above under “Components of Compensation – Annual Base Salary”, each of our Named Executive Officers either entered into a new employment agreement or had an employment agreement that was effective in fiscal 2016. The terms of these agreements are further described in “Narrative Disclosure to Summary Compensation Table and Grant of Plan-Based Awards Table” below. These agreements are intended to provide our Named Executive Officers with security regarding the terms and conditions of their employment with us, and are intended to secure restrictive covenants and, under certain circumstances, releases of claims that provide protection for the Company.

Clawback Requirements

Under the Sarbanes-Oxley Act, our Chief Executive Officer and our Chief Financial Officer are required to forfeit incentive compensation paid on the basis of previously issued financial statements for which they were responsible and which have to be restated as a result of misconduct. In the future, we expect to implement a policy for recovery of incentive-based compensation paid to current and former executive officers in compliance with requirements of Section 10D of the Securities Exchange Act of 1934 and related rulemaking upon finalization of the regulations.

Tax Treatment

Because of a “grandfathering” rule for companies that have recently undergone an initial public offering, we believe that most of our executive compensation provided in fiscal 2016 is exempt from the provisions of Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), which limit the deductibility of compensation paid to certain individuals to $1.0 million. At such time as we are subject to the deduction limitation under Section 162(m) of the Code, the Compensation Committee intends to consider the impact of Section 162(m) of the Code (including the exemption for qualifying performance-based compensation) when structuring our executive compensation arrangements with our Named Executive Officers. However, the Compensation Committee also retains flexibility to approve compensation arrangements that promote the objectives of our compensation program, but which may not qualify for full or partial tax deductibility.

 

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The grandfathering rule, to the extent it applies, will continue to apply until the earliest of the expiration of the plan or agreement subject to the rule, the material modification of such plan or agreement, the issuance of all employer stock and other compensation that has been allocated under such plan or agreement, and our 2019 annual meeting of stockholders.

Summary Compensation Table for 2016, 2015 and 2014

 

Name and

Principal Position

  Year     Salary     Bonus (1)     Option
Awards (2)
    Non-Equity
Incentive Plan
Compensation (3)
    All Other
Compensation (4)
    Total  

James M. Harrison

    2016     $ 1,716,457       —         —       $ 300,000     $ 24,315     $ 2,040,772  

Chief Executive Officer

    2015       1,682,801       —       $ 3,642,016       1,035,752       22,983       6,383,552  
    2014       1,193,323       —         —         1,232,703       426,505       2,852,531  

Daniel J. Sullivan

    2016     $ 223,214     $ 487,500     $ 524,000       —       $ 2,629     $ 1,237,343  

Chief Financial Officer

             

Gregg A. Melnick

    2016     $ 875,000       —         —       $ 150,000     $ 8,988     $ 1,033,988  

President

    2015       825,000       —       $ 1,828,960       476,045       8,988       3,138,993  
    2014       745,852       —         —         639,169       8,988       1,394,009  

Ryan T. Vero

    2016     $ 155,783     $ 145,548     $ 489,000       —       $ 1,402     $ 791,733  

President, Retail

             

Michael A. Correale

    2016     $ 413,677       —         —       $ 52,000     $ 43,116     $ 508,793  

Chief Accounting Officer

    2015       405,611       —       $ 119,983       156,951       43,453       725,998  
    2014       382,965       —         —         206,600       43,850       633,415  

Gerald C. Rittenberg

    2016     $ 2,048,772       —         —       $ 300,000     $ 31,692     $ 2,380,464  

Executive Chairman (5)

    2015       2,008,600       —       $ 3,642,016       1,236,279       34,429       6,921,324  
    2014       1,403,910       —         —         1,450,240       532,626       3,386,776  

 

(1) As described in “Annual Cash Incentive Plan” under “Compensation Discussion and Analysis” above, pursuant to their employment agreements Messrs. Sullivan and Vero received fixed payments in lieu of participating in our annual cash incentive plan for fiscal 2016.
(2) The dollar values shown reflect the aggregate grant date fair value of equity awards granted within the year in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 718 for stock-based compensation, disregarding the effect of estimated forfeitures. These amounts do not represent the actual value that will be received by each individual from the awards. The assumptions used in determining the fair values for stock options granted in fiscal 2016 and 2015 are disclosed in Note 12 to our audited consolidated financial statements that appear in our Annual Report on Form 10-K for the year ended December 31, 2016, which was filed on March 16, 2017.
(3) Amounts represent annual bonuses paid under our annual cash incentive plan for such years.
(4) During fiscal 2016, each of our Named Executive Officers either used a company car or received a car allowance and, the amounts include the following automobile-related compensation: Mr. Harrison ($9,553); Mr. Sullivan ($2,629); Mr. Melnick ($8,100); Mr. Vero ($1,402); Mr. Correale ($28,800); Mr. Rittenberg ($17,000). Also included are amounts related to matching 401(k) contributions, contributions to one of our tax-qualified defined contribution plans and supplemental life insurance and disability contributions, as described in “Other Benefits and Perquisites” in the “Compensation Discussion and Analysis.”
(5) As of March 31, 2017, Mr. Rittenberg ceased to be an employee of the Company and now serves as a senior adviser to the Company and as the non-employee Chairman of the Board.

 

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Grants of Plan Based Awards for 2016

 

Name

   Grant
Date
     Estimated Possible Payouts
Under Non-Equity Incentive
Plan Awards
     All Other
Option

Awards:
Number of
Securities
Underlying
Options
     Exercise
Price of
Option
Awards
     Grant Date
Fair Value
of Stock
And Option
Awards (2)
 
      Threshold (1)      Target      Maximum(1)           

James M. Harrison

     1/1/2016        514,937        1,373,166        2,746,331        —          —          —    

Daniel J. Sullivan (3)

     8/29/2016        —          —          —          100,000      $ 17.72      $ 524,000  

Gregg A. Melnick

     1/1/2016        246,094        656,250        1,312,500        —          —          —    

Ryan T. Vero (3)

     10/31/2016        —          —          —          100,000      $ 16.25      $ 489,000  

Michael A. Correale

     1/1/2016        78,0380        208,000        286,128        —          —          —    

Gerald C. Rittenberg

     1/1/2016        614,632        1,639,018        3,278,035        —          —          —    

 

(1) Represents annual bonus opportunities granted under our annual cash incentive plan. See “Annual Cash Incentive Plan” under “Compensation Discussion and Analysis” above for a description of our annual cash incentive plan and each Named Executive Officer’s bonus opportunity under it for fiscal 2016.
(2) The dollar values shown reflect the grant date fair value of equity awards in accordance with FASB Accounting Standards Codification Topic 718 for stock-based compensation, disregarding the effect of estimated forfeitures. These amounts do not represent the actual value that will be received from the award. The assumptions used in determining the fair values for stock options granted in fiscal 2016 are disclosed in Note 12 to our audited consolidated financial statements that appear in our Annual Report on Form 10-K for the year ended December 31, 2016, which was filed on March 16, 2017.
(3) As described in “Annual Cash Incentive Plan” under “Compensation Discussion and Analysis” above, pursuant to their employment agreements Messrs. Sullivan and Vero received fixed payments in lieu of participating in our annual cash incentive plan for fiscal 2016.

Narrative Disclosure to Summary Compensation Table and Grant of Plan-Based Awards Table

Employment Agreements

Employment Agreement with Mr.  Harrison.  Mr. Harrison is a party to an employment agreement with the Company pursuant to which Mr. Harrison serves as our Chief Executive Officer for an employment period ending on December 31, 2017. For fiscal 2016, Mr. Harrison’s annual base salary was $1,716,457. His annual base salary automatically increased by two percent increase on January 1, 2017 under the terms of the employment agreement. Mr. Harrison is eligible for an annual bonus with a target of 80% of annual base salary for each calendar year during the employment period, consistent with the Company’s bonus plan for key executives in effect from time to time, not to exceed 160% of Mr. Harrison’s annual base salary. Mr. Harrison’s employment agreement also provides for other customary benefits, including savings and retirement plans, paid vacation, health care, life insurance plans, payment of disability insurance premiums in an amount of up to $2,000 per month and expense reimbursement.

 

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Employment Agreements with Mr.  Sullivan, Mr.  Melnick and Mr.  Vero. Each of Mr. Sullivan, Mr. Melnick and Mr. Vero is subject to an employment agreement with the Company that is substantially identical to Mr. Harrison’s employment agreement, except for differences in the calculation of severance described below under “Potential Payments Upon Termination or Change in Control for fiscal 2016” and the material differences noted in the table below:

 

Named Executive Officer

 

Annual Base Salary Under Employment
Agreement

 

Annual Bonus Target

 

Stock Options Granted in
2016

Mr. Sullivan,

Chief Financial Officer

 

(agreement term ends December 31, 2019)

  $650,000 (with any increases subject to Compensation Committee approval)  

2016 Bonus fixed at $487,500

 

Target and maximum annual bonuses 75% and 150% of annual base salary, respectively

  Options on 100,000 shares of Company stock

Mr. Melnick, President

 

(agreement term ends December 31, 2017)

  $825,000 (with any increases subject to Compensation Committee approval)*   Target and maximum annual bonuses 75% and 150% of annual base salary, respectively   None

Mr. Vero, President, Retail

 

(agreement term ends December 31, 2019)

  $750,000 (with any increases subject to Compensation Committee approval)  

2016 bonus fixed at 75% of base salary paid in 2016 plus $50,000

 

Target and maximum annual bonuses 75% and 150% of annual base salary, respectively

  Options on 100,000 shares of Company stock

 

* As noted above, Mr. Melnick’s annual base salary was increased to $875,000 in fiscal 2016.

Employment Agreement with Mr.  Correale. Mr. Correale is party to an employment agreement with the Company pursuant to which Mr. Correale is entitled to an annual base salary of $400,000, which may be (and, as described above, has been) adjusted by the Compensation Committee. Additionally, he is entitled to an annual bonus with a target equal to 50% of his annual base salary.

Employment Agreement with Mr.  Rittenberg. During fiscal 2016, Mr. Rittenberg was a party to an employment agreement with the Company pursuant to which Mr. Rittenberg served as our Executive Chairman. Mr. Rittenberg’s employment agreement, as in effect for fiscal 2016, was substantially identical to Mr. Harrison’s employment agreement. The only material differences from Mr. Harrison’s employment agreement are that for fiscal 2016, Mr. Rittenberg’s annual base salary was $2,048,772. Effective as of March 31, 2017, Mr. Rittenberg’s employment with us ceased under the terms of a transition and consulting agreement, as described below.

For a description of the payments and benefits our Named Executive Officers may be (or, in the case, of Mr. Rittenberg, could have been) entitled to in connection with a termination of employment or a Change in Control, and for a description of the restrictive covenants in our favor by which our Named Executive Officers are bound, see “—Potential Payments upon Termination or Change in Control.”

 

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Outstanding Equity Awards at Fiscal Year End for 2016

The following table sets forth certain information with respect to outstanding stock options held by our Named Executive Officers on December 31, 2016.

 

     Option Awards  

Name

   Number of
Securities
Underlying
Unexercised
Options
Exercisable (1)
     Number of
Securities
Underlying
Unexercised
Options
Unexercisable (1)
     Equity Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (2)
     Option
Exercise
Price
     Option
Expiration
Date
 

James M. Harrison

     218,400        72,800        546,000      $ 5.33        4/1/2023  
     128,240        512,960        —        $ 17.00        4/15/2025  

Daniel J. Sullivan

     —          100,000        —        $ 17.72        8/29/2026  

Gregg A. Melnick

     134,400        44,800        336,000      $ 5.33        4/1/2023  
     64,400        257,600        —        $ 17.00        4/15/2025  

Ryan T. Vero

     —          100,000        —        $ 16.25        10/31/2026  

Michael A. Correale

     56,000        14,000        103,600      $ 5.33        4/1/2023  
     3,212        12,850        —        $ 21.79        6/17/2025  

Gerald C. Rittenberg

     235,200        78,400        588,000      $ 5.33        4/1/2023  
     128,240        512,960        —        $ 17.00        4/15/2025  

 

(1) All time-based options granted to our Named Executive Officers with an exercise price of $5.33 vested as to 20% of the options on each of July 27, 2013, July 27, 2014, July 27, 2015, and July 27, 2016 and are scheduled to vest as to the remaining 20% of the options on July 27, 2017. All time-based options granted with an exercise price of $17.00 vested as to 20% of the options on each of April 15, 2016 and April 15, 2017 and are scheduled to vest as to 20% of the options on each of the next three anniversaries of that date. All time-based options granted with an exercise price of $21.79 vested as to 20% of the options on June 17, 2016 and are scheduled to vest as to 20% of the options on each of the next four anniversaries of that date. All time-based options granted with exercise prices of $17.72 are scheduled to vest as to 20% of the options on August 29, 2017 and as to 20% of the options on each of the next four anniversaries of that date. All time-based options granted with exercise prices of $16.25 are scheduled to vest as to 20% of the options on October 31, 2017 and as to 20% of the options on each of the next four anniversaries of that date. In each case, future vesting is generally subject to the Named Executive Officer’s continued employment or other service through the applicable vesting date.
(2) All performance-based options will vest if both service-based and performance-based conditions are met, subject to the terms of the 2012 Plan and the applicable award agreements. The service-based condition was satisfied as to 20% of the options on each of July 27, 2013, July 27, 2014, July 27, 2015 and July 27, 2016 and will be satisfied as to an additional 20% of the options on July 27, 2017, generally subject to the Named Executive Officer’s continued employment or other service through the applicable service-based vesting date. The performance-based conditions will be satisfied if a certain minimum multiple of investment is realized by THL and will vest in whole or in part if THL realizes an internal rate of return on its investment in the Company within a specified range.

Option Exercises and Stock Vested in 2016

None of our Named Executive Officers exercised any stock options or became vested in any stock awards during fiscal 2016.

 

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Potential Payments upon Termination or Change in Control for 2016

The employment agreements of each Named Executive Officer (other than Mr. Rittenberg, whose employment agreement terminated on March 31, 2017) provide for severance benefits upon a termination of employment under certain circumstances (including, in certain cases, in connection with a change in control). For a discussion regarding the benefits see “—Employment Agreement with Mr. Harrison”, “—Employment Agreement with Mr. Sullivan, Mr. Melnick and Mr. Vero”, “—Employment Agreement with Mr. Correale”, “—Employment Agreement with Mr. Rittenberg” and “—Transition and Consulting Agreement with Mr. Rittenberg” below. A change in control (in some cases, only if accompanied by a qualifying termination of the Named Executive Officer’s employment) or a termination of employment would also, in certain cases, result in acceleration of our time-based options and would have certain effects on our performance-based options. See “—Effect of Change of Control and Qualifying Termination on Stock Options” below. The following table presents the potential post-employment severance and bonus payments payable to Mr. Harrison, Mr. Sullivan, Mr. Melnick, Mr. Vero, Mr. Correale and Mr. Rittenberg, as applicable, and the potential effect of a Change in Control on stock options held by our Named Executive Officers, in each case, as of December 31, 2016, the last business day of our fiscal year. The table also assumes that the triggering event took place on December 31, 2016. Amounts shown in the table do not include (i) accrued but unpaid salary, (ii) annual cash bonuses for fiscal 2016 (which are reflected in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table) other than with respect to Mr. Correale, (iii) vested benefits or (iv) other benefits earned or accrued by the Named Executive Officer during his employment that are available to all salaried employees and that do not discriminate in scope, terms or operations in favor of executive officers.

 

Name

   Benefit   Termination of
Employment
Without Cause or
for Good Reason
     Termination of
Employment
due to Death
and Disability
     Termination of
Employment
without Cause
or for Good
Reason within
Six Months of
Change  in
Control
     Change in
Control
without
Termination of
Employment
 

James M. Harrison

   Severance (1)   $ 5,149,371        —        $ 5,449,371        —    
   Vesting of Time-Based
Options (2)
    —          —          645,736      $ 645,736  
   Vesting of Performance-
Based Options (2)
    —          —          —          —    

Daniel J. Sullivan

   Severance (3)   $ 650,000         $ 650,000        —    

Gregg A. Melnick

   Severance (3)   $ 875,000        —        $ 875,000        —    
   Vesting of Time-Based
Options (2)
    —          —          397,376      $ 397,376  
   Vesting of Performance-
Based Options (2)
    —          —          —          —    

Ryan T. Vero

   Severance (3)   $ 750,000        —        $ 750,000        —    

Michael A. Correale

   Severance (4)   $ 468,200      $ 52,000      $ 468,200        —    
   Vesting of Time-Based
Options (2)
    —          —          124,180      $ 124,180  
   Vesting of Performance-
Based Options (2)
    —          —          —          —    

Gerald C. Rittenberg

   Severance (1)   $ 6,146,316        —        $ 6,446,316        —    
   Vesting of Time-Based
Options (2)
    —          —          695,408      $ 695,408  
   Vesting of Performance-
Based Options (2)
    —          —          —          —    

 

(1)

As of December 31, 2016, Messrs. Harrison and Rittenberg are entitled to severance under the terms of their employment agreements, as described below. The table assumes the executive would be subject to a

 

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  three-year “restriction period” (as described below) and that the Named Executive Officer’s severance multiplier would be three. As described further below, when Mr. Rittenberg’s employment with us ceased as of March 31, 2017, his employment agreement was superseded by a transition and consulting agreement, the terms of which are described below.
(2) Only the time-based options which were granted during 2013 (with an exercise price of $5.33) have their vesting automatically accelerated in the event of a Change in Control. Time-based options granted in fiscal 2015 and 2016 would fully vest if the holder’s employment was terminated without cause within one year following a change in control and would accelerate by twelve months if the holder’s employment was terminated without cause under any other circumstances. The value of the acceleration of unvested stock options is determined based on the difference between the exercise price of the options ($5.33) and the closing price of a share of our common stock ($14.20) on December 31, 2016. No value is shown related to options with exercise prices above the closing price of a share of our common stock on December 31, 2016. Amounts included in the table represent the value associated with the acceleration of time-based options in connection with a Change of Control. No amounts have been included in the table with respect to performance-based options since they would not have vested if a Change of Control occurred on December 31, 2016, based on the closing price of a share of our common stock on that date and an assumed sale by THL of all of its shares of our common stock on that date, determined as described above.
(3) Messrs. Sullivan, Melnick and Vero are entitled to severance under the terms of their employment agreements, as described below. Severance above does not include a pro rata bonus amount.
(4) Mr. Correale is entitled to severance under the terms of his employment agreement, as described below. The table calculates Mr. Correale’s severance based on his annual base salary as of December 31, 2016 and his actual bonus for fiscal 2016.

Employment Agreement with Mr.  Harrison. Under Mr. Harrison’s employment agreement, if we terminate Mr. Harrison’s employment other than for cause (as defined in Mr. Harrison’s employment agreement), or if Mr. Harrison terminates his employment for good reason (as defined in Mr. Harrison’s employment agreement), we are obligated to pay Mr. Harrison the following lump sum cash payments: (1) accrued unpaid salary, earned but unpaid annual bonus for any prior year and accrued but unpaid vacation pay (collectively, the “Accrued Obligations”); (2) severance pay equal to (A) his annual base salary multiplied by (B) the number of years in the restriction period (which will last one to three years following the termination of his employment, as described below); and (3) a pro rata annual bonus for the year of termination, payable based on actual performance in the year of termination. If such a termination occurs within six months following a change in control, the restriction period is equal to three years and the severance payment is equal to the sum of three years’ base salary and the amount of annual bonus paid to Mr. Harrison with respect to the last full calendar of his employment prior to the change in control. Upon termination of Mr. Harrison’s employment by us for cause, or upon the termination of his employment without good reason, Mr. Harrison is only entitled to the Accrued Obligations. Upon his termination of employment due to death or disability, Mr. Harrison is entitled to the Accrued Obligations and a pro rata annual bonus for the year of termination. Payments of his pro rata bonus are subject to Mr. Harrison’s (or, in the case of his death, his beneficiary or estate’s) signing of a release of claims.

If a change in control occurs and Mr. Harrison is not offered employment on substantially similar terms by us or by one of our continuing affiliates immediately thereafter, then for all purposes of his employment agreement, Mr. Harrison’s employment will be treated as having been terminated by us other than for cause effective as of the date of such change in control. However, if Mr. Harrison is hired or offered employment on substantially similar terms by the purchaser of our stock or assets, if his employment is continued by us or one of our continuing affiliates, or if Mr. Harrison does not actually terminate employment, he will not be entitled to the treatment described in the preceding sentence.

Mr. Harrison’s employment agreement also provides that during the term of the agreement and the Restriction Period (as described below), Mr. Harrison will be subject to certain non-competition and non-solicitation provisions, as described in Mr. Harrison’s employment agreement. The Restriction Period will be three years in the event of the termination of Mr. Harrison’s employment by us for Cause or by Mr. Harrison without Good Reason. If we terminate Mr. Harrison’s employment other than for Cause or due to his death or

 

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permanent disability, or Mr. Harrison terminates his employment for Good Reason, the Restriction Period will be instead a one, two or three-year period, determined at our election (except that following a Change in Control, the Restriction Period will be three years if Mr. Harrison’s employment is terminated by us other than for Cause or by Mr. Harrison for Good Reason).

Employment Agreement with Mr.  Sullivan, Mr.  Melnick and Mr.  Vero . The employment agreements of Mr. Sullivan, Mr. Melnick and Mr. Vero are substantially identical to Mr. Harrison’s employment agreement with respect to severance (including change-in-control-related severance) and restrictive covenants. The only material differences are that: (1) Messrs. Sullivan, Melnick and Vero’s severance pay (including change-in–control-related severance), if payable, is equal to one year of base salary (which would be paid over a twelve-month period) plus a pro-rata bonus for the year of termination (payable based on actual performance in the year of termination), and (2) Messrs. Sullivan, Melnick and Vero’s Restriction Period is one year in all cases.

Employment Agreement with Mr.  Correale . Under Mr. Correale’s employment agreement, if Mr. Correale’s employment is terminated without cause (as defined in his employment agreement), he would be entitled to severance in an amount equal to (i) his annual base salary as of the date of the termination and (ii) to the extent permitted under applicable law without penalty to the Company, an amount in cash that is sufficient on an after-tax basis to reimburse Mr. Correale for the portion of his COBRA premiums that is equal to the employer contributions made on his behalf as of immediately prior to his termination under the Company’s group health plans, which, in each case, will be paid in equal installments in accordance with the Company’s regular payroll schedule over the one-year period commencing on the date of the termination. In the event of such a termination, Mr. Correale would also be entitled to the annual bonus he would have received based on actual performance for the year in which such termination occurs, which would be paid to him within the first two and one-half months following the end of the year to which the annual bonus corresponds.

In the event that Mr. Correale’s employment is terminated by the Company due to his disability or due to his death, Mr. Correale would be entitled to a pro rata annual bonus based on actual performance for the year in which the termination occurs, which would be paid to him within the first two and one-half months following the end of the year to which the annual bonus corresponds. The payments described above are subject to Mr. Correale’s (or, in the case of his death, his beneficiary or estate’s) signing of a release of claims.

Employment Agreement with Mr.  Rittenberg. Mr. Rittenberg’s employment agreement that was in effect as of the end of fiscal 2016 is substantially identical to Mr. Harrison’s employment agreement with respect to severance (including change-in-control-related severance) and restrictive covenants. Effective March 31, 2017, Mr. Rittenberg’s employment agreement was superseded by the transition and consulting agreement described below.

Transition and Consulting Agreement with Mr.  Rittenberg . As of March 15, 2017, the Company and Mr. Rittenberg entered into a transition and consulting agreement under which Mr. Rittenberg’s employment as Executive Chairman of the Company terminated, effective as of March 31, 2017. Beginning on April 1, 2017 and continuing through December 31, 2020, unless earlier terminated as provided for in the agreement (the “Consulting Period”), Mr. Rittenberg will serve on a part-time basis as a non-employee senior adviser to the Company. Mr. Rittenberg will remain as Chairman of the Board through the end of his existing director term (through the Company’s 2018 annual meeting of stockholders) and will be nominated by the Board to serve as a non-employee member of the Board during the Consulting Period.

Under the transition and consulting agreement, Mr. Rittenberg will receive transition payments from April 1, 2017 through December 31, 2017 equal to the amount he would have received as base salary had he remained employment as Executive Chairman during that period (i.e., pay at an annual rate equal to $2,089,747.44), which will be paid in accordance with the Company’s regular payroll schedule. He will remain eligible to receive an annual bonus in respect of fiscal 2017 based on actual performance, with a target amount equal to 80% of his base salary (as in effect on March 31, 2017) and a maximum amount equal to 160% of his base salary. During 2018, he will also receive aggregate payments equal to $2,048,772, which will be paid in four

 

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equal quarterly installments. Beginning on January 1, 2018 and for the remainder of the Consulting Period, he will receive consulting payments equal to $40,000 per month. For his service as a member of the Board during the Consulting Period, he will be eligible to participate in the Company’s non-employee director compensation program, which is described above. Mr. Rittenberg will not be entitled to employee benefits during the Consulting Period, except that he will continue to be entitled to participate in the Company’s health plan.

The transition and consulting agreement may be terminated due to Mr. Rittenberg’s death, by the Company due to his permanent disability, by the Company for cause or by Mr. Rittenberg. In the event of a termination of Mr. Rittenberg’s consulting services for any reason other than by the Company for cause, subject to the execution of a release of claims and Mr. Rittenberg’s compliance with his restrictive covenants, Mr. Rittenberg will be entitled to his annual bonus for fiscal 2017, if any, and the fiscal 2018 quarterly transition payments, which would be payable as described above.

From March 31, 2017 through the later of June 30, 2021 and the date that is six months following the date on which Mr. Rittenberg is no longer providing consulting services and is no longer a member of the Board, Mr. Rittenberg will be subject to noncompetition, non-solicitation of business partners and no hire provisions.

Effect of Change of Control and Qualifying Termination of Employment on Stock Options . Upon a change of control (as defined in the 2012 Plan) all time-based options that were granted during 2013 will become immediately and fully vested and the time-vesting condition applicable to performance-based options will be deemed satisfied as to all but 20% of each grant of performance-based options. The time-vesting condition would be deemed satisfied as to the final 20% of each grant of performance-based options on the earliest of (i) the date on which the Named Executive Officer’s employment or other service terminates for any reason other than by us for “cause” or by the Named Executive Officer without “good reason” (each as defined in the 2012 Plan) and (ii) the regularly scheduled vesting date, subject to the Named Executive Officer’s employment through the applicable date.

If THL receives “deferred proceeds” (which are generally defined to include rights to contingent payments, deferred payments and similar payments) in connection with a change of control, any unvested performance-based options will generally remain outstanding and eligible to vest until the earlier of the date THL no longer holds any equity or other securities of the Company or any deferred proceeds or the tenth anniversary of the date of grant (the earlier date, the “Final Vesting Date”). Upon the termination of a Named Executive Officer’s employment or other service by us for any reason (other than by us for cause or by the Named Executive Officer without good reason) on or after a change in control, any unvested performance-based options will remaining outstanding and eligible to vest until the Final Vesting Date.

A change of control does not automatically accelerate the vesting of the stock options that were granted subsequent to fiscal 2013. However, if the executive’s employment is terminated by us without cause within one year following a change of control, options granted to our Named Executive Officers in fiscal 2015 and 2016 would fully vest; if a termination of the executive’s employment by us without cause occurred other than within one year of a change of control, options granted in fiscal 2015 and 2016 would accelerate by twelve months.

Restrictive Covenants in Stock Option Agreements . The stock option agreements for the stock options granted in 2013 held by Messrs. Harrison, Melnick, Correale and Rittenberg contain certain restrictive covenants, including non-competition and non-solicitation provisions that apply during the Named Executive Officer’s employment and the 18-month period following a termination of his employment with us.

Compensation Committee Interlocks and Insider Participation

The members of the Compensation Committee who served during fiscal 2016 are set forth under “—Compensation Committee.” There were no interlocks or insider participation between any member of the Board of Directors or Compensation Committee and any member of the Board of Directors or compensation committee of any other company, nor has any interlocking relationship existed in the past.

 

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth certain information with respect to the beneficial ownership of our common stock as of February 28, 2017 for:

 

    each person whom we know beneficially owns more than five percent of our common stock;

 

    each of our directors;

 

    each of our Named Executive Officers; and

 

    all of our directors and executive officers as a group.

The number of shares beneficially owned by each stockholder is determined under rules issued by the SEC and includes voting or investment power with respect to securities. Under these rules, beneficial ownership includes any shares as to which the individual or entity has sole or shared voting power or investment power. Each of the stockholders listed has sole voting and investment power with respect to the shares beneficially owned by the stockholder unless noted otherwise, subject to community property laws where applicable.

Shares of common stock that may be acquired within 60 days following February 28, 2017 pursuant to the exercise of options are deemed to be outstanding for the purpose of computing the percentage ownership of such holder but are not deemed to be outstanding for computing the percentage ownership of any other person shown in the table. Beneficial ownership representing less than one percent is denoted with an “*.”

Unless otherwise indicated, the address for each of the stockholders in the table below is c/o Party City Holdco Inc., 80 Grasslands Road, Elmsford, New York 10523.

 

Name of Beneficial Owner

   Number of Shares
of Common Stock
Beneficially
Owned
    Percentage
of Common
Stock
Beneficially
Owned
 

5% or greater stockholders:

    

Funds managed by Advent International Corporation (1)

     22,400,000       18.74

Funds affiliated with Thomas H. Lee Partners, L.P. (2)

     65,157,952       54.51

Directors and named executive officers:

    

James M. Harrison (3)

     709,849  

Daniel J. Sullivan

     —         —    

Gregg A. Melnick (4)

     534,027  

Ryan T. Vero

     —         —    

Michael A. Correale (5)

     133,968  

Gerald C. Rittenberg (6)

     1,197,136  

Todd M. Abbrecht (7)

     —         —    

Jefferson M. Case (8)

     —         —    

Steven J. Collins (8)

     —         —    

William S. Creekmuir (9)

     1,906  

Uttam K. Jain (7)

     —         —    

Lisa K. Klinger (10)

     3,058  

Norman S. Matthews (11)

     128,568  

Joshua M. Nelson (7)

     —         —    

Morry J. Weiss (12)

     3,363,058       2.81

All directors and executive officers as a group (15 persons)(13)

     6,071,570       5.02

 

* Represents beneficial ownership of less than 1%.
(1)

Funds managed by Advent International Corporation own 100% of Advent Party City Acquisition L.P., which in turn owns shares of our common stock. With respect to the shares held by funds managed by

 

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  Advent International Corporation, a group of individuals currently composed of David M. Mussafer, Steven M. Tadler and David M. McKenna, none of whom have individual voting or investment power, exercise voting and investment power over the shares beneficially owned by the funds managed by Advent International Corporation. Each of Mr. Mussafer, Mr. Tadler and Mr. McKenna disclaims beneficial ownership of the shares held by funds managed by Advent International Corporation, except to the extent of their respective pecuniary interest therein. The address of Advent International Corporation is 75 State Street, Boston, MA 02109.
(2) Funds affiliated with Thomas H. Lee Partners, L.P. (the “THL Funds”) own 100% of THL PC Topco, L.P., which in turn owns shares of our common stock. Voting and investment determinations with respect to the securities held by the THL Funds are made by a management committee (the “THL Committee”) consisting of Todd M. Abbrecht, Anthony J. DiNovi, Thomas M. Hagerty, Soren L. Oberg, Scott M. Sperling and Kent R. Weldon, and as such, each member of the THL Committee may be deemed to share beneficial ownership of the securities held or controlled by the THL Funds. Each member of the THL Committee disclaims beneficial ownership of such securities. The address of the THL Funds and each member of the THL Committee is c/o Thomas H. Lee Partners, L.P., 100 Federal Street, Boston, Massachusetts 02110.
(3) Includes shares held by Mr. Harrison and a limited liability company and 474,880 shares which could be acquired by Mr. Harrison within 60 days upon exercise of options.
(4) Includes 217,727 shares held by a trust and 263,200 shares which could be acquired by Mr. Melnick within 60 days upon exercise of options.
(5) Includes 59,212 shares which could be acquired by Mr. Correale within 60 days upon exercise of options.
(6) Includes shares held indirectly in a limited liability company and in trusts and 491,680 shares which could be acquired by Mr. Rittenberg within 60 days upon exercise of options.
(7) Does not include shares held by the THL Funds. Mr. Abbrecht and Mr. Nelson are Managing Directors of THL and Mr. Jain is a Director of THL. In addition, Mr. Abbrecht serves on the THL Committee. Mr. Abbrecht, Mr. Jain and Mr. Nelson each disclaim beneficial ownership of the securities held or controlled by the THL Funds. Their addresses are c/o Thomas H. Lee Partners, L.P., 100 Federal Street, Boston, MA 02110.
(8) Does not include shares held by Advent Party City Acquisition L.P. Mr. Case and Mr. Collins each disclaim beneficial ownership of the shares held by the funds managed by Advent International Corporation, except to the extent of their respective pecuniary interest therein. Their addresses are c/o Advent International Corporation, 75 State Street, Boston, MA 02109.
(9) Includes 1,906 shares which could be acquired by Mr. Creekmuir within 60 days upon exercise of options
(10) Includes 3,058 shares which could be acquired by Ms. Klinger within 60 days upon exercise of options
(11) Includes 6,568 shares which could be acquired by Mr. Matthews within 60 days upon exercise of options
(12) Includes 3,058 shares which could be acquired by Mr. Weiss within 60 days upon exercise of options and shares owned by American Greetings Corporation. Mr. Weiss is the Chairman of the Board of American Greetings Corporation and has shared voting power over the Party City Holdco Inc. shares owned by American Greetings Corporation.
(13) Includes 4,768,008 shares of common stock and 1,303,562 which could be acquired within 60 days upon exercise of options

 

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CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS

Related Person Transactions Policy

In accordance with the charter of our Audit Committee and our policy with respect to related person transactions, our Audit Committee is responsible for reviewing and approving related person transactions.

The policy with respect to related person transactions applies to transactions, arrangements and relationships (or any series of similar transactions, arrangements or relationships) where the aggregate amount involved will or may be expected to exceed $120,000 in any calendar year, and where we (or our subsidiaries) are a participant and in which a related person has or will have a direct or indirect material interest. A related person is: (1) any person who is, or at any time since the beginning of our fiscal year was, a director or executive officer of the Company, or a nominee for director or executive officer of the Company; (2) any person who is known to be the beneficial owner of more than 5% of any class of our voting securities; (3) any immediate family member of the foregoing persons; and (4) any firm, corporation or other entity in which any of the foregoing persons has a position or relationship, or in which such person, together with his or her immediate family members, has a 10% or greater beneficial ownership.

In the course of its review and approval of related person transactions, our Audit Committee considers the relevant facts and circumstances to decide whether to approve such transactions. In particular, our policy with respect to related person transactions requires our Audit Committee to consider, among other factors it deems appropriate:

 

    the benefits to the Company;

 

    the impact on a director’s independence in the event the related person is a director, an immediate family member of a director or an entity in which a director has a position or relationship;

 

    the availability of other sources for comparable products or services;

 

    the terms of the transaction; and

 

    the terms available to unrelated third parties or to employees generally.

The Audit Committee may only approve those transactions that are in, or are not inconsistent with, our best interests and those of our stockholders, as the Audit Committee determines in good faith.

In addition, the Audit Committee has considered and adopted standing pre-approvals under the policy for limited transactions with related persons. Pre-approved transactions include (i) employment as an executive officer, if the related compensation is approved (or recommended to the Board of Directors for approval) by the Compensation Committee; (ii) any compensation paid to a director if the compensation is consistent with the Company’s director compensation policies and is required to be reported in the Company’s proxy statement under applicable compensation disclosure requirements; (iii) any transaction with another company at which a related person’s only relationship is as an employee (other than an executive officer) or director or beneficial owner of less than 10% of that company’s equity, if the aggregate amount involved does not exceed the greater of $1,000,000 or 2% of that company’s total annual revenue; (iv) any charitable contribution, grant or endowment by the Company or a charitable foundation created by the Company to a charitable organization, foundation or university at which a related person’s only relationship is as an employee (other than an executive officer) or director, if the aggregate amount involved does not exceed the lesser of $1,000,000 or 2% of such charitable organization’s total annual receipts; (v) any transaction where the related person’s interest arises solely from the ownership of the Company’s common stock and all holders of the Company’s common stock received the same benefit on a pro rata basis, such as dividends; (vi) any transaction involving a related person where the rates or charges involved are determined by competitive bids; and (vii) any service provided by the Company to any related person, provided that such service is in the ordinary course of business and on substantially the same terms as those prevailing at the time for comparable services provided to non-related persons.

 

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Agreements with Management

We have previously entered into employment agreements with certain of our executive officers. See “Executive Compensation—Narrative Disclosure to Summary Compensation Table and Grant of Plan-Based Awards Table—Employment Agreements.”

Stockholders Agreement

We entered into an amended and restated stockholders agreement with the Principal Stockholders and certain members of management pursuant to which we will be required to take all necessary action to cause the Board of Directors to include individuals designated by the Principal Stockholders in the slate of nominees recommended by the Board of Directors for election by our stockholders. Under the amended and restated stockholders agreement, THL has the right to nominate (i) five directors if it owns at least 50% of the common stock it held at the closing of our initial public offering (the “Closing Date Shares”), (ii) four directors if it owns at least 40% but less than 50% of its Closing Date Shares, (iii) three directors if it owns at least 30% but less than 40% of its Closing Date Shares, (iv) two directors if it owns at least 15% but less than 30% of its Closing Date Shares and (v) one director if it owns at least 5% but less than 15% of its Closing Date Shares. Advent has the right to nominate (i) two directors if it owns at least 50% of its Closing Date Shares and (ii) one director if it owns at least 20% but less than 50% of its Closing Date Shares.

Registration Rights Agreement

We entered into an amended and restated registration rights agreement with the Principal Stockholders and certain members of management pursuant to which the Principal Stockholders were provided with demand registration rights in respect of any shares of common stock it holds, subject to certain conditions. In addition, in the event that we register shares of common stock for sale to the public, we will be required to give notice of such registration to the parties thereto, and, subject to certain limitations, include shares of common stock held by them in such registration. Members of management party to the amended and restated registration rights agreement have similar piggyback rights in the event we register shares of common stock held by the Principal Stockholders for sale to the public.

American Greetings Corporation

Morry Weiss became a member of our Board in June 2015. He is the Chairman of the Board of American Greetings Corporation (“American Greetings”). During the year ended December 31, 2016, we had $19.6 million of sales to American Greetings in the ordinary course of business. Additionally, during such year, we purchased $2.7 million of product from American Greetings, also in the ordinary course.

Retail Force, Inc.

Immediately prior to the consummation of our initial public offering in April 2015, we spun-off our interest in a subsidiary, Retail Force, Inc. (“Retail Force”), to which we transferred software code and other assets related to an enterprise management tool for monitoring retail store metrics. All of the interests in Retail Force are held on a pro rata basis by the holders of our common stock of record immediately prior the closing of the initial public offering, including the Principal Stockholders.

In connection with the spin-off, we received a license to use the enterprise management software as well as five years of support services from Retail Force. In consideration for the license and support services, during such five-year term, we will pay Retail Force a $0.3 million annual license fee, will indemnify Retail Force for certain contingent liabilities and will reimburse Retail Force for expenses incurred in connection with the development and maintenance of any software modifications requested by us. The value of such reimbursement for modifications will be capped at $0.3 million per year during the five-year support term. In addition, we will provide Retail Force with all necessary management services in exchange for a $0.2 million annual management fee.

 

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In addition to the ongoing management fee and license fee, during the year ended December 31, 2016, we provided Retail Force with $0.2 million of funds to use in order to make modifications to the enterprise management software.

 

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AUDIT COMMITTEE MATTERS

Audit and Other Fees

The aggregate fees that Party City paid for professional services rendered by E&Y for the fiscal years ended December 31, 2016 and 2015 were (amounts in millions):

 

     2016      2015  

Audit Fees (1)

   $ 3.9      $ 3.2  

Audit Related Fees (2)

     0.2        0.3  

Tax Fees (3)

     0.3        0.4  

All Other Fees

     —          —    
  

 

 

    

 

 

 

Total

   $ 4.4      $ 3.9  

 

(1) Audit fees in both fiscal 2016 and 2015 include professional services rendered for the audits of our consolidated financial statements (including reviews of all associated quarterly financial statements), assistance with documents filed with the Securities and Exchange Commission, and audits of statutory financial statements incremental to the audit of the consolidated financial statements. Audit fees in fiscal 2015 also include assistance with offering memorandums for debt offerings and assistance with documents related to the finalization of our initial public offering process.
(2) Audit related fees principally include the audits of our employee benefit plans, due diligence services and attestation services related to financial reporting that are not required by statute or regulation.
(3) Tax fees were for services related to tax compliance, tax advice and tax planning.

The Company also paid minimal subscription fees for access to the Ernst & Young Global Accounting and Auditing Information Tool.

The Audit Committee pre-approves all audit services and all permitted non-audit services by E&Y, including engagement fees and terms.

The Audit Committee’s policies prohibit Party City from engaging E&Y to provide any services relating to bookkeeping or other services related to accounting records or financial statements, financial information system design and implementation, appraisal or valuation services, fairness opinions or contribution-in-kind reports, actuarial services, internal audit outsourcing, any management function, legal services or expert services not related to the audit, broker-dealer, investment adviser or investment banking services or human resource consulting. In addition, the Audit Committee evaluates whether Party City’s use of E&Y for permitted non-audit services is compatible with maintaining E&Y’s independence. The Audit Committee concluded that E&Y’s provision of non-audit services, all of which we approved in advance, was compatible with its independence.

Audit Committee Pre-Approval Policy

The Audit Committee approves all engagements of the independent registered public accounting firm in advance including approval of the related fees. The Audit Committee approves an annual budget (and may from time to time approve amendments), which specifies projects and the approved levels of fees for each. All audit and non-audit services, other than non-audit services subject to the de minimis exception set forth in Section 10A of the Exchange Act, provided by the independent registered public accounting firm must be approved by the Audit Committee, through its Chairman.

Audit Committee Report

The Audit Committee operates under a written charter adopted by the Board of Directors. In accordance with this charter, the Audit Committee assists the Board of Directors in fulfilling its oversight responsibility

 

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relating to the integrity of Party City’s financial statements and internal control system. The Board of Directors has determined in its business judgment that all members of the Audit Committee are “independent”, as is required by the listing standards of NYSE and under SEC rules.

Management and the independent auditors are responsible for the planning and conduct of audits, as well as for any determination that Party City’s financial statements are complete, accurate and in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The Audit Committee is responsible for the oversight of management and the independent auditors in connection with this process.

In addition, the Audit Committee is responsible for monitoring the independence of and risk assessment procedures used by the independent auditors, selecting and retaining the independent auditors and overseeing compliance with various laws and regulations.

In discharging its oversight responsibilities, the Audit Committee reviewed and discussed Party City’s audited financial statements with management and E&Y, Party City’s independent auditors. The Audit Committee also discussed with E&Y all communications required by Statement on Auditing Standards No. 1301, Communications with Audit Committees Concerning Independence .

The Audit Committee received the written disclosures and letter from E&Y required by applicable requirements of the Public Company Accounting Oversight Board regarding E&Y’s communications with the Audit Committee concerning independence and has discussed E&Y’s independence with them

The Audit Committee reviewed the audited consolidated financial statements of Party City as of December 31, 2016 and for fiscal 2016 with management and E&Y. Management has the responsibility for the preparation of Party City’s financial statements, and E&Y has the responsibility for the audit of those statements.

Based on these reviews and discussions with management and E&Y, the Audit Committee recommends to the Board of Directors that Party City’s audited financial statements be included in its Annual Report on Form 10-K for fiscal 2016 for filing with the SEC.

Audit Committee

William S. Creekmuir, Chairman

Lisa K. Klinger

Morry J. Weiss

 

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PROPOSAL 2

RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2017

The Audit Committee of our Board has appointed E&Y as our independent registered public accounting firm for the fiscal year ending December 31, 2017. We are asking stockholders to ratify this appointment. E&Y has served as the Company’s independent registered public accounting firm since July 2012, and the appointment of E&Y was ratified by the Company’s stockholders beginning at the 2016 annual meeting, following the Company’s initial public offering in fiscal 2015.

Representatives of E&Y will attend the Annual Meeting, where they will have the opportunity to make a statement if they wish to do so and will be available to answer questions from the stockholders.

Your Board of Directors unanimously recommends a vote FOR Proposal 2, Ratification of Appointment of Independent Registered Public Accounting Firm for fiscal 2017.

 

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OTHER INFORMATION

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our directors, officers and any person beneficially owning more than 10% of our common stock to file reports with the SEC regarding their ownership of our common stock and any changes in ownership. Based solely on our review of such reports furnished to us from certain persons that no other reports were required for those persons, we believe that all filing requirements applicable to our directors, officers and persons owning more than 10% of our common stock were complied with in fiscal 2016 except Ryan Vero was delinquent in filing a Form 4 to report options acquired upon becoming an officer of the Company. Such filing has been made at the time of filing the Proxy Statement.

Stockholder Proposals for 2018 Annual Meeting

Proposals by stockholders for inclusion in our proxy statement and form of proxy for the Annual Meeting of Stockholders to be held in 2018 should be addressed to the Corporate Secretary, Party City Holdco Inc., 80 Grasslands Road, Elmsford, New York 10523, and must be received at this address no later than December 24, 2017. Upon receipt of a proposal, we will determine whether or not to include the proposal in the proxy statement and form of proxy in accordance with applicable law. It is suggested that proposals be forwarded by certified mail, return receipt requested.

Annual Meeting Advance Notice Requirements

Our amended and restated bylaws establish advance notice procedures with respect to stockholder proposals and the nomination of candidates for election as directors, other than nominations made by or at the direction of the Board of Directors. In order for any matter to be “properly brought” before a meeting, a stockholder will have to comply with advance notice requirements and provide us with certain information. Generally, to be timely, a stockholder’s notice must be received at our principal executive offices not earlier than the opening of business 120 days prior, and not later than the close of business 90 days before, the first anniversary date of the immediately preceding the Annual Meeting of Stockholders. Our amended and restated bylaws also specify requirements as to the form and content of a stockholder’s notice. Under our amended and restated bylaws, the Board of Directors may adopt by resolution the rules and regulations for the conduct of meetings. Except to the extent inconsistent with such rules and regulations adopted by the Board of Directors, the chairman of the meeting of stockholders shall have the right to adopt rules and regulations for the conduct of meetings, which may have the effect of precluding the conduct of certain business at a meeting if the rules and regulations are not followed.

Householding

Some banks, brokers and other nominee record holders may be participating in the practice of “householding” proxy statements and annual reports. This means that only one copy of the Notice of Internet Availability of Proxy Materials or this Proxy Statement and the fiscal 2016 Annual Report on Form 10-K may have been sent to multiple stockholders in your household. We will promptly deliver a separate copy of our Proxy Statement and fiscal 2016 Annual Report on Form 10-K to you if you write or call us at the following address or telephone number: Party City Holdco Inc., 80 Grasslands Road, Elmsford, New York 10523, Attention: Investor Relations, (914) 784-8324. If you would like to receive separate copies of these materials in the future, or if you are receiving multiple copies and would like to receive only one copy for your household, you should contact your bank, broker or other nominee record holder, or you may contact us at the above address and telephone number.

 

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PARTY CITY HOLDCO INC

80 GRASSLANDS ROAD

ELMSFORD, NY 10523

  

VOTE BY INTERNET - www.proxyvote.com

 

Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form.

 

ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS

 

If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years.

 

VOTE BY PHONE - 1-800-690-6903

 

Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions.

 

VOTE BY MAIL

 

Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.

 

TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:

 

   KEEP THIS PORTION FOR YOUR RECORDS
   DETACH AND RETURN THIS PORTION ONLY

THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.

 

    The Board of Directors recommends you vote FOR ALL for the following:      

For

All

  Withhold All   For All Except   To withhold authority to vote for any individual nominee(s), mark “For All Except” and write the number(s) of the nominee(s) on the line below.                    
                           
               

 

             
   

1.       Election of Directors

                     
     

 

     Nominees

                     
   

 

01)  William S. Creekmuir        02)  James M. Harrison        03)  Norman S. Matthews        04) Joshua M. Nelson

           
   

 

The Board of Directors recommends you vote FOR the following proposal:

    For   Against   Abstain    
   

 

2.      Ratify the appointment of independent registered public accounting firm of Ernst & Young LLP for fiscal 2017.

           
   

 

NOTE: Such other business as may properly come before the meeting or any adjournment thereof.

           

LOGO      

 

 

 

Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name, by authorized officer.

 

             
                                 
        Signature [PLEASE SIGN WITHIN BOX]   Date                       Signature (Joint Owners)   Date                        


Table of Contents

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:

The Notice & Proxy Statement and 10K Wrap are available at www.proxyvote.com .

 

 

 

LOGO

 

 

 

 

PARTY CITY HOLDCO INC

Annual Meeting of Stockholders

June 7, 2017 10:00 AM EDT

This proxy is solicited by the Board of Directors

 

The stockholders hereby appoint James M. Harrison and Joseph J. Zepf, or either of them, as proxies, each with the power to appoint his substitute, and hereby authorizes them to represent and to vote, as designated on the reverse side of this ballot, all of the shares of Common stock of PARTY CITY HOLDCO INC that the stockholders are entitled to vote at the Annual Meeting of Stockholders to be held at 10:00 AM, EDT on June 7, 2017, at the Amscan Showroom, and any adjournment or postponement thereof.

 

This proxy, when properly executed, will be voted in the manner directed herein. If no such direction is made, this proxy will be voted in accordance with the Board of Directors’ recommendations.

 

 

Continued and to be signed on reverse side

 

   

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