Note 6 – Capital Stock

At September 30, 2014, the Company’s authorized capital stock consisted of 100.00 shares of $0.01 par value common stock.

Under the terms of Party City Holdco’s stockholders’ agreement, dated July 27, 2012, Party City Holdco has an option to purchase all of the shares of common stock held by former employees. Additionally, employee stockholders who die or become disabled while employed can require Party City Holdco to purchase all of the shares held by the employees. The aggregate amount that may be payable by the Company to current employee stockholders should they die or become disabled, based on the estimated fair market value of fully paid and vested common securities, totaled $34,312 and $23,555 at September 30, 2014 and December 31, 2013, respectively, and was classified as redeemable common securities on the Company’s condensed consolidated balance sheet, with a corresponding adjustment to additional paid-in capital. As there is no active market for the common stock, the Company estimates the fair value of the stock based on a valuation model, which is periodically substantiated by independent appraisals or third-party transactions, including acquisitions. The valuation model takes into consideration the fact that Party City Holdco’s stock is not marketable.

The changes in redeemable common securities during the nine months ended September 30, 2014 were as follows:


Balance at December 31, 2013	$	23,555
Party City Holdco shares issued due to stock option exercises		1,044
Adjustment of Party City Holdco common shares to fair value		9,713

Balance at September 30, 2014	$	34,312

During the nine months ended September 30, 2014, certain current employees exercised stock options for shares of Party City Holdco’s redeemable common stock. The stock options had an exercise price of $14,913 per share and, upon issuance, the shares were adjusted to fair value, with a corresponding adjustment to additional paid-in capital.

On August 1, 2013, PC Nextco issued $350,000 of 8.75% notes (“the Nextco Notes”). The Nextco Notes, which mature on August 15, 2019 and which pay interest semiannually on February 15^th and August 15^th, are not guaranteed by the Company. However, since PC Nextco has no assets or operations other than its investment in and income (loss) from the Company and its subsidiaries, interest and principal payments for the Nextco Notes will be funded by the Company. During the nine months ended September 30, 2014, the Company made distributions to its Parent, PC Intermediate, in the amount of $31,816. PC Intermediate then distributed the funds to PC Nextco so that PC Nextco could make an interest payment on the Nextco Notes.