PARTY CITY CORP
SEPARATION AGREEMENT
<DOCUMENT>
<TYPE>EX-10.7
<SEQUENCE>6
<FILENAME>y89983exv10w7.htm
<DESCRIPTION>SEPARATION AGREEMENT
<TEXT>
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<HEAD>
<TITLE>SEPARATION AGREEMENT</TITLE>
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<P align="right"><FONT size="2"><B>Exhibit&nbsp;10.7</B></font>
<P align="center">
<B><FONT size="2">SEPARATION AGREEMENT</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">This SEPARATION AGREEMENT is dated as of
July&nbsp;14, 2003, and is entered into between PARTY CITY
CORPORATION (the &#147;Company&#148;), and Andrew Bailen
(&#147;Executive&#148;).
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">WHEREAS, Executive is currently employed by the
Company as Executive Vice President of Merchandising/Marketing;
and
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">WHEREAS, Executive and the Company discussed the
termination without cause of Executive; and
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">WHEREAS, Executive and the Company desire to
embody in this Agreement the terms and conditions applicable to
such termination without cause; and
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">WHEREAS, this Agreement shall supersede all prior
oral and written agreements, arrangements and understandings
relating to the terms and conditions of Executive&#146;s
employment and termination from that employment.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">NOW, THEREFORE, the parties hereby agree:
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Termination
Date.</I> Executive&#146;s termination without cause from the
Company will be effective as of July&nbsp;14, 2003 (the
&#147;Termination Date&#148;).
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Company
Property.</I> Executive shall return to the Company all
Company-owned property in his possession on or prior to the
Termination Date.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Termination
Benefits.</I> Commencing as of the Termination Date, the Company
shall continue to pay, in accordance with the Company&#146;s
prevailing payroll practices, Executive&#146;s current Salary,
as defined in Executive&#146;s Employment Agreement with the
Company, dated August&nbsp;7, 2000 (the &#147;Employment
Agreement&#148;), for a period of six (6)&nbsp;months beginning
on the Termination Date, and ending January&nbsp;14, 2004. In
addition, Executive shall, subject to the terms of the
applicable plans, be entitled to a continuation of his
health/life benefits and car allowance ($675 per month) for the
six (6)&nbsp;month period commencing on the Termination Date
through January&nbsp;14, 2004, plus payment for any unused
vacation that has accrued through the Termination Date together
with a payment of $16,000 pursuant to Section 3(b)(iv) of the
Employment Agreement. Lastly, any stock options scheduled to
vest between the Termination Date and August&nbsp;6, 2003 shall
vest in accordance with the vesting schedule applicable to such
stock options (see Exhibit&nbsp;A of Separation Agreement).
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Benefit
Plans.</I> Except as otherwise specifically provided in this
Agreement or by law or by any applicable employee benefit plan,
Executive&#146;s participation in all employee benefit plans and
executive compensation plans and practices of the Company shall
terminate on the Termination Date, and there shall be no other
payments or benefits payable to Executive by the Company,
including, but not limited to, any other salary, bonus,
commissions, fees, benefits, or other payments of any nature
whatsoever.
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Additional
Consideration.</I> Executive acknowledges that pursuant to this
Agreement he is receiving consideration in addition to any
amounts to which he would otherwise have been entitled but for
this Agreement.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">6.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Taxes.</I> The
payments due to Executive under this Agreement shall be subject
to reduction to satisfy all applicable Federal, State and local
withholding tax obligations.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">7.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Payment Upon
Death.</I> Executive&#146;s rights and obligations under this
Agreement are not transferable. However, if Executive should die
while any amounts would still be payable to him hereunder, all
such amounts shall be payable to Executive&#146;s estate, heirs,
executors or beneficiaries in accordance with the terms hereof.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">8.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Covenants.</I>
The Covenants set forth in Section 8 and Section 9 of the
Employment Agreement shall continue to apply after the
Termination Date in accordance with their terms.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">9.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Release and
Waiver of Claims.</I> Effective as of the Termination Date,
subject to Section 10 hereof, in consideration of the payments,
benefits, and other consideration provided to Executive under
this Agreement, Executive, for himself and his family, heirs,
executors, administrators, legal representatives, and their
respective successors and assigns, hereby releases and forever
discharges the Company, and all of its subsidiaries, officers,
directors, employees, agents, stockholders, representatives, and
their successors and assigns (collectively, &#147;Company
Entities&#148;), from all rights, claims or demands Executive
may have, including claims for attorneys&#146; fees and costs,
arising at any time on or before the date hereof, based on his
employment with any Company Entity or the termination of that
employment, including without limitation any claims under the
Employment Agreement, or based on any services provided to any
Company Entity by Executive other than pursuant to an employment
relationship with any Company Entity. This includes a release of
any and all rights, claims or demands Executive may have,
whether known or unknown, under the Age Discrimination in
Employment Act, which prohibits age discrimination in
employment; Title&nbsp;VII of the Civil Rights Act of 1964,
which prohibits discrimination in employment based on race,
color, national origin, religion or sex; the Equal Pay Act,
which prohibits paying men and women unequal pay for equal work;
the New Jersey Law Against Discrimination; or under any other
federal, state or local laws or regulations regarding employment
discrimination or termination of employment. This also includes
a release by Executive of any claims for wrongful discharge or
whistleblowing under the Sarbanes-Oxley Act, the New Jersey
Conscientious Employee Protection Act, or any other statute,
rule, regulation or under the common law. Executive hereby
agrees never individually or with any person to file, or
commence the filing of, any charges, lawsuits, complaints or
proceedings with any governmental agency, or against any Company
Entity, with respect to any of the matters released by Executive
pursuant to this Section&nbsp;9. Executive agrees that if the
release and waiver of claims contained in this Section&nbsp;9 is
held to be invalid or unenforceable for any reason, this entire
Agreement shall be considered null and void and the Company
shall have no further obligation to the Executive.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">10.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Rights Not
Released or Waived.</I> Section&nbsp;9 hereof notwithstanding,
by signing this Agreement, Executive shall not have relinquished
his right to (i)&nbsp;benefits in accordance with the provisions
of any Company retirement plans subject to the Employee
</FONT>

<P align="center"><FONT size="2">-2-
</FONT>

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<P align="left">
<FONT size="2">Retirement Income Security Act of 1974, as
amended, or (ii)&nbsp;enforce the provisions of this Agreement.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">11.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Release and
Waiver of Claims Under the Age Discrimination in Employment
Act.</I> Executive acknowledges that the Company has encouraged
him to consult with an attorney of his choosing and, through
this Agreement, encourages him to consult with his attorney with
respect to any possible claims he may have, including claims
under the Age Discrimination in Employment Act
(&#147;ADEA&#148;), as well as under the other Federal, State
and local laws described in Section&nbsp;9 hereof. Executive
understands that by signing this Agreement he is in fact
waiving, releasing and forever giving up any claim under the
ADEA, as well as all other Federal, State and local laws
described in Section&nbsp;9 hereof that may have existed on or
prior to the date hereof.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">12.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Consideration
Period and Revocation Period.</I> Executive hereby acknowledges
that the Company has informed him that he has up to twenty-one
(21)&nbsp;days to sign this Agreement and he may knowingly and
voluntarily waive all or any portion of the twenty-one
(21)&nbsp;day period by signing this Agreement earlier.
Executive also understands that he shall have seven
(7)&nbsp;days following the date on which he signs this
Agreement within which to revoke it by providing a written
notice of his revocation to the Vice President and General
Counsel of the Company.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">13.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Remedies.</I>
Executive hereby acknowledges and understands that if he revokes
this Agreement within the seven (7)-day revocation period
provided under Section&nbsp;12 above, the Company may, in
addition to any other remedies it may have, reclaim any amounts
paid to Executive under this Agreement to which Executive would
not be otherwise entitled, and/or terminate any payments or
benefits to which Executive would not be otherwise entitled that
would be subsequently due hereunder.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">14.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Non-Admission.</I>
Executive expressly acknowledges that this Agreement does not
constitute an admission by the Company of any violation of any
employment law, regulation, ordinance, or administrative
procedure, or any other Federal, State, or local law, common
law, regulation or ordinance, liability for which is expressly
denied.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">15.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Non-Disparagement.</I>
Executive shall not at any time after the date hereof disparage
the Company or any of its officers, directors, shareholders or
any of their respective affiliates nor shall the Chief Executive
Officer, other company officers or associates providing
employment verification of the Company disparage Executive. The
obligations of Executive or the Company under this
Section&nbsp;15 shall not apply to disclosures required by
applicable law, regulation or order of a court or governmental
agency.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">16.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Confidentiality.</I>
Executive and the Company hereby agree to keep the terms of this
Agreement confidential. The obligations of Executive and the
Company under this Section&nbsp;16 shall not apply to
disclosures required by applicable law, regulation or order of a
court or governmental agency.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">17.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Opportunity
for Advice.</I> By signing this Agreement, Executive
acknowledges that, as explained by the Company, he has had a
reasonable opportunity to
</FONT>

<P align="center"><FONT size="2">3
</FONT>

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<P align="left">
<FONT size="2">consider advice from his legal counsel. Fully
understanding these terms, Executive is entering into this
Agreement knowingly and voluntarily.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">18.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Acceptance.</I>
To accept this Agreement, Executive shall execute and date this
Agreement on the spaces provided and return a copy to the
Company at any time during the twenty-one (21)-day period
commencing on the date hereof. This Agreement shall take effect
on the eighth day following Executive&#146;s execution of this
Agreement unless Executive&#146;s written revocation is
delivered to the Vice President and General Counsel of the
Company within seven&nbsp;(7) days after such execution.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">19.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Entire
Agreement.</I> This Agreement represents the entire agreement of
the parties with respect to the Executive&#146;s employment and
termination thereof. Except as specifically provided herein,
this Agreement shall supersede the Employment Agreement in all
respects effective as of the Termination Date. THIS AGREEMENT
SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW JERSEY APPLICABLE TO CONTRACTS
MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE.
</FONT>

<P align="center"><FONT size="2">-4-
</FONT>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="right">
<B><FONT size="2">Exhibit&nbsp;A</FONT></B>

<P align="left">
<B><FONT size="2">OPTION SUMMARY</FONT></B>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="35%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Option</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Name</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">ID</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Date</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Plan/ Type</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Price</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Vested</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Bailen, Andrew S
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">###-##-####</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">00000778</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8/7/00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">94/ISO</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.4000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">75,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Bailen, Andrew S
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">###-##-####</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">00000878</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8/15/01</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1999/NQ</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7.3800</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Bailen, Andrew S
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">###-##-####</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">00000931</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8/13/02</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1999/NQ</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14.8125</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,375</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Although only 50,000&nbsp;shares of
option&nbsp;778 have vested in the option system, your contract
states that the options which were scheduled to vest on
August&nbsp;7, 2003 will vest immediately bringing the total
vested in option&nbsp;778 to 75,000&nbsp;shares.
</FONT>

<P align="left">
<B><FONT size="2">DEFERRED BONUS SUMMARY</FONT></B>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="63%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Dollars</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Price</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Shares</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred bonus for FY 01
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">41,249.18</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5.9062</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,984</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred bonus for FY 02
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">46,003.97</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11.8080</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,896</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total shares to be issued
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,880</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Taxes of 35% must be remitted to Party City prior
to the issuance of these shares. Based on yesterday&#146;s close
price of $11.00, that amount would be $41,888 (10,880?$11?35%)
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">IN WITNESS WHEREOF, the parties have executed
this Agreement as of the date and year first above written.
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="40%"></TD>
    <TD width="60%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">ANDREW BAILEN
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="center">
    <FONT size="2">/s/ ANDREW BAILEN
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <HR size="1" align="left" noshade></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Name:
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">7/25/03
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <HR size="1" align="left" noshade></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Date:
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">PARTY CITY CORPORATION
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="40%"></TD>
    <TD width="2%"></TD>
    <TD width="58%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">By:&nbsp;</FONT></TD>
    <TD align="center">
    <FONT size="2">/s/ MELISSA WALLACE
    </FONT></TD>
</TR>

</TABLE>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="40%"></TD>
    <TD width="60%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <HR size="1" align="left" noshade></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Name:&nbsp;&nbsp;Melissa Wallace
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Title:&nbsp;&nbsp;VP, Human Resources
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">-5-
</FONT>

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