Exhibit 10.1
AGREEMENT
     This Agreement (hereafter “Agreement”) is hereby entered into between Nancy
Pedot (“Executive”), and Party City Corporation, a Delaware corporation
(“Company”).
     WHEREAS, Executive has been an employee and a director of Company;
     WHEREAS, Executive and Company have been parties to an Employment Agreement
dated as of December 23, 2004 by and between Company and Executive (as amended
to date, the “Employment Agreement”), under which Executive’s employment
relationship with Company has terminated pursuant to Sections 7(a)(iv) and
7(b)(ii) thereof;
     WHEREAS, Executive has resigned as a director of Company; and
     WHEREAS, Executive and Company wish to fully and finally resolve all
matters between them;
     THEREFORE, in exchange for the good and valuable consideration set forth
herein, the adequacy of which is specifically acknowledged, Executive and
Company (“the parties”) hereby agree as follows:
     1. Termination of Employment and Directorship. Executive hereby confirms
her resignation as director and member of the board of directors of Company (the
“Board”) and member of the Executive Committee of the Board, effective March 30,
2005 (the “Effective Date”), and Executive and Company hereby agree and
acknowledge that Executive’s employment by the Company terminated on the
Effective Date.
     2. Salary and Benefit Continuation.

  a.   Company shall continue to pay Executive at the rate of $600,000 per annum
for fifty-two weeks, by installments in accordance with the Company’s regular
payroll practices, beginning immediately after the Effective Date; provided,
however, that any balance of such payments that would otherwise be due to
Executive on or after March 10, 2006 shall be paid to Executive in a lump sum no
later than March 10, 2006 (it being the parties’ intent that payment of such
amount will be accelerated).

  b.   During the period April 1, 2005 through and including June 30, 2006,
Company shall provide coverage for the Executive and her dependents under
Company’s medical and dental benefits plans provided to senior executives of the
Company and shall pay the Company portion of the insurance premiums for
coverage, subject to the Executive’s payment of the applicable employee portion
of such premiums. Executive shall have the opportunity to elect COBRA
continuation health care coverage for a period beginning no earlier than July 1,
2006 and continuing for so long as otherwise required by law. To the extent
provided by the terms of the applicable employee benefit plans, Executive will
be offered the opportunity to convert her group benefits to individual coverage
at non-group rates.

 

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     3. Accrued Vacation Pay. On the Closing, Company will pay Executive for her
accrued but unused vacation the sum of $23,076.92.
     4. Reimbursement of Expenses and Other Benefits. Company shall pay or cause
to be paid to or for the benefit of Executive all of her benefits accrued under
Company’s employee benefit plans as of the Effective Date. Company will
reimburse Executive for business expenses incurred during her employment
totaling $23,073.89. Such reimbursement will be made to Executive in a lump sum
on the Closing.
     5. Stock Options. Schedule A attached hereto shows all of Executive’s stock
options; such Schedule reflects, among other things, that 32,055 of the 150,000
non-qualified stock options to purchase common stock of Company granted to
Executive on January 12, 2004 and scheduled to vest and become exercisable on
January 12, 2006 have vested, and are fully exercisable, as of March 31, 2005.
Such options, and all other options that were vested and exercisable as of such
date, all as scheduled on Schedule A, shall remain exercisable until March 31,
2006.
     6. Stock Purchase Plan. Schedule B attached hereto shows all Company stock
purchased by Executive pursuant to the Party City Corporation Employee Stock
Purchase Plan.
     7. No Other Payments. Except as otherwise referred to in this Agreement,
Company shall make no other payments or provide any benefits to Executive.
     8. Consultation. For 90 days following the Effective Date (the “Consulting
Period”) Executive will continue to make herself available to the Company for
reasonable part-time consultation on senior-level projects and to respond to
appropriate questions within her knowledge, provided that Executive’s obligation
to so consult shall not exceed more than 10 hours per month (or 30 hours in the
aggregate) and shall be provided at such times as are reasonably convenient to
Executive.
     9. General Release of Claims by Executive. Executive hereby agrees, for
Executive, Executive’s spouse and child or children (if any), Executive’s heirs,
beneficiaries, devisees, executors, administrators, attorneys, personal
representatives, successors and assigns, forever to release, discharge, and
covenant not to sue Company, any of Company’s past, present, or future parent,
affiliated, related, and/or subsidiary entities, and all of their past and
present directors, shareholders, officers, general or limited partners,
employees, agents, and attorneys, and agents and representatives of such
entities, and employee benefit plans in which Executive is or has been a
participant by virtue of her employment with Company, from any and all claims,
debts, demands, accounts, judgments, rights, causes of action, equitable relief,
damages, costs, charges, complaints, obligations, promises, agreements,
controversies, suits, expenses, compensation, responsibility and liability of
every kind and character whatsoever (including attorneys’ fees and costs),
whether in law or equity, known or unknown, asserted or unasserted, suspected or
unsuspected, which Executive has or may have had against such entities based on
any events or circumstances arising or occurring on or prior to the Effective
Date arising directly or indirectly out of, relating to, or in any other way
involving in any manner whatsoever, (a) Executive’s

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employment with Company or the termination thereof or (b) [the Executive’s
status at any time as a holder of any securities of Company, and] any and all
claims arising under federal, state, or local laws relating to employment, [or
securities,] including without limitation claims of wrongful discharge, breach
of express or implied contract, fraud, misrepresentation, defamation, or
liability in tort, claims of any kind that may be brought in any court or
administrative agency, any claims arising under Title VII of the Civil Rights
Act of 1964, the Age Discrimination in Employment Act, the Americans with
Disabilities Act, the Fair Labor Standards Act, the Employee Retirement Income
Security Act, the Family and Medical Leave Act, the Securities Act of 1933, the
Securities Exchange Act of 1934, [the Sarbanes-Oxley Act,] the New Jersey Law
Against Discrimination, the New Jersey Conscientious Employee Protection Act,
and similar state or local statutes, ordinances, and regulations, provided,
however, notwithstanding anything to the contrary set forth herein, that this
General Release shall not extend to (i) benefit claims under employee pension
benefit plans in which Executive is a participant by virtue of her employment
with Company or to benefit claims under employee welfare benefit plans for
occurrences (e.g., medical care, death, or onset of disability) arising after
the execution of this Agreement by Executive, (ii) any obligation assumed under
this Agreement by any party hereto, (iii) any rights of indemnification
Executive may have as against Company, and (iv) in defense of (including the
right to assert counterclaims and third party claims) any action brought by the
Company or any other party entitled to the benefit of this general release.
     10. Release of Age Discrimination Claims; Periods for Review and
Reconsideration.

  a.   Executive understands that this Agreement includes a release of claims
arising under the Age Discrimination in Employment Act (ADEA). Executive
understands and warrants that she has been given a period of twenty-one
(21) days to review and consider this Agreement. Executive is hereby advised to
consult with an attorney prior to executing the Agreement. By her signature
below, Executive warrants that she has had the opportunity to do so and to be
fully and fairly advised by that legal counsel as to the terms of the Agreement.
Executive further warrants that she understands that she may use as much or all
of her 21-day period as she wishes before signing, and warrants that she has
done so.

  b.   Executive further warrants that she understands that she has seven
(7) days after signing this Agreement to revoke the Agreement by notice in
writing to Vice President, General Counsel and Secretary, Party City Corporation
400 Commons Way, Rockaway, New Jersey 07866. This Agreement shall be binding,
effective, and enforceable upon both parties upon the expiration of this
seven-day revocation period without General Counsel having received such
revocation, but not before such time (the “Closing”).

     11. Restrictive Covenants.

  a.   Noncompetition. During the six month period following the Effective Date
(the “Restriction Period”), Executive shall not, directly or indirectly, whether
as a principal, partner, employee, agent, consultant, shareholder (other than
shares purchased prior to the effective date of this Agreement

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      or as a holder, or a member of a group which is a holder, of not in excess
of five percent (5%) of the outstanding voting shares of any publicly traded
company) or in any other relationship or capacity be affiliated with any
business corporation, partnership, enterprise or entity in any geographic area,
which competes with Company Business (as defined below). For purposes of this
Agreement, “Company Business” means the sale of party goods, including costumes.

  b.   Confidentiality. Unless specifically authorized in writing by Company to
do so, except to the extent required by an order of a court having competent
jurisdiction or under subpoena from an appropriate government agency, Executive
shall not disclose (i) any non-public information pertaining to Company
disclosed or made available to Executive or known by Executive as a direct or
indirect consequence of or through employment by Company, or (ii) any other
information related to Company’s referral sources, business practices,
strategies, trade secrets, operating methods, techniques, products, processes,
services or other operations (individually or collectively “Operations”),
including, but not limited to, information relating to research, development,
inventions, accounting, engineering or marketing of such Operations and
including any such information of any third party which Company is under an
obligation to keep confidential (individually or collectively, “Confidential
Information”) to any third person unless such Confidential Information has been
previously disclosed to the public by Company or is in the public domain (other
than by reason of Executive’s breach of this Section 11 or breach prior to
entering into this Agreement of Section 8(b) of the Employment Agreement).
Notwithstanding the foregoing, if Executive is required by an order of a court
having competent jurisdiction or under subpoena from an appropriate government
agency to disclose Confidential Information, Executive shall provide Company
with prompt written notice of such requirement and shall assist Company to seek
a protective order or other appropriate remedy protecting its interests. In any
event, Executive will furnish only that part of the Confidential Information
that is required to be disclosed by the court order or subpoena and will use
reasonable efforts to obtain reliable assurances that confidential treatment
will be accorded to any Confidential Information so furnished.

  c.   Nonsolicitation of Employees. During the twelve-month period following
the Effective Date, Executive shall not directly or indirectly solicit,
encourage or induce any employee of the Company Group to terminate employment
with the Company Group, and shall not directly or indirectly, either
individually or as owner, agent, employee, consultant or otherwise, offer
employment to any person who is or was employed by the Company Group unless such
person shall have ceased to be employed by the Company Group for a period of at
least six months.

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  d.   Company Property. Executive acknowledges that she has delivered to
Company all property of the Company Group, including all credit cards, keys or
entry cards, automobile and other machinery, all computers, cell phones or other
electronic equipment and all memoranda, notes, records, reports, manuals,
drawings and blueprints, including electronic versions, concerning the Company’s
Business (and all copies thereof) in Executive’s possession or under her
control.

  e.   Developments the Property of the Company. Executive acknowledges that all
discoveries, inventions, ideas, technology, formulas, designs, software,
programs, algorithms, products, systems, applications, processes, procedures,
methods and improvements and enhancements conceived, developed or otherwise made
or created or produced by Executive alone or with others, and in any way
relating to the Company’s Business, whether or not subject to patent, copyright
or other protection and whether or not reduced to tangible form, at any time
through the Effective Date (“Developments”), are the sole and exclusive property
of the Company. Executive agrees to, and hereby does, assign to Company, without
any further consideration, all of Executive’s right, title and interest
throughout the world in, and to, any Developments. Executive agrees that all
such Developments that are copyrightable may constitute works made for hire
under the copyright laws of the United States and, as such, acknowledges that
Company is the author of any such Developments and owns all of the rights
comprised in the copyright of any such Developments and Executive hereby assigns
to Company without any further consideration all of the rights comprised in the
copyright and other proprietary rights Executive may have in any such
Developments to the extent that it might not be considered a work made for hire.
Executive hereby represents and warrants that she has made and maintained
adequate and current written records of any Developments and has disclosed any
Developments fully, and in writing, to the Company.

  f.   Protection of Legitimate Business Interests. Executive acknowledges that
(i) Executive’s position with the Company required the performance of services
which are special, unique and extraordinary in character and placed her in a
position of confidence and trust with the customers and employees of Company,
through which, among other things, she has obtained knowledge of Company’s
technical information and know-how and become acquainted with its customers, in
which matters Company has substantial proprietary interests, (ii) the
restrictive covenants in this Section 11 are necessary in order to protect and
maintain such proprietary interests and other legitimate business interests of
Company, and (iii) Company would not have entered into this Agreement unless
such covenants were included herein.

  g.   Injunctive Relief and Other Remedies with Respect to Covenants. Executive
acknowledges and agrees that the covenants and obligations of Executive with
respect to noncompetition, nonsolicitation, confidentiality,

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      Company property, developments and nondisparagement relate to special,
unique and extraordinary matters and that a violation of any of the terms of
such covenants and obligations will cause Company irreparable injury for which
adequate remedies are not available at law. Therefore, Executive agrees that
Company shall (i) be entitled to an injunction, restraining order or such other
equitable relief (without the requirement to post bond) restraining Executive
from committing any violation of the covenants and obligations contained in this
Section 11 and (ii) have no further obligation to make any payments to Executive
hereunder following any material violation of the covenants and obligations
contained in this 11. These remedies are cumulative and are in addition to any
other rights and remedies Company may have at law or in equity. Executive
(x) acknowledges and agrees that the covenants set forth in this Section 11 are
reasonable and valid in geographical and temporal scope and in all other
respects and (y) represents that her economic means and circumstances are such
that such covenants will not prevent her from providing for herself and her
family on a basis satisfactory to her.

  h.   Non-Disparagement. Executive shall not at any time after the date hereof
disparage the Company Group or any of its officers, directors, shareholders or
any of their respective affiliates. Company agrees that the Board and the
executive officers of Company shall not at any time after the date hereof
disparage the Executive. The obligations of Executive and Company under this
Section 11(h) shall not apply to truthful disclosures that are required by
applicable law, regulation or order of a court or governmental agency.

  i.   Notifications. Executive agrees that prior to becoming employed by any
entity during the Restriction Period, she will (i) provide notice to Company of
such employment and (ii) provide copies of Section 11(a), (b) and (c) of this
Agreement to such prospective employer. Executive further agrees that Company
may provide notice to such prospective employer of Executive’s obligations under
this Agreement, including, without limitation, Executive’s obligations pursuant
to this Section 11.

     12. Taxes. To the extent any taxes may be due on the payments to Executive
provided in this Agreement beyond any withheld by Company, Executive agrees to
pay them herself. Executive further agrees to provide any and all information
pertaining to Executive upon request as reasonably necessary for Company and
other entities released herein to comply with applicable tax laws.
     13. Trading of Company Stock. Executive confirms that she has been advised
of her Section 16 reporting obligations during the six-month period following
the Effective Date.
     14. No Admission. By executing this Agreement, Company and Executive are
not admitting any liability or wrongdoing, and the considerations exchanged
herein do not constitute

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an admission of any liability, error, contract violation, or violation of any
federal, state, or local law or regulation.
     15. Severability. Except as otherwise specified below, should any portion
of this Agreement be found void or unenforceable for any reason by a court of
competent jurisdiction, the court should attempt to limit or otherwise modify
such provision so as to make it enforceable, and if such portion cannot be
modified to be enforceable, the unenforceable portion shall be deemed severed
from the remaining portions of this Agreement, which shall otherwise remain in
full force and effect. If any portion of this Agreement is so found to be void
or unenforceable for any reason in regard to any one or more persons, entities,
or subject matters, such portion shall remain in full force and effect with
respect to all other persons, entities, and subject matters. This paragraph
shall not operate, however, to sever either party’s obligation to provide the
binding release to all entities intended to be released hereunder. In the event
Executive should in the future contend that Executive’s release of claims is for
any reason void, imperfect, or incomplete, Executive may not pursue any claim
against Company (or any other party intended to be released herein) to establish
the invalidity of the release or premised (in whole or in part) on the
invalidity of the release before or without repaying to Company, to the extent
permitted by law, the full amount of such cash payments she has received, less
the reasonable value of services actually provided pursuant to this Agreement,
and applicable statutes of limitations shall be deemed to run in regard to
Executive’s claims without regard to the parties’ entry into this Agreement. The
preceding sentence shall not operate to limit the scope or effect of Executive’s
covenant not to sue.
     16. Approval and Authority. Executive and Company understand and agree that
all terms of this Agreement are contractual and are not a mere recital, and
represent and warrant that they are competent to covenant and agree as herein
provided. Company has full power and authority to enter into this Agreement and
to carry out the terms of this Agreement. The execution, delivery and
performance of this Agreement by Company have been duly and properly authorized
by all necessary corporate actions. This Agreement constitutes the valid and
binding obligation of Company enforceable in accordance with its terms.
     17. Indemnification. Company hereby confirms and agrees with respect to any
and all matters arising out of or in connection with Executive’s prior
employment by Company or Executive’s engagement as a consultant hereunder, that
Executive shall continue to be entitled to receive the benefits of all
indemnification provisions contained in the Certificate of Incorporation and
By-Laws of the Company, as in effect on the Effective Date, notwithstanding any
changes therein made after such Date, to the fullest extent permitted by
applicable law at the time of the assertion of any liability against Executive,
including without limitation, advancement of expenses as permitted by Section
145(e) of the Delaware General Corporation Law.
     18. Miscellaneous.

  a.   Executive understands, agrees and represents that the covenants made
herein and the releases herein executed may affect rights and liabilities of
substantial extent. Executive represents and warrants that in negotiating and
executing this Agreement Executive has had an adequate opportunity to consult
with competent legal counsel of her choosing concerning the

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      meaning and effect of each term and provision hereof, and that there are
no representations, promises, or agreements between Company and Executive other
than those expressly set forth in writing herein.

  b.   The parties have carefully read this Agreement in its entirety; fully
understand and agree to its terms and provisions; and intend and agree that it
is final and binding on all parties.

  c.   This Agreement shall be binding on, and shall inure to the benefit of,
the Company and any person or entity that succeeds to the interests of the
Company (regardless of whether such succession does or does not occur by
operation of law) by reason of the sale of all or a portion of the Company’s
stock, a merger, consolidation or reorganization involving the Company or a sale
of the assets of the business of the Company (or portion thereof) or similar
transaction. This Agreement shall inure to the benefit of the Executive’s heirs,
executors, administrators and legal representatives.

  d.   This Agreement, together with all Employee Stock Option Agreements
entered into by Executive and Company (which Option Agreements shall, to the
extent necessary to conform to the provisions of this Agreement, be deemed to be
so amended hereby) constitute the entire agreement between the parties hereto
with respect to the matters referred to herein, and supersedes any and all prior
agreements including, without limitation, the Employment Agreement.

  e.   Waiver by any party hereto of any breach or default by the other party of
any of the terms of this Agreement shall not operate as a waiver of any other
breach or default, whether similar to or different from the breach or default
waived. No waiver of any provision of this Agreement shall be implied from any
course of dealing between the parties hereto or from any failure by either party
hereto to assert its or her rights hereunder on any occasion or series of
occasions.

[Remainder of page left blank intentionally]

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     IN WITNESS WHEREOF, and intending to be legally bound, the parties have
executed the foregoing on the dates shown below.

            EXECUTIVE
      By:   /s/  Nancy Pedot       Nancy Pedot        Date:   July 20, 2005    

            PARTY CITY CORPORATION
      By:   /s/  Gregg A. Melnick               Title:   Chief Financial Officer
      Date:   August 1, 2005    

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Schedule A

                 
Party City Corporation
  PERSONNEL SUMMARY   Page:   1
 
  AS OF 3/31/2005   File:   Persnl
 
      Date:   3/28/2005
 
  ID is equal to ###-##-####   Time:   11:42:34 AM

                                                                               
                              Option     Option                                
                        Name   ID     Number     Date     Plan/Type     Shares  
  Price     Exercised     Vested     Cancelled     Unvested     Outstanding    
Exercisable  

                                                                               
               
PEDOT, NANCY
    ###-##-####       00000810       11/15/2000     1999/NQ     20,000     $
3.7000       0       20,000       0       0       20,000       20,000  
 
            00000897       9/26/2001     1999/NQ     3,000     $ 6.5500       0
      3,000       0       0       3,000       3,000  
 
            00000922       3/13/2002     1999/NQ     2,000     $ 12.3600       0
      2,000       0       0       2,000       2,000  
 
            00001113       11/13/2002     1999/NQ     10,000     $ 13.6563      
0       10,000       0       0       10,000       10,000  
 
            00001139       5/12/2003     1999/NQ     5,000     $ 10.0000       0
      5,000       0       0       5,000       5,000  
 
            00001140       6/11/2003     1999/NQ     5,000     $ 10.8600       0
      5,000       0       0       5,000       5,000  
 
            00001142       7/11/2003     1999/NQ     5,000     $ 10.9375       0
      5,000       0       0       5,000       5,000  
 
            00001143       8/11/2003     1999/NQ     5,000     $ 10.1100       0
      5,000       0       0       5,000       5,000  
 
            00001145       9/11/2003     1999/NQ     5,000     $ 11.5000       0
      5,000       0       0       5,000       5,000  
 
            00001146       9/18/2003     1999/NQ     30,000     $ 11.9100      
0       30,000       0       0       30,000       30,000  
 
            00001147       10/13/2003     1999/NQ     5,000     $ 14.0100      
0       5,000       0       0       5,000       5,000  
 
            00001149       11/11/2003     1999/NQ     5,000     $ 14.3281      
0       5,000       0       0       5,000       5,000  
 
            00001257       12/11/2003     1999/NQ     5,000     $ 13.8000      
0       5,000       0       0       5,000       5,000  
 
            00001258       1/9/2004     1999/NQ     5,000     $ 12.4800       0
      5,000       0       0       5,000       5,000  
 
            00001261       1/12/2004     1999/NQ     600,000     $ 12.3400      
0       300,000       0       300,000       600,000       300,000 A 
 
                                                 
 
          TOTALS                     710,000               0       410,000      
0       300,000       710,000       410,000  
 
                                                 

         
A
  -   Based on contract, below is the calculation for option # 1261 that Nancy
receives partial vesting on Tranche #3. Based on calculation, she has an
additional 32,055 shares that are exercisable for option # 1261 that is not
included in the schedule above.

     
Tranche # 3
  150,000 (A)

                              # of days employed         Tranche begin      
since last vesting         date   term Date   period   ratio   Shares
1/12/2005
  3/31/2005   78.00 (B)            
 
                   
 
                32,055  
 
                   
 
      365.00 (C)   21.4% (D) = (B)/(C)     (A) x (D)

 

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Schedule B
Nancy Pedots Employee Stock Contribution Plan

                                                                               
                                                                               
                      # of shares     Shares                          
Contributions from January 2004 thru June 2004
    Original Price     Contributions     Carryforward     Refunds     Total
Contribution     Stock PP     of Stock     Rounded     Total Price     New Carry
Forward     Total Value     Gain  
###-##-####
  NANCY J.   PEDOT   $ 25,000.00     $ 12.620     $ 25,000.00     $ 0.00     $
25,000.00     $ 10.727       2,330.57       2,330     $ 24,993.91     $ 6.09    
$ 29,404.60     $ 4,410.69  
 
                                                                               
                                Contributions from July 2004 thru December 2004
               
 
                                                                               
                               
###-##-####
  NANCY J.   PEDOT   $ 25,000.00     $ 12.425     $ 25,000.00     $ 6.09     $
25,006.09     $ 10.561       2,367.78       2,367     $ 24,997.89     $ 8.20    
$ 29,409.98     $ 4,412.09  

The 2,330 shares from the January 2004 thru June 2004 contributions were mailed
to Nancy at the end of December 2004. The 2,367 shares from the July 2004 thru
December 2004 contribution will be mailed at the end of June 2005.