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EXHIBIT 10.8EXECUTION COPY

SEPARATION AGREEMENT

This SEPARATION AGREEMENT (the
Agreement) is dated as of August 26, 2002, and
is entered into between PARTY CITY CORPORATION (the
Company), and Thomas E. Larson
(Executive).

WHEREAS, Executive is currently employed by the
Company as Senior Vice President and Chief Financial Officer; and

WHEREAS, Executive wishes to resign from his
employment with the Company and the Company wishes to accept
Executives resignation; and

WHEREAS, Executive and the Company desire to
embody in this Agreement the terms and conditions applicable to
Executives resignation of employment with the Company; and

WHEREAS, this Agreement shall supersede all prior
oral and written agreements, arrangements and understandings
relating to the terms and conditions of Executives
resignation.

NOW, THEREFORE, the parties hereby agree:

1.     Termination
Date. Executives resignation from the Company will be
effective September 3, 2002 (the Termination
Date).

2.     Company
Property. Executive shall return to the Company all
Company-owned property in his possession on or prior to the
Termination Date, unless otherwise set forth herein.

3.     Termination
Benefits. Commencing as of the Termination Date, the Company
shall continue to pay, in accordance with the Companys
prevailing payroll practices, Executives current Salary of
$285,749.92 annually ($21,562.49 monthly), for the period of six
(6) months beginning on the Termination Date and ending on
March 3, 2003.

4.     Benefit
Plans. Except as otherwise specifically provided in this
Agreement or by law or by any employee benefit plan,
Executive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.

5.     Additional
Consideration. 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.

6.     Taxes. The
payments due to Executive under this Agreement shall be subject
to reduction to satisfy all applicable Federal, state and local
withholding tax obligations.



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7.     Payment Upon
Death. Executive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s estate, heirs,
executors or beneficiaries in accordance with the terms hereof.

8.     Non-competition.

A.     Executive agrees
for a period of one (1) year from the Termination Date that
he will not, as a principal, agent, employee, employer,
consultant, stockholder, investor, director or co-partner of any
person, firm, corporation or business entity other than the
Company, or in any individual representative capacity
whatsoever, directly or indirectly, without the express prior
written consent of the Company:

(a) engage or participate in any business
whose products or services are competitive with that of the
Company, which business is exclusively the sale of party goods,
and which conducts or solicits business, or transacts with
supplier or customers located within the United States, Canada
or Puerto Rico;

(b) aid or counsel any other person, firm,
corporation or business entity to do any of the above;

(c) become employed by a firm, corporation,
partnership or joint venture which competes with the business of
the Company within the United States, Canada or Puerto Rico;

(d) approach, solicit business from, or
otherwise do business or deal with any customer of the Company
in connection with any product or service competitive to any
provided by the Company.

B.     Executive agrees
for a period of one year from the Termination Date that he will
not, as a principal, agent, employee, employer, consultant,
stockholder, investor, director or partner of any person, firm,
corporation or business entity other than the Company, or in any
individual representative capacity whatsoever, directly or
indirectly, without the express prior written consent of the
Company approach, counsel or attempt to induce any person who is
then in the employ of the Company to leave the employ of the
Company or employ or attempt to employ any such person or
persons who at the time during the preceding six months was in
the employ of the Company.

Executive acknowledges (i) that his position
with the Company required the performance of services which were
special, unique and extraordinary in character and placed him in
a position of confidence and trust with the customers and
employees of the Company, through which, among other things, he
obtained knowledge of the Companys technical
information and know-how and became acquainted
with its customers, in which matters the Company has substantial
proprietary interests, (ii) that the restrictive covenants
set forth above are necessary in order to protect and maintain
such proprietary interests and the other legitimate business

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interests of the Company, and (iii) that
the Company would not have entered into this Agreement unless
the non-competition covenants of this Section 8 were
included herein.


Executive also acknowledges that the business of
the Company presently extends throughout the United States,
Puerto Rico and other certain European countries, and that he
personally supervised and engaged in such business on behalf of
Company, and accordingly, it is reasonable that the restrictive
covenants set forth above are not more limited as to geographic
area then is set forth herein. Executive also represents to the
Company that the enforcement of such covenants will not prevent
Executive from earning a livelihood or impose an undue hardship
on the Executive.

If any provisions of this Section 8, or any
part thereof, is hereinafter construed to be invalid or
unenforceable, the same shall not affect the remainder of such
provision or provisions, which shall be given full effect,
without regard to the invalid portions. If any of the provisions
of this Section or any part thereof, is held to be unenforceable
because of the duration of such provision, the area covered
thereby or the type of conduct restricted therein, the parties
agree that the court making such determination shall have the
power to modify the duration, geographic area and/or other terms
or such provision and, as so modified, said provisions shall
then be enforceable. In the event that the courts of any one or
more jurisdictions shall not hold such provisions wholly or
partially unenforceable by reason of the scope thereof or
otherwise, it is the intention of the parties hereto that such
determination not bar or in any way affect the Companys
right to the relief provided for herein in the courts of any
other jurisdictions as to breaches or threatened breaches of
such provisions in such other jurisdictions, the above
provisions as they relate to each jurisdiction being, for this
purpose, severable into diverse and independent convents.

The provision of this Section 8 shall be
construed as an agreement on the part of the Executive
independent of any other part of this Agreement or any other
agreement, and the existence of any claim or cause of action of
the Executive against the Company, whether predicated on this
Agreement or otherwise, shall not constitute a defense to the
enforcement by the Company of the provisions of this
Section 8.

9.     Release and
Waiver of Claims. 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,
Company Entities), from all rights, claims or
demands Executive may have, 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 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

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prohibits paying men and women unequal pay for
equal work; 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 under any 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 9.

10.     Rights Not
Released or Waived. Section 9 hereof notwithstanding,
by signing this Agreement, Executive shall not have relinquished
his right to (i) benefits in accordance with the provisions
of any Company retirement plans subject to the Employee
Retirement Income Security Act of 1974, as amended, or
(ii) enforce the provisions of this Agreement.

11.     Release and
Waiver of Claims Under the Age Discrimination in Employment
Act. 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
(ADEA), as well as under the other federal, state
and local laws described in Section 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 9 hereof that may have existed on or
prior to the date hereof.

12.     Waiting
Period and Revocation Period. Executive hereby acknowledges
that the Company has informed him that he has up to twenty-one
(21) days to sign this Agreement and he may knowingly and
voluntarily waive that twenty-one (21) day period by signing
this Agreement earlier. Executive also understands that he shall
have seven (7) 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 Company.

13.     Remedies.
Executive hereby acknowledges and understands that if he revokes
this Agreement within the seven (7)-day revocation period
provided under Section 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 to
which Executive would not be otherwise entitled that are
subsequently due hereunder.

14.     Non-Admission.
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.

15.     Non-Disparagement.
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. The obligations of Executive
under this Section 15 shall not apply to disclosures
required by applicable law, regulation or order of a court or
governmental agency.

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16.     Confidentiality.
Executive and the Company hereby agree to keep the terms of this
Agreement confidential. The obligations of Executive and the
Company under this Section 16 shall not apply to
disclosures required by applicable law, regulation or order of a
court or governmental agency.

17.     Opportunity
for Advice. By signing this Agreement, Executive
acknowledges that with the advice of the Company, he has had a
reasonable opportunity to consider advice from his legal counsel
and that the Company had encouraged him to seek such legal
counsel. Fully understanding these terms, Executive is entering
into this Agreement knowingly and voluntarily.

18.     Acceptance.
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s execution of this
Agreement unless Executives written revocation is
delivered to the Company within seven (7) days after such
execution.

19.     Entire
Agreement. This Agreement represents the entire agreement of
the parties with respect to the Executives employment and
termination thereof. Except as specifically provided herein,
this Agreement shall supersede any other agreements between the
Executive and the Company 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.

20.     Relocation.
The Company agrees to reimburse Executive for his reasonable
personal moving expenses incurred should Executive relocate from
his home in New Jersey to Texas at any time through
March 3, 2003. Executive understands that the reasonable
personal moving expenses agreed to be reimbursed by the Company
pursuant to this Section 20 do not include any costs and
expenses which may be incurred by Executive in the sale of his
home in New Jersey or any bridge or refinance loans in
connection therewith. Executive shall submit not later than
March 16, 2003 those costs and expenses to be reimbursed
hereunder, along with documentation reasonable to verify the
payment of such costs and expenses. The Company agrees to
reimburse Executive within fifteen (15) days of the
Companys receipt of such reimbursement request pursuant to
the provisions of this Section 20.

21.     Executive Out
Placement Service. The Company, at its expense, will provide
Executive Out Placement assistance through the
services of Goodrich and Sherwood (New York City or Parsippany,
NJ) or a comparable Executive Out Placement firm
from the Termination Date through March 16, 2003.

22.     Vested Stock
Options. Notwithstanding any Company policies to the
contrary, the Company agrees that Executive shall have until
March 3, 2003 to exercise any stock options which had
vested for Executive prior to the Termination Date.

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23.     Cell
Phones. Executive shall be permitted to use the
Companys cell phone until March 3, 2003, at which
date Executive agrees to return such cell phone to the Company.

24.     Automobile
Allowance. Executive shall continue to receive through
March 3, 2003 Executives automobile allowance of
$675.00 per month.

25.     SEC
Filing. Executive and the Company agree to coordinate the
preparation and filing of any Form 4 required
to be filed as a result of an acquisition/disposition of Company
stock that occurs from the Termination Date through
March 3, 2003. Executive agrees to notify the Company not
later than three (3) business days prior to Executives
contemplated acquisition/disposition of Company stock to
coordinate the timely filing of any required
Form 4. Executive and the Company further agree
to coordinate the filing of a Form 5 or other
documents as may be required pursuant to SEC regulations
resulting from Executives Section 16
position while employed by the Company. The costs for preparing
and filing any of the Forms referenced in this Section 25
shall be borne by the Company.

IN WITNESS WHEREOF, the parties have executed
this Agreement as of the date and year first above written.



| |                             
| | ----------------------------
| | /s/ THOMAS E. LARSON        
| |                             
| | Name: Thomas E. Larson      
| |                             
| | PARTY CITY CORPORATION      
| |                             
| | By: /s/ Melissa Wallace     
| |                             
| |                             
| | Name: Melissa Wallace       
| | Title: VP of Human Resources

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