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                                                                   EXHIBIT 10.11

                              EMPLOYMENT AGREEMENT

                EMPLOYMENT AGREEMENT (the "Agreement") by and between Party City
Corporation, a Delaware corporation (the "Company"), and James Shea (the
"Executive"), dated as of the 10th day of December, 1999.

                              W I T N E S S E T H:

                1.      Employment Period. The Company shall employ the
Executive and the Executive shall serve the Company, on the terms and conditions
set forth herein, for the period commencing on December 8, 1999 (the "Effective
Date") and ending on the third anniversary of the Effective Date (the
"Employment Period"), provided that (a) the Employment Period will automatically
renew for additional one year periods upon the terms and conditions set forth
herein, unless either party gives the other party written notice of such party's
intention not to renew this Agreement at least three months prior to the end of
the original three-year Employment Period or any one-year extension of the
Employment Period, and (b) the Employment Period may be terminated earlier as
provided in Section 3 hereof.

                2.      Terms of Employment. (a) Position and Duties. (i)
Commencing on the Effective Date and for the remainder of the Employment Period,
the Executive shall serve as the Company's Chief Executive officer. Executive
shall report exclusively to the Company's Chairman of the Board of Directors
(the "Board") and shall have such duties, responsibilities and authority as
shall be determined by the Chairman of the Board in good faith, without any
limitation, and as are similar in nature to those duties, responsibilities and
authority customarily associated with the position of Chief Executive Officer.
The Executive shall be based at the Company's offices in Rockaway, New Jersey;
provided that the Executive shall perform such duties and responsibilities not
involving a permanent transfer of his base of operations outside of Rockaway,
New Jersey at such other places as shall from time to time be necessary to
fulfill his obligations hereunder.

                (ii)    During the Employment Period, and excluding any periods
of vacation and sick leave to which the Executive is entitled, the Executive
agrees to devote full time during normal business hours to the business and
affairs of the Company and to use the Executive's best efforts to perform
faithfully and efficiently such responsibilities. During the Employment Period
the Executive shall not be engaged in any other business activity whether or not
such business activity is pursued for gain, profit or other pecuniary advantage,
but this shall not be construed as preventing the Executive from investing his
personal assets in businesses which do not compete with the Company in such form
or manner as will not require any services on the part of the Executive in the
operation of the affairs of the companies in which such investments are made and
in which his participation is solely that of a passive investor, and except that
the Executive may purchase securities in any corporation whose securities are
regularly traded provided that such purchase shall not result in his owning
beneficially at any time, other than through a registered investment company,
one percent (1%) or more of the equity securities of any corporation engaged in
a business competitive with that of the Company.

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        (b)     Compensation. (i) Base Salary. During the Employment Period, the
Executive shall receive an annual base salary ("Annual Base Salary") of
$350,000, subject to annual review and adjustment at the discretion of the
Board. The Annual Base Salary shall be paid in accordance with the normal
payroll practices of the Company.

                (ii)    Incentive Compensation. In addition to Annual Base
Salary, the Executive shall be eligible to receive a cash performance bonus (a
"Performance Bonus") for each "Fiscal Year" (as defined below) during the
Employment Period (with proration based on days worked during the initial fiscal
year), provided the Company shall have achieved the performance objectives for
such Fiscal Year established by the Compensation Committee. The target amount of
the Performance Bonus for each Fiscal Year during the Employment Period shall be
fifty percent (50%) of Executive's Annual Base Salary, at the rate in effect as
of the last day of the Fiscal Year for which such bonus is paid. The actual
bonus may be more or less than 50% of Annual Base Salary, based on actual
performance according to the reasonable performance objectives established,
provided that the maximum bonus may not exceed 75% of Annual Base Salary. The
actual amount of the Performance Bonus for any Fiscal Year shall be payable as
soon as practicable after completion of the Company's audited financial
statements, but in no event later than 90 days following the end of the Fiscal
Year for which such Performance Bonus relates. For purposes of this Agreement,
"Fiscal Year" means each twelve month period ending June 30 or such other date
as hereinafter adopted.

                (iii)   Initial Stock Options. The Executive shall be granted,
on the Effective Date, nonqualified stock options (the "Initial Options") to
acquire 200,000 shares of the common stock of the Company, $0.01 par value per
share (the "Common Stock"), at an exercise price per share equal to $2.00. The
Initial Options shall have a term of ten years from the date of grant and,
subject to Sections 4 (a) (iv) and 8 (a) of this Agreement, shall vest and
become exercisable in equal installments on the first, second and third
anniversaries of the Effective Date, provided Executive remains in the employ of
the Company on each such anniversary date, unless Executive's employment is
terminated by the Company without "Cause" (as defined in Section 3(b)) or by the
Executive for "Good Reason" (as defined in Section 3(c)). All terms and
conditions relating to the Initial Options shall be set forth in a stock option
agreement (attached hereto as Exhibit A) to be executed by the Company and the
Executive on the Effective Date.

                (iv)    Subsequent Option Grants. The Executive shall be
granted, on each of the first, second and third anniversaries of the Effective
Date (each a "Grant Date"), nonqualified stock options to acquire 25,000 shares
of Common Stock, at an exercise price equal to the fair market value of a share
of Common Stock on such Grant Date ("Subsequent Options") , provided Executive
remains in the employ of the Company on each such Grant Date. The Subsequent
Options shall have a term of ten years from the Grant Date and, subject to
Sections 4(a) (iv) and 8(a) of this Agreement, shall vest in equal installments
on the first, second, third and fourth anniversaries of the Grant Date, provided
Executive remains in the employ of the Company on each such anniversary date,
unless Executive's employment is terminated by the Company without Cause or by
the Executive for Good Reason. All terms and conditions relating to the
Subsequent Options shall be set forth in a stock option agreement, the form of
which shall be identical to the stock option agreement attached hereto as
Exhibit A, to be executed by the Company and the Executive on each Grant Date.

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                (v)     Benefit Plans. During the Employment Period, the
Executive and/or the Executive's family, as the case may be, shall be eligible
for participation in and shall receive all benefits under employee benefit plans
provided by the Company (including, without limitation, medical, prescription,
dental, disability, group life, accidental death and travel accident insurance
plans and programs, and incentive, savings and retirement plans and programs) to
the extent and on the same basis as is applicable generally to other senior
executives of the Company.

                (vi)    Automobile Allowance. During the Employment Period, the
Executive shall be reimbursed for the actual cost of leasing and insuring an
automobile, up to a maximum of $600.00 per month.

                (vii)   Expenses. During the Employment Period, the Company
shall pay or promptly reimburse the Executive for all reasonable business
expenses upon presentation of receipts therefor in accordance with the normal
practices of the Company.

                (viii)  Vacation. During the Employment Period, the Executive
shall be entitled to three weeks of paid vacation per year of employment.

                3.      Termination of Employment. (a) Death or Disability. The
Executive's employment shall terminate automatically upon the Executive's death
during the Employment Period. If the Board determines in good faith that the
Executive is unable to perform his services as a result of "Disability" (as
defined below), it may terminate the Executive's employment on account of such
Disability. For purposes of this Agreement, "Disability" shall mean the absence
of the Executive from the Executive's duties with the Company on a full-time
basis for 90 consecutive days, or 90 out of a 120 consecutive day period, as a
result of incapacity due to mental or physical illness which is determined by
the Board acting in good faith to prevent the Executive from performing his
duties to the Company.

        (b)     With or Without Cause. The Company may terminate the Executive's
employment during the Employment Period with or without Cause. For purposes of
this Agreement, "Cause" shall mean: (i) Executive's refusal to perform his
duties hereunder (other than a refusal resulting from his incapacity due to
physical and/or mental illness not caused by chronic alcoholism or drug
addiction) which continues for a period of more than thirty days after written
notice by the Company to the Executive of the acts constituting such refusal;
(ii) Executive's willful engaging in gross misconduct intended to harm the
Company which continues for a period of more than ten days after written notice
by the Company to the Executive of the act(s) that have resulted in material
harm to the Company; (iii) Executive's acts of theft, misappropriation,
embezzlement or fraud of the Company's funds; or (iv) Executive's inability to
perform his duties hereunder as a result of chronic alcoholism or drug
addiction.

        (c)     With or Without Good Reason. Executive may terminate his
employment with or without "Good Reason." For purposes of this Agreement, "Good
Reason" shall mean: (i) without Executive's express consent, any change in his
duties or responsibilities (including reporting responsibilities) that is
inconsistent in any material and adverse respect with his position, duties,
responsibilities or status as Chief Executive Officer immediately prior to such
change (including any material and adverse diminution of such duties or
responsibilities); (ii) any failure by the Company to comply in any material
respect with any of the provisions of Section 2 of this

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Agreement; or (iii) the Company's relocation of the Executive without his
consent to a location other than at the executive offices of the Company;
provided that a termination by the Executive with Good Reason shall be effective
only if, within 30 days following the delivery of a "Notice of Termination" (as
defined in Section 3(d)) for Good Reason by the Executive to the Company, the
Company has failed to cure the circumstances giving rise to Good Reason.

        (d)     Notice of Termination. Any termination by the Company or by the
Executive shall be communicated to the other party by a "Notice of Termination."
For purposes of this Agreement, a "Notice of Termination" means a written notice
which (i) indicates the specific termination provision in this Agreement relied
upon and (ii) if the "Date of Termination" (as defined Section 3(e)) is other
than the date of receipt of such notice, specifies the termination date (which
date shall be not more than thirty days after the giving of such notice). The
failure by the Company to set forth in the Notice of Termination any fact or
circumstance which contributes to a showing of Cause, whether or not known at
the time, shall not waive any right of the Company or preclude the Company from
asserting such fact or circumstance in enforcing the Company's rights.

        (e)     Date of Termination. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for any reason other than
Disability, or if the Executive terminates employment with or without Good
Reason, the date of receipt of the Notice of Termination or any later date
specified therein in accordance with Section 3(d), as the case may be; (ii) if
the Executive's employment is terminated by reason of death or Disability, the
Date of Termination shall be the date of death of the Executive or the first
date on which the Board makes the determination that the Executive shall be
terminated as a result of his having been absent from his duties to the extent
required by the definition of Disability, as the case may be; and (iii) if the
Executive's employment is terminated by reason of non-renewal of the Agreement
pursuant to Section 1 hereof, the Date of Termination shall be the last day of
the applicable Employment Period.

                4.      Obligations of the Company Upon Termination. (a) Other
Than for Cause, Death or Disability; by the Executive for Good Reason. If the
Company shall terminate the Executive's employment other than for Cause or
Disability, or if the Executive shall terminate his employment for Good Reason:

                (i)     the Company shall pay to the Executive in a lump sum in
cash within 60 days after the Date of Termination the sum of (A) the Executive's
Annual Base Salary through the Date of Termination to the extent not previously
paid ("Accrued Salary") and (B) if such termination occurs following the end of
a Fiscal Year and, prior to or following such termination, a Performance Bonus
for such Fiscal Year is determined by the Board to have been earned, the amount
of such Performance Bonus ("Accrued Bonus");

                (ii)    the Company shall continue to pay to the Executive his
Annual Base Salary, in effect as of the Date of Termination, for a period of (A)
one year following the Date of Termination or (B) the remainder of the
Employment Period, whichever is longer, payable in accordance with the Company's
normal payroll practices;

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                (iii)   the Company shall continue to provide to the Executive,
for the period of time during which the Executive is receiving his Annual Base
Salary in accordance with paragraph (ii) above, benefits under "employee welfare
plans" (as defined in Section 3(l) of the Employee Retirement Income Security
Act of 1974, as amended), at least equal to those which are provided to the
senior executives of the Company during such period; provided, however, that if
the Executive becomes reemployed with another employer and is eligible to
receive any of such benefits under another employer provided plan at the other
employer's cost, other than reasonable and customary employee contributions
(whether or not he actually elects to receive such benefits), the corresponding
benefits described herein shall be terminated; further, provided, however, that
the Company shall not be required to provide any such benefit if the effect
thereof would be to violate the terms of any law, plan or insurance policy or
jeopardize the tax benefit associated with such benefit to which the Company
otherwise would be entitled, but in such event, the Company shall pay to the
Executive, in cash, an amount equal to the cost of providing such benefit. Any
such benefits provided by another employer shall be promptly reported by the
Executive to the Company as the Executive becomes eligible therefor;

                (iv)    notwithstanding any provision hereof to the contrary,
all options granted pursuant to this Agreement shall immediately vest and remain
exercisable for the entire original ten-year term of such options.

        (b)     Death, Disability, With Cause, without Good Reason. If the
Executive's employment is terminated by reason of the Executive's death,
Disability, termination by the Company with Cause or termination by the
Executive without Good Reason, this Agreement shall terminate without further
obligations to the Executive or his legal representatives under this Agreement,
other than for payment of Accrued Salary and, in the case of a termination by
reason of death or Disability, payment of any Accrued Bonus, which shall be paid
to the Executive or his estate or beneficiary, as applicable, in a lump sum in
cash within 90 days following the Date of Termination. If the Executive's
employment is terminated for Cause, nothing in this Agreement shall prevent the
Company from pursuing any other available remedies against the Executive.

                5.      Confidential Information; Nonsolicitation;
Noncompetition; Nondisparagement. (a) The Executive shall hold in a fiduciary
capacity for the benefit of the Company all software, trade secrets,
compilations of information, records, specifications, work product created by
Executive for the Company or any of its affiliates, know-how, ideas, techniques,
theories, discovery, formulas, plans, charts, designs, drawings, lists of
current or prospective clients, business plans and proposals, current or
prospective business opportunities, financial records, research and development,
marketing strategies and programs, reports, products, improvements, methods of
distribution, sales prices, profits, costs, contracts, suppliers, business
methods, techniques and all other proprietary or confidential information,
knowledge or data relating to the Company or any of its affiliates, and their
respective businesses, created or obtained by Executive for the benefit of the
Company during the Executive's employment with the Company (collectively
"Confidential Information") , and which shall not be or become public knowledge
(other than by acts by the Executive or representatives of the Executive in
violation of this Agreement). After termination of the Executive's employment
with the Company, the Executive shall not, without the prior written consent of
the Company or as may otherwise be

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required by law or legal process, communicate or divulge any such Confidential
Information to anyone other than the Company and those designated by it.

        (b)     The Executive hereby covenants and agrees that for one year
following the termination of the Executive's employment for any reason, or such
longer period as the Executive is receiving payments pursuant to Section
4(a)(ii) above, the Executive shall not, directly or indirectly, employ or seek
to employ any person who is at the Date of Termination, or was at any time
within the six-month period preceding the Date of Termination, an employee of
the Company or any of its subsidiaries or affiliates or otherwise cause or
induce any employee of the Company or any of its subsidiaries or affiliates to
terminate such employee's employment with the Company or such subsidiary or
affiliate for the employment of another company.

        (c)     The Executive hereby covenants and agrees that during the
Employment Period and for one year following the termination of the Executive's
employment for any reason, or such longer period as the Executive is receiving
payments pursuant to Section 4(a)(ii) above, the Executive will not, without the
prior written consent of the Company, engage in "Competition" (as defined below)
with the Company. For purposes of this Agreement, if the Executive takes any of
the following actions he will be engaged in "Competition:" engaging in or
carrying on, directly or indirectly, any enterprise, whether as an advisor,
principal, agent, partner, officer, director, employee, stockholder, associate
or consultant to any person, partnership, corporation or any other business
entity, that is principally engaged in any business in which the Company is
engaged, or is contemplating becoming engaged, on the Date of Termination, in
any area in which the Company is then engaged, or is then contemplating being
engaged, in such business; provided, however, that "Competition" will not
include ownership of less than one percent (1%) of securities in any enterprise
and exercise of rights appurtenant thereto.

        (d)     The Executive hereby covenants and agrees that during the
Employment Period and for one year following the termination of the Executive's
employment for any reason, or such longer period as the Executive is receiving
payments pursuant to Section 4(a)(ii) above, the Executive will not assist a
third party in preparing or making an unsolicited bid for the Company, engaging
in a proxy contest with the Company, or engaging in any other similar activity.

        (e)     During the Employment Period and following the termination of
the Executive's employment for any reason, the parties hereto each agree not to
make disparaging public statements concerning the other, provided that nothing
herein shall prevent either party hereto from enforcing its rights hereunder.

        (f)     The Executive acknowledges that a breach of any of the covenants
contained in Section 5(a), (b), (c), (d) or (e) may result in material
irreparable injury to the Company for which there is no adequate remedy at law,
that it will not be possible to measure damages for such injury precisely and
that, in the event of such a breach or threat thereof, the Company shall be
entitled to a temporary restraining order and/or a preliminary or permanent
injunction, restraining the Executive from engaging in such prohibited
activities or such other relief as may be required specifically to enforce any
of the covenants contained therein. Nothing herein shall be construed as
prohibiting the Company from pursuing any other remedies for such breach or
threatened breach. These injunctive remedies are cumulative and in addition to
any other rights and remedies the Company may have. The Company and Executive
hereby irrevocably submit

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to the exclusive jurisdiction of the courts of the State of New Jersey and the
Federal courts of the United States of America, solely in respect of the
injunctive remedies set forth in this Section 5(f) and the interpretation and
enforcement of Section 5(a), (b), (c), (d) and (e) solely insofar as such
interpretation and enforcement related to an application for injunctive relief
in accordance with the provisions of this Section 5(f), and the parties hereto
hereby irrevocably agree that (i) the sole and exclusive venue for any suit or
proceeding relating solely to such injunctive relief shall be in such a court,
(ii) all claims with respect to any application solely for such injunctive
relief shall be heard and determined exclusively in such a court, (iii) any such
court shall have exclusive jurisdiction over the person of such parties and over
the subject matter of any dispute relating to an application solely for such
injunctive relief, and (iv) each hereby waives any and all objections and
defenses based on forum, venue or personal or subject matter jurisdiction as
they may relate to an application solely for such injunctive relief in a suit or
proceeding brought before such a court in accordance with the provisions of this
Section 5(f).

        (g)     The restrictions set forth in Section 5(a), (b), (c), (d) and
(e) are considered by the parties hereto to be reasonable for the purposes of
protecting the business of the Company. However, if any such restriction is
found by a court of competent jurisdiction to be unenforceable because it
extends for too long a period of time or over too great a range of activities or
in too broad a geographic area, it is the intention of the parties that such
restriction shall be interpreted to extend only over the maximum period of time,
range of activities or geographic area as to which it may be enforceable.

        (h)     In the event of the termination of Executive's employment for
any reason, Executive will deliver to the Company all non-personal documents and
data of any nature and in whatever medium pertaining to Executive's employment
with the Company, or any of its subsidiaries or affiliates and he will not take
with him any such property, documents or data of any description or any
reproduction thereof, or any documents containing or pertaining to any
Confidential Information.

                6.      Post-Termination Assistance. The Executive agrees that
after his employment with the Company has terminated he will provide, upon
reasonable notice, such information and assistance to the Company as may
reasonably be requested by the Company in connection with any audit,
governmental investigation or litigation in which it or any of its affiliates is
or may become a party; provided, however, that (a) the Company agrees to
reimburse the Executive for any related out-of-pocket expenses, including travel
expenses, and, if the Executive is not then being paid severance pursuant to
Section 4(a)(ii), to pay the Executive reasonable compensation for his time
based on his rate of Annual Base Salary at the time of termination and (b) any
such assistance may not unreasonably interfere with the then-current employment
of the Executive.

                7.      Successors. (a) This Agreement is personal to the
Executive and without the prior written consent of the Company shall not be
assignable by the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable by
the Executive's heirs and personal and legal representatives.

        (b)     This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.

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                8.      Change in Control. (a) In the event of a "Change in
Control" of the Company, the initial Stock Options and any Subsequent Stock
Options that are not yet vested and exercisable as of the date of the Change in
Control, shall become immediately vested and exercisable.

        (b)     For purposes of this Agreement, a "Change in Control" shall
mean:

                (i)     The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act)
of 50% or more (on a fully diluted basis) of either (x) the then outstanding
shares of Common Stock, taking into account as outstanding for this purpose such
shares issuable upon the exercise of options or warrants, the conversion of
convertible shares or debt, and the exercise of any similar right to acquire
shares (the "Outstanding Company Common Stock") or (y) the combined voting power
of the then outstanding voting securities of the Company entitled to vote
generally in the election of directors or member managers (the "Outstanding
Company Voting Securities"); provided, however, that for purposes of this
Section 8(b)(i), the following acquisitions shall not constitute a Change in
Control: (A) any acquisition by the Company or any "affiliate" of the Company,
within the meaning of 17 C.F.R. Section 230.405 (an "Affiliate"), (B) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any Affiliate of the Company, (C) any acquisition
by any corporation pursuant to a transaction which complies with clauses (x),
(y) and (z) of Section 8(b)(ii), or (D) any acquisition by any entity in which
the Executive has a direct or indirect equity interest of greater than five
percent; or

                (ii)    Consummation of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all of the
assets of the Company (a "Business Combination"), in each case, unless,
following such Business Combination, (x) all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities
immediately prior to such Business Combination beneficially own, directly or
indirectly, more than 50% of the then outstanding shares of common stock or
interests and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as the case
may be, of the corporation or other entity resulting from such Business
Combination (including, without limitation, a corporation or entity which as a
result of such transaction owns the Company or all or substantially all of the
Company's assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership, immediately prior to such
Business Combination of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, as the case may be, and (y) no Person (excluding (A)
any employee benefit plan (or related trust) sponsored or maintained by the
Company or any Affiliate of the Company, or such corporation resulting from such
Business Combination or any Affiliate of such corporation, or (B) any entity in
which the Executive has a direct or indirect equity interest of greater than
five percent or any Affiliate of such entity) beneficially owns, directly or
indirectly, 50% or more (on a fully diluted basis) of, respectively, the then
outstanding shares of common stock or interests of the corporation or entity
resulting from such Business Combination, taking into account as outstanding for
this purpose such common stock or interests issuable upon the exercise of
options or warrants, the conversion of convertible stock, interests or

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debt, and the exercise of any similar right to acquire such common stock or
interests, or the combined voting power of the then outstanding voting
securities of such corporation or other entity except to the extent that such
ownership existed prior to the Business Combination and (z) at least a majority
of the members of the board of directors or equivalent governing body of the
corporation or other entity resulting from such Business Combination were
members of the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for such Business
Combination; or

                (iii)   Approval by the shareholders or equityholders of the
Company of a complete liquidation or dissolution of the Company.

                9.      Indemnification. (a) The Company shall indemnify and
advance "Expenses" (as defined below) to the Executive to the fullest extent
permitted by applicable law in effect on the date hereof and to such greater
extent as applicable law may thereafter from time to time permit. The Company
shall advance all Expenses incurred by the Executive or on his behalf in
connection with any "Proceeding" (as defined below) within twenty (20) days
after the receipt by the Company of a statement or statements from the Executive
requesting such advance or advances from time to time, whether prior to or after
final disposition of such Proceeding. Such statement or statements shall
reasonably evidence the Expenses incurred by the Executive and shall include or
be preceded or accompanied by an undertaking by the Executive or on his behalf
to repay any Expenses advanced if it shall ultimately and finally be determined
by a court of competent jurisdiction that the Executive is not entitled to be
indemnified against such Expenses. The Company shall not be liable under this
Agreement to make any payment of amounts otherwise indemnifiable hereunder if
and to the extent that the Executive has otherwise actually received such
payment under any insurance policy, contract, agreement or otherwise.

        (b)     For purposes of this Section 9, "Expenses" means all reasonable
attorneys' fees, retainers, court costs, transcript costs, fees, travel
expenses, duplicating costs, printing and binding costs, telephone charges,
postage, delivery service fees, and all other disbursements or expenses of the
types customarily incurred in connection with prosecuting, defending, preparing
to prosecute or defend, investigating, or being or preparing to be a witness in
a Proceeding. "Proceeding" means any action, suit, arbitration, alternate
dispute resolution mechanism, investigation, administrative hearing or any other
proceeding, whether civil, criminal, administrative or investigative, including,
without limitation, any action or conduct occurring prior to the Effective Date.

                10.     Miscellaneous. (a) Governing Law. This Agreement shall
be governed by and construed in accordance with the laws of the State of New
Jersey, without reference to principles of conflict of laws.

        (b)     Captions. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect.

        (c)     Stipulation. Executive hereby stipulates to the company that on
the date of this Agreement, neither Executive nor his affiliates has any claim
of any type against the Company, except claims that may arise under this
Agreement, and represents and warrants that this Agreement does not conflict
with any other agreement to which Executive is a party.

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        (d)     Construction. The parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation.

        (c)     Notices. All notices and other communications hereunder shall be
in writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:

                        If to the Executive:

                        James Shea
                        453 Windham Court North
                        Wyckoff, NJ 07448

                        If to the Company:

                        Party City Corporation
                        400 Commons Way
                        Rockaway, NJ 07866
                        Attn:  Chairman of the Board of Directors and Chief
                        Financial Officer

                        With a copy to:

                        Willkie Farr & Gallagher
                        787 Seventh Avenue
                        New York, New York 10019-6099
                        Attn:  Steven J. Gartner, Esq.
                        Tel:  212 728-8242
                        Fax:  212 728-8111

or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.

        (f)     Enforceability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.

        (g)     Withholding. The Company shall withhold from any amounts payable
under this Agreement such Federal, state, local or foreign taxes as may be
required to be withheld pursuant to any applicable law or regulation.

                                       10
<PAGE>   11

        (h)     No Waiver. The Executive's or the Company's failure to insist
upon strict compliance with any provision hereof or any other provision of this
Agreement or the failure to assert any right the Executive or the Company may
have hereunder shall not be deemed to be a waiver of such provision or right or
any other provision or right of this Agreement. No waiver of any provision of
this Agreement by the Company or the Executive shall be effective unless it is
in a writing signed by the party against whom enforcement is sought.

        (i)     Entire Agreement. Except as otherwise expressly provided herein,
this Agreement constitutes the entire agreement among the parties hereto with
respect to the subject matter hereof, and all promises, representations,
understandings, arrangements and prior agreements relating to such subject
matter (including those made to or with Executive by any other person or entity)
are merged herein and superseded hereby.

        (j)     Amendments. No provisions of this Agreement may be modified,
waived or discharged unless such modification, waiver or discharge is approved
by the Board or a person authorized thereby and is agreed to in writing by
Executive and such officer as may be specifically designated by the Board. No
waiver by any party hereto at any time of any breach by any other party hereto
of, or compliance with, any condition or provision of this Agreement to be
performed by such other party shall be deemed a wavier of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time. No
waiver of any provision of this Agreement shall be implied from any course of
dealing between or among the parties hereto or from any failure by any party
hereto to assert its rights hereunder on any occasion or series of occasions.

                            [SIGNATURE PAGE FOLLOWS]

                                       11
<PAGE>   12

                IN WITNESS WHEREOF, the Executive has hereunto set the
Executive's hand and, pursuant to the authorization from its Board of Directors,
the Company has caused this Agreement to be executed in its name an its behalf,
all as of the day and year first above written.

                This instrument may be executed in any number of counterparts,
each of which shall be deemed to be an original, and such counterparts together
shall constitute one and the same instrument.

                                   JAMES SHEA

                                   /s/ James Shea
                                   --------------------------------------------

                                   PARTY CITY CORPORATION

                                   By:  /s/ Jack Futterman
                                        ---------------------------------------
                                        Name:  Jack Futterman
                                        Title: Chairman and CEO

                                       12<PAGE>   1

                                                                   EXHIBIT 10.12

                              EMPLOYMENT AGREEMENT

        EMPLOYMENT AGREEMENT ("the Agreement") dated as of the 7th day of August
2000 (the "Effective Date"), between Party City Corporation, a Delaware
corporation (the "Company"), with principal offices located at 400 Commons Way,
Rockaway, New Jersey 07866 and Andrew Bailen, with an address at 5764 Saint
Annes Way, Boca Raton, Florida 33496 (the "Employee").

                                   WITNESSETH

        WHEREAS, the Company desires to employ Employee to render such services
under the terms and conditions of this Agreement and has authorized and approved
the execution of same;

        WHEREAS, Employee desires to be employed by the Company under the terms
and conditions as provided for herein;

        NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereby agree as follows:

        1.      EMPLOYMENT DUTIES AND ACCEPTANCE.

                (a)     SERVICES.

                        (i)     The Company hereby employs Employee for the Term
                                (as hereinafter defined in Section 2 herein), to
                                render exclusive and full-time services to the
                                business and affairs of the Company as Executive
                                Vice President of Merchandising/Marketing and,
                                in connection therewith, shall perform all such
                                duties as directed by the Board of Directors of
                                the Company from time to time, in its
                                discretion, and shall perform all such other
                                duties as shall be consistent with the
                                responsibilities of such office.

                        (ii)    During the Term of the Employment, and excluding
                                any periods of vacation to which the Employee is
                                entitled, Employee will perform

<PAGE>   2

                                activities related to such office as he shall be
                                directed or requested to so perform by the
                                Company's Chief Executive Officer, to whom he
                                shall report, or the Company's Board of
                                Directors. During the Term of the Employment,
                                and excluding any periods of vacation to which
                                the Employee is entitled, the Employee also
                                agrees to devote full time solely to the
                                business and affairs of the Company, its
                                subsidiaries and affiliates and to use his best
                                efforts, skill and abilities, throughout his
                                employment, to promote the best interests of the
                                Company, its subsidiaries and affiliates.

                        (iii)   During the employment period, the Employee shall
                                not be engaged in any other business activity,
                                whether or not such business activity is pursued
                                for profit or other pecuniary advantage. This
                                provision shall not be construed as preventing
                                the Employee from passively investing his
                                personal assets in businesses which do not
                                compete with the Company and which do not
                                require any services or time, at all, on the
                                part of the Employee.

                        (iv)    The Employee acknowledges the high significance
                                of the position being offered to him and the
                                fact that he is being provided with an
                                opportunity to also obtain an equity position
                                with the Company through the issuance of
                                options. The Employee acknowledges that these
                                benefits are predicated upon the Employee's
                                enthusiastic assumption of all these duties,
                                cares and responsibilities reasonably and
                                normally incident to the high office being
                                granted to him.

                (b)     ACCEPTANCE. Employee hereby accepts such employment at
the terms herein and agrees to render the services described in Section 1(a)
hereof. In addition, the general personnel policies and procedures of the
Company (e.g. payroll deductions, business ethics, leaves of absence) contained
in the Company's Employee Handbook, as it now exists or as it may exist in the
future, are deemed and made part of this Agreement. Employee agrees he is
subject to and will comply with those personnel policies and procedures
currently in effect and as may be modified from time to time.

        2.      TERM OF EMPLOYMENT UNDER THIS AGREEMENT.

                (a)     The Employees' employment with Company is at-will.
Accordingly, this Agreement and/or the term of Employee's employment under this
Agreement is terminable at the

                                       2
<PAGE>   3

will of either party, with or without cause. Nothing in this Agreement is
intended to limit or otherwise modify the terms of this provision, which is an
essential and necessary provision of the Agreement.

                (b)     The initial term of Employee's employment under this
Agreement (the "Initial Term" or "Term") shall commence on the Effective Date
and terminate on August 6, 2001. The period from the Effective Date to August 6,
2001 shall be deemed a "year" of employment. This Agreement shall be
automatically renewed for an additional year(s) on the date of its expiration
unless cither party to this Agreement gives notice, in writing, at least thirty
(30) days prior to the expiration of this Agreement, that it does not seek to
renew the Agreement and/or seeks to alter the terms of the Agreement.

                (c)     Should both parties agree to renew this Agreement, the
Company reserves the right to amend, modify or otherwise change in any fashion
any term of this Agreement as a proposed, renewed agreement. Any such renewal of
the Agreement shall not be construed as creating any right or obligation
relating to future renewals.

        3.      COMPENSATION.

                (a)     BASE SALARY. As full and complete compensation for all
the services to be rendered by the Employee pursuant to this Agreement during
the Term of this Agreement, the Company agrees to pay Employee a minimum base
salary ("Base Salary") at the annual rate of $275,000. Such Base Salary may be
adjusted upward on a merit basis by the Board of Directors in its sole
discretion. The Employee's performance will be reviewed annually by the Chief
Executive Officer, on or about the effective date of this Agreement, together
with the Company's performance, to determine if Employee's compensation should
be adjusted. The Chief Executive

                                       3
<PAGE>   4

Officer's review of the Employee's compensation shall consider both cash and
non-cash (i.e. Stock Options) remuneration. Employee's Base Salary shall be
payable during the term of the Agreement in accordance with the Company's
customary payment practices.

                (b)     BONUSES. In addition to Base Salary, the Employee shall
receive:

                        (i)     $25,000 as a sign-on bonus, payable at the time
                                the Employee receives his first payroll check;

                        (ii)    $68,750, payable one (1) year from the date of
                                this Agreement. The sum due to Employee under
                                this section is guaranteed, but will be applied
                                against any additional bonuses provided by the
                                Company to Employee for the calendar year
                                governed by this section;

                        (iii)   $16,000 payable two (2) years from the date of
                                this Agreement. The sum due to Employee under
                                this section is guaranteed, but will be applied
                                against any additional bonuses provided by the
                                Company to Employee for the calendar year
                                governed by this section; and

                        (iv)    $16,000 payable three (3) years from the date of
                                this Agreement. The sum due to Employee under
                                this section is guaranteed, but will be applied
                                against any additional bonuses provided by the
                                Company to Employee for the calendar year
                                governed by this section.

                        (v)     In addition to the above, Employee will be
                                eligible for an annual bonus each year in an
                                amount equal to up to 50% of Employee's Base
                                Salary; provided, however, Employee and the
                                Company achieve certain performance goals
                                including: (i) the performance of the Company
                                based upon performance criteria established by
                                the Board of Directors and reasonably
                                articulated to Employee in advance of the Bonus
                                Year; and (ii) the performance of the Employee
                                in his position as Executive Vice President of
                                Merchandising/Marketing as determined by the
                                Board of Directors and the Chief Executive
                                Officer of the Company, in their sole and
                                absolute discretion.

                (c)     STOCK OPTIONS.

                        (i)     Simultaneously with the execution of this
                                Agreement, the Company hereby grants options to
                                purchase an aggregate amount of One-Hundred
                                Thousand (100,000) shares of the Company's

                                       4
<PAGE>   5

                                common stock, the exercise price of which shall
                                be the price equal to the fair market value of a
                                share of Common Stock on the Effective Date
                                (i.e. $3.40 as of August 7, 2000), provided that
                                the Employee remains in the employ of the
                                Company on each such vesting date.

                        (ii)    The vesting schedule for such Stock Options as
                                follows: (a) 25,000 of the 100,000 shares shall
                                vest one year from the Effective Date; (b) an
                                additional 25,000 of the 100,000 shares shall
                                vest two years from the Effective Date; (c) an
                                additional 25,000 of the 100,000 shares shall
                                vest three years from the Effective Date; and
                                (d) the final 25,000 of the 100,000 shares shall
                                vest four years from the Effective Date;
                                provided however, that Employee remains employed
                                with the Company through the four year period of
                                the respective vesting dates. Nothing in this
                                section should be construed to limit Section
                                2(a).

                        (iii)   Once an option is fully vested, it must be
                                exercised and paid for within ten (10) years
                                from the date the option vested ("Option
                                Period"). Vested Options shall expire on the
                                last day of the Option Period. If, prior to the
                                end of any Option Period, Employee's employment
                                is terminated, whether with or without cause,
                                all options not yet vested on the date of
                                Employee's termination shall expire and,
                                thereupon, be canceled.

                        (iv)    It is intended that all properly exercised
                                options be paid for in full within ten (10)
                                years from the Effective Date. In the event of
                                termination of employment, with or without
                                cause, the Employee must exercise and pay for
                                all vested options within three months from the
                                date his employment was terminated.

                        (v)     It is absolutely understood that what is set
                                forth above is intended only as a general
                                statement regarding the options which shall be
                                issued to the Employee pursuant to the Party
                                City Corporation 1999 Stock Incentive Plan (the
                                "Plan"), which, for all intents and purposes
                                controls. Should there be a contradiction
                                between the terms of this provision and the
                                Plan, the Plan fully and completely controls.

        4.      TERMINATION.

                (a)     TERMINATION WITH CAUSE.

                        (i)     The Company may, at any time during the Term of
                                this Agreement without any prior notice,
                                terminate this Agreement and discharge Employee
                                with Cause, whereupon the severance provisions
                                of

                                       5
<PAGE>   6

                                Section 5(a) shall apply. Nothing in this
                                provision shall be construed to limit or modify
                                the terms of Section 2(a).

                        (ii)    As used herein, the term "Cause" shall be deemed
                                to mean that the Company, acting in good faith,
                                determines that the Employee has committed or
                                engaged in: (a) a material breach by Employee of
                                this Agreement after 30 days' prior notice and
                                an opportunity to cure, within such period, if
                                such breach is capable of being cured; (b)
                                excessive absenteeism, alcoholism or drug abuse;
                                (c) substantial neglect or inattention by
                                Employee of or to his duties hereunder after 30
                                days' prior notice and an opportunity to cure,
                                within such period, if such breach is capable of
                                being cured; (d) willful violation of specific
                                and lawful written or oral direction from the
                                Chief Executive Officer or the Board of
                                Directors of the Company after 30 days' prior
                                notice and an opportunity to cure, within such
                                period, if such breach is capable of being
                                cured; (e) fraud, gross negligence, criminal
                                conduct or embezzlement; (f) sexual or other
                                forms of illegal harassment; (g) conduct that
                                reflects adversely upon, or making any remarks
                                disparaging of, the Company, its Board, officers
                                and directors that is likely to and which does,
                                in fact, have the effect of injuring the
                                reputation, business or a business relationship
                                of the Company; or (h) violation of any
                                fiduciary duty; violation of any duty of
                                loyalty.

                        (iii)   The obligations of the Employee under Section
                                7(a) and 8 herein shall continue notwithstanding
                                termination of the Employee's employment
                                pursuant to this Section 4(a).

                (b)     TERMINATION WITHOUT CAUSE. The Company may, at any time
during the Term, without prior notice, terminate the Agreement and discharge
Employee without Cause whereupon the severance provisions of Section 5(b) shall
apply. The obligations of the Employee under Sections 7(a) and 8 herein shall
continue notwithstanding termination of the Employee's employment pursuant to
this Section.

                (c)     DISABILITY. Should Employee become disabled, as
hereinafter defined, during the Term hereunder, this Agreement and the
Employee's employment with the Company shall terminate upon written notice from
the Company to the Employee, and such termination shall be deemed to be for
Cause. As used herein, the term "disabled" is hereby defined as the

                                       6
<PAGE>   7

inability of Employee by reason of injury, physical or mental illness or other
similar cause, which would cause to be effected the long term disability
coverage of the Company's insurance policy, to perform his duties and
responsibilities in connection with the conduct of the business and affairs of
the Company, in the manner his duties were rendered immediately prior to the
disability, for a continuous period of three months or more, or for an aggregate
period of four months or more in any twelve month period, whether or not
continuous. The Company reserves the right, in good faith, to make the
determination of disability under this Agreement based upon information supplied
by the Employee and/or his medical personnel (or others) selected by the Company
or its insurers. Should the Company desire, it may have the Employee examined by
a physician of its own choice. Nothing in this paragraph is intended to limit or
modify Employee's obligations as set forth in Sections 7(a) and 8 of this
Agreement.

                (d)     DEATH. If Employee dies during the Term of this
Agreement, Employee's employment hereunder shall terminate upon his death and
all obligations of the Company hereunder shall terminate on such date, except
that Employee's estate or his designated beneficiary shall be entitled to
payment of any unpaid, accrued Base Salary and pro-rata bonus, car allowance and
unused vacation pay through the date of his death, pursuant to the terms of
Section 5(b). Nothing in this paragraph is intended to limit or modify
Employee's obligations as set forth in Section 7(a) of this Agreement.

        5.      SEVERANCE.

                (a)     TERMINATION WITH CAUSE: As set forth in Section 2(a),
Employee acknowledges that his employment with the Company is terminable
at-will, with or without cause. In the event the Company terminates the
Employee's employment at any time during the course of his employment with the
Company, with cause, Employee shall be entitled to receive

                                       7
<PAGE>   8

from the Company, in addition to any base salary earned prior to the termination
date, a severance payment in an amount equal to six (6) months of the Employee's
Base Salary applicable at the date of such termination; which amount shall be
paid in biweekly increments during the six (6) month period immediately
following such termination. Nothing in this paragraph is intended to limit or
modify Sections 2(a), 7(a) and 8 of this Agreement.

                (b)     TERMINATION WITHOUT CAUSE. In the event the Employee's
employment hereunder shall be terminated by the Company without cause, as
provided for herein, the Employee will, in addition to the severance payment as
set forth in 5(a) above, additionally be entitled to a continuation of his
health/life benefits and car allowance ($675 per month) for a period of six (6)
months following such termination plus payment for any unused vacation and the
pro-rata portion of any bonus due for that portion of the employment year prior
to the date of termination. In addition, any Stock Options scheduled to vest
within such employment year shall immediately vest. Nothing in this paragraph is
intended to limit or modify Sections 2(a), 7(a) and 8 of this Agreement.

                (c)     CHANGE IN CONTROL. In the event of a Change in Control,
Employee shall receive severance as set forth in 5(b) above. For purposes of
this Agreement, a "Change of Control" shall occur if (i) any person or group of
persons (within the meaning of Section 13 or Section 14 of the Securities
Exchange Act of 1934, as amended) shall acquire (other than directly from the
Company) beneficial ownership (within the meaning of Rule 13d-3 promulgated by
the Securities and Exchange Commission under said Act) of 50% or more of the
outstanding shares of common stock of the company, (ii) during any period of 12
consecutive calendar months, individuals who were directors of the Company on
the first day of such period (or who were appointed or nominated for election as
directors of the Company by at least a majority of the

                                       8
<PAGE>   9

individuals who were directors on the first day of such period or who were so
elected or appointed other than in connection with an actual or threatened proxy
contest) (the "Incumbent Board") shall cease to constitute a majority of the
Board of Directors of the Company, or (iii) there is consummation of a complete
liquidation or dissolution of the Company or a merger, consolidation or sale of
all or substantially all of the Company's assets (collectively, a "Business
Combination") other than a Business Combination in which all or substantially
all of the stockholders of the Company receive 50% or more of the stock of the
company resulting from the Business Combination, at least a majority of the
Board of Directors of the resulting company were members of the Incumbent Board.

                (d)     EXCLUSIVE REMEDY. Employee agrees that the payments
contemplated by this Agreement shall constitute the exclusive and sole remedy
for any termination of his employment and Employee agrees not to assert or
pursue other remedies, at law or in equity, with respect to any termination of
employment.

        6.      EXPENSES.

                (a)     REIMBURSEMENTS. Employee shall be entitled to receive
prompt reimbursement for all reasonable employment expenses incurred by him in
accordance with the policies, practices and procedures of the Company in effect
generally with respect to other executives of the same level of the Company.
Subject to such approval, the Company will reimburse Employee for such expenses
upon presentation of expense statements or vouchers or such other supporting
information as the Company may require and as may be required for tax purposes.

                                       9
<PAGE>   10

                (b)     RELOCATION ASSISTANCE. The Company shall reimburse
Employee for all home search trips including airfare, lodging, car, meals and
other miscellaneous expenses for the Employee, his wife and son, with a maximum
of three such trips. The Company shall also reimburse Employee for additional
relocation costs as follows: (i) home sale costs including a broker's commission
up to 6% and customary fees; (ii) payment of the lesser of the two (2) mortgage
payments for a period not to exceed twelve (12) months, provided the former home
does not sell prior to the closing on the new home; (iii) home purchase costs
including two (2) points, all reasonable and customary fees associated with the
sale of a home, including charges, closing costs and attorneys' fees; (iv) all
reasonable costs associated with moving to a new location, such as utility
installation fees, auto registration; (v) moving costs including packing,
moving, unpacking, temporary storage (if necessary), furniture
disassembly/assembly, installation fees; and (vi) the Company shall also
reimburse Employee for the cost of local housing until such time as the Employee
obtains permanent housing in accordance with the policies, practices and
procedures of the Company in effect generally with respect to other executives
of the same level of the Company; (vi) all reasonable costs associated with
relocating (2) automobiles; (vii) all relocation expenses incurred by the
Employee will be grossed up, for tax effect, and paid on that basis.

        7.      ADDITIONAL BENEFITS.

                (a)     LOAN. The Company will provide to Employee a $50,000
interest-bearing loan (approximately 10% interest), which interest will be
forgiven if Employee remains employed by the Company for three years from the
date of this Agreement. If Employee's employment with the Company is terminated,
whether with or without Cause, prior to three years from the date of this
Agreement, the interest due to Company with respect to said loan will not

                                       10
<PAGE>   11

be forgiven. If Employee is terminated, whether with or without cause, prior to
his repayment of this loan, he shall repay such loan to the Company within six
(6) months from the date employment ceases, together with all interest which may
then be due. Any monies due the Employee at the time employment ceases shall be
applied against the outstanding loan in proportion to the severance payout.
Nothing in this paragraph is intended to limit or otherwise modify Section 2(a)
of this Agreement relating to the Term of this Agreement, which is terminable at
the will of either party, with or without cause.

                (b)     VACATION. The Employee is entitled to three (3) weeks
vacation per year. Employee shall take into consideration the needs of the
Company in establishing vacation periods.

                (c)     AUTOMOBILE ALLOWANCE. The Company shall provide to
Employee an automobile allowance of $675 per month, or reimburse Employee for
such amounts on a monthly basis, in accordance with Company policy.

                (d)     TELEPHONE. The Company will issue the Employee a
cellular telephone, which bills shall be paid by the Company in accordance with
the Company's policy.

                (e)     In addition to the compensation, expenses and other
benefits to be paid herein, Employee will be entitled to all rights and benefits
for which he shall be eligible under any health insurance, dental, 401(k),
incentive, bonus, pension or other extra compensation or "fringe" benefit plan
of the Company now existing or hereafter adopted for the benefit of the
executives or employees generally of the Company.

                                       11
<PAGE>   12

                (f)     The Company agrees to waive any customary waiting period
for the Employee with respect to medical and dental benefit coverage.

                (g)     The Company reserves the right to modify, suspend or
discontinue any and all of the above plans, practices, policies and programs, at
any time, without recourse by Employee, so long as such action is taken
generally with respect to similarly-situated executives of the same level of the
Company.

        8.      PROTECTION OF CONFIDENTIAL INFORMATION. Employee acknowledges
that his position with the Company makes him privy to certain information, which
the Company deems confidential and secrets of its trade. Employee also
acknowledges that such confidential information is critical to the satisfactory
functioning, development and growth of the Company. Based on the foregoing
considerations, Employee agrees that, throughout the term of his employment with
Company, and for a reasonable period of time, thereafter:

                (a)     SECRECY. Employee shall hold in a fiduciary capacity for
the benefit of the Company all secret or confidential information, knowledge or
data relating to the Company or any of its affiliated companies and their
respective businesses. Employee agrees to maintain the strictest confidence all
confidential matters of the Company, including, without limitation, trade
"know-how" and trade secrets, customer lists, pricing policies, sales and
marketing plans, technical processes, financial data, formulae, management,
administrative, production, distribution and sales information, data
specifications and processes, inventions and research projects, and other
business affairs of the Company, and not to disclose them to anyone except (i)
in the course of performing his duties hereunder, (ii) with the express written
consent of the Chief Executive Officer or the Board of Directors of the Company,
(iii) except to the extent such

                                       12
<PAGE>   13

information is already known to the general public, or (iv) to the extent
required by lawful Order of a court of competent jurisdiction.

                (b)     NONCOMPETITION. Employee agrees that at all times while
he is employed by the Company and, regardless of the reason for termination of
his employment or this Agreement, for a period of six (6) months thereafter, he
will not, directly or indirectly, without the prior written consent of the Board
of Directors of the Company:

                        (i)     engage or participate in any business whose
                                products or services are competitive in any
                                material fashion with that of the Company;

                        (ii)    assist or counsel any other person, firm,
                                operation, business entity to do any of the
                                above;

                        (iii)   become employed by a firm, corporation,
                                partnership or joint venture or any other entity
                                which competes in a material fashion with the
                                business of the Company;

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

                (c)     ANTISOLICITATION.

                        (i)     Employee acknowledges that his position with the
                                Company requires the performance of services
                                which are unique and extraordinary in character
                                and places him a position of confidence and
                                trust with the customers and employees of the
                                Company, through which he shall obtain knowledge
                                of the Company's technical information and data
                                and become acquainted with customers and with
                                matters in which the Company has substantial
                                proprietary interests and, therefore, the
                                restrictive covenants set forth above are
                                necessary to protect the Company's legitimate
                                and proprietary business interests, and the
                                Company would not have entered into this
                                Agreement if such covenants were not included
                                herein.

                        (ii)    Employee agrees that during the term of his
                                employment hereunder, and, thereafter for a
                                period of one (1) year, he will not, as a
                                principal, agent, employer, employee,
                                consultant, director or partner of any person,
                                firm, corporation or business entity other

                                       13
<PAGE>   14

                                than the Company, or in any individual capacity,
                                without the prior, express written consent of
                                the Company approach, counsel or attempt to
                                induce any person who is then in the employ of
                                the Company, and who earned annually $30,000 or
                                more as a Company employee, to leave the employ
                                of the Company or attempt to employ any such
                                person or persons who at any time during the
                                preceding six (6) months he was in the employ of
                                the Company.

                (d)     RETURN OF PROPERTY. Employee hereby agrees to deliver
promptly to the Company on termination of his employment, or at any other time
as the Chief Executive Officer or the Board of Directors of the Company may so
request, all memoranda, notes, records, reports, manuals, drawings,
correspondence, records, books, designs, blueprints and any other documents (and
all copies of same) relating to the Company's business, which he may then
possess or have under his control.

                (e)     Employee acknowledges and represents that the
enforcement of the covenants set forth in Section 8 will not prevent Employee
from earning a livelihood or impose undue hardship upon him. The Employee also
acknowledges that his position requires furnishing him with confidential
information and it is reasonable and appropriate that he not divulge this
information to other parties. By approving this Agreement, and becoming a
signatory to it, the Employee is confirming that there is a reasonable and valid
reason that he not divulge this confidential information to any third party who
is in a position to use such information to the detriment of the Company.

                (f)     INJUNCTIVE RELIEF. It is expressly agreed that the
Company will or would suffer material, irreparable injury if the Employee were
to compete with the business of the Company or any subsidiary or affiliate of
the Company in violation of this Agreement for which there is no adequate remedy
at law and that it would not be possible to measure damages for such

                                       14
<PAGE>   15

injury precisely and that, in the event of such a breach or threat thereof, the
Company shall be entitled to a temporary restraining order and/or a preliminary
or permanent injunction, restraining the Employee from engaging in such
prohibited activities or to such other relief as may be required specifically to
enforce any of the covenants contained herein. Employee consents and stipulates
to the entry of such injunctive relief in such a court prohibiting him from
competing with the Company or any subsidiary or affiliate of the Company in
violation of this Agreement. The Employee, therefore, acknowledges that there
would be reasonable basis upon which he could assert a valid objection to the
granting of such relief. Nothing herein shall be construed as prohibiting the
Company from pursuing any other remedies for such breach or threatened breach.
These injunctive remedies are cumulative and in addition to any other rights and
remedies the Company may have, which may include a request for damages if the
facts and circumstances render such relief appropriate.

        9.      ARBITRATION. The Employee acknowledges that he has discussed and
considered the subject of arbitration with the Company and with his attorney.
The Employee also acknowledges that resolving differences and issues through
arbitration is more rapid and less costly than through litigation. Taking all
relevant factors into consideration, therefore, the Parties hereby agree that:

                (a)     Upon request by either party, Employee and Company
hereby agree to submit to final and binding arbitration in Morris County, New
Jersey, in accordance with the rules of the American Arbitration Association
then applicable, any controversy or claim arising out of or relating in any
fashion to their employment relationship, including, among other things and only
by way of example: (i) this Agreement, including, among other things, and only
by way of example, its enforcement, or interpretation, alleged breach, default
or misrepresentation(s) in

                                       15
<PAGE>   16

connection with any of its provisions; (ii) the employment of the Employee,
including the termination thereof; (iii) any Federal, State, and City
antidiscrimination law, including, among others and only by way of example,
claims pursuant to Title VII of the Civil Rights Act, the Americans with
Disabilities Act, the Age Discrimination in Employment Act, or any other similar
laws, rules, or regulations; (iv) and other tort, contractual or statutory
claims.

                (b)     Any party requesting arbitration shall do so within 30
days of the action or omission giving rise to the claim subject to arbitration.

                (c)     Judgment upon the award rendered by the arbitrator may
be entered in any court of competent jurisdiction. In reaching a decision, the
arbitrator shall have no authority to ignore, change, modify, add to or delete
from any provision of this Agreement, but instead is limited solely to
interpreting this Agreement in accordance with the laws of the State of New
Jersey.

                (d)     In the event either party institutes arbitration under
this Agreement, the party prevailing in any such proceeding shall be entitled,
in addition to all other relief, to reasonable attorneys fees and costs relating
to such arbitration.

                (e)     In addition to the foregoing, the Employee fully
understands and recognizes that by agreeing to arbitration, he waives his right
to a jury and such other benefits as may be otherwise available through
litigation.

        10.     NOTICES. All notices, requests, consents and other
communications required or permitted to be given hereunder, shall be in writing
and shall be deemed to have been duly given if delivered personally or sent by
prepaid telegram, telecopy (with confirmation of receipt) or

                                       16
<PAGE>   17

mailed first-class, postage prepaid, by registered or certified mail (notice
sent by telegram or mailed shall be deemed to have been given on the date sent),
to the parties at their respective addresses set forth above or to such other
address as either party shall designate by notice in writing to the other in
accordance herewith.

        11.     GOVERNING LAW. This Agreement shall be governed by and
constructed and enforced in accordance with the local laws of the State of New
Jersey applicable to agreements made and to be performed entirely in New Jersey,
without regard to principles of conflict of laws.

        12.     ENFORCEABILITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.

        13.     COMPLETE AGREEMENT. This Agreement is intended by the parties as
a complete and exclusive statement of the terms of their agreement and
constitutes and contains the entire agreement and final understanding between
the parties concerning Employee's employment with the Company and all other
subject matters addressed herein. This Agreement supercedes and replaces all
prior negotiations and all prior or contemporaneous representations, promises
and agreements, proposed or otherwise, whether written or oral, concerning
Employee's employment with the Company. Any representation, promise or agreement
not specifically included in this Agreement shall not be binding upon or
enforceable against either party.

        14.     CONSTRUCTION. Each party has cooperated in the drafting and
preparation of this Agreement. Hence, in any construction to be made of this
Agreement, the same shall not be

                                       17
<PAGE>   18

construed against any party on the basis that the party was the drafter. The
captions of this Agreement are not part of the provisions herein and shall have
no force and effect.

        15.     ASSIGNABILITY. This Agreement, and Employee's rights and
obligations hereunder, may not be assigned by Employee. The Company may assign
its rights, together with its obligation, herewith in connection with any sale,
transfer or other dispositions of all or substantially all of its business or
assets; in any event the rights and obligation of the Company hereunder shall be
binding on its business or assets.

        16.     AMENDMENTS. This Agreement may be amended, modified, superseded,
canceled, renewed or extended and the terms or covenants hereof may be waived,
only by a written instrument executed by both of the parties hereto. No
superseding instrument, amendment, modification, cancellation, renewal or
extension hereof shall require the consent or approval of any person other than
the parties hereto. The failure of either party at any time or times to require
performance of any provision hereof shall in no matter affect the right at a
later time to enforce the same. No waiver by either party of the breach of any
term or covenant contained in this Agreement, whether by conduct or otherwise,
in any one or more instance, shall be deemed to be, or constructed as, a further
or continuing waiver of any such breach of any other term or covenant contained
in this Agreement.

        17.     REPRESENTATIONS AND WARRANTIES OF THE PARTIES. The Employee
represents and warrants that he is free to enter into this Agreement and assume
the obligations stated therein. The Employee also represents and warrants that
he is under no other implied, actual, statutory and/or common law contractual
obligations and/or any other

                                       18
<PAGE>   19

restrictions that are inconsistent with or would be breached or violated by the
execution of this Agreement and/or the performance of the Employee's duties and
obligations therein.

        18.     LEGAL COUNSEL. The Employee and the Company recognize that this
is a legally binding contract and acknowledge and agree that they have had the
opportunity to consult with legal counsel of their choice.

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

<TABLE>
<CAPTION>
COMPANY                                                        WITNESSED BY:
-------                                                        ------------
<S>                                                            <C>
/s/ James Shea                                                 /s/ Thomas E. Larson, CFO                   8/22/00
----------------------------------                             ---------------------------------------------------
PARTY CITY CORPORATION                                         Name/Title                                  Date

By:  James Shea, CEO       8/22/00                             /s/ Joseph J. Zepf, General Counsel         8/22/00
     -----------------------------                             ---------------------------------------------------
     Name/Title            Date                                Name/Title                                  Date

EMPLOYEE                                                       WITNESSED BY:
--------                                                       ------------

/s/ Andrew Bailen          8/22/00                             /s/ Thomas E. Larson, CFO                   8/22/00
----------------------------------                             ---------------------------------------------------
ANDREW BAILEN              Date                                Name/Title                                  Date

                                                               /s/ Joseph J. Zepf, General Counsel         8/22/00
                                                               ---------------------------------------------------
                                                               Name/Title                                  Date
</TABLE>

                                       19

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