Document:

CONSORTIUM AGREEMENT AMENDMENT 1

         This  Amendment 1 to the Academic  Consortium  Agreement made as of the
3rd day of September 2004 (the "EFFECTIVE  DATE") by and between Sonoma College,
Inc., a California  corporation  having its principal  place of business at 1304
South Point Boulevard,  Suite280,  Petaluma California 95442 ("SONOMA") and Casa
Loma College,  Inc., a California  corporation,  having its  principal  place of
business  at 6850 Van Nuys  Boulevard,  Suite 318,  Van Nuys,  California  91405
("CASA" and  together  with  Sonoma,  the  "PARTIES"  and each  individually,  a
"PARTY").

         WHEREAS each of the Parties has  developed  and  created,  educational,
proprietary   degree  and/or   certificate   programs   (each  a  "PROGRAM"  and
collectively,  "PROGRAMS")  which  incorporate  intellectual  property and other
proprietary  rights of such  Party,  including  without  limitation  Content (as
defined herein); and

         WHEREAS,  Sonoma has  developed  proprietary  technology to deliver its
general educational courses to students which consists of software methodologies
and  other  proprietary  technologies,  methods,  plug-ins,  trade  secrets  and
know-how (the "SONOMA PLATFORM"); and

         WHEREAS,   the  Parties  wish  to  form  an  academic  consortium  (the
"CONSORTIUM") to provide select Sonoma operated  Programs at Casa's campuses and
select Casa  operated  Programs at Sonoma's  campuses in the form of  "satellite
programs" authorized and approved by the State of California's Bureau of Private
Post-secondary Vocation Education ("BPPVE"); and

         WHEREAS, the Parties agree that this Amendment 1 to the Consortium will
focus on  providing  Sonoma's  Associate of Applied  Science  degree in Homeland
Response and Emergency (HREM) program at campuses owned and/or operated by Casa.

         NOW, THEREFORE,  in consideration of the premises, the mutual covenants
and agreements herein contained and other valuable  consideration,  the receipt,
adequacy and sufficiency of which is hereby  acknowledged,  the Parties covenant
and agree as follows:

         I.       DEFINITIONS.

         "CONTENT"  means  text,  pictures,  sound,  graphics,  video  and  data
provided by a Party to the other Party,  as such  materials may be modified from
time to time.

         "INTELLECTUAL  PROPERTY" means any and all now known or hereafter known
tangible  and  intangible:  (a)  rights  associated  with  works  of  authorship
throughout the universe,  including but not limited to copyrights, moral rights,
and mask-works,  (b) trademark,  servicemark,  trade dress and trade name rights
and similar rights,  (c) trade secret rights, (d) patents,  designs,  algorithms
and  other  industrial  property  rights,  and (e) all  other  intellectual  and
industrial property rights (of every kind and nature throughout the universe and
however  designated  (including  without  limitation logos,  "rental" rights and
rights to remuneration), whether arising by operation of law, contract, license,
or otherwise, and all registrations, initial applications, renewals, extensions,
continuations, divisions or reissues hereof now or hereafter in force (including
any rights in any of the foregoing).

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         II.      RESPONSIBILITIES OF THE PARTIES.

                  A. During the Term,  the  Parties  shall  cooperate  with each
other to identify  certain  Programs,  that are  currently  offered by one Party
through its  facilities  but not by the other Party,  that the Parties  mutually
agree would be in their respective best interests to also make available through
the other Party's facilities as a satellite program ("SATELLITE PROGRAM").

                  B. For each Program  identified  pursuant to  Paragraph  II. A
above,  the Parties  shall  complete and sign a separate  Program  specification
(each a "PROGRAM SPECIFICATION" ) which shall reference this Agreement, and each
such  signed  Program  Specification  shall be  attached  as an  Exhibit to this
Agreement and become a part of this Agreement.  It is understood,  however, that
neither Party is obligated to license the use of a Program or any Content to the
other Party until,  unless, and only to the extent that a Program  Specification
is signed by both Parties.

                  C. Each Program  Specification shall describe the Program, the
responsibilities of each of the Parties in connection with the Satellite Program
("RESPONSIBILITIES"),  any  Content,  to be  delivered  to the  other  Party  in
connection  with  the  Satellite  Program  ("DELIVERABLES"),  and the  effective
commencement date for the Satellite Program ("PROGRAM  COMMENCEMENT DATE"). Each
of the Parties  shall use its best efforts to perform its  Responsibilities  and
deliver the  Deliverables  in  accordance  with the  schedules  set forth in the
Program  Specification.  Each party  recognizes that time is of the essence with
respect to all aspects of this agreement and the subject matter hereof.

         III.     GRANT OF LICENSE.

                  A. Subject to the terms and conditions of this Agreement, each
of  the  Parties   shall  grant  the  other  Party  a  limited,   non-exclusive,
non-transferable,  world-wide  license  ("LICENSE")  to use any Content  that it
provides to the other Party  pursuant  to this  Agreement,  solely to the extent
expressly  set forth in the  applicable  Program  Specification  (the  "INTENDED
USE").  All fields of use not  expressly  included  within the  Intended Use are
specifically  excluded  from the scope of the License.  In no event will a Party
remove or alter any  proprietary  notice of the other Party, or any third party,
contained  on or any of the  Content  without the prior  written  consent of the
Party that provided such Content.

         IV.      CONFIDENTIALITY.

                  A. Confidential Information.  "CONFIDENTIAL INFORMATION" shall
include all information and data furnished by one Party to the other, whether in
oral, written,  graphic or machine-readable  form, including without limitation,
code (source and object)  specifications,  user,  operations or systems manuals,
diagrams,  graphs,  models,  sketches,  technical data,  flow charts,  research,
business  or  financial  information,  plans,  strategies,  forecasts,  forecast
assumptions, business practices, marketing information and material, student and
suppliers names and data, proprietary ideas, concepts,  know-how,  methodologies
and all other  information  related  to the  disclosing  party's  business.  For
purposes of this Agreement,  Confidential Information shall not include, and the
obligations provided

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hereunder  shall not  apply to,  information  that:  (a) is now or  subsequently
becomes generally available to the public through no fault of the recipient; (b)
recipient can demonstrate  was rightfully in its possession  prior to disclosure
by the other party; (c) is independently  developed by the recipient without the
use of any Confidential  Information  provided by the other party; (d) recipient
rightfully  obtained or obtains  from a third  party who has the right,  without
obligation to the other party, to transfer or disclose such information;  or (e)
is released or approved for release by the other party without restriction.

                  B. Care and  Protection.  Each party  shall  protect the other
party's  Confidential  Information using at least the same standard of care that
applies  to its  own  similar  Confidential  Information,  but not  less  than a
reasonable standard of care.

                  C.  Exceptions.  Either party may  disclose the other  party's
Confidential  Information as required by any order of any government  authority,
or otherwise  as required by law, or as necessary to establish  and enforce that
party's  rights  under  this  Agreement.  Before  disclosing  the other  party's
Confidential  Information  for such purpose,  reasonable  effort must be made to
notify the other party of the  circumstances,  and the parties  shall  cooperate
with each  other to obtain  protection  for the  confidentiality  thereof to the
extend available.

                  D. Term of Confidentiality. Each party's obligation to protect
the other party's Confidential Information shall expire five (5) years after the
date of each respective disclosure thereof.

                  All of the  provisions of this  paragraph IV shall survive any
termination of this Agreement.

         V.       OWNERSHIP

                  A. Each party  acknowledges  and agrees  that it does not have
any claim,  right,  title or  interest in or to the other  party's  Intellectual
Property except as explicitly provided herein.  Further, each party acknowledges
and agrees that it will use the other party's  Intellectual  Property  solely as
expressly  permitted  under this Agreement and in a manner  consistent  with the
terms and conditions of this Agreement. Nothing contained in this Agreement will
give  either  party  any  right,  title or  interest  in or to any  Intellectual
Property of the other party,  except for the limited  rights  expressly  granted
hereunder.  Each party  acknowledges  and agrees  that the other  party (and its
licensors,  if  applicable)  has  complete  authority  to control the use of its
Intellectual  Property.   Nothing  in  this  Agreement  contemplates  the  joint
development,  joint works of authorship,  or joint ownership of any Intellectual
Property,  and this Agreement  shall not be construed so as to effect such joint
development, joint works of authorship or joint ownership. If the parties desire
to engage in any joint development efforts during the Term, the ownership rights
of such  developments  will be  established in a writing signed by an authorized
member  of each  party and  amended  to this  Agreement.  Without  limiting  the
foregoing,  any  Content  provided by Sonoma to Casa  pursuant to the  Agreement
("SONOMA CONTENT"), the Sonoma Platform and all associated Intellectual Property
rights are, and will remain,  the sole and  exclusive  property of Sonoma or its
third-party licensors,  and no license,  right, title, interest in and/or to the
Sonoma

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Content  or  Sonoma  Platform  is  granted  to Casa  except as set forth in this
Agreement.  Likewise,  any Content  provided  by Casa to Sonoma  pursuant to the
Agreement ("CASA CONTENT") and all associated  intellectual property rights are,
and will remain, the sole and exclusive property of Casa, and no license, right,
title, interest in and/or to the Casa Content is granted to Sonoma except as set
forth in this Agreement.

                  All of the  provisions  of this  paragraph V shall survive any
termination of this Agreement.

         VI.      FEES, PAYMENT AND RELATED MATTERS.

                  A. All tuition and all other fees payable by or on behalf of a
student in  connection  with a Satellite  Program  (collectively,  the  "TUITION
FEES"),  shall be  collected  by the Party  that  maintains  administration  and
academic  oversight of the Satellite Program and associated Program as set forth
in the Program  Specification (the "PROGRAM  ADMINISTRATOR").  The Parties agree
that the Party  collecting  the  Tuition  Fees  shall  pay to the other  Party a
percentage  (the  "FEE  PERCENTAGE")  of the Net Fees  received  by the  Program
Administrator in connection with the Satellite Program, such percentage shall be
mutually  agreed  between the Parties  and set forth in the  applicable  Program
Specification.  "NET FEES"  means the  Tuition  Fees  actually  received  by the
Program Administrator less any applicable taxes, duties,  discounts,  refunds or
credits,  provided  that any  discounts  or credits are in  accordance  with the
Program Administrator's standard policies.

                  B. The Program  Administrator  shall, in its sole  discretion,
determine  the  amount of Tuition  Fee and any other fees that are  payable by a
student enrolled in a Satellite Program;  provided,  however the Tuition Fee and
any other  fees shall be set forth in the  Program  Specification.  The  Program
Administrator  may, in its sole  discretion,  amend the Tuition  Fee;  provided,
however, that it shall not change the Tuition Fee for any academic semester that
has already commenced, and that it shall provide the other Party with sixty (60)
days advance notice, in writing, prior to making any such change.

                  C.  Within  twenty  (20) days  after the end of each  calendar
month  during the Term,  the Program  Administrator  shall  deliver to the other
Party the Fee  Percentage of the Net Fees together with a certificate  of a duly
authorized and responsible employee of the Program  Administrator  setting forth
the Net Fee  calculations  during  such  calendar  month  and any and all  other
information necessary for the determination of Tuition Fees payable to the other
Party under this Agreement.

                  D. The Parties agree to review the Fee Percentage set forth in
each Program  Specification each calendar quarter of the Term. Any amendments to
a Fee  Percentage  shall not be effective  unless it is stated in writing and is
executed on behalf of each Party.

                  E. The Program  Administrator  will keep such  records as will
enable the Fees  payable  hereunder  to be  accurately  determined  by the other
Party.  Such  records  will be retained by the  Program  Administrator  and made
available to auditors selected by the other Party for examination at the request
and at the expense of the other Party during

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reasonable  business  hours at the offices of the Program  Administrator  as set
forth in the Program Specification for a period of at least five (5) years after
the date of the  transactions  to which the  records  relate.  Any  confidential
information  obtained by such  auditors  regarding  the  business of the Program
Administrator  shall be held in strict confidence by such auditors and the other
Party,  except as may be necessary to prosecute an action to collect  Fees.  The
Program shall reimburse the other Party for the costs of such audit if the audit
determines that the Fees due as stated in any such certificate is understated by
more than five percent (5%).

         VII.     WARRANTIES AND COVENANTS.

                  A. Each Party does  hereby  represent  and  warrant  that this
Agreement  has been duly and validly  authorized  and  executed by it and is its
valid and binding obligation.  Each party further warrants that the execution of
this  Agreement  does not,  and with the passage of time,  will not,  materially
conflict  with or  constitute  a breach under any other  agreement,  judgment of
instrument to which it is currently a party or by which it is currently bound.

                  B. Each Party does hereby  represent  and  warrant  that it is
authorized by the state in which its campuses are located to provide each of the
Program(s) and Satellite Program(s) set forth on a Program  Specification in the
manner required by this Agreement.

                  C. Each Party does hereby  represent  and warrant to the other
Party that: (i) it has the right to grant the license to use its Content without
the other Party  directly or indirectly  being  required to pay a royalty to any
third party;  (ii) to the best of its knowledge,  use of its Content or any part
thereof will not infringe upon or violate the  intellectual-property,  publicity
or privacy rights of any third party;  (iii) to its knowledge any of its Content
will not be defamatory,  lewd,  pornographic  or obscene;  (iv) to its knowledge
that its Content will be in compliance  with all  applicable  laws, and will not
violate any laws  regarding  unfair  competition,  anti-discrimination  or false
advertising;  (iv) no claim by any third party  contesting  the  validity of any
intellectual  property  rights  in the  Content  has  been  made,  is  currently
outstanding or, to the best knowledge of the Party, is threatened, and the Party
has not  received  any  notice  of and is not aware of any fact  indicating  any
infringement,  misappropriation  or  violation  by  others  of any  intellectual
property  rights in its  Content;  (v) to its  knowledge  its  Content  will not
contain any virus, worm, "trojan horse",  time bomb or similar  contaminating or
destructive  feature  ; and  (vi) it will not  knowingly  infringe  the  patent,
copyright or other proprietary rights in the other Party's Content nor knowingly
assist others in doing so.

                  D. EXCEPT AS STATED  HEREIN,  THE SONOMA  PLATFORM IS LICENSED
AS-IS.  IT IS UNDERSTOOD  THAT SONOMA IS NOT MAKING AND EXPRESSLY  DISCLAIMS ANY
REPRESENTATIONS  OR WARRANTIES  THAT THE USE OF ANY OTHER PRODUCT MADE BY OR FOR
CASA,  EXCEPT THAT "THE SONOMA  PLATFORM" AS CONTAINED IN THE  DELIVERABLES  AND
STANDING ALONE, WILL NOT INFRINGE THE PATENTS,  COPYRIGHTS,  TRADEMARKS OR OTHER
PROPRIETARY PROPERTY RIGHTS OF ANY THIRD PARTY.

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                  E. EXCEPT AS STATED HEREIN, EACH PARTY EXPRESSLY DISCLAIMS ANY
AND ALL  WARRANTIES  OR  GUARANTEES OF ANY KIND  WHATSOEVER,  EITHER  EXPRESS OR
IMPLIED,  INCLUDING  WITHOUT  LIMITATION  ANY WARRANTIES OF  MERCHANTABILITY  OR
FITNESS FOR A PARTICULAR PURPOSE.

                  F.  REGARDLESS  OF  WHETHER  ANY  REMEDY  HEREIN  FAILS OF ITS
ESSENTIAL  PURPOSE,  IN NO EVENT WILL EITHER PARTY BE LIABLE FOR ANY INCIDENTAL,
SPECIAL,  EXEMPLARY,  PUNITIVE, INDIRECT OR CONSEQUENTIAL DAMAGES ARISING OUT OF
OR  RELATING  IN ANY WAY TO THIS  AGREEMENT,  THE CONTENT OR THE USE OF THE SAME
(INCLUDING, WITHOUT LIMITATION, DAMAGES FOR LOST INFORMATION, LOST SAVINGS, LOST
PROFITS OR  BUSINESS  INTERRUPTION),  EVEN IF SUCH PARTY HAS BEEN  INFORMED,  IS
AWARE, OR SHOULD BE OR HAS BEEN AWARE, OF THE POSSIBILITY OF SUCH DAMAGES.

                  All of the  provisions of this paragraph VII shall survive any
termination of this Agreement.

         VIII.    INDEMNIFICATION.

                  A.  GENERAL.  Each party agrees to indemnify and hold harmless
the  other  and its  affiliates,  and  their  respective  officers,  agents  and
employees,  from and against any and all loss,  liability and expense (including
reasonable  attorneys'  fees)  suffered or incurred  (collectively  "DAMAGES")by
reason of any third party claims,  proceedings  or suits based on or arising out
of: (i) breach of its  representations  and  warranties  hereunder,  or (ii) any
claim for  infringement  of any third party  patent,  copyright,  trade  secret,
trademark or other proprietary right.  Indemnification shall apply provided that
the  party  seeking  indemnification  has given the  indemnifying  party  prompt
written notice of any such claim,  permits the indemnifying  party to defend the
claim and have  sole  control  over  such  defense,  including  appeals  and all
negotiations  to  affect  settlement,  and  gives  the  indemnifying  party  all
available information and assistance as is reasonably necessary for the defense.

                  B. REMEDIES.  If either party  believes that any  Intellectual
Property licensed or provided under this Agreement has become, or in the opinion
of such party may  become,  the subject of a claim for  infringement,  the party
may, at its election  and expense:  (i) procure for the other party the right to
continue  using the same,  or (ii) replace or modify the same so that it becomes
non-infringing.  The party shall elect one of the above remedies in the event of
a  preliminary  or permanent  court order  prohibiting  use of the  Intellectual
Property on a temporary or  permanent  basis.  This section  states each party's
entire right and liability  and sole and  exclusive  remedies with regard to any
intellectual property infringement.

                  All of the provisions of this paragraph VIII shall survive any
termination of this Agreement.

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         IX.      TERM AND TERMINATION.

                  A. Term. The term of this  Agreement  shall be for a period of
two (2) years from the Effective Date (the "INITIAL  TERM").  Upon expiration of
the Initial Term,  this Agreement  shall renew for successive two (2) year terms
unless  either  Party shall give the other  notice of its desire not to so renew
the  term  no  less  than  ninety  (90)  days  prior  to the  expiration  of the
then-current  two (2) year term (the Initial  Term and each such  renewal  term,
collectively, the "TERM").

                  B.  Termination  for Cause.  Either party may  terminate  this
Agreement during the Term as follows:

                      (i) in the event of a breach by the other  Party of any of
material term  (including  obligation to pay) of this Agreement if the breaching
Party fails to correct or cure the breach  within thirty (30) days after receipt
of written  notice  stating the nature of the breach,  the  non-breaching  Party
shall have the option to: (i) continue this Agreement  until the end of the then
current student term; or (ii) immediately terminate this Agreement.

                      (ii) the other Party is declared insolvent or bankrupt, or
makes an  assignment  of  substantially  all of its  assets  for the  benefit of
creditors,  or a receiver is appointed or any  proceeding is demanded by, for or
against the other party under any provision of the federal Bankruptcy Act or any
amendment to that Act that is not terminated within thirty (30) days.

                  C.  Effect of  Termination  for Cause.  Upon  Termination  for
Cause,  the terminated  Party shall indemnify the other Party for any Damages by
reason arising out of such parties breach or insolvency.

                  D. Effect of  Expiration  of the Term or  Termination  without
Cause.  Upon termination or expiration of the Term for any reason other than for
Cause,  all rights and  obligations of the parties under this Agreement shall be
extinguished,  except that: (a) all accrued payment obligations  hereunder shall
survive  such  termination  or  expiration;  and (b) any  provisions  which must
survive in order to give effect to their meaning,  shall survive the completion,
expiration, termination or cancellation of this Agreement.

                  E.  Within  ten  (10)  days  of the  date  of  termination  or
expiration  of this  Agreement,  each Party shall  return to the other Party any
Deliverables received by such Party pursuant to this Agreement or otherwise.

         X.       MARKETING

                  A. Press  Release.  The Parties will  jointly  develop a press
release  announcing  this  Agreement and the activities  contemplated  hereunder
which shall be issued at a time  mutually  determined  by the Parties.  Prior to
issuance of this  initial  press  release,  neither  party shall issue any press
release on its own or make any public  statement,  written,  oral, or otherwise,
regarding this Agreement and the activities contemplated hereunder,  without the
other Party's prior written approval.

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                  B. Marketing. Following issuance of the initial press release,
each party has the right to  indicate  publicly  that it has  entered  into this
Agreement  and may  promote the other  Party on its  respective  Web site and in
marketing materials,  provided that each party will submit such materials to the
other  Party for prior  approval,  which shall not be  unreasonably  withheld or
delayed.  The parties may also jointly engage in public relations,  trade shows,
trade  associations and other marketing  activities in support of the launch and
ongoing promotion of this Agreement as they mutually determine.

         XI.      MISCELLANEOUS.

                  A. Any assignment by the Licensee requires the written consent
of the  Licensor.  Any transfer by the  Licensor of the rights  licensed in this
Agreement  shall be subject to all  provisions of the present  Agreement and the
Licensor shall so notify the Licensee.

                  B. The headings and captions  used in this  Agreement  are for
convenience only and are not to be used in the interpretation of this Agreement.

                  C. The failure of either Party to require  performance  of any
provision of this Agreement shall not affect the right to  subsequently  require
the performance of such or any other provision of this Agreement.  The waiver of
either Party of a breach of any provision  shall not be deemed to be a waiver of
any subsequent  breach of that  provision or any subsequent  breach of any other
provision of this Agreement.

                  D. The Parties are  independent  contractors and engage in the
operation  of their own  respective  businesses.  Neither  Party is the agent or
employee  of the  other  Party  for  any  purpose  whatsoever.  Nothing  in this
Agreement shall be construed to establish a relationship of co-partners or joint
venturers between the two Parties. Neither Party has the authority to enter into
any  contract  or to assume any  obligation  for the other  Party or to make any
warranties or representations on behalf of the other Party.

                  E. If any provision of this  Agreement is, or is determined to
be,  invalid,  illegal  or  unenforceable,  all  remaining  provisions  of  this
Agreement shall  nevertheless  remain in full force and effect, and no provision
of this  Agreement  shall  be  deemed  to be  dependent  upon any  provision  so
determined to be invalid,  illegal or unenforceable  unless otherwise  expressly
provided for herein.  Should any provision of this Agreement be found or held to
be invalid, illegal or unenforceable,  in whole or in part, such provision shall
be deemed  amended to render it  enforceable  in accordance  with the spirit and
intent of this Agreement

                  F. This  Agreement has been entered into,  delivered and is to
be governed by, construed,  interpreted and enforced in accordance with the laws
of  the  State  of  California   (without  giving   reference  to  choice-of-law
provisions) from time to time in effect.

                  G. If a dispute arises out of or relates to this Agreement and
if said dispute cannot be settled through direct discussions,  the Parties agree
to first  endeavor  to settle the  dispute in an  amicable  manner by  mediation
administered  by the  American

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Arbitration  Association under its commercial  mediation rules of JAMS/Endispute
("JAMS"), with the following exceptions if in conflict: (a) one arbitrator shall
be chosen by JAMS; (b) each party to the arbitration will pay its pro rata share
of the expenses and fees of the arbitrator,  together with other expenses of the
arbitration  incurred or approved by the  arbitrator;  and (c)  arbitration  may
proceed in the  absence of any party if written  notice  (pursuant  to the JAMS'
rules and  regulations)  of the  proceedings  has been given to such party.  The
parties agree to abide by all decisions and awards rendered in such proceedings.
Such  decisions  and  awards  rendered  by the  arbitrator  shall be  final  and
conclusive  and may be entered  in any court  having  jurisdiction  thereof as a
basis of judgment  and of the  issuance of  execution  for its  collection.  The
Parties hereby consent to the  non-exclusive  jurisdiction  of the courts of the
State  of  California  or to any  Federal  Court  located  within  the  State of
California  for any action arising out of,  relating to, or in connection  with,
this Agreement, and to service of process in any such action by registered mail,
return receipt requested, or by any other means provided by law. Notwithstanding
anything  contained  herein  to the  contrary,  in the  event of an  arbitration
proceeding or litigation  brought  pursuant to the terms of this Agreement,  the
prevailing  Party shall be entitled to recover all costs of such  proceeding  or
litigation (including reasonable attorney fees) from the other Party.

                  H. This Agreement contains the entire and exclusive  agreement
of the Parties with respect to its subject matter. This Agreement supersedes any
agreements  and  understandings,  whether  written or oral,  entered into by the
Parties  prior to its  effective  date and  relating to its subject  matter.  No
modification  or amendment  of this  Agreement  shall be effective  unless it is
stated in writing,  specifically refers hereto and is executed on behalf of each
Party.

                  I. Any  notices  required to be given or  delivered  to either
party under the terms of this  Agreement will be in writing and addressed to the
party at the address and telephone  number indicated below or such other address
or telephone number as the party may designate,  in writing,  from time to time.
All notices  will be deemed to have been given or delivered  upon:  (i) personal
delivery;  (ii) two (2)  business  days after  deposit  with any return  receipt
express courier (prepaid);  or (iii) one (1) business day after transmission and
confirmed receipt by telecopier.

         If to Sonoma:

         1304 South Point Blvd.
         Suite 280
         Petaluma, CA 94954
         Attention: John Stalcup, President

         Fax: (707) 283-0808

         If to Casa:

         6850 Van Nuys Blvd., #318
         Van Nuys, CA 91405
         Attention: Greg Malone, CEO

         Fax: (818) 785-2191

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                  J. Except for failures to make any payment  when due,  neither
Party  hereto  shall be liable to the other for  failure or delay in meeting any
obligations  hereunder  as the result of strikes,  lockouts,  war,  Acts of God,
fire, flood or acts of government, if beyond the control of such Party.

                  K. This Agreement may be executed in two or more counterparts,
each of which  shall be  deemed  an  original  and all of which  together  shall
constitute one instrument.

         IN WITNESS  WHEREOF,  the Parties  hereto have set their hands by their
duly authorized representatives as of the day and year first above written.

Sonoma College, Inc                        Casa Loma College, Inc.

By: /s/                                    By: /s/
   ----------------------------------         ----------------------------------
    Name: John Stalcup                         Name: Greg Malone
    Title: President                           Title: Chief Executive Officer

                                      A-10EX-10.1:

 

Exhibit 10.1

EMPLOYMENT AGREEMENT

     THIS EMPLOYMENT AGREEMENT (the “Agreement”), dated as of December 23,
2004, is made and entered into by and between Party City Corporation, a
Delaware corporation (the “Company”), and Nancy Pedot (the “Executive”).

     WHEREAS, the Company wishes to employ the Executive, and the Executive
wishes to serve the Company, in the capacities and on the terms and conditions
set forth in this Agreement;

     NOW, THEREFORE, it is hereby agreed as follows:

     1. Employment.

          (a) Agreement to Employ. Upon the terms and subject to the conditions of
this Agreement, the Company hereby agrees to employ the Executive and the
Executive hereby agrees to accept her employment by the Company.

          (b) Employment Period. The Company shall employ the Executive and the
Executive shall serve the Company, on the terms and conditions set forth
herein, for an initial term of employment commencing on January 12, 2004 (the
“Commencement Date”) and ending on January 11, 2007 (the “Initial Period”);
provided, that (i) the Executive’s term of employment will automatically be
extended for successive one year periods thereafter upon the terms and
conditions set forth herein (each, an “Extension Period” and, collectively with
the Initial Period, the “Employment Period”), 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 Initial Period or any
Extension Period, and (ii) the Employment Period may be terminated earlier as
provided hereinafter.

     2. Duties. During the Employment Period, the Executive shall serve as
Chief Executive Officer of the Company. The Executive shall report to the
Company’s Board of Directors (the “Board”) and shall liaison with the Company’s
Chairman of the Board on a consistent basis. The Executive shall have such
duties and responsibilities as are consistent with and customarily assigned to
her position with the Company as determined by the Board. The Executive shall
also have such other duties and responsibilities consistent with and
customarily assigned to her position with the Company as may from time to time
be assigned to her by the Board. During the Employment Period, the Executive
shall devote her full attention and time to the business and affairs of the
Company and shall carry out such duties and responsibilities faithfully and to
the best of her ability. Notwithstanding anything herein to the contrary, it
is expressly understood and agreed that the Executive may continue to
participate in charitable activities so long as such activities do not
unreasonably interfere with her responsibilities as the Company’s Chief
Executive Officer. The Executive may serve on the boards of other for-profit
companies only with the prior written approval of the Board. Additionally, the
Executive shall inform the Board as to the timing of the Executive’s transition
off of the Petsmart board.

     3. Salary. For the services rendered by the Executive hereunder and
during the
Employment Period, the Company shall pay to the Executive as compensation,
subject to any applicable withholding and deductions, a minimum annual base
salary of $500,000 (the “Base

 

 

Salary”). In addition, in consideration for the
Executive’s agreement to abide by the provisions of Paragraph 8 herein, the
Company shall pay to the Executive, subject to any applicable withholding and
deductions, an annual stipend of $100,000 (the “Restrictive Covenant Stipend”)
(the Base Salary and the Restrictive Covenant Stipend hereafter referred to as
the “Salary”). The Salary shall be subject to annual review and increase at
the direction of the Board. The Salary shall be payable in accordance with the
Company’s regular payroll practice for its senior executives, as in effect from
time to time.

     4. Incentive Compensation. (i) In addition to Salary, the Executive shall
be entitled to earn an annual bonus for each full Fiscal Year (as defined
below) of the Company during the Employment Period pursuant to the Company’s
annual incentive bonus plan as in effect from time to time and based on
attaining certain performance objectives thereunder (the “Performance Bonus”).
The target amount of the Performance Bonus for each Fiscal Year during the
Employment Period shall be sixty percent (60%) of the Executive’s Salary, at
the rate in effect as of the last day of the Fiscal Year for which such bonus
is paid. The actual Performance Bonus may be more or less than 60% of Salary,
based on actual performance according to the reasonable performance objectives
established by the Compensation Committee of the Board. The Executive and
Company hereby agree that the Executive has been paid the Performance Bonus
for Fiscal Year ending July 3, 2004. The performance objectives for subsequent
periods under this Agreement shall be established by the Compensation Committee
of the Board. The actual amount of the Performance Bonus for any Fiscal Year
shall be payable no later than forty-five (45) days after completion of the
Company’s audited financial statements. For purposes of this Agreement,
“Fiscal Year” means each twelve month period ending on or about June 30 or such
other date as hereinafter adopted. .

     (ii) Stock Options. The Executive shall be granted on the
Commencement Date, nonqualified stock options (the “Stock Options”) to
acquire 600,000 shares of common stock of the Company, $0.01 par value
per share (the “Common Stock”), at an exercise price per share equal to
$12.34. The Stock Options shall have a term of ten years from the date
of grant and shall vest and become exercisable on the following dates
(each such date, a “Vesting Date”):

     150,000 Stock Options shall vest and become fully exercisable on
January 12, 2004, provided the Executive is employed by the Company on
such date;

     150,000 Stock Options shall vest and become fully exercisable on
January 12, 2005, provided the Executive is employed by the Company on
such date;

     150,000 Stock Options shall vest and become fully exercisable on
January 12, 2006, provided the Executive is employed by the Company on
such date; and

     150,000 Stock Options shall vest and become fully exercisable on
January 11, 2007, provided the Executive remained employed by the Company
through January 11, 2007.

In addition, the Executive may be entitled to additional stock options to be
granted at the discretion of the Compensation Committee of the Board.

-2-

 

     Notwithstanding anything herein to the contrary, it is expressly
understood and agreed that in the event that the Executive’s employment is
terminated prior to a Vesting Date either by the Company without Cause (as
defined below) or by the Executive for Good Reason (as defined below) then, a
“pro-rata portion” of the 150,000 Stock Options that would have otherwise
vested if the Executive had remained employed through the Vesting Date
immediately following the effective date of such termination and a “pro-rata
portion” of any other stock options granted by the Company to the Executive
that are otherwise scheduled to vest in the twelve (12) month period following
the termination date shall immediately vest and become fully exercisable and
shall remain exercisable in accordance with the post-employment exercise terms
applicable to other senior executives of the Company generally. For purposes
of this paragraph “pro-rata portion” shall mean that number equal to the
product of (A) the total number of options otherwise subject to vesting on such
Vesting Date, and (B) the ratio of (x) the number of days elapsed between the
Vesting Date immediately prior to the effective date of termination and such
date of termination, to (y) the number 365.

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

     (iv) 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 $675.00 per month.

     5. Benefit Plans. The Executive shall be eligible to participate in any
health insurance plan, dental insurance plan, retirement plan, fringe benefit
plan, or other employee benefit plan generally made available by the Company to
all employees or to other executive officers of the Company in the same class
as the Executive. Participation in any such plan or program shall be subject
to the terms and conditions of such plan, including any waiting periods and/or
eligibility requirements thereunder.

     6. Reimbursement of Expenses. During the Employment Period, the Executive
shall be entitled to receive prompt reimbursement for all reasonable expenses
incurred by her in performing services hereunder, in accordance with the
Company’s policies and procedures established for reimbursement of expenses of
executive officers in the same class as the Executive. Reimbursement shall be
subject to prompt presentation by the Executive of expense statements, receipts
or such other supporting information as the Company may require or as may be
required for tax purposes.

     7. Termination of Employment.

          (a) Termination of the Employment Period. Notwithstanding Paragraph 1(b),
the Company reserves the right at any time during the Employment Period to
terminate the Executive’s employment with or without Cause. The Employment
Period shall end upon the earliest to occur of (i) the Executive’s death or a
termination of the Executive’s employment by the Company due to Disability (as
defined below), (ii) a termination of the Executive’s employment by the Company
for Cause, (iii) a termination of the Executive’s employment by the Company
without Cause, (iv) a termination by the Executive of her employment with the
Company for Good Reason, (v) a resignation by the Executive other than for Good
Reason;

-3-

 

provided, that the Executive shall provide the Company with at least 30
days’ prior written notice of such resignation, or (vi) the end of the
Employment Period in accordance with the non-renewal notice provisions of
Paragraph 1(b).

          (b) Benefits Payable Upon Termination.

               (i) In the event of the termination of the Executive’s employment on
account of the Executive’s death, the termination of the Executive’s
employment by the Company due to Disability, the Executive’s resignation
other than for Good Reason upon at least 30 days’ prior written notice,
the Company’s termination of the Executive’s employment for Cause, the
Company shall pay to the Executive, or the Executive’s estate in the
event of her death, in a lump sum within ten business days following the
termination of employment, all earned but unpaid Salary at the rate then
in effect and the amount of an earned but unpaid Performance Bonus in
respect of the most recently completed Fiscal Year prior to the date of
termination of employment; provided, however, that, any Performance Bonus
will be determined by reference to the terms of the Company’s respective
bonus or performance-based compensation plans or programs, if any, or, if
not set forth therein, as determined by the Company in its sole
discretion (such earned but unpaid Salary and Performance Bonus hereafter
referred to as “Earned Compensation”). Notwithstanding anything herein
to the contrary, if the EBITDA Targets are met with respect to the Fiscal
Year in which occurs the date of termination of employment, the Executive
shall be entitled to that portion, if any, of the Performance Bonus that
would otherwise be payable with respect to such Fiscal Year as set forth
below:

	 	(a)	 	If the date of termination is on or
after the last day of the eighth full month in such
Fiscal Year, the Executive shall be entitled to 100% of
the otherwise payable Performance Bonus.
	 
	 	(b)	 	If the date of termination is prior
to the last day of the eighth full month in such Fiscal
Year, the Executive shall be entitled to amount equal to
the product of (A) the amount of the Performance Bonus
that would otherwise be payable, and (B) the ratio of
(x) the number of full months in such Fiscal Year ending
on or prior to the date of termination, over (y) the
number 12.

              (ii) In the event of the termination of the Executive’s employment
by the Company without Cause, the end (without further extension) of the
Employment
Period effective after January 11, 2008, or a termination by the
Executive of her employment with the Company for Good Reason, the Company
shall (A) pay to the Executive, in a lump sum within 10 business days
following such termination, all Earned Compensation and (B) continue to
pay or provide the Executive’s then-existing Salary and those medical and
dental benefits provided to senior employees of the Company, in
accordance with the Company’s regular payroll practices, until the 52
week period immediately following such termination. Notwithstanding
anything herein to the contrary, if the EBITDA Targets are met with
respect to the Fiscal Year in which occurs

-4-

 

the date of termination of
employment, the Executive shall be entitled to that portion, if any, of
the Performance Bonus that would otherwise be payable with respect to
such Fiscal Year as set forth below:

	 	(a)	 	If the date of termination is on or
after the last day of the eighth full month in such
Fiscal Year, the Executive shall be entitled to 100% of
the otherwise payable Performance Bonus.
	 
	 	(b)	 	If the date of termination is prior
to the last day of the eighth full month in such Fiscal
Year, the Executive shall be entitled to amount equal to
the product of (A) the amount of the Performance Bonus
that would otherwise be payable, and (B) the ratio of
(x) the number of full months in such Fiscal Year ending
on or prior to the date of termination, over (y) the
number 12.

            (iii) In the event of the end (without further extension) of the
Employment Period effective on or before January 11, 2008 by reason of
non-renewal by the Company or the Executive, the Company shall (A) pay to
the Executive, in a lump sum within 10 business days following such
termination, all Earned Compensation and (B) continue to pay or provide
the Executive’s then-existing Salary and those medical and dental
benefits provided to senior employees of the Company, in accordance with
the Company’s regular payroll practices, until the end of the 26 week
period immediately following such termination. Notwithstanding anything
herein to the contrary, if the EBITDA Targets are met with respect to the
Fiscal Year in which occurs the date of termination of employment, the
Executive shall be entitled to that portion, if any, of the Performance
Bonus that would otherwise be payable with respect to such Fiscal Year as
set forth below:

	 	(a)	 	If the date of termination is on or
after the last day of the eighth full month in such
Fiscal Year, the Executive shall be entitled to 100% of
the otherwise payable Performance Bonus.
	 
	 	(b)	 	If the date of termination is prior
to the last day of the eighth full month in such Fiscal
Year, the Executive shall be entitled to amount equal to
the product of (A) the amount of the Performance Bonus
that would otherwise be payable, and (B) the ratio of
(x) the
number of full months in such Fiscal Year ending on or
prior to the date of termination, over (y) the number
12.

          (c) Notwithstanding anything herein to the contrary, to the degree that a
Performance Bonus cannot be calculated because the achievement of the
performance objectives applicable to such Performance Bonus cannot yet be
determined then payment of the earned Performance Bonus shall occur in a lump
sum within 10 business days following the date on which such performance goals
are calculated.

          (d) Definitions. For the purposes of this Agreement the following
capitalized terms shall have the following meanings:

-5-

 

               (i) “Cause” shall mean any of the following: (A) fraud, personal
dishonesty, embezzlement or acts of gross negligence or gross misconduct
on the part of the Executive in the course of her employment; (B) a
material breach of the Executive’s fiduciary duty of loyalty to the
Company; (C) a material breach of this Agreement by the Executive that is
injurious to the Company; (D) the Executive’s conviction of or a plea of
guilty or nolo contendere to (x) a felony, or (y) any other crime (other
than minor traffic violations) which could reasonably be expected to
have, or which actually has, a material adverse financial impact on the
Company or a material adverse impact on the Company’s reputation and
standing in the community; (E) use of alcohol, narcotics or other
controlled substances by the Executive which is, or could reasonably be
expected to become, materially injurious to the reputation or business of
the Company or which materially impairs, or could reasonably be expected
to materially impair, the performance of the Executive’s duties
hereunder; (F) any material breach of Paragraph 8 hereunder; or (G)
willful failure by the Executive to follow the lawful written directions
of the Board.

               (ii) “Good Reason” shall mean any of the following: (A) the
assignment to the Executive of any duties inconsistent with her status as
the Chief Executive Officer of the Company; (B) the failure to re-elect
the Executive to the Board, or her dismissal from the Board other than as
a result of events which entitle the Company to terminate her for Cause;
(C) the reduction (without the Executive’s written consent) of the
Executive’s annual Salary as in effect on the Commencement Date or as the
same may be increased from time to time; (D) the relocation (without the
Executive’s written consent) of the Company’s headquarters from Rockaway,
NJ to a location beyond a 50-mile radius of New York City or requiring
the Executive to be based anywhere other than Rockaway, NJ or a location
within a 50-mile radius of New York City, except for required travel
consistent with the terms herein; (E) the failure by the Company, after
written notice and a reasonable opportunity by the Company to cure, to
pay to the Executive any portion of her Salary, bonus or vest any of her
stock options when due; (F) a material breach of this Agreement by the
Company after written notice and a reasonable opportunity by the Company
to cure; or (G) the occurrence of a Change in Control provided that the
Executive must tender her resignation within 30 days of such Change in
Control for such Change in Control to constitute “Good Reason.”

               (iii) “Disability” shall mean the Executive’s inability to perform
the material duties required of her by the Company and historically
performed by her due to a mental or physical illness or incapacity for a
period of three consecutive months or for shorter periods aggregating
four months during any twelve-month period.

               (iv) “Change in Control” shall mean:

	 	(1)	 	The acquisition by any individual,
entity or group (within the meaning of Section 13(d)(3)
of 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

-6-

 

	 	 	 	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 Paragraph
7(d)(iv), 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. §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 Paragraph 7(d)(iv)(2),
or (D) any acquisition by any entity in which the
Executive has a direct or indirect equity interest of
greater than five percent; or
	 
	 	(2)	 	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 imitation, 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, and (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

-7-

 

	 	 	 	purpose such common stock or interests issuable upon the
exercise of options or warrants, the conversion of
convertible stock, interests or 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
“Continuing Directors,” where “Continuing Director” means
(i) any member of the Board as of the Commencement Date
and (ii) any person who subsequently becomes a member of
the Board whose election or nomination for election is
recommended by a majority of the Continuing Directors; or
	 
	 	(3)	 	Approval by the shareholders or
equityholders of the Company of a complete liquidation
or dissolution of the Company.

     (e) Full Discharge of Company Obligations. The amounts payable to
the Executive pursuant to this Paragraph 7 and the vesting of her Stock
Options as provided in Paragraph 4(ii) herein following termination of
her employment shall be in full and complete satisfaction of the
Executive’s rights under this Agreement and any other claims she may have
in respect of her employment by the Company or any of its subsidiaries.
Such amounts and vesting of Stock Options shall constitute liquidated
damages with respect to any and all such rights and claims and, upon the
commencement of the Executive’s receipt of such amounts and vesting of
Stock Options, and contingent on the full payment of such amounts and
vesting of Stock Options, the Company shall be released and discharged
from any and all liability to the Executive in connection with this
Agreement or otherwise in connection with the Executive’s employment with
the Company and its subsidiaries. The Executive agrees to enter into a
release and waiver of claims agreement satisfactory to the Company at the
time of the Executive’s termination
of employment in order to implement the purpose of this Paragraph 7
(e).

       8. Restrictive Covenants. By and in consideration of the Restrictive
Covenant Stipend and Base Salary and other benefits to be provided by the
Company hereunder, the Executive agrees that:

          (a) Noncompetition. During the Employment Period and during the six month
period following termination of the Executive’s employment for any reason (the
“Restriction Period”), the Executive shall not, directly or indirectly, whether
as a principal, partner, employee, agent, consultant, shareholder (other than
shares purchased prior to the effective date of this Agreement or as a holder,
or a member of a group which is a holder, of not in excess of five percent (5%)
of the outstanding voting shares of any publicly traded company) or in any
other relationship or capacity be affiliated with any business corporation,
partnership, enterprise or entity in any geographic area, which competes with
the Company’s Business (as defined below). For purposes of this Agreement, the
“Company’s Business” at any time means

-8-

 

the sale of party goods, including
costumes, and any other line of business which the Company or any of its
subsidiaries (collectively, the “Company Group”) is engaged in or has
substantial plans to become engaged in at the time.

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

          (c) Nonsolicitation of Employees. During the Employment Period and for a
twelve (12) month period following the termination of Executive’s employment
for any reason, the Executive shall not directly or indirectly solicit,
encourage or induce any employee of the Company Group to terminate employment
with the Company Group, and shall not directly or
indirectly, either individually or as owner, agent, employee, consultant
or otherwise, offer employment to any person who is or was employed by the
Company Group unless such person shall have ceased to be employed by the
Company Group for a period of at least six months.

          (d) Company Property. Except as expressly provided herein, at the time of
the Executive’s termination of employment or at any other time as the Board may
request, the Executive shall return to the Company all property of the Company
Group, including any credit cards, keys or entry cards, automobile and other
machinery, all computers, cell phones or other electronic equipment and all
memoranda, notes, records, reports, manuals, drawings and blueprints, including
electronic versions, concerning the Company’s Business (and all copies thereof)
in the Executive’s possession or under her control.

          (e) Developments the Property of the Company. All discoveries,
inventions, ideas, technology, formulas, designs, software, programs,
algorithms, products, systems, applications, processes, procedures, methods and
improvements and enhancements conceived, developed or otherwise made or created
or produced by the Executive alone or with others, and

-9-

 

in any way relating to
the Company’s Business, whether or not subject to patent, copyright or other
protection and whether or not reduced to tangible form, at any time during the
Employment Period (“Developments”), shall be the sole and exclusive property of
the Company. The Executive agrees to, and hereby does, assign to the Company,
without any further consideration, all of the Executive’s right, title and
interest throughout the world in, and to, all Developments. The Executive
agrees that all such Developments that are copyrightable may constitute works
made for hire under the copyright laws of the United States and, as such,
acknowledges that the Company is the author of such Developments and owns all
of the rights comprised in the copyright of such Developments and the Executive
hereby assigns to the Company without any further consideration all of the
rights comprised in the copyright and other proprietary rights the Executive
may have in such Developments to the extent that it might not be considered a
work made for hire. The Executive shall make and maintain adequate and current
written records of all Developments and shall disclose all Developments fully,
and in writing, to the Company promptly after the development of same, and at
any time upon request.

          (f) Protection of Legitimate Business Interests. The Executive
acknowledges that (i) the Executive’s position with the Company requires the
performance of services which are special, unique and extraordinary in
character and places her in a position of confidence and trust with the
customers and employees of the Company, through which, among other things, she
will obtain knowledge of the Company’s technical information and know-how and
become acquainted with its customers, in which matters the Company has
substantial proprietary interests, (ii) the restrictive covenants in this
Paragraph 8 are necessary in order to protect and maintain such proprietary
interests and other legitimate business interests of the Company, and (iii) the
Company would not have entered into this Agreement unless such covenants were
included herein.

          (g) Injunctive Relief and Other Remedies with Respect to Covenants. The
Executive acknowledges and agrees that the covenants and obligations of the
Executive with respect to noncompetition, nonsolicitation, confidentiality,
Company property, developments and
nondisparagement relate to special, unique and extraordinary matters and
that a violation of any of the terms of such covenants and obligations will
cause the Company irreparable injury for which adequate remedies are not
available at law. Therefore, the Executive agrees that the Company shall (i)
be entitled to an injunction, restraining order or such other equitable relief
(without the requirement to post bond) restraining the Executive from
committing any violation of the covenants and obligations contained in this
Paragraph 8 and (ii) have no further obligation to make any payments to the
Executive hereunder following any material violation of the covenants and
obligations contained in this Paragraph 8. These remedies are cumulative and
are in addition to any other rights and remedies the Company may have at law or
in equity. The Executive (x) acknowledges and agrees that the covenants set
forth in Paragraph 8 are reasonable and valid in geographical and temporal
scope and in all other respects and (y) represents that her economic means and
circumstances are such that such covenants will not prevent her from providing
for herself and her family on a basis satisfactory to her.

-10-

 

          (h) Non-Disparagement. The Executive shall not at any time after the date
hereof disparage the Company Group or any of its officers, directors,
shareholders or any of their respective affiliates. The Company agrees that
the Board and the executive officers of the Company shall not at any time after
the date hereof disparage the Executive. The obligations of Executive and the
Company under this Paragraph 8(h) shall not apply to truthful disclosures that
are required by applicable law, regulation or order of a court or governmental
agency.

          (i) Notifications. The Executive agrees that prior to becoming employed
by any entity during the Restriction Period, the Executive will (i) provide
notice to the Company of such employment and (ii) provide copies of Paragraphs
8(a), (b) and (c) to such prospective employer. The Executive further agrees
that the Company may provide notice to such prospective employer of the
Executive’s obligations under this Agreement, including, without limitation,
the Executive’s obligations pursuant to this Paragraph 8.

     9. Miscellaneous.

          (a) Survival. Paragraphs 7 (relating to early termination of employment),
8 (containing the restrictive covenants), and all the provisions of this
Paragraph 9 shall survive the termination of this Agreement (and the
Executive’s employment hereunder) in accordance with their terms.

          (b) Validity and Enforceability. The invalidity or unenforceability of
any provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision or provisions of this Agreement, which
shall remain in full force and effect. If any provision of this Agreement is
held to be invalid, void or unenforceable in any jurisdiction, any court or
arbitrator so holding shall substitute a valid, enforceable provision that
preserves, to the maximum lawful extent, the terms and intent of such
provisions of this Agreement. If any of the provisions of, or covenants
contained in, this Agreement are hereafter construed to be invalid or
unenforceable in any jurisdiction, the same shall not affect the remainder of
the provisions or the enforceability thereof in any other jurisdiction, which
shall be given full effect, without regard to the invalidity or
unenforceability in such other jurisdiction. Any such holding shall
affect such provision of this Agreement, solely as to that jurisdiction,
without rendering that or any other provision of this Agreement invalid,
illegal, or unenforceable in any other jurisdiction. If any covenant should be
deemed invalid, illegal or unenforceable because its scope, either geographical
or temporal, is considered excessive, such covenant will be modified so that
the scope of the covenant is reduced only to the minimum extent necessary to
render the modified covenant valid, legal and enforceable.

          (c) Arbitration. In the event that any dispute or controversy should
arise under or in connection with this Agreement the parties hereto shall first
attempt to resolve such dispute through mediation, the costs of which shall be
shared equally by the parties. In the event that such dispute is not resolved
in mediation, the parties agree that it shall be resolved by binding
arbitration; provided, that any dispute or controversy relating to Paragraph 8
(including any claim for specific performance) may be brought by any party
hereto in any court of competent jurisdiction; provided, further, that, if the
state or federal courts of New Jersey have jurisdiction, such disputes or
controversies shall be litigated in New Jersey. The arbitration shall

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be held
in Morris County, New Jersey and except to the extent inconsistent with this
Agreement, shall be conducted in accordance with the Labor Arbitration Rules of
the American Arbitration Association then in effect at the time of the
arbitration, and otherwise in accordance with principles which would be applied
by a court of law or equity. The arbitrator shall be acceptable to both the
Company and the Executive. If the parties cannot agree on an acceptable
arbitrator, the dispute shall be heard by a panel of three arbitrators, one
appointed by each of the parties and the third appointed by the other two
arbitrators. Judgments on any award may be entered in and enforced by any
court of appropriate jurisdiction. Each party shall pay her or its own costs
for the arbitration or litigation, as the case may be, with the cost of the
arbitrator, if applicable, to be equally divided between the parties.

          (d) Binding Effect. This Agreement shall be binding on, and shall inure
to the benefit of, the Company and any person or entity that succeeds to the
interest of the Company (regardless of whether such succession does or does not
occur by operation of law) by reason of the sale of all or a portion of the
Company’s stock, a merger, consolidation or reorganization involving the
Company or a sale of the assets of the business of the Company (or portion
thereof) in which the Executive performs a majority of her services. This
Agreement shall also inure to the benefit of the Executive’s heirs, executors,
administrators and legal representatives.

          (e) Assignment. This Agreement, and the Executive’s rights and
obligations hereunder, may not be assigned by the Executive. The Company may
assign its rights, together with its obligations, hereunder in connection with
any sale, transfer or other disposition of all or substantially all of the
business assets with respect to which the Executive is performing a majority of
her services at any such time.

          (f) Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the matters referred to herein. No
other agreement relating to the terms of the Executive’s employment by the
Company, oral or otherwise, shall be binding between the parties unless it is
in writing and signed by the party against whom enforcement is sought. There
are no promises, representations, inducements or statements
between the parties relating to the terms of the Executive’s employment
with the Company other than those that are expressly contained herein. The
Executive acknowledges that she is entering into this Agreement of her own free
will and accord, and with no duress, that she has read this Agreement and that
she understands it and its legal consequences.

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

          (h) Notices. Any notice required or desired to be delivered under this
Agreement shall be in writing and shall be delivered personally, by courier
service, by registered mail, return receipt requested, or by telecopy and shall
be effective upon actual receipt by the party to which such notice shall be
directed; provided, that, a refusal by a party to accept delivery

-12-

 

shall
constitute receipt. Notices shall be addressed as follows (or to such other
address as the party entitled to notice shall hereafter designate in accordance
with the terms hereof):

	 	 	 	 	 
	

	 	If to the Company:
	 	Party City Corporation

	

	 	 	 	400 Commons Way

	

	 	 	 	Rockaway, New Jersey 07866

	

	 	 	 	Attention: Vice President of Human Resources

	 
	 	 	 	 
	

	 	with a copy to:
	 	Party City Corporation

	

	 	 	 	400 Commons Way

	

	 	 	 	Rockaway, New Jersey 07866

	

	 	 	 	Attention: Vice President and General Counsel

	 
	 	 	 	 
	

	 	If to the Executive:
	 	Nancy Pedot

	

	 	 	 	63 West 17th Street

	

	 	 	 	Apt. 6A

	

	 	 	 	New York, New York 10011

	 
	 	 	 	 
	

	 	with a copy to:
	 	Eaton & Van Winkle LLP

	

	 	 	 	3 Park Avenue, 16th Floor

	

	 	 	 	New York, New York 10016

	

	 	 	 	Attention: Thomas A. Hickey, Esq.

-13-

 

          (i) No Conflicting Obligations. The Executive represents that her
performance of the terms of this Agreement and her employment by the Company
does not and will not breach any agreement to which the Executive is a party
including (without limitation) any agreement to keep in confidence proprietary
information or trade secrets acquired by the Executive in confidence or in
trust prior to the date of this Agreement. The Executive has not entered into,
and hereby agrees not to enter into, any agreement whether written or oral in
conflict with this Agreement. The Executive further agrees not to use in the
performance of her duties for the Company any confidential materials or
documents of a present or former employer of the Executive, or any materials or
documents obtained by the Executive under a binder of confidentiality imposed
by reason of any of the Executive’s consulting relationships, if any, unless
such materials or documents are generally available to the public or the
Executive has authorization from such present or former employer or client for
the possession and unrestricted use of such materials.

          (j) Amendments. This Agreement may not be altered, modified or amended
except by a written instrument signed by each of the parties hereto.

          (k) Headings. Headings to paragraphs in this Agreement are for the
convenience of the parties only and are not intended to be part of or to affect
the meaning or interpretation hereof.

          (l) Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original but all of which together shall constitute
one and the same instrument.

          (m) Withholding. Any payments provided for herein shall be reduced by any
amounts required to be withheld by the Company from time to time under
applicable Federal, State or local income or employment tax laws or similar
statutes or other provisions of law then in effect.

          (n) Governing Law. This Agreement shall be governed by the laws of the
State of New Jersey, without reference to principles of conflicts or choice of
law under which the law of any other jurisdiction would apply.

[NO MORE TEXT ON THIS PAGE]

-14-

 

IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its
duly authorized officer and the Executive has hereunto set her hand as of the
day and year first above written.

	 	 	 
	PARTY CITY CORPORATION
	 
	 	 
	By:

	 	/s/ Gregg A. Melnick
	

	 	

	Its:

	 	Chief Financial Officer
	 
	 	 
	EXECUTIVE
	 
	 	 
	/s/ Nancy Pedot
	

	Nancy Pedot

-15-

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