Document:

GENERAL RELEASE AND SEVERANCE AGREEMENT

 

Exhibit 10.6

GENERAL RELEASE AND SEVERANCE
AGREEMENT

     
This General Release and Severance Agreement
(hereafter “Agreement”), is hereby entered into
between James Shea (“Executive”), and Party
City Corporation, a Delaware corporation (the
“Company”).

     
WHEREAS, the Executive is, or prior to the
execution of this Agreement has been employed by the Company
and/or its subsidiaries including pursuant to that certain
Employment Agreement dated as of December 10, 1999 (the
“Employment Agreement”); and

     
WHEREAS, the Executive and the Company now desire
to terminate this employment relationship and fully and finally
to resolve all matters between them.

     
NOW, THEREFORE, in consideration of the mutual
promises, covenants and agreements contained herein, and for
other good and valuable consideration, the receipt and
sufficiency of which are hereby specifically acknowledged, the
Executive and the Company (“the parties”)
hereby agree as follows:

     
1.     Termination of
Employment and Directorship. The Executive hereby
irrevocably agrees to resign his employment with the Company,
and his position on the Company’s Board of Directors (the
“Board”), effective April 10, 2003 (the
“Date of Termination”).

     
2.     Salary
Continuation. The Company shall continue to pay to the
Executive, in accordance with the Company’s normal payroll
practices (as they shall be in effect from time to time), his
Annual Base Salary in effect as of the Date of Termination, from
the Date of Termination through October 10, 2003.

     
3.     Benefits
Continuation.

		
	 	     
    (a) Employee Welfare Plans. The
    Company shall pay the costs under the Consolidated Omnibus
    Budget Reconciliation Act of 1985, 29 U.S.C.
    Sec. 1161, et seq. (“COBRA”), to continue
    to provide to the Executive, from May 1, 2003 through
    April 30, 2004, benefits under “employee welfare
    plans” (as defined in Section 3(1) 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
    the Executive shall take all necessary steps and actions to
    elect COBRA coverage in a timely fashion and if the Executive
    becomes reemployed with another employer and is eligible to
    receive substantially similar 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;
    provided, further, 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.
    

 

		
	 	     
    (b) Automobile Allowance. The Company
    shall continue to provide to the Executive, from the Date of
    Termination through the earlier of (i) the date the
    Executive becomes reemployed with another employer and
    (ii) April 9, 2004, the sum of $675 per month for the
    Executive’s automobile plus reimbursement for reasonable
    gasoline usage (not to exceed $150.000 per month). The Executive
    shall inform the Company no later than three business days after
    the date on which he commences new employment, and, in the event
    he fails to do so, Executive agrees to return to the Company all
    payments made to him pursuant to this section relating to the
    period after he commences new employment.
    

     
4.     Stock
Options. All options to purchase common stock of the
Company, $0.01 par value per share (“Options”),
granted to the Executive pursuant to the (i) Stock Option
Agreement Under The Party City Corporation 1999 Stock Incentive
Plan, dated December 10, 1999, by and between the Company
and the Executive, (ii) Employee Stock Option Agreement
Under The Party City Corporation 1999 Stock Incentive Plan,
dated July 12, 2001, by and between the Company and the
Executive, (iii) Employee Stock Option Agreement Under The
Party City Corporation 1999 Stock Incentive Plan, dated
August 15, 2001, by and between the Company and the
Executive, (iv) Employee Stock Option Agreement Under The
Party City Corporation 1999 Stock Incentive Plan, dated
August 14, 2002, by and between the Company and the
Executive, and (v) Employee Stock Option Agreement Under
The Party City Corporation 1999 Stock Incentive Plan, dated
August 14, 2002, by and between the Company and the
Executive, which vested prior to the Date of Termination shall
remain exercisable through April 10, 2005. All Options not
vested as of the Date of Termination are cancelled. At the time
of the execution of this Agreement, the Executive shall
surrender to the Company all agreements and related
documentation pertaining to the Options and the Company shall
promptly amend and restate such agreements as necessary, in
accordance with the terms of this Agreement, and return such
amended agreements to the Executive.

     
5.     Automobile
Reimbursement. The Company shall pay to the Executive in a
lump sum in cash within 60 days after the Date of
Termination $3,500 as reimbursement for excess automobile
mileage expenses incurred by the Executive prior to the Date of
Termination.

     
6.     Outplacement
Services. The Executive is entitled to the services of
Goodrich & Sherwood Associates through the earlier to
occur of (a) the date on which he commences new employment
and (b) twelve (12) months following the Date of
Termination. The Company shall pay the reasonable fees and
expenses for such services; provided, that the maximum
amount that the Company shall be required to pay hereunder shall
not in the aggregate exceed $20,000.

     
7.     Management
Stock Purchase Plan. Simultaneously with the execution of
this Agreement the Executive shall elect in writing to receive,
within 60 days after the Date of Termination, either
(i) one share of Company common stock for each of the
55,293 restricted stock units which the Executive owns pursuant
to the Company’s Management Stock Purchase Plan (the
“MSPP”) or (ii) upon the Executive’s
simultaneous cancellation of the 55,293 restricted stock units
which the Executive owns pursuant to the MSPP, a lump sum in
cash in the amount of $479,390.31, in either case subject to
applicable withholding for taxes (which the Executive may remit
to the Company in immediately available funds).

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8. No Other Payments. The Executive
understands and agrees the Company shall make no other payments
to, or with respect to, the Executive, and shall have no other
obligations to the Executive except as described in this
Agreement. The parties agree that this Agreement shall supersede
all prior agreements between the parties with respect to the
subject matter hereof, except to the extent such prior
agreements relate to Options and do not conflict with the
provisions of this Agreement.

     
9. General Release of Claims by the
Executive. The Executive, for himself and the
Executive’s spouse and child or children (if any), the
Executive’s heirs, beneficiaries, devisees, executors,
administrators, attorneys, personal representatives, successors
and assigns, agrees hereby forever to release and discharge, and
agrees hereby forever not to sue, the Company, the
Company’s past, present, or future parent, affiliated,
related, and/or subsidiary entities, and all of their past,
present and future directors, shareholders, officers, general or
limited partners, employees, agents, and attorneys, and agents
and representatives of such entities, and employee benefit plans
in which the Executive is or has been a participant by virtue of
his employment with the Company, from any and all claims, debts,
demands, accounts, judgments, rights, causes of action,
equitable relief, damages, costs, charges, complaints,
obligations, promises, agreements, controversies, suits,
expenses, compensation, responsibility and liability of every
kind and character whatsoever (including, without limitation,
attorneys’ fees and costs), whether in law or equity, known
or unknown, asserted or unasserted, suspected or unsuspected,
which the Executive has or may have had against such entities
based on any events or circumstances arising or occurring on or
prior to the Date of Termination (or, with respect to claims of
disparagement, arising or occurring on or prior to the date this
Agreement is executed), arising directly or indirectly out of,
relating to, or in any other way involving in any manner
whatsoever, (a) the Executive’s employment with the
Company or the termination thereof or (b) the
Executive’s status at any time as a holder of any
securities of the Company, and, including without limitation,
any and all claims arising under federal, state, or local laws
relating to employment, or securities, including without
limitation claims of wrongful discharge, breach of express of
implied contract, fraud, misrepresentation, defamation, or
liability in tort, claims of any kind that may be brought in any
court or administrative agency, any claims arising under
Title VII of the Civil Rights Act of 1964, the Age
Discrimination in Employment Act, the Americans with
Disabilities Act, the Fair Labor Standards Act, the Employee
Retirement Income Security Act, the Family and Medical Leave
Act, the Securities Act of 1933, the Securities Exchange Act of
1934, the New Jersey Law Against Discrimination, the New Jersey
Family Leave Act, the New Jersey Conscientious Employee
Protection Act (N.J.S.A. 34:19-1 et seq.), the
Sarbanes-Oxley Act and similar state or local statutes,
ordinances, and regulations, provided, that,
notwithstanding anything to the contrary set forth herein, that
this general release shall not extend to (x) benefit claims
under employee pension benefit plans in which the Executive is a
participant by virtue of his employment with the Company or to
benefit claims under employee welfare benefit plans for
occurrences (e.g., medical care, death, or onset of disability)
arising after the execution of this Agreement by the Executive,
and (y) any obligation assumed under this Agreement by any
party hereto:

     
10. Release of Age Discrimination Claims;
Periods for Review and Reconsideration.

		
	 	     
    (a) The Executive understands that this
    Agreement includes a release of claims arising under the Age
    Discrimination in Employment Act (ADEA). The
    

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    Executive understands and warrants that he has
    been given a period of 21 days to review and consider this
    Agreement. The Executive is hereby advised to consult with an
    attorney prior to executing the Agreement. By his signature
    below, the Executive warrants that he has had the opportunity to
    do so and to be fully and fairly advised by that legal counsel
    as to the terms of the Agreement. The Executive further warrants
    that he understands that he may use as much or all of his 21-day
    period as he wishes before signing, and warrants that he has
    done so.
    

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

     
11.     Release of
Claims by the Company. The Company, for itself and its
affiliates, successors and assigns, agrees hereby forever to
release and discharge, and agrees hereby forever not to sue, the
Executive, from any and all claims, debts, demands, accounts,
judgments, rights, causes of action, equitable relief, damages,
costs, charges, complaints, obligations, promises, agreements,
controversies, suits, expenses, compensation, responsibility and
liability of every kind and character whatsoever (including,
without limitation, attorneys’ fees and costs), whether in
law or equity, known or unknown, asserted or unasserted,
suspected or unsuspected (collectively,
“Claims”), which the Company has or may have
had against the Executive based on any events or circumstances
arising or occurring on or prior to the Date of Termination,
including, without limitation, any and all claims arising out of
the Executive’s employment with the Company or the
termination thereof; provided, that, notwithstanding
anything to the contrary set forth herein, this release shall
not extend to (a) any Claim which relates to or arises from
any criminal activity of the Executive and (b) any
obligation assumed under this Agreement by any party hereto.

     
12.     Indemnification.
So long as the Executive has not breached any of his obligations
set forth in Sections 14(a), (b), (c) and (d), the Company
shall indemnify the Executive to the fullest extent permitted by
the laws of the State of Delaware, as in effect at the time of
the subject act or omission, and upon the Company’s
determination that the Executive acted in good faith and in a
manner he reasonably believed to be in or not opposed to the
best interests of the Company, and with respect to any criminal
action or proceeding, had no reasonable cause to believe that
his conduct was unlawful, shall advance to the Executive
reasonable attorneys’ fees and expenses as such fees and
expenses are incurred (subject to an undertaking from the
Executive to repay such advances if it shall be finally
determined by a judicial decision which is not subject to
further appeal that the Executive was not entitled to the
reimbursement of such fees and expenses) against all costs,
charges and expenses incurred or sustained by him in connection
with any action, suit or proceeding to which he may be made a
party by reason of his being or having been a director, officer
or employee of the Company or any of its subsidiaries (other
than any dispute, claim or controversy arising under or relating
to this Agreement).

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13.     Notice of New
Employment. The Executive hereby covenants and agrees to
provide the Company with notice no later than three business
days after the date on which he commences new employment.

     
14.     Certain
Restrictive Covenants.

          
(a)     Confidentiality.

		
	 	     
    (i)     The Executive
    shall, in perpetuity, hold in a fiduciary capacity for the
    benefit of the Company all software, trade secrets, compilations
    of information, records, specifications, work product created by
    the 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, vendors, business methods,
    techniques and all other proprietary or confidential
    information, knowledge or data of any and every kind and nature
    whatsoever relating to the Company or any of its affiliates, and
    their respective businesses, created or obtained by the
    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). Following the
    Date of Termination, the Executive shall not, without the prior
    written consent of the Company or as may otherwise be required
    by law or legal process, communicate or divulge any such
    Confidential Information to anyone other than the Company and
    those designated by it.
    
	 
	 	     
    (ii)     The Executive
    agrees, in perpetuity, to keep the terms of this Agreement
    confidential, except that Executive may disclose the contents of
    this Agreement to his accountant and attorney in the course of
    securing professional services. Additionally, the Executive may
    disclose the contents of this Agreement to his immediate family
    members; provided that the executive shall also advise
    any such family member of this confidentiality requirements and
    the Executive shall be responsible for any breach by any
    individual to whom he discloses such information. The Executive
    may also disclose to any prospective employer the contents of
    Section 14(h) hereof, provided that Executive shall not
    disclose to such prospective employer any other Section or term
    of this Agreement.
    

		
	 	     
    (b)     Solicitation.
    The Executive hereby covenants and agrees that, from the Date of
    Termination through April 9, 2004, 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.
    

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(c) Proxy Contests. The Executive
hereby covenants and agrees that, from the Date of Termination
through April 9, 2004, 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.

     
(d) Disparagement. In perpetuity, 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.

     
(e) Relief. The Executive
acknowledges that a breach of any of the covenants contained in
Section 14(a), (b), (c) or (d) 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 the Executive hereby irrevocably submit 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
14(e) and the interpretation and enforcement of Section 14(a),
(b), (c) and (d) solely insofar as such interpretation and
enforcement related to an application for injunctive relief in
accordance with the provisions of this Section 14(e), 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 14(e).

     
(f) Enforceability. The restrictions
set forth in Section 14(a), (b), (c) and (d) 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.

     
(g) Company Documents and Property.

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    (i)     No later than
    May 10, 2003, the Executive will deliver to the Company all
    non-personal documents and data of any nature and in whatever
    medium pertaining to the 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; and
    
	 
	 	     
    (ii)     Except as
    described below, no later than May 10, 2003, the Executive
    will deliver to the Company all physical property of the Company
    which the Executive received in connection with his employment
    with the Company including, without limitation, credit cards,
    passes, door and file keys, and computer hardware and software.
    Notwithstanding the preceding sentence, the Executive shall not
    be required to deliver to the Company (x) the
    Executive’s laptop computer (after such computer has been
    reviewed by the Company’s management information system
    professionals and all Company information and data have been
    purged from such computer to their satisfaction) or (y) the
    Executive’s mobile phone, although all obligations to pay
    for related mobile phone service or charges shall be assumed by
    the Executive as of the Date of Termination.
    

		
	 	     
    (h)     Competition.     The
    parties acknowledge and agree that the noncompetition
    restriction contained in Section 5(c) of the Employment
    Agreement shall be of no further force and effect as of the Date
    of Termination.
    

     
15.     Neutral
Reference.     In response to
inquiries directed to the Company’s Human Resources
Director, the Company agrees that it will provide a neutral
reference regarding the Executive and Executive’s
employment, which reference may consist of confirmation of
employment, dates thereof, salary levels and job title.

     
16.     Post-Termination
Assistance.     The Executive
agrees that, after the Date of Termination, 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, that (a) the Company agrees to
reimburse the Executive for any related reasonable out-of-pocket
expenses, including travel expenses, and, if the Executive is
not then being paid severance pursuant to Section 2, to pay
the Executive compensation for his time at the per diem rate of
$1,000.00 and (b) any such assistance may not unreasonably
interfere with the then-current employment of the Executive.

     
17.     Residual
Duties.     The parties agree and
intend that any and all duties of loyalty, fidelity, and
confidentiality running from the Executive to the Company and
arising out of the common law as a consequence of the
parties’ employment relationship shall continue in full
force and effect between the parties until the Date of
Termination; provided, that neither this paragraph nor
any other portion of this Agreement shall be interpreted to
diminish any residual duties or obligations of the Executive to
the Company that may arise or continue in effect under the
common law after the Executive’s Date of Termination.

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18.     Taxes. To
the extent any taxes may be due on the payments or deliveries to
the Executive provided in this Agreement, including the
Executive’s receipt of the laptop computer and mobile phone
pursuant to Section 14(g)(ii) above, beyond any withheld by
the Company, the Executive agrees to pay them himself and to
indemnify and hold the Company and other entities released by
the Executive herein harmless for any tax claims or penalties
resulting from such payments or deliveries. The Executive
further agrees to provide any and all information pertaining to
the Executive upon request as reasonably necessary for the
Company and other entities released herein to comply with
applicable tax laws.

     
19.     No
Admission. The Executive understands and agrees that the
Company has admitted no liability or obligation to provide the
consideration contemplated herein, and that the Company has
entered into this Agreement solely for the purpose of avoiding
possible controversy.

     
20.     Severability.
Except as otherwise specified below, should any portion of this
Agreement be found void or unenforceable for any reason by a
court of competent jurisdiction, such portion shall be limited,
interpreted, or otherwise modified, so as to make such portion
enforceable, all as determined by such court, and if such
portion cannot be modified to be enforceable, the unenforceable
portion shall be deemed severed from the remaining portions of
this Agreement, which shall otherwise remain in full force and
effect. If any portion of this Agreement is so found to be void
or unenforceable for any reason in regard to any one or more
persons, entities, or subject matters, such portion shall remain
in full force and effect with respect to all other persons,
entities, and subject matters. This paragraph shall not operate,
however, to sever either party’s obligation to provide the
binding release to all entities intended to be released
hereunder. In the event Executive should in the future contend
that the Executive’s release of claims is for any reason
void, imperfect, or incomplete, the Executive may not pursue any
claim against the Company (or any other party intended to be
released herein) to establish the invalidity of the release or
premised (in whole or in part) on the invalidity of the release
before or without repaying to the Company the full amount of
such cash payments he has received, less the reasonable value of
services actually provided pursuant to this Agreement, and
applicable statutes of limitations shall be deemed to run in
regard to the Executive’s claims without regard to the
parties’ entry into this Agreement. The preceding sentence
shall not operate to limit the scope or effect of the
Executive’s covenant not to sue.

     
21.     Conditions of
Validity. This Agreement shall not be deemed valid, binding
or effective unless and until (a) both parties have signed,
(b) the Executive’s signature is notarized,
(c) both parties have executed the Agreement within a
single 30 day period and (d) seven days have passed
following the Executive’s signature and he shall not have
revoked this Agreement.

     
22.     Understanding
and Authority. The parties understand and agree that all
terms of this Agreement are contractual and are not a mere
recital, and represent and warrant that they are competent to
covenant and agree as herein provided.

     
23.     Representations
and Acknowledgments of the Executive.

		
	 	     
    The Executive acknowledges that the Company is
    engaged in a highly competitive market, that the Company has
    (1) provided to the Executive access to the
    

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    Confidential Information, (ii) enabled the
    Executive to form and cultivate certain relationships with the
    Company’s vendors, franchisees, customers and clients and
    (iii) expended substantial time and effort in training the
    Executive, and that the restrictive covenants contained herein
    are narrowly defined, unambiguous, reasonable, and do not
    unreasonably preclude the Executive from obtaining employment
    after the Date of Termination.
    

		
	 	     
    (b) The Executive understands, agrees and
    represents that the covenants made herein and the releases
    herein executed may affect his rights and liabilities of
    substantial extent and agrees that the covenants and releases
    provided herein are in the Executive’s best interest. The
    Executive represents and warrants that in negotiating and
    executing this Agreement the Executive has had an adequate
    opportunity to consult with competent legal counsel of his
    choosing concerning the meaning and effect of each term and
    provision hereof, and that there are no representations,
    promises, or agreements between the Company and the Executive
    other than those expressly set forth in writing herein.
    

     
24. Disputes. Except as specifically
set forth in Section 14(e) of this Agreement, any disputes
or controversy arising under, out of, in connection with or in
relation to this Agreement shall, upon written demand of either
the Executive or the Company, be finally determined and settled
by arbitration in the Newark, Jew Jersey in accordance with the
applicable rules and procedures of the American Arbitration
Association, and judgment upon the award may be entered in any
court having jurisdiction thereof. The losing party in any
arbitration conducted pursuant to this Section of the Agreement
shall pay the costs and expenses of the arbitrator in such
arbitration.

     
25. Governing Law. Any question
concerning the validity, interpretation, or performance of this
agreement shall be governed by the laws of the state of New
Jersey.

     
26. Assignment. This Agreement shall
not be assignable by the Executive, as the covenants and
releases of the Executive are unique and personal. However, this
Agreement shall be assignable by the Company to any other
person, firm, corporation, or other business entity which may
succeed the Company by acquisition, merger or similar
transaction.

     
27. Modification. This Agreement may
only be modified by a writing or writings signed by both the
Executive and a duly authorized representative of the Board. The
waiver of any breach of this Agreement or failure to enforce the
provisions hereof by the Company shall not constitute a waiver
or failure to enforce by such party with respect to the
remaining terms and conditions of this Agreement.

     
28. 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

9

 

		
	 	
    Wyckoff, New Jersey 07481 

     Tel.: 201 848-4010 

     

     

     With a copy to: 

     

     

     Kane & Kessler 

     1350 Avenue of the Americas 

     New York, New York 10019 

     Attn: Judith Stoll, Esq. 

     Tel: 212 519-5165 

     Fax: 212 245-3009 

     

     

     If to the Company: 

     

     

     Party City Corporation 

     400 Commons Way 

     Rockaway, New Jersey 07866 

     Attn: General Counsel 

     Tel: 973 983-0888 

     Fax: 973 983-8217 

     

     

     With a copy to: 

     

     

     Latham & Watkins LLP 

     885 Third Avenue 

     New York, New York 10022 

     Attn: Steven Della Rocca, Esq. 

     Tel: 212 906-1330 

     Fax: 212 751-4864
    

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.

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

[signature page follows]

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

PARTY CITY CORPORATION

	 	 	 
	
    /s/ MELISSA WALLACE

    
By: Melissa Wallace

    Vice President, Human Resources
    	 	
    5/28/03

    

    Date
    
	
    /s/ JAMES SHEA

    
James Shea
    	 	
    May 28, 2003

    

    Date
    

11SEPARATION AGREEMENT

 

Exhibit 10.7

SEPARATION AGREEMENT

     
This SEPARATION AGREEMENT is dated as of
July 14, 2003, and is entered into between PARTY CITY
CORPORATION (the “Company”), and Andrew Bailen
(“Executive”).

     
WHEREAS, Executive is currently employed by the
Company as Executive Vice President of Merchandising/Marketing;
and

     
WHEREAS, Executive and the Company discussed the
termination without cause of Executive; and

     
WHEREAS, Executive and the Company desire to
embody in this Agreement the terms and conditions applicable to
such termination without cause; and

     
WHEREAS, this Agreement shall supersede all prior
oral and written agreements, arrangements and understandings
relating to the terms and conditions of Executive’s
employment and termination from that employment.

     
NOW, THEREFORE, the parties hereby agree:

     
1.     Termination
Date. Executive’s termination without cause from the
Company will be effective as of July 14, 2003 (the
“Termination Date”).

     
2.     Company
Property. Executive shall return to the Company all
Company-owned property in his possession on or prior to the
Termination Date.

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

     
4.     Benefit
Plans. Except as otherwise specifically provided in this
Agreement or by law or by any applicable employee benefit plan,
Executive’s participation in all employee benefit plans and
executive compensation plans and practices of the Company shall
terminate on the Termination Date, and there shall be no other
payments or benefits payable to Executive by the Company,
including, but not limited to, any other salary, bonus,
commissions, fees, benefits, or other payments of any nature
whatsoever.

 

     
5.     Additional
Consideration. Executive acknowledges that pursuant to this
Agreement he is receiving consideration in addition to any
amounts to which he would otherwise have been entitled but for
this Agreement.

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

     
7.     Payment Upon
Death. Executive’s rights and obligations under this
Agreement are not transferable. However, if Executive should die
while any amounts would still be payable to him hereunder, all
such amounts shall be payable to Executive’s estate, heirs,
executors or beneficiaries in accordance with the terms hereof.

     
8.     Covenants.
The Covenants set forth in Section 8 and Section 9 of the
Employment Agreement shall continue to apply after the
Termination Date in accordance with their terms.

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

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

-2-

 

Retirement Income Security Act of 1974, as
amended, or (ii) enforce the provisions of this Agreement.

     
11.     Release and
Waiver of Claims Under the Age Discrimination in Employment
Act. Executive acknowledges that the Company has encouraged
him to consult with an attorney of his choosing and, through
this Agreement, encourages him to consult with his attorney with
respect to any possible claims he may have, including claims
under the Age Discrimination in Employment Act
(“ADEA”), as well as under the other Federal, State
and local laws described in Section 9 hereof. Executive
understands that by signing this Agreement he is in fact
waiving, releasing and forever giving up any claim under the
ADEA, as well as all other Federal, State and local laws
described in Section 9 hereof that may have existed on or
prior to the date hereof.

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

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

     
14.     Non-Admission.
Executive expressly acknowledges that this Agreement does not
constitute an admission by the Company of any violation of any
employment law, regulation, ordinance, or administrative
procedure, or any other Federal, State, or local law, common
law, regulation or ordinance, liability for which is expressly
denied.

     
15.     Non-Disparagement.
Executive shall not at any time after the date hereof disparage
the Company or any of its officers, directors, shareholders or
any of their respective affiliates nor shall the Chief Executive
Officer, other company officers or associates providing
employment verification of the Company disparage Executive. The
obligations of Executive or the Company under this
Section 15 shall not apply to disclosures required by
applicable law, regulation or order of a court or governmental
agency.

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

     
17.     Opportunity
for Advice. By signing this Agreement, Executive
acknowledges that, as explained by the Company, he has had a
reasonable opportunity to

3

 

consider advice from his legal counsel. Fully
understanding these terms, Executive is entering into this
Agreement knowingly and voluntarily.

     
18.     Acceptance.
To accept this Agreement, Executive shall execute and date this
Agreement on the spaces provided and return a copy to the
Company at any time during the twenty-one (21)-day period
commencing on the date hereof. This Agreement shall take effect
on the eighth day following Executive’s execution of this
Agreement unless Executive’s written revocation is
delivered to the Vice President and General Counsel of the
Company within seven (7) days after such execution.

     
19.     Entire
Agreement. This Agreement represents the entire agreement of
the parties with respect to the Executive’s employment and
termination thereof. Except as specifically provided herein,
this Agreement shall supersede the Employment Agreement in all
respects effective as of the Termination Date. THIS AGREEMENT
SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW JERSEY APPLICABLE TO CONTRACTS
MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE.

-4-

 

Exhibit A

OPTION SUMMARY

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
					Option								
	Name		ID		Number		Date		Plan/ Type		Price		Vested
	
		
		
		
		
		
		

	
    
    Bailen, Andrew S
    

    	 	 	###-##-####	 	 	 	00000778	 	 	 	8/7/00	 	 	 	94/ISO	 	 	 	3.4000	 	 	 	75,000	 
	
    
    Bailen, Andrew S
    

    	 	 	###-##-####	 	 	 	00000878	 	 	 	8/15/01	 	 	 	1999/NQ	 	 	 	7.3800	 	 	 	10,000	 
	
    
    Bailen, Andrew S
    

    	 	 	###-##-####	 	 	 	00000931	 	 	 	8/13/02	 	 	 	1999/NQ	 	 	 	14.8125	 	 	 	4,375	 

     
Although only 50,000 shares of
option 778 have vested in the option system, your contract
states that the options which were scheduled to vest on
August 7, 2003 will vest immediately bringing the total
vested in option 778 to 75,000 shares.

DEFERRED BONUS SUMMARY

	 	 	 	 	 	 	 	 	 	 	 	 	 	 
			Dollars		Price		Shares
			
		
		

	
    
    Deferred bonus for FY 01
    

    	 	$	41,249.18	 	 	$	5.9062	 	 	 	6,984	 
	
    
    Deferred bonus for FY 02
    

    	 	$	46,003.97	 	 	$	11.8080	 	 	 	3,896	 
	 	
    
    Total shares to be issued
    

    	 	 	 	 	 	 	 	 	 	 	10,880	 

     
Taxes of 35% must be remitted to Party City prior
to the issuance of these shares. Based on yesterday’s close
price of $11.00, that amount would be $41,888 (10,880?$11?35%)

 

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

		
	 	
    ANDREW BAILEN
    
	 
	 	
    /s/ ANDREW BAILEN
    
	 	
    

	 	
    Name:
    
	 
	 	
    7/25/03
    
	 	
    

	 	
    Date:
    
	 
	 	
    PARTY CITY CORPORATION
    

			
	 	By: 	
    /s/ MELISSA WALLACE
    

		
	 	
    

	 	
    Name:  Melissa Wallace
    
	 	
    Title:  VP, Human Resources
    

-5-

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