Document:

<PAGE>

                                                                    EXHIBIT 10.3

                      INVESTMENT MANAGEMENT TRUST AGREEMENT

            This Agreement is made as of _________, 2005 by and between Stone
Arcade Acquisition Corp. (the "Company") and Continental Stock Transfer & Trust
Company ("Trustee").

            WHEREAS, the Company's Registration Statement on Form S-1, No. 333-
________ ("Registration Statement"), for its initial public offering of
securities ("IPO") has been declared effective as of the date hereof by the
Securities and Exchange Commission ("Effective Date"); and

            WHEREAS, Morgan Joseph & Co. Inc. ("Morgan Joseph") is acting as the
representative of the underwriters in the IPO; and

            WHEREAS, as described in the Company's Registration Statement, and
in accordance with the Company's Amended and Restated Certificate of
Incorporation, $110,854,000 of the net proceeds of the IPO ($127,954,000 if
the underwriters' over-allotment option is exercised in full) will be delivered
to the Trustee to be deposited and held in a trust account for the benefit of
the Company and the holders of the Company's Common Stock issued in the IPO and
in the event the Units are registered in Colorado, pursuant to Section
11-51-302(6) of the Colorado Revised Statutes, a copy of which statute is
attached hereto and made a part hereof. The amount to be delivered to the
Trustee will be referred to herein as the "Property," the stockholders for whose
benefit the Trustee shall hold the Property will be referred to as the "Public
Stockholders," and the Public Stockholders and the Company will be referred to
together as the "Beneficiaries"); and

            WHEREAS, The Company and the Trustee desire to enter into this
Agreement to set forth the terms and conditions pursuant to which the Trustee
shall hold the Property;

            IT IS AGREED:

1.    Agreements and Covenants of Trustee. The Trustee hereby agrees and
covenants to:

            (a)   Hold the Property in trust for the Beneficiaries in accordance
with the terms of this Agreement, including the terms of Section 11-51-302(6) of
the Colorado Statute, in a segregated trust account ("Trust Account")
established by the Trustee at a branch of JPMorgan Chase NY Bank selected by the
Trustee;

            (b)   Manage, supervise and administer the Trust Account subject to
the terms and conditions set forth herein;

            (c)   In a timely manner, upon the instruction of the Company, to
invest and reinvest the Property in any "Government Security." As used herein,
Government Security means any Treasury Bill issued by the United States, having
a maturity of one hundred and eighty days or less;

<PAGE>

            (d)   Collect and receive, when due, all principal and income
arising from the Property, which shall become part of the "Property," as such
term is used herein;

            (e)   Notify the Company and Morgan Joseph of all communications
received by it with respect to any Property requiring action by the Company;

            (f)   Supply any necessary information or documents as may be
requested by the Company in connection with the Company's preparation of the tax
returns for the Trust Account;

            (g)   Participate in any plan or proceeding for protecting or
enforcing any right or interest arising from the Property if, as and when
instructed by the Company and/or Morgan Joseph to do so;

            (h)   Render to the Company and to Morgan Joseph, and to such other
person as the Company may instruct, monthly written statements of the activities
of and amounts in the Trust Account reflecting all receipts and disbursements of
the Trust Account;

            (i)   Upon written instructions from the Company, deliver to the
Company, on a quarterly basis, from the Property in the Trust Account, an amount
equal to the taxes payable by the Company, if any, relating to interest earned
on the Property; and

            (j)   Commence liquidation of the Trust Account only after receipt
of and only in accordance with the terms of a letter ("Termination Letter"), in
a form substantially similar to that attached hereto as either Exhibit A or
Exhibit B, signed on behalf of the Company by its Chief Executive Officer or
Chairman of the Board and Secretary, and complete the liquidation of the Trust
Account and distribute the Property in the Trust Account only as directed in the
Termination Letter and the other documents referred to therein.

2.    Agreements and Covenants of the Company. The Company hereby agrees and
covenants to:

            (a)   Give all instructions to the Trustee hereunder in writing,
signed by the Company's Chief Executive Officer or Chairman of the Board. In
addition, except with respect to its duties under paragraph 1(i) above, the
Trustee shall be entitled to rely on, and shall be protected in relying on, any
verbal or telephonic advice or instruction which it in good faith believes to be
given by any one of the persons authorized above to give written instructions,
provided that the Company shall promptly confirm such instructions in writing;

            (b)   Hold the Trustee harmless and indemnify the Trustee from and
against any and all expenses, including reasonable counsel fees and
disbursements, or loss suffered by the Trustee in connection with any action,
suit or other proceeding brought against the Trustee involving any claim, or in
connection with any claim or demand which in any way arises out of or relates to
this Agreement, the services of the Trustee hereunder, or the Property or any
income earned from investment of the Property, except for expenses and losses
resulting from the Trustee's gross negligence or willful misconduct. Promptly
after the receipt by the Trustee of notice of demand or claim or the
commencement of any action, suit or proceeding, pursuant to which the Trustee
intends to seek indemnification under this paragraph, it shall notify the
Company in writing of such claim (hereinafter referred to as the "Indemnified
Claim"). The Trustee shall have the right to conduct and manage the defense
against such Indemnified Claim, provided, that the Trustee shall obtain the
consent of the Company with respect to the selection

                                        2
<PAGE>

of counsel, which consent shall not be unreasonably withheld. The Company may
participate in such action with its own counsel; and

            (c)   Pay the Trustee an initial acceptance fee of $1,000 and an
annual fee of $3,000 (it being expressly understood that the Property shall not
be used to pay such fee). The Company shall pay the Trustee the initial
acceptance fee and first year's fee at the consummation of the IPO and
thereafter on the anniversary of the Effective Date. The Trustee shall refund to
the Company the fee (on a pro rata basis) with respect to any period after the
liquidation of the Trust Fund. The Company shall not be responsible for any
other fees or charges of the Trustee except as may be provided in paragraph 2(b)
hereof (it being expressly understood that the Property shall not be used to
make any payments to the Trustee under such paragraph).

3.    Limitations of Liability. The Trustee shall have no responsibility or
liability to:

            (a)   Take any action with respect to the Property, other than as
directed in paragraph 1 hereof and the Trustee shall have no liability to any
party except for liability arising out of its own gross negligence or willful
misconduct;

            (b)   Institute any proceeding for the collection of any principal
and income arising from, or institute, appear in or defend any proceeding of any
kind with respect to, any of the Property unless and until it shall have
received instructions from the Company given as provided herein to do so and the
Company shall have advanced or guaranteed to it funds sufficient to pay any
expenses incident thereto;

            (c)   Change the investment of any Property, other than in
compliance with paragraph 1(c);

            (d)   Refund any depreciation in principal of any Property;

            (e)   Assume that the authority of any person designated by the
Company to give instructions hereunder shall not be continuing unless provided
otherwise in such designation, or unless the Company shall have delivered a
written revocation of such authority to the Trustee;

            (f)   The other parties hereto or to anyone else for any action
taken or omitted by it, or any action suffered by it to be taken or omitted, in
good faith and in the exercise of its own best judgment, except for its gross
negligence or willful misconduct. The Trustee may rely conclusively and shall be
protected in acting upon any order, notice, demand, certificate, opinion or
advice of counsel (including counsel chosen by the Trustee), statement,
instrument, report or other paper or document (not only as to its due execution
and the validity and effectiveness of its provisions, but also as to the truth
and acceptability of any information therein contained) which is believed by the
Trustee, in good faith, to be genuine and to be signed or presented by the
proper person or persons. The Trustee shall not be bound by any notice or
demand, or any waiver, modification, termination or rescission of this agreement
or any of the terms hereof, unless evidenced by a written instrument delivered
to the Trustee signed by the proper party or parties and, if the duties or
rights of the Trustee are affected, unless it shall give its prior written
consent thereto; and

                                        3
<PAGE>

            (g)   Verify the correctness of the information set forth in the
Registration Statement or to confirm or assure that any acquisition made by the
Company or any other action taken by it is as contemplated by the Registration
Statement.

4.    Termination. This Agreement shall terminate as follows:

            (a)   If the Trustee gives written notice to the Company that it
desires to resign under this Agreement, the Company shall use its reasonable
efforts to locate a successor trustee. At such time that the Company notifies
the Trustee that a successor trustee has been appointed by the Company and has
agreed to become subject to the terms of this Agreement, the Trustee shall
transfer the management of the Trust Account to the successor trustee, including
but not limited to the transfer of copies of the reports and statements relating
to the Trust Account, whereupon this Agreement shall terminate; provided,
however, that, in the event that the Company does not locate a successor trustee
within ninety days of receipt of the resignation notice from the Trustee, the
Trustee may submit an application to have the Property deposited with the United
States District Court for the Southern District of New York and upon such
deposit, the Trustee shall be immune from any liability whatsoever that arises
due to any actions or omissions to act by any party after such deposit;

            (b)   At such time that the Trustee has completed the liquidation of
the Trust Account in accordance with the provisions of paragraph 1(j) hereof,
and distributed the Property in accordance with the provisions of the
Termination Letter, this Agreement shall terminate except with respect to
Paragraph 2(b); or

            (c)   On such date after ________ __, 2007 when the Trustee deposits
the Property with the United States District Court for the Southern District of
New York in the event that, prior to such date, the Trustee has not received a
Termination Letter from the Company pursuant to paragraph 1(j).

5.    Miscellaneous.

            (a)   The Company and the Trustee each acknowledge that the Trustee
will follow the security procedures set forth below with respect to funds
transferred from the Trust Account. Upon receipt of written instructions, the
Trustee will confirm such instructions with an Authorized Individual at an
Authorized Telephone Number listed on the attached Exhibit C. The Company and
the Trustee will each restrict access to confidential information relating to
such security procedures to authorized persons. Each party must notify the other
party immediately if it has reason to believe unauthorized persons may have
obtained access to such information, or of any change in its authorized
personnel. In executing funds transfers, the Trustee will rely upon account
numbers or other identifying numbers of a beneficiary, beneficiary's bank or
intermediary bank, rather than names. The Trustee shall not be liable for any
loss, liability or expense resulting from any error in an account number or
other identifying number, provided it has accurately transmitted the numbers
provided.

                                        4
<PAGE>

            (b)   This Agreement shall be governed by and construed and enforced
in accordance with the laws of the State of New York, without giving effect to
conflict of laws. It may be executed in several counterparts, each one of which
shall constitute an original, and together shall constitute but one instrument.

            (c)   This Agreement contains the entire agreement and understanding
of the parties hereto with respect to the subject matter hereof. This Agreement
or any provision hereof may only be changed, amended or modified by a writing
signed by each of the parties hereto; provided, however, that no such change,
amendment or modification may be made without the prior written consent of
Morgan Joseph. As to any claim, cross-claim or counterclaim in any way relating
to this Agreement, each party waives the right to trial by jury.

            (d)   The parties hereto consent to the jurisdiction and venue of
any state or federal court located in the City of New York for purposes of
resolving any disputes hereunder.

            (e)   Any notice, consent or request to be given in connection with
any of the terms or provisions of this Agreement shall be in writing and shall
be sent by express mail or similar private courier service, by certified mail
(return receipt requested), by hand delivery or by facsimile transmission:

            if to the Trustee, to:

                  Continental Stock Transfer
                  & Trust Company
                  17 Battery Place
                  New York, New York 10004
                  Attn:  Steven G. Nelson, Chairman
                  Fax No.: (212) 509-5150

            if to the Company, to:

                  Stone Arcade Acquisition Corp.
                  c/o Stone-Kaplan Investments, LLC
                  One Northfield Plaza, Suite 480
                  Northfield, IL 60093
                  Attn: Roger W. Stone, Chief Executive Officer
                        Fax No.: (847) 441-8267

            in either case with a copy to:

                  Morgan Joseph & Co. Inc.
                  600 Fifth Avenue, 19th Floor
                  New York, New York 10020
                  Attn: Michael Powell
                  Fax No.: (212) 218-3719

                  and

                                        5
<PAGE>

                  Greenberg Traurig, LLP
                  MetLife Building
                  200 Park Avenue
                  New York, New York 10166
                  Attn: Alan I. Annex, Esq.
                  Fax No.: (212) 801-6400

            (f)   This Agreement may not be assigned by the Trustee without the
prior written consent of the Company and Morgan Joseph.

            (g)   Each of the Trustee and the Company hereby represents that it
has the full right and power and has been duly authorized to enter into this
Agreement and to perform its respective obligations as contemplated hereunder.
The Trustee acknowledges and agrees that it shall not make any claims or proceed
against the Trust Account, including by way of set-off, and shall not be
entitled to any funds in the Trust Account under any circumstance.

            IN WITNESS WHEREOF, the parties have duly executed this Investment
Management Trust Agreement as of the date first written above.

                                            CONTINENTAL STOCK TRANSFER & TRUST
                                            COMPANY, as Trustee

                                            By: ________________________________
                                                Name:  Steven G. Nelson
                                                Title: Chairman

                                            STONE ARCADE ACQUISITION CORP.

                                            By: ________________________________
                                                Name:  Roger W. Stone
                                                Title: Chief Executive Officer

                                        6
<PAGE>

EXHIBIT A

                             [LETTERHEAD OF COMPANY]

[INSERT DATE]

Continental Stock Transfer
  & Trust Company
17 Battery Place
New York, New York 10004
Attn:  Steven G. Nelson

            Re:   Trust Account No. [                    ] Termination Letter

Gentlemen:

            Pursuant to paragraph 1(i) of the Investment Management Trust
Agreement between Stone Arcade Acquisition Corp. ("Company") and Continental
Stock Transfer & Trust Company ("Trustee"), dated as of __________, 2005 ("Trust
Agreement"), this is to advise you that the Company has entered into an
agreement ("Business Agreement") with __________________ ("Target Business") to
consummate a business combination with Target Business ("Business Combination")
on or about [insert date]. The Company shall notify you at least 48 hours in
advance of the actual date of the consummation of the Business Combination
("Consummation Date").

            In accordance with the terms of the Trust Agreement, we hereby
authorize you to commence liquidation of the Trust Account to the effect that,
on the Consummation Date, all of funds held in the Trust Account will be
immediately available for transfer to the account or accounts that the Company
shall direct on the Consummation Date.

            On the Consummation Date (i) counsel for the Company shall deliver
to you written notification that (a) the Business Combination has been
consummated and (b) the provisions of Section 11-51-302(6) and Rule 51-3.4 of
the Colorado Statute have been met, and (ii) the Company shall deliver to you
written instructions with respect to the transfer of the funds held in the Trust
Account ("Instruction Letter"). You are hereby directed and authorized to
transfer the funds held in the Trust Account immediately upon your receipt of
the counsel's letter and the Instruction Letter, in accordance with the terms of
the Instruction Letter. In the event that certain deposits held in the Trust
Account may not be liquidated by the Consummation Date without penalty, you will
notify the Company of the same and the Company shall direct you as to whether
such funds should remain in the Trust Account and distributed after the
Consummation Date to the Company. Upon the distribution of all the funds in the
Trust Account pursuant to the terms hereof, the Trust Agreement shall be
terminated.

            In the event that the Business Combination is not consummated on the
Consummation Date described in the notice thereof and we have not notified you
on or before the original Consummation Date of a new Consummation Date, then the
funds held in the Trust Account shall be reinvested as provided in the Trust
Agreement on the business day immediately following the Consummation Date as set
forth in the notice.

                                   Very truly yours,

                                   STONE ARCADE ACQUISITION CORP.

                                   By: ________________________________________
                                       Roger W. Stone, Chief Executive Officer

                                   By: ________________________________________
                                       Matthew Kaplan, President and Secretary

                                        7
<PAGE>

EXHIBIT B

                             [LETTERHEAD OF COMPANY]

[INSERT DATE]

Continental Stock Transfer
  & Trust Company
17 Battery Place
New York, New York 10004
Attn:  Steven G. Nelson

            Re:   Trust Account No. [             ] Termination Letter

Gentlemen:

            Pursuant to paragraph 1(i) of the Investment Management Trust
Agreement between Stone Arcade Acquisition Corporation ("Company") and
Continental Stock Transfer & Trust Company ("Trustee"), dated as of
_____________, 2005 ("Trust Agreement"), this is to advise you that the Board of
Directors of the Company has voted to dissolve and liquidate the Company.
Attached hereto is a copy of the minutes of the meeting of the Board of
Directors of the Company relating thereto, certified by the Secretary of the
Company as true and correct and in full force and effect.

            In accordance with the terms of the Trust Agreement, we hereby (a)
certify to you that the provisions of Section 11-51-302(6) and Rule 51-3.4 of
the Colorado Statute have been met and (b) authorize you, to commence
liquidation of the Trust Account. You will notify the Company and JPMorgan Chase
NY Bank ("Designated Paying Agent") in writing as to when all of the funds in
the Trust Account will be available for immediate transfer ("Transfer Date").
The Designated Paying Agent shall thereafter notify you as to the account or
accounts of the Designated Paying Agent that the funds in the Trust Account
should be transferred to on the Transfer Date so that the Designated Paying
Agent may commence distribution of such funds in accordance with the Company's
instructions. You shall have no obligation to oversee the Designated Paying
Agent's distribution of the funds. Upon the payment to the Designated Paying
Agent of all the funds in the Trust Account, the Trust Agreement shall be
terminated.

                                   Very truly yours,

                                   STONE ARCADE ACQUISITION CORP.

                                   By: _________________________________________
                                       Roger W. Stone, Chief Executive Officer

                                   By: _________________________________________
                                       Matthew Kaplan, President and Secretary

                                        8
<PAGE>

EXHIBIT C

<TABLE>
<CAPTION>
AUTHORIZED INDIVIDUAL(S)                        AUTHORIZED
FOR TELEPHONE CALL BACK                         TELEPHONE NUMBER(S)
-----------------------                         -------------------
<S>                                             <C>
COMPANY:

Stone Arcade Acquisition Corp.
c/o Stone-Kaplan Investments, LLC
One Northfield Plaza, Suite 480
Northfield, IL 60093
Attn: Roger W. Stone, Chairman and CEO          (847) 441-0929

TRUSTEE:

Continental Stock Transfer & Trust Company
17 Battery Place
New York, New York 10004
Attn:  Steven G. Nelson                         (212) 845-3200
</TABLE>

                                       9EX-10.1

 

Exhibit 10.1

AGREEMENT

     This Agreement (hereafter “Agreement”) is hereby entered into between Nancy Pedot
(“Executive”), and Party City Corporation, a Delaware corporation (“Company”).

     WHEREAS, Executive has been an employee and a director of Company;

     WHEREAS, Executive and Company have been parties to an Employment Agreement dated as of
December 23, 2004 by and between Company and Executive (as amended to date, the “Employment
Agreement”), under which Executive’s employment relationship with Company has terminated pursuant
to Sections 7(a)(iv) and 7(b)(ii) thereof;

     WHEREAS, Executive has resigned as a director of Company; and

     WHEREAS, Executive and Company wish to fully and finally resolve all matters between them;

     THEREFORE, in exchange for the good and valuable consideration set forth herein, the adequacy
of which is specifically acknowledged, Executive and Company (“the parties”) hereby agree as
follows:

     1. Termination of Employment and Directorship. Executive hereby confirms her
resignation as director and member of the board of directors of Company (the “Board”) and member of
the Executive Committee of the Board, effective March 30, 2005 (the “Effective Date”), and
Executive and Company hereby agree and acknowledge that Executive’s employment by the Company
terminated on the Effective Date.

     2. Salary and Benefit Continuation.

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

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

 

 

     3. Accrued Vacation Pay. On the Closing, Company will pay Executive for her accrued
but unused vacation the sum of $23,076.92.

     4. Reimbursement of Expenses and Other Benefits. Company shall pay or cause to be
paid to or for the benefit of Executive all of her benefits accrued under Company’s employee
benefit plans as of the Effective Date. Company will reimburse Executive for business expenses
incurred during her employment totaling $23,073.89. Such reimbursement will be made to Executive
in a lump sum on the Closing.

     5. Stock Options. Schedule A attached hereto shows all of Executive’s stock options;
such Schedule reflects, among other things, that 32,055 of the 150,000 non-qualified stock options
to purchase common stock of Company granted to Executive on January 12, 2004 and scheduled to vest
and become exercisable on January 12, 2006 have vested, and are fully exercisable, as of March 31,
2005. Such options, and all other options that were vested and exercisable as of such date, all as
scheduled on Schedule A, shall remain exercisable until March 31, 2006.

     6. Stock Purchase Plan. Schedule B attached hereto shows all Company stock purchased
by Executive pursuant to the Party City Corporation Employee Stock Purchase Plan.

     7. No Other Payments. Except as otherwise referred to in this Agreement, Company
shall make no other payments or provide any benefits to Executive.

     8. Consultation. For 90 days following the Effective Date (the “Consulting Period”)
Executive will continue to make herself available to the Company for reasonable part-time
consultation on senior-level projects and to respond to appropriate questions within her knowledge,
provided that Executive’s obligation to so consult shall not exceed more than 10 hours per month
(or 30 hours in the aggregate) and shall be provided at such times as are reasonably convenient to
Executive.

     9. General Release of Claims by Executive. Executive hereby agrees, for Executive,
Executive’s spouse and child or children (if any), Executive’s heirs, beneficiaries, devisees,
executors, administrators, attorneys, personal representatives, successors and assigns, forever to
release, discharge, and covenant not to sue Company, any of Company’s past, present, or future
parent, affiliated, related, and/or subsidiary entities, and all of their past and present
directors, shareholders, officers, general or limited partners, employees, agents, and attorneys,
and agents and representatives of such entities, and employee benefit plans in which Executive is
or has been a participant by virtue of her employment with Company, from any and all claims, debts,
demands, accounts, judgments, rights, causes of action, equitable relief, damages, costs, charges,
complaints, obligations, promises, agreements, controversies, suits, expenses, compensation,
responsibility and liability of every kind and character whatsoever (including attorneys’ fees and
costs), whether in law or equity, known or unknown, asserted or unasserted, suspected or
unsuspected, which Executive has or may have had against such entities based on any events or
circumstances arising or occurring on or prior to the Effective Date arising directly or
indirectly out of, relating to, or in any other way involving in any manner whatsoever, (a)
Executive’s

-2-

 

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

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

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

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

     11. Restrictive Covenants.

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

-3-

 

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

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

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

-4-

 

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

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

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

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

-5-

 

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

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

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

     12. Taxes. To the extent any taxes may be due on the payments to Executive provided
in this Agreement beyond any withheld by Company, Executive agrees to pay them herself. Executive
further agrees to provide any and all information pertaining to Executive upon request as
reasonably necessary for Company and other entities released herein to comply with applicable tax
laws.

     13. Trading of Company Stock. Executive confirms that she has been advised of her
Section 16 reporting obligations during the six-month period following the Effective Date.

     14. No Admission. By executing this Agreement, Company and Executive are not
admitting any liability or wrongdoing, and the considerations exchanged herein do not constitute

-6-

 

an admission of any liability, error, contract violation, or violation of any federal, state,
or local law or regulation.

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

     16. Approval and Authority. Executive and Company understand and agree that all terms
of this Agreement are contractual and are not a mere recital, and represent and warrant that they
are competent to covenant and agree as herein provided. Company has full power and authority to
enter into this Agreement and to carry out the terms of this Agreement. The execution, delivery
and performance of this Agreement by Company have been duly and properly authorized by all
necessary corporate actions. This Agreement constitutes the valid and binding obligation of
Company enforceable in accordance with its terms.

     17. Indemnification. Company hereby confirms and agrees with respect to any and all
matters arising out of or in connection with Executive’s prior employment by Company or Executive’s
engagement as a consultant hereunder, that Executive shall continue to be entitled to receive the
benefits of all indemnification provisions contained in the Certificate of Incorporation and
By-Laws of the Company, as in effect on the Effective Date, notwithstanding any changes therein
made after such Date, to the fullest extent permitted by applicable law at the time of the
assertion of any liability against Executive, including without limitation, advancement of expenses
as permitted by Section 145(e) of the Delaware General Corporation Law.

     18. Miscellaneous.

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

-7-

 

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

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

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

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

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

[Remainder of page left blank intentionally]

-8-

 

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

	 	 	 	 	 
	 	EXECUTIVE

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

	 	 	 	 	 
	 	PARTY CITY CORPORATION

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

-9-

 

Schedule A

	 	 	 	 	 	 	 	 	 
	Party City Corporation

	 	PERSONNEL SUMMARY
	 	Page:	 	1

	 

	 	AS OF 3/31/2005
	 	File:	 	Persnl

	 

	 	 	 	Date:
	 	3/28/2005
	 

	 	ID is equal to ###-##-####
	 	Time:	 	11:42:34 AM

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

	 	 	 	 	 
	A

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

	 	 	 
	Tranche # 3

	 	150,000 (A)

	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	# of days employed	 	 	 	 
	Tranche begin	 	 	 	since last vesting	 	 	 	 
	date	 	term Date	 	period	 	ratio	 	Shares
	1/12/2005

	 	3/31/2005
	 	78.00 (B)	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	32,055	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	365.00 (C)
	 	21.4% (D) = (B)/(C)
	 	 	(A) x 	(D)

 

 

Schedule B

Nancy Pedots Employee Stock Contribution Plan

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

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

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00088-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00088-of-00352.parquet"}]]