-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ByInDtXABrF73IDNwHorjQth/uKqzjCNtj5BRlcApge6VmYOKwuQ8pKjmTorKbkW 6pRmLvsnvtfPVWt3++/+kQ== 0001014865-99-000025.txt : 19990618 0001014865-99-000025.hdr.sgml : 19990618 ACCESSION NUMBER: 0001014865-99-000025 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 19990617 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: PARTY CITY CORP CENTRAL INDEX KEY: 0001005972 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-MISCELLANEOUS SHOPPING GOODS STORES [5940] IRS NUMBER: 223033692 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D SEC ACT: SEC FILE NUMBER: 005-48035 FILM NUMBER: 99648139 BUSINESS ADDRESS: STREET 1: 450 COMMONS WAY CITY: ROCKAWAY STATE: NJ ZIP: 07860 BUSINESS PHONE: 2019830888 MAIL ADDRESS: STREET 2: 400 COMMONS WAY CITY: ROCKAWAY STATE: NJ ZIP: 07866 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: FUTTERMAN JACK CENTRAL INDEX KEY: 0001047993 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: 16315 VINTAGE OAK LANE CITY: DELRAY BEACH STATE: FL ZIP: 33484 BUSINESS PHONE: 5616379967 MAIL ADDRESS: STREET 1: 16315 VINTAGE OAK LANE CITY: DELRAY BEACH STATE: FL ZIP: 33484 SC 13D 1 PARTY CITY CORPORATION 13D SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ------------ SCHEDULE 13D (Rule 13d-101) INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT TO 13d- 1(a) AND AMENDMENTS THERETO FILED PURSUANT TO 13d-2(a) (Amendment No. )1 Party City Corporation ---------------------- (Name of Issuer) COMMON STOCK, PAR VALUE $.01 PER SHARE -------------------------------------- (Title of Class of Securities) 702145103 -------------- (CUSIP Number) Matthew H. Kamens, Esq. Wolf, Block, Schorr and Solis-Cohen, LLP 111 South 15th Street Philadelphia, Pennsylvania 19102 Tel. No. (215) 977-2000 --------------------------------------------- (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) June 8, 1999 ------------------------------------------------------- (Date of Event Which Requires Filing of This Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(b)(3) or (4), check the following box [ ]. Note. Six copies of this statement, including all exhibits, should be filed with the Commission. See Rule 13d-1 (a) for other parties to whom copies are to be sent. (Continued on the following pages) (Page 1 of 44 Pages) - -------- * The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. The information required on the remainder of this cover page shall not be deemed to the "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). SCHEDULE 13D CUSIP No. 702145103 Page 2 of 44 Pages 1 NAMES OF REPORTING PERSONS I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY) Jack Futterman 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a)[ ] (b)[ ] 3 SEC USE ONLY 4 SOURCE OF FUNDS* N/A 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ] N/A 6 CITIZENSHIP OR PLACE OF ORGANIZATION United States 7. NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH SOLE VOTING POWER 1,026,500 8. NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH SHARED VOTING POWER 0 9. NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH SOLE DISPOSITIVE POWER 1,026,500 10. NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH SHARED DISPOSITIVE POWER 0 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 1,026,500 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ] N/A 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 8.2% 14 TYPE OF REPORTING PERSON* IN *SEE INSTRUCTIONS BEFORE FILLING OUT! Item 1. Security and Issuer. This Statement covers shares of common stock (the "Securities') , par value $.01 per share (the "Common Stock"), of Party City Corporation, a Delaware corporation (the "Company"), with its principal office at 400 Commons Way, Rockaway, New Jersey 07866. Item 2. Identity and Background. This statement is being filed by Jack Futterman (the "Reporting Person"). The Reporting Person is an individual, who is a citizen of the United States, with an address c/o Party City Corporation, 400 Commons Way, Rockaway, New Jersey 07866. The Reporting Person is the Chairman of the Board and Chief Executive Officer of Party City Corporation. The principal place of business and the principal office of the Reporting Person is c/o Party City Corporation, 400 Commons Way, Rockaway, New Jersey 07866. During the last five years, the Reporting Person has not been (i) convicted in a criminal proceeding or (ii) a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding has been subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws. Item 3. Source and Amount of Funds or Other Consideration. Not applicable. Item 4. Purpose of Transaction. The Reporting Person assumed the position of Chief Executive Officer on June 8, 1999. On such date, as incentive for the Reporting Person to assume his new position as Chief Executive Officer, and to more fully allign his interests with the shareholders' interest, Steven Mandell, a director of the Company and the immediately preceding Chief Executive Officer of the Company ("Seller") and the Reporting Person entered into an Option Agreement (the "Option Agreement"). The Option Agreement provides for an option to purchase by the Reporting Person (and certain of his permitted transferees) an aggregate of 1,000,000 shares of Seller's Common Stock at a price of $3.00 per share (the "Exercise Price") and the issuance and delivery to the Reporting Person of an instrument evidencing such option. Such option is referred to herein as the "Seller Option." The Seller Option issued to the Reporting Person is exercisable for a period of five years commencing on the grant date thereof. The Exercise Price of the Seller Option and the number of shares of Common Stock issuable upon exercise thereof are subject to adjustment in the event of a reorganization, recapitalization, stock split, stock dividend, combination of shares or similar change in the Company's shares, and in the event of a reorganization, consolidation or merger, or upon the sale of substantially all of the assets of the Company, to insure that the Reporting Person (or any of his permitted transferees) continues to hold substantially similar rights after any such occurrence as the Reporting Person holds on the date of grant. To secure performance of Seller's obligations under the Option Agreement, the Seller has pledged to the Reporting Person 1,000,000 shares of Seller's Common Stock, under the terms and conditions of a certain Stock Pledge Agreement, dated June 8, 1999, between the Seller and the Reporting Person (the "Stock Pledge Agreement"). (Page 3 of 44) The Reporting Person has acquired the Seller Option for investment. Except as set forth herein, the Reporting Person presently does not intend to acquire additional Securities of the Company. However, if the Reporting Person believes that further investment in the Company is attractive, whether because of the market price of the Company's securities or otherwise, such Reporting Person may acquire additional securities of the Company. Similarly, the Reporting Person, subject to applicable law and depending upon market and other factors, may from time to time determine to dispose some or all of the Securities. In addition, the Reporting Person (a) holds options to purchase 25,000 shares of Common Stock (the "Incentive Options") granted by the Company under its Incentive Stock Option Plan, which options are exercisable within 60 days from the date hereof and (b) owns 1,500 shares of Common Stock outright. The Incentive Options, together with the Seller Option are referred to herein as the "Options". Of the Incentive Options, 22,500 were granted by the Company on September 8, 1997, and have an exercise price of $16 per share and 2,500 were granted on July 30, 1998, and have an exercise price of $23.1875. Except as set forth herein, the Reporting Persons has no present intention to engage or cause the Company to engage in any of the transactions or activities specified in paragraphs (a) through (j) of Item 4 of Schedule 13D. However, the Reporting Person reserves the right, either individually or together with other persons, to act in respect of its interest in the Company in accordance with its best judgment in light of the circumstances existing at that time. Item 5. Interest in Securities of the Issuer. (a) The Reporting Person owns 1,500 shares of Common Stock and has the right to acquire 1,000,000 shares of Common Stock from the Seller pursuant to exercise of the Seller Option and 25,000 shares of Common Stock from the Company pursuant to an exercise of the Incentive Options, representing, in the aggregate, 8.2% of the outstanding shares of Common Stock. Note: The percentage set forth above was calculated by (i) adding the total number of shares of Common Stock that the Reporting Person owns (1,500) and has the right to acquire from Seller within 60 days (1,000,000) to the total number of shares that the Reporting Person has the right to acquire from the Company within 60 days (25,000); (ii) adding the total amount of shares that are not currently outstanding which the Reporting Person has a right to acquire within 60 days of the date hereof (25,000) through the exercise of an option from the Company to 12,448,863 (the number of shares of Common Stock outstanding as of September 30, 1998, such number having been provided by the Company to the Reporting Person) (the "Total Adjusted Outstanding Shares"), and then (iii) dividing the amount in (i) by the Total Adjusted Outstanding Shares, and then (iii) expressing such quotient in terms of a percentage. (b) The Reporting Person has been granted the Options to purchase the Securities, exercisable within 60 days. Accordingly, if the Reporting Person were to exercise the Options and pay the exercise price, he would possesses the sole power to vote and to dispose of the Securities. (c) See Item 4 regarding particulars with respect to the grant of the Options. (d) None, except that until the Seller Option is exercised and payment of the exercise price has been made by the Reporting Person, 1,000,000 shares of the Securities are held of record and beneficially by the Seller, and he has the power to receive and direct receipt of dividends upon the Securities. (Page 4 of 44) (e) Not applicable. Item 6. Contracts, Arrangements, Understandings or Relationships With Respect to Securities of the Issuer. See Item 4, which is incorporated herein by reference. In addition, the Company has granted to the Reporting Person registration rights relating to his shares of Common Stock. The scope of the registration rights entitles the Reporting Person to piggy back registrations and one demand registration for his shares of Common Stock during the term of the Reporting Person's employment with the Company and for a 5-year period after termination of his employment. The registration rights sooner terminate at such time as the Reporting Person can sell all of his shares of Common Stock in a single sale in the public market under Rule 144 promulgated under the Securities Act of 1933, as amended. These registration rights were granted in connection with Reporting Person's employment agreement with the Company dated June 8, 1999 (the "Employment Agreement"). Item 7. Material to be filed as Exhibits. The documents which have been filed as Exhibits are listed in the Exhibit Index herein. SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in the statement is true, complete and correct. Dated: June 14, 1999 /s/ Jack Futterman ------------------ JACK FUTTERMAN (Page 5 of 44) EXHIBIT INDEX Exhibit No. 1. Option Agreement, dated June 8, 1999, between Seller and the Reporting Person. 2. Stock Pledge Agreement, dated June 8, 1999, between Seller and the Reporting Person. 3. Employment Agreement, dated June 8, 1999, between the Company and the Reporting Person. (Page 6 of 44) EX-99.1 2 OPTION AGREEMENT, DATED JUNE 8, 1999 EXHIBIT 1 OPTION AGREEMENT (Page 7 of 44) OPTION AGREEMENT AGREEMENT, dated June 8, 1999, between Steven Mandell, having an address at P.O. Box 85, New Vernon, New Jersey 07976, ("Seller") and Jack Futterman, residing at 16315 Vintage Oaks Lane, Delray Beach, Florida 33484 ("Purchaser"). WHEREAS, the Seller is presently the Chief Executive Officer of Party City Corporation, a Delaware corporation (the "Company"), and is the beneficial owner of 2,457,500 shares of the Company's common stock, par value $.01 per share (the "Common Stock"), and the record owner of at least 1,000,000 of such shares; and WHEREAS, the Purchaser is becoming the Chief Executive Officer of the Company on the date hereof; and WHEREAS, the Seller wishes to grant to Purchaser an option to purchase certain of his shares of Common Stock on the terms set forth herein, as an inducement for Purchaser to take on the responsibility of Chief Executive Officer of the Company; and WHEREAS, Seller's inducement to grant this option is that by virtue of Purchaser's new position as Chief Executive Officer, the value of Sellers's shares that are not subject to the option may increase in value. NOW, THEREFORE, in consideration of the foregoing and the mutual agreements set forth herein, and for other good and valuable consideration, receipt of which is hereby acknowledged, the parties hereto agree as follows: I. OPTION. 1.01. GRANT OF THE OPTION; TERM. Subject to the terms of this Agreement, in reliance on the representations, warranties and agreements of the Purchaser contained herein, the Seller hereby grants to the Purchaser an option to purchase, in whole or in part, 1,000,000 shares of Common Stock at any time during the period commencing on the date hereof and ending on the fifth anniversary of the date hereof, at the exercise price per share of $3.00 (the "Purchase Price"). The option shall be evidenced by one or more option certificates substantially in the form attached hereto as Exhibit A (the "Option"). 1.02. EXERCISE OF THE OPTION AND PURCHASE OF THE SHARES. The Option shall be exercised upon receipt by the Seller of a duly executed and completed facsimile of the form for such purpose attached hereto as Exhibit A, accompanied by a bank or certified check issued by any domestic office of a bank organized under the laws of the United States of America or any state thereof, which has net assets of not less than $100 million, in the amount of the Purchase Price for the number of shares being purchased in accordance with the terms set forth below. Notwithstanding the foregoing the 1 (Page 8 of 44) Option may not be exercised at any time for less than 100,000 Option Shares (as hereinafter defined and as the same may be adjusted under Section 1.04 hereof), and the Option shall not be exercised more than six times over the course of the five-year term, unless the same shall be waived in writing by Seller. 1.03. DELIVERY BY THE SELLER OF THE OPTION SHARES. As promptly as practicable after any exercise of the Option, the Seller shall do all things necessary or appropriate and execute and deliver all documents and instruments necessary or appropriate, including without limitation, duly executed stock powers, to cause certificate(s) registered in the name of the Purchaser to be delivered to Purchaser, or his permitted transferees, for the shares of Common Stock so purchased. 1.04. ADJUSTMENT. The price and number of shares subject to the Option shall be appropriately adjusted in the event of a reorganization, recapitalization, stock split, stock dividend, combination of shares or similar change in the Company's shares. Upon the subdivision or combination of the outstanding shares of Common Stock or the issuance of a stock dividend, payable in shares, to holders of Common Stock, the Purchase Price shall be adjusted by multiplying the Purchase Price by a fraction, the numerator of which is equal to the number of issued and outstanding shares of Common Stock immediately prior to such subdivision, combination or stock dividend, and the denominator of which is equal to the number of issued and outstanding shares of Common Stock immediately following such subdivision, combination or stock dividend. If the Company shall be reorganized, consolidated, or merged with another corporation, or if all or substantially all of the assets of the Company shall be sold or exchanged, or if there is a recapitalization, stock split, stock dividend, combination of shares or similar change in the Company's shares, the Purchaser shall at the time of issuance of the stock under such corporate event be entitled to receive, upon the exercise of his Option, the same number and kind of shares of stock or the same amount of property, cash or securities as the Purchaser would have been entitled to receive upon the occurrence of any such corporate event as if the Purchaser had been, immediately prior to such event, the holder of the number of shares covered by his Option so exercised. 1.05. PLEDGE OF SHARES. The Option evidenced hereby shall be secured by Seller's pledge of 1,000,000 shares of Common Stock to Purchaser, upon the terms and subject to the conditions contained in a Stock Pledge Agreement (the "Stock Pledge Agreement") mutually agreed to by the parties. As and when the option is exercised, the Option Shares, deliverable upon such exercise shall be released from the pledge. II. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser hereby represents and warrants to the Seller as follows: 2.01. AUTHORITY. The Purchaser has the power and authority to enter into and perform his obligations under this Agreement and the Option and to consummate the transactions contemplated hereby and thereby. This Agreement has been duly executed and delivered by the Purchaser. 2 (Page 9 of 44) 2.02. VALID AND BINDING OBLIGATIONS. This Agreement and the Option constitute the valid and binding obligations of the Purchaser enforceable against the Purchaser in accordance with their respective terms, except that the remedy of specific performance and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. 2.03. INVESTMENT INTENT. The Purchaser represents, warrants and agrees that he is acquiring the Option and upon the exercise of the Option, he will acquire the shares of common stock issued pursuant thereto (the "Option Shares") for his own account and not with a view to the sale or distribution thereof other than in accordance with the Securities Act of 1933, as amended, (the "Securities Act") or pursuant to this Agreement and that there will be placed on the certificate or certificates representing the Option, and/or the Option Shares or any certificates delivered in substitution for any of the foregoing, a legend stating in substance: "This option and the securities issuable upon exercise of this option are restricted securities, as defined in Rule 144 promulgated under the Securities Act of 1933, as amended, and have not been registered under such Act. Accordingly, in the absence of such registration, these securities may only be sold or transferred pursuant to that rule or under another exemption from registration under said Act." 2.04. NO VIOLATION. The execution and delivery of this Agreement by the Purchaser and the consummation by the Purchaser of the transactions contemplated hereby will not violate or conflict with the terms, conditions or provisions of any agreement or obligation or any order, arbitration award, judgment or decree or (to the knowledge of Purchaser) any law, rule or regulation to which the Purchaser is subject, or by which his assets may be bound, which would prohibit the Purchaser from consummating the transactions contemplated hereby. 2.05. NO CONSENTS. No approval, consent, order, authorization of or exemption by any governmental authority or any person not a party to this Agreement is required by or with respect to the Purchaser in connection with the execution, delivery and performance of this Agreement by the Purchaser or the consummation by the Purchaser of the transactions contemplated hereby. 2.06. NO BROKERS OR FINDERS. The Purchaser has not engaged or agreed to pay any commission, fee or like remuneration to any finder, broker or agent in connection with this Agreement, or the performance by the parties of any of their obligations under this Agreement which could result in any obligation of the Seller or the Company. 2.07. NO RELIANCE ON SELLER. Purchaser represents and warrants that he has made his own independent evaluation of the Company before entering into this Agreement and has not and is not relying on any representations or warranties made by the Seller relating to the Company. In no event shall Purchaser be entitled to assert any claim against Seller, except for any breach by Seller of any of his express representations and warranties contained in this Agreement. 3 (Page 10 of 44) III. REPRESENTATIONS AND WARRANTIES OF THE SELLER. The Seller hereby represents and warrants to the Purchaser as follows: 3.01. AUTHORITY OF THE SELLER. The Seller has the power and authority to enter into and perform his obligations under this Agreement and the Option and to consummate the transactions contemplated hereby and thereby. This Agreement has been duly executed and delivered by the Seller. 3.02. OPTION VALID AND BINDING OBLIGATIONS. This Agreement and the Option constitute the valid and binding obligations of the Seller enforceable against the Seller in accordance with their respective terms, except that the remedy of specific performance and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. 3.03. OPTION SHARES. The Option Shares owned by the Seller are fully paid and non-assessable to the Seller, and are free and clear of any lien, encumbrance or claim whatsoever, other than those created in favor of Purchaser pursuant to the Stock Pledge Agreement. There is no outstanding agreement, option, warrant or right to purchase or otherwise acquire by or from the Seller any shares or securities of the Company or any calls thereon or commitments relating thereto. 3.04. NO VIOLATION. The execution and delivery of this Agreement and the Option by the Seller and the consummation by the Seller of the transactions contemplated hereby and thereby will not violate the terms, conditions or provisions of any agreement or obligation or any order, arbitration award, judgment or decree or (to the knowledge of the Seller) any law, rule or regulation to which the Seller is subject, or by which any of his assets may be bound, which would prohibit the Seller from consummating the transactions contemplated hereby and thereby. 3.05. NO CONSENTS. No approval, consent, order, authorization of or exemption by any governmental authority or any person not a party to this Agreement or the Option is required by or with respect to the Seller in connection with the execution, delivery and performance of this Agreement or the Option by the Seller or the consummation by the Seller of the transactions contemplated hereby or thereby except for filings required under Federal securities laws or state securities or "blue sky" laws which have been made or which, according to such applicable law, may be made following the date hereof and which the Seller has committed to make within the prescribed time period. 3.06. SOLVENCY. As of the date hereof and after giving effect to the transactions contemplated by this Agreement and the Seller is able to pay his debts as they become due and the value of the Seller's assets valued at fair market value exceeds his liabilities excluding any contingent liabilities on account of pending shareholder suits, copies of which have been supplied to Seller. 3.07. NO BROKERS OR FINDERS. The Seller has not engaged or agreed to pay any commission, fee or like remuneration to any finder, broker or agent in connection with this Agreement or the 4 (Page 11 of 44) Option or the performance by the parties of any of their obligations under this Agreement or the Option which could result in any obligation of the Purchaser. 3.08. SELLER'S CONSIDERATION. The Seller acknowledges that he has made the business decision to enter into this Option for the consideration set forth in the recitals. IV. COVENANTS OF THE PARTIES. 4.01. RESTRICTIONS ON TRANSFERABILITY. (a) The Purchaser covenants and agrees that so long as the Purchaser is the record or beneficial owner of the Option, any Option Shares or any other securities of the Company which are entitled to vote or which are convertible into securities of the Company which are entitled to vote ("Voting Securities") (collectively the Option, upon exercise, the Option Shares and Voting Securities are referred to as the "Securities"), the Purchaser shall not, directly or indirectly (by operation of law or otherwise) sell, assign, mortgage, hypothecate, transfer, pledge, create a security interest in or lien upon, encumber, give or otherwise dispose of any of such Securities (a "Transfer") except: (i) Purchaser's Transfer of all or a portion of the Securities following Purchaser's death by will or intestacy to Purchaser's legal representative, heir or legatee; (ii) Purchaser's Transfer of any or all of the Securities owned by Purchaser as a gift or gifts during Purchaser's lifetime to Purchaser's spouse, children (including stepchildren), grandchildren or a trust or other legal entity for the benefit of Purchaser or any of the foregoing; (iii) sales of Securities pursuant to a distribution to the public, registered under the Securities Act; (iv) sales of Securities pursuant to Rule 144 of the General Rules and Regulations under the Securities Act; (v) sales of any Securities to the Company or the Seller or to any person, corporation, entity or group designated by the Seller; (vi) sales of Securities pursuant to a private placement in accordance with the provisions of Regulation D under the Securities Act in which each of the proposed purchasers agrees in advance in writing to be bound by the provisions of this Agreement as if such person were the Purchaser; or (vii) sales of Securities pursuant to an exemption from registration under the Securities Act. 5 (Page 12 of 44) The Purchaser shall notify the Seller, for his records, of all Transfers of all or a portion of the Option as and when the Transfers are effected. Promptly upon Purchaser's written request, Seller shall execute one or more option certificates in the name of one or more of Purchaser's permitted transferees, in such amounts as shall be requested by Purchaser (so long as in the aggregate all of the Option Shares represented by all outstanding option certificates plus all shares purchased upon exercise of option certificates do not exceed 1,000,000 Option Shares, as the same may be adjusted under the terms of this Agreement). 4.02. TRANSFEREE'S RIGHTS. Any transferee of any of Purchaser's rights in the Option or this Agreement shall be deemed to have agreed to be bound by and be subject to all of the provisions of this Agreement (including but not limited to Section 2.07). V. INDEMNITY. 5.01. INDEMNIFICATION BY SELLER. Seller shall indemnify Purchaser, his successors and assigns and permitted transferees and hold Purchaser and the foregoing named persons harmless from any charges, claims, damages, settlements, costs, judgments, decrees, expenses (including reasonable counsel fees and expenses), penalties and liabilities of any kind or nature whatsoever which may be sustained or suffered by or secured against Purchaser and/or any of the foregoing named persons, arising out of or as a result of any breach by Seller of any of his covenants, agreements, representations or warranties under any of the provisions of this Agreement. 5.02. INDEMNIFICATION BY PURCHASER. Purchaser shall indemnify Seller, his successors and assigns, and hold Seller and the foregoing named persons harmless from any charges, claims, damages, settlements, costs, judgments, decrees, expenses (including reasonable counsel fees and expenses), penalties and liabilities of any kind or nature whatsoever which may be sustained or suffered by or secured against Seller and/or any of the foregoing named persons, arising out of or as a result of any breach by Purchaser of any of his covenants, agreements, representations or warranties under any of the provisions of this Agreement. VI. MISCELLANEOUS. 6.01. ASSIGNMENT. This Agreement and the Option granted hereby is assignable, in whole or in part, by the Purchaser to the permitted transferees only to the extent permitted in Section 4.01(a). 6.02. PARTIES IN INTEREST. All of the terms and provisions of this Agreement shall be binding upon, shall inure to the benefit of, and shall be enforceable by and against the respective heirs, devisees, legal representatives, successors, permitted assigns and other permitted transferees of the parties hereto, including without limitation, the Stock Pledge Agreement. 6.03. SURVIVAL OF REPRESENTATIONS. All representations, warranties and agreements made by the Seller and Purchaser in this Agreement shall survive the exercise of the Option. 6 (Page 13 of 44) 6.04. FURTHER ASSURANCES. The parties hereto will execute and deliver any and all documents and will take any and all actions in addition to those provided for herein that may be appropriate or necessary to effectuate the provisions of this Agreement, whether at or after the Closing. 6.05. ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the other agreements delivered simultaneously herewith, including, without limitation, the Stock Pledge Agreement, contain the entire understanding of the parties with respect to its subject matter. There are no restrictions, agreements, promises, warranties, covenants or undertakings other than those expressly set forth herein. This Agreement may be amended only by a written instrument duly executed by the parties or their respective successors or assigns. 6.06. HEADINGS. The Article and Section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 6.07. NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed given on the date of delivery, if by personal delivery, or on the next day if delivered by overnight mail by a nationally recognized courier service, or on the third business day after mailing if sent by mail (registered or certified mail, postage prepaid, return receipt requested) to the respective parties as follows: to the Seller: Steven Mandell P.O. Box 85 New Vernon, New Jersey 07976 With a copy to Dewey Ballantine LLP 1301 Avenue of the Americas New York, NY 10019 Attention: Stuart Hirshfield, Esq. If to the Purchaser: Jack Futterman 16315 Vintage Oaks Lane Delray Beach, FL 33484 7 (Page 14 of 44) With a copy to Prior to 7/4/99 After 7/4/99 ------------------------------------- ------------------------------------- Wolf, Block, Schorr & Solis-Cohen LLP Wolf, Block, Schorr & Solis-Cohen LLP 12th Floor, Packard Building 1650 Arch Street Philadelphia, PA 19102 Philadelphia, PA 19103 Attention: Matthew H. Kamens, Esq. Attention: Matthew H. Kamens, Esq or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 6.08. ARBITRATION. Any dispute or controversy arising out of or relating to this Agreement, any document or instrument delivered pursuant to, in connection with, or simultaneously with this Agreement, including without limitation, the Stock Pledge Agreement, or any breach of this Agreement or any such document or instrument shall be settled by arbitration to be held in Essex County in New Jersey in accordance with the rules then in effect of the American Arbitration Association or any successor thereto. The arbitrator may grant injunction or other relief in such dispute or controversy and may, if requested by either of the parties, determine which or both of the parties shall bear the costs of the arbitration (other than the costs of each party's legal fees which costs shall be borne by the party incurring same) and, if both parties shall bear the costs, then the allocation of such costs between them. The decision of the arbitrator shall be final, conclusive, and binding on the parties to the arbitration. Judgment may be entered on the arbitrator's decision in any court having jurisdiction, and the parties irrevocably consent to the jurisdiction of the United States District Court for the District of New Jersey for this purpose. In any such arbitration, the parties waive personal service of any process or other papers and agree that service thereof may be made in accordance with Paragraph 6.07. 6.09. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be an original, but all of which together shall constitute one and the same Agreement. 6.10. GOVERNING LAW. This Agreement shall be and construed in accordance with the laws of the State of New York. IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties hereto through duly authorized officers on the day and year first above written. /S/ Steven Mandell -------------------- STEVEN MANDELL /S/ Jack Futterman -------------------- JACK FUTTERMAN 8 (Page 15 of 44) EXHIBITS -------- Exhibit A: Option Certificate 9 (Page 16 of 44) SCHEDULE A ---------- List of share certificates to be pledged: 1. Certificate No. ____ evidencing 500,000 shares 2. Certificate No. ____ evidencing 100,000 shares 3. Certificate No. ____ evidencing 100,000 shares 4. Certificate No. ____ evidencing 100,000 shares 5. Certificate No. ____ evidencing 100,000 shares 6. Certificate No. ____ evidencing 100,000 shares 10 (Page 17 of 44) EXHIBIT A THE SECURITIES REPRESENTED HEREBY AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THESE OPTIONS ARE RESTRICTED SECURITIES, AS DEFINED IN RULE 144 PROMULGATED UNDER THE SECURITIES ACT OF 1933 AND HAVE NOT BEEN REGISTERED UNDER SUCH ACT. ACCORDINGLY, IN THE ABSENCE OF SUCH REGISTRATION, THESE SECURITIES MAY ONLY BE SOLD OR TRANSFERRED PURSUANT TO THAT RULE OR UNDER ANOTHER EXEMPTION FROM REGISTRATION UNDER SAID ACT. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO, AND MAY BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF ONLY UPON COMPLIANCE WITH THE TERMS AND PROVISIONS OF THAT CERTAIN OPTION AGREEMENT DATED JUNE 8, 1999, BY AND BETWEEN STEVEN MANDELL AND JACK FUTTERMAN, A COPY OF WHICH IS ON FILE AT THE OFFICE OF THE SECRETARY OF PARTY CITY CORPORATION. OPTION CERTIFICATE 1,000,000 SHARES OF COMMON STOCK STEVEN MANDELL, having an address at P.O. Box 85, New Vernon, New Jersey 07976, hereby certifies that, for value received, Jack Futterman, with a residence at 16315 Vintage Oaks Lane, Delray Beach, Florida 33484, and/or any of his permitted transferees (the "Option Holder"), is entitled, subject to the terms of this Option Certificate, to purchase from Steven Mandell, in whole or in part, at any time during the five-year period commencing on the date hereof (the "Commencement Date") and ending on the fifth anniversary from the Commencement Date, 1,000,000 shares of the common stock, par value $.01 per share (the "Common Stock") of Party City Corporation (the "Company"), at a purchase price per share equal to $3.00 per share (the "Purchase Price"). The number of shares of Common Stock that may be purchased upon the exercise of the Option (the "Option Shares") and payment of the Purchase Price, as set forth in the preceding sentence, are subject to adjustment as provided in this Option Certificate. 1. EXERCISE OF OPTION. This Option Certificate may be exercised at any time or from time to time, in whole or in part, during the period commencing on the Commencement Date and ending at 5:00 p.m. on the fifth anniversary of the Commencement Date by delivery of this Option Certificate to Steven Mandell at the address listed above (or such other address as Steven Mandell may designate in writing to the Option Holder in accordance with Section 8), together with an Exercise Form in the form attached hereto and payment in an amount equal to the Purchase Price multiplied by the number of shares being acquired (the "Aggregate Purchase Price"). Notwithstanding the foregoing, the Option Holder may not exercise the Option evidenced hereby at any time for less than 100,000 Option Shares (as the same may be adjusted under the terms of Section 4 hereof) and the Option Holder, together with any and all other Option Holders, may not exercise the Option evidenced by this Option Certificate and by any other Option Certificate issued pursuant to the Option Agreement dated June 11 (Page 18 of 44) 8, 1999, between Steven Mandell and Jack Futterman, in the aggregate, more than six (6) times over the course of the five-year term, unless the same shall be waived in writing by Steven Mandell. Payment shall be made by delivery to Steven Mandell of a certified check or bank check issued by any domestic office of a bank organized under the laws of the United States of America or any state thereof, which has net assets of not less than $100 million, payable to the order of Steven Mandell in an amount equal to the Aggregate Purchase Price. As promptly as practicable after any exercise of the Option evidenced by this Option Certificate, Steven Mandell shall do all things necessary or appropriate and execute and deliver all documents and instruments necessary or appropriate, including without limitation, stock powers duly executed, to cause a certificate or certificates registered in the name of the Option Holder for the shares of Common Stock so purchased to be delivered to the Option Holder. If the Option Holder exercises the Option to purchase fewer than all the Option Shares subject to this Option Certificate, Steven Mandell shall, on the date of delivery of the certificate representing the Option Shares so purchased, deliver to the Option Holder a new Option Certificate evidencing an option to purchase the number of Option Shares resulting from the subtraction of the number of Option Shares purchased from the number of Option Shares evidenced by this Option Certificate immediately prior to the exercise. 2. FRACTIONAL SHARES AND OPTIONS. The Option Holder may not exercise the option to purchase a fraction of an Option Share, but may purchase only an integral number of Option Shares. If, at the time of exercise of the Options evidenced by this Option Certificate, a fractional share of the Common Stock would be deliverable to the Option Holder, Steven Mandell, at his option, may pay the Option Holder an amount equal to the current market price of the Common Stock on the date of exercise multiplied by the same fraction. 3. TRANSFERABILITY. By acceptance of this Option, (a) the Option Holder confirms his representations and agreements set forth in the Option Agreement of even date herewith between Steven Mandell and the Option Holder relating to the Option Holder's investment intent and restrictions on transferability of the Options and the Option Shares and (b) any transferee of this Option agrees to be subject to the Option Agreement as if he or it were the Purchaser thereunder. 4. ADJUSTMENT IN NUMBER OF SHARES AND PURCHASE PRICE. If the total number of outstanding shares of Common Stock of the Company is hereafter changed by reason of any stock dividend, stock split, combination, subdivision or recapitalization, an appropriate adjustment will be made in the number of shares that can be purchased hereunder and the exercise price. Upon the subdivision or combination of the outstanding shares of Common Stock or the issuance of a stock dividend, payable in shares, to holders of Common Stock, the Purchase Price shall be adjusted by multiplying the Purchase Price by a fraction, the numerator of which is equal to the number of issued and outstanding shares of Common Stock immediately prior to such subdivision, combination or stock dividend, and the denominator of which is equal to the number of issued and outstanding shares of Common Stock immediately following such subdivision, combination or stock dividend. If the Company shall be reorganized, consolidated, or merged with another corporation, or if all or substantially all of the assets of the Company shall be sold or exchanged, or if there is a recapitalization, stock split, stock dividend, combination of shares or similar change in the Company's shares, the Purchaser shall at the time of issuance of the stock under such corporate event be entitled to receive, upon the exercise of his or her Option, the same number and kind of shares of 12 (Page 19 of 44) stock or the same amount of property, cash or securities as the Purchaser would have been entitled to receive upon the occurrence of any such corporate event as if the Optionee had been, immediately prior to such event, the holder of the number of shares covered by his or her Option so exercised. 5. NO RIGHTS AS STOCKHOLDER. The Option Holder, by virtue of holding the Option evidenced by this Option Certificate, shall not be entitled to vote or receive dividends or be deemed to be or be entitled to any rights of a stockholder of the Company and the Option Holder shall have no rights other than those specifically set forth herein. 6. COMPLETE AGREEMENT; MODIFICATION AND TERMINATION. This Option Certificate contains, or otherwise makes reference to, a complete statement of all the arrangements with respect to the Options evidenced by this Option Certificate and cannot be changed or terminated orally. 7. NOTICE. All notices and other communications relating to the Options shall be in writing and shall be deemed to have been duly given when delivered personally or mailed (registered or certified mail, postage prepaid, return receipt requested) as follows: (a) if to the Option Holder, then to Jack Futterman 16315 Vintage Oaks Lane Delray Beach, FL 33484 (b) if to Steven Mandell, to: Steven Mandell P.O. Box 85 New Vernon, New Jersey 07976 or to such other address as the party to whom notice is to be given shall have previously furnished the other party in writing in the manner set forth above. 8. GOVERNING LAW. The Options evidenced by this Option Certificate shall be governed by and construed in accordance with the laws of the State of New York. 9. HEADINGS. The headings in this Option Certificate are solely for convenience of reference and shall not affect the meaning or interpretation of this Option Certificate. Dated: June 8, 1999 /s/ Steven Mandell ------------------------------------ STEVEN MANDELL 13 (Page 20 of 44) EXERCISE FORM ------------- (To be executed by the Option Holder to exercise the Option evidenced by the attached Option Certificate) Mr. Steven Mandell P.O. Box 85 New Vernon, New Jersey 07976 Dear Mr. Mandell: The undersigned, pursuant to and in accordance with the terms and conditions of the option certificate (the "Option Certificate") issued by you, on ____________________, hereby irrevocably exercises his option evidenced by the Option Certificate, and requests that a certificate for ____ shares of Party City Corporation Common Stock, par value $____ per share ("Common Stock"), issuable upon the exercise of the option be issued in the name of the undersigned and delivered to the undersigned at the address stated below. Pursuant to Section 1 of the Option Certificate and in complete satisfaction of the Aggregate Purchase Price for the shares of Common Stock specified herein issuable upon the exercise of the option, the undersigned is delivering to you herewith, a certified or bank cashier's check payable to your order in the amount of $__________. The undersigned agrees that the undersigned shall not offer, sell, transfer or otherwise dispose of any shares of Common Stock issuable upon the exercise of the option evidenced by the Option Certificate except in accordance with the terms of that certain Option Agreement dated as of June 8, 1999, by and between Jack Futterman and Steven Mandell. Dated: By:________________________ Registered Holder Address: 14 (Page 21 of 44) EX-99.2 3 STOCK PLEDGE AGREEMENT, DATED JUNE 8, 1999 EXHIBIT 2 STOCK PLEDGE AGREEMENT (Page 22 of 44) STOCK PLEDGE AGREEMENT This STOCK PLEDGE AGREEMENT (this "Agreement"), dated as of June __,1999, is by and between STEVEN MANDELL, having an address at P.O. Box 85, New Vernon, New Jersey 07976 ("Pledgor"), and JACK FUTTERMAN, residing at 16315 Vintage Oaks Lane, Delray Beach, Florida 33484 ("Secured Party"). WITNESSETH: WHEREAS, Secured Party and Pledgor have entered into that certain Option Agreement (the "Option") of even date, whereby Pledgor has granted to Secured Party an option to purchase 1,000,000 shares (the "Shares") of Pledgor's common stock, par value $.01 per share ("Common Stock"), of Party City Corporation, a Delaware corporation (the "Company") at an exercise price of $3.00 per share (as more fully described in the Option); and WHEREAS, as security for performance of the Option and under any other instrument, document, or agreement executed and delivered by Pledgor pursuant to the Option (if any, the "Other Documents"), Pledgor has agreed to pledge and grant a lien and security interest to Secured Party in the Shares and Pledgor has agreed to execute and deliver this Agreement to Secured Party. NOW, THEREFORE, in consideration of the foregoing premises and for other good and valuable consideration, the receipt of which is hereby acknowledged, each party intending to be legally bound hereby, the Pledgor and the Secured Party hereby agree as follows: 1. DEFINITIONS. Unless the context otherwise requires, all terms used but not expressly defined herein shall have the meanings, if any, given to them in the Option or, if they are not defined in the Option but are defined in the Uniform Commercial Code, as enacted in New York (the "Code"), they shall have the same meaning herein as in the Code. 2. PLEDGE OF THE PLEDGED COLLATERAL AND ADJUSTMENTS. (a) As security for the performance of the Pledgor's obligations under the Option (collectively, the "Obligations"), Pledgor hereby pledges, delivers and sets over unto Secured Party, and grants a lien and security interest to Secured Party, in the following (collectively, the "Pledged Collateral"): (i) the Shares; (ii) Pledgor's rights in any stock dividend, reclassification, readjustment or other change declared or made by the Company with respect to or affecting the Shares; (iii) Pledgor's rights in any subscription warrants or any other rights or options issued by the Company in connection with the Shares; and (iv) all proceeds of any of the foregoing upon sale, exchange or other disposition of any of the foregoing (but excluding cash payments or distributions made by the Company with respect to any of the foregoing as a result of owning, rather than disposing of, any of the foregoing-which payments or distributions are referred to herein as "Distributions"). 1 (Page 23 of 44) (b) All new, substituted and additional shares (such shares to be included within the definition of the Shares hereunder), warrants, rights, options or other securities, issued by reason of any of the foregoing, in respect of the Pledged Collateral, shall be immediately delivered to and held by (or otherwise retained by) the Secured Party under the terms of this Pledge Agreement and shall constitute Pledged Collateral hereunder. (c) Simultaneously with the execution of this Pledge Agreement, Pledgor hereby delivers to the Secured Party the original stock certificate(s) evidencing the Shares, as described in more detail on Schedule A hereto, accompanied by stock powers in the form of Exhibit A attached hereto and made a part hereof, duly executed in blank for all of the Shares. (d) In addition, the Pledgor shall, upon request of the Secured Party, deliver to the Secured Party such financing statements as may be necessary or desirable, in the reasonable opinion of the Secured Party to perfect the security interest created herein. Pledgor hereby authorizes Secured Party to file, and appoints Secured Party his attorney-in-fact for the purpose of executing and filing financing statements or continuation statements to the extent permitted by applicable law. 3. POWER OF ATTORNEY. (a) The Secured Party shall have no obligation with respect to the Pledged Collateral or any other property held or received by it hereunder except to use reasonable care in the custody thereof to the extent required by law. The Secured Party may hold the Pledged Collateral in the form in which it is received by it. (b) The Pledgor, to the full extent permitted by law, hereby constitutes and irrevocably appoints the Secured Party (and any officer or agent of the Secured Party, with full power of substitution and revocation) as the Pledgor's true and lawful attorney-in-fact, in the Pledgor's stead and in the name of the Pledgor, to transfer, upon the occurrence of an Event of Default, the Pledged Collateral on the books of the Company, in whole or in part, to the name of the Secured Party or such other Person or Persons as the Secured Party may designate in accordance with the terms of the Option and, upon the occurrence of an Event of Default, to take all such other and further actions as the Pledgor could have taken with respect to the Pledged Collateral and as the Secured Party in its reasonable discretion determines to be necessary or appropriate to accomplish the purposes of this Agreement and the Option. (c) The limited powers of attorney granted pursuant to this Agreement and all authority hereby conferred are granted and conferred solely to protect the Secured Party's interests in the Pledged Collateral and shall not impose any duty upon the attorney-in-fact to exercise such powers. Such powers of attorney shall be irrevocable prior to the performance in full of the Obligations or expiration of the Option, and shall not be terminated prior thereto or affected by any act of the Pledgor or other Persons or by operation of law. 4. VOTING RIGHTS, DIVIDENDS, ETC. During the term of this Pledge Agreement, and except as otherwise provided in this Section 4, (a) Pledgor shall have the right to vote the Shares on all corporate questions in a manner not inconsistent with the terms of this Pledge Agreement and any other agreement, instrument or document executed pursuant thereto or in connection therewith and (b) all Distributions, if any, in respect of the Pledged Collateral, shall be the property of the Pledgor. 2 (Page 24 of 44) Any Distributions received by Secured Party prior to either the exercise of the Option with respect to any Shares or prior to the occurrence of an Event of Default shall be promptly forwarded to Pledgor. After the Option has been duly exercised, including payment of the exercise price, (x) the Secured Party may, at the Secured Party's option and following written notice from the Secured Party to Pledgor, exercise all voting powers pertaining to the Pledged Collateral, and Pledgor hereby grants Secured Party an irrevocable proxy, coupled with an interest, therefor, and (y) all Distributions, if any, in respect of the Pledged Collateral, shall be the property of the Secured Party. Any Distributions received by Pledgor after either the exercise of the Option with respect to any Shares, including payment of the exercise price therefor, or after the occurrence of an Event of Default shall be promptly forwarded to Secured Party. 5. PLEDGOR'S COVENANTS, REPRESENTATIONS AND WARRANTIES. (a) Pledgor reaffirms his representations, warranties and covenants set forth in the Option Agreement; and (b) Pledgor agrees to defend the Pledged Collateral from all claims, liens, suits, or asserted rights of all other parties to the Pledged Collateral arising out of an action or omission of Pledgor. 6. RETURN OF THE PLEDGED COLLATERAL UPON TERMINATION; TERMINATION OF FINANCING STATEMENT. The Pledged Collateral shall be released, in whole or in part, from the lien created by this Agreement to the extent that the Secured Party exercises its Option. Upon expiration of the Option, Secured Party shall cause to be transferred to Pledgor all of the Pledged Collateral then in its possession, to the extent Secured Party has not exercised its option under the terms of the Option or taken, sold or otherwise realized upon the same pursuant to its rights hereunder. Immediately following the termination of the lien created by this Agreement, Secured Party shall execute and deliver to Pledgor, at Secured Party's expense, such documents as Pledgor may reasonably request to release the Pledged Collateral from the lien of this Agreement and shall cause any Pledged Collateral remaining in its possession to be transferred to Pledgor or his nominee in accordance with Pledgor's instructions. 7. EVENT OF DEFAULT. The following event shall constitute an Event of Default hereunder: a failure by Pledgor to perform his obligations under the Option if such failure is coupled with an exercise of the Option including payment of the exercise price by Secured Party or his permitted transferee pursuant to the provisions of the Option. 8. REMEDIES UPON DEFAULT. Upon the occurrence of an Event of Default Secured Party shall have (a) the right to recover from Seller all actual damages arising as a result of such Event of Default, and (b) all of the rights of a secured party under the Code, including without limitation, seizure of, foreclosure upon and/or sale of the Pledged Collateral. The proceeds of any such sale shall be the property of Secured Party. Notwithstanding the foregoing, Pledgor irrevocably agrees that Secured Party may, in lieu of foreclosure upon and sale of the Pledged Collateral, seize and retain the Pledged Collateral upon the occurrence of an Event of Default. 9. TRANSFER AND ASSIGNMENT. Pledgor may not transfer its rights or liabilities under this Pledge Agreement to any other person without the express written consent of the Secured Party. 3 (Page 25 of 44) Secured Party may transfer its rights and obligations solely to the permitted transferees as set forth in the Option, on written notice to Pledgor. 10. FURTHER ASSURANCES. Pledgor agrees that it will cooperate with the Secured Party and will execute and deliver, or cause to be executed and delivered, all such other stock powers, proxies, instruments and documents, and will take all such other action, including, without limitation, the execution of financing statements, as the Secured Party may reasonably request from time to time in order to carry out the provisions and purposes of this Pledge Agreement. 11. MISCELLANEOUS. (a) No Waivers. No action, failure to act, or knowledge of Secured Party shall be deemed to constitute a waiver of any power, right, or remedy hereunder, nor shall any single or partial exercise thereof preclude any further exercise thereof or the exercise of any other power, right, or remedy. The failure, or delay of Secured Party at any time or times to require performance of, or to exercise its rights with respect to, any representation, warranty, covenant, or other term or provision of this Pledge Agreement in no manner shall affect its right at a later time to enforce any such provision. No notice to or demand on a party in any case shall entitle such party to any other or further notice or demand in the same, similar, or other circumstances. (b) Amendment. This Pledge Agreement shall not be amended nor shall any right hereunder be deemed waived except by a written agreement expressly setting forth the amendment or waiver and signed by the party against whom or which such amendment or waiver is sought to be charged. (c) Counterparts. This Pledge Agreement may be executed by the parties on any number of separate counterparts, and by each party on separate counterparts; each counterpart shall be deemed an original instrument; and all of the counterparts taken together shall be deemed to constitute one and the same instrument. (d) Choice of Law. This Pledge Agreement and any document or instrument executed in connection herewith shall be governed by, and construed and interpreted in accordance with, the internal laws of the State of New York. (e) No Strict Construction. The language used in this Pledge Agreement shall be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction will be applied against any person. IN WITNESS WHEREOF, Pledgor and Secured Party have executed this Pledge Agreement as of the day and year first above written. SECURED PARTY: PLEDGOR: /S/ Jack Futterman /S/ Steven Mandell - ------------------ ------------------ JACK FUTTERMAN STEVEN MANDELL 4 (Page 26 of 44) STOCK POWER FOR VALUE RECEIVED, the undersigned does hereby sell, assign and transfer to __________________________, [_________] shares of common stock, $.01 par value per share, of Party City Corporation, a Delaware corporation, represented by Certificate No. [___] (the "Stock"), standing in the name of the undersigned on the books of said corporation and does hereby irrevocably constitute and appoint _________________________ as the undersigned's true and lawful attorney, for him and in his name and stead, to sell, assign and transfer all or any of the Stock, and for that purpose to make and execute all necessary acts of assignment and transfer thereof; and to substitute one or more persons with like full power, hereby ratifying and confirming all that said attorney or substitute or substitutes shall lawfully do by virtue hereof. Dated: _________________ ---------------------------- STEVEN MANDELL 5 (Page 27 of 44) EX-99.3 4 EMPLOYMENT AGREEMENT, DATED JUNE 8, 1999 EXHIBIT 3 EMPLOYMENT AGREEMENT (Page 28 of 44) Party City Corporation 400 Common Way Rockaway, New Jersey 078766 June 8, 1999 Mr. Jack Futterman 16315 Vintage Oaks Lane Delray Beach, Florida 33484 Dear Mr. Futterman: This letter (the "Agreement") sets forth the agreement between you and Party City Corporation whereunder you are employed as the Chief Executive Officer of Party City. (Party City Corporation together with all of its subsidiaries are collectively hereinafter referred to as the "Company"). 1. TERM. The term of this Agreement shall commence on June 8, 1999 (the "Effective Date") and shall continue until three years from the Effective Date of this Agreement, unless sooner terminated as provided herein. 2. NATURE OF EMPLOYMENT. You shall serve as the Chairman of the Board and Chief Executive Officer of Party City, and as such you shall be responsible for oversight and management of all operations and activities of the Company, and in such other executive positions at all times consistent with your prior training, experience and competence as shall be determined by the Company's Board of Directors. You shall report to the Board of Directors and to such committees thereof as the Board shall direct. You shall perform such executive duties consistent with his position as may be time-to-time specified by the Board. Your position (including, without limitation, your status, offices, titles and reporting requirements), authority, duties and responsibilities shall be consistent with those of the Chief Executive Officer and Chairman of the Board of a publicly traded corporation. 3. SCOPE OF YOUR EMPLOYMENT. Excluding periods of vacation, sick leave and disability to which you are entitled, you agree to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the duties and responsibilities assigned to you hereunder, to use your reasonable best efforts to perform faithfully and efficiently such duties and responsibilities. You may engage in the activities identified in clause (i) and (ii) of this sentence so long as such activities do not materially interfere with the performance of your duties and responsibilities hereunder: (i) you or any person or entity with which you are associated may own, directly or indirectly, up to two 1 (Page 29 of 44) (2%) percent of the issued and outstanding stock of a corporation if such stock is regularly traded on a national securities exchange or in the over-the-counter market and (ii) you may (A) make and manage your personal financial investments so long as such investments do not require your active participation in any person, firm or business; (B) engage in charitable and non-profit community activities; and (C) serve as a director of any person, firm or entity that is not in competition with the Company. 4. LOCATION. The duties to be performed by you hereunder shall be performed primarily at the office of the Company located in Rockaway, New Jersey, subject to reasonable travel requirements on behalf of the Company. 5. BASIC COMPENSATION. a. General. In consideration of your obligations hereunder, the Company shall pay you the Salary, Bonus and Other Benefits as such terms are defined in and in accordance with and subject to the terms and conditions of this Agreement. b. Salary. Your "Salary" shall mean compensation at the annual rate of $500,000 beginning on the Effective Date and ending June 8, 2000. The Board of Directors or the Compensation Committee of the Board of Directors shall review your Salary at least once during each Fiscal Year for the purpose of determining whether your Salary should be increased at any time and any number of times. Notwithstanding anything herein to the contrary, without your consent, your Salary shall not be decreased. Your Salary shall be payable at the annual rate during the term hereof in equal installments not less frequently than bi-weekly and shall be subject to all applicable withholding taxes. 6. BONUS. Performance Bonus. a. Amount. You will be entitled to receive a cash performance bonus (a "Performance Bonus") for each Fiscal Year during the term hereof. For the first Fiscal Year ending June 8, 2000, your bonus will be a guaranteed minimum of $500,000, subject to increases as may be determined by the Board of Directors. For the second and third Fiscal Years of the term of this Agreement, the amount of your Performance Bonus shall be (i) no less than $250,000 per Fiscal Year and (i) determined within the first 30 days of each calendar year either as a formula based on the Company's performance or as a set minimum dollar amount, and in either case affording you the opportunity to earn at least an aggregate Performance Bonus of $500,000 per Fiscal Year. 2 (Page 30 of 44) b. Payment Schedule. Except as otherwise set forth in Paragraph 9, the performance Bonus shall be payable to you on or before August 15th immediately following the end of the Fiscal Year to which such Performance Bonus relates. The Performance Bonus shall be subject to applicable withholding taxes. c. Fiscal Year. For purposes of this Agreement, the term "Fiscal Year" shall mean each twelve month period ending June 8. 7. OTHER BENEFITS. a. Benefit Plans. Except as otherwise set forth herein, you shall be entitled to participate in all pension, insurance, medical, disability and other employee benefit plans and programs generally provided by the Company to its senior executives similarly situated from time to time. In addition, at all times after you cease to be in the employ of the Company after you have been in the Company's employ for three years, or if your employment is earlier terminated other than (i) for Cause or (ii) on account of your resignation without Good Reason (as hereinafter defined), the Company shall pay at its sole cost and expense for your benefit and throughout the duration of your lifetime, any and all premiums necessary for maintaining medical and dental insurance coverage for you and your dependents comparable to the insurance coverage required to be provided to you during the term of this Agreement. b. Vacation. You shall be entitled to such vacation as you and the Company shall mutually determine. You agree to take such vacation at times that are convenient to you and the Company. c. Business Expenses. The Company shall pay or reimburse you for all reasonable expenses paid by you during the term of this Agreement in the performance of your duties hereunder, upon presentation of expense statements or vouchers or such other supporting information as the Company may reasonably require. In addition, the Company shall reimburse you for all transportation, including airfare, lodging, meals, and other reasonable expenses relating to such travel and lodging incurred upon presentation of expense statements or vouchers or such other supporting information as the Company customarily may require of its officers. The Company acknowledges that you are a permanent resident and domiciliary of Palm Beach County, Florida, and that you may travel to and from Florida frequently, and may work from your Florida residence, from time to time. Accordingly, the Company shall reimburse you for all travel expenses between your Florida residence and the Company's principal office. d. Other Benefits. In order to assist you in performing your services hereunder, the Company shall provide you with an automobile and will pay for the insurance and maintenance thereof or will reimburse you for expenses you may incur in connection with leasing or financing the purchase thereof, maintaining and insuring an automobile and the cost of maintaining a driver for commuting between the office and your New Jersey and/or New York City apartments. 3 (Page 31 of 44) e. Professional Expenses. The Company shall also reimburse you for (i) reasonable legal and accounting fees which you may incur in connection with the preparation and periodic review of your estate plan, tax planning and tax returns; and (ii)legal fees in connection with this Employment Agreement, the related option agreements and other related agreements up to a maximum of $ 25,000. f. Reimbursement for State Taxes. If it is determined by the State of New Jersey any of your income, other than that payable to you under the terms of this Agreement, is subject to income tax by the State of New Jersey or any interest or penalties with respect to such tax (such tax or taxes, together with any such interest and penalties, are hereafter collectively referred to as the "New Jersey Tax"), then you will be entitled to receive an additional payment or payments up to a maximum of $30,000 in the aggregate per Fiscal Year (a "Gross-Up Payment") in an amount such that, after payment by you of all taxes (including any interest or penalties imposed with respect to such taxes), including any New Jersey Tax, imposed upon the Gross-Up Payment, you retain an amount of the Gross-Up Payment equal to the New Jersey Tax imposed upon the Payments. g. Registration Rights. i. Piggy Back Registration. If at any one or more times during the term of this Agreement and for a period of five (5) years after termination of this Agreement (the "Registration Term") the Company intends to register shares of Common Stock (either on its own behalf or on behalf of others) on Form S-1, Form S-2 or Form S-3 or any corresponding form applicable at the time under the Securities Act of 1933, as amended (the "Securities Act") as then in effect (or any similar statute then in effect), the Company will give written notice to you of its intention to do so, at least 15 days prior to the time of the filing of any registration statement or qualification papers, and at your written request given within 10 days after receipt of any such notice (which request shall specify the number of your shares of Common Stock (the "Shares") intended to be sold or disposed of by you and shall describe the nature of any proposed sale or other disposition thereof which may include a distribution over a reasonable period of time), the Company will use its reasonable best efforts to cause such Shares to be registered or qualified to the extent required (in the opinion of the Company's counsel) to permit the sale or other disposition thereof. ii. Requests for Registration. You may request registration under the Securities Act of all of your Shares one time during the Registration Term. The Company shall cause its management to cooperate fully and to use its best efforts to support the registration of such Shares and the sale of such Shares pursuant to such registration as promptly as is practicable. Such cooperation shall include, but not be limited to, management's attendance and reasonable presentations in respect of the Company at road shows with respect to the offering of such Shares. The registration requested under this Paragraph 7(g)(ii) is referred to herein as a "Demand Registration." 4 (Page 32 of 44) iii. All out-of-pocket expenses, disbursements and fees in connection with any action to be taken under this Paragraph 7 (g) shall be borne by the Company, including the reasonable fees and expenses of counsel for you. iv. The registration rights provided in this Paragraph 7(g) shall terminate at any time at which you can immediately sell all of your Shares in a single sale pursuant to Rule 144 under the Securities Act. h. Directors and Officers Insurance. The Company shall maintain at all times during the term of this Agreement an insurance policy or policies providing liability insurance for directors, officers, employees, agents or fiduciaries of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which you serve at the request of the Company. You shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any such director, officer, employee, agent or fiduciary under such policy or policies. 8. TERMINATION. Your employment shall terminate upon any of the following circumstances: a. Death or Disability. Your employment shall terminate automatically upon your death, and the last day of the month in which your death occurs shall be deemed to be the date your employment is terminated. The Company may terminate your employment, after having established your Disability (pursuant to the definition of "Disability" set forth below), by giving you written notice of its intention to terminate your employment. If your employment is terminated by reason of your Disability, the last day of the Disability Period (as such term is defined below) shall be deemed to be the date your employment is terminated. i. Disability/Disability Period. For purpose of this Agreement the term "Disability" shall mean your inability to perform your duties hereunder which inability exists for 120 days during any period of 365 consecutive days, solely as a result of physical or mental incapacity or infirmity, and the existence of which shall be determined by a reputable, licensed physician selected by you and approved by the Company. For purposes of this agreement the term "Disability Period" shall mean the period during which you are unable to perform your duties hereunder as a result of your Disability. b. "For Cause" or Without Cause. The Company may terminate your employment "for Cause" or without "Cause." i. "For Cause". For the purposes of this Agreement, the following actions or events shall be the exclusive grounds for termination of your employment "for Cause": (i) your refusal to perform your duties hereunder (other than a refusal resulting from your 5 (Page 33 of 44) incapacity due to physical and/or mental illness not caused by chronic alcoholism or drug addiction) which continues for a period of more than thirty days after written notice by the Company to you of the acts constituting such refusal; (ii) your willful engaging in gross misconduct intended to harm the Company which continues for a period of more than ten days after written notice by the Company to you of the act(s) that have resulted in material harm to the Company; (iii) your acts of theft, misappropriation, embezzlement or fraud of the Company's funds; or (iv) your inability to perform your duties hereunder as a result of chronic alcoholism or drug addiction. c. With or Without Good Reason. Your employment may be terminated by you with or without Good Reason. For purposes of this Agreement, "Good Reason" means: i. With Good Reason. For purposes of this Agreement, "Good Reason" means: (i) without your express consent, any change in your duties or responsibilities (including reporting responsibilities) that is inconsistent in any material and adverse respect with your position(s), duties, responsibilities or status as Chief Executive Officer and Chairman of the Board immediately prior to such change (including any material and adverse diminution of such duties or responsibilities); (ii) any failure by the Company to comply in any material respect with any of the provisions of Paragraphs 5 , 6 , 7(f) or 7(g) of this Agreement; or (iii) the Company's requiring you to perform your services regularly other than at the executive offices of the Company or requiring you to travel in the performance of your duties significantly more extensively than your customary travel requirements prior to the date hereof; provided that a termination by you with Good Reason shall be effective only if, within 30 days following the delivery of a Notice of Termination for Good Reason by you to the Company, the Company has failed to cure the circumstances giving rise to Good Reason to your reasonable satisfaction. d. Change of Control. Your employment may be terminated by you within three (3) months after the occurrence of a Change of Control. i. a Change of Control shall be deemed to have occurred if: (i) individuals who, on the date hereof, constitute the Board (the "Incumbent Directors") cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to the date hereof, whose election or nomination for election was approved by a vote of at least two-thirds of the Incumbent Directors 6 (Page 34 of 44) then on the Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without written objection to such nomination) shall be an Incumbent Director; provided, however, that no individual initially elected or nominated as a director of the Company as a result of an actual or threatened election contest with respect to directors or as a result of any other actual or threatened solicitation of proxies or consents by or on behalf of any person other than the Board shall be deemed to be an Incumbent Director; (ii) any "Person" including a "Group" (as such term is defined in Section 3(a)(9) of the Securities Exchange Act of 1934 (the "Exchange Act") and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) is or becomes a "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, in a single transaction or group of related transactions of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities eligible to vote for the election of the Board (the "Voting Securities"); provided, however, that the event described in this Paragraph 8(d)(ii) shall not be deemed to be a Change in Control by virtue of any of the following acquisitions: (i) by the Company or any subsidiary of the Company in which the Company owns more than 50% of the combined voting power of such entity (a "Subsidiary"), (ii) by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Subsidiary, (iii) by any underwriter temporarily holding the Company's Voting Securities pursuant to an offering of such Voting Securities, (iv) pursuant to a Non-Qualifying Transaction (as defined in Paragraph 8(d)(iii)), or (v) pursuant to any acquisition by you or any person or group of persons including you (or any entity controlled by you or any group of persons including you or any Person or Group with whom you have any management, investment or other relationship); (iii) the date on which there is a consummation of a merger, consolidation, statutory share exchange or similar form of corporate transaction involving the Company or any of its Subsidiaries that requires the approval of the Company's shareholders, (a "Business Combination"), unless immediately following such Business Combination any of the following is applicable: (i) more than 50% of the total voting power of (A) the corporation resulting from such Business Combination (the "Surviving Corporation"), or (B) if applicable, the ultimate parent corporation that directly or indirectly has beneficial ownership of 100% of the voting securities eligible to elect directors of the Surviving Corporation (the "Parent Corporation"), is represented by the Company's Voting Securities that were outstanding immediately prior to such Business Combination (or, if applicable, is represented by shares into which the Company's Voting Securities were converted pursuant to such Business Combination), and such voting power among the holders thereof is in substantially the same proportion as the voting power of the Company's Voting Securities among the holders thereof immediately prior to the Business Combination; and (ii) no person (other than any person engaged in a transaction described in clauses (i) through (v) in Paragraph 8(d)(ii) above), is or becomes the beneficial owner, directly or indirectly, of 20% or more of the total voting power of the outstanding voting securities eligible to elect directors of the Parent Corporation (or, if there is no Parent 7 (Page 35 of 44) Corporation, the Surviving Corporation); or (iii) at least a majority of the members of the board of directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) following the consummation of the Business Combination were Incumbent Directors at the time of the Board's approval of the execution of the initial agreement providing for such Business Combination (any Business Combination in which any of the criteria specified in (i), (ii) or (iii) of this Paragraph 8(d)(iii) is applicable shall be deemed to be a "Non-Qualifying Transaction); (iv) the closing for a sale of all or substantially all of the Company's assets; (v) such other events as the Board may designate. Notwithstanding the foregoing, a Change in Control of the Company shall not be deemed to occur solely because any person acquires beneficial ownership of more than 20% of the Company's Voting Securities as a result of the acquisition of the Company's Voting Securities by the Company which reduces the number of the Company's Voting Securities outstanding; provided, that if after such acquisition by the Company such person becomes the beneficial owner of additional Company Voting Securities that increases the percentage of outstanding Company Voting Securities beneficially owned by such person by more than 3%, a Change in Control of the Company shall then become effective unless otherwise exempt under clauses (i) through (v) of Paragraph 8(d)(ii) above or because it constitutes a Non-Qualifying Transaction. 9. PAYMENTS UPON TERMINATION. a. By the Company "for Cause". If the Company terminates your employment "for Cause" you will be entitled to receive: (i) your accrued Salary for the period ending on the effective date of the termination of your employment, (ii) no Performance Bonus for the Fiscal Year in which your employment is terminated (but you shall be entitled to the Performance Bonus for the preceding Fiscal Year if such bonus has not yet been paid to you); and (iii) any other compensation or benefit under any plan maintained by the Company for its executive officers, and in which you were participating at the time your employment was terminated, but only in accordance with the terms of such plans. b. Death. If you die during the term of your employment hereunder, the Company will pay the personal representatives of your estate (i) your accrued Salary for the period ending on the last day of the month in which you shall have died; (ii) a Performance Bonus for the Fiscal Year in which your employment is terminated (you shall not be entitled to a bonus for any succeeding a Fiscal year, but you shall be entitled to the Performance Bonus payable for the preceding Fiscal Year if such bonus has not yet been paid); and (iii) any other compensation or benefit under any plan maintained by the Company for its executive officers 8 (Page 36 of 44) and in which you were participating at the time of your death, but only in accordance with the terms of such plans. c. Disability During the Disability Period, the Company shall continue to pay you your Salary. If your employment is terminated hereunder by the Company as result of your Disability, you will be entitled to receive: (i) your accrued Salary for the period ending on the effective date of the termination of your employment; (ii) a Performance Bonus for the Fiscal Year in which your employment is terminated (you shall not be entitled to a bonus for any succeeding Fiscal year, but you shall be entitled to the Performance Bonus payable for the preceding Fiscal Year if such bonus has not yet been paid); and (iii) any other compensation or benefit under any plan maintained by the Company for its executive officers and in which you are participating, and (iv) comparable medical and dental insurance coverage for you and your dependents paid for and maintained by the Company for the duration of your lifetime. d. Voluntary Termination By You Without Good Reason. If you voluntarily terminate your employment with the Company without Good Reason and not within three months after a Change of Control you shall be entitled to receive: (i) your accrued Salary for the period ending on the effective date of the termination of your employment; (ii) no Performance Bonus for the Fiscal Year in which your employment is terminated (but you shall be entitled to the Performance Bonus for the preceding Fiscal Year if such bonus has not yet been paid to you); and (iii) any other compensation or benefit under any plan maintained by the Company for its executive officers, and in which you are participating, but only in accordance with the terms of such plans. If you voluntary terminate your employment with the Company for good reason or within three months after a Change of Control you shall be entitled to the benefits under Paragraphs 9(e) and 9(f), respectively. e. By Company for Any Reason Other Than Disability or "for Cause" or By You for Good Reason If the Company terminates your employment for any reason other than "for Cause" or your Disability, or if you voluntarily terminate your employment with the Company for Good Reason you shall be entitled to receive: (i) your accrued Salary for the period ending on the effective date of the termination of your employment; (ii) the Salary to which you would have been entitled had your employment continued through the later of (A) the last day of the then current term or (B) the first anniversary of the termination of your employment hereunder (the "Anniversary Date"), which amount shall be payable in equal bi-weekly installments over the period commencing on the effective date of the termination of your employment hereunder and ending on the later of (x) the last day of the then current term or (y) the Anniversary Date; and (iii) any other compensation or benefits under any plan maintained by the Company for its executive officers, and in which you were participating at the time your employment was terminated, and (iv) comparable medical and dental insurance coverage for you and your dependents, paid for and maintained by the Company after termination of your employment for the duration of your lifetime. You shall also be entitled to receive (I) your Performance Bonus for the Fiscal Year preceding the Fiscal Year in which your employment is terminated, if such Bonus has not yet been paid to you and (II) a Performance Bonus in an 9 (Page 37 of 44) amount equal to $500,000 per year for each Fiscal Year remaining had your employment continued through the later of (i) the last day of the term hereof or (ii) the Anniversary Date. f. By You After a Change of Control. If you voluntarily terminate your employment with the Company within three (3) months after the occurrence of a Change of Control you shall be entitled to receive: (i) your accrued Salary for the period ending on the effective date of the termination of your employment; (ii) the Salary to which you would have been entitled had your employment continued through the Anniversary Date, which amount shall be payable in a lump sum payment within thirty days of the effective date of the termination of your employment, (iii) any other compensation or benefits under any plan maintained by the Company for its executive officers, and in which you were participating at the time your employment was terminated, and (iv) comparable medical and dental insurance coverage for you and your dependents, paid for and maintained by the Company after termination of your employment for the duration of your lifetime. You shall also be entitled to receive (I) your Performance Bonus for the Fiscal Year preceding the Fiscal Year in which your employment is terminated, if such Bonus has not yet been paid to you and (II) a Performance Bonus in an amount equal to $500,000 per year for each Fiscal Year remaining had your employment continued through the Anniversary Date, payable in a lump sum within 30 days after the effective date of the termination of your employment. If the Performance Bonus under Paragraphs 9(e) and 9(f) is calculated with reference to Anniversary Date and if such date is other than June 8, then you shall be entitled to the pro rata share of your Performance Bonus for the Fiscal Year in which the Anniversary Date occurs based upon the number of days in such Fiscal Year that will elapse through the Anniversary Date and assuming a 365 day Fiscal Year. 10. ADDITIONAL PROVISIONS APPLICABLE TO TERMINATION. a. Resignation of Other Positions. If, as and when your employment is terminated hereunder, you shall be deemed to have resigned from any and all positions with the Company that you may otherwise hold, including as an officer or director of the Company or any of its subsidiaries or affiliates. b. Notice. Except in the case of termination "for Cause" which shall be effective immediately upon written notice thereof which notification shall state the reasons for such termination, the party desiring to terminate your employment hereunder shall notify the other party hereto in writing at least 30 days before the effective date of the termination of your employment hereunder, which notification shall state the reasons for such termination and the effective date of the termination of your employment. c. Mitigation. Nothing in this Agreement nor under any applicable law shall be construed to require you to seek or accept employment to reduce the Company's obligations under Paragraph 9. The Company shall not be entitled to offset from any amounts owed to you 10 (Page 38 of 44) under Paragraph 9 any amounts received by you as compensation from any person after your employment with the Company terminates. 11. CONFIDENTIAL INFORMATION AND RESTRICTIVE COVENANTS. a. Confidentiality. You acknowledge that your relationship with the Company brings you into close contact with the confidential affairs of the Company, its subsidiaries and affiliates. You acknowledge that the covenants set forth in this Paragraph 11(a) are specific inducements made by you to the Company in connection with the execution of this Agreement. i. Obligation to Keep Information Confidential. During the term hereof and for one year thereafter, you shall preserve the confidential nature of, and will not disclose or make accessible to anyone other than the Company's officers, directors, employees, consultants or agents, and otherwise than within the scope of your employment duties and responsibilities hereunder, any and all information, knowledge or data of or pertaining to the Company, its subsidiaries or affiliates or their respective businesses which information, knowledge or data is not in the public domain, including trade secrets, names and lists of licensors, licensees, manufacturers, suppliers and customers, manufacturing and production methods, processes, and techniques, pricing policies, marketing strategies, or any other similar matters acquired by you in connection with your relationship with the Company (hereinafter referred to as "Confidential Information") by the Company. In addition, during the term hereof and thereafter you will not make use of Confidential Information for your own personal gain. The restrictions on the disclosure of Confidential Information imposed by this subparagraph (i) shall not apply to any Confidential Information that was part of the public domain at the time of its receipt by you or becomes part of the public domain in any manner and for any reason other than an act by you, unless you are legally compelled (by deposition, interrogatory, request for documents, subpoena, civil investigative demand or similar process) to disclose such Confidential Information, in which event you shall provide the Company with prompt notice of such requirement so that the Company may seek a protective order or other appropriate remedy. ii. Return of Confidential Information and Other Data. Upon the termination of your employment hereunder or at any time the Company may reasonably request, you promptly will deliver to the Company all Confidential Information and any other memoranda, notes, records, reports, sketches, specifications, designs, and other documents (and all copies thereof) relating to the Company's business, which you may then possess or have under your control. b. Agreement Not to Solicit. You covenant and agree not to, directly or indirectly, during the term hereof and during the Restrictive Period, (A) induce or attempt to influence any employee of the Company or any of its subsidiaries or affiliates to leave its employ, or (B) aid any person, business, or firm, including a supplier to, a company engaged in competition with the Company, a licensor, licensee or customer of or a manufacturer for the 11 (Page 39 of 44) Company, in any attempt to hire any person who shall have been an employee of the Company or any of its subsidiaries or affiliates at any time within six months after you cease to be employed by the Company and within the period of six months prior to the date of any such requested aid. Notwithstanding the foregoing, if requested by another employer, you may serve as a reference for any person who, at the time of the request, is not an employee of the Company or any of its subsidiaries or affiliates. If the restrictions contained in this Paragraph 11(b) shall be found to be unenforceable by reason of the extent, duration or scope thereof, or otherwise, then the court or arbitrator, as the case may be, making such determination shall have the right to reduce such extent, duration, scope or other provisions hereof, and in their reduced form, such restrictions shall then be enforceable in the manner contemplated hereby. c. Agreement Not to Compete. You hereby covenant and agree that, during the term of this Agreement and for the Restrictive Period, you shall not, without the prior written consent of the Company, engage in Competition (as defined below) with the Company. For purposes of this Agreement, if you take any of the following actions you shall be engaged in "Competition": engaging in or carrying on, directly or indirectly, any enterprise, whether as an advisor, principal, agent, lender, investor, partner, officer, director, employee, stockholder, associate or consultant to any person, partnership, corporation or any other business entity, that is engaged in any business operating within the United States of America, which is involved in business activities which are the same as, similar to or in competition with business activities carried on by the Company, or actually known by the you as being definitely planned by the Company, at or about the time of the termination of your employment; provided, however, that "Competition" shall not include (i) the passive ownership of securities in any public enterprise and exercise of rights appurtenant thereto, so long as such securities (other than securities obtained by reason of a merger of the Company) represent no more than two percent of the voting power of all securities of such enterprise or (ii) the indirect ownership of securities through ownership of shares in a registered investment company. d. Restrictive Period. For purposes of this Agreement the term "Restrictive Period" shall mean the period commencing on the effective date of the termination of your employment hereunder and ending on the last day of the third month thereafter. e. Injunctive Relief. You acknowledge and agree that in the event of a violation or threatened violation of any of the foregoing provisions of this Paragraph 11, the Company shall have no adequate remedy at law and shall therefore be entitled to enforce each such provision of this Paragraph 11 by temporary or permanent injunctive or mandatory relief obtained in any court of competent jurisdiction without the necessity of proving damage, posting any bond or other security, and without prejudice to any other remedies which may be available at law or in equity. You and the Company agree that the U.S. District Court for the District of New Jersey is a court of competent jurisdiction, and you and the Company each consent to the personal jurisdiction of that Court for purposes of such an action or proceeding instituted to obtain equitable relief relating to the provisions of this Paragraph 11; and in connection therewith you agree that process in any action may be served upon you and shall be deemed to be complete 12 (Page 40 of 44) when the same is delivered to your residence address as set forth in Paragraph 13. Each of the parties hereto waives any objection based upon forum non conveniens and any objection to venue of any action instituted hereunder. 12. INDEMNIFICATION. a. The Company shall indemnify and advance Expenses to you to the fullest extent permitted by applicable law in effect on the date hereof and to such greater extent as applicable law may thereafter from time to time permit. The Company shall advance all Expenses incurred by you or on your behalf in connection with any Proceeding within twenty (20) days after the receipt by the Company of a statement or statements from you requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by you and shall include or be preceded or accompanied by an undertaking by you or on your behalf to repay any Expenses advanced if it shall ultimately and finally be determined by a court of competent jurisdiction that you are not entitled to be indemnified against such Expenses. The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable hereunder if and to the extent that you have otherwise actually received such payment under any insurance policy, contract, agreement or otherwise. b. For purposes of this Section 12, "Expenses" means all reasonable attorneys' fees, retainers, court costs, transcript costs, fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, or being or preparing to be a witness in a Proceeding. "Proceeding" means any action, suit, arbitration, alternate dispute resolution mechanism, investigation, administrative hearing or any other proceeding, whether civil, criminal, administrative or investigative. c. This provision shall continue to be in effect until the later of six (6) years after the date you cease to serve as a director, officer, employee, agent or fiduciary of the Company or the final termination of all pending Proceedings in respect of which you are granted rights of indemnification hereunder. 13. ADDITIONAL PROVISIONS. a. Governing Law. This Agreement and all of the provisions hereof will be construed and enforced in accordance with the laws of the State of New Jersey as an agreement made and to be performed entirely within such state. b. Arbitration. Subject to Paragraph 11(e) hereof, any dispute or controversy arising out of or relating to this Agreement, any document or instrument delivered pursuant to, in connection with, or simultaneously with this Agreement, or any breach of this Agreement or any 13 (Page 41 of 44) such document or instrument shall be settled by arbitration to be held in Essex County, New Jersey, in accordance with the rules then in effect of the American Arbitration Association or any successor thereto. The arbitrator may grant injunction or other relief in such dispute or controversy and may, if requested by either of the parties, determine which or both of the parties shall bear the costs of the arbitration (other than the costs of each party's legal fees which costs shall be borne by the party incurring same) and, if both parties shall bear the costs, then the allocation of such costs between them. The decision of the arbitrator shall be final, conclusive, and binding on the parties to the arbitration. Judgment may be entered on the arbitrator's decision in any court having jurisdiction, and the parties irrevocably consent to the jurisdiction of the U.S. District Court for the District of New Jersey for this purpose. In any such arbitration, the parties waive personal service of any process or other papers and agree that service thereof may be made in accordance with Paragraph 13(c). c. Jurisdiction. For purposes of enforcing the decisions of the arbitrator under Paragraph 13(b), each of the parties hereto irrevocably submits to the exclusive jurisdiction (both subject matter and personal) of the courts of the State of New Jersey in and for the County of Essex and the United States District Court for the District of New Jersey in any legal action or proceeding arising out of or relating to this Agreement. Each of the parties hereto expressly submits and consents in advance to such jurisdiction in any action or proceedings commenced in such courts, hereby waiving personal service of the summons and complaint, or other process or papers issued thereon, and agreeing that service of such summons and complaint, or other process or papers may be made in accordance with Paragraph 13(e). Should any party hereto fail to appear or answer any summons, complaint, process or paper so served within 30 days after the delivery thereof in accordance with Paragraph 13, such party shall be deemed in default and an order and/or judgment may be entered against such person or demanded or prayed for in such summons, complaint, process or papers. The choice of forum set forth in this Paragraph 13(c) shall not be deemed to preclude the enforcement of any judgment obtained in such forum or the taking of any action under this Agreement to enforce same in any appropriate jurisdiction. Each of the parties hereto waives any objection based upon forum non conveniens and any objection to venue of any action instituted hereunder. d. Successors and Assigns. This Agreement may be assigned by the Company without your consent only to any entity that acquires all or a substantial part of the Company's business or assets and shall be binding upon the Company and such assigns. This agreement is personal to and may not be assigned by you but shall be binding upon and inure to the benefit of you and your legal representatives, heirs and assigns. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise, and any amended or successor agreement thereto or whether or not there has been a Change in Control as defined herein) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform as if no such succession had taken place. As used in this Agreement, "Company" shall 14 (Page 42 of 44) mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. e. Notices. All notices, requests, demands and communications under or in respect hereof shall be deemed to have been duly given and made if in writing if (i) delivered by hand or (ii) posted by pre-paid registered or certified mail, or (iii) left at or delivered pre-paid to a nationally recognized courier service, in each case addressed to the party concerned at its address set forth below (or at such other address for a party as shall be specified in a notice given in accordance with this Paragraph 13(e). If to the Company, to Party City Corporation 400 Commons Way Rockaway, NJ 07866 Attention: Chief Financial Officer With a copy to: St. John & Wayne, L.L.C. Two Penn Plaza East Newark, New Jersey 07105-2249 Attention: William P. Oberdorf, Esq. If to you to: Mr. Jack Futterman 16315 Vintage Oaks Lane Delray Beach, FL 33484 With a copy to: Prior to 7/4/99 After 7/4/99 ------------------------------------- ------------------------------------- Wolf, Block, Schorr & Solis-Cohen LLP Wolf, Block, Schorr & Solis-Cohen LLP 12th Floor, Packard Building 1650 Arch Street Philadelphia, PA 19102 Philadelphia, PA 19103 Attention: Matthew H. Kamens, Esq. Attention: Matthew H. Kamens, Esq Service shall be deemed to be effective so far as delivery (i) by hand is concerned when handed to the recipient or left at the recipient's address (ii) by registered or certified mail, three days after posting, or (iii) one business day after delivery to a nationally recognized courier service if marked for next business day delivery. 15 (Page 43 of 44) f. Amendments. This Agreement may not be changed, amended, terminated or superseded orally, but only by an agreement in writing, nor may any of the provisions hereof be waived orally, but only by an instrument in writing, in any such case signed by the party against whom enforcement of any change, amendment, termination, waiver, modification, extension or discharge is sought. g. Headings. All descriptive headings of the several Paragraphs or subclauses of this Agreement are inserted for convenience only and shall be given no effect in the construction of this Agreement. h. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and same instrument. i. Severability. If any provision of this Agreement, or part thereof, is held to be unenforceable, the remainder of this Agreement and provision, as the case may be, shall nevertheless remain in full force and effect. j. Cooperation. Each of the parties hereto shall, at any time and from time to time hereafter, upon the reasonable request of the other, take such further action and execute, acknowledge and deliver all such instruments of further assurance as necessary to carry out the provisions of this Agreement. k. Survival of Certain Obligations and Termination Certificate. The provisions of Paragraphs 5, 6, 7(a), 7(c) and 7(e) through 7(g), 9, 10, 11, 12 and 13 shall survive any termination of your employment hereunder, whether by reason of the Company's termination of your employment, your resignation or the expiration of the Term or any renewal term. l. Entire Agreement. This Agreement contains the entire agreement and understanding between Company and you with respect to the subject matter hereof. If the foregoing is acceptable to you, kindly execute a copy of this letter and return it to the Company, whereupon it shall become binding upon you and the Company. Very truly yours, PARTY CITY CORPORATION By: /s/ Party City Corporation ---------------------------- AGREED TO: /s/ Jack Futterman - -------------------- JACK FUTTERMAN 16 (Page 44 of 44) -----END PRIVACY-ENHANCED MESSAGE-----