According to a Press Release dated May 20, 2003, Party City Corporation today announced that the District Court has approved the terms of a definitive settlement agreement relating to a securities class action lawsuit filed in 1999 against the Company and certain of its former officers. An agreement in principle to settle the action was reached in April 2002.

By the Notice of Pendency of Class Action, a settlement hearing (the “Settlement Hearing”) will be held on May 14, 2003 at 9:30 a.m., before the Honorable Dickinson R. Debevoise, United States District Judge, at the Martin Luther King Building and United States Courthouse, Courtroom 5B, 50 Walnut Street, Newark, New Jersey. The purpose of the Settlement Hearing will be to determine: (1) whether the Settlement consisting of $3,800,000 in cash plus accrued interest should be approved as fair, reasonable and adequate to each of the Parties; (2) whether the proposed plan to distribute the Settlement proceeds (the “Plan of Allocation”) is fair, reasonable and adequate; (3) whether Plaintiffs and Plaintiffs’ Counsel have adequately represented the Class; (4) whether the application by Plaintiffs’ Counsel for an award of attorneys’ fees and expenses should be approved; and (5) whether the Action should be dismissed with prejudice.

As reported by the Company’s Form 10-Q For The Quarterly Period Ended March 29, 2003, in early 2000, defendants moved to dismiss the second amended complaint on the ground that it failed to state a cause of action. On May 29, 2001, the District Court issued an Opinion and Order dismissing the Complaint against all defendants with prejudice. On June 27, 2001, plaintiffs filed a Notice of Appeal to the United States Court of Appeals for the Third Circuit. In April 2002, the parties reached an agreement in principle to settle the action, and the Court of Appeals has remanded the case to the District Court to supervise the implementation of the settlement.

Earlier, according to the same SEC filing, in October 1999, plaintiffs filed an amended class action complaint and, in February 2000, plaintiffs filed a second amended complaint, which alleged, among other things, violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder, and sought unspecified damages. The plaintiffs alleged that defendants issued a series of false and misleading statements and failed to disclose material facts concerning, among other things, Party City’s financial condition, adequacy of internal controls and compliance with certain loan covenants during the Class period. The plaintiffs further alleged that because of the issuance of a series of false and misleading statements and/or the failure to disclose material facts, the price of Party City’s common stock was artificially inflated.

Beginning on approximately March 26, 1998, twelve actions were filed against Defendants in this Court, and were consolidated. On September 13, 1999, the Court appointed plaintiffs Todd Krasnow and Slater Asset Management, LLC as Lead Plaintiffs for those Class Members who purchased Party City shares during the Class Period and retained those shares after March 19, 1999 (the “Retention Sub-Class”) and Taylor Capital Management Lead Plaintiff for those Class Members who purchased Party City shares during the Class Period and thereafter sold those shares prior to March 19, 1999 (the “In/Out Sub-Class” and, together with the Retention Sub-Class, the “Class”).

The original Complaint alleges that Party City Corporation and certain of its officers issued materially false and misleading statements during the Class Period. In particular, it is charged that PCTY materially misrepresented its financial condition and compliance with its loan covenants. During the class period, it is alleged that certain of the defendants sold their PCTY common stock with inside information for proceeds of more than $1.5 million. On March 18, 1999 PCTY announced that its year-end 1998 audit would be delayed and that the company was "in default of certain reporting covenants" on its secured credit facility. Upon the revelation of this news, PCTY's stock plummeted 45% in a single day, falling from $7 5/16 per share to $4 per share on March 19, 1999.