<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 19, 1999
REGISTRATION NO. 0-25507
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION 12(B)
OR 12(G) OF THE SECURITIES ACT OF 1934
------------------------
IPARTY CORP.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7373 13-401 2236
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------------
41 EAST 11TH STREET, 11TH FLOOR
NEW YORK, NEW YORK 10003
(212) 331-1225
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
------------------------
Securities to be registered under Section 12 (b) of the Act: None
Securities to be registered under Section 12(g) of the Act:
<TABLE>
<S> <C>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
- -------------------------------------------------------- --------------------------------------------------------
Common Stock, par value $0.001 OTC Bulletin Board
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART I
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS.
Some of the statements contained in or incorporated by reference in this
Form 10-SB discuss the Company's plans and strategies for its business or state
other forward-looking statements, as this term is defined in the Private
Securities Litigation Reform Act. The words "anticipates," "believes,"
"estimates," "expects," "plans," "intends" and similar expressions are intended
to identify these forward-looking statements, but are not the exclusive means of
identifying them. The Company assumes no obligation to update publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise. These forward-looking statements reflect the current views
of the Company's management; however, various risks, uncertainties and
contingencies could cause the Company's actual results, performance or
achievements to differ materially from those expressed in, or implied by, these
statements, including, without limitation, the following: the success or failure
of the Company's efforts to implement its business strategy, the Company's
ability to market and brand successfully its on-line party planning concept,
changes in the fulfillment partners and other on-line affiliates, changes in
consumer demand, changes in general economic conditions, changes in technology,
the rate of acceptance of the Internet as a marketing and commercial vehicle,
and competition in the Internet party supply and planning business.
ITEM 1. DESCRIPTION OF BUSINESS.
iParty Corp., a Delaware corporation (the "Company"), is a development
stage company that intends to become the premier brand in the on-line party
industry and the leading resource on the Internet for consumers seeking party
goods, party services, party planning advice and information, and personalized
video greetings called "StarGreetings" from celebrities. The Company's web site,
www.iparty.com (the "Site"), was initially launched in February 1999.
From children's birthday parties to weddings, from Super Bowl parties to
Halloween, the Company intends to make it easy and convenient for the party
giving consumer to select themes, make comprehensive plans, and purchase all of
the goods and services for a successful event. The Company's operational goal is
to provide a simple, seamless transaction process for the consumer. When the
consumer comes to the Site, the consumer will be able to select a theme, fill a
virtual shopping basket with goods and services, and pay for everything at one
time at the check-out screen. Once the order has been placed, the consumer will
be notified of the order's status via e-mail. The consumer will also be able to
dial the Company's toll-free number, 1-800-4iParty, to talk to a customer
service representative who is knowledgeable about the Company's products.
Although the consumer will interact only with the Company, the actual
fulfillment will come from a network of strategic partners, vendors, or
subcontractors. These strategic partners will ship direct to the consumer.
Typically, the strategic partners will be catalog companies and/or established
direct marketing merchants.
In furtherance of this strategy, on July 8, 1999 the Company entered into a
product fulfillment agreement with Taymark, one of the largest direct marketer's
of party supplies in the United States. Pursuant to the agreement, the Company
will utilize Taymark's inventory and fulfillment services to deliver merchandise
ordered on the Site, or through a toll-free telephone number, directly to
consumers. Taymark will purchase the Company's inventory and, in addition, the
Company will integrate Taymark's inventory into the Site's store-front. Taymark
will provide Company customers with customer service through a toll-free
telephone number.
The initial term of the agreement runs through December 31, 2002 and it may
be renewed by the Company under certain circumstances. The agreement contains
certain restrictions on competition by Taymark. Nothing in the agreement
prohibits the Company fulfilling orders placed on the Site directly or through
third-parties.
The Company has engaged OrderTrust to process credit card payments,
authorizations and settlements for orders placed on the Site. Under this
agreement, the Company pays OrderTrust a transaction fee of $0.90 for each order
processed by OrderTrust, and has agreed to pay a minimum monthly fee of $5,000
in the
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event that the per-order transaction fees do not reach such amount. In addition,
the Company paid OrderTrust a one time set-up fee of $50,000. This agreement
runs through December 21, 2000. In July of 1999 the Company replaced OrderTrust
by bringing the credit card processing segment of the credit card transaction
process in-house and engaging Authorize.net Corporation for credit card
authorization and settlement purposes. The Company pays Authorize.Net
Corporation a fee of $0.10 per transaction.
The Company currently has 16 employees.
THE HISTORY OF THE COMPANY
The Company was previously known as WSI Acquisitions, Inc. and was
incorporated under the laws of the State of Texas. On June 30, 1998, in order to
change domicile, WSI Acquisitions, Inc. merged with WSI Acquisitions, Corp., a
Delaware corporation, with WSI Acquistions Corp. being the surviving entity.
Neither WSI Acquisitions Corp. nor WSI Acquisitions, Inc. had operations prior
to the merger with iParty Corp.
On July 2, 1998, iParty Corp., a Delaware corporation, which was a
wholly-owned subsidiary of iParty LLC, a Delaware limited liability company,
merged into WSI Acquisitions Corp. and WSI Acquisitions Corp. changed its name
to iParty Corp. iParty LLC, which was created on December 11, 1997, commenced
operations in January 1998 to launch an Internet- based merchant of party goods
and services. Shares of the Company's common stock are currently trading on the
OTC Bulletin Board under the symbol "IPTY." See "Recent Sale of Unregistered
Securities." As a result of the merger, iParty LLC became the majority
shareholder of the Company.
DESIGN AND CONTENT OF THE COMPANY WEB SITE
The initial design, construction, operation and maintenance of the Site
was, in large part, out-sourced to the Company's three operating partners,
iVillage, Fry MultiMedia ("Fry"), and Ordertrust. The Site was initially
launched in February 1999. Over the following two months, the Site was further
developed by iParty's internal staff, Ordertrust and Snowmass Technologies. The
re-developed Site was launched in April 1999. On August 5, 1999, the Company
entered into a fixed fee agreement with Rare Medium, Inc. to develop a new
visual identity, additional functionality and a new technical infrastructure to
better support the scalability of the Site. The fixed fee for the services
provided is $465,000. The re-developed site was launched in October 1999. The
Company's goal in designing the Site was, and continues to be, to allow the
consumer to easily navigate the Site and to be able to pay for everything
ordered in one payment transaction without ever having to leave the Site.
Currently, the Site contains two (2) key features: the PartyMarket and
PartyTalk. PartyMarket resembles a mall of shops devoted entirely to the goods
and services that relate to the party theme chosen by the consumer. The
PartyMarket's themed channels include birthday, milestone, seasonal, basic and
costumes. Within each channel, the consumer can select a specific party, such as
anniversaries or weddings in the milestone channel or New Year's Eve in the
seasonal channel. Once the consumer has selected a theme, she will be able to
order party goods, favors, gift wrap, cards and invitations for direct shipment.
As the consumer selects products, they are added to the shopping basket, and
when the consumer is finished shopping, the transaction is completed at a simple
check-out screen.
Party Talk is a continuation of the PartyMarket. It carries news, articles
and features, and will soon carry gossip from the party circuit. The content is
directed at our target consumers: mothers, and party-givers. Articles will
include topics such as Tips & Trends, the Craft Corner, the Safety Zone and
Party Tips.
Once fully developed, which is expected to be by the end of the second
quarter of 2000, the Site will offer the Party Planner and the Party Resource.
The Party Planner will be a resource for party related advice, tips and party
planning information. Once a consumer has selected a theme and party, the party
planner icon will be displayed. By clicking on the Party Planner icon, the
consumer will arrive at the Party Planning page. The Party Planner page will be
a "road map" that provides specific tips and ideas for the consumers selected
party. The information will include location ideas, activities, decoration tips,
and helpful cues as to what products to look for in each of the PartyMarket
shops. The Party Resource will be a directory for party related services
including entertainers (orchestras, bands, clowns, magicians, pony rides);
caterers; bakers; rental firms (tents, furniture, equipment); and facilities
operators (skating rinks, pools, bowling alleys). These
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<PAGE>
local partners will be classified advertisers in the party resource directory.
Consumers will be able to enter their zip code, and select from a list of
service providers.
The Company also has a wholly-owned subsidiary, StarGreetings, Inc., a
Delaware corporation. StarGreetings, Inc. intends to offer a personalized video
greeting (called a "StarGreeting") from a celebrity who will talk about the
special occasion, such as a birthday, anniversary, etc. StarGreetings plans to
offer greetings from celebrities from entertainment, music, fashion, politics
and animation.
Each greeting will last between 60 and 120 seconds and will be downloaded
from the Site. The party giver will then play it back on the computer monitor at
the appropriate time during the party. When a consumer wants to order a
StarGreeting, he or she will click on the StarGreetings icon in the Site and
then click on the celebrity of choice. The customer will then select one of
several greetings, personalize the greeting with a text message, and submit the
order. The StarGreeting's system will then combine the selected greeting with
the text message and deliver it.
As of October 1, 1999, the Company has entered into exclusive StarGreeting
contracts with ten (10) celebrities. The Company will continue to attempt to
sign up additional celebrities if demand for the StarGreetings product warrants.
The agreements are substantially similar and consist of three compensation
components: (i) a flat fee; (ii) a commission upon the sale of each greeting (a
portion of which is payable to the charity of the celebrities choice); and
(iii) an option to purchase Common Stock. The terms of the agreements range from
one to three years.
The technology underlying the StarGreetings system is licensed to
StarGreetings, Inc. through August 15, 2018. The Company pays a 2.5% royalty on
the gross revenues received in connection with each greeting.
DEVELOPMENT COSTS.
Since inception, the Company has spent approximately $1,000,000 on
construction of the Site and $100,000 on development of StarGreetings video
software. The Company expects to invest a minimum of $1,000,000 on construction
and further development of the Site in the next twelve months.
COMPETITION.
The Company is aware of a few direct competitors to its PartyMarket
concept, including eparties.com, birthdayexpress.com and greatentertaining.com.
There are also a variety of other types of party resources on the Internet,
including party planners, directories and search engines. Additional competitors
exist in individual categories, such as Hallmark and American Greetings for
cards and invitations; Party City and The Big Party Corporation in the retail
party-goods supply businesses; and FTD in the flower arena.
Party City and The Big Party Corporation have locations throughout the
United States. Mr. Perisano, the Chief Executive Officer and a Director of the
Company, is a co-founder and a director of and consultant to The Big Party
Corporation. While Mr. Perisano remains a director of and consultant to The Big
Party Corporation, he is not involved in its day-to-day operations and has
permission from its board of directors to engage in e-commerce within the party
industry.
Although barriers to entry are minimal, as new competitors can launch new
sites at a relatively low cost, the Company believes that in order to be
competitive, the costs can be significant for the development of a robust site,
the hiring of human resources with industry knowledge and the marketing costs
associated with the building of a widely-recognized brand.
The Company is unaware of competitors to the StarGreetings concept.
However, the Company does recognize the potential that, despite the intended
patent protection for the StarGreetings concept, others may see a market and try
to compete and develop their own celebrity greeting offering. The Company
believes that by being first, by protecting its proprietary rights and by
locking celebrities into exclusive agreements, the Company will be able to
maintain a competitive advantage.
3
<PAGE>
SALES AND MARKETING.
The Company intends to pursue several avenues relating to sales and
marketing in the next year of operations. The Company intends to utilize both
on-line and off-line affiliations for brand building. The Company is currently
weighing affiliations with portals and service providers because of their
strength in the Company's target customer bases. The Company has formed a
strategic marketing relationship with iVillage Inc., a leading online women's
network and one of the most demographically targeted online communities on the
World Wide Web, that includes a 5-month banner campaign and key placement in the
iVillage shopping and editorial sections. This relationship began on June 1,
1999. The Company will pay a total of $80,000 under this agreement.
On September 29, 1999, the Company entered into an agreement with
Kirshenbaum Bond & Partners ("Kirshenbaum") to create a marketing communications
program, including public relations. Kirshenbaum will create and execute an
integrated print and Internet marketing campaign. Pursuant to the terms of the
agreement, the Company will pay Kirshenbaum a fee of $85,000 per month, and
certain commissions on advertising they place. Commencing July 31, 2000, the
agreement may be terminated on 90 days written notice.
On September 27, 1999, the Company entered into two separate agreements
with America Online, Inc. ("AOL"): a Shopping Channel Promotion Agreement, and
an Advertising Purchase Agreement. Pursuant to the terms of the Shopping Channel
Promotion Agreement, the Company is to occupy Featured Branding Position on the
front page of AOL's Kid's, Toys & Babies Commerce Center. The position will
feature a direct link to the Site. The Company will also occupy a Gold Position
in AOL's Tabletop & Entertainment Commerce Center, The Company will pay AOL
$1.35 million in connection with those agreements.
On August 11, 1999, the Company entered into an 18 month agreement with
LinkShare Corporation to provide services, using LinkShare's proprietary
software, to facilitate establishing links between the Company and tracking
sales through such affiliates. The Company paid LinkShare a one-time fee of
$5,000 and will pay commissions of 2.0%-2.5% for sales completed through the
system.
PATENTS AND TRADEMARKS.
The proprietary technology underlying the StarGreetings system is licensed
to StarGreetings for 20 years pursuant to a License Agreement dated August 15,
1998, by and between StarGreetings and Star Greetings, LLC, a Delaware limited
liability company (the "Licensor"). See "Certain Relationships and Related
Transactions."
StarGreetings: A provisional patent application for the Company's
StarGreetings "athlete/celebrity" video greeting concept was filed with the U.S.
Patent and Trademark Office on November 20, 1998 in the name of Mr. Byron Hero,
a former director and the former Chief Executive Officer of the Company and a
principal shareholder of the Company. Mr. Hero has agreed to assign the patent,
if issued, to StarGreetings LLC which will assign the patent to StarGreetings,
Inc. The Company anticipates that a non-provisional application relating to the
StarGreeting concept will be filed by November 20, 1999.
The Company has applied for the trademarks "iParty", "iParty.com" and
"StarGreetings". The applications for the trademarks "iParty" and "iParty.com"
were filed with the U.S. Patent and Trademark Office on April 29, 1999. The
application for the trademark "StarGreetings" was filed with the U.S. Patent and
Trademark Office on August 17, 1999.
The Company owns the following URLs:
o iParty.com
o iLiquor.com
o iLiquors.com
o iBakers.com
o iInvite.com
o Superstargreetings.com
o Partygram.com
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o iPartygram.com
o Partygram.net
o iPartygram.net
o Yofiesta.com
o Yofiesta.net
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded
to accept or recognize only two digit entries in the date code field. These
systems and software products will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, computer
systems and software used by many companies and governmental agencies may need
to be upgraded to comply with such Year 2000 requirements or risk system failure
or miscalculations causing disruptions of normal business activities.
State Of Readiness
The Company has made an assessment of the Year 2000 readiness of its
operating, financial and administrative systems, including the hardware and
software that support its systems. The Company's assessment plan consisted of:
o quality assurance testing of its internally developed proprietary
software;
o contacting third-party vendors and licensors of material
hardware, software and services that are both directly and
indirectly related to the delivery of the Company's services to
its users;
o contacting vendors of third-party systems;
o assessing repair or replacement requirements;
o implementing repair or replacement;
o implementation of the plan; and
o creating of contingency plans in the event of Year 2000 failures.
The Company performed a Year 2000 simulation on its systems during the
third quarter of 1999 to test system readiness. All of the Company's systems
were designed subsequent to January 1, 1999, well after the year 2000 compliance
problem was identified. Accordingly, all of the systems the Company has
developed use four digits to identify the year rather than two digits. Based on
the simulation, the Company believes that each of its material systems is Year
2000 compliant. The Company will, if necessary, revise its internally developed
proprietary software as necessary to improve its Year 2000 compliance. Many
vendors of material hardware and software components of the Company's systems
have indicated that the products the Company's use are currently Year 2000
compliant. The Company has required vendors of its other material hardware and
software components to provide assurances of their Year 2000 compliance. This
process has been completed and the Company does not believe that its systems
will need to be revised or replaced.
Costs To Date
The Company has not incurred any material expenditures in connection with
identifying, evaluating or addressing Year 2000 compliance issues. Most of its
expenses have related to, and are expected to continue to relate to, the
operating costs associated with time spent by employees in the evaluation
process and Year 2000 compliance matters generally. At this time, the Company
does not possess the information necessary to estimate the potential costs of
revisions to its systems should such revisions be required or the replacement of
third-party software, hardware or services that are determined not to be Year
2000 compliant. Although the Company does not anticipate that such expenses will
be material, such expenses, if higher than anticipated, could have a material
adverse effect on the Company's business, results of operations and financial
condition.
5
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ITEM 2. PLAN OF OPERATION.
GENERAL.
The Company launched the Site in February 1999. To date, the Company has
only generated de minimus revenues and expects to begin to generate revenues by
the end of 1999. There can be no assurance that the Company will ever generate
substantial revenues. In August and September of 1999 the Company sold an
aggregate of $22.9 million of convertible preferred stock and redeemable common
stock purchase warrants in private offerings. The financings included the
conversion of the Company's $2.0 million of outstanding senior debt. Net
proceeds to the Company from the financings was approximately $21.3 million
(including the conversion of the $2.0 million in debt and interest thereon). The
Company believes, based on currently proposed plans and assumptions relating to
its operations, that the net proceeds from the financings and related accrued
interest, together with anticipated revenues from operations, will be sufficient
to fund the Company's operations and working capital requirements for at least
12 months. In the event that the Company's plans or assumptions change or prove
inaccurate (due to unanticipated expenses, increased competition, unfavorable
economic conditions, or other unforeseen circumstances) the Company could be
required to seek additional financing sooner than currently expected. There can
be no assurance that such additional funding will be available to the Company,
or if available, that the terms of such additional financing will be acceptable
to the Company.
The Company incurred approximately $1.47 million for the six months ended
June 30, 1999 and $2.3 million from inception through June 30, 1999 in general
and administrative expenses. The general and administrative expenses from
inception through June 30, 1999 include salaries ($900,000), operating costs
($400,000), professional fees and consultants ($550,000), marketing expenses
($100,000) and StarGreetings ($350,000).
The Company incurred approxmately $95,000 for the six months ended
June 30, 1999 and $250,000 from inception through June 30, 1999 in stock based
compensation expenses. The stock based compensation expenses from inception
through June 30, 1999 resulted from stock options granted to consultants
($104,000) and stock options granted to StarGreetings celebrities ($146,000).
The Company incurred approximately $273,000 for the six months ended
June 30, 1999 and from inception through June 30, 1999 in loss resulting from
abandonment of capitalized software. This loss was due to a write-off of website
development costs incurred during 1998. On March 31, 1998, it was determined
that the costs, which had been capitalized as property and equipment as of
December 31, 1998, were abandoned when the Company selected new vendors for
support of its website, necessitating the creation of a new website and
integration components. During the first and second quarters of 1999, the
Company incurred approximately $147,000 in website development costs in efforts
to re-develop the website. These costs have been capitalized in accordance with
GAAP.
The Company expects its initial revenues to be derived from several
sources, but as with most e-commerce businesses, especially a development stage
company such as the Company, risks of operations are inherent and are largely
dependent on the economy and levels of consumer demand. The Company expects that
its initial revenues will be derived from retail sales to consumers of party
related goods. The Company anticipates that future revenues may be derived from
(i) commissions or royalties paid by strategic partners for orders received
through the Company; (ii) sales of StarGreetings personalized messages; and
(iii) advertising on the Site's pages, particularly the content features such as
the Party Planner and PartyTalk.
The Company expects to hire between five and ten additional employees in
the next six months as the needs of the Company may require to sustain growth,
and to remain competitive and creative.
THE SITE.
The Company is launching the Site in two stages, as follows:
First Stage. Currently, the Site contains the PartyMarket and PartyTalk. In
this first stage, the Company offers party related products, costumes, music and
editorial content. On-site shopping is currently limited to party goods, favors,
gift wrap, cards and invitations. During this stage Taymark is responsible for
consumer fulfillment and customer service.
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Second Stage. By the end of the first quarter of 2000, the Company expects
to expand the PartyMarket offering to include cakes, gifts, flowers, food and
beverages. During the first and second quarter of 2000, the Company expects to
continue to introduce additional features to the Site, such as the Party
Planner, the Party Resource, Gift Registry, Party Workbook, Party Web Page,
Photo Gallery, Birthday Club, interactive party planning tools and an Invitation
Channel.
ACQUISITIONS.
The Company operates in an un-branded business arena which has many small
players. As a result, the Company is considering consolidating the field through
acquisitions of other entities. Any determination to make an acquisition will be
based upon a variety of factors, including, without limitation, the purchase
price and other financial terms of the transaction, the business prospects, and
the extent to which any acquisition would enhance the Company's prospects. The
Company is not currently engaged in identifying any potential acquisition and
has no plans, agreement, understanding, or arrangement with respect to any
acquisition.
ITEM 3. DESCRIPTION OF PROPERTY.
The Company leases office space at 41 East 11th Street, 11th Floor, New
York, NY 10003 from TechSpace LLC. The lease commenced November 1, 1998 for an
initial term of three (3) months, which expired on February 28, 1999. On March
1, 1999 the lease automatically renewed for a three month period, upon the same
terms and conditions. The Company entered into a new lease on May 1, 1999 which
expired on August 1, 1999. The Company has extended the term of the lease and
leased additional space in the facility. The total monthly rent is $9,700 with
an additional variable monthly service fee of an average of $2,500 depending on
office equipment usage. Management believes that such space is adequate for its
immediate needs. This property is used by the Company for office space and the
Company believes that this space is adequately covered by its insurance.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of October 1, 1999, (i) by each
person who is known by the Company to beneficially own more than 5% of the
Company's Common Stock, (ii) by each of the Company's directors, (iii) by each
named executive officer listed on the Executive Compensation table in Item 6 and
(iv) by all executive officers and directors as a group. Except as indicated in
the footnotes to this table, the persons named in the table have sole voting and
investment power with respect to all shares beneficially owned, subject to
community property laws where applicable. As of October 1, 1999, there were
11,005,691 shares of Common Stock issued and outstanding. In addition, as of
October 1, 1999, there were 1,000,000 shares of Series A Preferred Stock issued
and outstanding (which are immediately convertible into 1,000,000 shares of
Common Stock), 1,044,593 shares of Series B Preferred Stock issued and
outstanding (which are immediately convertible into 10,445,930 shares of Common
Stock) and 100,000 shares of Series C Preferred Stock issued and outstanding
(which are immediately convertible into 1,000,000 shares of Common Stock).
<TABLE>
<CAPTION>
NUMBER OF
COMMON SHARES
BENEFICIALLY PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNED(2) CLASS
- --------------------------------------------------------------------------------- -------------- ----------
<S> <C> <C>
Sal Perisano..................................................................... 75,000(3) *
Maureen Broughton Murrah......................................................... 250,000(4) 2.22%
Robert H. Lessin ................................................................ 7,348,268(5)(7) 59.48%
c/o WIT Capital
826 Broadway, 6th Floor
New York, NY 10003
James McCann .................................................................... 699,600(6) 6.36%
1-800 Flowers
1000 Stewart Avenue
Westbury, NY 11590
</TABLE>
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<TABLE>
<CAPTION>
NUMBER OF
COMMON SHARES
BENEFICIALLY PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNED(2) CLASS
- --------------------------------------------------------------------------------- ---------- ------
<S> <C> <C>
iParty LLC ...................................................................... 6,000,000(7) 54.5%
c/o Robert H. Lessin
826 Broadway, 6th Floor
New York, NY 10003
Ajmal Khan ...................................................................... 565,000(8) 4.89%
The Verus Group, Suite 2000
1177 West Hastings Street
Vancouver, British Columbia
Canada V6E 2K3
Stuart G. Moldaw ................................................................ 125,000(9) 1.12%
700 Airport Boulevard
Burlingame, California 94010
Byron Hero ...................................................................... 700,000(10) 6.3%
420 East 54th Street
New York, New York 10022
Roccia Partners, L.P. ........................................................... 1,796,000(11) 14.03%
826 Broadway
New York, NY 10003
Boston Millennia Partners, LP ................................................... 1,000,000(12) 8.33%
30 Rowes Wharf
Suite 330
Boston, MA 02110
Hampton Associates Limited ...................................................... 703,362(13) 6.0%
1702 Dina House
Ruttonjee Centre
11 Duddell Street
Central Hong Kong
All officers and directors ...................................................... 8,363,268 62.67%
as a group (5 persons)
</TABLE>
- ------------------
* Less than one percent (1%).
(1) Unless otherwise indicated, all addresses are c/o iParty Corp., 41 East
11th Street., 11th Floor, New York, New York 10003.
(2) Beneficial ownership has been determined in accordance with Rule 13d-3
under the Securities and Exchange Act of 1934, as amended (the "Exchange
Act"), and unless otherwise indicated, represents shares for which the
beneficial owner has sole voting and investment power. The percentage of
class is calculated in accordance with Rule 13d-3.
(3) Includes 75,000 shares which may be acquired upon the exercise of presently
exercisable options issued pursuant to the Company's 1998 Incentive and
Nonqualified Stock Option Plan (the "Plan")(50,000 options in connection
with his consulting agreement with the Company and 25,000 options in
connection with his role as Director of the Company. See "Executive
Compensation.")
(4) Includes 250,000 shares of Common Stock which may be acquired upon the
exercise of presently exercisable options issued pursuant to the Plan.
(5) Includes (i) 6,000,000 shares of Common Stock owned by iParty LLC, in which
Mr. Lessin is a member and the manager and a 78.34% owner; (ii) 75,000
shares of Common Stock which may be acquired upon the exercise of presently
exercisable options issued pursuant to the Plan, (iii) 273,268
(Footnotes continued on next page)
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(Footnotes continued from previous page)
shares of Common Stock which may be acquired upon the exercise of presently
exercisable warrants, and (iv) 1,000,000 shares of Common Stock which may
be acquired upon the conversion of 100,000 shares of presently convertible
Series B Convertible Preferred Stock.
(6) Includes 699,000 shares of Common Stock owned by iParty LLC, in which
Mr. McCann is a member and a 11.66% owner. Such shares represent his
ownership interest in iParty LLC.
(7) iParty LLC is a Delaware limited liability company and a 54.5% shareholder
of the Company. Mr. Lessin is the manager and 78.334% owner of iParty LLC.
(8) Includes 75,000 shares of Common Stock which may be acquired upon the
exercise of presently exercisable options issued pursuant to the Plan, and
25,000 shares of Common Stock held by Verus Capital Corp., of which
Mr. Khan is the sole stockholder. Also includes presently exercisable
options, held by Verus Capital Corp., to purchase 225,000 and 240,000
shares of Series A Preferred Stock from Henslowe Trading Limited and
Ruffino Developments Limited, respectively.
(9) Includes 100,000 shares of Common Stock which may be acquired upon the
conversion of 10,000 shares of presently convertible Series B Convertible
Preferred Stock and 25,000 shares of Common Stock which may be acquired
upon the exercise of presently exercisable options issued pursuant to the
plan.
(10) Includes 600,000 shares of Common Stock owned by iParty LLC, in which
Mr. Hero is a member and a 10% owner, such shares represent Mr. Hero's
membership interest in iParty LLC. Also includes 100,000 shares which may
be acquired by the exercise of presently exercisable options issued
pursuant to the Plan.
(11) Includes 1,796,000 shares of Common Stock which may be acquired upon the
conversion of 179,600 shares of presently convertible Series B Convertible
Preferred Stock.
(12) Includes 1,000,000 shares of Common Stock which may be acquired upon the
conversion of 100,000 shares of presently convertible Series C Convertible
Preferred Stock.
(13) Includes 448,420 shares of Common Stock which may be acquired upon the
conversion of 44,842 shares of presently convertible Series B Convertible
Preferred Stock and 254,942 shares of Common Stock which may be acquired
upon the exercise of presently exercisable warrants.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS AND PROMOTERS.
The following sets forth, are the names of the Company's directors and
executive officers.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------------ --- ------------------------------------------------
<S> <C> <C>
Sal Perisano.................................... 48 Chief Executive Officer, Director
Maureen Broughton Murrah........................ 36 President, Director
Patrick Farrell................................. 31 Senior Vice President, Chief Financial
Officer
Ajmal Khan...................................... 37 Director
Robert H. Lessin................................ 44 Director
Stuart G. Moldaw................................ 72 Director
</TABLE>
The Company has no nominating committee. The Company has an audit committee
consisting of Messrs. Khan and Moldaw, and a compensation committee consisting
of Messrs. Kahn and Perisano. The Company also has an executive committee
consisting of Messrs. Perisano, Lessin and Moldaw. The Company currently does
not carry any key-man life insurance on any of its officers.
Set forth below is biographical information about the Directors and
Executive Officers of the Company.
Sal Perisano has been a Director of the Company since October 1998 and the
Chief Executive Officer since April 15, 1999. In December 1992, Mr. Perisano
co-founded The Big Party Corporation, a retail chain of 51 party supply stores,
headquartered in West Roxbury, Massachusetts. Mr. Perisano served as President
and Chairman of The Big Party Corporation from 1992 to January 1999.
Mr. Perisano currently serves as a
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<PAGE>
director of and a consultant to The Big Party Corporation. In 1981, he
co-founded Videosmith, which became Boston's dominant video retailer. In 1989
Videosmith was sold to a publicly traded company called Xtravision PLC, which
owned 250 stores throughout the U.K. and Ireland. Mr. Perisano stayed on as
director and was later named Chief Executive of the parent company, which was
subsequently acquired by Blockbuster Video. Mr. Perisano holds a B.A. from
Boston College and an M.A. from Harvard University.
Maureen Broughton Murrah has been President of the Company since July 1998.
From 1996 until joining the Company in 1998, Ms. Murrah was a senior account
executive at Nike, Inc. ("Nike") where she directed all major national account
programs for Nike's new equipment business (skates, sunglasses, watches, and
other hard goods). Prior to joining Nike, from early 1993 until 1996, she was
Vice President of Merchandising and Marketing at Danskin, Inc., an apparel
company, where she directed all aspects of the Danskin brand business, including
design, merchandising, marketing, advertising, and public relations.
Patrick Farrell has been Senior Vice President and the Chief Financial
Officer of the Company since April 1999. From 1996 until joining the Company,
Mr. Farrell was Director, Financial Planning & Analysis and Controller for N2K
Inc. where he recently helped negotiate that company's merger with CDnow. Prior
to N2K, he served as Controller at EMI Music Group/Angel Records and as Manager
of Finance and Accounting at Polygram/DefJam Recordings, Inc. He began his
professional career at Arthur Andersen & Co., where he was an Audit Senior when
he left in 1994. Mr. Farrell holds an M.B.A. from New York University and
graduated with honors in Accounting from Temple University and is a Certified
Public Accountant.
Ajmal Khan has been a Director of the Company since July 1998. Mr. Khan is
founder and President of the Verus Capital Corp. ("Verus"), a diversified
investment group. Mr. Khan founded Venus and has been its President since 1987.
Verus is involved in the ownership of hotels; venture capital financing;
corporate acquisitions; and several joint ventures entailing name brand
franchising and licensing. Mr. Khan also has a joint venture interest in
Barakaat Holdings Ltd., a sports marketing company. Since October, 1998 he has
also served as a Director of Advanced Bodymetrics, Inc., a publicly traded
high-tech company dedicated to developing sports wristwatches that are able to
monitor and display various functions of the human body. Mr. Khan is also a
director of Wattage Monitor, Inc., a provider of electricity and power.
Robert H. Lessin has been a Director of the Company since July 1998.
Mr. Lessin has been Chairman and Chief Executive of Wit Capital Corp., an
on-line broker-dealer, since April 1998. From 1993 until 1997, Mr. Lessin was
Vice Chairman of Salomon Smith Barney, where he served as Head of its Investment
Banking Division. Mr. Lessin also serves on the Board of Directors of CBS
MarketWatch.com, a financial and news provider on the Internet.
Stuart G. Moldaw has been a director of the Company since October 1999. Mr.
Moldaw has been Chairman of Gymboree Corporation, a speciality retailer of
apparel and accessories for children, since 1994. From 1980 through February
1990 Mr. Moldaw served as a general partner of U.S. Venture Partners and he
currently serves as a special venture partner of such entity. Mr. Moldaw also
serves as a director and Chairman Emeritus of Ross Stores, Inc., an off-price
retailer of apparel and home accessories.
ITEM 6. EXECUTIVE COMPENSATION.
DIRECTOR COMPENSATION.
Pursuant to the Plan, each non-employee director will be granted, on the
effective date of the commencement of his term as director, options to purchase
25,000 shares of Common Stock. In addition, each director who is not an
executive officer of the Company is to be granted, on an annual basis on the
last trading date in August of each year, commencing August 1998, options to
acquire 25,000 shares of Common Stock, at an exercise price equal to the fair
market value of the underlying common stock on the date of grant.
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<PAGE>
SUMMARY EXECUTIVE OFFICER COMPENSATION TABLE.
The following summarizes the aggregate cash compensation paid during 1998
(see footnotes below) to the Company's Chief Executive Officer and any officer
who is expected to earn more than $100,000 in salary and bonus pursuant to their
contracts. Currently, options have been granted to management as indicated
below.
<TABLE>
<CAPTION>
NAME AND PRINCIPAL OTHER ANNUAL SECURITIES UNDERLYING
POSITION 1998 SALARY COMPENSATION OPTIONS/SAR'S
- ---------------------------------------------------------------- ----------- ------------ ---------------------
<S> <C> <C> <C>
Byron Hero, .................................................... $ 250,000(2) $ 12,000(3) 300,000(6)
Former Chief Executive Officer(1)
Maureen Broughton Murrah, ...................................... $ 150,000(4) 300,000(5)
President
</TABLE>
- ------------------
(1) Mr. Hero resigned as Chief Executive Officer of the Company on April 14,
1999. Mr. Hero did not receive any severance payment in connection with such
resignation.
(2) Represents annualized salary. Mr. Hero did not begin his employment with the
Company until July 7, 1998.
(3) Represents maximum annual car allowance.
(4) Represents annualized salary. Ms. Murrah did not begin her employment with
the Company until July 6, 1998.
(5) Represents options with respect to 250,000 shares currently vested, and
options with respect to 50,000 shares of Common Stock scheduled to vest on
January 6, 2000.
(6) Represents options with respect to 300,000 shares of Common Stock vested on
January 15, 1999, and are exercisable at $2.50 per share.
EMPLOYMENT AND CONSULTING AGREEMENTS.
The Company and Mr. Perisano, a director of the Company, entered into a
consulting agreement for the services of Mr. Perisano and his wife, Dorice
Dionne. The consulting period terminates on December 31, 1999. Pursuant to this
agreement, Mr. Perisano was entitled to options to purchase 25,000 shares of
Common Stock, at the price on the date of grant ($1.43), and additional options
to purchase 25,000 shares of Common Stock in the event their consulting hours
exceed 100. Their consulting hours exceeded 100 on January 19, 1999.
Consequently, Mr. Perisano was granted options to purchase 25,000 shares of
Common Stock at an exercise price of $5.38 per share, the price of the Common
Stock on such date.
The Company and Mr. Perisano have entered into an employment agreement
which provides for him to act as Chief Executive Officer of the Company for a
term expiring on March 30, 2002 and devote substantially his full working time
and attention to the Company provided that he may continue fulfill his duties
and obligations to The Big Party Corporation as a consultant and a member of its
board of directors. The agreement provides for an initial annual salary of
$150,000, which amount will be increased to $250,000 commencing January 1, 2000
plus a discretionary bonus to be determined by the Board of Directors. As
described in the agreement, on March 30, 1999 Mr. Perisano was granted options
to purchase an aggregate of 337,500 shares of Common Stock pursuant to the Plan
with an exercise price equal to the fair market value of the Common Stock on the
date of grant ($3.75). Such options shall vest as follows: provided that
Mr. Perisano remains continuously employed by the Company, options with respect
to 112,500 shares of Common Stock shall vest on 30th day of March of each of the
years 2000, 2001, and 2002, respectively. As further described in the agreement,
on August 26, 1999 Mr. Perisano was granted options to purchase an aggregate of
434,730 shares of Common Stock pursuant to the Plan. Such options shall vest as
follows: provided that Mr. Perisano remains continuously employed by the
Company, options with respect to 114,910 shares of Common Stock shall vest on
the 26th day of August of each of the years 2000, 2001, and 2002, respectively.
The agreement provides that if Mr. Perisano is terminated without cause, or
resigns for
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<PAGE>
"good reason" he will be entitled to receive his then current salary for a
period of nine months. The agreement contains certain restrictions on
competition.
The Company and Ms. Murrah entered into an employment agreement, dated
July 6, 1998 and expiring on July 6, 2001. The agreement provides that she will
act as President of the Company, devote substantially her full working time and
attention to the Company, and provides for an annual salary of $150,000, plus a
discretionary bonus to be determined by the Board of Directors. In addition,
Ms. Murrah will be granted stock options to purchase an aggregate of 300,000
shares of Common Stock pursuant to the Plan which vest as follows: options with
respect to 250,000 shares of Common Stock are currently vested, and provided
that Ms. Murrah remains continuously employed by the Company, options with
respect to 50,000 shares of Common Stock shall vest on January 6, 2000. If the
employment agreement is terminated by the Company without cause, Ms. Murrah is
entitled to receive an amount equal to any unpaid out-of-pocket necessary
expenses as contemplated under the employment agreement and one-half of the
amortized annual amount of the base salary then in effect. The employment
agreement also provides for a one year non-compete following the termination of
Ms. Murrah's employment.
The Company and Mr. Farrell entered in an employment agreement, dated
March 12, 1999 which provides for Mr. Farrell to serve as Chief Financial
Officer of the Company for a term which expires on December 31, 2000. The
agreement provides for an initial base salary of $115,000 per year. In
connection with the Agreement Mr. Farrell was granted options to purchase an
aggregate of 115,000 shares of Common Stock pursuant to the Plan. So long as
Mr. Farrell remains continuously employed by the Company, options with respect
to 50,000 shares shall vest on August 1, 1999 and options with respect to the
remaining 65,000 shares shall vest on February 1, 2000. If the employment
agreement is terminated by the Company without cause, Mr. Farrell is entitled to
receive his full then current base salary for a period of three months from the
date of termination and half of his then current base salary for a period of
three months thereafter.
The Company and Mr. Moldaw, a director of the Company, entered into a
Consulting Agreement, dated September 7, 1999. The agreement has a term of three
years but may be terminated by either party upon 90 days' written notice.
Pursuant to the terms of agreement, Mr. Moldaw was granted options to purchase
100,000 shares of Common Stock with an exercise price of $2.00 per share. Such
options vest as follows: provided that Mr. Moldaw is still providing consulting
services to the Company, options with respect to 33,334 shares of Common Stock
shall vest on September 6, 2000 and options with respect to an additional 33,333
shares of Common Stock shall vest on each of September 6, 2001 and 2002,
respectively.
The Company and Mr. Byron Hero, the former Chief Executive Officer and a
former Director of the Company, entered into a consulting agreement dated April
14, 1999. In connection with the consulting agreement, the employment agreement,
dated July 7, 1998 between the Company and Mr. Hero (the "Prior Agreement") was
terminated and Mr. Hero resigned as Chief Executive Officer and a Director of
the Company. Mr. Hero did not receive any severance payment in connection with
his resignation as Chief Executive Officer of the Company. Pursuant to the terms
of the consulting agreement, Mr. Hero shall serve as non-executive Chairman of
StarGreeting, Inc., a wholly-owned subsidiary of the Company, until April 14,
2000. During the term of the agreement, Mr. Hero shall receive a fee (the "Fee")
of $20,833.33 per month. If Mr. Hero is terminated for any reason during the
first six months of the term(other than for a violation of the agreement's
prohibition on competition) then Mr. Hero shall be entitled to receive the Fee
for the remainder of such initial six month period. In the event Mr. Hero is
terminated other than For Cause after such initial six month period, Mr. Hero
shall be entitled to six months Fee, payable in six equal monthly installments.
The agreement contains certain prohibitions on competition. Pursuant to terms of
the Prior Agreement, Mr. Hero was granted options to purchase an aggregate of
300,000 shares of Common Stock Pursuant to Plan. Such options remain in effect.
Options to purchase 50,000 shares have vested, and provided that Mr. Hero
remains engaged by the Company on the following dates, options to acquire 50,000
shares shall vest on each such date: July 15, 1999, January 15, 2000, July 15,
2000, January 15, 2001, July 15, 2001.
12
<PAGE>
STOCK OPTION PLAN
In July 1998, the Company's Board of Directors adopted the Incentive and
Nonqualified Stock Option Plan (the "Plan"), under which there are currently
4,000,000 shares of Common Stock reserved for issuance. The Plan provides for
the award of options, which may either be incentive stock options ("ISOs")
within the meaning of Section 422A of the Internal Revenue Code of 1986, as
amended (the "Code") or non-qualified options ("NQOs") which are not subject to
special tax treatment under the Code. The Plan is administered by the Board or a
committee appointed by the Board (the "Administrator"). Officers, directors, key
employees of, and consultants to, the Company or any parent or subsidiary
corporation selected by the Administrator are eligible to receive options under
the plan. Subject to certain restrictions, the Administrator is authorized to
designate the number of shares to be covered by each award, the terms of the
award, the dates on which and the rates at which options or other awards may be
exercised, the method of payment and other terms.
The exercise price for ISOs cannot be less than the fair market value of
the stock subject to the option on the grant date (110% of such fair market
value in the case of ISOs granted to a stockholder who owns more than 10% of the
Company's Common Stock). The exercise price of a NQO shall be fixed by the
Administrator at whatever price the Administrator may determine in good faith.
Unless the Administrator determines otherwise, options generally have a 10-year
term (or five years in the case of ISOs granted to a participant owning more
than 10% of the total voting power of the Company's capital stock). Unless the
Administrator provides otherwise, options terminate upon the termination of a
participant's employment, except that the participant may exercise an option to
the extent it was exercisable on the date of termination for a period of time
after termination. Generally, awards must be exercised by cash payment to the
Company of the exercise price. However, the Administrator may allow a
participant to pay all or a portion of the exercise price by means of stock.
In the event of any change in the outstanding shares of Common Stock by
reason of any reclassification, recapitalization, merger, consolidation,
reorganization, spin-off, issuance of warrants or rights or debentures, stock
dividend, stock split or reverse stock split, cash dividend, property dividend
or similar change in the corporate structure, the Administrator shall make an
appropriate adjustment in the aggregate number of shares available under the
Plan and in the number of shares and price per share subject to outstanding
options. In the event that the Company is reorganized, consolidated, or merged
with another corporation, or if all or substantially all of the assets of the
Company are sold or exchanged, the holder of the option is entitled to receive
upon the exercise of his or her option, the same number and kind of shares of
stock as he or she would have been entitled to receive upon the happening of any
such corporate event as if he had exercised such option and had been immediately
prior to such event, the holder of the number of shares covered by such option.
The Administrator may, at any time, modify, amend or terminate the Plan as
is necessary to maintain compliance with applicable statutes, rules or
regulations; provided, however, that the Administrator may condition the
effectiveness of any such amendment on the receipt of stockholder approval as
may be required by applicable statute, rule or regulation. In addition, the Plan
may be terminated by the Board of Directors as it shall determine in its sole
discretion, in the absence of stockholder approval; provided, however, that any
such termination will not adversely alter or impair any option awarded under the
Plan prior to such termination without the consent of the holder thereof.
Directors who are not executive officers of the Company are entitled to
options to acquire 25,000 shares of Common Stock at the beginning of their term
as director. In addition, non-executive officer directors are entitled to
options to acquire 25,000 shares of Common Stock annually, on the last trading
day in August, at an exercise price equal to the fair market value of the stock
on the date of grant. These options vest on the date of the grant. The secretary
of the Company is entitled to receive the same option compensation as directors
who are not executive officers of the Company.
In addition to those options granted to the Company's non-executive officer
directors under the Plan, the following paragraph summarizes the options that
have been granted pursuant to the Plan to the Company's Executive Officers.
13
<PAGE>
Pursuant to his consulting agreement, Mr. Perisano was granted options to
acquire 50,000 shares of Common Stock, at an exercise price equal to the fair
market value on the date of grant. In addition, he was granted options to
purchase 25,000 shares of Common Stock, at an exercise price equal to the fair
market value on the date of grant, upon his election as a Director. These
options are currently exercisable. In addition, in connection with his
appointment as Chief Executive Officer of the Company on March 30, 1999,
Mr. Perisano was granted options to purchase an aggregate of 337,500 shares of
Common Stock with an exercise price equal to $3.75 per share. In addition, on
August 26, 1999 Mr. Perisano was granted options to purchase an additional
434,730 shares of Common Stock at an exercise price of $2.00 per share. These
options vest as provided in his employment agreement described above. Pursuant
to her employment agreement, Ms. Murrah was granted options to acquire an
aggregate of 300,000 shares of Common Stock at an exercise price of $2.50. These
options will vest according to the schedule set forth in her employment
agreement, described above. Pursuant to his employment agreement, Mr. Farrell
was granted options to acquire an aggregate of 115,000 shares of Common Stock at
an exercise price of $3.63 per share. In addition, on October 11, 1999
Mr. Farrell was granted options to purchase an additional 75,000 shares of
Common Stock at an exercise price of $3.81 per share. These options vest in
equal installments over three years. These options will vest according to the
schedule set forth in his employment agreement, described above. Mr. Hero was
granted options to acquire an aggregate of 300,000 shares of Common Stock at an
exercise price of $2.50. These options will vest according to the schedule set
forth in his consulting agreement, described above.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
STARGREETINGS LICENSE
Star Greetings, Inc. a wholly owned subsidiary of the Company (the
"Licensee") licenses the StarGreetings concept (the "StarGreetings Concept")
from StarGreetings, LLC (the "Licensor"). Mr. Hero, a former director and the
former Chief Executive Officer of the Company, is a member and the manager of
the Licensor, and is the creator of the StarGreetings concept. Pursuant to a
license agreement dated as of August 15, 1998, by and between the Licensor and
the Licensee (the "License Agreement"), the Licensee was granted exclusive,
perpetual and worldwide rights to use the StarGreetings Concept for a twenty
(20) year term, expiring August 15, 2016.
Pursuant to the License Agreement, the Licensee will be permitted to sell
StarGreetings for general audiences (excluding adult content versions) on its
two current URLs located on the world wide web at "Stargreetings.com" and
"iParty.com."
In exchange for the license for use of the StarGreetings Concept, the
Licensee has agreed to pay the Licensor 2 1/2% (the "Royalty") of the gross
revenues received by the Licensee from the sale of StarGreetings. The Royalty is
to be paid to Licensor within fifteen days after the end of each fiscal quarter.
The License Agreement terminates in the event of a change of control in the
Licensee or a change of control in the Company, the parent of the Licensee. For
purposes of the License Agreement, the term change in control includes any
merger or consolidation in which the Licensee is not the surviving entity, and a
sale of more than 49% of the assets or stock of the Licensee to a third party or
a change of control of the Company, the Licensee's parent.
FINDER'S FEE AGREEMENT WITH FORMER DIRECTOR
iParty LLC and Mr. Hero, entered into an agreement prior to Mr. Hero
becoming a Director or officer of the Company in April 1998, which calls for him
to receive a finder's fee in the amount of 5% of the first $2,000,000 in equity
raised from any party introduced by him (the "Finder's Fee Agreement"). The
Company has assumed the obligations of iParty LLC under the Finder's Fee
Agreement. In connection with the Finder's Fee Agreement, $2,000,000 was raised.
As a result, the Company paid Mr. Hero $100,000. Mr. Hero is not a registered
broker-dealer.
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<PAGE>
FUNDING AGREEMENT WITH CERTAIN DIRECTORS
The Company entered into a Funding Agreement, dated as of March 31, 1999
and amended as of April 14, 1999, with Mr. Ajmal Khan and Mr. Robert H. Lessin,
Directors of the Company (the "Funding Agreement"). Pursuant to the terms of the
Funding Agreement each of Mr. Kahn (or his designees) and Mr. Lessin advanced
certain funds to the Company. In connection with each such funding, the funding
party received a 10% Senior Secured Promissory Note for the amount funded and
warrants to purchase such number of shares of Common Stock equal to the amount
funded divided by the closing bid price of the Common Stock on the date of each
such funding. $2,000,000 was funded pursuant to the Funding Agreement and
warrants to purchase 528,210 shares of Common Stock were issued at a
weighted-average exercise price of $3.79.
EMPLOYMENT AGREEMENT WITH SPOUSE OF DIRECTOR AND EXECUTIVE OFFICER
The Company has entered into an Employment Agreement with Dorice Dionne,
the wife of Sal Perisano, the Chief Executive Officer and a Director the
Company. The agreement provides that she will act as Senior Vice
President--Merchandising for a term expiring on March 30, 2002 and devote
substantially her full working time and attention to the Company provided that
she may continue to fulfill her duties and obligations to The Big Party
Corporation as a consultant. The agreement provides for an initial annual salary
of $100,000, which amount will be increased to $125,000 commencing January 1,
2000, plus a discretionary bonus to be determined by the Board of Directors. As
described in the agreement, on March 30, 1999 she was granted options to
purchase an aggregate of 337,500 shares of Common Stock pursuant to the Plan
with an exercise price equal to the fair market value of the Common Stock on the
date of grant ($3.75 per share). Such options shall vest as follows: provided
that she remains continuously employed by the Company, options with respect to
112,500 shares of Common Stock shall vest on the 30th day of March of each of
the years 2000, 2001, and 2002, respectively. The agreement provides that if she
is terminated without cause, she will be entitled to receive her then current
salary for a period of six months. The Agreement contains certain customary
restrictions on competition.
ITEM 8. DESCRIPTION OF SECURITIES.
COMMON STOCK
The Company's Restated Certificate of Incorporation authorizes the issuance
of an aggregate of 50,000,000 shares of Common Stock, par value $.001 per share.
As of October 1, 1999, there were 11,005,691 shares of Common Stock issued and
outstanding. As of October 1, 1999, the number of holders of the Company's
Commoon Stock was at least 94. Each holder of record of Common Stock is entitled
to one vote for each share held on all matters promptly submitted to the
stockholders for their vote. Holders of outstanding shares of Common Stock are
entitled to such dividends as may be declared from time to time by the Board of
Directors out of legally available funds. The Company has not paid a dividend
and it is not anticipated that any cash dividends will be paid in the
foreseeable future. The Board of Directors initially may follow a policy of
retaining earnings, if any, to finance the future growth of the Company.
Accordingly, future cash dividends, if any, will depend on the Company's need
for working capital and its financial condition at the time. Shares of Common
Stock are not redeemable, carry no preemptive rights, or other rights to
subscribe for additional shares of Common Stock in the event of an offering. All
outstanding shares of Common Stock are fully paid and non-assessable.
PREFERRED STOCK
The Company's Restated Certificate of Incorporation authorizes the issuance
of an aggregate of 10,000,000 preferred shares, par value $.001 per share (the
"Preferred Shares"). The Board of Directors is authorized from time to time to
issue the Preferred Shares as Preferred Shares of any series and in connection
with the creation of each such series, to fix by resolution or resolutions
providing for the issue of shares thereof, the number of shares of such series,
the designations, powers and preferences and rights and the qualifications,
limitations and restrictions of such series to the full extent now or hereafter
permitted by the laws of the State of Delaware. At present, the Company's Board
of Directors has designated the following
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<PAGE>
classes of Preferred Shares: (i) 1,000,000 shares as Series A Convertible
Preferred Stock, par value $.001 per share (the "Series A Preferred Stock"), all
of which are currently issued and outstanding; (ii) 1,150,000 shares as
Series B Convertible Preferred Stock, par value $.001 per share (the "Series B
Preferred Stock"), 1,044,953 shares of which are currently issued and
outstanding; and (iii) 100,000 shares as Series C Convertible Preferred Stock,
par value $.001 per share (the "Series C Preferred Stock"), all of which are
currently issued and outstanding.
Series A Preferred Stock
Rank. The Series A Preferred Stock ranks junior to any classes of stock
designated by the Company as "Senior Securities," prior to all of the Company's
Common Stock and any class or series of capital stock of the Company created
thereafter not specifically ranking by its terms senior to, or on parity with,
the Series A Preferred Stock, and on parity with the Series B and Series C
Preferred Stock, as to distribution of assets upon liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary.
Dividends. The Series A Preferred Stock bears no dividend.
Conversion. Subject to certain adjustments, each share of Series A
Preferred Stock is convertible at any time, and from time to time, into one
fully-paid and non-assessable share of Common Stock.
Anti-Dilution Provisions. If the number of outstanding shares of Common
Stock is increased by a stock split, stock dividend or other similar event, the
conversion rate is to be proportionately reduced, or if the number of
outstanding shares of Common Stock is decreased by a combination or
reclassification of shares, or other similar event, the conversion rate is to be
proportionately increased. In addition, if, prior to the conversion of all the
Series A Preferred Stock, there is any merger, consolidation, exchange of
shares, recapitalization, reorganization or other similar event, as a result of
which shares of Common Stock of the Company are to be changed into the same or a
different number of shares of the same or another class or classes of stock or
securities of the Company or another entity, that the holders of then
outstanding shares of Series A Preferred Stock would have the right to receive
upon conversion of Series A Preferred Stock, upon the basis and upon the terms
and conditions specified in the certificate of designation and in lieu of the
shares of Common Stock immediately issuable upon conversion, such stock,
securities and/or other assets which the holders would have been entitled to
receive in such transaction had the Series A Preferred Stock been converted
immediately prior to such transaction.
Voting Rights. Except as required under the General Corporation Law of
Delaware, the holders of Series A Preferred Stock have no voting rights;
provided however, that the consent of 66% of the shares of Series A Preferred
Stock then outstanding is required before the Company can take certain actions
which adversely affect the rights, preferences or privileges of the Series A
Preferred Stock.
Series B Preferred Stock
Rank. The Series B Preferred Stock ranks junior to any classes of stock
designated by the Company as "Senior Securities," prior to all of the Company's
Common Stock and any class or series of capital stock of the Company created
thereafter not specifically ranking by its terms senior to, or on parity with,
the Series B Preferred Stock, and on parity with the Series A and Series C
Preferred Stock, as to distribution of assets upon liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary.
Dividends. The Series B Preferred Stock bears no dividend provided that
the holders will be entitled to dividends ratably with any payment to holders of
Common Stock if declared by the Board of Directors.
Conversion. Subject to certain adjustments, each share of Series B
Preferred Stock is convertible at any time, and from time to time, at the option
of the holder thereof, into a number of shares of Common Stock equal to the
quotient derived by dividing (i) $20.00 by (ii) the conversion price in effect
at the time of the conversion (the "Series B Conversion Price"). The initial
conversion price is $2.00, reflecting an initial conversion rate of 10 shares of
Common Stock for each share of Series B Preferred Stock (the "Series B
Conversion Rate"). In addition, the Series B Preferred Stock will automatically
convert into Common Stock, at the conversion rate then in effect, in the event
that the Company consummates a secondary public offering of its Common Stock
resulting in gross proceeds to the Company of at least $10,000,000.
16
<PAGE>
Anti-Dilution Provisions. Subject to certain exceptions (including the
exercise of currently outstanding options or warrants, the exercise of future
options issued under the Plan, and the conversion of the Series A Preferred
Stock), if the Company issues Common Stock at a price less than the Series B
Conversion Price then in effect or the then current market price of the Common
Stock, then the Series B Conversion Rate will be adjusted on a weighted-average
formula basis. In addition, if the number of outstanding shares of Common Stock
is increased by a stock split, stock dividend or other similar event, the Series
B Conversion Rate is to be proportionately reduced, or if the number of
outstanding shares of Common Stock is decreased by a combination or
reclassification of shares, or other similar event, the Series B Conversion Rate
is to be proportionately increased. In addition, if, prior to the conversion of
all the Series B Preferred Stock, there is any merger, consolidation, exchange
of shares, recapitalization, reorganization or other similar event, as a result
of which shares of Common Stock of the Company are to be changed into the same
or a different number of shares of the same or another class or classes of stock
or securities of the Company or another entity, that the holders of then
outstanding shares of Series B Preferred Stock would have the right to receive
upon conversion of Series B referred Stock, upon the basis and upon the terms
and conditions specified in the certificate of designation and in lieu of the
shares of Common Stock immediately issuable upon conversion, such stock,
securities and/or other assets which the holders would have been entitled to
receive in such transaction had the Series B referred Stock been converted
immediately prior to such transaction.
Voting Rights. The Series B Preferred Stock will vote together as a single
class with the Holders of Common Stock, with each share of Series B Preferred
Stock being entitled to cast a number of votes equal to the number of shares of
Common Stock into which each share is then convertible (initially 10). In
addition, consent of 50% of the shares of Series B Preferred Stock then
outstanding is required before the Company can take certain actions which
adversely affect the rights preferences or privileges of the Series B Preferred
Stock.
Series C Preferred Stock
Rank. The Series C Preferred Stock ranks junior to any classes of stock
designated by the Company as "Senior Securities," prior to all of the Company's
Common Stock and any class or series of capital stock of the Company created
thereafter not specifically ranking by its terms senior to, or on parity with,
the Series C Preferred Stock, and on parity with the Series A and Series B
Preferred Stock, as to distribution of assets upon liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary.
Dividends. The Series C Preferred Stock bears no dividend provided that
the holders will be entitled to dividends ratably with any payment to holders of
Common Stock if declared by the Board of Directors.
Conversion. Subject to certain adjustments, each share of Series C
Preferred Stock is convertible at any time, and from time to time, at the option
of the holder thereof, into a number of shares of Common Stock equal to the
quotient derived by dividing (i) $20.00 by (ii) the conversion price in effect
at the time of the conversion (the "Series C Conversion Price"). The initial
conversion price is $2.00, reflecting an initial conversion rate of 10 shares of
Common Stock for each share of Series C Preferred Stock (the "Series C
Conversion Rate"). In addition, the Series C Preferred Stock will automatically
convert into Common Stock, at the conversion rate then in effect, in the event
that the Company consummates a secondary public offering of it Common Stock
resulting in gross proceeds to the Company of at least $10,000,000.
Anti-Dilution Provisions. Subject to certain exceptions (including the
exercise of currently outstanding options or warrants, the exercise of future
options issued under the Plan, and the conversion of the Series A or Series B
Preferred Stock), if the Company issues Common Stock at a price less than the
Series C Conversion Price then in effect or the then current market price of the
Common Stock, then the Series C Conversion Rate will be adjusted on a
weighted-average formula basis. In addition, if the number of outstanding shares
of Common Stock is increased by a stock split, stock dividend or other similar
event, the Series C Conversion Rate is to be proportionately reduced, or if the
number of outstanding shares of Common Stock is decreased by a combination or
reclassification of shares, or other similar event, the Series C Conversion Rte
is to be proportionately increased. In addition, if, prior to the conversion of
all the Series C Preferred Stock, there is any merger, consolidation, exchange
of shares, recapitalization, reorganization or other similar event, as a result
of which shares of Common Stock of the Company are to be changed into the same
or a different number of shares of the same or another class or classes of stock
or
17
<PAGE>
securities of the Company or another entity, that the holders of then
outstanding shares Series C Preferred Stock would have the right to receive upon
conversion of Series C Preferred Stock, upon the basis and upon the terms and
conditions specified in the certificate of designation and in lieu of the shares
of Common Stock immediately issuable upon conversion, such stock, securities
and/or other assets which the holders would have been entitled to receive in
such transaction had the Series C Preferred Stock been converted immediately
prior to such transaction.
Voting Rights. The Series C Preferred Stock will vote together as a single
class with the Holders of Common Stock, with each share of Series C Preferred
Stock being entitled to cast a number of votes equal to the number of shares of
Common Stock into which each share is then convertible (initially 10). In
addition, so long as 50% of the initially issued shares of Series C Preferred
Stock remain outstanding, the holders of the Series C Preferred Stock, voting as
a class, shall have the right to elect one director of the Company. In addition,
consent of 50% of the shares of Series C Preferred Stock then outstanding is
required before the Company can take certain actions which adversely affect the
rights, preferences or privileges of the Series C Preferred Stock.
18
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS.
The Company's Common Stock is traded in the over-the-counter market listed
on the NASDAQ OTC Bulletin Board under the symbol "IPTY."
The following table sets forth the range of high and low bid quotations for
the Company's Common Stock for each of the quarter of the fiscal year ended
December 31, 1998 and for the first three quarters of the fiscal year ending
December 31, 1999. The Common Stock commenced trading on the OTC Bulletin Board
under the name iParty Corp, symbol "IPTY" in July 1998. Prior to that time, from
February 1998, until July 1998, the Company's stock was quoted on the OTC
Bulletin Board under the name of WSI Acquisitions, Inc., symbol "WSIA." There is
no available information with respect to the common stock of WSI Acquisitions,
Inc. for the time period before February 12, 1998. Accordingly quotations for
the 1997 fiscal year have not been provided. The quotations represent
inter-dealer prices without retail markup, mark down or commission and may not
necessarily represent actual transactions.
<TABLE>
<CAPTION>
PERIOD HIGH LOW
- ----------------------------------------------------------------------- ------- --------
<S> <C> <C>
Third Quarter--1999.................................................... $3.9325 $2.625
Second Quarter--1999................................................... 5.00 2.4375
First Quarter--1999.................................................... 6.6875 3.125
Fourth Quarter--1998................................................... 3.375 1.065
Third Quarter--1998.................................................... 3.375 0.05
Second Quarter--1998................................................... 0.06 0.03125
First Quarter--1998.................................................... 0.0625 0.01
</TABLE>
The Company has never paid any cash dividends nor does it intend, at this
time, to make cash distributions to its shareholders in the near future. As of
July 1, 1999 the number of holders of the Company's Common Stock was at least
94.
ITEM 2. LEGAL PROCEEDINGS.
The Company is not currently a party to any material litigation.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
The Company has not changed its accountants since the merger, and there are
no disagreements with the Company's accountants concerning accounting and
financial disclosure.
ITEM 4. RECENT SALE OF UNREGISTERED SECURITIES.
During the past three fiscal years the Company has issued securities
pursuant to exemptions to registration under the Securities Act of 1933, as
amended (the "Securities Act").
The Company issued an aggregate of 4,585,000 shares of Common Stock and
warrants to purchase an aggregate of 1,000,000 shares of Series A Preferred
Stock to certain off-shore holding companies, for $997,197.43 in cash. The
Company did not use an underwriter. This sale was exempt from registration
pursuant to Section 3(b) of the Securities Act and Rule 504 promulgated
thereunder, which provides an exemption for limited offers and sales of
securities not exceeding an annual aggregate amount of $1 million (the
"Rule 504 Sale"). The Rule 504 Sale was a condition to the merger of iParty Corp
and WSI, pursuant to which WSI changed its name to iParty Corp. The Rule 504
Sale was conducted in three issues, one at $.01 per share, a second issue at
$1.00 per share which also included the Warrants, and a third at $1.00 per share
without the Warrants, as set forth in the tables below.
19
<PAGE>
On June 25, 1998, the Company sold, in the first issue, an aggregate of
3,624,043 shares of Common Stock, at a purchase price of $.01 per share, to the
following entities, in the amounts set forth below:
<TABLE>
<CAPTION>
NUMBER OF TOTAL
NAME OF PURCHASER SHARES PURCHASED PURCHASE PRICE
- ---------------------------------------------------------------------- ---------------- --------------
<S> <C> <C>
Fletcher Investments Limited.......................................... 370,000 $ 3,700
Sandown Limited....................................................... 345,000 $ 3,450
Seaborne Limited...................................................... 330,000 $ 3,300
Stamford Securities Limited........................................... 365,000 $ 3,650
Hampton Associates.................................................... 360,000 $ 3,600
Intention Group Limited............................................... 320,000 $ 3,200
Stackridge Associates Limited......................................... 375,000 $ 3,750
Hoffman Finance Limited............................................... 380,000 $ 3,800
Apostle Associates Limited............................................ 379,043 $ 3,790.43
Clanstar International Limited........................................ 300,000 $ 3,000
Intrepid International Corp........................................... 100,000 $ 1,000
Total:................................................................ 3,624,043 $36,240.43
</TABLE>
On June 26, 1998, the Company sold, in the second issue, an aggregate of
80,000 shares of Common Stock and warrants to purchase an aggregate of 1,000,000
shares of Series A Preferred Stock, at $1.00 per share (the "Series A
Warrants"), to the following entities, in the amounts set forth below:
<TABLE>
<CAPTION>
NUMBER OF SHARES AND TOTAL PURCHASE
NAME OF PURCHASER WARRANTS PURCHASED PRICE
- ------------------------------------------------ ------------------------------------------------ --------------
<S> <C> <C>
Ruffino Developments Limited 40,000 shares of common $ 40,000
stock and Warrants to
purchase 556,500 shares of
Series A Preferred Stock
Henslowe Trading Limited 40,000 shares of common $ 40,000
stock and Warrants to
purchase 443,500 shares of
Series A Preferred Stock
TOTAL: 80,000 shares of Common $ 80,000
Stock, and Warrants to
purchase 1,000,000 shares of
Series A Preferred Stock
</TABLE>
The Series A Warrants issued to each of Henslowe and Ruffino were
exercisable from December 28, 1998 through June 30, 1999, after which they
expire. All such warrants have been exercised into the 1,000,000 shares of
Series A Preferred Stock which are currently outstanding.
Also, on June 26, 1998, the Company sold, in the third issue, an aggregate
of 880,957 shares of Common Stock at a purchase price of $1.00 per share, to the
following entities, in the amounts set forth below:
<TABLE>
<CAPTION>
NUMBER OF SHARES TOTAL PURCHASE
NAME OF PURCHASER PURCHASED PRICE
- ---------------------------------------------------------------------- ---------------- --------------
<S> <C> <C>
Stackridge Associates Limited......................................... 140,000 $140,000
Hoffman Finance Limited............................................... 140,957 $140,957
Altis Limited......................................................... 600,000 $600,000
TOTAL:................................................................ 880,957 $880,957
</TABLE>
In August and September of 1999 the Company issued an aggregate of
approximately 522,475 units (the "Units") to certain "accredited investors" (as
such term is defined under Regulation D promulgated under the Securities Act).
Each Unit was composed of two (2) shares of Series B Convertible Preferred Stock
and ten (10) Common Stock Purchase Warrants; accordingly, the Company issued an
aggregate of approximately
20
<PAGE>
1,044,950 shares of Series B Preferred Stock and 5,224,750 Common Stock
Warrants. Each share of Series B Preferred Stock is convertible at any time into
ten (10) shares of Common Stock at an initial conversion price of $2.00 per
share. Each Common Stock Warrant is convertible into one share of Common Stock
at an exercise price of $2.00 per share. The Units were offered at a price of
$40.00 per Unit, in cash, provided that approximately 50,000 Units were issued
in exchange for the conversion of approximately $2,000,000 of outstanding Senior
Notes of the Company. Commonwealth Associates, L.P. acted as Placement Agent in
connection with the sale of the Units. In connection therewith, Commonwealth
Associates, L.P. received approximately $1,250,000 (for commissions, structuring
fees, and expenses) and warrants to purchase approximately 779,929 shares of
Common Stock at an exercise price of $2.00 per share. The sale of the Units was
exempt from registration pursuant to Section 4(2) of the Securities Act and
Rule 506 promulgated thereunder which generally provides an exemption for
certain private sales of securities.
The first closing of the sale of Units was held on August 26, 1999
addition, sales of Units were held on September 9, 1998 and September 10, 1999.
On September 10, 1999 the Company issued an aggregate of 100,000 shares of
Series C Preferred Stock and 500,000 Common Stock Warrant to Boston Millennia
Partners, L.P., and an affiliated entity, both are "accredited investors" (as
such term is defined under Regulation D promulgated under the Securities Act)
for $2,000,000 in cash. Each share of Series C Preferred Stock is convertible at
any time into ten (10) shares of Common Stock at an initial conversion price of
$2.00 per share. Each Common Stock Warrant is convertible into one share of
Common Stock at an exercise price of $2.00 per share. Commonwealth Associates,
L.P. acted as Placement Agent in connection with the sale of the Units. In
connection therewith, Commonwealth Associates, L.P. received approximately
$160,000 (for commissions, structuring fees, and expenses) and warrants to
purchase approximately 150,000 shares of Common Stock at an exercise price of
$2.00 per share. The sale of the securities was exempt from registration
pursuant to Section 4(2) of the Securities Act and Rule 506 promulgated
thereunder which generally provides an exemption for certain private sales of
securities.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Limitation of Liability and Indemnification Matters
The Company's certificate of incorporation and by-laws provide that the
Company shall indemnify all directors and officers of the Company to the fullest
extent permitted by the Delaware General Corporation Law. Under such provisions,
any director or officer, who in his capacity as such is made or threatened to be
made, party to any suit or proceeding, shall be indemnified if it is determined
that such director or officer acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Company. Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and persons controlling the Company pursuant to
the foregoing provision, or otherwise, the Company has been advised that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
21
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Financial Statements
Independent auditors' report............................................................................. F-1
Balance sheet as of December 31, 1998 and June 30, 1999.................................................. F-2
Statement of operations for the six month periods ended June 30, 1998 and 1999........................... F-3
Statement of cash flows for the six month periods ended June 30, 1998 and 1999........................... F-4
Statement of changes in stockholders' equity for the year ended December 31, 1998 and six
month period ended June 30, 1999...................................................................... F-5
Notes to financial statements......................................................................... F-6
</TABLE>
22
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders iParty Corp.
New York, New York
We have audited the accompanying consolidated balance sheet of iParty Corp.
and subsidiary (a development stage company) as of December 31, 1998 and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly,
in all material respects, the consolidated financial position of iParty Corp.
and subsidiary as of December 31, 1998, and the consolidated results of their
operations, and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
Richard A. Eisner & Company, LLP
New York, New York
February 26, 1999
F-1
<PAGE>
IPARTY CORP.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
---------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................................... $ 434,510 $ 346,751
Cash, restricted................................................................... 50,000 50,000
Inventory.......................................................................... 108,466 --
Due from officers.................................................................. 5,160 34,021
Prepaid expenses and other......................................................... 130,677 60,277
---------- ----------
Total current assets............................................................ 728,813 491,049
Property and equipment, net........................................................ 476,961 341,441
Other assets....................................................................... 38,551 9,670
---------- ----------
$1,244,325 $ 842,160
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses.............................................. $ 339,047 $ 297,508
Notes payable...................................................................... 1,500,000 250,000
---------- ----------
Total current liabilities....................................................... 1,839,047 547,508
Committments and contingencies....................................................... -- --
Stockholders' Equity:
Preferred stock--$.001 par value; 10,000,000 shares authorized; Series A preferred
stock--1,000,000 authorized; 1,000,000 and 0 shares issued and outstanding,
respectively.................................................................... 1,000 --
Common stock--$.001 par value; 50,000,000 shares authorized; 11,005,691 shares
issued and outstanding.......................................................... 11,006 11,006
Additional paid in capital......................................................... 2,324,446 1,146,044
Deficit accumulated during the development stage................................... (2,931,174) (862,398)
---------- ----------
Total stockholders' equity...................................................... (594,721) 294,652
---------- ----------
$1,244,325 $ 842,160
---------- ----------
---------- ----------
</TABLE>
See notes to financial statements
F-2
<PAGE>
IPARTY CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE FOR THE SIX
MONTHS ENDED MONTHS ENDED FROM
JUNE 30, JUNE 30, INCEPTION
---------------------------- ---------------------------- THROUGH
1998 1999 1998 1999 JUNE 30, 1999
------------- ------------- ------------- ------------- -------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues............................. $ -- $ -- $ $ -- $ --
Cost of sales........................ -- -- -- -- --
------------- ------------- ------------- ------------- -----------
Gross profit......................... -- -- -- -- --
Operating costs:
General and administrative......... 28,072 987,988 97,254 1,543,214 2,393,212
Loss resulting from abandonment of
capitalized software
(Note B[10]).................... -- -- -- 273,288 273,288
Stock-based compensation
(Note E[6] H[2])................ -- 95,269 -- 229,403 252,492
------------- ------------- ------------- ------------- -----------
Net loss before interest and
provision for income taxes......... (28,072) (1,083,256) (97,254) (2,045,905) (2,918,992)
Interest income.................... 400 733 400 1,547 12,637
Interest expense................... -- (24,418) -- (24,418) (24,819)
------------- ------------- ------------- ------------- -----------
Net loss before income taxes......... (27,672) (1,106,942) (96,854) (2,068,776) (2,931,174)
Provision for income taxes......... -- -- -- -- --
------------- ------------- ------------- ------------- -----------
Net loss............................. $ (27,672) $ (1,106,942) $ (96,854) $ (2,068,776) $(2,931,174)
============= ============= ============= ============= ===========
Loss per share:
Basic and diluted.................. $ (0.00) $ (0.10) $ (0.01) $ (0.19) $ (0.27)
============= ============= ============= ============= ===========
Weighted Average Shares Outstanding:
Basic and diluted.................. 10,044,734 11,005,691 10,044,734 11,005,691 10,685,372
============= ============= ============= ============= ===========
</TABLE>
See notes to financial statements
F-3
<PAGE>
IPARTY CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FROM INCEPTION
JUNE 30, THROUGH
----------------------- JUNE 30, 1999
1998 1999
-------- ----------- --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.............................................................. $(96,854) $(2,068,776) $ (2,931,174)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization...................................... -- 216,347 228,711
Loss resulting from abandonment of capitalized software............ -- 273,288 273,288
Stock-based compensation and consulting............................ -- 229,403 252,492
Decrease (increase) in:
Inventory........................................................ -- (108,466) (108,466)
Other current assets............................................. -- (70,400) (130,677)
Other assets..................................................... -- (28,881) (38,551)
Increase (decrease) in:
Accounts payable and accrued expenses............................ 35,000 41,539 339,047
-------- ----------- ------------
Net cash used in operating activities............................ (61,854) (1,515,948) (2,115,332)
-------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment.................................... -- (230,368) (307,242)
Equipment and software development.................................... -- (394,786) (671,717)
Advances to officer................................................... -- 28,861 (5,160)
Increase in restricted cash........................................... -- -- (50,000)
-------- ----------- ------------
Net cash used in investing activities............................ -- (596,293) (1,034,119)
-------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable........................................... -- 1,500,000 1,750,000
Conversion of notes payable to stock.................................. -- -- --
Capital contributions on initial capitalization....................... -- -- 246,961
Proceeds from sale of stock, net...................................... 61,854 750,000 1,747,197
Costs of sale of stock................................................ -- (50,000) (160,197)
-------- ----------- ------------
Net cash provided by investing activities........................ 61,854 2,200,000 3,583,961
-------- ----------- ------------
Net increase in cash and cash equivalents............................... -- 87,759 434,510
Cash and cash equivalents, beginning of period.......................... -- 346,751 --
-------- ----------- ------------
Cash and cash equivalents, ending of period............................. $ -- $ 434,510 $ 434,510
-------- ----------- ------------
-------- ----------- ------------
Cash expended for:
Interest expense...................................................... $ -- $ -- $ --
-------- ----------- ------------
-------- ----------- ------------
Income taxes.......................................................... $ -- $ -- $ --
-------- ----------- ------------
-------- ----------- ------------
Supplemental disclosure of non-cash financing activities:
Conversion of notes payable to preferred stock in the amount of
$250,000
</TABLE>
See notes to financial statements
F-4
<PAGE>
IPARTY CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
DURING THE
PREFERRED COMMON PAID-IN DEVELOPMENT
# OF SHARES STOCK # OF SHARES STOCK CAPITAL STAGE
----------- --------- ------------ ------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock at $.04 per
share on March 12, 1998............... 6,000,000 $ 6,000 $ 240,961 $ --
Outstanding common stock of WSI prior to
merger on July 2, 1998................ 420,691 421 (421) --
Issuance of common stock at $.01 per
share on July 2, 1998................. 3,624,043 3,624 32,616 --
Issuance of common stock and warrants at
$1.00 per share on July 2, 1998....... 960,957 961 849,799
Accrual of pro rata portion of value of
options granted in September 1998 and
January 1999 under consultant
agreement with outside director....... -- -- 23,089
Net loss................................ -- -- -- (862,398)
--------- ------- ---------- ------- ---------- -----------
Balance December 31, 1998................. -- -- 11,005,691 11,006 1,146,044 (862,398)
Issuance of preferred stock upon
exercise of warrants, including
conversion of notes payable (Note
F[1])................................. 1,000,000 1,000 949,000
Value of options granted under
consulting agreements with outside
director and others (Note E[5]
H[2])................................. 229,402
Net loss................................ (2,068,776)
--------- ------- ---------- ------- ---------- -----------
Balance June 30, 1999 (unaudited)......... 1,000,000 $ 1,000 11,005,691 $11,006 $2,324,446 $(2,931,174)
--------- ------- ---------- ------- ---------- -----------
--------- ------- ---------- ------- ---------- -----------
<CAPTION>
TOTAL
SHAREHOLDERS'
EQUITY
(DEFICIENCY)
-------------
<S> <C>
Issuance of common stock at $.04 per
share on March 12, 1998............... $ 246,961
Outstanding common stock of WSI prior to
merger on July 2, 1998................ 0
Issuance of common stock at $.01 per
share on July 2, 1998................. 36,240
Issuance of common stock and warrants at
$1.00 per share on July 2, 1998....... 850,760
Accrual of pro rata portion of value of
options granted in September 1998 and
January 1999 under consultant
agreement with outside director....... 23,089
Net loss................................ (862,398)
-------------
Balance December 31, 1998................. 294,652
Issuance of preferred stock upon
exercise of warrants, including
conversion of notes payable (Note
F[1])................................. 950,000
Value of options granted under
consulting agreements with outside
director and others (Note E[5]
H[2])................................. 229,402
Net loss................................ (2,068,776)
-------------
Balance June 30, 1999 (unaudited)......... $ (594,721)
-------------
-------------
</TABLE>
See notes to financial statements
F-5
<PAGE>
IPARTY CORP. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
NOTE A--THE COMPANY
iParty LLC, which was created on December 11, 1997 to launch an
Internet-based merchant of party goods and services, commenced operations in
January 1998. On March 12, 1998, iParty Corp. was organized as a wholly owned
subsidiary of iParty LLC and the net assets and operations of iParty LLC were
transferred to iParty Corp. On April 9, 1998, Star Greetings, Inc. ("Star") was
incorporated as a wholly owned subsidiary of iParty Corp. to develop and operate
a personalized celebrity greeting service.
Effective July 2, 1998, iParty Corp. ("iParty" or the "Company") merged
into WSI Acquisition Corp. ("WSI"), an inactive company. The merger was
consummated through an exchange of shares that resulted in iParty LLC receiving
6,000,000 common shares or 54.5% of the outstanding shares of WSI. In connection
with the merger and as a condition thereof, WSI sold, in two private placements,
an aggregate of 4,585,000 shares of common stock of which 3,624,043 shares were
sold for $.01 per share and 960,957 shares, together with warrants to purchase
1,000,000 shares of Series A preferred stock, were sold for $1.00 per share or
aggregate proceeds of $997,197 before related expenses. The merger has been
treated as a re-capitalization for accounting purposes and iParty's historic
capital accounts were retroactively adjusted to reflect the 6,000,000 shares
issued by WSI in the transaction. In addition, as WSI had no assets before the
merger and the private placements, the 420,691 outstanding common shares of WSI
have been recorded at par value with a corresponding charge to additional
paid-in capital. The statement of operations reflects the operations of iParty
from the commencement of its operations from March 12, 1998 and also reflects
the operations of iParty LLC, the predecessor company, from January 1998 through
March 12, 1998. In connection with the merger, WSI changed its name to iParty
Corp.
The Company is in the development stage and its efforts are devoted to
developing the Internet resources to provide consumers a comprehensive website
where they can seek party planning advice and information and locate and
contract for party goods and services. The Company intends on entering into
contracts with local and national merchants who can provide such goods and
services.
NOTE B--SIGNIFICANT ACCOUNTING POLICIES
[1] Basis of presentation:
Six months ended June 30, 1998 and 1999. The unaudited interim financial
statements for the six months ended June 30, 1998 and 1999 included herein have
been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission and, in the opinion of the
Company, reflect all adjustments (consisting only of normal recurring
adjustments) and disclosure which are necessary for a fair presentation. The
results of operations for the six months ended are not necessarily indicative of
the results for the full year.
[2] Principles of consolidation:
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary after elimination of all significant
intercompany transactions and balances.
[3] Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the
F-6
<PAGE>
reported amounts of revenue and expenses during the reporting period. Actual
results could differ from these estimates.
[4] Cash and cash equivalents:
For purposes of the statement of cash flows, the Company considers all
highly liquid investments purchased with an original maturity of three months or
less to be cash equivalents. At December 31, 1998 and June 30, 1999, the Company
maintains its cash deposits in accounts which are in excess of Federal Deposit
Insurance Corporation limits by $126,199 and $310,841, respectively. At
December 31, 1998 and June 30, 1999, the Company maintains a cash deposit of
$50,000 in the form of a certificate of deposit which serves as the collateral
for a corporate Visa credit account.
[5] Financial instruments:
The carrying amounts for the Company's cash and cash equivalents,
restricted cash, accounts payable and notes payable approximate fair value.
[6] Inventory:
Inventories are stated at the lower of cost, determined on a first-in,
first-out basis, or market.
[7] Per share data:
Basic and diluted loss per share is based on the weighted average number of
outstanding shares of common stock and excludes the effect of stock options and
warrants. In computing the weighted average number of shares outstanding, the
3,624,043 shares issued for $.01 per share and the 420,691 outstanding shares of
WSI prior to the merger were treated as if they were outstanding for the entire
year of 1998.
[8] Stock-based compensation:
The Company has elected to follow the intrinsic value method set forth in
Accounting Principles Board Opinion 25, "Accounting for Stock Issued to
Employees" in accounting for its stock option incentive plan. As such,
compensation expense would be recorded on the date of grant if the current
market price of the underlying stock exceeded the exercise price of the option.
[9] Property and equipment:
Property and equipment are stated at cost less accumulated depreciation
which is provided on the straight-line method over the estimated useful lives of
the assets.
[10] Software costs:
In accordance with Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use", issued in March 1998
and adopted by the Company, external direct costs of materials and services
incurred in connection with developing or obtaining internal use software were
capitalized. Such costs will be amortized using the straight-line method over an
estimated useful life of 3 years beginning when the software is ready for its
intended use or over its known useful life, whichever is shorter. For the six
months ended June 30, 1999, the Company wrote off $273,288 of previously
capitalized software costs when the Company selected new vendors for support of
its website, necessitating the creation of a new website and integrating
components. With the creation of the new website, the software previously
capitalized was abandoned.
[11] Income taxes:
The Company accounts for income taxes using the liability method. Deferred
income taxes are measured by applying enacted statutory rates to net operating
loss carryforwards and to the differences between the financial reporting and
tax bases of assets and liabilities. Deferred tax assets are reduced, if
necessary, by a valuation allowance for any tax benefits which are not expected
to be realized.
F-7
<PAGE>
NOTE C--PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1999
------------ ---------
<S> <C> <C>
Office equipment......................................................... $ 3,109 $ 1,631
Furniture and fixtures................................................... $ 2,744 $ 4,130
Computer equipment....................................................... $ 71,021 $ 301,481
Website and related software............................................. $276,931 $ 398,421
-------- ---------
$353,805 $ 705,663
Less accumulated depreciation and amortization........................... $(12,364) $(228,702)
-------- ---------
Total.................................................................... $341,441 $ 476,961
======== =========
</TABLE>
NOTE D--INCOME TAXES
The reconciliation of income tax benefit computed at the federal statutory
tax rate to the income tax benefit in the consolidated statement of operations
is as follows for the year ended December 31, 1998 and the six months ended June
30, 1999:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1999
------------ ---------
<S> <C> <C>
Income tax benefit computed at the federal statutory income tax rate of
35%.................................................................... $ (301,839) $(724,000)
Increase resulting from state and local taxes, net of federal benefit.... $ (97,434) $(234,000)
Valuation allowance provided............................................. $ 399,273 $ 958,000
---------- ---------
Income tax benefit in statement of operations............................ $ 0 $ 0
========== =========
</TABLE>
The tax effects of significant items comprising the Company's net deferred
tax asset as of December 31, 1998 and June 30, 1999 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1999
------------ ----------
<S> <C> <C>
Net operating loss carryforward......................................... $399,273 $1,357,273
Less valuation allowance................................................ $399,273 $1,357,273
-------- ----------
Net deferred tax asset.................................................. $ 0 $ 0
======== ==========
</TABLE>
As of December 31, 1998 and June 30, 1999, the Company has estimated net
operating loss carryforwards of $862,398 and $2,931,174, respectively, which
expire in 2018 and 2019. The Company has recorded a deferred tax asset offset by
a valuation allowance as the Company has not determined that it is more likely
than not that the available net operating loss carryforward will be utilized in
the future.
NOTE E--COMMITMENTS
[1] Leases:
The Company leases facilities and equipment under several month-to-month
and three month operating leases. The Company's rental expense under operating
leases for the year ended December 31, 1998 and for the six months ended
June 30, 1999 amounted to $27,983 and $39,832, respectively.
[2] Concentrations:
The Company has contracted with four companies to develop the web sites for
its services. Failure to perform by any one of these three parties would have a
material negative impact upon the Company's operations. At June 30, 1999, two of
the four companies had completed the services as outlined in the above mentioned
contracts.
F-8
<PAGE>
[3] Finder's fee arrangement:
The Company and its former Chief Executive Officer ("former CEO") had
entered into an agreement prior to such individual becoming the former CEO,
which calls for the former CEO to receive a finder's fee in the amount of 5% of
the first $2,000,000 in equity raised from any party introduced by the former
CEO. In connection with this agreement, as of June 30, 1999, approximately
$2,000,000 has been raised. As a result, $50,000 has been paid to the former CEO
during each of 1998 and 1999.
[4] License agreement:
Star entered into an agreement with Star Greetings, LLC, as the creator of
the Star Greetings concept ("Star Concept"), to license the exclusive use of the
Star Concept on the web sites of the Company and Star. The agreement calls for a
royalty of 2 1/2% of revenues derived from the Star Concept, payable quarterly.
Star Greetings, LLC is owned, in part, by the Company's former CEO. No amounts
were payable to Star Greetings, LLC under the agreement for the year ended
December 31, 1998 and for the six months ended June 30, 1999.
[5] Star Greetings agreements:
The Company has entered into several agreements with celebrities to secure
their services with Star. The agreements are substantially the same and consist
of three separate compensation components. The first component is a
participation fee (and any related expenses). The second component is a
commission payable to the celebrity and to a charity of their choice upon the
sale of each Star Greeting. The third component is an option to purchase stock
in the Company (see Note H[2]). As of December 31, 1998, no such agreements have
been entered into by the Company. As of June 30, 1999, the Company has entered
into ten such agreements with terms ranging from one year to three years.
[6] Consulting agreement:
The Company entered into a consulting agreement with one of its outside
directors. The agreement is in effect from September 15, 1998 through
December 31, 1999. Compensation under the agreement consists of options to
purchase 50,000 shares of the Company's common stock, of which 25,000 options
were granted on September 15, 1998 and 25,000 options were granted on
January 20, 1999 when the consultant's time on behalf of the Company exceeded
100 hours. For the period ended December 31, 1998, the Company charged $23,089
of the value of the options granted ($102,250) to expense. On April 1, 1999, the
consulting agreement was terminated and the remaining $79,161 value of the
options granted was charged to expense on March 31, 1999.
[7] Employment agreements:
The Company has entered into employment agreements with several of its
executives. The agreements expire from December 31, 1999 through March 30, 2002
and provide for annual salaries aggregating $1,295,000. In addition, the
executives were granted options (see Note H[1]) to purchase an aggregate of
1,970,000 shares of the Company's common stock, which vest in various increments
provided the executives remain continuously employed by the Company. In addition
to base salary, the agreements provide that the executives may receive an annual
performance bonus at the discretion of the Compensation Committee of the Board
of Directors. The agreements also have termination clauses which call for
severance payments ranging up to one year's salary.
[8] Transaction agreement:
On January 8, 1999, the Company entered into a two-year agreement with a
service provider to process financial transactions in connection with its
websites. The agreement, as amended, calls for a one-time set-up fee of $50,000,
and a transaction fee of $0.90 per transaction with a minimum monthly
transaction fee of $5,000 for February 1999, $7,500 for March 1999 and $5,000
for April 1999 and thereafter.
F-9
<PAGE>
[9] Advertising agreement:
On January 12, 1999, the Company entered into an advertising agreement for
the period June 1, 1999 through October 31, 1999, to solicit advertising of its
website on other websites. The agreement, as amended, calls for the Company to
pay setup and related fees of $20,000 and a transaction fee of $80,000.
NOTE F--STOCKHOLDERS' EQUITY
[1] Series A preferred stock:
On June 30, 1998, the Company's Board of Directors designated 1,000,000
shares of the Company's authorized 10,000,000 shares of preferred stock as
Series A preferred stock. Such shares have a par value of $.001, an original
issue price per share of $1.00, bear no dividends, have a liquidation preference
senior to the Company's common stock and are convertible, on a one to one basis,
as adjusted, into shares of the Company's common stock. As of December 31, 1998
and June 30, 1999, there were 0 and 1,000,000 shares of Series A preferred stock
outstanding, respectively.
[2] Warrants:
In connection with the sale of common stock, the Company issued warrants to
two shareholders, which, if exercised in full, entitles the holders to purchase
an aggregate of 1,000,000 shares of Series A preferred stock at $1.00 per share.
Such warrants cannot be exercised earlier than six months from the date of issue
(July 2, 1998), and must be exercised by June 30, 1999. As of December 31, 1998
and June 30, 1999, warrants to purchase 0 and 1,000,000 shares of Series A
preferred stock, respectively, had been exercised.
NOTE G--NOTES PAYABLE
[1] Note payable:
During December 1998, the Company borrowed $125,000 from each of two
shareholders, which is payable in 90 days, at an interest rate of 6.5% per
annum. Such shareholders are holders of warrants to purchase Series A
convertible preferred stock. In connection with such borrowing, the shareholders
may request payment in the form of application of the principal amount against
the exercise price of an appropriate number of warrants. As of December 31,
1998, the Company had accrued $401 of interest in relation to these notes.
On January 20, 1999, the shareholders exercised warrants to purchase
250,000 Series A preferred shares and applied the $250,000 outstanding principal
amount of the notes in payment of the exercise price of the warrants.
[2] Funding agreement:
The Company entered into a Funding Agreement, dated as of March 31, 1999
and amended as of April 14, 1999, with two of its directors. Pursuant to the
terms of the Funding Agreement each director will advance certain funds to the
Company totaling $2,000,000. In connection with each such funding, the funding
party will receive a 10% Senior Secured Promissory Note for the amount funded
and warrants to purchase such number of shares of Common Stock equal to the
amount funded divided by the closing bid price of the Common Stock on the date
of each such funding. The exercise price for these warrants range from $4.13 to
$5.13 per share. As of June 30, 1999, $1,500,000 has been advanced to the
company and warrants to purchase 359,616 shares of common stock have been
issued. For the six months ended June 30, 1999, interest expense of $24,418 had
been accrued (see Note I[2]).
NOTE H--STOCK OPTION PLAN
On July 14, 1998, the Company adopted the 1998 Incentive and Nonqualified
Stock Option Plan (the "98 Plan") under which options to acquire 2,500,000
shares of common stock may be granted to officers, directors, key employees and
consultants. The exercise price for incentive options cannot be less than the
fair
F-10
<PAGE>
market value of the stock on the grant date and the exercise price of
nonqualified options is fixed by the plan administrator. Options to purchase the
Company's common stock under the 98 Plan have been granted to employees,
directors and consultants of the Company at fair market value at the date of
grant. Generally, the options become exercisable over periods ranging from
immediately to three years and expire ten years from the date of grant.
A summary of the status of the Company's stock options outstanding as of
December 31, 1998 and June 30, 1998 and changes during the year ended
December 31, 1998 and the six months ended are as follows:
[1] Employee and director stock options:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 JUNE 30, 1999
---------------------- ----------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of period.......................... 0 $ 0 1,025,000 $ 2.19
Stock options:
Granted................................................... 1,025,000 $ 2.19 1,214,000 $ 4.15
Exercised................................................. 0 $ 0 0 $ 0
--------- ------ --------- ------
Outstanding at end of period................................ 1,025,000 $ 2.19 2,239,000 $ 3.24
========= ====== ========= ======
Exercisable at end of period................................ 450,000 $ 2.31 670,000 $ 2.43
========= ====== ========= ======
</TABLE>
The effect of applying Statement of Financial Accounting Standards No. 123
"Accounting for Stock-Based Compensation" ("SFAS 123") on the year ended
December 31, 1998 and the six months ended June 30, 1999 pro forma net loss as
stated below is not necessarily representative of the effects on reported net
loss for future years due to, among other things, the vesting period of the
stock options and the fair value of additional stock options in future years.
The weighted average fair value of the options granted during 1998 have been
estimated at $1.69 per share on the date of grant using the Black-Scholes
option-pricing model with the following assumptions: no dividend yield,
volatility of 100%, a risk-free interest rate of 4.92% to 5.72%, and an expected
life of five years from date of vesting. The weighted average fair value of the
options granted during the six months ended June 30, 1999 have been estimated at
$3.20 per share on the date of grant using the Black-Scholes option-pricing
model with the following assumptions: no dividend yield, volatility of 100%, a
risk-free interest rate of 5.38% to 6.06%, and an expected life of five years
from date of vesting. Had compensation cost for the Company's stock option plan
been determined based upon the fair value at the grant date for awards under the
plan consistent with the methodology prescribed under SFAS 123, the Company's
net loss and net loss per share would have been as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1999
------------ -----------
<S> <C> <C>
Net loss--as reported.................................................. $ (862,398) $(2,068,776)
============ ===========
--pro forma.................................................... $ (1,358,706) $(2,728,366)
============ ===========
Net loss per share--as reported........................................ $ (.08) $ (.19)
--pro forma.......................................... $ (.13) $ (.26)
</TABLE>
[2] StarGreetings stock options:
<TABLE>
<CAPTION>
WEIGHTED
JUNE 30, AVERAGE
1999 EXERCISE
SHARES PRICE
--------- --------
<S> <C> <C>
Stock options:
Granted..................................................................... 180,000 $ 1.81
Exercised................................................................... 0 $ 0
--------- --------
Outstanding at end of period.................................................. 180,000 $ 1.81
--------- --------
--------- --------
Exercisable at end of period.................................................. 180,000 $ 1.81
--------- --------
--------- --------
</TABLE>
F-11
<PAGE>
The weighted average fair value of the options granted during 1999 have
been estimated at $3.40 per share on the date of grant using the Black-Scholes
option-pricing model with the following assumptions: no dividend yield,
volatility of 100%, a risk-free interest rate of 5.38% to 5.81%, and an expected
life of three years from date of vesting. The Company issued options to acquire
180,000 shares of common stock at exercise prices of $1.00 and $3.50 per share
in connection with Star Greetings agreements. The options were valued at
$612,440, in accordance with applying Statement of Financial Accounting
Standards No. 123 "Accounting for Stock-Based Compensation" (See Note H) and are
amortized over the life of the contract. For the period ended December 31, 1998
and the six months ended June 30, 1999, the Company charged $0 and $145,617 of
the value of the options granted to expense.
NOTE I--SUBSEQUENT EVENTS
[1] Employment agreements:
The employment agreement with the Company's Chief Executive Officer ("CEO")
provided that in the event that, prior to December 31, 1999, the Company
completed one or more equity financing, the CEO shall be granted additional
options under the Plan (the "Additional Options") equal to 5% of the number of
shares of common stock into which the securities issued in any such equity
financing(s) may convert; provided, however, that such Additional Options will
only be granted with respect to securities issued in connection with up to the
first $5,000,000 raised in such equity financing(s). It is anticipated that the
strike price of such Additional Options shall be the lower of (i) the conversion
price (into Common Stock) of the securities issued in the equity financing
triggering such grant, or (ii) the fair market value of the common stock on the
date of grant (which date shall be the date of the closing of the equity
financing triggering such grant). On August 26, 1999, the Company granted
434,730 options to purchase common stock with a strike price of $2.00 to the
CEO.
[2] Equity financing:
On September 10, 1999, the Company completed a private placement of Series
B Convertible Preferred Stock and redeemable common stock purchase warrants,
raising net proceeds of approximately $20,899,000. The financing was comprised
of 1,050,000 shares of Series B Preferred Stock convertible into an aggregate of
10,500,000 shares of common stock and the issuance of warrants to purchase an
additional 5,250,000 shares of common stock at an exercise price of $2.00 per
share. In addition, the Company sold Series C Convertible Preferred Stock and
redeemable common stock purchase warrants. The financing was comprised of
100,000 shares of Series C Preferred Stock convertible into 1,000,000 shares of
common stock and the issuance of warrants to purchase an additional 500,000
shares of common stock at an exercise price of $2.00 per share, raising net
proceeds of $2,000,000. The placement agent in these financings received fees of
approximately $1,329,000 and warrants to purchase 929,929 shares of common stock
at an exercise price of $2.00 per share. The financing included the conversion
of $2,000,000 of the Company's outstanding 10% Senior Convertible Notes and
$54,829 of accrued interest into Series B Preferred Stock.
[3] Fulfillment agreement:
On July 8, 1999, the Company entered into a product fulfillment agreement
with Taymark, one of the nation's largest direct marketer's of party supplies.
Under the agreement, the Company will utilize Taymark's inventory and
fulfillment services to deliver merchandise ordered on the site, or directly
through a toll-free telephone number, directly to consumers. Taymark will
purchase the Company's inventory as of September 30, 1999 at cost, up to
$100,000. The initial term of the agreement runs through December 21, 2002. The
agreement contains certain restrictions on competition by Taymark. As additional
consideration for services provided by Taymark, the Company issued to Taymark
warrants to purchase 3,000,000 shares of common stock at an exercise price of
$3.75.
F-12
<PAGE>
[4] Advertising agreement:
On September 27, 1999, the Company entered into two agreements with America
Online, Inc., a Shopping Channel Promotion Agreement and an Advertising Purchase
Agreement to provide promotions on the AOL website totaling $1,356,594. The term
of the two agreements are ten months.
[5] Website development agreement:
On August 5, 1999, the Company entered into a fixed fee agreement with Rare
Medium Inc. to develop a new website, including the development of a new visual
identity, additional functionality and a new technical infrastructure to better
support the scalability of the Company's website. The fixed fee for the services
provided is $465,000.
[6] Advertising and public relations agency agreements:
On September 29, 1999, the Company entered into an agreement with
Kirshenbaum Bond & Partners ("Kirshenbaum") to create a marketing communications
program. The annual fee payable to Kirshenbaum is $1,026,000 to be paid in 12
monthly installments. In addition to the annual fee, the Company will pay a 15%
commission on internet advertising and a 4% commission on TV and radio
advertising placed through Kirshenbaum.
[7] Affiliate program agreement:
On August 11, 1999, the Company entered into an agreement with LinkShare
Corporation to provide services, using LinkShare's proprietary software, to
facilitate establishing links between the Company and affiliates and tracking
sales through those affiliates. The initial term of the agreement is eighteen
months. For the licensing of the LinkShare software, the Company will pay a
one-time license fee of $5,000 and 2.0%--2.5% of each sale completed through the
Company's affiliate program.
[8] Stock option plan:
On August 24, 1999, the Company increased the number of options available
under the 1998 Incentive and Nonqualified Stock Option Plan to 4,000,000 shares.
[9] Consulting agreement:
On September 7, 1999, the Company entered into a three year consulting
agreement with one of its outside directors. Compensation under the agreement
consists of options to purchase 100,000 shares of the Company's common stock
with an exercise price of $2.00. The options vest ratably over three years
provided that the director is still providing consulting services to the Company
on those dates. The fair market value of the Company's stock on the grant date
was $3.94.
F-13
<PAGE>
PART III
ITEM 1. INDEX TO EXHIBITS AND ITEM 2. DESCRIPTION OF EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION LOCATION
- -------- ---------------------------------------------------------------------------------- -------------------
<S> <C> <C>
3.1 Restated Certificate of Incorporation of WSI Acquisitions Corp., and Certificate Previously Filed
of Merger by iParty Corp. into WSI Acquisition Corp.
3.2 By-Laws of WSI Acquisitions Corp. Previously Filed
4 Certificate of Designation of Series A Preferred Stock of WSI Acquisitions, Corp. Previously Filed
4.1 Certificate of Designation of Series B Convertible Preferred Stock of the Company Filed Herewith
4.2 Certificate of Designation of Series C Convertible Preferred Stock of the Company. Filed Herewith
4.3 Warrant Agreement between the Company, Continental Stock Transfer and Trust Filed Herewith
Company and Commonwealth Associates, LP.
4.4 Warrant Agreement between the Company, Continental Stock Transfer and Trust Filed Herewith
Company and Commonwealth Associates, LP.
10.1 Merger Agreement by and between iParty Corp. and WSI Acquisitions Corp. Previously Filed
10.2 1998 Incentive and Non-Qualified Stock Option Plan Previously Filed
10.3 Fry MultiMedia Web Site Development Agreement Previously Filed
10.4 iVillage Web Site Development Service Agreement Previously Filed
10.5 Order Trust Agreement by and between the Company and Order Trust. Previously Filed
10.6 Consulting Agreement of Byron Hero Previously Filed
10.7 Employment Agreement of Maureen Broughton Murrah Previously Filed
10.8 Employment Agreement of Patrick Farrell Previously Filed
10.9 Employment Agreement by and between the Company and Sal Perisano Filed Herewith
10.10 StarGreetings License Agreement Previously Filed
10.11 Service Agreement between the Company and TechSpace LLC (as amended) Previously Filed
10.12 Consulting Agreement of Sal Perisano Previously Filed
10.13 Finder's Fee Agreement between iParty LLC and Byron Hero Previously Filed
10.14 Form of "StarGreeting" Agreement with Celebrities Previously Filed
10.15 Funding Agreement between the Company, Robert H. Lessin and Ajmal Khan Previously Filed
10.16 Fulfillment Agreement between the Company and Taymark Previously Filed
10.17 Agreement between the Company and Rare Medium, Inc. Filed Herewith
10.18 Agreement between the Company and LinkShare Corporation Filed Herewith
10.19 Agreement between the Company and America Online, Inc. Filed Herewith
10.20 Agreement between the Company and Kirshenbaum Bond Partners Filed Herewith
10.21 Consulting Agreement between the Company and Stuart Moldaw Filed Herewith
21 Subsidiaries of the Company Previously Filed
27.1 Financial Data Schedule Filed Herewith
</TABLE>
23
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities and Exchange Act of 1934,
the registrant has caused this registration statement to be signed on its behalf
by the undersigned, thereunto duly authorized.
iPARTY CORP.
By: /s / SAL PERISANO
------------------------------------
Name: Sal Perisano
Title: Chief Executive Officer
October 19, 1999
24
<PAGE>
CERTIFICATE OF THE DESIGNATIONS, POWERS,
PREFERENCES AND RIGHTS
OF THE
SERIES B CONVERTIBLE PREFERRED STOCK
(par value $.001 per share)
of
iPARTY CORP.
a Delaware Corporation
----------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
----------
The undersigned DOES HEREBY CERTIFY that the following resolution was
duly adopted by the Board of Directors (the "Board of Directors") of iParty
Corp., a Delaware corporation (the "Corporation"), at a meeting held on August
24, 1999:
RESOLVED, that one series of the class of authorized preferred stock,
$.001 par value, of the Corporation is hereby created and that the designations,
powers, preferences and relative, participating, optional or other special
rights of the shares of such series, and qualifications, limitations or
restrictions thereof, are hereby fixed as follows (this instrument hereinafter
referred to as the "Designation"):
1. Number of Shares and Designations. 1,150,000 shares of the preferred
stock, $.001 par value, of the Corporation are hereby constituted as a series of
preferred stock of the Corporation designated as Series B Convertible Preferred
Stock (the "Series B Preferred Stock").
2. Dividend Provisions. Subject to the rights of any other series of
Preferred Stock that may from time to time come into existence, the holders of
shares of Series B Preferred Stock shall be entitled to receive dividends, out
of any assets legally available therefor, ratably with any declaration or
payment of any dividend with holders of the Common Stock or other junior
securities of this Corporation, when, as and if declared by the Board of
Directors, based on the number of shares of Common Stock into which each share
of Series B Convertible Preferred Stock is then convertible.
3. Rank. The Series B Preferred Stock shall rank: (i) junior to any
other class or series of capital stock of the Corporation hereafter created
specifically ranking by its terms senior to the Series B Preferred Stock (the
"Senior Securities"); (ii) prior to all of the Corporation's
<PAGE>
common stock, $.001 par value per share (the "Common Stock"); (iii)
prior to any class or series of capital stock of the corporation hereafter
created not specifically ranking by its terms senior to or on parity with the
Series B Preferred Stock (collectively, with the Common Stock, "Junior
Securities"); and (iv) on parity with the Series A Preferred Stock of the
Corporation and any class or series of capital stock of the Corporation
hereafter created specifically ranking by its terms on parity with the Series B
Preferred Stock (the "Parity Securities"), in each case as to the distribution
of assets upon liquidation, dissolution or winding up of the Corporation.
4. Liquidation Preference.
(a) Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary ("Liquidation"), the
holders of record of the shares of the Series B Preferred Stock shall
be entitled to receive, immediately after any distributions to Senior
Securities required by the Corporation's Certificate of Incorporation
and any certificate(s) of designation, powers, preferences and rights,
and before and in preference to any distribution or payment of assets
of the Corporation or the proceeds thereof may be made or set apart for
the holders of Junior Securities, an amount in cash equal to $20.00 per
share (subject to adjustment in the event of stock splits, combinations
or similar events). If, upon such Liquidation, the assets of the
Corporation available for distribution to the holders of Series B
Preferred Stock and any Parity Securities shall be insufficient to
permit payment in full to the holders of the Series B Preferred Stock
and Parity Securities, then the entire assets and funds of the
Corporation legally available for distribution to such holders and the
holders of the Parity Securities then outstanding shall be distributed
ratably among the holders of the Series B Preferred Stock and Parity
Securities based upon the proportion the total amount distributable on
each share upon liquidation bears to the aggregate amount available for
distribution on all shares of the Series B Preferred Stock and of such
Parity Securities, if any.
(b) Upon the completion of the distributions required by
subparagraph (a) of this Paragraph 4, if assets remain in the
Corporation, they shall be distributed to holders of Junior Securities
in accordance with the Corporation's Certificate of Incorporation and
any certificate(s) of designation, powers, preferences and rights.
(c) For purposes of this Paragraph 4, a merger or
consolidation or a sale of all or substantially all of the assets of
the Corporation shall be considered a Liquidation except in the event
that in such a transaction, the holders of the Series B Preferred Stock
receive securities of the surviving corporation having substantially
similar rights as the Series B Preferred Stock. Notwithstanding
Paragraph 7 hereof, such provision may be waived in writing by a
majority of the holders of the then outstanding Series B Preferred
Stock.
5. Redemption. The Series B Preferred Stock is not redeemable.
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6. Conversion. The holders of the Series B Preferred Stock shall have
conversion rights as follows (the "Conversion Rights"):
(a) Voluntary Conversion. Each share of Series B Preferred
Stock shall be convertible, at the option of the holder thereof, at any time
after issuance at the office of the Corporation or any transfer agent for such
stock, or if there is none, then at the office of the transfer agent for the
Common Stock, or if there is no such transfer agent, at the principal executive
office of the Corporation, into that number of fully paid and non-assessable
shares of Common Stock of the Corporation equal to $20.00 divided by the
conversion price in effect at the time of conversion (the "Conversion Price"),
determined as hereinafter provided. The Conversion Price shall initially be
$2.00, but shall be subject to adjustment as set forth in Paragraph 6(d). The
number of shares of Common Stock into which each share of Preferred Stock is
convertible is hereinafter collectively referred to as the "Conversion Rate."
For purposes of this Paragraph 6(a), such conversion shall be deemed to have
been made immediately prior to the close of business on the date of such
surrender of the shares of Series B Preferred Stock to be converted, and the
person or persons entitled to receive the shares of Common Stock issuable upon
such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock as of such date.
(b) Automatic Conversion. In the event the Corporation
completes a public offering of its Common Stock resulting in gross proceeds of
not less than $10,000,000, each share of Series B Preferred Stock then
outstanding shall, by virtue of such conditions and without any action on the
part of the holder thereof, be deemed automatically converted into that number
of shares of Common Stock into which the Series B Preferred Stock would then be
converted at the then effective Conversion Rate.
(c) Mechanics of Conversion. Before any holder of Series B
Preferred Stock shall be entitled to convert the same into shares of Common
Stock, such holder shall surrender the certificate or certificates therefor,
duly endorsed, at the office of the Corporation or of any transfer agent for the
Series B Preferred Stock, and shall give written notice to the Corporation at
its principal corporate office, of the election to convert the same and shall
state therein the name or names in which the certificate or certificates for
shares of Common Stock are to be issued. The Corporation shall, as soon as
practicable thereafter, issue and deliver to such holder of Series B Preferred
Stock, or to the nominee or nominees of such holder, a certificate or
certificates for the number of shares of Common Stock to which such holder shall
be entitled as aforesaid. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of the
shares of Series B Preferred Stock to be converted, and the person or persons
entitled to receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such shares
of Common Stock as of such date.
(d) Conversion Price Adjustments. The Conversion Price of the
Series B Preferred Stock shall be subject to adjustment from time to time as set
forth below.
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(i) In case the Corporation shall, prior to the
conversion of all the Series B Preferred Stock, (a) issue Common Stock
as a dividend or distribution on all shares of Common Stock of the
Corporation, (b) split or otherwise subdivide its outstanding Common
Stock, (c) combine the outstanding Common Stock into a smaller number
of shares, or (d) issue by reclassification of its Common Stock (except
in the case of a merger, consolidation or sale of all or substantially
all of the assets of the Corporation as set forth in subparagraph
6(d)(iii) below) any shares of the capital stock of the Corporation,
the Conversion Price in effect on the record date for any stock
dividend or the effective date of any such other event shall be
decreased (or increased in the case of a reverse stock split) so that
the holder of each share of the Series B Preferred Stock shall
thereafter be entitled to receive, upon the conversion of such share,
the number of shares of Common Stock or other capital stock which it
would own or be entitled to receive immediately after the happening of
any of the events mentioned above had such share of the Series B
Preferred Stock been converted immediately prior to the close of
business on such record date or effective date. The adjustments herein
provided shall become effective immediately following the record date
for any such stock dividend or the effective date of any such other
events. There shall be no reduction in the Conversion Price in the
event that the Corporation pays a cash dividend.
(ii) A. In case the Corporation shall issue shares of Common
Stock or any securities convertible into or exchangeable for Common
Stock, other than "Excluded Securities" (as defined below), for a
consideration per share (the "Offering Price") less than the Conversion
Price, the Conversion Price shall be adjusted immediately thereafter so
that it shall equal the price determined by multiplying the Conversion
Price in effect immediately prior to the date of issuance by a
fraction, the numerator of which shall be the number of shares of
Common Stock outstanding immediately prior to the issuance of such
additional shares plus the number of shares of Common Stock which the
aggregate consideration received for the issuance of such additional
shares would purchase at the Conversion Price in effect immediately
prior to the date of such issuance, and the denominator of which shall
be the number of shares of Common Stock outstanding immediately after
the issuance of such additional shares. Such adjustment shall be made
successively whenever such an issuance is made. The provisions of this
subparagraph 6(d)(ii)(A) shall not apply retroactively to any Series B
Preferred Stock which has been converted prior to the date of the
adjustment.
B. Except as otherwise provided in subparagraph
6(d)(iii) below, in no event shall the Conversion Price be increased
above the initial Conversion Price, as otherwise adjusted pursuant to
this Section 6.
C. Upon each adjustment of the Conversion Price
pursuant to this subparagraph 6(d)(i) the total number of shares of
Common Stock purchasable upon the conversion of each share of Series B
Preferred Stock shall be such number of shares (calculated to the
nearest whole share and pursuant to the terms of subparagraph 6(G)(i);
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provided, however, that in no event shall the Conversion Price increase
as a result of such rounding calculation) purchasable at the Conversion
Price in effect immediately prior to such adjustment multiplied by a
fraction, the numerator of which shall be the Conversion Price in
effect immediately prior to such adjustment and the denominator of
which shall be the Conversion Price in effect immediately after such
adjustment.
D. No adjustment in the Conversion Price or the
number of shares of Common Stock into which a share of Series B
Preferred Stock may be converted shall be required unless such
adjustment (plus any adjustments not previously made by reason of this
subparagraph (D) would require an increase or decrease of at least 0.5%
in the number of shares of Common Stock into which each share of the
Series B Preferred Stock is then convertible, provided, however, that
any adjustments which are not required to be made by reason of this
subparagraph (D) shall be carried forward and taken into account in any
subsequent adjustment. All calculations and adjustments shall be made
to the nearest cent or to the nearest whole share, as the case may be.
E. After each adjustment of the Conversion Price the
Corporation shall promptly prepare a certificate signed by its Chief
Executive Officer or Chief Financial Officer and a Secretary or
Assistant Secretary setting forth the Conversion Price, as so adjusted;
the number of shares of Common Stock into which the Series B Preferred
Stock may be converted, and a statement of the facts upon which such
adjustment is based, and such certificate shall forthwith be filed with
the transfer agent, if any, for the Series B Preferred Stock, and the
Corporation shall cause such a copy of statement to be sent by ordinary
first class mail to each holder of Series B Preferred Stock.
F. In the case of the issuance of Common Stock for
cash, the consideration shall be deemed to be the amount of cash paid
therefor before deducting any reasonable discounts, commissions or
other expenses allowed, paid or incurred by this Corporation for any
underwriting or otherwise in connection with the issuance and sale
thereof.
G. In the case of the issuance of the Common Stock
for a consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair value
thereof as determined in good faith by the Board of Directors.
H. In the case of the issuance after the Issuance
Date of options to purchase or rights to subscribe for Common Stock,
securities by their terms convertible into or exchangeable for Common
Stock or options to purchase or rights to subscribe for such
convertible or exchangeable securities, the following provisions shall
apply for all purposes of this subparagraph 6(d)(i) and subparagraph
6(d)(ii):
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<PAGE>
(1) The aggregate maximum number of shares
of Common Stock deliverable upon exercise (assuming the
satisfaction of any conditions to exercisability, including
without limitation, the passage of time, but without taking
into account potential antidilution adjustments) of such
options to purchase or rights to subscribe for Common Stock
shall be deemed to have been issued at the time such options
or rights were issued and for a consideration (determined in
the manner provided in subparagraphs 6(d)(i)(F) and
6(d)(i)(G)), if any, received by the Corporation upon the
issuance of such options or rights plus the minimum exercise
price provided in such options or rights (without taking into
account potential antidilution adjustments) for the Common
Stock covered thereby.
(2) The aggregate maximum number of shares
of Common Stock deliverable upon conversion of or in exchange
for (assuming the satisfaction of any conditions to
convertibility or exchangeability, including, without
limitation, the passage of time, but without taking into
account potential antidilution adjustments) any such
convertible or exchangeable securities or upon the exercise of
options to purchase or rights to subscribe for such
convertible or exchangeable securities and subsequent
conversion or exchange thereof, shall be deemed to have been
issued at the time such securities were issued or such options
or rights were issued and for a consideration equal to the
consideration, if any, received by the Corporation for any
such securities and related options or rights (excluding any
cash received on account of accrued interest or accrued
dividends), plus the minimum additional consideration, if any,
to be received by the Corporation (without taking into account
potential antidilution adjustments) upon the conversion or
exchange of such securities or the exercise of any related
options or rights (the consideration in each case to be
determined in the manner provided in subparagraphs 6(d)(i)(F)
and 6(d)(i)(G)).
(3) In the event of any change in the number
of shares of Common Stock deliverable or in the consideration
payable to the Corporation upon exercise of such options or
rights or upon conversion of or in exchange for such
convertible or exchangeable securities (excluding a change
resulting solely from the antidilution provisions thereof if
such change results from an event which gives rise to an
antidilution adjustment under this Paragraph 6(d)), the
Conversion Price of the Series B Preferred Stock, to the
extent in any way affected by or computed using such options,
rights or securities, shall be recomputed to reflect such
change, but no further adjustment shall be made for the actual
issuance of Common Stock or any payment of such consideration
upon the exercise of any such options or rights or the
conversion or exchange of such securities.
(4) Upon the expiration of any such options
or rights, the termination of any such rights to convert or
exchange or the expiration of any
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<PAGE>
options or rights related to such convertible or exchangeable
securities, the Conversion Price of the Series B Preferred
Stock, to the extent in any way affected by or computed using
such options, rights or securities or options or rights
related to such securities, shall be recomputed to reflect the
issuance of only the number of shares of Common Stock (and
convertible or exchangeable securities which remain in effect)
actually issued upon the exercise of such options or rights,
upon the conversion or exchange of such securities or upon the
exercise of the options or rights related to such securities.
(5) The number of shares of Common Stock
deemed issued and the consideration deemed paid therefor
pursuant to subparagraphs 6(d)(i)(H)(1) and (2) shall be
appropriately adjusted to reflect any change, termination or
expiration of the type described in either subparagraph
6(d)(i)(H)(3) or (4).
(6) Notwithstanding the provisions of
subparagraphs 6(d)(i)(H)(1)-(5) above, in the event that on or
after the date hereof the Corporation issues any options to
purchase or rights to subscribe for Common Stock, securities
by their terms convertible into or exchangeable for Common
Stock or options to purchase or rights to subscribe for such
convertible or exchangeable securities, if the conversion or
exercise price is not then determinable or is based on future
events, such shares of Common Stock shall not be deemed to be
issued until the price is determinable or such event has
occurred and the conversion or exercise price shall be subject
to adjustment pursuant to subparagraph 6(d)(i) above at the
time of such determination or the occurrence of such event
even if the price is determined or such event occurs after
such date.
I. The following issuances of Common Stock ("Excluded
Securities") shall be excluded from the adjustments set forth in this
Paragraph 6(d):
(1) shares of capital stock issued pursuant
to a stock dividend or a stock split or other subdivision or
recombination of shares;
(2) Common Stock issued upon exercise of any
warrants, options or other securities outstanding on the date
of the last closing of the Private Placement;
(3) securities issued by the Corporation in
a public offering pursuant to a firm commitment underwriting;
(4) securities issued to shareholders of any
corporation which merges into the Corporation in proportion to
their stock holdings of such corporation immediately prior to
such merger, upon such merger; or
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<PAGE>
(5) Common Stock or options or warrants to
purchase Common Stock issued to officers, directors or
employees of or consultants to the Corporation pursuant to any
compensation agreement, plan or arrangement or the issuance of
Common Stock upon the exercise of any such options or
warrants, provided such issuances do not exceed 25% of the
Corporation's outstanding Common Stock, on a fully-diluted
basis, on the date of the last closing of the Private
Placement; and
(6) issued in a private placement through
Commonwealth Associates, L.P., as placement agent, or upon
exercise or conversion of any securities issued in or in
connection with such a private placement (including agent,
consulting or advisory warrants)
(iii) In case of any reclassification or similar
change of outstanding shares of Common Stock of the Corporation, or in
case of the consolidation or merger of the Corporation with another
corporation, or the conveyance of all or substantially all of the
assets of the Corporation in a transaction in which holders of the
Common Stock receive shares of stock or other property including cash,
each share of the Series B Preferred Stock shall, after such event and
subject to the other rights of the Series B Preferred Stock as set
forth elsewhere herein, be convertible only into the number of shares
of stock or other securities or property, including cash, to which a
holder of the number of shares of Common Stock of the Corporation
deliverable upon conversion of such shares of the Series B Preferred
Stock would have been entitled upon such reclassification, change,
consolidation, merger or conveyance had such share been converted
immediately prior to the effective date of such event.
(e) Reservation of Shares. The Corporation shall at
all times reserve and keep available, out of its authorized but unissued shares
of Common Stock or out of shares of Common Stock held in its treasury, solely
for the purpose of effecting the conversion of the shares of the Series B
Preferred Stock, the full number of shares of Common Stock deliverable upon the
conversion of all shares of the Series B Preferred Stock from time to time
outstanding.
(f) Fractional Shares.
(i) No fractional shares or scrip representing
fractional shares of Common Stock shall be issued upon the conversion
of the Series B Preferred Stock. In lieu of any fractional shares to
which a holder would otherwise be entitled, the Corporation shall pay
cash, equal to such fraction multiplied by the closing price
(determined as provided in subparagraph (ii) of this Paragraph 6(f) of
the Common Stock on the day of conversion.
(ii) For the purposes of any computation under
subparagraph 6(f)(i), the current market price per share of Common
Stock on any date shall be deemed to be
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the average of the daily closing prices for the 30 consecutive business
days prior to the day in question. The closing price for each day shall
be the last sales price regular way or in case no sale takes place on
such day, the average of the closing high bid and low asked prices
regular way, in either case (a) as officially quoted by the Nasdaq
SmallCap Market or the Nasdaq National Market or such other market on
which the Common Stock is then listed for trading, or (b) if, in the
reasonable judgment of the Board of Directors of the Corporation, the
Nasdaq SmallCap Market or the Nasdaq National Market is no longer the
principal United States market for the Common Stock, then as quoted on
the principal United States market for the Common Stock, as determined
by the Board of Directors of the Corporation, or (c) if, in the
reasonable judgment of the Board of Directors of the Corporation, there
exists no principal United States market for the Common Stock, then as
reasonably determined by the Board of Directors of the Corporation.
(g) Taxes, Etc. The Corporation will pay any taxes
that may be payable in respect of any issue or delivery of shares of Common
Stock on conversion of shares of the Series B Preferred Stock. However, the
Corporation shall not be required to pay any tax which may be payable in respect
to any transfer involved in the issue and delivery of shares of Common Stock
upon conversion in a name other than that in which the shares of the Series B
Preferred Stock so converted were registered, and no such issue or delivery
shall be made unless and until the person requesting such issue or delivery has
paid to the Corporation the amount of any such tax, or has established, to the
satisfaction of the Corporation, that such tax has been paid.
(h) Assurances. The Corporation will not, by
amendment of its Articles of Incorporation, as amended, or through any
reorganization, recapitalization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms to be observed
or performed hereunder by the Corporation, but will at all times in good faith
assist in the carrying out of all the provisions of this Section 6 and in the
taking of all such action as may be necessary or appropriate in order to protect
the conversion rights of the holders of the Series B Preferred Stock against
impairment.
(i) Reissuance. No shares of Series B Preferred Stock
which have been converted to Common Stock shall be reissued by the Corporation,
provided, however, that any such share, upon being converted and canceled, shall
be restored to the status of an authorized but unissued share of preferred stock
without designation as to series, rights or preferences and may thereafter be
issued as a share of preferred stock not designated as Series B Preferred Stock.
7. Voting Rights.
(a) In addition to any other rights provided for herein or by
law, the holders of Series B Preferred Stock shall be entitled to vote, together
with the holders of Common Stock as
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<PAGE>
one class, on all matters as to which holders of Common Stock shall be entitled
to vote, in the same manner and with the same effect as such Common Stock
holders. In any such vote each share of Series B Preferred Stock shall entitle
the holder thereof to the number of votes per share that equals the number of
whole shares of Common Stock into which each such share of Series B Preferred
Stock is then convertible, calculated to the nearest whole share.
(b) So long as any shares of the Series B Preferred Stock
remain outstanding, the consent of the holders of one-half of the then
outstanding Series B Preferred Stock, voting as one class, either expressed in
writing or at a meeting called for that purpose, shall be necessary to permit,
effect or validate the creation and issuance of any series of preferred stock or
other security of the Corporation which is senior as to liquidation and/or
dividend rights to the Series B Preferred Stock.
(c) So long as any shares of the Series B Preferred Stock
remain outstanding, the consent of one-half of the holders of the then
outstanding Series B Preferred Stock, voting as one class, either expressed in
writing or at a meeting called for that purpose, shall be necessary to repeal,
amend or otherwise change this Designation or the Articles of Incorporation of
the Corporation, as amended, in a manner which would alter or change the powers,
preferences, rights privileges, restrictions and conditions of the Series B
Preferred Stock so as to adversely affect the Series B Preferred Stock.
(d) Each share of the Series B Preferred Stock shall entitle
the holder thereof to one vote on all matters to be voted on by the holders of
the Series B Preferred Stock, as set forth above.
(e) In the event that the holders of the Series B Preferred
Stock are required to vote as a class on any other matter, the affirmative vote
of holders of not less than fifty percent (50%) of the outstanding shares of
Series B Preferred Stock shall be required to approve each such matter to be
voted upon, and if any matter is approved by such requisite percentage of
holders of Series B Preferred Stock, such matter shall bind all holders of
Series B Preferred Stock.
8. Status of Converted Stock. In the event any shares of Series B
Preferred Stock shall be converted pursuant to Paragraph 5 hereof, the shares so
converted shall be cancelled and shall not be issuable by the Corporation. The
Articles of Incorporation of the Corporation, as amended, may be appropriately
amended from time to time to effect the corresponding reduction in the
Corporation's authorized capital stock.
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9. Miscellaneous.
(a) There is no sinking fund with respect to the Series B
Preferred Stock.
(b) The shares of the Series B Preferred Stock shall not have
any preferences, voting powers or relative, participating, optional, preemptive
or other special rights except as set forth above in this Designation and in the
Articles of Incorporation of the Corporation, as amended.
(c) The holders of the Series B Preferred Stock shall be
entitled to receive all communications sent by the Corporation to the holders of
the Common Stock.
[The remainder of this page has been intentionally left blank.]
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IN WITNESS WHEREOF, iParty Corp. has caused this Designation to be
executed this __ day of _________, 1999.
iPARTY CORP.
By:
-----------------------------------
Name:
Title:
Attest:
By:
------------------------------
Name:
Title:
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<PAGE>
CERTIFICATE OF THE DESIGNATIONS, POWERS,
PREFERENCES AND RIGHTS
OF THE
SERIES C CONVERTIBLE PREFERRED STOCK
(par value $.001 per share)
of
iPARTY CORP.
a Delaware Corporation
----------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
----------
The undersigned DOES HEREBY CERTIFY that the following resolution was
duly adopted by the Board of Directors (the "Board of Directors") of iParty
Corp., a Delaware corporation (the "Corporation"), at a meeting held on
September 9, 1999:
RESOLVED, that one series of the class of authorized preferred stock,
$.001 par value, of the Corporation is hereby created and that the designations,
powers, preferences and relative, participating, optional or other special
rights of the shares of such series, and qualifications, limitations or
restrictions thereof, are hereby fixed as follows (this instrument hereinafter
referred to as the "Designation"):
1. Number of Shares and Designations. 100,000 shares of the preferred
stock, $.001 par value, of the Corporation are hereby constituted as a series of
preferred stock of the Corporation designated as Series C Convertible Preferred
Stock (the "Series C Preferred Stock").
2. Dividend Provisions. Subject to the rights of any other series of
Preferred Stock that may from time to time come into existence, the holders of
shares of Series C Preferred Stock shall be entitled to receive dividends, out
of any assets legally available therefor, ratably with any declaration or
payment of any dividend with holders of the Common Stock or other junior
securities of this Corporation, when, as and if declared by the Board of
Directors, based on the number of shares of Common Stock into which each share
of Series C Preferred Stock is then convertible.
3. Rank. The Series C Preferred Stock shall rank: (i) junior to any
other class or series of capital stock of the Corporation hereafter created
specifically ranking by its terms senior to the Series C Preferred Stock (the
"Senior Securities"); (ii) prior to all of the Corporation's
<PAGE>
common stock, $.001 par value per share (the "Common Stock"); (iii)
prior to any class or series of capital stock of the corporation hereafter
created not specifically ranking by its terms senior to or on parity with the
Series C Preferred Stock (collectively, with the Common Stock, "Junior
Securities"); and (iv) on parity with the Series A Preferred Stock of the
Corporation, the Series B Preferred Stock of the Corporation, and any class or
series of capital stock of the Corporation hereafter created specifically
ranking by its terms on parity with the Series C Preferred Stock (the "Parity
Securities"), in each case as to the distribution of assets upon liquidation,
dissolution or winding up of the Corporation.
4. Liquidation Preference.
(a) Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary ("Liquidation"), the
holders of record of the shares of the Series C Preferred Stock shall
be entitled to receive, immediately after any distributions to Senior
Securities required by the Corporation's Certificate of Incorporation
and any certificate(s) of designation, powers, preferences and rights,
and before and in preference to any distribution or payment of assets
of the Corporation or the proceeds thereof may be made or set apart for
the holders of Junior Securities, an amount in cash equal to $20.00 per
share (subject to adjustment in the event of stock splits, combinations
or similar events). If, upon such Liquidation, the assets of the
Corporation available for distribution to the holders of Series C
Preferred Stock and any Parity Securities shall be insufficient to
permit payment in full to the holders of the Series C Preferred Stock
and Parity Securities, then the entire assets and funds of the
Corporation legally available for distribution to such holders and the
holders of the Parity Securities then outstanding shall be distributed
ratably among the holders of the Series C Preferred Stock and Parity
Securities based upon the proportion the total amount distributable on
each share upon liquidation bears to the aggregate amount available for
distribution on all shares of the Series C Preferred Stock and of such
Parity Securities, if any.
(b) Upon the completion of the distributions required by
subparagraph (a) of this Paragraph 4, if assets remain in the
Corporation, they shall be distributed to holders of Junior Securities
in accordance with the Corporation's Certificate of Incorporation and
any certificate(s) of designation, powers, preferences and rights.
(c) For purposes of this Paragraph 4, a merger or
consolidation or a sale of all or substantially all of the assets of
the Corporation shall be considered a Liquidation except in the event
that in such a transaction, the holders of the Series C Preferred Stock
receive securities of the surviving corporation having substantially
similar rights as the Series C Preferred Stock. Notwithstanding
Paragraph 7 hereof, such provision may be waived in writing by a
majority of the holders of the then outstanding Series C Preferred
Stock.
5. Redemption. The Series C Preferred Stock is not redeemable.
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<PAGE>
6. Conversion. The holders of the Series C Preferred Stock shall have
conversion rights as follows (the "Conversion Rights"):
(a) Voluntary Conversion. Each share of Series C Preferred
Stock shall be convertible, at the option of the holder thereof, at any time
after issuance at the office of the Corporation or any transfer agent for such
stock, or if there is none, then at the office of the transfer agent for the
Common Stock, or if there is no such transfer agent, at the principal executive
office of the Corporation, into that number of fully paid and non-assessable
shares of Common Stock of the Corporation equal to $20.00 divided by the
conversion price in effect at the time of conversion (the "Conversion Price"),
determined as hereinafter provided. The Conversion Price shall initially be
$2.00, but shall be subject to adjustment as set forth in Paragraph 6(d). The
number of shares of Common Stock into which each share of Series C Preferred
Stock is convertible is hereinafter collectively referred to as the "Conversion
Rate." For purposes of this Paragraph 6(a), such conversion shall be deemed to
have been made immediately prior to the close of business on the date of such
surrender of the shares of Series C Preferred Stock to be converted, and the
person or persons entitled to receive the shares of Common Stock issuable upon
such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock as of such date.
(b) Automatic Conversion. In the event the Corporation
completes a public offering of its Common Stock resulting in gross proceeds to
the Corporation of not less than $10,000,000, each share of Series C Preferred
Stock then outstanding shall, by virtue of such conditions and without any
action on the part of the holder thereof, be deemed automatically converted into
that number of shares of Common Stock into which the Series C Preferred Stock
would then be converted at the then effective Conversion Rate.
(c) Mechanics of Conversion. Before any holder of Series C
Preferred Stock shall be entitled to convert the same into shares of Common
Stock, such holder shall surrender the certificate or certificates therefor,
duly endorsed, at the office of the Corporation or of any transfer agent for the
Series C Preferred Stock, and shall give written notice to the Corporation at
its principal corporate office, of the election to convert the same and shall
state therein the name or names in which the certificate or certificates for
shares of Common Stock are to be issued. The Corporation shall, as soon as
practicable thereafter, issue and deliver to such holder of Series C Preferred
Stock, or to the nominee or nominees of such holder, a certificate or
certificates for the number of shares of Common Stock to which such holder shall
be entitled as aforesaid. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of the
shares of Series C Preferred Stock to be converted, and the person or persons
entitled to receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such shares
of Common Stock as of such date.
(d) Conversion Price Adjustments. The Conversion Price of the
Series C Preferred Stock shall be subject to adjustment from time to time as set
forth below.
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(i) In case the Corporation shall, prior to the
conversion of all the Series C Preferred Stock, (a) issue Common Stock
as a dividend or distribution on all shares of Common Stock of the
Corporation, (b) split or otherwise subdivide its outstanding Common
Stock, (c) combine the outstanding Common Stock into a smaller number
of shares, or (d) issue by reclassification of its Common Stock (except
in the case of a merger, consolidation or sale of all or substantially
all of the assets of the Corporation as set forth in subparagraph
6(d)(iii) below) any shares of the capital stock of the Corporation,
the Conversion Price in effect on the record date for any stock
dividend or the effective date of any such other event shall be
decreased (or increased in the case of a reverse stock split) so that
the holder of each share of the Series C Preferred Stock shall
thereafter be entitled to receive, upon the conversion of such share,
the number of shares of Common Stock or other capital stock which it
would own or be entitled to receive immediately after the happening of
any of the events mentioned above had such share of the Series C
Preferred Stock been converted immediately prior to the close of
business on such record date or effective date. The adjustments herein
provided shall become effective immediately following the record date
for any such stock dividend or the effective date of any such other
events. There shall be no reduction in the Conversion Price in the
event that the Corporation pays a cash dividend.
(ii) A. In case the Corporation shall issue shares of Common
Stock or any securities convertible into or exchangeable for Common
Stock, other than "Excluded Securities" (as defined below), for a
consideration per share (the "Offering Price") less than the Conversion
Price, the Conversion Price shall be adjusted immediately thereafter so
that it shall equal the price determined by multiplying the Conversion
Price in effect immediately prior to the date of issuance by a
fraction, the numerator of which shall be the number of shares of
Common Stock outstanding immediately prior to the issuance of such
additional shares plus the number of shares of Common Stock which the
aggregate consideration received for the issuance of such additional
shares would purchase at the Conversion Price in effect immediately
prior to the date of such issuance, and the denominator of which shall
be the number of shares of Common Stock outstanding immediately after
the issuance of such additional shares. Such adjustment shall be made
successively whenever such an issuance is made. The provisions of this
subparagraph 6(d)(ii)(A) shall not apply retroactively to any Series C
Preferred Stock which has been converted prior to the date of the
adjustment.
B. Except as otherwise provided in subparagraph
6(d)(iii) below, in no event shall the Conversion Price be increased
above the initial Conversion Price, as otherwise adjusted pursuant to
this Section 6.
C. Upon each adjustment of the Conversion Price
pursuant to this subparagraph 6(d)(i) the total number of shares of
Common Stock purchasable upon the conversion of each share of Series C
Preferred Stock shall be such number of shares (calculated to the
nearest whole share and pursuant to the terms of subparagraph 6(G)(i);
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<PAGE>
provided, however, that in no event shall the Conversion Price increase
as a result of such rounding calculation) purchasable at the Conversion
Price in effect immediately prior to such adjustment multiplied by a
fraction, the numerator of which shall be the Conversion Price in
effect immediately prior to such adjustment and the denominator of
which shall be the Conversion Price in effect immediately after such
adjustment.
D. No adjustment in the Conversion Price or the
number of shares of Common Stock into which a share of Series C
Preferred Stock may be converted shall be required unless such
adjustment (plus any adjustments not previously made by reason of this
subparagraph (D) would require an increase or decrease of at least 0.5%
in the number of shares of Common Stock into which each share of the
Series C Preferred Stock is then convertible, provided, however, that
any adjustments which are not required to be made by reason of this
subparagraph (D) shall be carried forward and taken into account in any
subsequent adjustment. All calculations and adjustments shall be made
to the nearest cent or to the nearest whole share, as the case may be.
E. After each adjustment of the Conversion Price the
Corporation shall promptly prepare a certificate signed by its Chief
Executive Officer or Chief Financial Officer and a Secretary or
Assistant Secretary setting forth the Conversion Price, as so adjusted;
the number of shares of Common Stock into which the Series C Preferred
Stock may be converted, and a statement of the facts upon which such
adjustment is based, and such certificate shall forthwith be filed with
the transfer agent, if any, for the Series C Preferred Stock, and the
Corporation shall cause such a copy of statement to be sent by ordinary
first class mail to each holder of Series C Preferred Stock.
F. In the case of the issuance of Common Stock for
cash, the consideration shall be deemed to be the amount of cash paid
therefor before deducting any reasonable discounts, commissions or
other expenses allowed, paid or incurred by this Corporation for any
underwriting or otherwise in connection with the issuance and sale
thereof.
G. In the case of the issuance of the Common Stock
for a consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair value
thereof as determined in good faith by the Board of Directors.
H. In the case of the issuance after the initial
issuance date of the Series C Preferred Stock of options to purchase or
rights to subscribe for Common Stock, securities by their terms
convertible into or exchangeable for Common Stock or options to
purchase or rights to subscribe for such convertible or exchangeable
securities, the following provisions shall apply for all purposes of
this subparagraph 6(d)(i) and subparagraph 6(d)(ii):
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(1) The aggregate maximum number of shares
of Common Stock deliverable upon exercise (assuming the
satisfaction of any conditions to exercisability, including
without limitation, the passage of time, but without taking
into account potential antidilution adjustments) of such
options to purchase or rights to subscribe for Common Stock
shall be deemed to have been issued at the time such options
or rights were issued and for a consideration (determined in
the manner provided in subparagraphs 6(d)(ii)(F) and
6(d)(ii)(G)), if any, received by the Corporation upon the
issuance of such options or rights plus the minimum exercise
price provided in such options or rights (without taking into
account potential antidilution adjustments) for the Common
Stock covered thereby.
(2) The aggregate maximum number of shares
of Common Stock deliverable upon conversion of or in exchange
for (assuming the satisfaction of any conditions to
convertibility or exchangeability, including, without
limitation, the passage of time, but without taking into
account potential antidilution adjustments) any such
convertible or exchangeable securities or upon the exercise of
options to purchase or rights to subscribe for such
convertible or exchangeable securities and subsequent
conversion or exchange thereof, shall be deemed to have been
issued at the time such securities were issued or such options
or rights were issued and for a consideration equal to the
consideration, if any, received by the Corporation for any
such securities and related options or rights (excluding any
cash received on account of accrued interest or accrued
dividends), plus the minimum additional consideration, if any,
to be received by the Corporation (without taking into account
potential antidilution adjustments) upon the conversion or
exchange of such securities or the exercise of any related
options or rights (the consideration in each case to be
determined in the manner provided in subparagraphs 6(d)(ii)(F)
and 6(d)(ii)(G)).
(3) In the event of any change in the number
of shares of Common Stock deliverable or in the consideration
payable to the Corporation upon exercise of such options or
rights or upon conversion of or in exchange for such
convertible or exchangeable securities (excluding a change
resulting solely from the antidilution provisions thereof if
such change results from an event which gives rise to an
antidilution adjustment under this Paragraph 6(d)), the
Conversion Price of the Series C Preferred Stock, to the
extent in any way affected by or computed using such options,
rights or securities, shall be recomputed to reflect such
change, but no further adjustment shall be made for the actual
issuance of Common Stock or any payment of such consideration
upon the exercise of any such options or rights or the
conversion or exchange of such securities.
(4) Upon the expiration of any such options
or rights, the termination of any such rights to convert or
exchange or the expiration of any
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<PAGE>
options or rights related to such convertible or exchangeable
securities, the Conversion Price of the Series C Preferred
Stock, to the extent in any way affected by or computed using
such options, rights or securities or options or rights
related to such securities, shall be recomputed to reflect the
issuance of only the number of shares of Common Stock (and
convertible or exchangeable securities which remain in effect)
actually issued upon the exercise of such options or rights,
upon the conversion or exchange of such securities or upon the
exercise of the options or rights related to such securities.
(5) The number of shares of Common Stock
deemed issued and the consideration deemed paid therefor
pursuant to subparagraphs 6(d)(ii)(H)(1) and (2) shall be
appropriately adjusted to reflect any change, termination or
expiration of the type described in either subparagraph
6(d)(ii)(H)(3) or (4).
(6) Notwithstanding the provisions of
subparagraphs 6(d)(ii)(H)(1)-(5) above, in the event that on
or after the date hereof the Corporation issues any options to
purchase or rights to subscribe for Common Stock, securities
by their terms convertible into or exchangeable for Common
Stock or options to purchase or rights to subscribe for such
convertible or exchangeable securities, if the conversion or
exercise price is not then determinable or is based on future
events, such shares of Common Stock shall not be deemed to be
issued until the price is determinable or such event has
occurred and the conversion or exercise price shall be subject
to adjustment pursuant to subparagraph 6(d)(ii) above at the
time of such determination or the occurrence of such event
even if the price is determined or such event occurs after
such date.
I. The following issuances of Common Stock ("Excluded
Securities") shall be excluded from the adjustments set forth in this
Paragraph 6(d):
(1) shares of capital stock issued pursuant
to a stock dividend or a stock split or other subdivision or
recombination of shares;
(2) Common Stock issued upon exercise of any
warrants, options or other securities outstanding on the date
of the initial issuance of the Series C Preferred Stock;
(3) securities issued by the Corporation in
a public offering pursuant to a firm commitment underwriting;
(4) securities issued to shareholders of any
corporation which merges into the Corporation in proportion to
their stock holdings of such corporation immediately prior to
such merger, upon such merger; and
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<PAGE>
(5) Common Stock or options or warrants to
purchase Common Stock issued to officers, directors or
employees of or consultants to the Corporation pursuant to any
compensation agreement, plan or arrangement or the issuance of
Common Stock upon the exercise of any such options or
warrants, provided such issuances do not exceed 25% of the
Corporation's outstanding Common Stock, on a fully-diluted
basis, on the date of the initial issuance of the Series C
Preferred Stock; and
(iii) In case of any reclassification or similar
change of outstanding shares of Common Stock of the Corporation, or in
case of the consolidation or merger of the Corporation with another
corporation, or the conveyance of all or substantially all of the
assets of the Corporation in a transaction in which holders of the
Common Stock receive shares of stock or other property including cash,
each share of the Series C Preferred Stock shall, after such event and
subject to the other rights of the Series C Preferred Stock as set
forth elsewhere herein, be convertible only into the number of shares
of stock or other securities or property, including cash, to which a
holder of the number of shares of Common Stock of the Corporation
deliverable upon conversion of such shares of the Series C Preferred
Stock would have been entitled upon such reclassification, change,
consolidation, merger or conveyance had such share been converted
immediately prior to the effective date of such event.
(e) Reservation of Shares. The Corporation shall at
all times reserve and keep available, out of its authorized but unissued shares
of Common Stock or out of shares of Common Stock held in its treasury, solely
for the purpose of effecting the conversion of the shares of the Series C
Preferred Stock, the full number of shares of Common Stock deliverable upon the
conversion of all shares of the Series C Preferred Stock from time to time
outstanding.
(f) Fractional Shares.
(i) No fractional shares or scrip representing
fractional shares of Common Stock shall be issued upon the conversion
of the Series C Preferred Stock. In lieu of any fractional shares to
which a holder would otherwise be entitled, the Corporation shall pay
cash, equal to such fraction multiplied by the current market price per
share (determined as provided in subparagraph (ii) of this Paragraph
6(f) of the Common Stock on the day of conversion).
(ii) For the purposes of any computation under
subparagraph 6(f)(i), the current market price per share of Common
Stock on any date shall be deemed to be the average of the daily
closing prices for the 30 consecutive business days prior to the day in
question. The closing price for each day shall be the last sales price
regular way or in case no sale takes place on such day, the average of
the closing high bid and low asked prices regular way, in either case
(a) as officially quoted by the Nasdaq SmallCap Market or the Nasdaq
National Market or such other market on which the Common Stock is then
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<PAGE>
listed for trading, or (b) if, in the reasonable judgment of the Board
of Directors of the Corporation, the Nasdaq SmallCap Market or the
Nasdaq National Market is no longer the principal United States market
for the Common Stock, then as quoted on the principal United States
market for the Common Stock, as determined by the Board of Directors of
the Corporation, or (c) if, in the reasonable judgment of the Board of
Directors of the Corporation, there exists no principal United States
market for the Common Stock, then as reasonably determined by the Board
of Directors of the Corporation.
(g) Taxes, Etc. The Corporation will pay any taxes
that may be payable in respect of any issue or delivery of shares of Common
Stock on conversion of shares of the Series C Preferred Stock. However, the
Corporation shall not be required to pay any tax which may be payable in respect
to any transfer involved in the issue and delivery of shares of Common Stock
upon conversion in a name other than that in which the shares of the Series C
Preferred Stock so converted were registered, and no such issue or delivery
shall be made unless and until the person requesting such issue or delivery has
paid to the Corporation the amount of any such tax, or has established, to the
satisfaction of the Corporation, that such tax has been paid.
(h) Assurances. The Corporation will not, by
amendment of its Articles of Incorporation, as amended, or through any
reorganization, recapitalization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms to be observed
or performed hereunder by the Corporation, but will at all times in good faith
assist in the carrying out of all the provisions of this Section 6 and in the
taking of all such action as may be necessary or appropriate in order to protect
the conversion rights of the holders of the Series C Preferred Stock against
impairment.
(i) Reissuance. No shares of Series C Preferred Stock
which have been converted to Common Stock shall be reissued by the Corporation;
provided, however, that any such share, upon being converted and canceled, shall
be restored to the status of an authorized but unissued share of preferred stock
without designation as to series, rights or preferences and may thereafter be
issued as a share of preferred stock not designated as Series C Preferred Stock.
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<PAGE>
7. Voting Rights.
(a) In addition to any other rights provided for herein or by
law, the holders of Series C Preferred Stock shall be entitled to vote, together
with the holders of Common Stock as one class, on all matters as to which
holders of Common Stock shall be entitled to vote, in the same manner and with
the same effect as such Common Stock holders. In any such vote each share of
Series C Preferred Stock shall entitle the holder thereof to the number of votes
per share that equals the number of whole shares of Common Stock into which each
such share of Series C Preferred Stock is then convertible, calculated to the
nearest whole share.
(b) So long as any shares of the Series C Preferred Stock
remain outstanding, the consent of the holders of one-half of the then
outstanding Series C Preferred Stock, voting as one class, either expressed in
writing or at a meeting called for that purpose, shall be necessary to permit,
effect or validate the creation and issuance of any series of preferred stock or
other security of the Corporation which is senior as to liquidation and/or
dividend rights to the Series C Preferred Stock.
(c) So long as any shares of the Series C Preferred Stock
remain outstanding, the consent of the holders of one-half of the then
outstanding Series C Preferred Stock, voting as one class, either expressed in
writing or at a meeting called for that purpose, shall be necessary to repeal,
amend or otherwise change this Designation or the Articles of Incorporation of
the Corporation, as amended, in a manner which would alter or change the powers,
preferences, rights privileges, restrictions and conditions of the Series C
Preferred Stock so as to adversely affect the Series C Preferred Stock.
(d) Right to Elect Director.
(i) So long as at least 50 percent of the initially issued
shares of Series C Preferred Stock (as adjusted to reflect any
reclassification, combination or similar change affecting the Series C
Preferred Stock) remain outstanding, the holders of the Series C
Preferred Stock shall have the exclusive right, voting as a separate
class at each meeting of stockholders held for the purpose of electing
directors of the Corporation or in writing, to elect one director of
the Corporation.
(ii) Promptly following the initial issuance of the Series C
Preferred Stock, the Corporation shall cause a person designated in
writing by the holders of a majority of the outstanding shares of
Series C Preferred Stock, to be elected a director of the Corporation
to serve until his successor is elected and qualified.
(iii) In the event that the director elected pursuant to the
provisions of subparagraphs (i) and (ii) above vacates his position as
a director as a result of his death, resignation, disqualification,
removal or other cause, the Corporation shall promptly
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<PAGE>
appoint a successor designated in the manner set forth is subparagraph
(ii) above to serve out the remaining term of such former director.
(e) Each share of the Series C Preferred Stock shall entitle
the holder thereof to one vote on all matters to be voted on by the holders of
the Series C Preferred Stock, as set forth above.
(f) In the event that the holders of the Series C Preferred
Stock are required to vote as a class on any other matter, the affirmative vote
of holders of not less than fifty percent (50%) of the outstanding shares of
Series C Preferred Stock shall be required to approve each such matter to be
voted upon and if any matter is approved by such requisite percentage of holders
of Series C Preferred Stock, such matter shall bind all holders of Series C
Preferred Stock.
8. Miscellaneous.
(a) There is no sinking fund with respect to the Series C
Preferred Stock.
(b) The shares of the Series C Preferred Stock shall not have
any preferences, voting powers or relative, participating, optional, preemptive
or other special rights except as set forth above in this Designation and in the
Articles of Incorporation of the Corporation, as amended.
(c) The holders of the Series C Preferred Stock shall be
entitled to receive all communications sent by the Corporation to the holders of
the Common Stock.
[The remainder of this page has been intentionally left blank.]
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IN WITNESS WHEREOF, iParty Corp. has caused this Designation to be
executed this 10th day of September, 1999.
iPARTY CORP.
By:
-------------------------------------
Name: Sal Perisano
Title: CEO
Attest:
By:
----------------------------
Name: Daniel DeWolf
Title: Secretary
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WARRANT AGREEMENT
AGREEMENT, dated as of this 26th day of August, 1999, by and among
iPARTY CORP., a Delaware corporation (the "Company"), CONTINENTAL STOCK TRANSFER
& TRUST COMPANY, as warrant agent (the "Warrant Agent"), and COMMONWEALTH
ASSOCIATES, L.P., a New York limited partnership ("Commonwealth").
W I T N E S S E T H
WHEREAS, in connection with a private placement (the "Private
Placement") of a minimum of 200,000 and a maximum (including over-subscription
option) of 450,000 units ("Units") each Unit consisting (i) two shares of Series
B Convertible Preferred Stock and (ii) ten redeemable five-year common stock
purchase warrants (the "Warrants"), each Warrant exercisable to purchase one
share of the Company's common stock, $.001 par value (the "Common Stock"), the
Company will issue up to 4,500,000 Warrants; and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer, exchange and redemption of the Warrants, the
issuance of certificates representing the Warrants, the exercise of the
Warrants, and the rights of the holders thereof;
NOW THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth and for the purpose of defining the terms and
provisions of the Warrants and the certificates representing the Warrants and
the respective rights and obligations thereunder of the Company, the holders of
certificates representing the Warrants and the Warrant Agent, the parties hereto
agree as follows:
SECTION 1. DEFINITIONS. As used herein, the following terms shall have
the following meanings, unless the context shall otherwise require:
(a) "Common Stock" shall mean stock of the Company of any
class, whether now or hereafter authorized, which has the right to
participate in the distributions of earnings and assets of the Company
without limit as to amount or percentage, which at the date hereof
consists of 50,000,000 authorized shares of Common Stock, $.001 value.
(b) "Corporate Office" shall mean the office of the Warrant
Agent (or its successor) at which at any particular time its principal
business shall be administered, which office is located at the date
hereof at 2 Broadway, New York, New York 10004.
(c) "Exercise Date" shall mean, as to any Warrant, the date on
which the Warrant Agent shall have received both (a) the Warrant
Certificate representing such Warrant, with the exercise form thereon
duly executed by the Registered Holder thereof or his attorney duly
authorized in writing, and (b) payment in cash, or by official bank or
<PAGE>
certified check made payable to the Company, of an amount in lawful
money of the United States of America equal to the Exercise Price.
(d) "Exercise Price" shall mean the purchase price to be paid
upon exercise of each Warrant in accordance with the terms hereof,
which price shall be $2.00 per share subject to adjustment from time to
time pursuant to the provisions of Section 8 hereof and subject to the
Company's right to reduce the Exercise Price upon notice to all
warrantholders.
(e) "Initial Warrant Exercise Date" shall mean August 26,
2000.
(f) "Registered Holder" shall mean the person in whose name
any certificate representing Warrants shall be registered on the books
maintained by the Warrant Agent pursuant to Section 6.
(g) "Redemption Price" shall mean the price at which the
Company may, at its option in accordance with the terms hereof, redeem
the Warrants, which price shall be $0.05 per Warrant.
(h) "Transfer Agent" shall mean Continental Stock Transfer &
Trust Company, as the Company's transfer agent, or its authorized
successor, as such.
(i) "Warrant Expiration Date" shall mean 5:00 P.M. (New York
time) on August 26, 2005 or, with respect to Warrants which are
outstanding as of the applicable Redemption Date (as defined in Section
8), the Redemption Date, whichever is earlier; provided that if such
date shall in the State of New York be a holiday or a day on which
banks are authorized to close, then 5:00 P.M. (New York time) on the
next following day which in the State of New York is not a holiday or a
day on which banks are authorized to close. Upon notice to all
warrantholders the Company shall have the right to extend the Warrant
Expiration Date.
(j) "Warrant Shares" shall mean the shares of Common Stock
deliverable upon exercise of the Warrants, as adjusted from time to
time.
SECTION 2. WARRANTS AND ISSUANCE OF WARRANT CERTIFICATES.
(a) A Warrant shall initially entitle the Registered Holder of
the Warrant Certificate representing such Warrant to purchase one share
of Common Stock upon the exercise thereof, in accordance with the terms
hereof, subject to modification and adjustment as provided in Section
8.
(b) From time to time, up to the Warrant Expiration Date, the
Transfer Agent shall execute and deliver stock certificates in required
whole number denominations
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<PAGE>
representing up to an aggregate of 4,500,000 shares of Common Stock,
subject to adjustment as described herein, upon the exercise of
Warrants in accordance with this Agreement.
(c) From time to time, up to the Warrant Expiration Date, the
Warrant Agent shall execute and deliver Warrant Certificates in
required whole number denominations to the persons entitled thereto in
connection with any transfer or exchange permitted under this
Agreement; provided that no Warrant Certificates shall be issued except
(i) those initially issued hereunder, (ii) those issued on or after the
Initial Warrant Exercise Date, upon the exercise of fewer than all
Warrants represented by any Warrant Certificate, to evidence any
unexercised Warrants held by the exercising Registered Holder, (iii)
those issued upon any transfer or exchange pursuant to Section 6; (iv)
those issued in replacement of lost, stolen, destroyed or mutilated
Warrant Certificates pursuant to Section 7; and (v) at the option of
the Company, in such form as may be approved by the its Board of
Directors, to reflect (a) any adjustment or change in the Exercise
Price or the number of shares of Common Stock purchasable upon exercise
of the Warrants, made pursuant to Section 8 hereof and (b) other
modifications approved by Warrantholders in accordance with Section 16
hereof.
SECTION 3. FORM AND EXECUTION OF WARRANT CERTIFICATES.
(a) The Warrant Certificates shall be substantially in the
form annexed hereto as Exhibit A (the provisions of which are hereby
incorporated herein) and may have such letters, numbers or other marks
of identification or designation and such legends, summaries or
endorsements printed, lithographed, engraved or typed thereon as the
Company may deem appropriate and as are not inconsistent with the
provisions of this Agreement, or as may be required to comply with any
law or with any rule or regulation made pursuant thereto or with any
rule or regulation of any stock exchange on which the Warrants may be
listed, or to conform to usage. The Warrant Certificates shall be dated
the date of issuance thereof (whether upon initial issuance, transfer,
exchange or in lieu of mutilated, lost, stolen, or destroyed Warrant
Certificates) and issued in registered form. Warrants shall be
numbered serially with the letters PW.
(b) Warrant Certificates shall be executed on behalf of the
Company by its Chairman of the Board, Chief Executive Officer,
President or any Vice President and by its Secretary or an Assistant
Secretary, by manual signatures or by facsimile signatures printed
thereon, and shall have imprinted thereon a facsimile of the Company's
seal. In case any officer of the Company who shall have signed any of
the Warrant Certificates shall cease to be such officer of the Company
before the date of issuance of the Warrant Certificates and issue and
delivery thereof, such Warrant Certificates may nevertheless be
issued and delivered with the same force and effect as though the
person who signed such Warrant Certificates had not ceased to be such
officer of the Company. After execution
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by the Company, Warrant Certificates shall be delivered by the Warrant
Agent to the Registered Holder.
SECTION 4. EXERCISE.
(a) Each Warrant may be exercised by the Registered Holder
thereof at any time on or after the Initial Exercise Date, but not
after the Warrant Expiration Date, upon the terms and subject to the
conditions set forth herein and in the applicable Warrant Certificate.
A Warrant shall be deemed to have been exercised immediately prior to
the close of business on the Exercise Date and the person entitled to
receive the securities deliverable upon such exercise shall be treated
for all purposes as the holder upon exercise thereof as of the close of
business on the Exercise Date. As soon as practicable on or after the
Exercise Date the Warrant Agent shall deposit the proceeds received
from the exercise of a Warrant, and promptly after clearance of checks
received in payment of the Exercise Price pursuant to such Warrants,
cause to be issued and delivered by the Transfer Agent, to the person
or persons entitled to receive the same, a certificate or certificates
for the securities deliverable upon such exercise, (plus a certificate
for any remaining unexercised Warrants of the Registered Holder).
Notwithstanding the foregoing, in the case of payment made in the form
of a check drawn on an account of Commonwealth or such other investment
banks and brokerage houses as the Company shall approve, certificates
shall immediately be issued without any delay. Upon the exercise of any
Warrant and clearance of the funds received, the Warrant Agent shall
promptly remit the payment received for the Warrant to the Company or
as the Company may direct in writing.
(b) The Registered Holder may, at its option, exchange this
Warrant, in whole or in part (a "Warrant Exchange"), into the number of
Warrant Shares determined in accordance with this Section (4)(c), by
surrendering the Warrant Certificate at the principal office of the
Company or at the office of its stock transfer agent, accompanied by a
notice stating such Registered Holder's intent to effect such exchange,
the number of Warrant Shares to be exchanged and the date on which the
Registered Holder requests that such Warrant Exchange occur (the
"Notice of Exchange"). The Warrant Exchange shall take place on the
date specified in the Notice of Exchange or, if later, the date the
Notice of Exchange is received by the Company (the "Exchange Date").
Certificates for the shares issuable upon such Warrant Exchange and, if
applicable, a new warrant of like tenor evidencing the balance of the
shares remaining subject to such Warrant, shall be issued as of the
Exchange Date and delivered to the Registered Holder within seven (7)
days following the Exchange Date. In connection with any Warrant
Exchange, a Warrant shall represent the right to subscribe for and
acquire the number of Warrant Shares (rounded to the next highest
integer) equal to (i) the number of Warrant Shares specified
by the Registered Holder in its Notice of Exchange (the "Total Number")
less (ii) the number of Warrant Shares equal to the quotient obtained
by dividing (A) the product of the Total Number and the existing
Exercise Price by (B) the current market value of a
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share of Common Stock. Current market value shall have the meaning set
forth Section 10(a) hereof, except that for purposes hereof, the date
of exercise, as used in such Section 10(a) hereof, shall mean the
Exchange Date.
SECTION 5. RESERVATION OF SHARES; LISTING; PAYMENT OF TAXES; ETC.
(a) The Company covenants that it will at all times reserve
and keep available out of its authorized Common Stock, solely for the
purpose of issue upon exercise of Warrants, such number of shares of
Common Stock as shall then be issuable upon the exercise of all
outstanding Warrants. The Company covenants that all shares of Common
Stock which shall be issuable upon exercise of the Warrants and payment
of the Exercise Price shall, at the time of delivery, be duly and
validly issued, fully paid, nonassessable and free from all taxes,
liens and charges with respect to the issue thereof (other than those
which the Company shall promptly pay or discharge).
(b) The Company will use reasonable efforts to obtain
appropriate approvals or registrations under state "blue sky"
securities laws with respect to the exercise of the Warrants; provided,
however, that the Company shall not be obligated to file any general
consent to service of process or qualify as a foreign corporation in
any jurisdiction. With respect to any such securities laws, however,
Warrants may not be exercised by, or shares of Common Stock issued to,
any Registered Holder in any state in which such exercise would be
unlawful.
(c) The Company shall pay all documentary, stamp or similar
taxes and other governmental charges that may be imposed with respect
to the issuance of Warrants, or the issuance, or delivery of any shares
upon exercise of the Warrants; provided, however, that if the shares of
Common Stock are to be delivered in a name other than the name of the
Registered Holder of the Warrant Certificate representing any Warrant
being exercised, then no such delivery shall be made unless the person
requesting the same has paid to the Warrant Agent the amount of
transfer taxes or charges incident thereto, if any.
(d) The Warrant Agent is hereby irrevocably authorized to
requisition the Company's Transfer Agent from time to time for
certificates representing shares of Common Stock required upon exercise
of the Warrants, and the Company will authorize the Transfer Agent to
comply with all such proper requisitions.
SECTION 6. EXCHANGE AND REGISTRATION OF TRANSFER. Subject to the
restrictions on transfer contained in the Warrant Certificates and the
Subscription Agreements between the Company and the purchasers of Units:
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(a) Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Warrants of the
same class or may be transferred in whole or in part. Warrant
Certificates to be exchanged shall be surrendered to the Warrant Agent
at its Corporate Office, and upon satisfaction of the terms and
provisions hereof, the Company shall execute, and the Warrant Agent
shall countersign, issue and deliver in exchange therefor the Warrant
Certificate or Certificates which the Registered Holder making the
exchange shall be entitled to receive.
(b) The Warrant Agent shall keep at its office books in which,
subject to such reasonable regulations as it may prescribe, it shall
register Warrant Certificates and the transfer thereof in accordance
with its regular practice. Upon due presentment for registration of
transfer of any Warrant Certificate at its office, the Company shall
execute and the Warrant Agent shall issue and deliver to the transferee
or transferees a new Warrant Certificate or Certificates representing
an equal aggregate number of Warrants.
(c) With respect to all Warrant Certificates presented for
registration of transfer, or for exchange or exercise, the subscription
form on the reverse thereof shall be duly endorsed, or be accompanied
by a written instrument or instruments of transfer and subscription, in
form satisfactory to the Company, duly executed by the Registered
Holder or his attorney-in-fact duly authorized in writing.
(d) The Company may require payment by such holder of a sum
sufficient to cover any tax or other governmental charge that may be
imposed in connection therewith.
(e) All Warrant Certificates surrendered for exercise or for
exchange in case of mutilated Warrant Certificates shall be promptly
canceled by the Warrant Agent and thereafter retained by the Warrant
Agent until termination of this Agreement or resignation of the Warrant
Agent, or, with the prior written consent of Commonwealth, disposed of
or destroyed, at the direction of the Company.
(f) Prior to due presentment for registration of transfer
thereof, the Company and the Warrant Agent may deem and treat the
Registered Holder of any Warrant Certificate as the absolute owner
thereof and of each Warrant represented thereby (notwithstanding any
notations of ownership or writing thereon made by anyone other than a
duly authorized officer of the Company or the Warrant Agent) for all
purposes and shall not be affected by any notice to the contrary.
SECTION 7. LOSS OR MUTILATION. Upon receipt by the Company and the
Warrant Agent of evidence satisfactory to them of the ownership of and loss,
theft, destruction or mutilation of any Warrant Certificate and (in case of
loss, theft or destruction) of indemnity satisfactory to them, and (in the case
of mutilation) upon surrender and cancellation thereof, the Company shall
execute and the Warrant Agent shall (in the absence of notice to the Company
and/or Warrant Agent that the Warrant Certificate has been acquired by a
bonafide purchaser)
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countersign and deliver to the Registered Holder in lieu thereof a new Warrant
Certificate of like tenor representing an equal aggregate number of Warrants.
Applicants for a substitute Warrant Certificate shall comply with such other
reasonable regulations and pay such other reasonable charges as the Warrant
Agent may prescribe.
SECTION 8. ANTI-DILUTION PROVISIONS. Subject to the provisions of
Section l hereof, the Exercise Price in effect at any time and the number and
kind of securities purchasable upon the exercise of the Warrants shall be
subject to adjustment from time to time upon the happening of certain events as
follows:
(a) In case the Company shall hereafter (i) declare a dividend
or make a distribution on its outstanding shares of Common Stock in
shares of Common Stock, (ii) subdivide or reclassify its outstanding
shares of Common Stock into a greater number of shares, or (iii)
combine or reclassify its outstanding shares of Common Stock into a
smaller number of shares, the Exercise Price in effect at the time of
the record date for such dividend or distribution or of the effective
date of such subdivision, combination or reclassification shall be
adjusted so that it shall equal the price determined by multiplying the
Exercise Price by a fraction, the denominator of which shall be the
number of shares of Common Stock outstanding after giving effect to
such action, and the numerator of which shall be the number of shares
of Common Stock outstanding immediately prior to such action. Such
adjustment shall be made successively whenever any event listed above
shall occur.
(b) In case the Company shall fix a record date for the
issuance of rights or warrants to all holders of its Common Stock
entitling them to subscribe for or purchase shares of Common Stock (or
securities convertible into Common Stock) at a price (the "Subscription
Price") (or having a conversion price per share) less than the current
market price of the Common Stock (as defined in Subsection (h) below)
on the record date mentioned below, or less than the Exercise Price on
such record date the Exercise Price shall be adjusted so that the same
shall equal the lower of (i) the price determined by multiplying the
Exercise Price in effect immediately prior to the date of such issuance
by a fraction, the numerator of which shall be the sum of the number of
shares of Common Stock outstanding on the record date mentioned below
and the number of additional shares of Common Stock which the aggregate
offering price of the total number of shares of Common Stock so offered
(or the aggregate conversion price of the convertible securities so
offered) would purchase at such current market price per share of the
Common Stock, and the denominator of which shall be the sum of the
number of shares of Common Stock outstanding on such record date and
the number of additional shares of Common Stock offered for
subscription or purchase (or into which the convertible securities so
offered are convertible) or (ii) in the event the Subscription Price is
equal to or higher than the current market price but is less than the
Exercise Price, the price determined by multiplying the Exercise Price
in effect immediately prior to the date of issuance by a fraction, the
numerator of which shall be the sum of the number of shares
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outstanding on the record date mentioned below and the number of
additional shares of Common Stock which the aggregate offering price of
the total number of shares of Common Stock so offered (or the aggregate
conversion price of the convertible securities so offered) would
purchase at the Exercise Price in effect immediately prior to the date
of such issuance, and the denominator of which shall be the sum of the
number of shares of Common Stock outstanding on the record date
mentioned below and the number of additional shares of Common Stock
offered for subscription or purchase (or into which the convertible
securities so offered are convertible). Such adjustment shall be made
successively whenever such rights or warrants are issued and shall
become effective immediately after the record date for the
determination of shareholders entitled to receive such rights or
warrants; and to the extent that shares of Common Stock are not
delivered (or securities convertible into Common Stock are not
delivered) after the expiration of such rights or warrants the Exercise
Price shall be readjusted to the Exercise Price which would then be in
effect had the adjustments made upon the issuance of such rights or
warrants been made upon the basis of delivery of only the number of
shares of Common Stock (or securities convertible into Common Stock)
actually delivered.
(3) In case the Company shall hereafter distribute to the
holders of its Common Stock evidences of its indebtedness or assets
(excluding cash dividends or distributions and dividends or
distributions referred to in Subsection (a) above) or subscription
rights or warrants (excluding those referred to in Subsection (b)
above), then in each such case the Exercise Price in effect thereafter
shall be determined by multiplying the Exercise Price in effect
immediately prior thereto by a fraction, the numerator of which shall
be the total number of shares of Common Stock outstanding multiplied by
the current market price per share of Common Stock (as defined in
Subsection (h) below), less the fair market value (as determined by the
Company's Board of Directors) of said assets or evidences of
indebtedness so distributed or of such rights or warrants, and the
denominator of which shall be the total number of shares of Common
Stock outstanding multiplied by such current market price per share of
Common Stock. Such adjustment shall be made successively whenever such
a record date is fixed. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after the
record date for the determination of shareholders entitled to receive
such distribution.
(d) In case the Company shall hereafter issue shares of its
Common Stock (excluding shares issued (i) in any of the transactions
described in Subsection (a) above, (ii) upon exercise of options
granted to the Company's officers, directors, employees and consultants
under a plan or plans adopted by the Company's Board of Directors and
approved by its shareholders, if such shares would otherwise be
included in this Subsection (d), (but only to the extent that the
aggregate number of shares excluded hereby and issued after the date
hereof, shall not exceed 25% of the Company's Common Stock outstanding,
on a fully-diluted basis, at the time of any issuance), (iii) upon
exercise of options, warrants, convertible securities and convertible
debentures
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outstanding as of the final closing of the Private Placement, or
exercise of the Warrants, (iv) to shareholders of any corporation which
merges into the Company in proportion to their stock holdings of such
corporation immediately prior to such merger, upon such merger, (v)
issued in a private placement through Commonwealth, as placement agent,
or upon exercise or conversion of any securities issued in or in
connection with such a private placement (including agent, consulting
or advisory warrants) or (vi) issued in a bona fide public offering
pursuant to a firm commitment underwriting, but only if no adjustment
is required pursuant to any other specific subsection of this Section 8
(without regard to Subsection (i) below) with respect to the
transaction giving rise to such rights) for a consideration per share
(the "Offering Price") less than the current market price per share (as
defined in Subsection (h) below) on the date the Company fixes the
offering price of such additional shares or less than the Exercise
Price, the Exercise Price shall be adjusted immediately thereafter so
that it shall equal the lower of (i) the price determined by
multiplying the Exercise Price in effect immediately prior thereto by a
fraction, the numerator of which shall be the sum of the number of
shares of Common Stock outstanding immediately prior to the issuance of
such additional shares and the number of shares of Common Stock which
the aggregate consideration received (determined as provided in
Subsection (g) below) for the issuance of such additional shares would
purchase at such current market price per share of Common Stock, and
the denominator of which shall be the number of shares of Common Stock
outstanding immediately after the issuance of such additional shares or
(ii) in the event the Offering Price is equal to or higher than the
current market price per share but less than the Exercise Price, the
price determined by multiplying the Exercise Price in effect
immediately prior to the date of issuance by a fraction, the numerator
of which shall be the number of shares of Common Stock outstanding
immediately prior to the issuance of such additional shares and the
number of shares of Common Stock which the aggregate consideration
received (determined as provided in subsection (g) below) for the
issuance of such additional shares would purchase at the Exercise Price
in effect immediately prior to the date of such issuance, and the
denominator of which shall be the number of shares of Common Stock
outstanding immediately after the issuance of such additional shares.
Such adjustment shall be made successively whenever such an issuance is
made.
(e) In case the Company shall hereafter issue any securities
convertible into or exchangeable for its Common Stock (excluding
securities issued in transactions described in Subsections (b) and (c)
above) for a consideration per share of Common Stock (the "Conversion
Price") initially deliverable upon conversion or exchange of such
securities (determined as provided in Subsection (g) below) less than
the current market price per share (as defined in Subsection (h) below)
in effect immediately prior to the issuance of such, or less than the
Exercise Price, the Exercise Price shall be adjusted immediately
thereafter so that it shall equal the lower of (i) the price determined
by multiplying the Exercise Price in effect immediately prior thereto
by a fraction, the numerator of which shall be the sum of the number of
shares of Common Stock outstanding immediately prior to the issuance of
such securities and the number of shares of Common Stock which
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the aggregate consideration received (determined as provided in
Subsection (g) below) for such securities would purchase at such
current market price per share of Common Stock, and the denominator of
which shall be the sum of the number of shares of Common Stock
outstanding immediately prior to such issuance and the maximum number
of shares of Common Stock of the Company deliverable upon conversion of
or in exchange for such securities at the initial conversion or
exchange price or rate or (ii) in the event the Conversion Price is
equal to or higher than the current market price per share but less
than the Exercise Price, the price determined by multiplying the
Exercise Price in effect immediately prior to the date of issuance by a
fraction, the numerator of which shall be the sum of the number of
shares outstanding immediately prior to the issuance of such securities
and the number of shares of Common Stock which the aggregate
consideration received (determined as provided in subsection (g) below)
for such securities would purchase at the Exercise Price in effect
immediately prior to the date of such issuance, and the denominator of
which shall be the sum of the number of shares of Common Stock
outstanding immediately prior to the issuance of such securities and
the maximum number of shares of Common Stock of the Company deliverable
upon conversion of or in exchange for such securities at the initial
conversion or exchange price or rate. Such adjustment shall be made
successively whenever such an issuance is made.
(f) Whenever the Exercise Price payable upon exercise of each
Warrant is adjusted pursuant to Subsections (a), (b), (c), (d) and (e)
above, the number of Shares purchasable upon exercise of this Warrant
shall simultaneously be adjusted by multiplying the number of Shares
initially issuable upon exercise of this Warrant by the Exercise Price
in effect on the date hereof and dividing the product so obtained by
the Exercise Price, as adjusted.
(g) For purposes of any computation respecting consideration
received pursuant to Subsections (d) and (e) above, the following shall
apply:
(A) in the case of the issuance of shares of Common
Stock for cash, the consideration shall be the amount of such
cash, provided that in no case shall any deduction be made for
any commissions, discounts or other expenses incurred by the
Company for any underwriting of the issue or otherwise in
connection therewith;
(B) in the case of the issuance of shares of Common
Stock for a consideration in whole or in part other than cash,
the consideration other than cash shall be deemed to be the
fair market value thereof as determined in good faith by the
Board of Directors of the Company (irrespective of the
accounting treatment thereof), whose determination shall be
conclusive; and
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(C) in the case of the issuance of securities
convertible into or exchangeable for shares of Common Stock,
the aggregate consideration received therefor shall be deemed
to be the consideration received by the Company for the
issuance of such securities plus the additional minimum
consideration, if any, to be received by the Company upon the
conversion or exchange thereof (the consideration in each case
to be determined in the same manner as provided in clauses (A)
and (B) of this Subsection (g)).
(h) For the purpose of any computation under Subsections (b),
(c), (d) and (e) above, the current market price per share of Common
Stock at any date shall be determined in the manner set forth in
Section (11) hereof except that the current market price per share
shall be deemed to be the higher of (i) the average of the prices for
30 consecutive business days before such date or (ii) the price on the
business day immediately preceding such date.
(i) No adjustment in the Exercise Price shall be required
unless such adjustment would require an increase or decrease of at
least five cents ($0.05) in such price; provided, however, that any
adjustments which by reason of this Subsection (i) are not required to
be made shall be carried forward and taken into account in any
subsequent adjustment required to be made hereunder. All calculations
under this Section 8 shall be made to the nearest cent or to the
nearest one-hundredth of a share, as the case may be. Anything in this
Section 8 to the contrary notwithstanding, the Company shall be
entitled, but shall not be required, to make such changes in the
Exercise Price, in addition to those required by this Section 8, as it
shall determine, in its sole discretion, to be advisable in order that
any dividend or distribution in shares of Common Stock, or any
subdivision, reclassification or combination of Common Stock, hereafter
made by the Company shall not result in any Federal Income tax
liability to the holders of Common Stock or securities convertible into
Common Stock (including Warrants).
(j) Whenever the Exercise Price is adjusted, as herein
provided, the Company shall promptly but no later than 10 days after
any request for such an adjustment by the Holder, cause a notice
setting forth the adjusted Exercise Price and adjusted number of Shares
issuable upon exercise of each Warrant, and, if requested, information
describing the transactions giving rise to such adjustments, to be
mailed to the Holders at their last addresses appearing in the Warrant
Register, and shall cause a certified copy thereof to be mailed to its
transfer agent, if any. The Company may retain a firm of independent
certified public accountants selected by the Board of Directors (who
may be the regular accountants employed by the Company) to make any
computation required by this Section 8, and a certificate signed by
such firm shall be conclusive evidence of the correctness of such
adjustment.
(k) In the event that at any time, as a result of an
adjustment made pursuant to Subsection (a) above, the Holder of this
Warrant thereafter shall become entitled to
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receive any shares of the Company, other than Common Stock, thereafter
the number of such other shares so receivable upon exercise of this
Warrant shall be subject to adjustment from time to time in a manner
and on terms as nearly equivalent as practicable to the provisions with
respect to the Common Stock contained in Subsections (a) to (i),
inclusive above.
(l) Irrespective of any adjustments in the Exercise Price or
the number or kind of shares purchasable upon exercise of this Warrant,
Warrants theretofore or thereafter issued may continue to express the
same price and number and kind of shares as are stated in the similar
Warrants initially issuable pursuant to this Agreement.
SECTION 9. REDEMPTION.
(a) On not less than thirty (30) days written notice (the
"Redemption Notice"), to Registered Holders of the Warrants being
redeemed, the Warrants may be redeemed, at the option of the Company,
at a redemption price of $0.05 per Warrant, provided (i) the market
price (determined in accordance with section 11 hereof) shall exceed
$8.00 for the 20 consecutive trading days ending on the fifth trading
day prior to the date of the Redemption Notice (the "Target Price"),
subject to adjustment as set forth in Section 9(f) hereof and (ii) a
registration statement covering the Warrants and the Warrant Shares
filed under the Securities Act of 1933, as amended (the "Act") has been
declared effective and remains effective on the date fixed for
redemption of the Warrants (the "Redemption Date").
(b) If the conditions set forth in Section 9(a) are met, and
the Company desires to exercise its right to redeem the Warrants, it
shall mail a Redemption Notice to each of the Registered Holders of the
Warrants to be redeemed, first class, postage prepaid, not later than
the thirtieth day before the date fixed for redemption, at their last
address as shall appear on the records maintained pursuant to Section
6(b). Any notice mailed in the manner provided herein shall be
conclusively presumed to have been duly given whether or not the
Registered Holder receives such notice.
(c) The Redemption Notice shall specify (i) the redemption
price, (ii) the Redemption Date, (iii) the place where the Warrant
Certificates shall be delivered and the redemption price paid, and (iv)
that the right to exercise the Warrant shall terminate at 5:00 P.M.
(New York time) on the business day immediately preceding the
Redemption Date. No failure to mail such notice nor any defect therein
or in the mailing thereof shall affect the validity of the proceedings
for such redemption except as to a Registered Holder (a) to whom notice
was not mailed or (b) whose notice was defective. An affidavit of the
Warrant Agent or of the Secretary or an Assistant Secretary of the
Underwriter or the Company that notice of redemption has been mailed
shall, in the absence of fraud, be prima facie evidence of the facts
stated therein.
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(d) Any right to exercise a Warrant shall terminate at 5:00
P.M. (New York time) on the business day immediately preceding the
Redemption Date. On and after the Redemption Date, Registered Holders
of the Warrants shall have no further rights except to receive, upon
surrender of the Warrant, the Redemption Price.
(e) From and after the Redemption Date, the Company shall, at
the place specified in the Redemption Notice, upon presentation and
surrender to the Company by or on behalf of the Registered Holder
thereof of one or more Warrant Certificates evidencing Warrants to be
redeemed, deliver or cause to be delivered to or upon the written order
of such Registered Holder a sum in cash equal to the Redemption Price
of each such Warrant. From and after the Redemption Date and upon the
deposit or setting aside by the Company of a sum sufficient to redeem
all the Warrants called for redemption, such Warrants shall expire and
become void and all rights hereunder and under the Warrant
Certificates, except the right to receive payment of the Redemption
Price, shall cease.
(f) If the shares of the Company's Common Stock are subdivided
or combined into a greater or smaller number of shares of Common Stock,
the Target Price shall be proportionally adjusted by the ratio which
the total number of shares of Common Stock outstanding immediately
prior to such event bears to the total number of shares of Common Stock
to be outstanding immediately after such event.
SECTION 10. REGISTRATION UNDER THE SECURITIES ACT OF 1933. The
Company agrees to register the Warrants and the Warrant Shares for resale under
the Securities Act of 1933, as amended (the "Act") on the terms and subject to
the conditions set forth in Section IV of the Subscription Agreement between the
Company and each of the investors in the Private Placement.
SECTION 11. FRACTIONAL WARRANTS AND FRACTIONAL SHARES.
(a) If the number of shares of Common Stock purchasable upon
the exercise of each Warrant is adjusted pursuant to Section 8 hereof,
the Company shall nevertheless not be required to issue fractions of
shares, upon exercise of the Warrants or otherwise, or to distribute
certificates that evidence fractional shares. With respect to any
fraction of a share called for upon any exercise hereof, the Company
shall pay to the Holder an amount in cash equal to such fraction
multiplied by the current market value of such fractional share,
determined as follows:
(A) If the Common Stock is listed on a national
securities exchange or admitted to unlisted trading privileges
on such exchange or listed for trading on the Nasdaq National
Market System ("NMS"), the current market value shall be the
last reported sale price of the Common Stock on such exchange
on the last business day prior to the date of exercise of this
Warrant or if no such sale is made
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on such day or no closing sale price is quoted, the average of
the closing bid and asked prices for such day on such exchange
or system; or
(B) If the Common Stock is listed in the
over-the-counter market (other than on NMS) or admitted to
unlisted trading privileges, the current market value shall be
the mean of the last reported bid and asked prices reported by
the National Quotation Bureau, Inc. on the last business day
prior to the date of the exercise of this Warrant; or
(C) If the Common Stock is not so listed or admitted
to unlisted trading privileges and bid and asked prices are
not so reported, the current market value shall be an amount
determined in such reasonable manner as may be prescribed by
the Board of Directors of the Company.
SECTION 12. WARRANT HOLDERS NOT DEEMED STOCKHOLDERS. No
holder of Warrants shall, as such, be entitled to vote or to receive dividends
or be deemed the holder of Common Stock that may at any time be issuable upon
exercise of such Warrants for any purpose whatsoever, nor shall anything
contained herein be construed to confer upon the holder of Warrants, as such,
any of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action (whether
upon any recapitalization, issue or reclassification of stock, change of par
value or change of stock to no par value, consolidation, merger or conveyance or
otherwise), or to receive notice of meetings, or to receive dividends or
subscription rights, until such Holder shall have exercised such Warrants and
been issued shares of Common Stock in accordance with the provisions hereof.
SECTION 13. RIGHTS OF ACTION. All rights of action with respect to
this Agreement are vested in the respective Registered Holders of the Warrants,
and any Registered Holder of a Warrant, without consent of the Warrant Agent or
of the holder of any other Warrant, may, on his own behalf and for his own
benefit, enforce against the Company his right to exercise his Warrants for the
purchase of shares of Common Stock in the manner provided in the Warrant
Certificate and this Agreement.
SECTION 14. AGREEMENT OF WARRANT HOLDERS. Every holder of a Warrant, by
his acceptance thereof, consents and agrees with the Company, the Warrant Agent
and every other holder of a Warrant that:
(a) The Warrants are transferable only on the registry books
of the Warrant Agent by the Registered Holder thereof in person or by
his attorney duly authorized in writing and only if the Warrant
Certificates representing such Warrants are surrendered at the office
of the Warrant Agent, duly endorsed or accompanied by a proper
instrument of transfer satisfactory to the Warrant Agent and the
Company in their sole discretion, together with payment of any
applicable transfer taxes; and
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(b) The Company may deem and treat the person in whose name
the Warrant Certificate is registered as the holder and as the
absolute, true and lawful owner of the Warrants represented thereby for
all purposes, and the Company shall not be affected by any notice or
knowledge to the contrary, except as otherwise expressly provided in
Section 7 hereof.
SECTION 15. CANCELLATION OF WARRANT CERTIFICATES. If the
Company shall purchase or acquire any Warrant or Warrants, the Warrant
Certificate or Warrant Certificates evidencing the same shall thereupon be
canceled by it and retired. The Warrant Agent shall also cancel Common Stock
following exercise of any or all of the Warrants represented thereby or
delivered to it for transfer, splitup, combination or exchange.
SECTION 16. CONCERNING THE WARRANT AGENT.
(a) The Warrant Agent acts hereunder as agent and in a
ministerial capacity for the Company, and its duties shall be
determined solely by the provisions hereof. The Warrant Agent shall
not, by issuing and delivering Warrant Certificates or by any other act
hereunder be deemed to make any representations as to the validity,
value or authorization of the Warrant Certificates or the Warrants
represented thereby or of any securities or other property delivered
upon exercise of any Warrant or whether any stock issued upon exercise
of any Warrant is fully paid and nonassessable.
(b) The Warrant Agent shall account promptly to the Company
with respect to Warrants exercised and concurrently pay the Company, as
provided in Section 4, all moneys received by the Warrant Agent upon
the exercise of such Warrants. The Warrant Agent shall, upon request of
the Company from time to time, deliver to the Company such complete
reports of registered ownership of the Warrants and such complete
records of transactions with respect to the Warrants and the shares of
Common Stock as the Company may request. The Warrant Agent shall also
make available to the Company and Commonwealth for inspection by their
agents or employees, from time to time as either of them may request,
such original books of accounts and record (including original Warrant
Certificates surrendered to the Warrant Agent upon exercise of
Warrants) as may be maintained by the Warrant Agent in connection with
the issuance and exercise of Warrants hereunder, such inspections to
occur at the Warrant Agent's office as specified in Section 18, during
normal business hours.
(c) The Warrant Agent shall not at any time be under any duty
or responsibility to any holder of Warrant Certificates to make or
cause to be made any adjustment of the Exercise Price provided in this
Agreement, or to determine whether any fact exists which may require
any such adjustments, or with respect to the nature or extent of any
such adjustment, when made, or with respect to the method employed in
making the same. It shall not (i) be liable for any recital or
statement of facts contained herein or for any action taken, suffered
or omitted by it in reliance on any Warrant Certificate or other
document or instrument believed by it in good faith to be genuine and
to have been
-15-
<PAGE>
signed or presented by the proper party or parties, (ii) be responsible
for any failure on the part of the Company to comply with any of its
covenants and obligations contained in this Agreement or in any Warrant
Certificate, or (iii) be liable for any act or omission in connection
with this Agreement except for its own negligence or wilful misconduct.
The Warrant Agent may at any time consult with counsel satisfactory to
it (who may be counsel for the Company) and shall incur no liability or
responsibility for any action taken, suffered or omitted by it in good
faith in accordance with the opinion or advice of such counsel.
(d) Any notice, statement, instruction, request, direction,
order or demand of the Company shall be sufficiently evidenced by an
instrument signed by the Chairman of the Board, Chief Executive
Officer, President, any Vice President, its Secretary, or Assistant
Secretary, (unless other evidence in respect thereof is herein
specifically prescribed). The Warrant Agent shall not be liable for any
action taken, suffered or omitted by it in accordance with such notice,
statement, instruction, request, direction, order or demand believed by
it to be genuine.
(e) The Company agrees to pay the Warrant Agent reasonable
compensation for its services hereunder and to reimburse it for its
reasonable expenses hereunder; it further agrees to indemnify the
Warrant Agent and save it harmless against any and all losses, expenses
and liabilities, including judgments, costs and counsel fees, for
anything done or omitted by the Warrant Agent in the execution of its
duties and powers hereunder except losses, expenses and liabilities
arising as a result of the Warrant Agent's negligence or wilful
misconduct.
(f) The Warrant Agent may resign its duties and be discharged
from all further duties and liabilities hereunder (except liabilities
arising as a result of the Warrant Agent's own negligence or wilful
misconduct), after giving 30 days' prior written notice to the Company.
At least 15 days prior to the date such resignation is to become
effective, the Warrant Agent shall cause a copy of such notice of
resignation to be mailed to the Registered Holder of each Warrant
Certificate at the Company's expense. Upon such resignation, or any
inability of the Warrant Agent to act as such hereunder, the Company
shall appoint a new warrant agent in writing. If the Company shall fail
to make such appointment within a period of 15 days after it has been
notified in writing of such resignation by the resigning Warrant Agent,
then the Registered Holder of any Warrant Certificate may apply to any
court of competent jurisdiction for the appointment of a new warrant
agent. Any new warrant agent, whether appointed by the Company or by
such a court, shall be a bank or trust company having a capital and
surplus, as shown by its last published report to its stockholders, of
not less than $10,000,000 or a stock transfer company. After acceptance
in writing of such appointment by the new warrant agent is received by
the Company, such new warrant agent shall be vested with the same
powers, rights, duties and responsibilities as if it had been
originally named herein as the Warrant Agent, without any further
assurance, conveyance, act or deed; but if for any reason it
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<PAGE>
shall be necessary or expedient to execute and deliver any further
assurance, conveyance, act or deed, the same shall be done at the
expense of the Company and shall be legally and validly executed and
delivered by the resigning Warrant Agent. Not later than the effective
date of any such appointment the Company shall file notice thereof with
the resigning Warrant Agent and shall forthwith cause a copy of such
notice to be mailed to the Registered Holder of each Warrant
Certificate.
(g) Any corporation into which the Warrant Agent or any new
warrant agent may be converted or merged or any corporation resulting
from any consolidation to which the Warrant Agent or any new warrant
agent shall be a party or any corporation succeeding to the trust
business of the Warrant Agent shall be a successor warrant agent under
this Agreement without any further act, provided that such corporation
is eligible for appointment as successor to the Warrant Agent under the
provisions of the preceding paragraph. Any such successor warrant agent
shall promptly cause notice of its succession as warrant agent to be
mailed to the Company and to the Registered Holder of each Warrant
Certificate.
(h) The Warrant Agent, its subsidiaries and affiliates, and
any of its or their officers or directors, may buy and hold or sell
Warrants or other securities of the Company and otherwise deal with the
Company in the same manner and to the same extent and with like effects
as though it were not Warrant Agent. Nothing herein shall preclude the
Warrant Agent from acting in any other capacity for the Company or for
any other legal entity.
SECTION 17. MODIFICATION OF AGREEMENT. Subject to the provisions of
Section 4(b), the parties hereto may by supplemental agreement make any changes
or corrections in this Agreement (i) that it shall deem appropriate to cure any
ambiguity or to correct any defective or inconsistent provision or manifest
mistake or error herein contained; (ii) to reflect an increase in the number of
Warrants which are to be governed by this Agreement resulting from an increase
in the size of the Private Placement; (iii) to reflect an increase in the number
of Warrants which are to be governed by this Agreement resulting from the
conversion of warrants issued to the placement agent of the Private Placement or
its designees; or (iv) that it may deem necessary or desirable and which shall
not adversely affect the interests of the holders of Warrant Certificates;
provided, however, that this Agreement shall not otherwise be modified,
supplemented or altered in any respect except with the consent in writing of the
Registered Holders of Warrant Certificates representing not less than 50% of the
Warrants then outstanding; and provided, further, that no change in the number
or nature of the securities purchasable upon the exercise of any Warrant, or the
Exercise Price therefor, or the acceleration of the Warrant Expiration Date,
shall be made without the consent in writing of the Registered Holder of the
Warrant Certificate representing such Warrant, other than such changes as are
specifically prescribed by this Agreement as originally executed.
SECTION 18. NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
made when delivered or mailed
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<PAGE>
first class registered or certified mail, postage prepaid as follows: if to the
Registered Holder of a Warrant Certificate, at the address of such holder as
shown on the registry books maintained by the Warrant Agent; if to the Company,
at 41 East 11th Street, New York, New York 10003, Attention: Sal Perisano, Chief
Executive Officer; if to the Warrant Agent, at its Corporate Office and if to
Commonwealth, at Commonwealth Associates, Attention: Keith Rosenbloom.
SECTION 19. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without
reference to principles of conflict of laws.
SECTION 20. BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of the Company and the Warrant Agent (and their respective
successors and assigns) and the holders from time to time of Warrant
Certificates. Nothing in this Agreement is intended or shall be construed to
confer upon any other person any right, remedy or claim, in equity or at law, or
to impose upon any other person any duty, liability or obligation.
SECTION 21. TERMINATION. This Agreement shall terminate on the earlier
to occur of (i) the close of business on the Expiration Date of all the
Warrants; or (iii) the date upon which all Warrants have been exercised.
SECTION 22. COUNTERPARTS. This Agreement may be executed in several
counterparts, which taken together shall constitute a single document.
-18-
<PAGE>
THIS WARRANT AND ANY SHARES OF COMMON STOCK ISSUABLE UPON ITS EXERCISE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED
UNTIL (1) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 (THE "ACT")
SHALL HAVE BECOME EFFECTIVE WITH RESPECT THERETO, OR (2) RECEIPT BY THE ISSUER
OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER TO THE EFFECT
THAT REGISTRATION UNDER THE ACT IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED
TRANSFER NOR IS SUCH TRANSFER IN VIOLATION OF ANY APPLICABLE STATE SECURITIES
LAWS.
No. PW _____ Warrants
VOID AFTER ____________, 2004
WARRANT CERTIFICATE FOR PURCHASE
OF COMMON STOCK
iPARTY CORP.
This certifies that FOR VALUE RECEIVED ____________________
or registered assigns (the "Registered Holder") is the owner of the number of
Warrants ("Warrants") specified above. Each Warrant initially entitles the
Registered Holder to purchase, subject to the terms and conditions set forth in
this Certificate and the Warrant Agreement (as hereinafter defined), one fully
paid and nonassessable share of Common Stock, $.001 par value ("Common Stock")
of iParty Corp., a Delaware corporation (the "Company") at any time commencing
___________, 2000 and prior to the Expiration Date (as hereinafter defined),
upon the presentation and surrender of this Warrant Certificate with the
Subscription Form on the reverse hereof duly executed, at the corporate office
of _________ Stock Transfer & Trust Company, as Warrant Agent, or its successor
(the "Warrant Agent"), accompanied by payment of an amount equal to $2.00 for
each Warrant (the "Exercise Price") in lawful money of the United States of
America in cash or by official bank or certified check made payable to iParty
Corp. The Company may, at its election, reduce the Exercise Price.
This Warrant Certificate and each Warrant represented hereby
are issued pursuant to and are subject in all respects to the terms and
conditions set forth in the Warrant Agreement (the "Warrant Agreement"), dated
_________, 1999 by and among the Company, the Warrant Agent and Commonwealth
Associates, L.P.
In the event of certain contingencies provided for in the
Warrant Agreement, the Exercise Price or the number of shares of Common Stock
subject to purchase upon the exercise of each Warrant represented hereby are
subject to modification or adjustment.
A-1
<PAGE>
Each Warrant represented hereby is exercisable at the option
of the Registered Holder, but no fractional shares of Common Stock will be
issued. In the case of the exercise of less than all the Warrants represented
hereby, the Company shall cancel this Warrant Certificate upon the surrender
hereof and shall execute and deliver a new Warrant Certificate or arrant
Certificates of like tenor, which the Warrant Agent shall countersign, for the
balance of such Warrants.
The term "Expiration Date" shall mean 5:00 P.M. (New York
time) on ____________, 2004. If such date shall in the State of New York be a
holiday or a day on which the banks are authorized to close, then the Expiration
Date shall mean 5:00 P.M. (New York time) the next following day which in the
State of New York is not a holiday or a day on which banks are authorized to
close. The Company may, at its election, extend the Expiration Date.
This Warrant Certificate is exchangeable, upon the surrender
hereof by the Registered Holder at the corporate office of the Warrant Agent,
for a new Warrant Certificate or Warrant Certificates of like tenor representing
an equal aggregate number of Warrants, each of such new Warrant Certificates to
represent such number of Warrants as shall be designated by such Registered
Holder at the time of such surrender. Upon due presentment with any tax or other
governmental charge imposed in connection therewith, for registration of
transfer of this Warrant Certificate at such office, a new Warrant Certificate
or Warrant Certificates representing an equal aggregate number of Warrants will
be issued to the transferee in exchange therefor, subject to the limitations
provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the
Registered Holder shall not be entitled to any of the rights of a stockholder of
the Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.
The Warrants represented hereby may be redeemed at the option
of the Company, at a redemption price of $.05 per Class A Warrant at any time,
provided the Market Price (as defined in the Warrant Agreement) for the Common
Stock shall exceed $8.00 per share. Notice of redemption shall be given not
later than the thirtieth day before the date fixed for redemption, all as
provided in the Warrant Agreement. On and after the date fixed for redemption,
the Registered Holder shall have no rights with respect to the Warrants
represented hereby except to receive the $.05 per Warrant upon surrender of this
Warrant Certificate.
Prior to due presentment for registration of transfer hereof,
the Company may deem and treat the Registered Holder as the absolute owner
hereof and of each Warrant represented hereby (notwithstanding any notations of
ownership or writing hereon made by anyone other than a duly authorized officer
of the Company) for all purposes and shall not be affected by any notice to the
contrary.
A-2
<PAGE>
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed, manually or in facsimile by two of its officers
thereunto duly authorized and a facsimile of its corporate seal to be imprinted
hereon.
iPARTY CORP.
Dated: ______________
By:_____________________________
By:______________________________
[seal]
CONTINENTAL STOCK TRANSFER & TRUST
COMPANY
By:______________________________
A-3
<PAGE>
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to
exercise _______ Warrants represented by this Warrant Certificate, and to
purchase the securities issuable upon the exercise of such Warrants, and
requests that certificates for such securities shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
-------------------------
-------------------------
-------------------------
-------------------------
[please print or type name and address]
and be delivered to
-------------------------
-------------------------
-------------------------
-------------------------
[please print or type name and address]
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
Dated:
------------------
X
-------------------------
-----------------
------------------
Address
----------------------
Taxpayer Identification Number
- --------------------------
Signature Guaranteed
A-4
<PAGE>
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, ____________________ hereby sells, assigns and transfers
unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
-------------------------
-------------------------
-------------------------
-------------------------
[please print or type name and address]
_________________________ of the Warrants represented by this Warrant
Certificate, and hereby irrevocably constitutes and appoints __________________
____________________________________ _______________________________ Attorney to
transfer this Warrant Certificate on the books of the Company, with full power
of substitution in the premises.
Dated: ____________________
X________________________
Signature Guaranteed
- -------------------------
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE
AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE OR
MIDWEST STOCK EXCHANGE.
A-5
<PAGE>
WARRANT AGREEMENT
AGREEMENT, dated as of this 10th day of September, 1999, by and among
iPARTY CORP., a Delaware corporation (the "Company"), CONTINENTAL STOCK TRANSFER
& TRUST COMPANY, as warrant agent (the "Warrant Agent"), and COMMONWEALTH
ASSOCIATES, L.P., a New York limited partnership ("Commonwealth").
W I T N E S S E T H
WHEREAS, in connection with a private placement (the "Private
Placement") of a up to 50,000 units ("Units") each Unit consisting (i) two
shares of Series C Convertible Preferred Stock and (ii) ten redeemable common
stock purchase warrants (the "Warrants"), each Warrant exercisable to purchase
one share of the Company's common stock, $.001 par value (the "Common Stock"),
the Company will issue up to 500,000 Warrants; and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer, exchange and redemption of the Warrants, the
issuance of certificates representing the Warrants, the exercise of the
Warrants, and the rights of the holders thereof;
NOW THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth and for the purpose of defining the terms and
provisions of the Warrants and the certificates representing the Warrants and
the respective rights and obligations thereunder of the Company, the holders of
certificates representing the Warrants and the Warrant Agent, the parties hereto
agree as follows:
SECTION 1. DEFINITIONS. As used herein, the following terms shall have
the following meanings, unless the context shall otherwise require:
(a) "Common Stock" shall mean stock of the Company of any
class, whether now or hereafter authorized, which has the right to
participate in the distributions of earnings and assets of the Company
without limit as to amount or percentage, which at the date hereof
consists of 50,000,000 authorized shares of Common Stock, $.001 value.
(b) "Corporate Office" shall mean the office of the Warrant
Agent (or its successor) at which at any particular time its principal
business shall be administered, which office is located at the date
hereof at 2 Broadway, New York, New York 10004.
(c) "Exercise Date" shall mean, as to any Warrant, the date on
which the Warrant Agent shall have received both (a) the Warrant
Certificate representing such Warrant, with the exercise form thereon
duly executed by the Registered Holder thereof or his attorney duly
authorized in writing, and (b) payment in cash, or by official bank or
<PAGE>
certified check made payable to the Company, of an amount in lawful
money of the United States of America equal to the Exercise Price.
(d) "Exercise Price" shall mean the purchase price to be paid
upon exercise of each Warrant in accordance with the terms hereof,
which price shall be $2.00 per share subject to adjustment from time to
time pursuant to the provisions of Section 8 hereof and subject to the
Company's right to reduce the Exercise Price upon notice to all
warrantholders.
(e) "Initial Warrant Exercise Date" shall mean September 10,
2000.
(f) "Registered Holder" shall mean the person in whose name
any certificate representing Warrants shall be registered on the books
maintained by the Warrant Agent pursuant to Section 6.
(g) "Redemption Price" shall mean the price at which the
Company may, at its option in accordance with the terms hereof, redeem
the Warrants, which price shall be $0.05 per Warrant.
(h) "Transfer Agent" shall mean Continental Stock Transfer &
Trust Company, as the Company's transfer agent, or its authorized
successor, as such.
(i) "Warrant Expiration Date" shall mean 5:00 P.M. (New York
time) on September 10, 2005 or, with respect to Warrants which are
outstanding as of the applicable Redemption Date (as defined in Section
8), the Redemption Date, whichever is earlier; provided that if such
date shall in the State of New York be a holiday or a day on which
banks are authorized to close, then 5:00 P.M. (New York time) on the
next following day which in the State of New York is not a holiday or a
day on which banks are authorized to close. Upon notice to all
warrantholders the Company shall have the right to extend the Warrant
Expiration Date.
(j) "Warrant Shares" shall mean the shares of Common Stock
deliverable upon exercise of the Warrants, as adjusted from time to
time.
SECTION 2. WARRANTS AND ISSUANCE OF WARRANT CERTIFICATES.
(a) A Warrant shall initially entitle the Registered Holder of
the Warrant Certificate representing such Warrant to purchase one share
of Common Stock upon the exercise thereof, in accordance with the terms
hereof, subject to modification and adjustment as provided in Section
8.
(b) From time to time, up to the Warrant Expiration Date, the
Transfer Agent shall execute and deliver stock certificates in required
whole number denominations
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<PAGE>
representing up to an aggregate of 500,000 shares of Common Stock,
subject to adjustment as described herein, upon the exercise of
Warrants in accordance with this Agreement.
(c) From time to time, up to the Warrant Expiration Date, the
Warrant Agent shall execute and deliver Warrant Certificates in
required whole number denominations to the persons entitled thereto in
connection with any transfer or exchange permitted under this
Agreement; provided that no Warrant Certificates shall be issued except
(i) those initially issued hereunder, (ii) those issued on or after the
Initial Warrant Exercise Date, upon the exercise of fewer than all
Warrants represented by any Warrant Certificate, to evidence any
unexercised Warrants held by the exercising Registered Holder, (iii)
those issued upon any transfer or exchange pursuant to Section 6; (iv)
those issued in replacement of lost, stolen, destroyed or mutilated
Warrant Certificates pursuant to Section 7; and (v) at the option of
the Company, in such form as may be approved by the its Board of
Directors, to reflect (a) any adjustment or change in the Exercise
Price or the number of shares of Common Stock purchasable upon exercise
of the Warrants, made pursuant to Section 8 hereof and (b) other
modifications approved by Warrantholders in accordance with Section 16
hereof.
SECTION 3. FORM AND EXECUTION OF WARRANT CERTIFICATES.
(a) The Warrant Certificates shall be substantially in the
form annexed hereto as Exhibit A (the provisions of which are hereby
incorporated herein) and may have such letters, numbers or other marks
of identification or designation and such legends, summaries or
endorsements printed, lithographed, engraved or typed thereon as the
Company may deem appropriate and as are not inconsistent with the
provisions of this Agreement, or as may be required to comply with any
law or with any rule or regulation made pursuant thereto or with any
rule or regulation of any stock exchange on which the Warrants may be
listed, or to conform to usage. The Warrant Certificates shall be dated
the date of issuance thereof (whether upon initial issuance, transfer,
exchange or in lieu of mutilated, lost, stolen, or destroyed Warrant
Certificates) and issued in registered form.
Warrants shall be numbered serially with the letters PWC.
(b) Warrant Certificates shall be executed on behalf of the
Company by its Chairman of the Board, Chief Executive Officer,
President or any Vice President and by its Secretary or an Assistant
Secretary, by manual signatures or by facsimile signatures printed
thereon, and shall have imprinted thereon a facsimile of the Company's
seal. In case any officer of the Company who shall have signed any of
the Warrant Certificates shall cease to be such officer of the Company
before the date of issuance of the Warrant Certificates and issue and
delivery thereof, such Warrant Certificates may nevertheless be
issued and delivered with the same force and effect as though the
person who signed such Warrant Certificates had not ceased to be such
officer of the Company. After execution
-3-
<PAGE>
by the Company, Warrant Certificates shall be delivered by the Warrant
Agent to the Registered Holder.
SECTION 4. EXERCISE.
(a) Each Warrant may be exercised by the Registered Holder
thereof at any time on or after the Initial Exercise Date, but not
after the Warrant Expiration Date, upon the terms and subject to the
conditions set forth herein and in the applicable Warrant Certificate.
A Warrant shall be deemed to have been exercised immediately prior to
the close of business on the Exercise Date and the person entitled to
receive the securities deliverable upon such exercise shall be treated
for all purposes as the holder upon exercise thereof as of the close of
business on the Exercise Date. As soon as practicable on or after the
Exercise Date the Warrant Agent shall forward to the Company the
proceeds received from the exercise of a Warrant, and promptly after
receiving authorization from the Company shall cause to be issued and
delivered by the Transfer Agent, to the person or persons entitled to
receive the same, a certificate or certificates for the securities
deliverable upon such exercise, (plus a certificate for any remaining
unexercised Warrants of the Registered Holder). Notwithstanding the
foregoing, in the case of payment made in the form of a check drawn on
an account of Commonwealth or such other investment banks and brokerage
houses as the Company shall approve, certificates shall immediately be
issued without any delay. Upon the exercise of any Warrant, the Warrant
Agent shall promptly forward the proceeds received for the Warrant to
the Company or as the Company may direct in writing.
(b) The Registered Holder may, at its option, exchange this
Warrant, in whole or in part (a "Warrant Exchange"), into the number of
Warrant Shares determined in accordance with this Section (4)(b), by
surrendering the Warrant Certificate at the principal office of the
Company or at the office of its stock transfer agent, accompanied by a
notice stating such Registered Holder's intent to effect such exchange,
the number of Warrant Shares to be exchanged and the date on which the
Registered Holder requests that such Warrant Exchange occur (the
"Notice of Exchange"). The Warrant Exchange shall take place on the
date specified in the Notice of Exchange or, if later, the date the
Notice of Exchange is received by the Company (the "Exchange Date").
Certificates for the shares issuable upon such Warrant Exchange and, if
applicable, a new warrant of like tenor evidencing the balance of the
shares remaining subject to such Warrant, shall be issued as of the
Exchange Date and delivered to the Registered Holder within seven (7)
days following the Exchange Date. In connection with any Warrant
Exchange, a Warrant shall represent the right to subscribe for and
acquire the number of Warrant Shares (rounded to the next highest
integer) equal to (i) the number of Warrant Shares specified by the
Registered Holder in its Notice of Exchange (the "Total Number") less
(ii) the number of Warrant Shares equal to the quotient obtained by
dividing (A) the product of the Total Number and the existing Exercise
Price by (B) the current market value of a share of Common Stock.
Current market value shall have the meaning set forth
-4-
<PAGE>
Section 11(a) hereof, except that for purposes hereof, the date of
exercise, as used in such Section 11(a) hereof, shall mean the Exchange
Date.
SECTION 5. RESERVATION OF SHARES; LISTING; PAYMENT OF TAXES; ETC.
(a) The Company covenants that it will at all times reserve
and keep available out of its authorized Common Stock, solely for the
purpose of issue upon exercise of Warrants, such number of shares of
Common Stock as shall then be issuable upon the exercise of all
outstanding Warrants. The Company covenants that all shares of Common
Stock which shall be issuable upon exercise of the Warrants and payment
of the Exercise Price shall, at the time of delivery, be duly and
validly issued, fully paid, nonassessable and free from all taxes,
liens and charges with respect to the issue thereof (other than those
which the Company shall promptly pay or discharge).
(b) The Company will use reasonable efforts to obtain
appropriate approvals or registrations under state "blue sky"
securities laws with respect to the exercise of the Warrants; provided,
however, that the Company shall not be obligated to file any general
consent to service of process or qualify as a foreign corporation in
any jurisdiction. With respect to any such securities laws, however,
Warrants may not be exercised by, or shares of Common Stock issued to,
any Registered Holder in any state in which such exercise would be
unlawful.
(c) The Company shall pay all documentary, stamp or similar
taxes and other governmental charges that may be imposed with respect
to the issuance of Warrants, or the issuance, or delivery of any shares
upon exercise of the Warrants; provided, however, that if the shares of
Common Stock are to be delivered in a name other than the name of the
Registered Holder of the Warrant Certificate representing any Warrant
being exercised, then no such delivery shall be made unless the person
requesting the same has paid to the Warrant Agent the amount of
transfer taxes or charges incident thereto, if any.
(d) The Warrant Agent is hereby irrevocably authorized to
requisition the Company's Transfer Agent from time to time for
certificates representing shares of Common Stock required upon exercise
of the Warrants, and the Company will authorize the Transfer Agent to
comply with all such proper requisitions.
SECTION 6. EXCHANGE AND REGISTRATION OF TRANSFER. Subject to the
restrictions on transfer contained in the Warrant Certificates and the
Subscription Agreements between the Company and the purchasers of Units:
(a) Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Warrants of the
same class or may be
-5-
<PAGE>
transferred in whole or in part. Warrant Certificates to be exchanged
shall be surrendered to the Warrant Agent at its Corporate Office, and
upon satisfaction of the terms and provisions hereof, the Company shall
execute, and the Warrant Agent shall countersign, issue and deliver in
exchange therefor the Warrant Certificate or Certificates which the
Registered Holder making the exchange shall be entitled to receive.
(b) The Warrant Agent shall keep at its office books in which,
subject to such reasonable regulations as it may prescribe, it shall
register Warrant Certificates and the transfer thereof in accordance
with its regular practice. Upon due presentment for registration of
transfer of any Warrant Certificate at its office, the Company shall
execute and the Warrant Agent shall issue and deliver to the transferee
or transferees a new Warrant Certificate or Certificates representing
an equal aggregate number of Warrants.
(c) With respect to all Warrant Certificates presented for
registration of transfer, or for exchange or exercise, the subscription
form on the reverse thereof shall be duly endorsed, or be accompanied
by a written instrument or instruments of transfer and subscription, in
form satisfactory to the Company, duly executed by the Registered
Holder or his attorney-in-fact duly authorized in writing.
(d) The Company may require payment by such holder of a sum
sufficient to cover any tax or other governmental charge that may be
imposed in connection therewith.
(e) All Warrant Certificates surrendered for exercise or for
exchange in case of mutilated Warrant Certificates shall be promptly
canceled by the Warrant Agent and thereafter retained by the Warrant
Agent until termination of this Agreement or resignation of the Warrant
Agent, or, with the prior written consent of Commonwealth, disposed of
or destroyed, at the direction of the Company.
(f) Prior to due presentment for registration of transfer
thereof, the Company and the Warrant Agent may deem and treat the
Registered Holder of any Warrant Certificate as the absolute owner
thereof and of each Warrant represented thereby (notwithstanding any
notations of ownership or writing thereon made by anyone other than a
duly authorized officer of the Company or the Warrant Agent) for all
purposes and shall not be affected by any notice to the contrary.
SECTION 7. LOSS OR MUTILATION. Upon receipt by the Company and the
Warrant Agent of evidence satisfactory to them of the ownership of and loss,
theft, destruction or mutilation of any Warrant Certificate and (in case of
loss, theft or destruction) of indemnity satisfactory to them, and (in the case
of mutilation) upon surrender and cancellation thereof, the Company shall
execute and the Warrant Agent shall (in the absence of notice to the Company
and/or Warrant Agent that the Warrant Certificate has been acquired by a
bonafide purchaser) countersign and deliver to the Registered Holder in lieu
thereof a new Warrant Certificate of like tenor representing an equal aggregate
number of Warrants. Applicants for a substitute Warrant
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Certificate shall comply with such other reasonable regulations and pay such
other reasonable charges as the Warrant Agent may prescribe.
SECTION 8. ANTI-DILUTION PROVISIONS. Subject to the provisions of
Section l hereof, the Exercise Price in effect at any time and the number and
kind of securities purchasable upon the exercise of the Warrants shall be
subject to adjustment from time to time upon the happening of certain events as
follows:
(a) In case the Company shall hereafter (i) declare a dividend
or make a distribution on its outstanding shares of Common Stock in
shares of Common Stock, (ii) subdivide or reclassify its outstanding
shares of Common Stock into a greater number of shares, or (iii)
combine or reclassify its outstanding shares of Common Stock into a
smaller number of shares, the Exercise Price in effect at the time of
the record date for such dividend or distribution or of the effective
date of such subdivision, combination or reclassification shall be
adjusted so that it shall equal the price determined by multiplying the
Exercise Price by a fraction, the denominator of which shall be the
number of shares of Common Stock outstanding after giving effect to
such action, and the numerator of which shall be the number of shares
of Common Stock outstanding immediately prior to such action. Such
adjustment shall be made successively whenever any event listed above
shall occur.
(b) In case the Company shall fix a record date for the
issuance of rights or warrants to all holders of its Common Stock
entitling them to subscribe for or purchase shares of Common Stock (or
securities convertible into Common Stock) at a price (the "Subscription
Price") (or having a conversion price per share) less than the current
market price of the Common Stock (as defined in Subsection (h) below)
on the record date mentioned below, or less than the Exercise Price on
such record date the Exercise Price shall be adjusted so that the same
shall equal the lower of (i) the price determined by multiplying the
Exercise Price in effect immediately prior to the date of such issuance
by a fraction, the numerator of which shall be the sum of the number of
shares of Common Stock outstanding on the record date mentioned below
and the number of additional shares of Common Stock which the aggregate
offering price of the total number of shares of Common Stock so offered
(or the aggregate conversion price of the convertible securities so
offered) would purchase at such current market price per share of the
Common Stock, and the denominator of which shall be the sum of the
number of shares of Common Stock outstanding on such record date and
the number of additional shares of Common Stock offered for
subscription or purchase (or into which the convertible securities so
offered are convertible) or (ii) in the event the Subscription Price is
equal to or higher than the current market price but is less than the
Exercise Price, the price determined by multiplying the Exercise Price
in effect immediately prior to the date of issuance by a fraction, the
numerator of which shall be the sum of the number of shares outstanding
on the record date mentioned below and the number of additional shares
of Common Stock which the aggregate offering price of the total number
of shares of
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Common Stock so offered (or the aggregate conversion price of the
convertible securities so offered) would purchase at the Exercise Price
in effect immediately prior to the date of such issuance, and the
denominator of which shall be the sum of the number of shares of Common
Stock outstanding on the record date mentioned below and the number of
additional shares of Common Stock offered for subscription or purchase
(or into which the convertible securities so offered are convertible).
Such adjustment shall be made successively whenever such rights or
warrants are issued and shall become effective immediately after the
record date for the determination of shareholders entitled to receive
such rights or warrants; and to the extent that shares of Common Stock
are not delivered (or securities convertible into Common Stock are not
delivered) after the expiration of such rights or warrants the Exercise
Price shall be readjusted to the Exercise Price which would then be in
effect had the adjustments made upon the issuance of such rights or
warrants been made upon the basis of delivery of only the number of
shares of Common Stock (or securities convertible into Common Stock)
actually delivered.
(c) In case the Company shall hereafter distribute to the
holders of its Common Stock evidences of its indebtedness or assets
(excluding cash dividends or distributions and dividends or
distributions referred to in Subsection (a) above) or subscription
rights or warrants (excluding those referred to in Subsection (b)
above), then in each such case the Exercise Price in effect thereafter
shall be determined by multiplying the Exercise Price in effect
immediately prior thereto by a fraction, the numerator of which shall
be the total number of shares of Common Stock outstanding multiplied by
the current market price per share of Common Stock (as defined in
Subsection (h) below), less the fair market value (as determined by the
Company's Board of Directors) of said assets or evidences of
indebtedness so distributed or of such rights or warrants, and the
denominator of which shall be the total number of shares of Common
Stock outstanding multiplied by such current market price per share of
Common Stock. Such adjustment shall be made successively whenever such
a record date is fixed. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after the
record date for the determination of shareholders entitled to receive
such distribution.
(d) In case the Company shall hereafter issue shares of its
Common Stock (excluding shares issued (i) in any of the transactions
described in Subsection (a) above, (ii) upon exercise of options
granted to the Company's officers, directors, employees and consultants
under a plan or plans adopted by the Company's Board of Directors and
approved by its shareholders, if such shares would otherwise be
included in this Subsection (d), (but only to the extent that the
aggregate number of shares excluded hereby and issued after the date
hereof, shall not exceed 25% of the Company's Common Stock outstanding,
on a fully-diluted basis, at the time of any issuance), (iii) upon
exercise of options, warrants, convertible securities and convertible
debentures outstanding as of the final closing of the Private
Placement, or exercise of the Warrants, (iv) to shareholders of any
corporation which merges into the Company in proportion to
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their stock holdings of such corporation immediately prior to such
merger, upon such merger, or (v) issued in a bona fide public offering
pursuant to a firm commitment underwriting, but only if no adjustment
is required pursuant to any other specific subsection of this Section 8
(without regard to Subsection (i) below) with respect to the
transaction giving rise to such rights) for a consideration per share
(the "Offering Price") less than the current market price per share (as
defined in Subsection (h) below) on the date the Company fixes the
offering price of such additional shares or less than the Exercise
Price, the Exercise Price shall be adjusted immediately thereafter so
that it shall equal the lower of (i) the price determined by
multiplying the Exercise Price in effect immediately prior thereto by a
fraction, the numerator of which shall be the sum of the number of
shares of Common Stock outstanding immediately prior to the issuance of
such additional shares and the number of shares of Common Stock which
the aggregate consideration received (determined as provided in
Subsection (g) below) for the issuance of such additional shares would
purchase at such current market price per share of Common Stock, and
the denominator of which shall be the number of shares of Common Stock
outstanding immediately after the issuance of such additional shares or
(ii) in the event the Offering Price is equal to or higher than the
current market price per share but less than the Exercise Price, the
price determined by multiplying the Exercise Price in effect
immediately prior to the date of issuance by a fraction, the numerator
of which shall be the number of shares of Common Stock outstanding
immediately prior to the issuance of such additional shares and the
number of shares of Common Stock which the aggregate consideration
received (determined as provided in subsection (g) below) for the
issuance of such additional shares would purchase at the Exercise Price
in effect immediately prior to the date of such issuance, and the
denominator of which shall be the number of shares of Common Stock
outstanding immediately after the issuance of such additional shares.
Such adjustment shall be made successively whenever such an issuance is
made.
(e) In case the Company shall hereafter issue any securities
convertible into or exchangeable for its Common Stock (excluding
securities issued in transactions described in Subsections (b) and (c)
above) for a consideration per share of Common Stock (the
"Conversion Price") initially deliverable upon conversion or exchange
of such securities (determined as provided in Subsection (g) below)
less than the current market price per share (as defined in Subsection
(h) below) in effect immediately prior to the issuance of such, or less
than the Exercise Price, the Exercise Price shall be adjusted
immediately thereafter so that it shall equal the lower of (i) the
price determined by multiplying the Exercise Price in effect
immediately prior thereto by a fraction, the numerator of which shall
be the sum of the number of shares of Common Stock outstanding
immediately prior to the issuance of such securities and the number of
shares of Common Stock which the aggregate consideration received
(determined as provided in Subsection (g) below) for such securities
would purchase at such current market price per share of Common Stock,
and the denominator of which shall be the sum of the number of shares
of Common Stock outstanding immediately prior to such issuance and the
maximum
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number of shares of Common Stock of the Company deliverable upon
conversion of or in exchange for such securities at the initial
conversion or exchange price or rate or (ii) in the event the
Conversion Price is equal to or higher than the current market price
per share but less than the Exercise Price, the price determined by
multiplying the Exercise Price in effect immediately prior to the date
of issuance by a fraction, the numerator of which shall be the sum of
the number of shares outstanding immediately prior to the issuance of
such securities and the number of shares of Common Stock which the
aggregate consideration received (determined as provided in subsection
(g) below) for such securities would purchase at the Exercise Price in
effect immediately prior to the date of such issuance, and the
denominator of which shall be the sum of the number of shares of Common
Stock outstanding immediately prior to the issuance of such securities
and the maximum number of shares of Common Stock of the Company
deliverable upon conversion of or in exchange for such securities at
the initial conversion or exchange price or rate. Such adjustment shall
be made successively whenever such an issuance is made.
(f) Whenever the Exercise Price payable upon exercise of each
Warrant is adjusted pursuant to Subsections (a), (b), (c), (d) and (e)
above, the number of Shares purchasable upon exercise of this Warrant
shall simultaneously be adjusted by multiplying the number of Shares
initially issuable upon exercise of this Warrant by the Exercise Price
in effect on the date hereof and dividing the product so obtained by
the Exercise Price, as adjusted.
(g) For purposes of any computation respecting consideration
received pursuant to Subsections (d) and (e) above, the following shall
apply:
(A) in the case of the issuance of shares of Common
Stock for cash, the consideration shall be the amount of such
cash, provided that in no case shall any deduction be made for
any commissions, discounts or other expenses incurred by
the Company for any underwriting of the issue or otherwise in
connection therewith;
(B) in the case of the issuance of shares of Common
Stock for a consideration in whole or in part other than cash,
the consideration other than cash shall be deemed to be the
fair market value thereof as determined in good faith by the
Board of Directors of the Company (irrespective of the
accounting treatment thereof), whose determination shall be
conclusive; and
(C) in the case of the issuance of securities
convertible into or exchangeable for shares of Common Stock,
the aggregate consideration received therefor shall be deemed
to be the consideration received by the Company for the
issuance of such securities plus the additional minimum
consideration, if any, to be received by the Company upon the
conversion or exchange thereof (the
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consideration in each case to be determined in the same manner
as provided in clauses (A) and (B) of this Subsection (g)).
(h) For the purpose of any computation under Subsections (b),
(c), (d) and (e) above, the current market price per share of Common
Stock at any date shall be determined in the manner set forth in
Section (11) hereof except that the current market price per share
shall be deemed to be the higher of (i) the average of the prices for
30 consecutive business days before such date or (ii) the price on the
business day immediately preceding such date.
(i) No adjustment in the Exercise Price shall be required
unless such adjustment would require an increase or decrease of at
least five cents ($0.05) in such price; provided, however, that any
adjustments which by reason of this Subsection (i) are not required to
be made shall be carried forward and taken into account in any
subsequent adjustment required to be made hereunder. All calculations
under this Section 8 shall be made to the nearest cent or to the
nearest one-hundredth of a share, as the case may be. Anything in this
Section 8 to the contrary notwithstanding, the Company shall be
entitled, but shall not be required, to make such changes in the
Exercise Price, in addition to those required by this Section 8, as it
shall determine, in its sole discretion, to be advisable in order that
any dividend or distribution in shares of Common Stock, or any
subdivision, reclassification or combination of Common Stock, hereafter
made by the Company shall not result in any Federal Income tax
liability to the holders of Common Stock or securities convertible into
Common Stock (including Warrants).
(j) Whenever the Exercise Price is adjusted, as herein
provided, the Company shall promptly but no later than 10 days after
any request for such an adjustment by the Holder, cause a notice
setting forth the adjusted Exercise Price and adjusted number of Shares
issuable upon exercise of each Warrant, and, if requested, information
describing the transactions giving rise to such adjustments, to be
mailed to the Holders at their last addresses appearing in the Warrant
Register, and shall cause a certified copy thereof to be mailed to its
transfer agent, if any. The Company may retain a firm of independent
certified public accountants selected by the Board of Directors (who
may be the regular accountants employed by the Company) to make any
computation required by this Section 8, and a certificate signed by
such firm shall be conclusive evidence of the correctness of such
adjustment.
(k) In the event that at any time, as a result of an
adjustment made pursuant to Subsection (a) above, the Holder of this
Warrant thereafter shall become entitled to receive any shares of the
Company, other than Common Stock, thereafter the number of such other
shares so receivable upon exercise of this Warrant shall be subject to
adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the Common
Stock contained in Subsections (a) to (i), inclusive above.
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(l) Irrespective of any adjustments in the Exercise Price or
the number or kind of shares purchasable upon exercise of this Warrant,
Warrants theretofore or thereafter issued may continue to express the
same price and number and kind of shares as are stated in the similar
Warrants initially issuable pursuant to this Agreement.
SECTION 9. REDEMPTION.
(a) On not less than thirty (30) days written notice (the
"Redemption Notice"), to Registered Holders of the Warrants being
redeemed, the Warrants may be redeemed, at the option of the Company,
at a redemption price of $0.05 per Warrant, provided (i) the market
price (determined in accordance with section 11 hereof) shall exceed
$8.00 for the 20 consecutive trading days ending on the fifth trading
day prior to the date of the Redemption Notice (the "Target Price"),
subject to adjustment as set forth in Section 9(f) hereof and (ii) a
registration statement covering the Warrants and the Warrant Shares
filed under the Securities Act of 1933, as amended (the "Act") has been
declared effective and remains effective on the date fixed for
redemption of the Warrants (the "Redemption Date").
(b) If the conditions set forth in Section 9(a) are met, and
the Company desires to exercise its right to redeem the Warrants, it
shall mail a Redemption Notice to each of the Registered Holders of the
Warrants to be redeemed, first class, postage prepaid, not later than
the thirtieth day before the date fixed for redemption, at their last
address as shall appear on the records maintained pursuant to Section
6(b). Any notice mailed in the manner provided herein shall be
conclusively presumed to have been duly given whether or not the
Registered Holder receives such notice.
(c) The Redemption Notice shall specify (i) the redemption
price, (ii) the Redemption Date, (iii) the place where the Warrant
Certificates shall be delivered and the redemption price paid, and (iv)
that the right to exercise the Warrant shall terminate at 5:00 P.M.
(New York time) on the business day immediately preceding the
Redemption Date. No failure to mail such notice nor any defect therein
or in the mailing thereof shall affect the validity of the proceedings
for such redemption except as to a Registered Holder (a) to whom notice
was not mailed or (b) whose notice was defective. An affidavit of the
Warrant Agent or of the Secretary or an Assistant Secretary of the
Underwriter or the Company that notice of redemption has been mailed
shall, in the absence of fraud, be prima facie evidence of the facts
stated therein.
(d) Any right to exercise a Warrant shall terminate at 5:00
P.M. (New York time) on the business day immediately preceding the
Redemption Date. On and after the Redemption Date, Registered Holders
of the Warrants shall have no further rights except to receive, upon
surrender of the Warrant, the Redemption Price.
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(e) From and after the Redemption Date, the Company shall, at
the place specified in the Redemption Notice, upon presentation and
surrender to the Company by or on behalf of the Registered Holder
thereof of one or more Warrant Certificates evidencing Warrants to be
redeemed, deliver or cause to be delivered to or upon the written order
of such Registered Holder a sum in cash equal to the Redemption Price
of each such Warrant. From and after the Redemption Date and upon the
deposit or setting aside by the Company of a sum sufficient to redeem
all the Warrants called for redemption, such Warrants shall expire and
become void and all rights hereunder and under the Warrant
Certificates, except the right to receive payment of the Redemption
Price, shall cease.
(f) If the shares of the Company's Common Stock are subdivided
or combined into a greater or smaller number of shares of Common Stock,
the Target Price shall be proportionally adjusted by the ratio which
the total number of shares of Common Stock outstanding immediately
prior to such event bears to the total number of shares of Common Stock
to be outstanding immediately after such event.
SECTION 10. REGISTRATION UNDER THE SECURITIES ACT OF 1933. The
Company agrees to register the Warrants and the Warrant Shares for resale under
the Securities Act of 1933, as amended (the "Act") on the terms and subject to
the conditions set forth in Section IV of the Subscription Agreement between the
Company and each of the investors in the Private Placement.
SECTION 11. FRACTIONAL WARRANTS AND FRACTIONAL SHARES.
(a) If the number of shares of Common Stock purchasable upon
the exercise of each Warrant is adjusted pursuant to Section 8 hereof,
the Company shall nevertheless not be required to issue fractions of
shares, upon exercise of the Warrants or otherwise, or to distribute
certificates that evidence fractional shares. With respect to any
fraction of a share called for upon any exercise hereof, the Company
shall pay to the Holder an amount in cash equal to such fraction
multiplied by the current market value of such fractional share,
determined as follows:
(A) If the Common Stock is listed on a national
securities exchange or admitted to unlisted trading privileges
on such exchange or listed for trading on the Nasdaq National
Market System ("NMS"), the current market value shall be the
last reported sale price of the Common Stock on such exchange
on the last business day prior to the date of exercise of this
Warrant or if no such sale is made on such day or no closing
sale price is quoted, the average of the closing bid and asked
prices for such day on such exchange or system; or
(B) If the Common Stock is listed in the
over-the-counter market (other than on NMS) or admitted to
unlisted trading privileges, the current market value shall be
the mean of the last reported bid and asked prices reported by
the
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National Quotation Bureau, Inc. on the last business day
prior to the date of the exercise of this Warrant; or
(C) If the Common Stock is not so listed or admitted
to unlisted trading privileges and bid and asked prices are
not so reported, the current market value shall be an amount
determined in such reasonable manner as may be prescribed by
the Board of Directors of the Company.
SECTION 12. WARRANT HOLDERS NOT DEEMED STOCKHOLDERS. No holder of
Warrants shall, as such, be entitled to vote or to receive dividends or be
deemed the holder of Common Stock that may at any time be issuable upon exercise
of such Warrants for any purpose whatsoever, nor shall anything contained herein
be construed to confer upon the holder of Warrants, as such, any of the rights
of a stockholder of the Company or any right to vote for the election of
directors or upon any matter submitted to stockholders at any meeting thereof,
or to give or withhold consent to any corporate action (whether upon any
recapitalization, issue or reclassification of stock, change of par value or
change of stock to no par value, consolidation, merger or conveyance or
otherwise), or to receive notice of meetings, or to receive dividends or
subscription rights, until such Holder shall have exercised such Warrants and
been issued shares of Common Stock in accordance with the provisions hereof.
SECTION 13. RIGHTS OF ACTION. All rights of action with respect to this
Agreement are vested in the respective Registered Holders of the Warrants, and
any Registered Holder of a Warrant, without consent of the Warrant Agent or of
the holder of any other Warrant, may, on his own behalf and for his own benefit,
enforce against the Company his right to exercise his Warrants for the purchase
of shares of Common Stock in the manner provided in the Warrant Certificate and
this Agreement.
SECTION 14. AGREEMENT OF WARRANT HOLDERS. Every holder of a Warrant, by
his acceptance thereof, consents and agrees with the Company, the Warrant Agent
and every other holder of a Warrant that:
(a) The Warrants are transferable only on the registry books
of the Warrant Agent by the Registered Holder thereof in person or by
his attorney duly authorized in writing and only if the Warrant
Certificates representing such Warrants are surrendered at the office
of the Warrant Agent, duly endorsed or accompanied by a proper
instrument of transfer satisfactory to the Warrant Agent and the
Company in their sole discretion, together with payment of any
applicable transfer taxes; and
(b) The Company may deem and treat the person in whose name
the Warrant Certificate is registered as the holder and as the
absolute, true and lawful owner of the Warrants represented thereby for
all purposes, and the Company shall not be affected by any notice or
knowledge to the contrary, except as otherwise expressly provided in
Section 7 hereof.
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SECTION 15. CANCELLATION OF WARRANT CERTIFICATES. If the
Company shall purchase or acquire any Warrant or Warrants, the Warrant
Certificate or Warrant Certificates evidencing the same shall thereupon be
canceled by it and retired. The Warrant Agent shall also cancel Common Stock
following exercise of any or all of the Warrants represented thereby or
delivered to it for transfer, splitup, combination or exchange.
SECTION 16. CONCERNING THE WARRANT AGENT.
(a) The Warrant Agent acts hereunder as agent and in a
ministerial capacity for the Company, and its duties shall be
determined solely by the provisions hereof. The Warrant Agent shall
not, by issuing and delivering Warrant Certificates or by any other act
hereunder be deemed to make any representations as to the validity,
value or authorization of the Warrant Certificates or the Warrants
represented thereby or of any securities or other property delivered
upon exercise of any Warrant or whether any stock issued upon exercise
of any Warrant is fully paid and nonassessable.
(b) The Warrant Agent shall account promptly to the Company
with respect to Warrants exercised and concurrently pay the Company, as
provided in Section 4, all moneys received by the Warrant Agent upon
the exercise of such Warrants. The Warrant Agent shall, upon request of
the Company from time to time, deliver to the Company such complete
reports of registered ownership of the Warrants and such complete
records of transactions with respect to the Warrants and the shares of
Common Stock as the Company may request. The Warrant Agent shall also
make available to the Company and Commonwealth for inspection by their
agents or employees, from time to time as either of them may request,
such original books of accounts and record (including original Warrant
Certificates surrendered to the Warrant Agent upon exercise of
Warrants) as may be maintained by the Warrant Agent in connection with
the issuance and exercise of Warrants hereunder, such inspections to
occur at the Warrant Agent's office as specified in Section 18, during
normal business hours.
(c) The Warrant Agent shall not at any time be under any duty
or responsibility to any holder of Warrant Certificates to make or
cause to be made any adjustment of the Exercise Price provided in this
Agreement, or to determine whether any fact exists which may require
any such adjustments, or with respect to the nature or extent of any
such adjustment, when made, or with respect to the method employed in
making the same. It shall not (i) be liable for any recital or
statement of facts contained herein or for any action taken, suffered
or omitted by it in reliance on any Warrant Certificate or other
document or instrument believed by it in good faith to be genuine and
to have been signed or presented by the proper party or parties, (ii)
be responsible for any failure on the part of the Company to comply
with any of its covenants and obligations contained in this Agreement
or in any Warrant Certificate, or (iii) be liable for any act or
omission in connection with this Agreement except for its own
negligence or wilful misconduct.
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The Warrant Agent may at any time consult with counsel satisfactory to
it (who may be counsel for the Company) and shall incur no liability or
responsibility for any action taken, suffered or omitted by it in good
faith in accordance with the opinion or advice of such counsel.
(d) Any notice, statement, instruction, request, direction,
order or demand of the Company shall be sufficiently evidenced by an
instrument signed by the Chairman of the Board, Chief Executive
Officer, President, any Vice President, its Secretary, or Assistant
Secretary, (unless other evidence in respect thereof is herein
specifically prescribed). The Warrant Agent shall not be liable for any
action taken, suffered or omitted by it in accordance with such notice,
statement, instruction, request, direction, order or demand believed by
it to be genuine.
(e) The Company agrees to pay the Warrant Agent reasonable
compensation for its services hereunder and to reimburse it for its
reasonable expenses hereunder; it further agrees to indemnify the
Warrant Agent and save it harmless against any and all losses, expenses
and liabilities, including judgments, costs and counsel fees, for
anything done or omitted by the Warrant Agent in the execution of its
duties and powers hereunder except losses, expenses and liabilities
arising as a result of the Warrant Agent's negligence or wilful
misconduct.
(f) The Warrant Agent may resign its duties and be discharged
from all further duties and liabilities hereunder (except liabilities
arising as a result of the Warrant Agent's own negligence or wilful
misconduct), after giving 30 days' prior written notice to the Company.
At least 15 days prior to the date such resignation is to become
effective, the Warrant Agent shall cause a copy of such notice of
resignation to be mailed to the Registered Holder of each Warrant
Certificate at the Company's expense. Upon such resignation, or any
inability of the Warrant Agent to act as such hereunder, the Company
shall appoint a new warrant agent in writing. If the Company shall fail
to make such appointment within a period of 15 days after it has been
notified in writing of such resignation by the resigning Warrant Agent,
then the Registered Holder of any Warrant Certificate may apply to any
court of competent jurisdiction for the appointment of a new warrant
agent. Any new warrant agent, whether appointed by the Company or by
such a court, shall be a bank or trust company having a capital and
surplus, as shown by its last published report to its stockholders, of
not less than $10,000,000 or a stock transfer company. After acceptance
in writing of such appointment by the new warrant agent is received by
the Company, such new warrant agent shall be vested with the same
powers, rights, duties and responsibilities as if it had been
originally named herein as the Warrant Agent, without any further
assurance, conveyance, act or deed; but if for any reason it shall be
necessary or expedient to execute and deliver any further assurance,
conveyance, act or deed, the same shall be done at the expense of the
Company and shall be legally and validly executed and delivered by the
resigning Warrant Agent. Not later than the effective date of any such
appointment the Company shall file notice thereof with the
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resigning Warrant Agent and shall forthwith cause a copy of such notice
to be mailed to the Registered Holder of each Warrant Certificate.
(g) Any corporation into which the Warrant Agent or any new
warrant agent may be converted or merged or any corporation resulting
from any consolidation to which the Warrant Agent or any new warrant
agent shall be a party or any corporation succeeding to the trust
business of the Warrant Agent shall be a successor warrant agent under
this Agreement without any further act, provided that such corporation
is eligible for appointment as successor to the Warrant Agent under the
provisions of the preceding paragraph. Any such successor warrant agent
shall promptly cause notice of its succession as warrant agent to be
mailed to the Company and to the Registered Holder of each Warrant
Certificate.
(h) The Warrant Agent, its subsidiaries and affiliates, and
any of its or their officers or directors, may buy and hold or sell
Warrants or other securities of the Company and otherwise deal with the
Company in the same manner and to the same extent and with like effects
as though it were not Warrant Agent. Nothing herein shall preclude the
Warrant Agent from acting in any other capacity for the Company or for
any other legal entity.
SECTION 17. MODIFICATION OF AGREEMENT. Subject to the provisions of
Section 4(b), the parties hereto may by supplemental agreement make any changes
or corrections in this Agreement (i) that it shall deem appropriate to cure any
ambiguity or to correct any defective or inconsistent provision or manifest
mistake or error herein contained; (ii) to reflect an increase in the number of
Warrants which are to be governed by this Agreement resulting from an increase
in the size of the Private Placement; (iii) to reflect an increase in the number
of Warrants which are to be governed by this Agreement resulting from the
conversion of warrants issued to the placement agent of the Private Placement or
its designees; or (iv) that it may deem necessary or desirable and which shall
not adversely affect the interests of the holders of Warrant Certificates;
provided, however, that this Agreement shall not otherwise be modified,
supplemented or altered in any respect except with the consent in writing of the
Registered Holders of Warrant Certificates representing not less than 50% of the
Warrants then outstanding; and provided, further, that no change in the number
or nature of the securities purchasable upon the exercise of any Warrant, or the
Exercise Price therefor, or the acceleration of the Warrant Expiration Date,
shall be made without the consent in writing of the Registered Holder of the
Warrant Certificate representing such Warrant, other than such changes as are
specifically prescribed by this Agreement as originally executed.
SECTION 18. NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
made when delivered or mailed first class registered or certified mail, postage
prepaid as follows: if to the Registered Holder of a Warrant Certificate, at the
address of such holder as shown on the registry books maintained by the Warrant
Agent; if to the Company, at 41 East 11th Street, New York, New York 10003,
-17-
<PAGE>
Attention: Sal Perisano, Chief Executive Officer; if to the Warrant Agent, at
its Corporate Office and if to Commonwealth, at Commonwealth Associates,
Attention: Keith Rosenbloom.
SECTION 19. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without
reference to principles of conflict of laws.
SECTION 20. BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of the Company and the Warrant Agent (and their respective
successors and assigns) and the holders from time to time of Warrant
Certificates. Nothing in this Agreement is intended or shall be construed to
confer upon any other person any right, remedy or claim, in equity or at law, or
to impose upon any other person any duty, liability or obligation.
SECTION 21. TERMINATION. This Agreement shall terminate on the earlier
to occur of (i) the close of business on the Expiration Date of all the
Warrants; or (iii) the date upon which all Warrants have been exercised.
SECTION 22. COUNTERPARTS. This Agreement may be executed in several
counterparts, which taken together shall constitute a single document.
-18-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first above written.
iPARTY CORP.
By: __________________________________
Sal Perisano, Chief Executive Officer
COMMONWEALTH ASSOCIATES, L.P.
By: Commonwealth Associates Management Corp., its
general partner
By: __________________________________
Name: Joseph Wynne
Title: Chief Financial Officer
CONTINENTAL STOCK TRANSFER & TRUST
COMPANY
By: _______________________________
Authorized Officer
-19-
<PAGE>
THIS WARRANT AND ANY SHARES OF COMMON STOCK ISSUABLE UPON ITS EXERCISE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED
UNTIL (1) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 (THE "ACT")
SHALL HAVE BECOME EFFECTIVE WITH RESPECT THERETO, OR (2) RECEIPT BY THE ISSUER
OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER TO THE EFFECT
THAT REGISTRATION UNDER THE ACT IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED
TRANSFER NOR IS SUCH TRANSFER IN VIOLATION OF ANY APPLICABLE STATE SECURITIES
LAWS.
No. PWC _____ Warrants
VOID AFTER SEPTEMBER ____ , 2005
WARRANT CERTIFICATE FOR PURCHASE
OF COMMON STOCK
iPARTY CORP.
This certifies that FOR VALUE RECEIVED
________________________ or registered assigns (the "Registered Holder") is the
owner of the number of Warrants ("Warrants") specified above. Each Warrant
initially entitles the Registered Holder to purchase, subject to the terms and
conditions set forth in this Certificate and the Warrant Agreement (as
hereinafter defined), one fully paid and nonassessable share of Common Stock,
$.001 par value ("Common Stock") of iParty Corp., a Delaware corporation (the
"Company") at any time commencing September 10, 2000 and prior to the Expiration
Date (as hereinafter defined), upon the presentation and surrender of this
Warrant Certificate with the Subscription Form on the reverse hereof duly
executed, at the corporate office of Continental Stock Transfer & Trust Company,
as Warrant Agent, or its successor (the "Warrant Agent"), accompanied by payment
of an amount equal to $2.00 for each Warrant (the "Exercise Price") in lawful
money of the United States of America in cash or by official bank or certified
check made payable to iParty Corp. The Company may, at its election, reduce the
Exercise Price.
This Warrant Certificate and each Warrant represented hereby
are issued pursuant to and are subject in all respects to the terms and
conditions set forth in the Warrant Agreement (the "Warrant Agreement"), dated
September 10, 1999 by and among the Company, the Warrant Agent and Commonwealth
Associates, L.P.
In the event of certain contingencies provided for in the
Warrant Agreement, the Exercise Price or the number of shares of Common Stock
subject to purchase upon the exercise of each Warrant represented hereby are
subject to modification or adjustment.
A-1
<PAGE>
Each Warrant represented hereby is exercisable at the option
of the Registered Holder, but no fractional shares of Common Stock will be
issued. In the case of the exercise of less than all the Warrants represented
hereby, the Company shall cancel this Warrant Certificate upon the surrender
hereof and shall execute and deliver a new Warrant Certificate or arrant
Certificates of like tenor, which the Warrant Agent shall countersign, for the
balance of such Warrants.
The term "Expiration Date" shall mean 5:00 P.M. (New York
time) on September 10, 2005. If such date shall in the State of New York be a
holiday or a day on which the banks are authorized to close, then the Expiration
Date shall mean 5:00 P.M. (New York time) the next following day which in the
State of New York is not a holiday or a day on which banks are authorized to
close. The Company may, at its election, extend the Expiration Date.
This Warrant Certificate is exchangeable, upon the surrender
hereof by the Registered Holder at the corporate office of the Warrant Agent,
for a new Warrant Certificate or Warrant Certificates of like tenor representing
an equal aggregate number of Warrants, each of such new Warrant Certificates to
represent such number of Warrants as shall be designated by such Registered
Holder at the time of such surrender. Upon due presentment with any tax or other
governmental charge imposed in connection therewith, for registration of
transfer of this Warrant Certificate at such office, a new Warrant Certificate
or Warrant Certificates representing an equal aggregate number of Warrants will
be issued to the transferee in exchange therefor, subject to the limitations
provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the
Registered Holder shall not be entitled to any of the rights of a stockholder of
the Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.
The Warrants represented hereby may be redeemed at the option
of the Company, at a redemption price of $.05 per Warrant at any time, provided
the market price (as defined in the Warrant Agreement) for the Common Stock
shall exceed $8.00 per share. Notice of redemption shall be given not later than
the thirtieth day before the date fixed for redemption, all as provided in the
Warrant Agreement. On and after the date fixed for redemption, the Registered
Holder shall have no rights with respect to the Warrants represented hereby
except to receive the $.05 per Warrant upon surrender of this Warrant
Certificate.
Prior to due presentment for registration of transfer hereof,
the Company may deem and treat the Registered Holder as the absolute owner
hereof and of each Warrant represented hereby (notwithstanding any notations of
ownership or writing hereon made by anyone other than a duly authorized officer
of the Company) for all purposes and shall not be affected by any notice to the
contrary.
A-2
<PAGE>
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed, manually or in facsimile by two of its officers
thereunto duly authorized and a facsimile of its corporate seal to be imprinted
hereon.
iPARTY CORP.
Dated: ______________
By:_____________________________
By:______________________________
[seal]
CONTINENTAL STOCK TRANSFER & TRUST
COMPANY
By:______________________________
A-3
<PAGE>
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to
exercise _____________ Warrants represented by this Warrant Certificate, and to
purchase the securities issuable upon the exercise of such Warrants, and
requests that certificates for such securities shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
--------------------
--------------------
--------------------
--------------------
[please print or type name and address]
and be delivered to
--------------------
--------------------
--------------------
--------------------
[please print or type name and address]
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
Dated: ______________________
X______________________
-----------------
------------------
Address
----------------------
Taxpayer Identification Number
- --------------------------
Signature Guaranteed
A-4
<PAGE>
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, __________________ hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
--------------------
--------------------
--------------------
--------------------
[please print or type name and address]
_________________________ of the Warrants represented by this Warrant
Certificate, and hereby irrevocably constitutes and appoints
____________________________________ _______________________________ Attorney to
transfer this Warrant Certificate on the books of the Company, with full power
of substitution in the premises.
Dated: ____________________
X________________________
Signature Guaranteed
- -------------------------
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE
AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE OR
MIDWEST STOCK EXCHANGE.
A-5
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT (the "Agreement") is being made as of this ____ day
of October, 1999 between iPARTY CORP., a Delaware corporation having its
principal offices at 41 East 11th Street, New York, New York 10003 (the
"Company"), and SAL PERISANO, an individual residing at 288 Huron Avenue,
Cambridge, Massachusetts 02138 ("Perisano").
W I T N E S S E T H :
WHEREAS, the Company desires to employ Perisano and Perisano desires
to be employed by the Company as its Chief Executive Officer upon the terms and
conditions contained herein.
NOW, THEREFORE, in consideration of the mutual premises and
agreements contained herein, and intending to be legally bound hereby, the
parties hereto agree as follows:
1. Nature of Employment; Term of Employment. The Company hereby
employs Perisano and Perisano agrees to serve the Company as its Chief Executive
Officer upon the terms and conditions contained herein, for a term commencing
retroactively as of March 30, 1999 and continuing until the close of business on
March 30, 2002 (unless terminated sooner pursuant to the provisions hereof, the
"Employment Term"). So long as Perisano is Chief Executive Officer of the
Company, he shall be nominated to serve as a Director of the Company.
2. Duties and Powers as Employee. During the Employment Term,
Perisano shall be employed by the Company as its Chief Executive Officer.
Perisano agrees to devote substantially
<PAGE>
all his full working time, energy and efforts to the business of the Company,
provided, however, that Perisano may continue fulfill his duties and obligations
to The Big Party Corporation as a consultant and a member of its board of
directors. As Chief Executive Officer of the Company, Perisano shall be in
charge of all business operations of the Company including but not limited to
directing and supervising all day-to-day operations of the Company, and managing
and supervising its employees. All employees shall report to Perisano. Perisano
shall be based in New York City and shall be available to travel as the needs of
the Company require.
3. Compensation.
(a) As compensation for his services hereunder, during the
Employment Term, the Company shall pay Perisano a base salary (the "Base
Salary"), payable in equal semi-monthly installments in arrears, at the initial
annual rate of One Hundred Fifty Thousand Dollars ($150,000); commencing January
1, 2000, the Base Salary payable to Perisano by the Company shall be increased
to the annual rate of Two Hundred Fifty Thousand Dollar ($250,000).
Additionally, Perisano shall be entitled to participate in the present or future
employee benefit plans of the Company provided that he meets the eligibility
requirements therefor.
(b) In addition to the Base Salary provided herein, Perisano
may be entitled to receive an annual performance bonus payment as determined in
the sole discretion of the Compensation Committee of the Board of Directors of
the Company.
(c) On March 30, 1999, Perisano was granted stock options (the
"Initial Options") for an aggregate of 337,500 shares of common stock of the
Company pursuant to the iParty Stock Option Plan (the "Plan") which Initial
Options vest as follows: provided Perisano remains continuously employed by the
Company through March 30, 2000, options for 112,500 shares shall vest on March
30, 2000; provided Perisano remains continuously
-2-
<PAGE>
employed by the Company through March 30, 2001, options for an additional
112,500 shares shall vest on March 30, 2001; and provided Perisano remains
continuously employed by the Company through March 30, 2002, options for the
final 112,500 shares shall vest on March 30, 2002. The strike price of the
Initial Options is the closing price on the date of grant, which price was $3.75
per share.
(d) On August 26, 1999, Perisano was granted additional stock
options (the "Additional Options") for an aggregate of 434,730 shares of common
stock of the Company pursuant to the Plan which Additional Options vest as
follows: provided Perisano remains continuously employed by the Company through
August 26, 2000, options for 144,910 shares shall vest on August 26, 2000;
provided Perisano remains continuously employed by the Company through August
26, 2001, options for an additional 144,910 shares shall vest on August 26,
2001; and provided Perisano remains continuously employed by the Company through
August 26, 2002, options for the final 144,910 shares shall vest on August 26,
2002. The strike price of the Additional Options is $2.00 per share.
(e) Through March 30, 2000, the Company will provide Perisano
with temporary housing in the New York City area. The parties agree that such
temporary housing may be used, at the option of the Company, by persons other
than Perisano. The parties agree that the cost of such temporary housing shall
not exceed $2,500 per month and shall be paid directly by the Company. Through
March 30, 2000, the Company shall reimburse Perisano for all of his reasonable
commuting expenses relating to his travel to New York as required by the
Company.
4. Expenses; Vacations. Perisano shall be entitled to reimbursement
for reasonable travel and other out-of-pocket expenses necessarily incurred in
the performance of his duties hereunder, upon submission and approval of written
statements and bills in accordance with the then regular
-3-
<PAGE>
procedures of the Company. Perisano shall be entitled to vacation time in
accordance with the regular procedures of the Company governing senior executive
officers as determined from time to time by the Company's Board of Directors.
Perisano also shall be eligible to participate in all medical, health and
disability benefit programs provided to senior executives of the Company.
5. Representations and Warranties of Employee. Perisano represents
and warrants to the Company that (a) Perisano is under no contractual or other
restriction or obligation which is inconsistent with the execution of this
Agreement, the performance of his duties hereunder, or the other rights of the
Company hereunder; and (b) Perisano is under no physical or mental disability
that would hinder his performance of duties under this Agreement.
6. Representations and Warranties of the Company. The Company
represents and warrants to Perisano that (i) pursuant to the Delaware General
Corporation Law, the Company's Certificate of Incorporation provides for
indemnification of officers and directors of the Company and that so long as
Perisano serves as Chief Executive Officer of the Company it will not be amended
to limit such indemnification without Perisano's written consent, and (ii) the
Company maintains an officers and directors liability insurance policy and will
maintain such a policy for so long as Perisano serves as Chief Executive Officer
of the Company.
7. Non-Competition. Perisano agrees that he will not (a) during the
period he is employed by the Company engage in, or otherwise directly or
indirectly be employed by, or act as a consultant or lender to, or be a
director, officer, employee, owner or partner of, any other business or
organization that is or shall then be competing with the Company, and (b) for a
period of one year after he ceases to be employed by the Company, directly or
indirectly compete with or be engaged in the same business as the Company, or be
employed by, or act as consultant or lender to, or be a director,
-4-
<PAGE>
officer, employee, owner or partner of, any business or organization which, at
the time of such cessation, competes with or is engaged in the same business as
the Company, except that in each case the provisions of this Section 7 will not
be deemed breached merely because Perisano owns not more than five percent
(5.0%) of the outstanding common stock of a corporation, if, at the time of its
acquisition by Perisano, such stock is listed on a national securities exchange,
is reported on NASDAQ, or is regularly traded in the over-the-counter market by
a member of a national securities exchange. Nothing in this Section 7 shall
preclude Perisano from continuing in his role as a director and consultant to
The Big Party Corporation or being a stockholder of The Big Party Corporation,
provided, however, that it is agreed and understood that Perisano may not be
employed by The Big Party Corporation in the event it acquires a presence on the
World Wide Web that competes with or is engaged in the same business as the
Company.
8. Confidential Information. All confidential information which
Perisano may now possess, may obtain during the Employment Term, or may create
prior to the end of the period he is employed by the Company, relating to the
business of the Company or of any customer or supplier of the Company shall not
be published, disclosed, or made accessible by him to any other person, firm, or
corporation during the Employment Term or any time thereafter without the prior
written consent of the Company. Perisano shall return all tangible evidence of
such confidential information to the Company prior to or at the termination of
his employment.
9. Termination.
(a) Notwithstanding anything herein contained, if on or after
the date hereof and prior to the end of the Employment Term, Perisano is
terminated "For Cause" (as defined below) then the Company shall have the right
to give notice of termination of Perisano's services hereunder as of
-5-
<PAGE>
a date to be specified in such notice, and this Agreement shall terminate on the
date so specified. Termination "For Cause" shall mean Perisano shall (i) be
convicted of a felony crime, (ii) commit any act or omit to take any action in
bad faith and to the detriment of the Company, (iii) intentionally fail to
follow any commercially reasonable and lawful direction of the Board of
Directors and continue to fail to follow such direction within three (3) days of
written notification of same, (iv) commit an act of fraud against the Company,
or (v) breach any term of this Agreement and fail to correct such breach within
ten (10) days after written notice of commission thereof.
(b) In the event that Perisano shall be physically or mentally
incapacitated or disabled or otherwise unable fully to discharge his duties
hereunder, with reasonable accommodation, for a period of six months, then this
Agreement shall terminate upon thirty (30) days' written notice to Perisano, and
no further compensation shall be payable to Perisano, except for any accrued and
unpaid Base Salary and bonus, if any, as contemplated under Section 3, and any
accrued and unpaid expenses as contemplated under Section 4 and as may otherwise
be provided under any disability insurance policy, if any.
(c) In the event that Perisano shall die, then this Agreement
shall terminate on the date of Perisano's death, and no further compensation
shall be payable to Perisano, except for any accrued and unpaid Base Salary and
bonus, if any, as contemplated under Section 3 and any accrued and unpaid
expenses as contemplated under Section 4 and as may otherwise be provided under
any insurance policy or similar instrument.
-6-
<PAGE>
(d) In the event that this Agreement is terminated "For Cause"
pursuant to Section 8(a), then Perisano shall be entitled to receive only the
Base Salary at the rate provided in Section 3 to the date on which termination
shall take effect.
(e) In the event that the Company terminates Perisano for any
reason other than as provided under Section 9(a), (b), (c) or (d), then this
Agreement shall terminate upon thirty (30) days' written notice to Perisano and
the Company shall be obligated to pay to Perisano an amount equal to any unpaid
expenses as contemplated under Sections 4 and a severance payment equal to nine
(9) months salary at the Base Salary then in effect, payable in nine (9) equal
monthly installments; in addition, for such nine (9) month period, Perisano
shall be entitled to continue to receive his then current medical benefits. If
this Agreement is not renewed at the end of the Employment Term, such
non-renewal shall not be deemed a termination of this Agreement without cause.
(f) Nothing contained in this Section 9 shall be deemed to
limit any other right the Company may have to terminate Perisano's employment
hereunder upon any ground permitted by law.
(g) In the event that Perisano desires to resign voluntarily
as Chief Executive Officer, Perisano covenants to provide the Company with not
less than thirty (30) days written notice of any such voluntary resignation; and
further Perisano covenants to cooperate in good faith in order to facilitate a
smooth transfer of authority during the period from notice of resignation to the
date of termination. In the event that this Agreement is terminated by Perisano
pursuant to this Section 9(g), then Perisano shall be entitled to receive an
amount payable in a lump sum within ten (10) business days following the date of
termination, equal to the sum of any accrued and unpaid Base Salary and bonus,
-7-
<PAGE>
if any, as contemplated by Section 3 and any accrued and unpaid expenses as
contemplated by Section 4.
(h) Notwithstanding anything herein to the contrary, Perisano
may, upon thirty (30) days written notice, terminate this Agreement for "Good
Reason". "Good Reason" shall mean any material breach by the Company of its
obligations hereunder which are not cured within ten (10) days following receipt
of written notice from Perisano detailing such breach. The parties agree that a
material breach shall include, but not be limited to, (x) any reduction in
Perisano's duties, authority, reporting relationships or responsibilities
(whether or not accompanied by a title change), and (y) the relocation of the
principal executive offices of the Company a distance of more than 35 miles from
its current location. In the event Perisano terminates this Agreement pursuant
to this Section 9(h), the Company shall be obligated to pay to Perisano an
amount equal to any unpaid expenses as contemplated under Section 4 and a
severance payment equal to nine (9) months salary at the Base Salary then in
effect, payable in nine (9) equal monthly installments; in addition, for such
nine (9) month period, Perisano shall be entitled to continue to receive his
then current medical benefits
10. Merger, Etc. In the event of a future disposition of the
properties and business of the Company, substantially as an entirety, by merger,
consolidation, sale of assets, sale of stock, or otherwise, then the Company may
elect to assign this Agreement and all of its rights and obligations hereunder
to the acquiring or surviving entity.
11. Survival. The covenants, agreements, representations and
warranties contained in or made pursuant to this Agreement shall survive
Perisano's termination of employment, irrespective of any investigation made by
or on behalf of any party.
-8-
<PAGE>
12. Modification. This Agreement sets forth the entire understanding
of the parties with respect to the subject matter hereof, supersedes all
existing agreements between them concerning such subject matter, and may be
modified only by a written instrument duly executed by each party.
13. Notices. Any notice or other communication required or permitted
to be given hereunder shall be in writing and shall be mailed by certified mail,
return receipt requested, or delivered against receipt to the party to whom it
is to be given at the address of such party set forth in the preamble to this
Agreement (or to such other address as the party shall have furnished in writing
in accordance with the provisions of this Section 13). In the case of a notice
to the Company, a copy of such notice (which copy shall not constitute notice)
shall be delivered to Camhy Karlinsky & Stein LLP, 1740 Broadway, 16th Floor,
New York, New York 10019, Attn. Daniel I. DeWolf. Notice to the estate of
Perisano shall be sufficient if addressed to Perisano as provided in this
Section 13. Any notice or other communication given by certified mail shall be
deemed given at the time of certification thereof, except for a notice changing
a party's address which shall be deemed given at the time of receipt thereof.
14. Waiver. Any waiver by either party of a breach of any provision
of this Agreement shall not operate as or be construed to be a waiver of any
other breach of such provision or of any breach of any other provision of this
Agreement. The failure of a party to insist upon strict adherence to any term of
this Agreement on one or more occasions shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement. Any waiver must be in writing.
15. Binding Effect. Perisano's rights and obligations under this
Agreement shall not be transferable by assignment or otherwise, such rights
shall not be subject to encumbrance or the
-9-
<PAGE>
claims of Perisano's creditors, and any attempt to do any of the foregoing shall
be void. The provisions of this Agreement shall be binding upon and inure to the
benefit of Perisano and his heirs and personal representatives, and shall be
binding upon and inure to the benefit of the Company and its successors and
those who are its assigns under Section 10.
16. Termination of Prior Agreement. This Agreement terminates and
supercedes any and all prior agreements and understandings between the parties
with respect to employment with or compensation of Perisano by the Company,
including the letter consulting agreement dated September 28, 1999.
16. Headings. The headings in this Agreement are solely for the
convenience of reference and shall be given no effect in the construction or
interpretation of this Agreement.
17. Counterparts; Governing Law. This Agreement may be executed in
any number of counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument. It shall be
governed by, and construed in accordance with, the laws of the State of New
York, without giving effect to the rules governing the conflicts of laws.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the date first written above.
iPARTY CORP.
By: /s/ Daniel I. DeWolf
------------------------------------
Name: Daniel I. DeWolf
Title: Secretary
/s/ Sal Perisano
----------------------------------------
Sal Perisano
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<PAGE>
rare [LOGO]
rare MEDIUM INC.
44 West 18th Street
6th Floor
New York, NY 10011
Vince Santo
Vice President, General Manager
[email protected]
212-634-6950
cc: Douglas Ronai, David Grossman
August 5, 1999
Mr. Sal Perisano
Chief Executive Officer
IParty, Inc.
41 East 11th Street, 11th Floor
New York, NY 10003
Dear Sal:
The following document is the agreement between Rare Medium Inc. and iParty
regarding the work Rare Medium will be performing in connection with the iParty
Web phase one site development project which has the expected live date of
September 15, 1999.
1. Our Understanding of the Project
iParty is looking to re-launch its site by September 15, 1999, in order to
capture the revenue and customers that purchase for Halloween. As part of this
re-launch, iParty would like to incorporate a new visual identity, new logo and
new "look and feel" to the site as well as implement a new technical
infrastructure to better support the scalability of its operation. The new
infrastructure includes the testing and implementing of a homegrown shopping
cart and integrating to a new fulfillment partner (Taymark).
To that end, iParty is now seeking to engage Rare Medium to implement the
remaining aspects of the project known as ideation (design) and creation.
<PAGE>
2. Objectives
The primary objectives for this engagement (Ideation and Creation) is to design
and implement the functionality discussed on the iParty functionality matrix
dated August 2, 1999. We are combining the ideation and creation phases into one
phase for iParty in order to accommodate the short development time frame and to
make sure there is no interruption in work as we move towards the goal of
September 15, 1999. The process of ideation and creation including the following
activities depending on the needs of the phase one site and division of work
between Rare Medium and iParty:
Ideation Activities and Deliverables
1. Project Management -- includes a full time producer (Ed Bocchino) to
manage the Rare Medium team and provide progress and status reports.
2. Information Design -- includes static and interactive wire frames and
prototyping.
3. Graphic Design -- includes logo concept finalization, color variations and
look-and-feel concepts and variations.
4. Content Creation -- includes a copy deck containing all the approved text
for iParty's site.
5. Software Architecture Design -- includes a diagram presenting all the
technologies to be used in the creation of the site.
6. Network Architecture Design -- includes the technical infrastructure
diagram that Percy Kwong and Allan Piket have been discussing during
exploration. This diagram will be finalized in order to confirm all
infrastructure issues.
7. Database Architecture Design -- includes the revised data model with Percy
Kwong, Addison Chappell and Allan Piket working together.
8. Application Description and Specification -- includes any necessary
software recommendations.
9. Platform Hardware and Software Specification -- includes a list of all
required hardware, software and licenses. Percy Kwong and Allan Piket will
jointly own this.
10. Detailed Scenario Analysis -- includes the documenting of the exact
navigational pathways and ways a user can interact with the iParty site in
phase one. This will be facilitated by Leslye Faulk, Ed Bocchino and Ben
Clemens.
11. Project Specification -- a summary document of all these specifications.
Creation Activities and Deliverables
1. Project Management -- includes a full time producer (Ed Bocchino) to
manage the Rare Medium team and provide progress and status reports.
2. Usability Analysis -- includes testing the site on an iterative basis to
assess user's responses and interactions with the site
3. Testing -- includes the quality assurance activities that are scheduled to
begin on September 1, 1999 and to cover a two-week period to end on
September 14, 1999. This will include bug testing, fixing and retesting
and will be refined until it is relatively bug free.
4. Site launch -- after iParty signs off on the functionality of the finished
site, the porting of this application to iParty's production web server.
5. Creative Development -- includes the build out of the visual content of
the screens, optimization of the graphics and completed template
development.
6. Technical Development -- includes application development and integration
as well as any data migration issues that may exist with Taymark or the
current database. IParty and Rare Medium wall jointly own this
integration.
The ultimate goal of the Ideation and Creation phases to implement the
functionality agreed upon by September 15, 1999, in order to allow iParty to
have a successful site re-launch and capture the seasonal volume of the fourth
quarter.
Rare Medium, Inc. iParty LOE 2
<PAGE>
3. Scope, Effort and Schedule
This agreement addresses the Ideation & Creation phases of phase one of the
re-launch of iParty's site. The scope of the work is contained in Exhibit A of
this document (please see exhibit A). Please note that the integration of the
Taymark Fullfillment Company in terms of a dedicated technical resource. The
iParty Functionality Matrix is considered to the source of all the functionality
that has been agreed upon for phase one of iParty's site. Any changes to the
functionality or requests for additional functionality will need to be reviewed
by the change management committee for this project which includes the following
people:
Maureen Murrah, President, iParty, Inc.
Leslye Faulk, Executive Producer, iParty, Inc.
Douglas Ronai, Director, Solution Partner, Rare Medium, Inc.
Ed Bocchino, Project Manager, Rare Medium, Inc.
All changes to the scope of phase one will need to be documented on the iParty
Change Request Document and the document requires at least one signature from
each company. Any additional time or cost implications will be reviewed on a
case-by-case basis.
The schedule is as follows:
Ideation and Creation -- 8/2/99--9/17/99
This proposal does not discuss any activities for Evolution as it has been
discussed that after the site is successfully launched, the project will move on
to ideation for phase two.
4. Staffing and Fees
This work will be done on a fixed price basis. The fixed price for these
services will be $465,000. All travel and lodging expenses will be billable at
cost. Expenses for materials purchased specifically for the client's benefit
will be charged at cost. All fees and charges will be billed on a monthly basis
and such bills will be due and payable Net thirty (30) days. You will be
responsible for payment of any sales and use taxes.
Ideation and Creation Team
(1) Solution Partner Part Time
(1) Project Manager Full Time
(1) Director, Technology Part Time
(1) Senior Creative Full Time
(2) Senior Creative Part Time
(3) Senior Technologist Full Time
(2) Senior Technologist Part Time
(2) Design Technologist Full Time
5. Contractual Terms
A. We warrant that the professional staff furnished by us will be qualified for
the work performed by them, and that services will be furnished in a
professional manner. As the services furnished under this engagement letter are
advisory or developmental in nature, there are no other warranties with respect
to our performance hereunder or the results to be obtained, either express or
implied, and WE SPECIFICALLY DISCLAIMS ALL IMPLIED WARRANTIES, INCLUDING
MERCHANTABILTY AND FITNESS FOR PURPOSE. NEITHER PARTY SHALL BE LIABLE FOR ANY
INCIDENTAL, CONSEQUENTIAL OR OTHER INDIRECT LOSSES OR DAMAGES ARISING FROM OUR
PERFORMANCE UNDER THIS ENGAGEMENT LETTER, AND IN NO EVENT SHALL EITHER PARTY'S
Rare Medium, Inc. iParty LOE 3
<PAGE>
LIABILITY UNDER THIS ENGAGEMENT LETTER EXCEED THE FEES PAID FOR PROFESSIONAL
SERVICES HEREUNDER OR $350,000.00, WHICHEVER IS LOWER.
B. In the course of performance of this Agreement, you may find it necessary to
disclose certain confidential information ("Information") to us. In such an
event, the following terms shall apply:
(i) we will treat the Information as confidential and use the same degree of
care as we employ in the protection of our own similar confidential information,
provided the Information is identified in writing as confidential at the time of
disclosure, or, if orally disclosed, identified as confidential at the time of
disclosure and confirmed in writing within 30 days after the oral disclosure or
disclosed in such a manner or is of a type that would put a reasonable person on
notice as to the confidential nature of the information.
(ii) we will only use the Information in connection with its performance of
services under this engagement letter, and shall disclose Information only to
employees who have a need to know, unless authorized in writing by you.
(iii) Information shall not be subject to these terms if: (a) it is in the
public domain at the time of disclosure, or enters the public domain without
breach of these terms; (b) it is known to us prior to the disclosure, or is
independently developed by us; (c) it is obtained by us in good faith from a
third party not under obligation of secrecy to you; or (d) it is the subject of
a court or government agency order to disclose, however, in such a case, we will
give you prompt notice of such order. Notwithstanding anything to the contrary
contained herein except as provided for in section 5D, all written works
prepared by us in connection with this engagement shall be considered your
information and you shall own (and we hereby assign to you) all rights, title
and interest in and to such works, including without limitation, all
intellectual property rights therein and thereto.
C. During the term of our performance under this engagement letter, and for a
period of at least one year following completion of the Project, you agree not
to offer, or assist any other person to offer, employment to any of our then
current employees or attempt, directly or indirectly, to persuade any such
employee to terminate his or her employment with us. You further agree that in
the event you breach the terms of this paragraph, you will promptly pay to us a
finder's fee equal to 100% of the total first year compensation paid or payable
to such employee, including without limitation, wages, salary, bonuses, and
commissions.
D. In the course of performing services hereunder, may be required to use
certain proprietary software and documentation, and in the course of such use
install such software temporarily in your computers. These items are and at all
times continue to be owned by us or our suppliers. You agree that you will have
no interest whatsoever in such items and will not to use, copy, decompile,
reverse assemble or examine for any purpose such items. Access to such items
shall be restricted to those expressly authorized by us in writing. Upon
termination of the services, we will remove items from your systems. You agree
to certify in writing to us that no other copies of the items remain in your
possession.
E. In the course of Rare Medium's marketing activities, the company promotes its
work through various marketing mediums including collateral/sales support
materials, press releases, and speaking opportunities. Equally important is to
promote the work our clients are doing. As such, we ask our clients to allow us
to feature their companies in press releases that include announcements that we
have been hired by a client and case studies once the site has been launched in
terms of sales support materials, etc. subject in all cases to your prior
approval which shall not be unreasonably withheld.
F. This engagement letter sets forth the entire understanding and agreement
between the parties with respect to the Project, and supersedes any prior
discussions, correspondence or agreements with respect to the Project. The terms
of this engagement letter may only be changed by a written instrument signed by
an authorized representative of each party. If you issue any purchase order with
respect to the services to be performed under this engagement letter, the
pre-printed terms of the purchase order shall not apply.
Kindly sign a copy of this engagement letter below where noted to indicate your
understanding of, and agreement with, the terms of this engagement letter, and
return it to my attention as soon as possible. Unless signed and returned to us
within 30 days of the date of this engagement letter, the offer to furnish
services under the terms of this engagement letter shall be deemed revoked.
Sincerely, Signature:
Rare Medium, Inc. iParty LOE 4
<PAGE>
/s/ Vince Santo /s/ Sal Perisano
Vince Santo Sal Perisano
VP, General Manager Chief Executive Officer
Rare Medium, Inc. IParty, Inc.
Date:
/s/ David Grossman
David Grossman
Director, Business Development
Rare Medium, Inc.
Rare Medium, Inc. iParty LOE 5
<PAGE>
MERCHANT AGREEMENT between LinkShare Corporation, a Delaware corporation
("LinkShare"), and I-Party, Inc., a Delaware corporation ("Merchant" or "You"),
dated August 11, 1999.
The LinkShare Network(Trademark) includes member websites that are potential
on-line sales affiliates for merchants ("LinkShare Sales Affiliates"). Using its
proprietary LinkShare Synergy(Trademark) software, LinkShare offers services to
facilitate establishing links between merchants and sales affiliates and
tracking sales through those links. This Agreement contains the terms agreed to
by the parties for Merchant's access to the LinkShare Network(Trademark) and use
of LinkShare's services as an on-line merchant.
1. LinkShare Network Services. As a LinkShare merchant, Merchant may use the
relevant area of a LinkShare Website (the "LSN Site") to post offers to
establish Qualifying Links with LinkShare Sales Affiliates, receive and respond
to any counteroffers and, if agreement is reached, conclude binding link
exchange Engagements with LinkShare Sales Affiliates. The detailed procedures
and rules governing those activities will be the same as those applicable to
LinkShare Merchants generally and posted on the LSN Site from time to time.
2. Private Label Services. If you select LinkShare's optional Private Label
Network Services, a special area of the LSN Site (the "PLN Site") under Your
brand or distinctive name Network will be available for You to establish
Qualifying Links with Your own sales affiliates who are not LinkShare Sales
Affiliates ("PLN Sales Affiliates"). Attachment C to this Agreement is part of
this Agreement if you have selected Private Label Network Services.
3. Qualifying Links: Licensed Sites. A "Qualifying Link" is a hypertext link
between the website of a LinkShare Sales Affiliate or PLN Sales Affiliate (in
either case, a "Sales Affiliate") with whom You conclude an Engagement to a
Licensed Site of Merchant, with that link being established through the
interface of the LSN Site or the PLN Site using a code that is generated by
LinkShare Synergy client server software You install in the server for Your
relevant Licensed Site and an additional tracking code added at the LSN Site or
PLN Site by LinkShare's software. A "Licensed Site" is each of Your Websites
with the respective URLs identified below Your signature to this Agreement, as
well as any "mirror site" You designate in writing to LinkShare at least ten
business days before its first use in the LinkShare Network, in each case so
long as the site is owned and operated by You.
4. LinkShare's Prices. You agree to pay LinkShare the applicable fees and
charges provided for in the attached Pricing Schedule, as and when due. Your
obligation to pay any unpaid fees and charges accruing before expiration or
termination of this Agreement will survive expiration and termination.
5. Monthly Reports. Within ten business days after the end of each calendar
month during which You have a Qualifying Link, LinkShare will provide You,
online at a password-protected area of the LSN Site or PLN Site, with a report
showing Your attributable Gross Sales, calculated as explained in the attached
Pricing Schedule. To the extent Your Engagements provide for You to compensate a
Sales Affiliate by a commission based on Gross Revenues from sales through the
relevant Qualifying Link, that report will also show the commissions due from
You to that Sales Affiliate for the month. Our obligation to furnish such
reports or perform other tracking, data collection or reporting functions is
conditioned on such links being properly established, formatted and maintained
in accordance with LinkShare's requirements.
6. Interoperability. LinkShare will provide You with the client server software
for the interface of each Licensed Site with the LinkShare website contemplated
by this Agreement. LinkShare will provide Merchant, at no separate charge, up to
four hours of telephonic technical assistance with regard to installing the
LinkShare software and establishing such interface. Additional technical
assistance may be purchased as provided in the Pricing Schedule. All technical
assistance will be provided on the same terms and conditions as LinkShare
provides it to LinkShare Merchants generally.
7. Certain Other Agreements of Merchant. Merchant agrees that it will not, and
will cause its corporate affiliates (defined as subsidiaries and the entities
controlled by it or under common control) not to, directly or indirectly: (i)
enter into any agreement, arrangement or understanding or engage in any course
of conduct with the intent of reducing payments to which LinkShare otherwise
would be entitled hereunder or to otherwise take unfair advantage of LinkShare
or its services or that has any such effect, (ii) utilize or offer to affiliated
or unaffiliated third parties any service or software package (whether
proprietary to Merchant or a third party) that is in competition with or a
substitute for the LinkShare software or services made available pursuant to
this Agreement, or (iii) develop or actively assist a third party in the
development of a system, software, network or service that is competitive with
or could serve as a substitute for the LinkShare software, network or services
made available pursuant to this Agreement. If this Agreement is terminated
during the initial or any renewal term by LinkShare because of a material breach
of this Agreement by You or for just cause, Your obligations under this Section
7 shall continue for a period of time after such termination equal in length to
the unexpired balance of such term as of the time of such termination plus an
additional twelve months.
8. Term and Termination. (a) Unless terminated sooner as provided below, this
Agreement will remain in effect for an initial term of eighteen consecutive
months beginning as of the date of this Agreement. Unless either party gives the
other written notice of termination no later than ten business days prior to the
expiration date of the then-existing initial or renewal term, this Agreement
will automatically renew for consecutive twelve month terms.
(c) Copyright 1999, LinkShare Corporation Confidential Information
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(b) Either party may terminate this Agreement if the other party
materially breaches its obligations hereunder and such breach remains uncured
for thirty days following written notice of the breach given to the breaching
party. Any rights or remedies of either party arising out of a breach or
violation of any terms of this Agreement by the other party will survive
expiration or termination of this Agreement.
(c) LinkShare may terminate or suspend Merchant's or any Sales Affiliate's
access to all or part of the LinkShare Network, the LSN Site and the PLN Site
for just cause, including, but not limited to, default in payment obligations to
LinkShare or Sales Affiliates, inappropriate use, persistent failure to comply
with the rules applicable to users generally, the posting of content that is
libelous, defamatory, obscene, pornographic, "adult-oriented," relates to
gambling or use of illegal substances, abusive or overly violent or LinkShare's
good faith determination that Merchant's use adversely impacts LinkShare's
reputation or good relations with its merchants and Sales Affiliates generally
or violates any law or any third party's rights.
9. Certain Liability Limitations. (a) Exclusion of Warranties. TO THE FULLEST
EXTENT PERMISSIBLE PURSUANT TO APPLICABLE LAW, EACH PARTY DISCLAIMS ALL
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, WARRANTIES OF
FITNESS FOR A PARTICULAR PURPOSE, MERCHANTABILITY OR NONINFRINGEMENT.
(b) No Consequential Damages. EXCEPT AS PROVIDED BELOW, NEITHER PARTY WILL
HAVE ANY LIABILITY IN CONNECTION WITH OR RESULTING FROM THIS AGREEMENT OR ANY OF
THE CONTEMPLATED LINKS, SERVICES, ACTIVITIES OR RELATIONSHIPS FOR ANY INDIRECT,
INCIDENTAL, CONSEQUENTIAL, RELIANCE OR SPECIAL DAMAGES, EVEN IF SUCH PARTY WAS
AWARE THAT SUCH DAMAGES COULD RESULT. The foregoing exclusion shall not apply
for the benefit of the breaching party in the case of any breach of the
provisions relating to confidentiality or intellectual property, any breach of
Section 7 or any purported termination of this Agreement not permitted by its
terms. This Section 9(b) shall survive failure of an exclusive or limited
remedy.
(c) Maximum Liability. EXCEPT AS PROVIDED BELOW, THE MAXIMUM AGGREGATE
LIABILITY OF EACH PARTY UNDER OR RELATED TO THIS AGREEMENT IS LIMITED, FOR
LINKSHARE, TO THE AMOUNT OF FEES ACTUALLY PAID TO LINKSHARE BY MERCHANT DURING
THE TERM OF THIS AGREEMENT AND, FOR MERCHANT, TO THE AMOUNT OF FEES AND CHARGES
PAID OR ACCRUED DURING THE TERM. The foregoing limitation shall not apply for
the benefit of the breaching party in the case of a breach of the provisions
relating to confidentiality or intellectual property, a breach of Section 7 or a
purported termination of this Agreement not permitted by it express terms.
(d) This Section 9 will survive any expiration or termination of this
Agreement.
10. Miscellaneous. (a) The parties are independent contractors. Nothing in this
Agreement and no course of dealing between the parties will confer upon Merchant
any exclusive rights with respect to the LinkShare Network or LinkShare's
software or services.
(b) This Agreement may not be assigned by either party, in whole or in
part, without the express prior written consent of the other party, which will
not be unreasonably withheld or delayed. Reasonable grounds for LinkShare
withholding any such consent shall include, without limitation, that a proposed
assignee is a competitor or a corporate affiliate of a competitor. Assignment of
this Agreement to a successor to substantially all of either party's business
will not require the other party's consent, but LinkShare may terminate this
Agreement if direct or indirect control of your on-line merchandising business
is acquired by a LinkShare competitor.
(c) This Agreement shall be governed by the internal laws of the State of
New York. This Agreement is the entire agreement between the parties pertaining
to its subject matter, and all written or oral agreements, representations,
warranties or covenants, if any, previously existing between the parties are
canceled. The statements about the LinkShare Network or LinkShare's Software or
services on its Website or otherwise are not representations, warranties or
other contractual obligations. Any amendments of this Agreement must be in
writing and signed by both parties. No failure or delay in exercising any power,
right, or remedy under this Agreement will operate as a waiver. A waiver, to be
effective, must be written and signed by the waiving party.
EACH PARTY HAS READ THIS AGREEMENT, INCLUDING THE ATTACHED PRICING SCHEDULE,
ATTACHMENT B AND, IF APPLICABLE, ATTACHMENT C, AND AGREES TO BE BOUND BY ALL THE
TERMS AND CONDITIONS HEREOF (INCLUDING SUCH ATTACHMENTS).
I-PARTY, INC. LINKSHARE CORPORATION
By: /s/ Patrick Farrell By:
--------------------------- ----------------------------------
Name/Title: Patrick Farrell/CFO Name/Title:
------------------- --------------------------
Licensed Site URL(s): Initials of Parties
www.iparty.com PF
- --------------------- -- --
- --------------------- -- --
(c) Copyright 1999, LinkShare Corporation Confidential Information
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ATTACHMENT A TO LINKSHARE NETWORK(Trademark) MERCHANT AGREEMENT: PRICING
SCHEDULE
For the licensing to Merchant of the LinkShare software as stated in this
Agreement and membership in the LinkShare Network and/or Private Label Network
Services, the following Software Fees and Service Fees apply:
SOFTWARE FEES:
License Fee Per Licensed Site: $5,000 payable upon execution and
delivery of this Agreement
Software Installation: 4 hours of free technical support
Additional Support (If Requested): $ 75/hour
License Renewal Fee Per Licensed Site: $1,000, on each anniversary of the
date of Your Agreement with LinkShare
SERVICE FEES:
Gross Sales During Any Month Percentage of Gross Sales
from a Qualifying Link
If above $500,000 2.0%
Up to $500,000 2.5%
Basic Reports: Included with LinkShare Network membership
For the following Optional Services, if ordered by Merchant, the following fees
and charges apply:
Optional Service Charges:
Pay-per-CPM (image) for links served by LinkShare: $0.75 per CPM (image)
Pay-per-CPM (text) for links served by LinkShare: $0.25 per CPM (text)
Pay-per-Click through Charges: $0.25 per click through
Pay-per-Form Charges: $2.00 per form submitted
Check Disbursement Fees: $1.50/check per Owner
Participant
For the creation and use of Private Label Network Services, if ordered by
Merchant, the following fees and charges apply:
Private Label Network Services Charges:
Private Network Set-up, Customization and Testing Fee: $2,000
Private Network Minimum: $3,000/month
For purposes of calculating the Service Fees for any month (or portion thereof)
based on a percentage of Gross Sales from a Qualifying Link, "Gross Sales" shall
mean the gross sales price for all merchandise sold in Qualifying Sales
attributable to that Qualifying Link during that month (or portion thereof) less
shipping, handling, taxes and returns so long as Merchant's e-commerce server
can and does communicate such information to LinkShare. A "Qualifying Link" is
either an LSN Qualifying Link or a PLN Qualifying Link. A "Qualifying Sale"
attributable to a Qualifying Link with a specific website of a LinkShare Sales
Affiliate (an "Originating Site") is a sale by Merchant (or one of its
affiliates, partners or associates selling through the linked Licensed Site) of
merchandise to an ultimate buyer (a "customer") that occurs during a "Session"
that originated with Merchant's Qualifying Link with that Originating Site. Once
a Web user accesses a Licensed Site using a Qualifying Link at an Originating
Site, a "Session" begins and continues until the earlier of (i) the time that
such user, after having exited the Licensed Site, returns to the Licensed Site
using a link other than the Qualifying Link to such Originating Site and (ii)
the expiration or termination of Merchant's Engagement between that Licensed
Site and such Originating Site. For purposes of calculating such Service Fees
for any period, LinkShare may aggregate all Qualifying Sales made during such
period from all Qualifying Links between any one or more Licensed Sites and all
Originating Sites that are owned or operated by the same person. Subject to the
parties' audit rights described below, all determinations of whether Qualifying
Links have been established and maintained, the number or amount of Sessions or
sales, the commissions and other payments due from Merchant to any or all
LinkShare Sales Affiliates with which Merchant has Engagements from time to time
or LinkShare that are made by LinkShare in good faith will, absent manifest
error, be final and binding on Merchant and all such LinkShare Sales Affiliates.
Merchant will promptly provide LinkShare with all information it reasonably may
request in order to calculate its fees and commissions or other sums payable by
Merchant to LinkShare Sales Affiliates with which Merchant has Engagements from
time to time.
Each party shall have the right to audit the other party's books and records as
they relate to this Agreement, at the audited party's offices, during the term
of this Agreement and for one year thereafter. Each party shall maintain
accurate and complete books and records relating to such matters. Such audits
shall be made during normal business hours and shall be at the auditing party's
sole expense and may be made upon not less than ten days prior notice, but not
more often than once during any period of twelve months. The auditing party and
its representatives shall observe reasonable restrictions imposed by the audited
party in order to maintain the confidentiality of such books and records and to
minimize disruption of its business. If, as a result of an audit, it is
determined that errors or omissions in calculating fees occurred or, if
LinkShare is the auditing party, that there was an unauthorized modification of
LinkShare's software or by-pass of its transaction monitoring features caused or
performed by Merchant or its agents or otherwise on its behalf, the audited
party will pay the reasonable cost of that audit. The foregoing does not limit
LinkShare's rights or remedies if it does discover any such unauthorized
modification or by-pass, whether through an audit or otherwise.
(c) Copyright 1999, LinkShare Corporation Confidential Information
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All payments to LinkShare will be made in U.S. Dollars, will be due and payable
upon LinkShare providing written or electronic invoices or statements to
Merchant and must be paid within forty-five days after each such invoice or
statement. Late will bear interest at the rate of 1.5% per month or, if lower,
the maximum rate allowed by law. Payments made or due pursuant to this Pricing
Schedule are not refundable or subject to offset or reduction in whole or part
and are in addition to any commission or other payments to sales affiliates
under Engagements made by Merchant. Prices and charges do not include any
applicable taxes and duties, which will be added to invoices and statements.
Returned checks shall result in a twenty-five dollar processing fee.
Check disbursement services are subject to Merchant providing to LinkShare on a
timely basis the amounts owed to LinkShare Sales Affiliates or PLN Members for
the transactions tracked by LinkShare.
(c) Copyright 1999, LinkShare Corporation Confidential Information
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<PAGE>
ATTACHMENT B TO LINKSHARE NETWORK(Trademark) MERCHANT AGREEMENT: GENERAL TERMS
A. Excluded Services. LinkShare's obligations are limited to those expressly set
forth herein. Without limiting the generality of the foregoing, the following do
not form part of LinkShare's services: (i) installation or operation of
LinkShare client server software or any other software; (ii) collecting any
payments due to or from Merchant, any Sales Affiliate or any customers of
Merchant; (iii) any aspect of customer order processing, billing, collection,
cancellations, returns, service or fulfillment; and (iv) resolution of disputes
between or among Merchant, Sales Affiliates, customers or other third-parties.
B. Limited Licenses by LinkShare. (a) Merchant may, for each Licensed Site,
download and use one copy of LinkShare's client server software for merchants in
the LinkShare Network solely for its own use on a single URL hosted on a single
server located in the United States or Canada and solely for purposes of
participating in the LinkShare Network as contemplated by this Agreement. The
right and license granted is for object code version only and not for source
code.
(b) The licenses and rights granted to Merchant in this Agreement are
personal, non-transferable, non-exclusive and without the right to sublicense,
and shall terminate upon the expiration or termination of this Agreement, except
that the license to use LinkShare's client server software and to access and use
the LSN Site shall continue for such period of time after expiration or
termination of this Agreement as reasonably necessary to permit Merchant to
complete pre-existing Engagements that continue after such expiration or
termination, but not for entering into new Engagements or any other purpose.
Upon the expiration or any termination of this Agreement and, if applicable, any
such period of such continuation of such licenses for purposes of completing
such pre-existing Engagements, Merchant will immediately return or destroy all
LinkShare software and all Confidential Information and intellectual property of
LinkShare (regardless of medium of expression) in the possession or control of
Merchant or any of its corporate affiliates, agents or representatives,
including all full or partial copies thereof and all other documents, notes,
computer files and other materials based on or referring to any of the foregoing
or any extracts thereof. Your obligations under this subsection will survive any
expiration or termination of this Agreement.
C. Other Provisions Relating to Intellectual Property. (a) Each party's use of
the other's trademarks, trade names, service marks and patented or copyrighted
material shall faithfully reproduce the design and appearance thereof, including
any copyright, trademark or patent notice or symbols attached to such items by
the owner.
(b) Each party acknowledges and agrees that, as between the parties, the
other party's patented or copyrighted materials, trademarks, trade names and
service marks and its software, technology, know-how, inventions or other
intellectual property (whether or not patented or copyrighted) are the sole and
exclusive property of such other party, and such first party shall not assert
any claim to any goodwill, reputation or ownership thereof or interest therein,
except for any licenses or rights expressly granted in this Agreement while they
endure. For the sake of certainty, LinkShare's intellectual property shall
include, but not be limited to, the LinkShare Synergy(Trademark) Software and
all modifications, improvements, additions and derivatives thereof or thereto,
all ideas regarding potential uses of LinkShare's or similar software or
services or increasing the effectiveness of link-based e-commerce, data
generated by or through use of LinkShare's software and the actual or potential
features or modes of operation of LinkShare's software or the LinkShare Network
and, as between the parties, all of the foregoing shall be the property and
Confidential Information solely and exclusively of LinkShare.
(c) Merchant shall not, and shall not permit any third party to, (i)
access or use any LinkShare software, (ii) copy or modify any LinkShare software
or other LinkShare software, technology or intellectual property or (iii)
disassemble, decompile, reverse engineer or otherwise attempt to discover any
LinkShare software source code or underlying proprietary information. Neither
party shall use any of the other party's software or other intellectual property
to create similar or derivative works or for any other use or purpose not
expressly permitted by this Agreement.
(d) This Section C will survive any expiration or termination of this
Agreement.
D. Confidential Information. (a) Each party agrees that, except as expressly
permitted by this Agreement, (i) it will not use or disclose any Confidential
Information of the other party that it receives from the other party or that it
learns about the other party in the course of performance of this Agreement,
except for use reasonably necessary for the performance of this Agreement, and
(ii) it will take all reasonable measures to maintain the confidentiality of all
Confidential Information of the other party in its possession or control.
Notwithstanding the foregoing, each party may disclose Confidential Information
of the other party (i) to the extent required by a court or other governmental
authority or otherwise as required by law, or (ii) on a "need-to-know" basis
under an obligation of confidentiality to its employees and to its legal
counsel, accountants and banks and other financing sources which are not known
to the receiving party to be competitors or corporate affiliates of competitors
of the other party. The foregoing shall not prevent any use or disclosure by
LinkShare to the extent reasonably necessary to carry out its obligations under
this Agreement and its agreements with Sales Affiliates with which Merchant
enters into Engagements. This Section D will survive any expiration or
termination of this Agreement.
(c) Copyright 1999, LinkShare Corporation Confidential Information
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(b) The "Confidential Information" of either party (a "disclosing party")
means such disclosing party's software, know-how, trade secrets, tools,
techniques and intellectual property, information regarding the business,
business methods, affairs or activities of the disclosing party and all other
information of such disclosing party which the disclosing party identifies as
confidential contemporaneously with its disclosure to the other party (the
"receiving party") or which a sophisticated business person acting in good faith
would reasonably conclude is confidential or proprietary by reason of its nature
or the circumstances surrounding its disclosure. Confidential Information will
not include information that (i) is in or enters the public domain without
breach of this Agreement, (ii) the receiving party lawfully receives from a
third party without restriction on disclosure and without breach of a
nondisclosure obligation or (iii) the receiving party knew prior to receiving
such information from the disclosing party or develops independently without use
of the disclosing party's Confidential Information, as shown by contemporaneous
written records.
E. Public Statements. Except as required by law, neither of the parties shall
make any public announcement or disclosure (electronically or otherwise) about
the terms of this Agreement without the prior written consent of the other
party. This paragraph is not intended to prevent either party from representing
itself as doing business with the other within the scope of this Agreement or
otherwise making public or private statements in the normal course of its
business that do not disclose the specific terms of this Agreement. The parties
will make joint press releases regarding the execution of this Agreement, with
the content and timing to be approved by each party. Neither party will publicly
or privately disparage the other party or its products, services, business,
software or network, but if the parties ever offer competitive services, this
will not prevent either from comparing its services to the other's in good
faith. This Section E will survive any expiration or termination of this
Agreement.
F. Customer Data. Except as otherwise provided in this Agreement or unless
compelled by law or legal process, LinkShare shall not (i) without Your prior
written consent, disclose to any third party a list of Your customers or
information about the transactions that You engage in with any customer obtained
solely as a result of this Agreement or (ii) without the prior consent of You or
such customer or to the extent compelled by law or legal process, disclose to
any third party any information which permits such third party to determine the
identity of such customer or learn about such customer's transactions with You
and which is obtained solely as a result of this Agreement, except as an
inseparable part of demographic or other aggregate data concerning multiple
persons (provided that LinkShare does not identify Merchant as the source of
such information). The foregoing shall not prevent any use or disclosure by
LinkShare to the extent reasonably necessary to carry out its obligations under
this Agreement and its agreements with Sales Affiliates with which Merchant
enters into Engagements.
G. Dealings With Third Parties. LinkShare is the neutral host of the LinkShare
Network and the inclusion of any link or content on the LSN Site does not imply
any endorsement by LinkShare. LinkShare is not responsible for acts or omissions
of third parties, including, without limitation, any breaches of Engagements or
other acts or omissions of any Sales Affiliate or other third party with whom
Merchant deals. Merchant agrees to indemnify LinkShare for liabilities, damages
and expenses (including, without limitation, reasonable attorneys' fees)
directly or indirectly arising from third party claims based on Merchant's acts
or omissions in using the LSN Site or the LinkShare Network. This Section G will
survive any expiration or termination of this Agreement.
H. "Cookies". LinkShare's software and service do not include so-called
"cookies," except for any that LinkShare may from time to time provide for
merchant-members of the LinkShare Network generally. Any "cookies" that are
provided will be subject to being disabled by customers or other users. Links
established through the LSN Site may include one or more "cookies" that
LinkShare itself uses for profiling and tracking.
I. Data Merchant Provides. Merchant agrees to remain solely responsible for the
content or messages originated by Merchant or on its behalf, and to indemnify
and defend LinkShare and the other participants in the LinkShare Network if any
such items that are uploaded or posted to or through the LSN Site is libelous,
defamatory, obscene, pornographic or violates or infringes any law or any third
party's rights. If Merchant submits any creative ideas, suggestions or other
submissions, LinkShare will not be subject to any confidentiality obligation or
restriction on our use of those submissions. This Section I will survive any
expiration or termination of this Agreement.
J. Internet Use. The Internet provides opportunity for unauthorized access by
third parties. LinkShare provides some encryption to protect certain personal
information that is transmitted, but will not be responsible (absent its own
gross negligence or willful misconduct) if Merchant's uploads, downloads and
transmissions are intercepted, accessed or used by others. Neither party will be
liable to the other for equipment failures, software defects, interruption of
service or access, corruption or deletion of data, delay in operation or
transmission or computer viruses, except to the extent that the same is caused
by the gross negligence or willful misconduct of such first party.
K. Force Majeure. Neither party will be liable to the other by reason of any
failure or delay in the performance of its obligations hereunder on account of
strikes, shortages, riots, insurrection, fires, flood, storm, explosions, acts
of God, war, governmental action, labor conditions, earthquakes, interruptions
in telecommunications services or Internet access, or any other cause which is
beyond the reasonable control of such party.
L. Marketing/Use of Names. Each party agrees that the other may refer to it by
corporate or trade name and trademarks and may briefly describe the other's
business in marketing materials and on the LSN Site and otherwise as reasonably
necessary in the performance of this Agreement. Unless otherwise instructed by
LinkShare, Merchant will cause each Licensed Site to carry at the bottom of its
homepage, a LinkShare-provided logo that says "Powered by LinkShare" or
containing words of similar import.
M. Severability. If any provision of this Agreement or the application thereof
to any person or circumstance is held by a court of competent jurisdiction to be
invalid, void or unenforceable, the remaining provisions hereof, or the
application of such provision to persons or circumstances other than those as to
which it has been held invalid, void or unenforceable, shall remain in full
force and effect. In any
(c) Copyright 1999, LinkShare Corporation Confidential Information
7
<PAGE>
such case, such court may substitute therefor a suitable and equitable provision
in order to carry out, so far as may be valid and enforceable, the intent and
purpose of the invalid, void or unenforceable provision and, if such court shall
fail to decline to do so, the parties shall negotiate in good faith in an effort
to agree upon such a suitable and equitable provision. To the extent that any
provision of this Agreement shall be judicially unenforceable in any one or more
jurisdictions, such provision shall not be affected with respect to any other
jurisdiction.
N. Certain Rules of Construction. This Agreement will be construed according to
its fair meaning and not strictly for or against either party. The word "or"
means "and/or." The term "person" is to be broadly construed and includes any
natural person or any entity or association; and ,trust, incorporated or
unincorporated association, joint venture, joint stock Merchant or other entity.
A "corporate affiliate" of any person is any other person that directly or
indirectly through one or more intermediaries controls, is controlled by or is
under common control with such first person, with "control" meaning the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a person. References to the
"LinkShare Network" are to the merchant/sales affiliate linking network owned
and operated by LinkShare that is open for membership by on-line merchants and
sales affiliates generally, as distinct from other merchant/sales affiliate
linking networks now or hereafter offered or powered by LinkShare that are
"private label," special purpose or other networks that restrict membership or
access on either the merchant or the sales affiliate side.
0. Consent to Jurisdiction. Each party attorns to the jurisdiction of the
Federal and New York State courts sitting in New York County, New York (and the
appellate courts to which judgments or orders of such Federal and State courts
may be appealed), and agrees to commence any litigation which may arise
hereunder in one of those courts.
P. Failure to Achieve Interoperability. If, despite Merchant's good faith and
commercially reasonable efforts, compliance with LinkShare's technical
guidelines and instructions and use of LinkShare's technical assistance
contemplated by Section 6, the interface and interoperability of any Licensed
Site and the LSN Site contemplated by this Agreement is not achieved within 30
days after such Licensed Site first becomes a Licensed Site, then Merchant may
terminate this Agreement as to such Licensed Site by ten days' prior written
notice to LinkShare unless such interface and interoperability are achieved
within such ten-day period. This Agreement will continue in effect with regard
to each other Licensed Site, if any. SUCH TERMINATION RIGHT SHALL BE MERCHANT'S
SOLE AND EXCLUSIVE REMEDY FOR ANY SUCH FAILURE.
Q. Specific Performance. Each party acknowledges that if it breaches its
obligations under the provisions of this Agreement relating to confidentiality
or intellectual property or, in the case of Merchant, breaches its obligations
under Section 7, the other party will be irreparably harmed, and that damages
will be inadequate to compensate the other party for such breach. Accordingly,
without limiting any other right or remedy of the nonbreaching party in respect
of such a breach, the nonbreaching party shall be entitled to a decree of
specific performance or injunctive relief with respect thereto.
(c) Copyright 1999, LinkShare Corporation Confidential Information
8
<PAGE>
ATTACHMENT C: SPECIFIC TERMS AND CONDITIONS RELATING TO PRIVATE LABEL NETWORK
SERVICES
II-1. Private Label Network Services For Merchants. LinkShare Private Label
Network Services are appropriate for You if You have established, or intend to
establish, a confederation or network of websites (other than LinkShare Sales
Affiliates) that are potential sales affiliates of Merchant (the "Private Label
Network" or the "PLN Network").
II-2. Establishing Interface. LinkShare and Merchant shall cooperate in
establishing and maintaining a hypertext link (the "PLN/LSN Interface") between
Your Licensed Site and the PLN Site. The purpose of the PLN Site shall be to
permit PLN Sales Affiliates to receive, respond to and accept Link Offers, if
any, directed to them from time to time by Merchant (and no other person), as
contemplated by and subject to the terms of this Agreement.
III-3. Membership and Access. (a) Merchant is solely responsible for recruiting
and entering into contracts with PLN Sales Affiliates. Merchant shall provide
LinkShare with the names, e-mail addresses and URLs of all PLN Sales Affiliates
and shall promptly advise LinkShare of any changes in membership. In order to
access the PLN Site, each PLN Sales Affiliate must complete all data fields
required by LinkShare and accept a form of on-line agreement in form and
substance satisfactory to Merchant and LinkShare. Merchant shall take all
commercially reasonable steps that are necessary or that LinkShare reasonably
may request in order to restrict access to the PLN Site to only those PLN Sales
Affiliates who continue to meet Merchant's qualifications, including by
requiring special passwords or codes that are periodically changed. LinkShare
shall not be liable or responsible for access to the PLN Site by unauthorized
persons, and LinkShare may assume, without independent inquiry, that any Website
or person accessing the PLN Site through the PLN/LSN Interface is a PLN Sales
Affiliate and otherwise authorized to participate in the PLN Network.
(b) Merchant shall insure that its contracts, agreements and arrangements
with PLN Sales Affiliates do not refer to LinkShare in any manner not approved
by LinkShare in advance or purport to create any obligation or liability on the
part of LinkShare and are not inconsistent with the terms of this Agreement.
Merchant will promptly provide LinkShare with such information concerning any
such contracts, agreements and arrangements as LinkShare reasonably may request
in order to monitor compliance with this Section. PLN Sales Affiliates shall not
be parties to, or third-party beneficiaries of, this Agreement.
(c) LinkShare shall have no obligation to require any Website owner to
become or remain a PLN Sales Affiliate, nor shall it be prohibited from
enrolling any actual, former or prospective PLN Sales Affiliate as a LinkShare
Sales Affiliate or LinkShare Merchant or otherwise dealing with any such actual,
former or prospective PLN Member. In recruiting PLN Sales Affiliates, Merchant
shall act as an independent contractor and will not make any oral or written
representation regarding the LinkShare Network or LinkShare.
(d) Merchant shall indemnify LinkShare for, and defend and hold it
harmless against and from, any and all losses, liabilities, damages, claims,
litigation and expenses (including, without limitation, reasonable attorneys'
fees) arising or resulting from the operation of the PLN Network, LinkShare's
services in relation thereto and the acts and omissions of any of the PLN Sales
Affiliates.
III-4. Functionality. Except as otherwise provided in this Agreement, each of
the PLN Network and the PLN Site essentially will be, operationally and
functionally, a "mirror" of the LinkShare Network and the LSN Site,
respectively, including in terms of the manner in which links between PLN Sales
Affiliates and Merchant are offered, negotiated, accepted and administered and
sales of such Merchant's merchandise attributable to such links are tracked and
reported.
III-5. PLN Site. Unless otherwise agreed by the parties in writing, Merchant
shall be solely responsible for the content and the "look and feel" of the PLN
Site, provided that it must be consistent with LinkShare's navigational,
formatting and other technical requirements and reasonable quality standards.
None of such content shall be libelous, defamatory, obscene, pornographic,
"adult-oriented," abusive or overly violent, relate to gambling or use of
illegal substances or, in LinkShare's good faith opinion, adversely impact
LinkShare's reputation or violate any law or any third party's rights. Unless
otherwise instructed by LinkShare, all logos and other content furnished by
Merchant for inclusion on the PLN Site shall be in HTML format, standard word
processing text format or, if images, as TIFF's GIF's, JPEG's or Photoshop
files. The transfer of electronic materials shall be accomplished by copying
them to floppy disks, 100 megabyte ZIP cartridges or via FTP.
III-6. Customer Service. Merchant will be responsible for customer service for
PLN Sales Affiliates. To the extent that providing such customer service
involves technical questions related to LinkShare's software or other technical
aspects of the PLN/LSN Interface or the PLN Site that are not answered by
LinkShare's FAQ's, LinkShare shall provide Merchant's designated personnel with
telephonic assistance to the extent reasonably requested in accordance by
Merchant. If the amount of time of LinkShare's personnel devoted to responding
to such requests exceeds five hours during any period of 30 days, the additional
time will be billed to Merchant at LinkShare's rate for technical assistance set
forth on the Pricing Schedule.
(c) Copyright 1999, LinkShare Corporation Confidential Information
9
<PAGE>
III-7. Commencement Date. Subject to the terms of this Agreement, the parties
will use their commercially reasonable efforts to launch the PLN Site by a
mutually agreed upon date after the date of this Agreement and the launch by
Merchant of the Private Label Network. Merchant shall promptly advise LinkShare
of the launch of the Private Label Network. LinkShare may elect to perform beta
testing of the PLN Site and the PLN/LSN Interface prior to commercial launch,
and Merchant will cooperate with LinkShare in conducting any such beta testing.
Sign below if You agree that Selected Services include LinkShare Private
Label Network Services For Merchants:
LINKSHARE CORPORATION
- ---------------------------------
[Insert Name of Merchant]
By: By:
----------------------------- ----------------------------------
Name/Title:
---------------------
(c) Copyright 1999, LinkShare Corporation Confidential Information
10
<PAGE>
[LOGO]
AMERICA
ONLINE
AMERICA ONLINE, INC.
NETWORK SHOPPING - WEB LINK ORDER FORM
MERCHANT TO FILL IN ALL INFORMATION. (PLEASE PRINT)
Legal Name of Merchant: iParty
--------------------------------------------------------
Trade Name of Merchant (if different):
-----------------------------------------
Merchant Business Contact: Sal Perisano
-----------------------------------------------------
Address: 41 East 11th Street, 11th Floor, New York, NY 10003
-----------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Phone: 212/699-3751
-------------------------------------------------------------------------
Fax: 212/331-1207
---------------------------------------------------------------------------
Email: [email protected]
-------------------------------------------------------------------------
Name of Technical Contact:
-----------------------------------------------------
Phone:
-------------------------------------------------------------------------
Email:
-------------------------------------------------------------------------
Customer Service Contact (AOL use):
--------------------------------------------
Customer Service Phone (customer use):
-----------------------------------------
Customer Service email (customer use):
-----------------------------------------
Customer Service address (customer use):
---------------------------------------
Is your web site built?
--------------------
Web Site URL:
------------------------------------------------------------------
This is the main URL that is used by the merchant site.
Silver Tenant Store Name:
------------------------------------------------------
Applicable to SILVER MERCHANTS ONLY. This is name for the store listing in the
Silver Tenant spot. Text should be the registered company trade/brandname. The
text must be 21 characters or less.
Customer Service URL:
----------------------------------------------------------
A site where customers can contact merchant with ordering questions etc.
(required).
Privacy Policy URL:
------------------------------------------------------------
Area on merchant web site where customers can read merchant's policies regarding
privacy and security (required).
Keywords:
----------------------------------------------------------------------
A keyword on AOL will bring any user directly to your website. The keyword
should be the registered company trade/brand name. The keyword must be 16
characters or less.
Search terms for AOL Shopping Channel Product Search Tool:
- --------------------------------------------------------------------------------
Up to a maximum of five, subject to AOL's approval, and only available to Anchor
or Gold Tenant Merchants
<PAGE>
CONFIDENTIAL
SHOPPING CHANNEL PROMOTIONAL AGREEMENT
This Agreement, (the "Agreement") dated as of September __, 1999 (the
"Effective Date"), is made and entered into by and between America Online, Inc.
("AOL"), a Delaware corporation, with its principal offices at 22000 AOL Way,
Dulles, Virginia 20166 and iParty, ("MERCHANT") a __________________
corporation, with its principal offices at 41 East 11th Street (each a "Party"
and collectively the "Parties").
INTRODUCTION
AOL owns, operates and distributes the AOL Service, AOL.com, the CompuServe
Service and the Netscape Netcenter. MERCHANT wishes to secure a promotional
placement within the shopping channel of the AOL Service, AOL.com, the
CompuServe Service and the Netscape Netcenter (as specified in Exhibit A) (each
channel, a "Shopping Channel") which, when activated, will provide access to
MERCHANT's site on the World Wide Web or its area on the AOL Service or
CompuServe Service (as the case may be) (the "Merchant Site") where MERCHANT
offers content, products and/or services for sale. Terms not defined herein
shall be defined on the attached Exhibit B.
TERMS
1. MERCHANT PROGRAMMING. MERCHANT will make available through the Merchant
Site the certain products, content and/or services specified in Exhibit A
(the "Products") in accordance with the Standard Shopping Channel Terms
and Conditions set forth on Exhibit C.
2. PROMOTIONAL OBLIGATIONS.
2.1 AOL Promotion of MERCHANT. Commencing on a date set forth on Exhibit
A hereto, AOL will provide the promotion(s) set forth in Exhibit A
(the "Promotion"). Except to the extent expressly described in
Exhibit A, the specific form, placement, positioning, duration and
nature of the Promotion(s) will be as determined by AOL in its
reasonable discretion (consistent with the editorial composition of
the applicable screens) and the nature of the Promotion being
purchased by MERCHANT, as reflected in Exhibit A. The specific
content to be contained within the Promotions (including, without
limitation, within any advertising banners or contextual promotions)
will be determined by MERCHANT, subject to AOL's technical
limitations, the terms of this Agreement and AOL's then-applicable
policies relating to advertising and promotions. Each Promotion will
link only to the Merchant Site and will promote only Products listed
on Exhibit A. MERCHANT acknowledges that the sole obligation of AOL,
pursuant to this Agreement, is to display the Promotion(s) in the
Shopping Channel(s) in accordance with the terms and conditions
hereto.
2.2 MERCHANT Cross-Promotion.
A. Within each Merchant Site, MERCHANT shall include a
promotional banner ("AOL Promo") appearing on the first screen
of the Merchant Site, to promote such AOL products or services
as AOL may reasonably designate (for example, the America
Online(Registered) brand service, the CompuServe(Registered)
brand service, the AOL.com(Registered) site, the Netscape
Netcenter(Trademark) site, ICQ, the Digital City(Registered)
services or the AOL Instant Messenger(Trademark) service); AOL
will provide the creative content to be used in the AOL Promo
(including designation of links from such content to other
content pages). MERCHANT shall post (or update, as the case
may be) the creative content supplied by AOL (within the
spaces for the AOL Promo) within a commercially reasonable
period of time from its receipt of such content from AOL.
Without limiting any other reporting obligations of the
Parties contained herein, MERCHANT shall provide AOL with
monthly written reports specifying the number of Impressions
to the pages containing the AOL Promo during the prior month.
B. In MERCHANT's television, radio, print and "out of home"
(e.g., buses and billboards) advertisements and in any
publications, programs, features or other forms of media over
which MERCHANT exercises at least partial editorial control,
MERCHANT will include specific references or mentions (orally
where possible) of the availability of the Merchant's Site
through the America Online(Registered) brand service, which
are at least as prominent as any references that MERCHANT
makes to any other MERCHANT online or Internet site (by way of
site name, related company name, URL or otherwise). Without
limiting the generality of the foregoing, MERCHANT's listing
of the "URL" for any Merchant online site will be accompanied
by a reasonably prominent listing of the "keyword" term on the
AOL Service for Merchant's Site.
CONFIDENTIAL
45140
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<PAGE>
CONFIDENTIAL
45140
3
<PAGE>
3. PAYMENTS; REPORTS.
3.1 Placement Fees. MERCHANT will pay AOL [** confidential treatment
requested**] for displaying the Promotion within the Shopping
Channel on the AOL Service, AOL.com, the CompuServe Service and the
Netscape Netcenter. The total amount of [** confidential treatment
requested**] will be payable in three equal installments, with the
first such payment to be made upon the Effective Date, the second
such payment to be made ninety (90) days from the earliest launch
date of the AOL Shopping Commerce Center(s) specified on Exhibit A
attached hereto and the last payment to be made ninety (90) days
from the second installment.. MERCHANT will be provided a credit
against any amounts already paid to AOL by MERCHANT for promotional
carriage under MERCHANT's existing agreement with AOL which overlap
promotional carriage provided for hereunder, if any, as established
by the launch date of the applicable AOL Shopping Commerce Center(s)
specified on Exhibit A attached hereto. MERCHANT agrees that, except
as specified herein, once the Promotion is installed, there will be
no refunds or proration of rates if MERCHANT elects to discontinue
display of the Promotion prior to expiration of the Term. Should AOL
fail to display the Promotion in accordance with the terms of this
Agreement due to MERCHANT's failure to comply with any requirement
of this Agreement, MERCHANT will remain liable for the full amount
indicated above.
3.2 Reports. AOL will provide MERCHANT with monthly usage information
related to the Promotion in substance and form reasonably determined
by AOL. MERCHANT may not distribute or disclose usage information to
any third party without AOL's prior written consent. MERCHANT will
provide AOL with monthly reports, in a form reasonably satisfactory
to AOL, which detail the number of daily items, orders and gross
sales through the Merchant Site on the AOL Service, AOL.com, the
CompuServe Service and the Netscape Netcenter (as applicable). AOL
acknowledges that such reports may constitute Confidential
Information under the Amendment, and will not disclose such
Confidential Information to third parties, except as part of
aggregate data from which the MERCHANT and the Merchant Site are not
identifiable.
4. TERM. Unless otherwise rightfully terminated pursuant to the terms and
conditions in the Exhibits attached hereto, this Agreement will terminate
ten (10) months from the latest launch date of the AOL Shopping Channel
Commerce Center(s) specified on Exhibit A attached hereto (the "Term").
5. EXISTING AGREEMENTS. To the extent that MERCHANT has any existing shopping
channel agreement(s) with AOL in effect as of the Effective Date such
agreements shall terminate on the date that the last promotion described
in the existing agreement is replaced with Promotion(s) described in this
Agreement.
6. PRESS RELEASES. Each Party will submit to the other Party, for its prior
written approval, which will not be unreasonably withheld or delayed, any
press release or any other public statement ("Press Release") regarding
the transactions contemplated hereunder. Notwithstanding the foregoing,
either Party may issue Press Releases and other disclosures as required by
law or as reasonably advised by legal counsel without the consent of the
other Party and in such event, the disclosing Party will provide at least
five (5) business days prior written notice of such disclosure. The
failure to obtain the prior written approval of the other Party will be
deemed a material breach of this Agreement. Because it would be difficult
to precisely ascertain the extent of the injury caused to the
non-breaching Party, in the event of such material breach, the
non-breaching party may elect to either (i) terminate this Agreement
immediately upon notice to the other Party, and the cure provision of
Section 12 on Exhibit D of this Agreement shall not apply, or (ii) as
liquidated damages, elect to modify the Impression commitment hereunder by
fifteen percent (15%) (either an increase in Impressions if AOL has
materially breached the Agreement or a decrease in Impressions if MERCHANT
has materially breached the Agreement).
7. GENERAL TERMS. The general legal terms and conditions set forth on Exhibit
D attached hereto are hereby made a part of this Agreement.
CONFIDENTIAL
45140
4
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the Effective Date.
AMERICA ONLINE, INC. iParty
By: By: /s/ Sal V. Perisano
------------------------------ ----------------------------------
Print Name: Print Name: Sal V. Perisano
---------------------- --------------------------
Title: Title: Chief Executive Officer
--------------------------- -------------------------------
Date: Date: Sept. 27, 1999
---------------------------- --------------------------------
Tax ID/EIN#:
------------
CONFIDENTIAL
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5
<PAGE>
EXHIBIT A
Description of Products:
The only categories of Products to be sold through the Merchant Site are as
listed below:
Product List: [MERCHANT to provide detailed, specific list; AOL sales person to
submit list for review by AOL Advertising Operations]
Impressions: Impressions for a Manufacturing Promotional Placement in Kids, Toys
& Babies
The screens on which the promotions appear on each of the AOL Service, AOL.com,
the CompuServe Service, the Netscape Netcenter and any other product or service
owned, operated, distributed or authorized to be distributed by or through AOL
or its affiliates worldwide through which such Party elects to offer the
Merchant Site (which may include, without limitation, Internet sites promoting
AOL products and services and any "offline" information browsing products of AOL
or its affiliates) will receive a minimum of [**confidential treatment
requested**] Impressions in the aggregate (the "Impressions Commitment"),
subject to the remainder of this paragraph. In the event there is (or will be in
AOL's reasonable judgment) a shortfall in Impressions as of the end of the
Initial Term (a "Shortfall"), AOL will provide MERCHANT, as its sole remedy,
with either: (i) advertising placements through reasonably comparable
advertising, (reasonably calculated to reach an audience substantially similar
to the audience targeted by the Impressions Commitment, as determined by AOL),
on AOL properties (determined by AOL) which have a total value, based on AOL's
then-current advertising rate card, equal to the value of the Shortfall
(determined by multiplying the percentage of Impressions that were not delivered
by the total, guaranteed payment provided for in Section 3 of the Agreement); or
(ii) a refund of a pro-rata portion of the fee allocable to the display of the
Promotion based on the number of Impressions not delivered.
Impressions: [**confidential treatment requested**] Impressions in the Gold
Position in the Tabletop & Entertainment Department
The screens on which the promotions appear on each of the AOL Service, AOL.com,
the CompuServe Service, the Netscape Netcenter and any other product or service
owned, operated, distributed or authorized to be distributed by or through AOL
or its affiliates worldwide through which such Party elects to offer the
Merchant Site (which may include, without limitation, Internet sites promoting
AOL products and services and any "offline" information browsing products of AOL
or its affiliates) will receive a minimum of [**confidential treatment
requested**] Impressions in the aggregate (the "Impressions Commitment"),
subject to the remainder of this paragraph. In the event there is (or will be in
AOL's reasonable judgment) a shortfall in Impressions as of the end of the
Initial Term (a "Shortfall"), AOL will provide MERCHANT, as its sole remedy,
with either: (i) advertising placements through reasonably comparable
advertising, (reasonably calculated to reach an audience substantially similar
to the audience targeted by the Impressions Commitment, as determined by AOL),
on AOL properties (determined by AOL) which have a total value, based on AOL's
then-current advertising rate card, equal to the value of the Shortfall
(determined by multiplying the percentage of Impressions that were not delivered
by the total, guaranteed payment provided for in Section 3 of the Agreement); or
(ii) a refund of a pro-rata portion of the fee allocable to the display of the
Promotion based on the number of Impressions not delivered.
<PAGE>
Description of Specific Promotion(s):
|_| Manufacturers Promotional Placement In the Kids, Toys & Babies Commerce
center
To commence on the launch date of October 1, 1999, specified below on the AOL
Service and [**confidential treatment requested**] months from the Launch Date,
MERCHANT will have a position in the Manufacturers Promotional Placement in the
Kids, Toys & Babies commerce center of the Shopping Channel on the AOL Service.
Commencing on the launch date of the corresponding commerce center (described
above) of the Shopping Channel on each of AOL.com, the CompuServe Service and
the Netscape Netcenter, MERCHANT will have a position in the Manufacturers
Promotional Placement as specified herein and such promotion shall terminate
[**confidential treatment requested**] months from the Launch Date. As an
Manufacturer Promotional Placement Partner in a department, MERCHANT will have
be entitled to the following:
Principal Exposure on the AOL Service, AOL.com, the CompuServe Service and the
Netscape Netcenter:
o Rotating 151W x 125H pixels promotional space with corporate brand or
logo, product offering graphic and product offering two-line text field on
the department front screen.
Additional Promotion on the AOL Service Shopping Channel:
o Product listing availability through the AOL Product Search, subject to
Merchant's participation and the terms and conditions set forth on Exhibit
C Section 3.
o Banner rotation on the AOL Product Search screen of the AOL Service. These
banner rotations will be divided proportionately among all shopping
channel merchants.
o Up to three (3) AOL Keywords(Trademark) for use from the AOL Service, for
registered MERCHANT trade name or trademark (subject to the other
provisions contained herein).
o Fifteen percent (15%) discount from the then-current rate card on
purchases of additional advertising banners or buttons on the AOL Service,
AOL.com, the CompuServe Service and the Netscape Netcenter, subject to
availability for the period requested (with such purchases to be made in
accordance with the then-applicable Standard Advertising Insertion Order
for the property in question). Sponsorships are not entitled to the
aforementioned discount.
o Eligibility to participate in the following AOL Shopping promotional
programs (the "Program Areas") subject to the terms and conditions set
forth on Exhibit C Section 3:
o Quick Gifts
o Standard Seasonal Catalogs or Special Event Merchandising
areas (e.g., Christmas Shop), subject to MERCHANT's
participation in AOL's Quick Checkout and AOL's Search Product
as described on Exhibit C Section 3.
o Premier-level Seasonal Catalogs or Special Event Merchandising
areas (e.g., Golf Outings), subject to MERCHANT's
participation in AOL's Quick Checkout and AOL's Search Product
as described on Exhibit C Section 3.
o Gift Reminder
o Newsletters
All additional Promotions on the AOL Service, AOL.com, the CompuServe Service,
the Netscape Netcenter or the AOL Network not specified herein will be
determined at AOL's reasonable discretion; provided that the additional,
standard Promotions to be provided to the MERCHANT within the Shopping areas on
the AOL Service, AOL.com, the CompuServe Service and the Netscape Netcenter will
be comparable in nature to the additional, standard Promotions provided to other
similarly situated MERCHANTs in the same category (i.e. Anchor Tenant, Gold
Tenant or Silver Tenant).
<PAGE>
|_| GOLD TENANT PROMOTION In the Home Commerce Center
To commence on the launch date of the AOL commerce center specified below on the
AOL Service (the "AOL Commerce Center Launch Date") and terminate
[**confidential treatment requested**] months from the AOL Commerce Center
Launch Date, MERCHANT will become a "Gold Tenant" in the Tabletop & Entertaining
department(s) of the Home commerce center of the Shopping Channel on the AOL
Service. Commencing on the launch date of the corresponding commerce center
(described above) of the Shopping Channel on each of AOL.com, the CompuServe
Service and the Netscape Netcenter, MERCHANT will become a Gold Tenant as
specified herein and such promotion shall terminate [**confidential treatment
requested**] months from the AOL Commerce Center Launch Date. As a Gold Tenant
in a department, MERCHANT will be entitled to the following:
Principal Exposure on the AOL Service, AOL.com, the CompuServe Service, and the
Netscape Netcenter:
o One continuous (24/7)143 x 30 pixels button with corporate brand or logo
on the department front screen.
Additional Promotion on the AOL Service:
o Rotation with other Gold Tenants in the department on a promotional banner
with text and branded art promotion on the department front screen. These
banner rotations are reserved for the Gold Tenant Merchant's on the
department screen and will be divided proportionately among them.
o Product listing availability through the AOL Product Search, subject to
Merchant's participation and the terms and conditions set forth on Exhibit
C Section 3.
o Banner rotation on the AOL Product Search screen of the AOL Service. These
banner rotations will be divided proportionately among all shopping
channel merchants.
o Up to three (3) AOL Keywords(Trademark) for use from the AOL Service, for
registered MERCHANT trade name or trademark (subject to the other
provisions contained herein).
o Fifteen percent (15%) discount from the then-current rate card on
purchases of additional advertising banners or buttons on the AOL Service,
AOL.com, the CompuServe Service, and the Netscape Netcenter, subject to
availability for the period requested (with such purchases to be made in
accordance with the then-applicable Standard Advertising Insertion Order
for the property in question). Sponsorships are not entitled to the
aforementioned discount.
o Eligibility to participate in the following AOL Shopping promotional
programs (the "Program Areas") subject to the terms and conditions set
forth on Exhibit C Section 3:
o Quick Gifts
o Standard Seasonal Catalogs or Special Event Merchandising
areas (e.g., Christmas Shop), subject to MERCHANT's
participation in AOL's Quick Checkout and AOL's Search Product
as described on Exhibit C Section 3.
o Premier-level Seasonal Catalogs or Special Event Merchandising
areas (e.g., Golf Outings), subject to MERCHANT's
participation in AOL's Quick Checkout and AOL's Search Product
as described on Exhibit C Section 3.
o Gift Reminder
o Newsletters
All additional Promotions on the AOL Service, AOL.com, the CompuServe Service,
the Netscape Netcenter or the AOL Network not specified herein will be
determined at AOL's reasonable discretion; provided that the additional,
standard Promotions to be provided to the MERCHANT within the Shopping areas on
the AOL Service, AOL.com, the CompuServe Service and the Netscape Netcenter will
be comparable in nature to the additional, standard Promotions provided to other
similarly situated MERCHANTs in the same category (i.e. Anchor Tenant, Gold
Tenant or Silver Tenant).
<PAGE>
EXHIBIT B
Definitions
Additional Merchant Channel. Any other distribution channel (e.g., an
Interactive Service other than AOL) through which MERCHANT makes available an
offering comparable in nature to the Merchant Site.
AOL Member. Any authorized user of the AOL Service, including any sub-accounts
using the AOL Service under an authorized master account.
AOL Network. (i) The AOL Service and (ii) any other product or service owned,
operated, distributed or authorized to be distributed by or through AOL or its
Affiliates worldwide through which such party elects to offer the Merchant Site
(which may include, without limitation, AOL-related Internet sites, "offline"
information browsing products, international versions of the AOL brand service,
and CompuServe).
AOL Service. The standard narrow-band U.S. America Online(Registered) brand
commercial online service.
AOL User. Any user of the AOL Service, AOL.com, the CompuServe Service, the
Netscape Netcenter, or the AOL Network.
AOL.com. The standard narrow-band U.S. version of its primary website marketed
under the AOL.com(Registered) brand.
CompuServe Service. The standard narrow-band affiliate U.S.
CompuServe(Registered) brand commercial online service.
Content. Text, images, video, audio (including, without limitation, music used
in synchronism or timed relation with visual displays) and other data, Products,
advertisements, promotions, links, pointers and software, including any
modifications, upgrades, updates, enhancements and related documentation.
Impression. User exposure to the commerce center screens, department level
screens and any other promotional inventory screens (i.e. AOL Welcome Screen)
containing the applicable promotion or advertisement, as such exposure may be
reasonably determined and measured by AOL in accordance with its standard
methodologies and protocols.
Interactive Service. Means and refers to an entity offering one or more of the
following: (i) online or Internet connectivity services (e.g., an Internet
service provider); (ii) an interactive site or service featuring a broad
selection of aggregated third party interactive content or navigation thereto
(e.g., an online service or search and directory service) and/or marketing a
broad selection of products and/or services across numerous interactive commerce
categories (e.g., an online mall or other leading online commerce site); (iii) a
persistent desktop client; or (iv) communications software capable of serving as
the principal means through which a user creates, sends or receives electronic
mail or real time or "instant" online messages (whether by telephone, computer
or other means), including without limitation greeting cards.
Keyword Search Terms. The Keyword(Trademark) online search terms made available
on the AOL Service for use by AOL Members, combining AOL's Keyword(Trademark)
online search modifier with a term or phrase specifically related to MERCHANT
(and determined in accordance with the terms of this Agreement).
Merchant Interactive Site. Any site (other than the Merchant Site) which is
managed, maintained, owned or controlled by Merchant or its agents.
Netscape Netcenter. The standard narrow-band primary website of Netscape
Communications Corporation marketed under the "Netcenter(Trademark)" brand.
Promotional Materials. Any marketing, advertising or other promotional
materials, excluding Press Releases, related to this Agreement and/or
referencing the other Party and/or its trade names, trademarks and service
marks.
<PAGE>
EXHIBIT C
Standard Shopping Channel Terms & Conditions
1. Merchant Site. MERCHANT will work diligently to develop and implement the
Merchant Site, consisting of the specific Product(s) set forth in Exhibit A and
any additional Products agreed upon in writing by the Parties subsequent to the
Effective Date. Except as mutually agreed upon in writing by the Parties, the
Merchant Site will contain only categories of Products, Services and Content
that are directly related to the MERCHANT Products listed in Exhibit A. All
sales of Products through the Merchant Site will be conducted through a direct
sales format (e.g. no auctions or clubs), absent the mutual consent of the
Parties. MERCHANT will ensure that the Merchant Site does not in any respect
promote, advertise, market or distribute the products, services or content of
any other Interactive Service.
2. Management of Merchant Site. MERCHANT will manage, review, delete, edit,
create, update and otherwise manage all Content available on or through the
Merchant Site, in a timely and professional manner and in accordance with the
terms of this Agreement and AOL's applicable Terms of Service and Privacy Policy
(as set forth on the AOL Service). MERCHANT will ensure that the Merchant Site
is current, accurate and well-organized at all times. MERCHANT warrants that the
Merchant Site and any material contained therein: (i) will conform to AOL's
applicable Terms of Service and Privacy Policy; (ii) will not infringe on or
violate any copyright, trademark, U.S. patent or any other third party right,
including without limitation, any music performance or other music-related
rights; and (iii) will not contain any Product which violates any applicable law
or regulation, including those relating to contests, sweepstakes or similar
promotions. AOL will have no obligations with respect to the Products available
on or through the Merchant Site, including, but not limited to, any duty to
review or monitor any such Products; provided, however, that AOL reserves the
right to review and approve any additional Products and any third-party content,
products or services that MERCHANT makes or desires to make available through
the Merchant Site. Upon AOL's request, MERCHANT agrees to include within the
Merchant Site a product disclaimer (the specific form and substance to be
mutually agreed upon by the Parties) indicating that transactions are solely
between MERCHANT and the AOL Users who purchase products from MERCHANT. MERCHANT
will ensure that neither MERCHANT nor any content, product or service contained
within the Merchant Site, linked to the Promotion or otherwise relating the
Agreement shall (i) disparage AOL; (ii) promote a competitor of AOL; or (iii)
state or imply that AOL endorses MERCHANT's Products.
3. Optimization of Merchant Site. MERCHANT will take all reasonable steps
necessary to conform its promotion and sale of Products through the Merchant
Site to the then-existing commerce technologies made available to MERCHANT by
AOL. MERCHANT will be given an opportunity to implement, at MERCHANT's option,
AOL's "quick checkout" tool which allows AOL Users to enter payment and shipping
information which is then passed from AOL's centralized server unit to MERCHANT
for order fulfillment ("AOL Quick Checkout") and AOL's "product search" tool
technology which allows AOL Users to run a customized search among Merchant's
detailed inventory data ("AOL Product Search"); provided however that in the
event that MERCHANT declines participation in these programs then AOL reserves
the right to reduce or prohibit MERCHANT's participation in any other
incremental merchandising programs offered through the Shopping Channel.. At
Merchant's request, AOL will make all reasonable efforts to provide the tools
for the MERCHANT (i) to enable Merchant Site with the AOL Quick Checkout
technology and functionality and (ii) to allow integration of Merchant's
detailed inventory data into AOL's Search Product database. Collection, storage
and disclosure of AOL Quick Checkout information which MERCHANT provides to AOL,
will be subject to AOL's privacy policy and all confidentiality requirements
hereunder. To the extent that the Merchant Site offers AOL's Quick Checkout,
MERCHANT will ensure that the AOL Quick Checkout is of equal placement and
promotion prominence to other available payment options. AOL reserves the right
to review and test the Merchant Site from time to time to determine whether the
site is compatible with AOL's, CompuServe's and Netscape's then-available client
and host software and their corresponding networks. AOL will be entitled to
require reasonable changes to the content, features and/or functionality within
the Merchant Site to the extent such content, features or functionality will, in
AOL's good faith judgment, adversely affect operations of the AOL Network.
MERCHANT agrees to optimize operations of the Merchant Site consistent with
Exhibit E attached hereto.
4. Removal of Content. AOL will have the right to remove, or direct MERCHANT to
remove, any Content in the Merchant Site (including, without limitation, any
features, functionality or technology) which, as reasonably determined by AOL
(i) violates AOL's then-standard Terms of Service or Privacy Policy (as set
forth on the AOL Service), any other standard, written AOL policy generally
applicable to other Shopping Channel merchants or the terms of this Agreement,
(ii) is inconsistent in any manner with the terms of the Agreement or with the
Product description set forth in Exhibit A or (iii) is otherwise in conflict
with AOL's programming objectives or its existing contractual commitments to
third parties. In addition, in the event that AOL reasonably believes that
software, technology or other technical components of the Merchant Site will
materially affect AOL, CompuServe or Netscape or other operations, MERCHANT will
work in good faith with AOL to limit access to such components from the AOL
Service, AOL.com, the CompuServe Service and the Netscape Netcenter. MERCHANT
will take all commercially reasonable steps using MERCHANT's then-available
technology to block access by AOL Users to Content which AOL desires to remove
or have removed pursuant to any of the foregoing. In the event that MERCHANT
cannot, through such efforts, block access to the Content in question, then
MERCHANT will provide AOL prompt written notice of such fact no later than five
(5) days after AOL notifies MERCHANT of AOL's objection to such Content. AOL may
then, at its option, either (i) restrict access by AOL Users to the Content in
question using technology available to AOL or (ii) terminate all links,
promotions and advertisements for the Merchant Site until such time as the
Content in question is no longer displayed. MERCHANT will cooperate with AOL's
reasonable requests to the extent AOL elects to implement any of the foregoing
access restrictions.
5. Promotional Placement. MERCHANT acknowledges that the sole obligation of AOL,
pursuant to this Agreement, is to display the Promotion in the Shopping Channel
in accordance with the terms and conditions of the Agreement. The specific
positioning of the Promotion on any screen in the Shopping Channel shall be as
determined by AOL, consistent with the editorial composition of such screen and
the nature of the Promotion being purchased by MERCHANT, unless otherwise
mutually agreed upon by the Parties. AOL reserves the right to reject, cancel or
remove at any time the Promotion for any reason with fifteen (15) days prior
notice to MERCHANT, and AOL will refund to MERCHANT a pro-rata portion of the
fee allocable to the display of the Promotion based on the number of days that
the Promotion was displayed. Except for the pro-rata refund set forth in the
foregoing sentence, AOL will not be liable in any way for any rejection,
cancellation or removal of the Promotion. AOL reserves the right to redesign or
modify the organization, navigation, structure, "look and feel" and other
elements of the AOL Service, AOL.com, the CompuServe Service, the Netscape
Netcenter and the AOL Network, at its sole discretion at any time without prior
notice. MERCHANT acknowledges and agrees that AOL will own all right, title and
interest in and to the elements of graphics, design, organization, presentation,
layout, user interface, navigation and stylistic convention (including the
digital implementations thereof) which are generally associated with online
areas contained within the AOL Network. In the event such modifications
materially affect the placement of the Promotion, AOL will notify MERCHANT and
will work with MERCHANT to display the Promotion in a comparable location and
manner. If AOL and MERCHANT cannot reach agreement on a substitute placement,
MERCHANT will have the right to cancel the Promotion, upon sixty (60) days
advance written notice to AOL. In such case, MERCHANT will only be responsible
for the pro-rata portion of payments attributable
<PAGE>
to the period from the Effective Date through the end of the sixty (60) day
notice period and in--such event that any amounts have been prepaid to AOL by
Merchant, Merchant will receive a pro-rata refund of all amounts paid to AOL
which correspond to the number of days that the Promotion was not displayed.
MERCHANT may not resell, trade, exchange, barter or broker to any third party
any promotional or advertising space which is the subject of this Agreement
MERCHANT will not be entitled to any refund or proration for delays caused by
MERCHANT's failure to deliver to AOL any materials relating to the Promotion.
6. Product Offering. MERCHANT will ensure that the Merchant Site generally
includes all of the Products and other Content (including, without limitation,
any features, offers, contests, functionality or technology) that are then made
available by or on behalf of MERCHANT through any Additional MERCHANT Channel
unless prohibited by this Agreement.
7. Pricing and Terms. MERCHANT will ensure that: (i) the prices for Products in
the MERCHANT Site generally do not exceed the prices for the Products offered by
or on behalf of MERCHANT through any Additional MERCHANT Channel; and (ii) the
terms and conditions related to Products in the MERCHANT Site are generally no
less favorable in any respect to the terms and conditions for the Products
offered by or on behalf of MERCHANT through any Additional MERCHANT Channel.
8. Exclusive Offers. MERCHANT will generally promote through the Merchant Site
any special or promotional offers made available by or on behalf of MERCHANT
through any Additional MERCHANT Channel. In addition, MERCHANT shall promote
through the Merchant Site on a regular and consistent basis special offers
exclusively available to AOL Users (the "AOL Exclusive Offers"). MERCHANT shall,
at all times, feature at least one AOL Exclusive Offer for AOL Users (except as
otherwise mutually agreed upon by the Parties). The AOL Exclusive Offer made
available by MERCHANT shall provide a substantial member benefit to AOL Users,
either by virtue of a meaningful price discount, product enhancement, unique
service benefit or other special feature. MERCHANT will provide AOL with
reasonable prior notice of Exclusive Offers so that AOL can in its editorial
discretion, market the availability of such offers. At MERCHANT's option,
MERCHANT will work with AOL or its authorized agents to develop a customized AOL
rewards program, which shall be a promotional program or plan that is intended
to provide AOL users with rewards or benefits in exchange for, or on account of,
their past or continued loyalty to, or patronage or purchase of, the products or
services of Merchant or any third party. (e.g. a promotional program similar to
a "frequent flier" program), to be provided through AOL's "AOL Rewards" program,
accessible on the AOL Service at Keyword: "AOL Rewards." Merchant's
participation in such promotional rewards program is subject to AOL's approval
and may also require the payment of certain reasonable administration fees to
AOL or its authorized agents or contractors operating the program.
9. Customer Service. It is the sole responsibility of MERCHANT to provide
customer service to persons or entities purchasing Products through the AOL
Service, AOL.com, the CompuServe Service, the Netscape Netcenter or the AOL
Network ("Customers"). MERCHANT will bear full responsibility for all customer
service, including without limitation, order processing, billing, fulfillment,
shipment, collection and other customer service associated with any Products
offered, sold or licensed through each Merchant Site, and AOL will have no
obligations whatsoever with respect thereto. Merchant Site shall include clear
and conspicuous disclosure of its customer service policies and a phone number
and an email or street address at which customers may contact MERCHANT. MERCHANT
shall provide a name of a customer service contact for use by AOL and a
telephone number and email or street address to which AOL may forward or refer
customer inquiries or complaints relating to MERCHANT. MERCHANT will receive all
emails from Customers via a computer available to MERCHANT's customer service
staff and generally respond to such emails within one business day of receipt.
MERCHANT will be able to receive all orders electronically in addition to any
other methods which Merchant chooses to offer and generally process all orders
within one business day of receipt, provided Products ordered are not advance
order items. MERCHANT will ensure that all orders of Products are received,
processed, fulfilled and delivered on a timely and professional basis. MERCHANT
will offer AOL Users who purchase Products through such the Merchant Site a
money-back satisfaction guarantee. MERCHANT will bear all responsibility for
compliance with federal, state and local laws in the event that Products are out
of stock or are no longer available at the time an order is received. MERCHANT
will also comply with the requirements of any federal, state or local consumer
protection or disclosure law. Payment for Products will be collected by MERCHANT
directly from customers. MERCHANT's order fulfillment operation will be subject
to AOL's reasonable review.
10. Launch Dates. In the event that any terms contained herein relate to or
depend on the commercial launch date of the online area or other property
contemplated by this Agreement (the "Launch Date"), then it is the intention of
the Parties to record such Launch Date in a written instrument signed by both
Parties promptly following such Launch Date; provided that, in the absence of
such a written instrument, the Launch Date will be as reasonably determined by
AOL based on the information available to AOL. For each day beyond the Launch
Date that the actual commercial launch of the Merchant Site is delayed (e.g.,
due to MERCHANT or the Merchant Site not being ready), then AOL will be entitled
to reduce the Impressions Commitment pro rata and decrease the promotions it
provides to MERCHANT hereunder.
11. Merchant Certification Program. MERCHANT will participate in any generally
applicable "Certified Merchant" program operated by AOL or its authorized agents
or contractors. Such program may require merchant participants on an ongoing
basis to meet certain reasonable standards relating to provision of electronic
commerce through the AOL Service, AOL.com, the CompuServe Service and the
Netscape Netcenter and may also require the payment of certain reasonable
certification fees to AOL or its authorized agents or contractors operating the
program. At MERCHANT's option, MERCHANT may (i) participate in the
BizRate(Registered) Program, a service offered by Binary Compass Enterprises,
Inc. (BCE), which provides opt-in satisfaction surveys to Users who purchase
Products through such Merchant Site, or such other provider of such services as
AOL may designate or approve from time to time, and (ii) provide a link to
BizRate's then-current standard survey forms, or such other survey forms offered
by any other party that AOL may reasonably designate or approve from time to
time. To the extent MERCHANT participates in the BizRate(Registered) Program,
MERCHANT's participation shall be based upon a separate written agreement which
MERCHANT will enter into with BCE, or other such party reasonably designated or
approved by AOL. MERCHANT hereby authorizes BCE to provide to AOL any and all
reports provided to MERCHANT by BCE, or other third party providing such
services, and agrees to provide written notice of such authorization to BCE, or
such other third party.
12. Traffic Flow/Navigation. MERCHANT will take reasonable efforts to ensure
that AOL traffic is either kept within the Merchant Site or channeled back into
the AOL Network (e.g. hypertext links). The Parties will work together on
implementing mutually acceptable links from the Merchant Site back to the AOL
Network. In the event that AOL points to the Merchant Site or any other Merchant
Interactive Site or otherwise delivers traffic to such site hereunder. MERCHANT
will ensure that navigation back to the AOL Network from such site, whether
through a particular pointer or link, the "back" button on an Internet browser,
the closing of an active window, or any other return mechanism, shall not be
interrupted by MERCHANT through the use of any intermediate screen or other
device not specifically requested by the user, including without limitation
through the use of any html pop-up window or any other similar device. Rather,
such AOL traffic shall be pointed directly back to the AOL Network as designated
by AOL. AOL will be entitled to establish navigational icons, links, pointers
connecting the Merchant Site (or portions thereof) with other content areas on
or outside of the AOL Network. Additionally, in cases where an AOL User performs
a search for Merchant through any search or navigational tool or mechanism that
is accessible or available through the AOL Network (e.g., Promotions, Keyword
Search Terms, or any other similar promotions or navigational tools), AOL shall
have the right
<PAGE>
to direct such AOL User to the Merchant Site, or any other Merchant Interactive
Site determined by AOL in its reasonable discretion.
<PAGE>
EXHIBIT D
Standard Legal Terms & Conditions
1. Production and Technical Services. Unless expressly provided for elsewhere in
the Shopping Channel Promotional Agreement which has been executed by AOL and
MERCHANT (the "Promotional Agreement," and, collectively with these Standard
Legal Terms and Conditions, the "Agreement") Agreement, (i) AOL will have no
obligation to provide any creative, design, technical or production services to
MERCHANT and (ii) the nature and extent of any such services which AOL may
provide to MERCHANT will be as determined by AOL in its sole discretion. The
terms regarding any creative, design, technical or productions services provided
by AOL to MERCHANT will be as mutually agreed upon by the parties in a separate
written work order. With respect to any routine production, maintenance or
related services which AOL reasonably determines are necessary for AOL to
perform in order to support the proper functioning and integration of the
Merchant Site ("Routine Services"), MERCHANT will pay the then-standard fees
charged by AOL for such Routine Services.
2. AOL Accounts. To the extent MERCHANT has been granted any AOL, CompuServe or
Netscape accounts, MERCHANT will be responsible for the actions taken under or
through its accounts, which actions are subject to AOL's applicable Terms of
Service and for any surcharges, including, without limitation, all premium
charges, transaction charges, and any applicable communication surcharges
incurred by any account issued to MERCHANT. Upon the termination of this
Agreement, all such accounts, related screen names and any associated usage
credits or similar rights, will automatically terminate. AOL will have no
liability for loss of any data or content related to the proper termination of
any such account.
3. Taxes. MERCHANT will collect and pay and indemnify and hold AOL harmless
from, any sales, use, excise, import or export value added or similar tax or
duty not based on AOL's net income, including any penalties and interest, as
well as any costs associated with the collection or withholding thereof,
including attorneys' fees.
4. Promotional Materials. Each Party will submit to the other Party, for its
prior written approval, which shall not be unreasonably withheld or delayed, any
Promotional Materials; provided, however, that after the initial public
announcement of the business relationship between the Parties in accordance with
the approval and other requirements contained herein, either Party's subsequent
factual reference to the existence of a business relationship between AOL and
MERCHANT in Promotional Materials, including, without limitation, the
availability of the Merchant Site through the AOL Network, or use of screen
shots relating to the distribution under this Agreement (so long as the AOL
Network is clearly identified as the source of such screen shots) for
promotional purposes shall not require the approval of the other Party. Once
approved, the Promotional Materials may be used by a Party and its affiliates
for the purpose of promoting the distribution of the Merchant Site through the
AOL Network and reused for such purpose until such approval is withdrawn with
reasonable prior notice. MERCHANT will not (i) issue any press releases,
promotions or public statements concerning the existence or terms of the
Agreement or (ii) use, display or modify AOL's trademarks, tradenames or
servicemarks in any manner, absent AOL's express prior written approval.
Notwithstanding the foregoing, either Party may issue press releases and other
disclosures as required by law or as reasonably advised by legal counsel without
the consent of the other Party and in such event, prompt notice thereof will be
provided to the other Party.
5. Representations and Warranties. Each Party represents and warrants to the
other Party that: (i) such Party has the full corporate right, power and
authority to enter into the Agreement and to perform the acts required of it
hereunder; (ii) the execution of the Agreement by such Party, and the
performance by such Party of its obligations and duties hereunder, do not and
will not violate any agreement to which such Party is a Party or by which it is
otherwise bound; (iii) when executed and delivered by such Party, the Agreement
will constitute the legal, valid and binding obligation of such Party,
enforceable against such Party in accordance with its terms; and (iv) such Party
acknowledges that the other Party makes no representations, warranties or
agreements related to the subject matter hereof that are not expressly provided
for in the Agreement.
6. License. MERCHANT hereby grants AOL a non-exclusive worldwide license to
market, license, distribute, reproduce, display, perform, transmit and promote
the Merchant Site and all content, products and services offered therein or
otherwise provided by MERCHANT in connection herewith (e.g., offline or online
promotional content, Promotions, etc.) through the AOL Network and through any
other product or service owned, operated, distributed or authorized to be
distributed by or through AOL or its affiliates worldwide through which such
Party elects to offer the Merchant Site (which may include, without limitation,
Internet sites promoting AOL products and services and any "offline" information
browsing products of AOL or its affiliates). AOL Users will have the right to
access and use the Merchant Site. Subject to such license, MERCHANT retains all
right, title to and interest in the Merchant Site. During the Term, AOL will
have the right to use MERCHANT's trademarks, trade names and service marks in
connection with performance of this Agreement, subject to any written guidelines
provided in writing to AOL. AOL hereby grants MERCHANT a non-exclusive worldwide
license to distribute, reproduce, display and transmit the AOL Promo as
described in Section 2.2 and any trademarks contained therein such AOL Promo,
solely in connection with MERCHANT's performance of its obligations pursuant to
this Agreement
7. Confidentiality. Each Party acknowledges that Confidential Information may be
disclosed to the other Party during the course of this Agreement. Each Party
agrees that it will take reasonable steps, at least substantially equivalent to
the steps it takes to protect its own proprietary information, during the term
of this Agreement, and for a period of three years following expiration or
termination of this Agreement, to prevent the duplication or disclosure of
Confidential Information of the other Party, other than by or to its employees
or agents who must have access to such Confidential Information to perform such
Party's obligations hereunder, who will each agree to comply with this
provision. "Confidential Information" means any information relating to or
disclosed in the course of the Agreement, which is or should be reasonably
understood to be confidential or proprietary to the disclosing Party, including,
but not limited to, the material terms of this Agreement, information about AOL
Users, technical processes and formulas, source codes, product designs, sales,
cost and other unpublished financial information, product and business plans,
projections, and marketing data. "Confidential Information" will not include
information (a) already lawfully known to or independently developed by the
receiving Party, (b) disclosed in published materials, (c) generally known to
the public, (d) lawfully obtained from any third party, or (e) required or
reasonably advised to be disclosed by law. MERCHANT shall not make, publish, or
otherwise communicate through the AOL Network any deleterious remarks concerning
AOL or it Affiliates, directors, officers, employees, or agents (including,
without limitation, AOL's business projects, business capabilities, performance
of duties and services, or financial position) which remarks are based on the
relationship established by this Agreement or information exchanged hereunder.
This section is not intended to limit good faith editorial statements made by
MERCHANT based upon publicly available information, or information developed by
MERCHANT independent of its relationship with AOL and its employees and agents.
8. Limitation of Liability; Disclaimer; Indemnification.
(a) Liability. UNDER NO CIRCUMSTANCES WILL EITHER PARTY BE LIABLE TO THE OTHER
PARTY FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR EXEMPLARY DAMAGES
(EVEN IF THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES),
ARISING FROM BREACH OF THE AGREEMENT, THE SALE OF PRODUCTS, THE USE OR INABILITY
<PAGE>
TO USE THE AOL NETWORK, THE AOL SERVICE, AOL.COM, THE COMPUSERVE SERVICE, THE
NETSCAPE NETCENTER OR THE MERCHANT SITE, OR ARISING FROM ANY OTHER PROVISION OF
THIS AGREEMENT, SUCH AS, BUT NOT LIMITED TO, LOSS OF REVENUE OR ANTICIPATED
PROFITS OR LOST BUSINESS (COLLECTIVELY, "DISCLAIMED DAMAGES"); PROVIDED THAT
EACH PARTY WILL REMAIN LIABLE TO THE OTHER PARTY TO THE EXTENT ANY DISCLAIMED
DAMAGES ARE CLAIMED BY A THIRD PARTY AND ARE SUBJECT TO INDEMNIFICATION PURSUANT
TO PARAGRAPH (C) BELOW. EXCEPT AS PROVIDED TO PARAGRAPH (C) BELOW, (I) LIABILITY
ARISING UNDER THIS AGREEMENT WILL BE LIMITED TO DIRECT, OBJECTIVELY MEASURABLE
DAMAGES, AND (II), THE MAXIMUM LIABILITY OF ONE PARTY TO THE OTHER PARTY FOR ANY
CLAIMS ARISING IN CONNECTION WITH THIS AGREEMENT WILL NOT EXCEED THE AGGREGATE
AMOUNT OF PAYMENT OBLIGATIONS OWED TO AOL BY MERCHANT IN THE YEAR IN WHICH THE
EVENT GIVING RISE TO LIABILITY OCCURS; PROVIDED THAT MERCHANT WILL REMAIN LIABLE
TO AOL FOR THE AGGREGATE AMOUNT OF ANY PAYMENT OBLIGATIONS OWED TO AOL PURSUANT
TO THE AGREEMENT.
(b) No Additional Warranties. EXCEPT AS EXPRESSLY SET FORTH IN THE AGREEMENT,
NEITHER PARTY MAKES ANY, AND EACH PARTY HEREBY SPECIFICALLY DISCLAIMS ANY
REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, REGARDING AOL.COM, THE AOL
SERVICE OR NETWORK, THE COMPUSERVE SERVICE, THE NETSCAPE NETCENTER OR THE
MERCHANT SITE, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR
A PARTICULAR PURPOSE AND IMPLIED WARRANTIES ARISING FROM COURSE OF DEALING OR
COURSE OF PERFORMANCE. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, AOL
SPECIFICALLY DISCLAIMS ANY WARRANTY REGARDING (I) THE PROFITABILITY OF THE
MERCHANT SITE, (II) THE NUMBER OF PERSONS WHO WILL ACCESS OR "CLICK-THROUGH" THE
PROMOTION, (III) ANY BENEFIT MERCHANT MIGHT OBTAIN FROM INCLUDING THE PROMOTION
WITHIN THE AOL SERVICE OR NETWORK, AOL.COM, THE NETSCAPE NETCENTER, OR THE
COMPUSERVE SERVICE OR (IV) THE FUNCTIONALITY, PERFORMANCE OR OPERATION OF THE
AOL, COMPUSERVE OR NETSCAPE SERVICES WITH RESPECT TO THE PROMOTION.
(c) Indemnity. Either Party will defend, indemnify, save and hold harmless the
other Party and the officers, directors, agents, affiliates, distributors,
franchisees and employees of the other Party from any and all third party
claims, demands, liabilities, costs or expenses, including reasonable attorneys'
fees ("Liabilities"), resulting from the Indemnifying Party's material breach of
any duty, representation, or warranty of the Agreement, except where Liabilities
result from the gross negligence or knowing and willful misconduct of the other
Party.
(d) Claims. If a Party entitled to indemnification hereunder (the "Indemnified
Party") becomes aware of any matter it believes is indemnifiable hereunder
involving any claim, action, suit, investigation, arbitration or other
proceeding against the Indemnified Party by any third party (each an "Action"),
the Indemnified Party will give the other Party (the "Indemnifying Party")
prompt written notice of such Action. Such notice will (i) provide the basis on
which indemnification is being asserted and (ii) be accompanied by copies of all
relevant pleadings, demands, and other papers related to the Action and in the
possession of the Indemnified Party. The Indemnifying Party will have a period
of ten (10) days after delivery of such notice to respond. If the Indemnifying
Party elects to defend the Action or does not respond within the requisite ten
(10) day period, the Indemnifying Party will be obligated to defend the Action,
at its own expense, and by counsel reasonably satisfactory to the Indemnified
Party. The Indemnified Party will cooperate, at the expense of the Indemnifying
Party, with the Indemnifying Party and its counsel in the defense and the
Indemnified Party will have the right to participate fully, at its own expense,
in the defense of such Action. If the Indemnifying Party responds within the
required ten (10) day period and elects not to defend such Action, the
Indemnified Party will be free, without prejudice to any of the Indemnified
Party's rights hereunder, to compromise or defend (and control the defense of)
such Action. In such case, the Indemnifying Party will cooperate, at its own
expense, with the Indemnified Party and its counsel in the defense against such
Action and the Indemnifying Party will have the right to participate fully, at
its own expense, in the defense of such Action. Any compromise or settlement of
an Action will require the prior written consent of both Parties hereunder, such
consent not to be unreasonably withheld or delayed.
(e) Acknowledgment. AOL and MERCHANT each acknowledges that the provisions of
this Agreement were negotiated to reflect an informed, voluntary allocation
between them of all risks (both known and unknown) associated with the
transactions contemplated hereunder. The limitations and disclaimers related to
warranties and liability contained in the Agreement are intended to limit the
circumstances and extent of liability. The provisions in paragraphs (a) through
(d) above and this paragraph (e) will be enforceable independent of and
severable from any other enforceable or unenforceable provision of this
Agreement.
9. Solicitation of Subscribers.
(a) During the term of the Agreement and for a two year period thereafter,
MERCHANT will not use the AOL Network (including, without limitation, the e-mail
network contained therein) to solicit AOL Members or AOL Users on behalf of
another Interactive Service. MERCHANT will not send unsolicited, commercial
e-mail through or into AOL's products or services, absent a Prior Business
Relationship. For purposes of this Agreement, a "Prior Business Relationship"
will mean that the AOL User to whom commercial e-mail is being sent has
voluntarily either (i) engaged in a transaction with MERCHANT or (ii) provided
information to MERCHANT through a contest, registration, or other communication,
which included notice to the AOL User that the information provided could result
in commercial e-mail being sent to that AOL User by MERCHANT or its agents. More
generally, any commercial e-mail to be sent through or into AOL's products or
services shall be subject to AOL's then-standard restrictions on distribution of
bulk e-mail (e.g., related to the time and manner in which such e-mail can be
distributed through the AOL service in question) and the limitations set forth
in Exhibit C.
(b) MERCHANT shall ensure that its collection, use and disclosure of information
obtained from AOL Users under this Agreement ("User Information") complies with
(i) all applicable laws and regulations (ii) AOL's standard privacy policies,
available on the AOL Service at the keyword term "Privacy", and (iii) AOL's
applicable Terms of Service.
(c) MERCHANT will not disclose User Information to any third party in a manner
that Identifies AOL User as end users of an AOL product or service or use User
Information collected under this Agreement to market an Interactive Service
competitive with AOL; provided that the restrictions in this subsection (c)
shall not restrict MERCHANT's use of any information collected independently of
this Agreement.
10. AOL User Communications. To the extent MERCHANT is otherwise permitted to
send communications to AOL Users (in accordance with the other requirements
contained herein):, (i) any solicitations in such communications to purchase
products or services shall promote the Merchant Site available through the AOL
Network as the principal means through which to purchase any such products or
services; (ii) any direct links to specific offers within such communications
shall link to the Merchant Site; (iii) MERCHANT shall limit the subject matter
of such communications to those categories of products, services and/or content
which are specifically contemplated by this Agreement, and (iv) MERCHANT will
provide the recipient with a prominent and easy means to "opt-out" of receiving
any future commercial e-mail communications from Merchant. In addition, in any
communication to AOL Users or on the Merchant Site, MERCHANT will not encourage
AOL Users to take any action inconsistent with the scope and purpose of this
Agreement, including without limitation, the following actions: (a) using
interactive sites other than the Merchant Site; (b) bookmarking of other
interactive sites; (c) changing the default home page on the AOL browser, or (d)
using any interactive service other than the AOL, Netscape and CompuServe
Services.
11. Keyword(Trademark) Search Terms. Any Keyword Search Terms to be directed to
Merchant's Site shall be (i) subject to availability and (ii) limited to the
combination of the Keyword(Tradermark) search modifier combined
<PAGE>
with a registered trademark of MERCHANT. AOL reserves the right at any time to
revoke MERCHANT's use of any Keywords that are not registered trademarks of
MERCHANT. MERCHANT acknowledges that its utilization of a Keyword Search Term
will not create in it, nor will it represent it has, any right, title or
interest in or to such Keyword Search Term, other than the right, title and
interest MERCHANT holds in MERCHANT's registered trademark independent of the
Keyword Search Term. Without limiting the generality of the foregoing, MERCHANT
will not: (a) attempt to register or otherwise obtain trademark or copyright
protection in the Keyword Search Term; or (b) use the Keyword Search Term,
except for the purposes expressly required or permitted under this Agreement. To
the extent AOL allows AOL Users to "bookmark" the URL or other locator for the
Merchant Site, such bookmarks will be subject to AOL's control at all times.
Upon the termination of this Agreement, MERCHANT's rights to any Keywords and
bookmarking will terminate.
12. Miscellaneous. Neither Party will be liable for, or be considered in breach
of or default under the Agreement on account of, any delay or failure to perform
as required by the Agreement (except with respect to payment obligations) as a
result of any causes or conditions which are beyond such Party's reasonable
control and which such Party is unable to overcome by the exercise of reasonable
diligence. MERCHANT's rights, duties, and obligations under the Agreement are
not transferable. The Parties to the Agreement are independent contractors.
Neither Party is an agent, representative or partner of the other Party. Neither
Party will have any right, power or authority to enter into any agreement for or
on behalf of, or incur any obligation or liability of, or to otherwise bind, the
other Party. The failure of either Party to insist upon or enforce strict
performance by the other Party of any provision of the Agreement or to exercise
any right under the Agreement will not be construed as a waiver or
relinquishment to any extent of such Party's right to assert or rely upon any
such provision or right in that or any other instance; rather, the same will be
and remain in full force and effect. Sections 3, 4, 7, 8, 9, 10, 11, and 12 of
these Standard Legal Terms and Conditions, will survive the completion,
expiration, termination or cancellation of the Promotional Agreement. Either
Party may terminate the Agreement at any time with written notice to the other
Party in the event of a material breach of the Agreement by the other Party,
which remains uncured after thirty days written notice thereof. Any notice,
approval, request, authorization, direction or other communication under this
Agreement will be given in writing and will be deemed to have been delivered and
given for all purposes (i) on the delivery date if delivered by electronic mail
on AOL's network or systems (to screenname "[email protected]" in the case of
AOL) or by confirmed facsimile; (ii) on the delivery date if delivered
personally to the Party to whom the same is directed; (iii) one business day
after deposit with a commercial overnight carrier, with written verification of
receipt; or (iv) five business days after the mailing date, whether or not
actually received, if sent by U.S. mail, return receipt requested, postage and
charges prepaid, or any other means of rapid mail delivery for which a receipt
is available. In the case of AOL, such notice will be provided to both the
Senior Vice President for Business Affairs (fax no. 703-265-1206) and the Deputy
General Counsel (fax no. 703-265-1105), each at the address of AOL set forth in
the first paragraph of this Agreement. In the case of MERCHANT, except as
otherwise specified herein, the notice address will be the address for MERCHANT
set forth in the first paragraph of this Agreement, with the other relevant
notice information, including the recipient for notice and, as applicable, such
recipient's fax number or AOL email address, to be as reasonably identified by
AOL. Except as otherwise specified herein, the Agreement sets forth the entire
agreement between MERCHANT and AOL, and supersedes any and all prior agreements
of AOL or MERCHANT with respect to the transactions set forth herein. No change,
amendment or modification of any provision of the Agreement will be valid unless
set forth in a written instrument signed by the Party subject to enforcement of
such amendment. MERCHANT will promptly inform AOL of any information related to
the Merchant Site which could reasonably lead to a claim, demand, or liability
of or against AOL and/or its affiliates by any third party. MERCHANT will not
assign this Agreement or any right, interest or benefit under this Agreement
without the prior written consent of AOL. Assumption of the Agreement by any
successor to MERCHANT (including, without limitation, by way of merger,
consolidation or sale of all or substantially all of MERCHANT's stock or assets)
will be subject to AOL's prior written approval. Subject to the foregoing, this
Agreement will be fully binding upon, inure to the benefit of and be enforceable
by the Parties hereto and their respective successors and assigns. Except where
otherwise specified herein, the rights and remedies granted to a Party under the
Agreement are cumulative and in addition to, and not in lieu of, any other
rights or remedies which the Party may possess at law or in equity. In the event
that any provision of the Agreement is held invalid by a court with jurisdiction
over the Parties to the Agreement, (i) such provision will be deemed to be
restated to reflect as nearly as possible the original intentions of the Parties
in accordance with applicable law and (ii) the remaining terms, provisions,
covenants and restrictions of this Agreement will remain in full force and
effect. The Agreement may be executed in counterparts, each of which will be
deemed an original and all of which together will constitute one and the same
document. The Agreement will be interpreted, construed and enforced in all
respects in accordance with the laws of the Commonwealth of Virginia, except for
its conflicts of laws principles. MERCHANT hereby irrevocably consents to the
exclusive jurisdiction of the courts of the Commonwealth of Virginia and the
federal courts therein in connection with any action arising under this
Agreement.
<PAGE>
EXHIBIT E
Operations
1. MERCHANT Site Infrastructure. MERCHANT will be responsible for all
communications, hosting and connectivity costs and expenses associated
with the MERCHANT Site. MERCHANT will provide all hardware, software,
telecommunications lines and other infrastructure necessary to meet
traffic demands on the MERCHANT Site from the AOL Network. MERCHANT will
design and implement the network between the AOL Service and MERCHANT Site
such that (i) no single component failure will have a materially adverse
impact on AOL Members seeking to reach the MERCHANT Site from the AOL
Network and (ii) no single line under material control by the Merchant
will run at more than 70% average utilization for a 5-minute peak in a
daily period. In this regard, MERCHANT will provide AOL, upon request,
with a detailed network diagram regarding the architecture and network
infrastructure supporting the MERCHANT Site. In the event that MERCHANT
elects to create a custom version of the MERCHANT Site in order to comply
with the terms of this Agreement, MERCHANT will bear responsibility for
all aspects of the implementation, management and cost of such customized
site.
2. Optimization; Speed. MERCHANT will use commercially reasonable efforts to
ensure that: (a) the functionality and features within the MERCHANT Site
are optimized for the client software then in use by AOL Members; and (b)
the MERCHANT Site is designed and populated in a manner that minimizes
delays when AOL Members attempt to access such site. At a minimum,
MERCHANT will ensure that the MERCHANT Site's data transfers initiate
within fewer than fifteen (15) seconds on average. Prior to commercial
launch of any material promotions described herein, MERCHANT will permit
AOL to conduct performance and load testing of the MERCHANT Site (in
person or through remote communications), with such commercial launch not
to commence until such time as AOL is reasonably satisfied with the
results of any such testing.
3. User Interface. MERCHANT will maintain a graphical user interface within
the MERCHANT Site that is competitive in all material respects with
interfaces of other similar sites based on similar form technology. AOL
reserves the right to review and approve the user interface and site
design prior to launch of the Promotions and to conduct focus group
testing to assess compliance with respect to such consultation and with
respect to MERCHANT's compliance with the preceding sentence.
4. Technical Problems. MERCHANT agrees to use commercially reasonable efforts
to address material technical problems (over which MERCHANT exercises
control) affecting use by AOL Members of the MERCHANT Site (a "MERCHANT
Technical Problem") promptly following notice thereof. In the event that
MERCHANT is unable to promptly resolve a MERCHANT Technical Problem
following notice thereof from AOL (including, without limitation,
infrastructure deficiencies producing user delays), AOL will have the
right to regulate the promotions it provides to MERCHANT hereunder until
such time as MERCHANT corrects the MERCHANT Technical Problem at issue.
5. Monitoring. MERCHANT will ensure that the performance and availability of
the MERCHANT Site is monitored on a continuous basis. MERCHANT will
provide AOL with contact information (including e-mail, phone, pager and
fax information, as applicable, for both during and after business hours)
for MERCHANT's principal business and technical representatives, for use
in cases when issues or problems arise with respect to the MERCHANT Site.
6. Security. MERCHANT will utilize Internet standard encryption technologies
(e.g., Secure Socket Layer -- SSL) to provide a secure environment for
conducting transactions and/or transferring private member information
(e.g. credit card numbers, banking/financial information, and member
address information) to and from the MERCHANT Site. MERCHANT will
facilitate periodic reviews of the MERCHANT Site by AOL in order to
evaluate the security risks of such site. MERCHANT will promptly remedy
any security risks or breaches of security as may be identified by AOL's
Operations Security team.
7. Technical Performance.
i. MERCHANT will design the MERCHANT Site to support the AOL-client
embedded versions of the Microsoft Internet Explorer 3.XX and 4.XX
browsers (Windows and Macintosh), the Netscape Browser 4.XX, and
make commercially reasonable efforts to support all other AOL
browsers listed at: "http://webmaster.info.aol.com/"
ii. To the extent MERCHANT creates customized pages on the MERCHANT Site
for AOL Members, Merchant will develop and employ a methodology to
detect AOL Members (e.g. examine the HTTP User-Agent field in order
to identify the "AOL Member-Agents" listed at:
http://webmaster.info.aol.com/").
iii. MERCHANT will periodically review the technical information made
available by AOL at http://webmaster.info.aol.com.
iv. MERCHANT will design its site to support HTTP 1.0 or later protocol
as defined in RFC 1945 and to adhere to AOL's parameters for
refreshing or preventing the caching of information in AOL's proxy
system outlined in the document provided at the following URL:
http://webmaster.info.aol.com. The Merchant is responsible for the
manipulation of these parameters in web based objects so as to allow
them to be cached or not cached as outlined in RFC 1945.
v. Prior to releasing material, new functionality or features through
the MERCHANT Site ("New Functionality"), MERCHANT will use
commercially reasonable efforts to: (i) test the New Functionality
to confirm its compatibility with AOL Service client software and
(ii) provide AOL with written notice of the New Functionality so
that AOL can perform tests of the New Functionality to confirm its
compatibility with the AOL Service client software. Should any new
material, new functionality or features through the Merchant Site be
released without notification to AOL, AOL will not be responsible
for any adverse member experience until such time that compatibility
tests can be
<PAGE>
performed and the new material, functionality or features qualified
for the AOL Service.
8. AOL Internet Services MERCHANT Support. AOL will provide MERCHANT with access
to the standard online resources, standards and guidelines documentation,
technical phone support, monitoring and after-hours assistance that AOL makes
generally available to similarly situated web-based partners. AOL support will
not, in any case, be involved with content creation on behalf of MERCHANT or
support for any technologies, databases, software or other applications which
are not supported by AOL or are related to in this Exhibit E. any MERCHANT area
other than the MERCHANT Site. Support to be provided by AOL is contingent on
MERCHANT providing to AOL demo account information (where applicable), a
detailed description of the MERCHANT Site's software, hardware and network
architecture and access to the MERCHANT Site for purposes of such performance
and the coordination of load testing as AOL elects to conduct. As described
elsewhere in this Agreement, MERCHANT is fully responsible for all aspects of
hosting and administration of the Merchant Site and must ensure that the site
satisfies the specified access and performance requirements as outlined
17
<PAGE>
kirshenbaum bond & partners
----------------------------------------
MAIN LINE 212 633 0080 FAX 212 463 8643
----------------------------------------
145 sixth avenue new york ny 10013-1515
----------------------------------------
Robert High
Chief Operating Officer
9.29.99
Patrick Ferrell
iParty
41 East 11th Street, 11th Floor
New York, NY 10003
Dear Patrick,
This agreement between you, iParty, and us, Kirshenbaum Bond & Partners ("KBP")
confirms the Scope of Work, your agreement to pay us for expenses incurred on
your behalf, and Compensation for our communications services to promote iParty
starting August 1, 1999.
SCOPE OF WORK
In general, it will be our objective to help you build your business by creating
a marketing communications program based on a central Brand Idea and utilizing
any, and all, communications disciplines mutually deemed appropriate.
The specific deliverables which will be included within the agreed compensation
plan are attached as Schedule A.
Additional services that we may provide in consideration for additional fees are
attached as schedule B.
COMPENSATION
Compensation for the deliverables reflected in the Scope of Work will be:
(1) An annual fee for of $1,026,000 to be paid in 12 monthly installments of
$85,500, of which $15,000 per month will be for Public Relations staff
services. The deliverables, and our compensation, will be reviewed by you
and us on, or before, December 31, 1999, and, upon mutual agreement, may
be prospectively adjusted for subsequent months. Any changes to the
deliverables and/or fees will be agreed upon in writing by both of us.
(2) Internet advertising will be billed with a 15% commission on the gross
cost.
(3) Spot TV and/or Radio will be billed with a 4% commission on the gross
cost. (This will cover the staff cost of buying these media).
All other media, production and other out-of-pocket expenses will be billed net,
without commission or mark-up.
Richard Kirshenbaum Jonathan Bond
Founder | Chief Creative Officer Founder | Chief Executive Officer
William Oberlander
Managing Partner | Executive Creative Director
Steve Klein
Managing Partner | Media Director
Nigel Carr
Managing Partner | Brand Planning Director
Rosemarie Ryan
Managing Partner | President
<PAGE>
Patrick Ferrell
iParty
Letter of Agreement
9.24.99
EQUITY
You agree to solicit the agreement of the Board of Directors to receive 5% of
our fee in the form of equity.
TERMINATION
Termination of our services requires 90 days written notice, however, such
notice may not be given by you before July 31, 2000.
This document will be in force until it is superseded by a formal contract that
will reflect the agreements in this document as well as the other terms standard
in an agreement of this kind including, for example, mutual indemnification,
termination procedures, ownership of materials and intellectual property.
KIRSHENBAUM BOND & PARTNERS, INC.
/s/ Robert High
- ------------------------------------
Robert High, Chief Operating Officer
Date: 9/29/99 AGREED: IPARTY
-------
/s/ Patrick Ferrell
------------------------------
Name: Patrick Ferrell
------------------------
Date: 10/4/99
-------
<PAGE>
- --------------------------------------------------------------------------------
Schedule A
IPARTY SCOPE OF WORK
- --------------------------------------------------------------------------------
o Develop and oversee production of a Brand Campaign to include
consumer advertising for: radio (live reads/not produced), limited
newspaper, magazine and on-line.
o Develop a media plan for the Brand Campaign for a $6-7MM budget.
o Develop and implement Promotion/Public Relations programs building
off the Brand Idea and consistent with the PR/Promotion proposal
already approved and underway.
o Negotiate, purchase, check and pay the media (radio, newspaper,
magazines, outdoor and on-line). Traffic all materials.
o Continuously revise the media plan to respond to changing
marketplace conditions and an on-going evaluation of the
effectiveness of the various media
o Provide strategic consulting on all marketing issues.
o Provide Brand Planning advisory services on an on-going basis.
o Supervise the fielding of consumer research relating to the
advertising campaign (tracking studies, etc.).
o Develop a new logo with applications/templates for collateral and
business stationary needs. (Note: per the procedure below relating
to "Additional Services," this will be done as a project.)
You agree to pay us, based on estimates approved by you, for all media,
production, research and other expenses incurred on your behalf.
We are authorized to act on your behalf as agent for a disclosed principal in
purchasing advertising materials and media.
All media, except as noted above, and all production and out of pocket expenses
will be billed at net, with no commission.
<PAGE>
- --------------------------------------------------------------------------------
Schedule B
IPARTY ADDITIONAL SERVICES
- --------------------------------------------------------------------------------
The following services are available on either a project or on-going basis.
Separate fees would be estimated and approved by you before starting work.
o Public Relations/Promotion implementation beyond the scope of work
described in the current proposal.
o Development of production supervision for television and outdoor.
o Qualitative research, including moderating focus groups or
conducting one-on-one interviews.
o Direct mail including creative development and production
supervision, list acquisition/manipulation, production supervision
of creative units, and test planning.
o Web site design and consulting.
o Design services including collateral, point of sale, packaging,
identity systems and logos.
o Supervising research other than relating to
advertising/communications.
o New product development services including ideation, test planning,
and naming.
<PAGE>
September 7, 1999
Stuart Moldaw
700 Airport Boulevard
Suite 200
Burlingame, CA 94010
Re: Consulting Agreement
Dear Stuart:
iParty Corp. ("iParty") would like to engage you as a consultant, on an
independent contractor basis. This Letter Agreement sets forth all of the terms
of our consulting agreement.
1. The term of the consulting period shall be three years, commencing as
of the date of this Letter Agreement (the "Consulting Period"); provided,
however, that this Letter Agreement may be terminated by either party upon 90
days written notice to the other party.
2. In consideration of the consulting services rendered by you, iParty
shall issue you options (the "Options"), subject to board approval, to purchase
a total of 100,000 shares of iParty Common Stock, par value $.001 per share (the
"Common Stock"); provided that you are still providing consulting services to
the iParty on each vesting date, the Options shall vest as follows: 33,334
Options shall vest on September 6, 2000; an additional 33,333 Options shall vest
on September 6, 2001; and the remaining 33,333 Options shall vest on September
6, 2002. The exercise price of the Options shall be $2.00.
3. iParty will reimburse you for all travel or other reasonable expenses
incurred in connection with your rendering consulting services for iParty.
4. You agree that, during the Consulting Period and for a period of six
months following the termination of the Consulting Period, you will not,
directly or indirectly, be employed by, or act as a consultant or lender to, or
be a director, officer, employee, owner or partner of, any other business or
organization that is or shall then be competing with iParty, provided that you
may own up to five percent (5.0%) of the outstanding capital stock of a
corporation, if, at the time of its acquisition by you, such stock is listed on
a national securities exchange, is reported on NASDAQ, or is regularly traded in
the over-the-counter market by a member of a national securities exchange.
5. You agree that all confidential information which you may now and/or
during the Consulting Period possess, obtain or create, relating to the business
of iParty or of any customer or
<PAGE>
supplier of iParty shall not be published, disclosed, or made accessible by you
to any other person or entity without the prior written consent of iParty.
IN WITNESS WHEREOF, the parties have executed this Letter Agreement
as of the date first written above.
iPARTY CORP.
By: /s/ Sal Perisano
------------------------------------
Sal Perisano, CEO
ACCEPTED AND AGREED
/s/ Stuart Moldaw
- -------------------
Stuart Moldaw
