<PAGE>
As filed with the Securities and Exchange Commission on March 8, 1999
Registration No. -
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
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)
Delaware 7373 13-401 2236
- ---------------------------- ---------------------------- -------------------
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
organization)
41 East 11th Street, 11th Floor
New York, New York 10003
(212) 331-1227
-------------------------------------------------------------
(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:
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
================================================================================
<PAGE>
PART I
Special Note Regarding Forward-Looking Statements. Certain statements
in this Form 10-SB constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995 (the "Act"). The Company is
including this special note to take advantage of certain "safe harbor"
provisions of the Act. Forward-looking statements included in this Form 10-SB or
hereafter included in other publicly available documents filed with the
Securities and Exchange Commission, reports to the Company's stockholders and
other publicly available statements issued or released by the Company involve
known and unknown risks, uncertainties, and other factors which could cause
actual results, performance (financial or operating) or achievements to differ
from the future results, performance (financial or operating) achievements
expressed or implied by such forward looking statements. Such future results are
based upon management's best estimates based upon the current conditions and
predictions with respect to results of operations. Factors that could cause the
Company's actual results, performance or achievements to differ from future
results, performance (financial or operating) or achievements expressed or
implied by such forward looking statements include, without limitation, the
Company's ability to market and brand successfully its on-line party planning
concept, changes in the Company's National and Local 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 a leading Internet resource for consumers
seeking party planning advice and information, party services, party goods, and
personalized video greetings called "StarGreetings" from celebrities. The
Company's web site, www.iparty.com (the "Site"), was 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 harried
consumer to exchange ideas about parties, select themes, make comprehensive
plans, and purchase all of the goods and services for the 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 get party advice, 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 able to return to check the order's status, and
will also receive e-mail about new items that may have come into stock that
would fit the selected party theme or items asked about, but were unavailable
when ordered. 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. After the party, the consumer will
receive a post-party e-mail or phone call in order
<PAGE>
to provide an opportunity for the consumer to evaluate the performance of the
Site and the Company.
Although the consumer will interact only with the Company, the actual
provision and fulfillment of each of these elements will come from a network of
strategic partners, vendors, or subcontractors. These strategic partners will
typically fall into one of two categories: local fulfillment partners ("LFPs"),
or national fulfillment partners ("NFPs"). The LFPs are likely to include
entertainers (orchestras, bands, clowns, magicians, pony rides), caterers,
bakers, rental firms (for items such as tents, furniture, equipment), and
facilities operators, including hotels, restaurants, skating rinks, pools, and
bowling alleys. Currently, and in the Company's early stages, these local
partners will be little more than classified advertisers in the Company's party
resources directory. Gradually, the Company will implement mechanisms to vet and
monitor these providers and transform them into true partners and members of the
Company's network.
The NFPs will have the ability to provide their services or deliver
their goods nearly anywhere in the U.S. (and often internationally). Typically,
they will be catalog companies and/or established on-line merchants.
The Company currently has 8 employees. In the last year, the Company
spent approximately $450,000 on research and development and on construction of
the Site.
The History of the Company
The Company was previously known as WSI Acquisitions Corp. ("WSI"),
which was incorporated under the laws of the State of Delaware on June 11, 1998.
On June 30, 1998, WSI merged with WSI Acquisitions, Inc., a Texas corporation,
with WSI being the surviving entity. Neither WSI 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, and WSI 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
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 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 launched in February 1999, but
is not yet complete in terms of content or design. 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, no matter how
-2-
<PAGE>
many NFPs are involved, in one payment transaction with the Company, without
ever having to leave the Site. Currently, the Site only contains a Homepage and
PartyMarket. The Site's Homepage is similar to the front page of a newspaper. It
features news items (Party of the Week; upcoming movies, what's hot, what's
not), ticklers to attract interest to the various channels (Now, Live Dalmatians
for Your Child's "101 Dalmatians" Theme Birthday Party) and icons to make it
easy for people to get to the right channels.
PartyMarket resembles a mall of shops devoted entirely to the goods and
services that relate to the theme chosen by the consumer. There, the consumer
will be able to order party goods, balloons, favors, costumes, cakes and food,
flowers, beverages, personalized celebrity greetings, and gifts for direct
shipment. The consumer can also scan the Company's classified ads to identify
providers of local services. In addition, consumers can "drill down" to see
other products if they do not like the thematic offerings chosen. 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.
Once fully developed, the Site will offer party planning advice
provided by recognized experts, message boards and chat rooms for people to
exchange ideas about the kinds of parties that interest them, gossip columns
about celebrity parties and special events, and magazine-style features on
unique party ideas and experiences. The Site's content will be organized in
channels or shops to reflect people's interests and objectives. At completion,
each channel will have some or all of the following features, as appropriate:
o Expert advice
o News and features
o Bulletin boards and Message Boards
o Classified ads (in a format that includes key information such as
references)
o Gateways to the Company's PartyMarket
o Means of evaluating fulfillment partners by consumers.
The News Channel (tentatively called "Party Talk") will be a
continuation of the Homepage. It will carry news items, gossip columns, and
feature stories. Sub-channels will focus on college parties and sports parties.
Party-specific channels will include birthdays; milestone parties, such as
anniversaries, Bar/Bat Mitzvahs, weddings, bachelor parties & bridal showers;
and seasonal parties such as Halloween, New Year's Eve, and the Super Bowl.
In the next six to twelve months, in addition to these shopping
channels, PartyMarket will feature several distinctive channels for customer
service.
-3-
<PAGE>
The Company also has a wholly-owned subsidiary, StarGreetings, Inc., a
Delaware corporation ("StarGreetings") which owns the URL
"www.StarGreetings.com." StarGreetings offers a personalized video greeting from
a celebrity who looks right at the recipient, addresses him or her by name,
talks about the special occasion, and mentions the person's age (if it's a
birthday) or other personal characteristic. StarGreetings intends to feature all
types of celebrities - athletes, actors, musicians, models, corporate leaders,
politicians, and animated characters - and plans on offering greetings for a
variety of occasions - birthdays, anniversaries, bachelor parties, and
Christmas, among others.
Each greeting will last between 30 and 60 seconds and can be downloaded
from the Site or delivered overnight in videocassette form. The party giver can
then play it back on the computer monitor or the television 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 will click on the
celebrity of choice. The customer then selects one of several greetings,
fills in the blanks for the name and age of the recipient, chooses the method of
delivery (Internet download or video cassette), and hits "submit." The
StarGreetings computer will then edit the name and age into the selected
greeting and deliver it, as directed.
There are currently two StarGreetings to chose from on the Site, and
several more are currently in production. The Company is in the process of
signing up additional celebrities.
-4-
<PAGE>
Competition.
The Company does not believe that there are any direct competitors to
its "PartyMarket" concept. While competitors may exist in individual categories,
such as Hallmark and American Greetings for cards and invitations; Party City
and the Big Party in the retail party-goods supply businesses; and FTD in the
flower arena, the Company is not aware of any other business that has pooled all
of these party resources into one convenient shopping mall.
The Company is similarly unaware of competitors to the StarGreetings
concept. However, the Company does recognize the potential that, despite the
intended patent protection, others may see a market and try to compete and
develop their own celebrity greeting technology. The Company believes that by
being first, by protecting its patents and by locking celebrities into exclusive
agreements, the Company will be able to maintain a competitive advantage.
Item 2. Plan of Operation.
General.
The Company launched the Site in February 1999. The Company has not yet
generated revenues and currently intends to raise additional capital in the next
six months, either in the form of equity, debt or a combination thereof. 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 expects its revenues to be derived from several sources,
but as with most e-commerce business, 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 currently expects to
generate revenue from (i) retail sales to consumers of goods purchased at
wholesale; (ii) commissions or royalties paid by NFPs and LFPs for orders
received through the Company; (iii) sales of StarGreetings; (iv) membership or
franchise fees from certain NFPs and LFPs; (v) service fees paid by the consumer
for certain special comprehensive party packages; (vi) advertising on the Site's
pages, particularly the content features such as expert planning advice, gossip,
and chat rooms; and (vii) listing fees from LFPs such as magicians, clowns, or
bands, who want to be posted on the Site's classified advertisements.
The Company expects to hire between five and ten additional employees
in the next year as the needs of the Company may require to sustain growth, and
to remain competitive and creative.
-5-
<PAGE>
The Site.
The Company is launching the Site in two stages, as follows:
First Stage. Currently, the Site contains the Homepage and PartyMarket.
In this first stage, the Company intends to offer limited editorial content,
message boards, StarGreetings, and PartyMarket. On-site shopping will initially
be limited to party goods, balloons, flowers, and cakes. Additional services and
goods will be made available through affiliate programs with NFPs. Currently,
these programs require hyper-links to the NFPs' own web site for shopping. By
the end of the second quarter of 1999, the Company expects to begin integrating
these NFPs into PartyMarket and eliminating the need for hyper-links.
Second Stage. By the end of the second quarter of 1999, the Company
expects to complete the development of the PartyMarket management software. At
this point it is expected that the Company's NFPs will be able to be fully
integrated into PartyMarket and that most affiliate programs will end. In
addition, the Company believes it will have full functionality of the Site,
including live order tracking for items shipped by national couriers at this
point.
The Company currently plans to introduce additional features, such as
Gift Registry, Party Workbook, Party Web Page, Online Party Service, and an
Invitation Shop, at regular intervals during the third and fourth quarters of
fiscal year 1999. The solicitation of advertisers for the Party Resources
Directory will begin in the third quarter, most likely in partnership with
on-line directory services such as Switchboard.com.
Sales and Marketing.
The Company intends to pursue several avenues relating to sales and
marketing in the next year of operations. In terms of public relations, the
Company believes that by leveraging announcements of new celebrities for
StarGreetings, new content partners, new features (and their sponsors, where
appropriate), and new PartyMarket partners, it can build high recognition for
the Company's brand on a cost-efficient basis. The Company also expects to
promote its brand with its various licensors. The Company intends to enter into
cross-promotions with its NFPs, such as 1-800-FLOWERS, among others, who have
the ability to reach vast audiences with their promotions. The Company will
attempt to co-brand with licensors and NFPs and to negotiate for logo placement
with licensors and NFPs on packaging and advertising material. There can be no
assurance that the Company will be successful in such efforts.
The Company believes that on-line affiliations are one of the most
efficient formats for brand building. The Company is currently weighing
affiliations with gatekeepers and service providers because of their strength in
the Company's target customer bases. For example, the key word "iParty" has been
reserved on America On-Line. In addition, the Company plans to target databases
of its NFPs and licensors to recruit potential customers.
-6-
<PAGE>
In addition, to expand brand recognition, the Company intends to
distribute Company t-shirts, caps, jackets, banners and novelty items with the
Company logo to celebrities, pro athletes, college students and others and also
intends to explore TV and movie placements. It is not anticipated that the
Company will enter into endorsements, although it may consider them in special
cases where a particularly attractive public figure may agree to wear the
Company's items.
Patents and Trademarks.
The proprietary technology underlying StarGreetings and the
StarGreetings trademark are 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."
o StarGreetings: The patent application for the Company's StarGreetings
"athlete/celebrity" video greeting concept was applied for in the name of Mr.
Hero, who has agreed to assign the patent to StarGreetings LLC which will assign
the patent to StarGreetings, Inc. The Comnpany also intends to apply for two
patents associated with the StarGreetings technology and its PartyMarket.
The Company has applied for the trademarks iParty and StarGreetings.
The Company owns the following URLs:
iParty.com
StarGreetings.com
iLiquor, iLiquor.com
iLiquors, iLiquors.com
iBaker, iBaker.com
iBakers, iBakers.com
iInvite, iInvite.com
iInvitation, iInvitation.com
-7-
<PAGE>
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. Currently, the
Company has not entered into any binding agreements for such acquisitions.
Year 2000
The Company has taken actions to ensure that the Site, and its internal
systems and procedures are Year 2000 compliant. At this time, the Company has
not encountered any Year 2000 issues which would have a material adverse effect
on its business or current products. The Company will also monitor the progress
of its vendors with respect to this issue.
Item 3. Description of Property.
The Company leases its 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, and 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 total monthly rent is $4,200 with an additional
variable monthly service fee of an average of $600, depending on office
equipment usage. In addition, the Company leases an office at 1350 Avenue of the
Americas, New York, NY 1019 for $1000 a month, on a month-to-month basis.
Management does not believe that such space is adequate for its immediate needs,
and anticipates leasing larger office space in New York City sometime during the
next 6 months.
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 March 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
executive officer 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. There
are 550,000 shares of Series A Preferred Stock issued and outstanding. In
addition, there are warrants to purchase an additional 450,000 shares of Series
A Preferred Stock, which are currently exercisable and expire on June 30, 1999.
As of March 1, 1999, there were 11,005,691 shares of Common Stock
outstanding.
-8-
<PAGE>
Number of Shares
Beneficially Percent of
Name and Address of Beneficial Owner(1) Owned(2) Class
- --------------------------------------- -------- -----
Byron Hero 6,649,995(3) 60.42%
Maureen Broughton Murrah 200,000(4) 1.81%
Robert H. Lessin 7,640,000(5)(7) 69.42%
c/o WIT Capital
826 Broadway, 6th Floor
New York, NY 10003
James McCann 6,000,000(6) 54.51%
1-800 Flowers
1000 Stewart Avenue
Westbury, NY 11590
iParty LLC 7,640,000(7) 69.42%
Ajmal Khan 75,000(8) *
The Verus Group, Suite 2000
1177 West Hastings Street
Vancouver, British Columbia
Canada V6E 2K3
Leslye Faulk 60,000(9) *
Eric Berg 90,000(10) *
Samuel Belzberg 50,000(11) *
The Verus Group, Suite 2000
1177 West Hastings Street
Vancouver, British Columbia
Canada V6E 2K3
Sal Perisano 75,000(12) *
Chairman, The Big Party
288 Huron Avenue
Cambridge, MA 02138
All officers and directors 8,839,995 80.32%
as a group (6 persons)
- ---------------------
* Less than one percent (1%).
-9-
<PAGE>
(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 6,000,000 shares of Common Stock owned by iParty LLC, in which
Mr. Hero is a member and a 10% owner, and as to which Mr. Hero
disclaims beneficial ownership as to all but 599,995 shares of Common
Stock. Also includes 50,000 shares of presently exercisable options to
acquire shares of Common Stock received pursuant to the Company's 1998
Incentive and Nonqualified Stock Option Plan (the "Plan").
(4) Represents shares of presently exercisable options to acquire 200,000
shares of Common Stock received pursuant to the Plan.
(5) Includes 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. Also includes
50,000 shares of presently exercisable options to acquire shares of
Common Stock received pursuant to the Plan.
(6) Includes 6,000,000 shares of Common Stock owned by iParty LLC, in which
Mr.McCann is a member and a 11.66% owner, and as to which Mr. McCann
disclaims beneficial ownership as to all but 699,813 shares of Common
Stock.
(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. Includes 1,640,000 shares of Common Stock over which the
controlling stockholders of WSI appointed iParty LLC as its proxy (the
"Proxy"). The Proxy terminates on the exercise of certain warrants to
purchase an aggregate of 1,000,000 shares of Series A Preferred Stock
(the "Warrants") issued to Ruffino Developments Limited ("Ruffino") and
Henslowe Trading Limited ("Henslowe"), at $1.00 per share, which are
currently exercisable and expire on June 30, 1999. To date, Ruffino and
Henslowe have each exercised 225,000 Warrants and have each been issued
225,000 shares of Series A Preferred Stock. iParty LLC is to release
the proxies over these shares (the "Proxy Shares") on a pro rata basis
according to the number of warrants for Series A Preferred Stock
exercised by Ruffino and Henslowe. Warrants for an aggregate of 550,000
shares of Series A Preferred Stock remain outstanding. Notwithstanding
the foregoing, the proxy terminates on the written agreement of all of
the parties thereto; or the dissolution of the Company, or the
voluntary commencement by the Company of any proceeding under any
bankruptcy, reorganization, arrangement, readjustment of debt,
moratorium, or similar law or statute, or the date on which a public
offering of the Company's securities is declared effective by the
Securities and Exchange Commission. See "Recent Sale of Unregistered
Securities."
(8) Includes 50,000 shares of presently exercisable options to acquire
shares of Common Stock received pursuant to the Plan, and 25,000 shares
of Common Stock held by Verus Capital Corp., of which Mr. Khan is the
sole stockholder.
(9) Includes 60,000 shares of options to acquire shares of Common Stock
received pursuant to the Plan vesting on April 17, 1999.
(10) Includes 90,000 shares of options to acquire shares of Common Stock
received pursuant to the Plan vesting on April 26, 1999.
(11) Includes 50,000 shares of presently exercisable options to acquire
shares of Common Stock received pursuant to the Plan.
(12) Includes 75,000 shares of presently exercisable options to acquire
shares of Common Stock received pursuant to 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.")
-10-
<PAGE>
Item 5. Directors, Executive Officers and Promoters.
The following sets forth, in alphabetical order, the names of the
Company's directors and executive officers.
Name Age Position
---- --- --------
Byron Hero 48 Chief Executive Officer, Director
Maureen Broughton Murrah 36 President, Director
Leslye Faulk 34 Vice President
Eric Berg 35 Chief Technology Officer
Samuel Belzberg 60 Director
Ajmal Khan 37 Director
Robert H. Lessin 44 Director
Sal Perisano 48 Director
The Company has no nominating committee. The Company has an audit
committee consisting of Samuel Belzberg and Sal Perisano, and a compensation
committee consisting of Byron Hero, Robert H. Lessin and Ajmal Khan. The Company
also has an executive committee consisting of Byron Hero, Robert H. Lessin and
Sal Perisano.
Set forth below are the names of all Directors and Executive Officers
of the Company.
Byron Hero has been the CEO of the Company since July 1998. He also
serves as a director of Star Greetings Inc., and is a member of StarGreetings,
LLC, the creator and licensor of the StarGreetings concept. Prior to founding
the Company, Mr. Hero was employed as Chairman and CEO of Danskin Inc.
("Danskin"), an apparel company, which was acquired when Mr. Hero and other
investors bought its parent holding company, Esmark ("Esmark"), from Beatrice
Companies, Inc. in a leveraged buyout. Mr. Hero resigned from Danskin in
September, 1994 and was a self-employed consultant from October 1994 through
July 1, 1998. From September 1994 until December 31, 1999, he also worked
independently on an ultimately unsuccessful effort to restructure the finances
of Esmark. Esmark filed for Chapter 7 liquidation under the U.S. Bankruptcy Code
on June 6, 1996.
Mr. Hero had personally guaranteed certain obligations of Esmark and
its related entities, and had pledged some of his common stock holdings in
Esmark as collateral for both Esmark-related and personal obligations.
When Esmark failed, Mr. Hero funded these obligations through sales
of his personal assets to the extent possible. In lieu of filing for
-11-
<PAGE>
personal bankruptcy, he attempted and continues to attempt settlements with
several creditors. In some cases, this has involved consenting to confessions of
judgment or acquiescing to the entry of judgments.
In December 1992, several class actions (subsequently consolidated)
were filed against Danskin, certain of its officers and directors, including Mr.
Hero, the underwriters of its initial public offering and Esmark, in the U.S.
District Court for the Southern District of New York, alleging that materially
false and misleading statements were made in the prospectus for Danskin's
initial public offering and in subsequent public statements and a regulatory
filing. These actions arose following Danskin's reporting of a $1,000,000
pre-tax charge against income in fiscal 1993 relating to production problems
caused by an unauthorized change in product specifications by a yarn vendor.
Following a fairness hearing held on May 29, 1996, the Court entered an Order
and Final Judgment approving a settlement of the consolidated actions. Both
suits were settled in favor of Danskin and the directors in that the settlement
was funded in its entirety by defendants unrelated to Danskin and by the carrier
of Danskin's Director and Officer Liability insurance policy. The Order and
Final Judgment certified the class and released all of the defendants, including
Mr. Hero, from claims by the class members arising from the purchase of
Danskin's securities, as well as claims for contribution or indemnification.
On August 19, 1994, a stockholder, who was also a plaintiff in the
securities class action litigation described above, filed a derivative action in
the Delaware Court of Chancery against the directors of Danskin, including Mr.
Hero, with Danskin as nominal defendant, alleging that a certain amount of funds
advanced by Danskin to Esmark, and for which reserves charged to operations had
been established by Danskin, constituted a waste of corporate assets. The action
did not seek any damages from Danskin. This matter was settled by agreement,
dated May 17, 1996, among the parties, and the carrier of Danskin's Directors
and Officers Liability policy. The terms of the settlement were approved by the
Court of Chancery on November 26, 1996.
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 Danskin's Vice President of Merchandising and Marketing, where she directed
all aspects of the Danskin brand business, including design, merchandising,
marketing, advertising, and public relations.
Leslye Faulk has been Vice President of the Company since January 1999.
From October 1998 through February 1999, Ms. Faulk was the Senior Director of
Business Development at "a2b music/AT&T Solutions," an online music distribution
company, where she was responsible for maintaining existing strategic
relationships and overseeing product management. Prior to joining 2ab music,
from February 1997 through September 1998, she was the Director of New
-12-
<PAGE>
Media for N2K Encoded Music/N2K Inc., NY, a record label. Prior to joining N2K,
from 1993 through February 1997, she was a Senior Producer for Colombia
Records/Sony Music, NY.
Eric Berg has been Chief Technology Officer of the Company since
October 1998. From February 1996, until joining the Company in October 1998, he
was at Sybase, Inc. ("Sybase"), a software publisher, where he was a Senior Web
Engineer, building the Web infrastructure for their technical support
organization and served as a Web developer, systems engineer and Webmaster.
Before Sybase, from November 1994 though February 1996, he was an Electronic
Information Publishing Director for Mazama Software Labs, an Internet security
software startup company. From July 1994 through November 1994, he was a
Production Manager for The Digital Foundry, a MultiMedia CD-ROM developer. From
July 1993 through July 1994, he worked as a supervisor in for the electronic
publishing unit of Ziff Communications Company where he was responsible for
re-engineering the electronic publishing hub and converting all collateral
material from leading computer magazine for on-line magazine companion products.
Sam Belzberg has been a Director of the Company since July 1998. Mr.
Belzberg is President of Gibralt Capital Corporation ("Gibralt"), a private
investment company and has held this position since 1993. Prior to joining
Gibralt, he was the founder and Chairman of Balfour Holdings, a real estate
company whose assets were recently sold to the Blackstone Group. He has served
as CEO and Chairman of First City Financial, a financial institution which he
founded and which employed over 2000 people in three core businesses: a
full-service trust company in Canada, a real estate development arm in North
America, and an industrial group which controlled companies such as Scovill,
Yale Locks, Hamilton Beach, and Nu Tone Products. Mr. Belzberg is also a
director of Emultak, Ltd., a NASDAQ-listed computer software company and is a
director of Metromedia Asia, a wireless communications company with licenses in
China, and was instrumental in structuring and taking public Franklin Resources,
now the largest oil field supply company in Canada.
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.
-13-
<PAGE>
Sal Perisano has been a Director of the Company since October 1998. In
December 1992, Mr. Perisano founded The Big Party, a retail chain of 53 party
supply stores, located in West Roxbury, Massachusetts. Mr. Perisano serves as
a director of The Big Party. Mr. Perisano, and his wife Dorice
Dionne, the co-founder of The Big Party also serve as consultants to the
Company.
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.
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>
Other
1998 Annual
---- Compen-
Name and Principal Position 1998 Salary Bonus* sation Options
- --------------------------- ----------- ------ ------ -------
<S> <C> <C> <C> <C>
Byron Hero, Chief Executive Officer $250,000(1) 12,000(2) 50,000
Maureen Broughton Murrah, President $150,000(3) 200,000(3)
and Development
Leslye Faulk, Vice President $120,000(4) 120,000(4)
Eric Berg, Chief Technology Officer $90,000(5) 90,000(5)
</TABLE>
- -----------------
* See description below.
(1) Represents annualized salary. Mr. Hero did not begin his employment with
the Company until July 7, 1998. Options with respect to 50,000 shares of
Common Stock vested on January 15, 1999, and are exercisable at $2.50 per
share.
(2) Represents maximum annual car allowance.
(3) Represents annualized salary. Ms. Murrah did not begin her employment with
the Company until July 6, 1998. Options with respect to 150,000 shares of
Common Stock vested on July 6, 1998, and are exercisable at $2.50 per
share, and options with respect to 50,000 shares of Common Stock vested on
January 6, 1999, at an exercise price of $2.50 per share.
(4) Represents annualized salary. Ms. Faulk did not begin her employment with
the Company until January 17, 1999. Her options vest as follows: 60,000 on
April 17, 1999 and 60,000 on July 17, 1999, and are exercisable at a price
equal to the fair market value of the Common Stock on the date of grant.
(5) Represents annualized salary. Mr. Berg did not begin his employment with
the Company until October 26, 1998. All of his options vest on April 26,
1999, and are exercisable at the price equal to the fair market value of
the Common Stock on the date of grant.
-14-
<PAGE>
Employment Agreements
The Company and Mr. Hero entered into an employment agreement, dated as
of July 7, 1998 and expiring on June 30, 2001. The agreement provides that he
will act as Chief Executive Officer of the Company, devote substantially all of
his full working time and attention to the Company, and receive an annual salary
of $250,000, plus an annual performance bonus to be awarded at the discretion of
the Board of Directors, with a target of $50,000 for the first year. In
addition, Mr. Hero will be granted stock options to purchase an aggregate of
300,000 shares of Common Stock pursuant to the Plan, which options will vest as
follows: provided Mr. Hero remains continuously employed by the Company, options
shall vest in 50,000 increments on each January 15, and July 15 from 1999
through the year 2001. If the employment agreement is terminated by the Company
without cause, Mr. Hero is entitled to receive an amount equal to any unpaid
out-of-pocket necessary expenses as contemplated under the employment agreement
and 12 months of the base salary then in effect, paid in twelve equal
installments. The employment agreement also provides for a one year non-compete
following the termination of Mr.
Hero's employment.
In addition, StarGreetings and the Licensor, Star Greetings LLC, of
which Mr. Hero is a member and the manager, entered into a License Agreement
dated as of August 15, 1998 (the "License Agreement"). Pursuant to the License
Agreement, the Licensor is to be paid a royalty of 2 1/2% of the gross revenues
received by StarGreetings from the sale of StarGreetings. See "Certain
Relationships and Related Transactions."
Mr. Hero is also a party to a finder's fee agreement with iParty LLC,
which was entered into on April 29, 1998, prior to the time Mr. Hero became a
diretor and Chief Executive Officer of the Company (the "Finder's Fee
Agreement"). The Finder's Fee Agreement calls for Mr. Hero to receive a fee in
the amount of 5% of the first $2,000,000 in equity raised from any party
introduced by him. The Company has assumed the obligations of iParty LLC under
the Finder's Fee Agreement. In connection with the Finder's Fee Agreement,
approximately $1,000,000 was raised and an additional $1,000,000 was pledged to
the Company. As a result, the Company paid Mr. hero $50,000 during 1998 and will
pay Mr. Hero an additional $50,000, on a pro rata basis, as the additional
investment is received.
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 150,000 shares of Common Stock vested on July 6, 1998, 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, 1999, July 6, 1999,
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 Ms. Faulk entered into an employment agreement, dated
as of January 17,1999, which expires December 31, 2000. The agreement provides
that she will act as Vice President of the Company and provides for an annual
salary of $120,000, to be reviewed in July 1999. In addition, Ms. Faulk was
granted stock options to purchase an aggregate of 120,000 shares of Common Stock
pursuant to the Plan, 60,000 of which will vest on April 17, 1999 and
-15-
<PAGE>
60,000 of which will vest on July 17, 1999. If the employment agreement is
terminated by the Company without cause, and provided Ms. Faulk has been
employed by the Company for at least three months, Ms. Faulk is entitled to
receive an amount equal her full base salary rate for a period of three months
from the date of termination, and at half her base salary for an additional
three months. The severance payment will cease at such time as she finds new
employment.
The Company and Mr. Eric Berg entered into an employment agreement
dated as of October 26, 1998, which expires December 31, 1999. The agreement
provides that he will act as Chief Technology Officer of the Company and
provides for an annual salary of $90,000, to be reviewed in January 1999. In
addition, Mr. Berg was granted stock options to purchase an aggregate of 90,000
shares of Common Stock pursuant to the Plan, all of which will vest on April 26,
1999. If the employment agreement is terminated by the Company without cause,
and provided Mr. Berg has been employed by the Company for at least three
months, Mr. Berg is entitled to receive an amount equal his full base salary
rate for a period of three months from the date of termination, and at half his
base salary for an additional three months. The severance payment will cease at
such time as he finds new employment.
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
Perisano. The consulting period terminates on December 31, 1999. Pursuant to
this agreement, Mr. Perisano is 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. He 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 date their hours exceeded
100.
Stock Option Plan
In July 1998, the Company's Board of Directors adopted the Plan, under
which there are 2,000,000 shares of Common Stock are reserved for issuance under
the Company's Incentive and Nonqualified Stock Option Plan (the "Plan"). 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.
-16-
<PAGE>
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.
-17-
<PAGE>
In addition to those options granted to the Company's non-executive
officer directors under the Plan, the following paragraph summarizes the options
to that have been granted pursuant to the Plan to the Company's officers and
directors listed under "Executive Compensation" herein.
Pursuant to her employment agreement, Ms. Murrah was granted options to
acquire an aggregate of 150,000 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. According to his employment agreement,
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 employment agreement, described above. Pursuant to her
employment agreement, Ms. Faulk was granted stock options to purchase an
aggregate of 120,000 shares of Common Stock pursuant to the Plan, 60,000 of
which will vest on April 17, 1999 and 60,000 of which will vest on July 17,
1999, at an exercise price equal to the fair market value on the date of grant.
Pursuant to his employment agreement, Mr. Eric Berg was granted stock options to
purchase an aggregate of 90,000 shares of Common Stock pursuant to the Plan, all
of which will vest on April 26, 1999, at an exercise price equal to the fair
market value on the date of grant. 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. These
options are currently exercisable.
Item 7. Certain Relationships and Related Transactions.
StarGreetings License
Star Greetings (the "Licensee") licenses the StarGreetings concept (the
"StarGreetings Concept") from the Licensor, StarGreetings, LLC. Mr. Hero, a
director and the Chief Executive Officer of the Company, is also 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 their license to 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.
-18-
<PAGE>
The License Agreement terminates in the event of a change of control
in the Licensee or a change in 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.
Consulting Agreement with Director
One of the Company's directors, Sal Perisano, and his wife Dorice
Perisano, are hired consultants of the Company. The consulting period terminates
on December 31, 1999. Pursuant to their consulting agreement, they are 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. Mr. Perisano's consulting hours
exceeded 100 on January 19, 1999. He 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 date their hours exceeded 100.
Finder's Fee Agreement with Director
iParty LLC and Mr. Hero, the Chief Executive Officer ("CEO") of the
Company entered into an agreement prior to Mr. Hero becoming a director and CEO
of the Company, 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, approximately $1,000,000 was raised and an additional $1,000,000 was
pledged to the Company. As a result, the Company paid Mr. Hero $50,000 during
1998 and will pay Mr. Hero an additional $50,000, on a pro rata basis, as the
additional investment is received.
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 March 1, 1999, there were 11,005,691 shares of Common Stock
issued and outstanding. 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 share of 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 be
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
-19-
<PAGE>
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 one million of the ten million authorized shares of Preferred
Stock Series A Preferred Stock, $.001 par value per share (the "Series A
Preferred Stock").
The holders of Series A Preferred Stock rank junior to any classes of
stock designated by the Company as Senior Securities, and 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, as to
distribution of assets upon liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary. The Series A Preferred Stock bears no
dividends.
The holders of Series A Preferred Stock are entitled to anti-dilution
protection as follows: If, prior to the conversion of all the Series A Preferred
Stock, 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 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. The Company cannot effect any transaction
described in this paragraph unless (a) it first gives thirty (30) calendar days
prior notice to the holders of Series A Preferred Stock; and (b) the resulting
successor or acquiring entity (if not the Company) assumes by written instrument
the obligation of the Company under the Certificate of Designation, including
the obligations of this paragraph.
Shares of Series A Preferred Stock are convertible into whole shares of
Common Stock, on a one-to-one basis, subject to adjustment as provided in the
certificate of designation.
The Company issued Warrants to purchase an aggregate of 1,000,000
shares of Series A Preferred Stock to Ruffino and Henslowe, at $1.00 per share,
which are currently exercisable and expire on June 30, 1999. To date, Ruffino
and Henslowe have each exercised 275,000 Warrants and have each been issued
275,000 shares of Series A Preferred Stock; 450,000 Warrants remain outstanding.
-20-
<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. 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.
1998 High Low
---- ---- ---
Fourth Quarter 3.375 1.065
Third Quarter 3.375 .05
Second Quarter 1998 .06 .03125
First Quarter .0625 .01
The Company has never paid any cash dividends not does it intend, at
this time, to make cash distributions to its shareholders in the near future. As
of March 1, 1999 the number of holders of the Company's Common Stock was 94.
Item 2. Legal Proceedings.
The Company is not currently a party to any 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
-21-
<PAGE>
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 5 of the
Securities Act, 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.
Pursuant to Rule 504, on June 25, 1998, the Company sold 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>
- -------------------------------------------------------------------------------------------------------------------
Name of Purchaser Number of Shares Purchased Total 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>
-22-
<PAGE>
Pursuant to Rule 504, on June 26, 1998, the Company sold 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
"Warrants"), to the following entities, in the amounts set forth below:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Name of Purchaser Number of Shares and Warrants Total Purchase Price
Purchased
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Ruffino Developments Limited 40,000 shares of common stock and $40,000
Warrants to purchase 556,500 shares
of Series A Preferred Stock
- ---------------------------------------------------------------------------------------------------------------------
Henslowe Trading Limited 40,000 shares of common stock and $40,000
Warrants to purchase 443,500 shares
of Series A Preferred Stock
- ---------------------------------------------------------------------------------------------------------------------
TOTAL: 80,000 shares of Common Stock, and $80,000
Warrants to purchase 1,000,000
shares of Series A Preferred Stock
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
The Warrants issued to each of Henslowe and Ruffino were exercisable
from December 28, 1998 through June 30, 1999, after which they expire. To date,
Warrants to purchase an aggregate of 550,000 shares of Series A Preferred Stock
have been exercised in equal parts by each of Henslowe and Ruffino.
Pursuant to Rule 504, on June 26, 1998, the Company sold an aggregate
of 880,957 shares of Common Stock pursuant to Rule 504, at a purchase price of
$1.00 per share, to the following entities, in the amounts set forth below:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Name of Purchaser Number of Shares Purchased Total Purchase 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>
-23-
<PAGE>
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.
-24-
<PAGE>
iPARTY CORP. AND SUBSIDIARY
(a development stage company)
Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
Consolidated Financial Statements
Independent auditors' report F-1
Balance sheet as of December 31, 1998 F-2
Statement of operations for the year ended December 31, 1998 F-3
Statement of changes in stockholders' equity for the year ended December 31, 1998 F-4
Statement of cash flows for the year ended December 31, 1998 F-5
Notes to financial statements F-6
</TABLE>
<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. AND SUBSIDIARY
(a development stage company)
Balance Sheet
December 31, 1998
<TABLE>
<CAPTION>
ASSETS
Current assets:
<S> <C>
Cash and cash equivalents $ 346,751
Cash - restricted 50,000
Advances to officers 34,021
Other current assets 60,277
---------------
Total current assets 491,049
Property and equipment, net 341,441
Other assets 9,670
---------------
$ 842,160
===============
LIABILITIES
Current liabilities:
Accounts payable $ 297,508
Notes payable 250,000
---------------
Total current liabilities 547,508
---------------
Commitments (Note E)
STOCKHOLDERS' EQUITY
Preferred stock - $.001 par value; 10,000,000 shares authorized;
none issued and outstanding
Common stock - $.001 par value; 50,000,000 shares authorized;
11,005,691 shares issued and outstanding 11,006
Additional paid-in capital 1,146,044
Deficit accumulated during the development stage (862,398)
---------------
294,652
---------------
$ 842,160
===============
</TABLE>
F-2
See notes to financial statements
<PAGE>
iPARTY CORP. AND SUBSIDIARY
(a development stage company)
Statement of Operations
Year Ended December 31, 1998
Costs and expenses:
General and administrative expenses $ 873,087
------------
Operating loss (873,087)
Other income (expense):
Interest income 11,090
Interest expense (401)
------------
Net loss $ (862,398)
============
Net loss per share:
Basic and diluted $ (.08)
============
Weighted average shares outstanding:
Basic and diluted 10,525,213
============
See notes to financial statements F-3
<PAGE>
iPARTY CORP. AND SUBSIDIARY
(a development stage company)
Statement of Changes in Stockholders' Equity
Year Ended December 31, 1998
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Common Stock Paid-in Development
Shares Amount Capital Stage Total
------ ------ ---------- ----------- -----
<S> <C> <C> <C> <C> <C>
Issuance of common stock at $.04 per share
on March 12, 1998 6,000,000 $ 6,000 $ 240,961 $ 246,961
Outstanding common stock of WSI
prior to merger on July 2, 1998 420,691 421 (421) 0
Issuance of common stock at $.01 per
share on July 2, 1998 3,624,043 3,624 32,616 36,240
Issuance of common stock and warrants
at $1.00 per share (net of expenses of
$110,197) on July 2, 1998 960,957 961 849,799 850,760
Accrual of pro rata portion of value of
50,000 options granted in September 1998
and January 1999 under consulting
agreement with outside director 23,089 23,089
Net loss $ (862,398) (862,398)
------------- ----------- ------------- ------------- ------------
Balance - December 31, 1998 11,005,691 $ 11,006 $ 1,146,044 $ (862,398) $ 294,652
============= =========== ============= ============= ============
</TABLE>
See notes to financial statements F-4
<PAGE>
iPARTY CORP. AND SUBSIDIARY
(a development stage company)
Statement of Cash Flows
Year Ended December 31, 1998
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss $ (862,398)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 12,364
Consulting expense 23,089
Changes in:
Other current assets (60,277)
Other assets (9,670)
Accounts payable 297,508
---------------
Net cash used in operating activities (599,384)
---------------
Cash flows from investing activities:
Purchase of property and equipment (76,874)
Costs of developing website and related software (276,931)
Advances to officers (34,021)
Increase in cash - restricted (50,000)
---------------
Net cash used in investing activities (437,826)
---------------
Cash flows from financing activities:
Proceeds from notes payable 250,000
Capital contribution upon initial capitalization 246,961
Proceeds from sale of stock 997,197
Costs of sale of stock (110,197)
---------------
Net cash provided by financing activities 1,383,961
---------------
Net increase in cash and cash equivalents and balance at December 31, 1998 $ 346,751
===============
</TABLE>
See notes to financial statements F-5
<PAGE>
iPARTY CORP. AND SUBSIDIARY
(a development stage company)
Notes to Financial Statements
December 31, 1998
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 recapitalization 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] 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.
[2] 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 reported amounts of revenue
and expenses during the reporting period. Actual results could differ
from these estimates.
F-6
<PAGE>
iPARTY CORP. AND SUBSIDIARY
(a development stage company)
Notes to Financial Statements
December 31, 1998
NOTE B - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[3] 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, the
Company maintains its cash deposits in accounts which are in excess of
Federal Deposit Insurance Corporation limits by $126,199. 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.
[4] Financial instruments:
The carrying amounts for the Company's cash and cash equivalents,
restricted cash, accounts payable and notes payable approximate fair
value.
[5] 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.
[6] 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.
[7] 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.
[8] 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.
[9] 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>
iPARTY CORP. AND SUBSIDIARY
(a development stage company)
NOTE C - PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
Property and equipment consist of the following at December 31, 1998:
<S> <C>
Office equipment $3,109
Furniture and fixtures 2,744
Computer equipment 71,021
Website and related software 276,931
--------
353,805
Less accumulated depreciation and amortization (12,364)
--------
$341,441
========
NOTE D - INCOME TAXES
<CAPTION>
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:
<S> <C>
Income tax benefit computed at the federal statutory income
tax rate of 35% $ (301,839)
Increase resulting from state and local taxes,
net of federal benefit (97,434)
Valuation allowance provided 399,273
----------
Income tax benefit in statement of operations $ 0
==========
<CAPTION>
The tax effects of significant items comprising the Company's net deferred tax
asset as of December 31, 1998 is as follows:
<S> <C>
Net operating loss carryforward $ 399,273
Less valuation allowance 399,273
----------
Net deferred tax asset $ 0
==========
</TABLE>
As of December 31, 1998, the Company has a net operating loss carryforward of
$862,398 which expires in 2018. 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.
F-8
<PAGE>
iPARTY CORP. AND SUBSIDIARY
(a development stage company)
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 in the year ended December 31, 1998
amounted to $27,983.
[2] Concentrations:
The Company has contracted with three 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.
[3] Finder's fee arrangement:
The Company and its Chief Executive Officer ("CEO") had entered into
an agreement prior to such individual becoming the CEO, which calls
for the 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
CEO. In connection with this agreement, approximately $1,000,000 has
been raised and an additional $1,000,000 has been pledged to the
Company. As a result, $50,000 has been paid to the CEO during 1998
and an additional $50,000 will be paid to the CEO during 1999 on a
pro rata basis as the additional investment is received.
[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 CEO. No amounts were payable to
Star Greetings, LLC under the agreement during the year ended
December 31, 1998.
[5] Star Greetings agreements:
The Company intends to enter into 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. As of
December 31, 1998, no such agreements have been entered into by the
Company (see Note I[4]).
[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. The value of the options
granted ($102,250) is being charged to expense over the period of the
agreement.
F-9
<PAGE>
iPARTY CORP. AND SUBSIDIARY
(a development stage company)
NOTE E - COMMITMENTS (CONTINUED)
[7] Employment agreements:
The Company has entered into employment agreements with several of its
executives. The agreements expire from December 31, 1999 through July
6, 2001 and provide for annual salaries aggregating $575,000. In
addition, the executives were granted options (see Note H) to purchase
an aggregate of 775,000 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.
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.
[2] Warrants:
In connection with the sale of common stock, the Company issued
warrants to two shareholders, which, if exercised in full, entitle
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 (see Note G).
NOTE G - NOTES 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 (see Note F[2]) 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
preferred shares and applied the $250,000 outstanding principal amount of the
notes in payment of the exercise price of the warrants.
F-10
<PAGE>
iPARTY CORP. AND SUBSIDIARY
(a development stage company)
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 2,000,000
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 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 two 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 changes during the year ended December 31, 1998 is as
follows:
<TABLE>
<CAPTION>
Weighted
Average
Exercise
Shares Price
------ --------
<S> <C> <C>
Stock options:
Granted 1,025,000 $ 2.19
Exercised 0 0
------------ -------
Outstanding at end of year 1,025,000 $ 2.19
============ ======
Exercisable at year-end 450,000 $ 2.31
============ ======
Weighted average fair value of options granted
during the year $ 1.69
======
</TABLE>
The effect of applying Statement of Financial Accounting Standards No. 123
"Accounting for Stock-Based Compensation" ("SFAS 123") on 1998 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 fair value of the options granted during 1998 have been
estimated at $.87 to $1.93 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. 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:
Net loss - as reported $ (862,398)
===========
- pro forma $(1,789,766)
===========
Net loss per share - as reported $(.08)
=====
- pro forma $(.17)
=====
F-11
<PAGE>
iPARTY CORP. AND SUBSIDIARY
(a development stage company)
NOTE I - SUBSEQUENT EVENTS
[1] Employment agreements:
In January 1999, the Company entered into employment agreements with
three executives. The agreements expire on December 31, 2000 and
provide for annual salaries aggregating $300,000. In addition, the
executives were granted options to purchase an aggregate of 320,000
shares of the Company's common stock at $4.00 and $4.38 per share,
which vest in various increments. The agreements also provide that
additional options are to be granted on an annual basis, in a number
to equal the dollar amount of each executive's annual salary. The
agreements also have a termination clause which calls for severance
payments equal to four and one-half months of the base annual salary
payable over a six month period.
[2] 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 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 $10,000 for April 1999 and thereafter.
[3] Advertising agreement:
On January 12, 1999, the Company entered into an advertising agreement
for the period February 1, 1999 through July 31, 1999, to solicit
advertising of its website on other websites. The agreement calls for
the Company to pay setup and related fees of $20,000 and a transaction
fee of $80,000.
[4] Issuance of options to nonemployees:
Subsequent to December 31, 1998 through February 15, 1999, the Company
issued options to acquire 355,000 shares of common stock at exercise
prices of $1.00 and $2.50 per share in connection with Star Greetings
agreements (see Note E[5]).
F-12
<PAGE>
PART III
Item 1. Index to Exhibits and Item 2. Description of Exhibits.
Exhibit No. Description Location
- ----------- ----------- --------
3.1 Restated Certifcate of Incorporation
of WSI Acquisitions Corp., and
Certificate of Merger by iParty Corp.
into WSI Acquisition Corp.
3.2 By-Laws of WSI Acquisitions Corp.
4 Certificate of Designation of Series A
Preferred Stock of WSI Acquisitions, Corp.
10.1 Merger Agreement by and between iParty Corp. and WSI
Acquisitions Corp.
10.2 1998 Incentive and Non-Qualified Stock Option
Plan
10.3 Fry MultiMedia Web Site Development Agreement
10.4 iVillage Web Site Development Service Agreement
10.5 Order Trust Agreement by and between the Company and
Order Trust.
10.6 Employment Agreement of Byron Hero
10.7 Employment Agreement of Maureen Broughton Murrah
10.8 Employment Agreement of Leslye Faulk
10.9 Employment Agreement of Eric Berg
10.10 StarGreetings License Agreement
10.11 Real Property Lease Agreement between the Company
and TechSpace LLC
10.12 Consulting Agreement by and between the Company and Sal
Perisano
10.13 Finder's Fee Agreement between iParty LLC and Byron Hero
21 Subsidiaries of the Company
<PAGE>
27.1 Financial Data Schedule
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/ Byron Hero
------------------------
Name: Byron Hero
Title: Chief Executive Officer
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
WSI ACQUISITIONS CORP.
* * * * * * * * * * * * * * *
This Restated Certificate of Incorporation of WSI Acquisitions Corp.
amends and restates the Certificate of Incorporation of WSI Acquisitions Corp.
with the Secretary of the State of Delaware, filed on June 11, 1998. This
Restated Certificate of Incorporation is duly adopted in accordance with
Sections 242 and 245 of the Delaware General Corporation Law.
FIRST. The name of the Corporation is WSI Acquisitions Corp.
SECOND. The address of the Corporation's registered office
in the State of Delaware is Corporation Trust Center, 1209 Orange Street, City
of Wilmington, County of New Castle. The name of its registered agent at such
address is The Corporation Trust Company.
THIRD. The purpose of the Corporation is to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
FOURTH. Authorized Shares.
1. The aggregate number of shares which the Corporation
shall have authority to issue is 60,000,000, of which 10,000,000 shares of the
par value of $.001 per share shall be designated as Preferred Shares, and
50,000,000 shares of the par value of $.001 per share shall be designated as
Common Shares.
2. Authority is hereby expressly granted to the Board of
Directors 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 the resolution or resolutions providing for the issue of shares thereof,
the number of shares of such series, and the designations, powers,
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.
FIFTH. Election of directors need not be by written ballot.
SIXTH. The Board of Directors is authorized to adopt, amend,
or repeal By-Laws of the Corporation (except as and to the extent provided in
the By-Laws).
<PAGE>
SEVENTH. Any person who was or is a party or is threatened
to be made a party to any threatened, pending, or completed action, suit, or
proceeding, whether civil, criminal, administrative, or investigative (other
than an action by or in the right of the Corporation) by reason of the fact
that the person is or was a director, officer, incorporator, employee, or
agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, incorporator, employee, partner, trustee,
or agent of another corporation, partnership, joint venture, trust, or other
enterprise (including an employee benefit plan), shall be entitled to be
indemnified by the Corporation to the full extent then permitted by law
against expenses (including reasonable counsel fees and disbursements),
judgments, fines (including excise taxes assessed on a person with respect to
an employee benefit plan), and amounts paid in settlement incurred by the
person in connection with such action, suit, or proceeding if the person acted
in good faith and in a manner the person reasonably believed to be in or not
opposed to the best interests of the Corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe the person's
conduct was unlawful. Such right of indemnification shall inure whether or not
the claim asserted is based on matters which antedate the adoption of this
Article SEVENTH. Such right of indemnification shall continue as to a person
who has ceased to be a director, officer, incorporator, employee, partner,
trustee, or agent and shall inure to the benefit of the heirs and personal
representatives of such a person. The indemnification provided by this Article
SEVENTH shall not be deemed exclusive of any other rights which may be
provided now or in the future under any provision currently in effect or
hereafter adopted of the By-Laws, by any agreement, by vote of stockholders,
by resolution of disinterested directors, by provision of law, or otherwise.
EIGHTH. No director of the Corporation shall be liable to
the Corporation or any of its stockholders for monetary damages for breach of
fiduciary duty as a director, provided that this provision does not eliminate
or limit the liability of the director (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of Title 8 of the Delaware
Code, or (iv) for any transaction from which the director derived an improper
personal benefit. For purposes of the prior sentence, the term "damages"
shall, to the extent permitted by law, include without limitation, any
judgment, fine, amount paid in settlement, penalty, punitive damages, excise
or other tax assessed with respect to an employee benefit plan, or expense of
any nature (including, without limitation, reasonable counsel fees and
disbursements). Each person who serves as a director of the corporation while
this Article EIGHTH is in effect shall be deemed to be doing so in reliance on
the provisions of this Article EIGHTH, and neither the amendment or repeal of
this Article EIGHTH, nor the adoption of any provision of this Certificate of
Incorporation inconsistent with this Article EIGHTH, shall apply to or have
any effect on the liability or alleged liability of any director of the
Corporation for, arising out of, based upon, or in connection with any acts or
omissions of such director occurring prior to such amendment, repeal, or
adoption of an inconsistent provision. The provisions of this Article EIGHTH
are
-2-
<PAGE>
cumulative and shall be in addition to and independent of any and all other
limitations on or eliminations of the liabilities of directors of the
Corporation, as such, whether such limitations or eliminations arise under or
are created by any law, rule, regulation, by-law, agreement, vote of
shareholders or disinterested directors, or otherwise.
IN WITNESS WHEREOF, I have made, signed, and sealed this
Restated Certificate of Incorporation this day of June, 30th 1998.
/s/ Joel Dumaresq
------------------------
Name: Joel Dumaresq
Title: President
<PAGE>
CERTIFICATE OF MERGER
BY
IPARTY CORP.
INTO
WSI ACQUISITIONS CORP.
The undersigned corporation
DOES HEREBY CERTIFY:
FIRST: That the names and states of incorporation of each
of the constituent corporations of the merger are as follows:
NAME STATE OF INCORPORATION
iParty Corp. Delaware
WSI Acquisitions Corp. Delaware
SECOND: That an Agreement of Merger between the parties to
the merger has been approved, adopted, certified, executed and acknowledged by
each of the constituent corporations in accordance with the requirements of
Section 251 of the General Corporation Law of Delaware.
<PAGE>
THIRD: That the name of the surviving corporation of the
merger is WSI Acquisitions Corp. which shall herewith be changed to iParty
Corp., a Delaware corporation.
FOURTH: That the amendments or changes in the Restated
Certificate of Incorporation of WSI Acquisitions Corp., the surviving
corporation, as are to be effected by the merger are as follows:
Article First of the Certificate of Incorporation is hereby
deleted in its entirety and the following is substituted in its place:
FIRST. The name of the Corporation is iParty Corp.
FIFTH: That the executed Agreement of Merger is on file at
the principal place of business of the surviving corporation, the address of
which is 1350 Avenue of the Americas, Suite 2701, New York, New York 10019.
SIXTH: That a copy of the Agreement of Merger will be
furnished, on request and without cost, to any stockholder of any constituent
corporation.
SEVENTH: That this Certificate of Merger shall be effective on
July 2, 1998.
Dated: July 2, 1998
WSI ACQUISITIONS CORP.
By: /s/ Joel Dumaresq
----------------------
Name: Joel Dumaresq
Title: President
<PAGE>
BY-LAWS
of
WSI ACQUISITIONS CORP.
As adopted June 30, 1998
<PAGE>
WSI Acquisitions Corp.
A Delaware corporation
BY-LAWS
ARTICLE I
STOCKHOLDERS
Section 1.1 Annual Meeting. An annual meeting of
stockholders for the purpose of electing directors and of transacting such
other business as may come before it shall be held each year at such date,
time, and place, either within or without the State of Delaware, as may be
specified by the Board of Directors.
Section 1.2 Special Meetings. Special meetings of
stockholders for any purpose or purposes may be held at any time upon call of
the Chairman of the Board, if any, the President, the Secretary, or a majority
of the Board of Directors, at such time and place either within or without the
State of Delaware as may be stated in the notice. A special meeting of
stockholders shall be called by the President or the Secretary upon the
written request, stating time, place, and the purpose or purposes of the
meeting, of stockholders who together own of record a majority of the
outstanding stock of all classes entitled to vote at such meeting.
<PAGE>
Section 1.3 Notice of Meetings. Written notice of
stockholders meetings, stating the place, date, and hour thereof, and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called, shall be given by the Chairman of the Board, if any, the President,
any Vice President, the Secretary, or an Assistant Secretary, to each
stockholder entitled to vote thereat at least ten (10) days but not more than
sixty (60) days before the date of the meeting, unless a different period is
prescribed by law.
Section 1.4 Quorum. Except as otherwise provided by law or
in the Certificate of Incorporation or these By-Laws, at any meeting of
stockholders, the holders of a majority of the outstanding shares of each
class of stock entitled to vote at the meeting shall be present or represented
by proxy in order to constitute a quorum for the transaction of any business.
In the absence of a quorum, a majority of the stockholders present or the
chairman of the meeting may adjourn the meeting from time to time in the
manner provided in Section 1.5 of these By-Laws until a quorum shall attend.
Section 1.5 Adjournment. Any meeting of stockholders, annual
or special, may adjourn from time to time to reconvene at the same or some
other place, and notice need not be given of any such adjourned meeting if the
time and place thereof are announced at the meeting at which the adjournment
is taken. At the adjourned meeting, the Corporation may transact any business
which might have been transacted at the original meeting. If the adjournment
is for more than thirty (30) days, or if after the adjournment a new record
date is fixed for the adjourned meeting, a notice of the adjourned meeting
shall be given to each stockholder of record entitled to vote at the meeting.
2-
<PAGE>
Section 1.6 Organization. The Chairman of the Board, if any,
or in his absence the President, or in their absence any Vice President, shall
call to order meetings of stockholders and shall act as chairman of such
meetings. The Board of Directors or, if the Board fails to act, the
stockholders may appoint any stockholder, director, or officer of the
Corporation to act as chairman of any meeting in the absence of the Chairman
of the Board, the President, and all Vice Presidents.
The Secretary of the Corporation shall act as secretary of
all meetings of stockholders, but, in the absence of the Secretary, the
chairman of the meeting may appoint any other person to act as secretary of
the meeting.
Section 1.7 Voting. Except as otherwise provided by law or
in the Certificate of Incorporation or these By-Laws and except for the
election of directors, at any meeting duly called and held at which a quorum
is present, a majority of the votes cast at such meeting upon a given question
by the holders of outstanding shares of stock of all classes of stock of the
Corporation entitled to vote thereon who are present in person or by proxy
shall decide such question. At any meeting duly called and held for the
election of directors at which a quorum is present, directors shall be elected
by a plurality of the votes cast by the holders (acting as such) of shares of
stock of the Corporation entitled to elect such directors.
Section 1.8 Action by Consent in Lieu of a Meeting. Unless
otherwise provided in the Certificate of Incorporation, any action required to
be taken at any annual or special meeting of stockholders of the Corporation,
or any action which may be taken at any annual or special
3-
<PAGE>
meeting of stockholders of such stockholders, may be taken without a meeting,
without prior written notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking
of the corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in
writing.
ARTICLE II
BOARD OF DIRECTORS
Section 2.1 Number and Term of Office. The business,
property, and affairs of the Corporation shall be managed by or under the
direction of a Board of six (6) directors; provided, however, that the Board,
by resolution adopted by vote of a majority of the then authorized number of
directors, may increase or decrease the number of directors. The directors
shall be elected by the holders of shares entitled to vote thereon at the
annual meeting of stockholders, and each shall serve (subject to the
provisions of Article IV) until the next succeeding annual meeting of
stockholders and until his respective successor has been elected and
qualified.
Section 2.2 Chairman of the Board. The directors may elect
one of their members to be Chairman of the Board of Directors. The Chairman
shall be subject to the control of and may be removed by the Board of
Directors. He shall perform such duties as may from time to time be assigned
to him by the Board.
4-
<PAGE>
Section 2.3 Meetings. The annual meeting of the Board of
Directors, for the election of officers and the transaction of such other
business as may come before the meeting, shall be held without notice at the
same place as, and immediately following, the annual meeting of the
stockholders.
Regular meetings of the Board of Directors may be held
without notice at such time and place as shall from time to time be determined
by the Board.
Special meetings of the Board of Directors shall be held at
such time and place as shall be designated in the notice of the meeting
whenever called by the Chairman of the Board, if any, the President, or by a
majority of the directors then in office.
Section 2.4 Notice of Special Meetings. The Secretary, or in
his absence any other officer of the Corporation, shall give each director
notice of the time and place of holding of special meetings of the Board of
Directors by mail at least five (5) days before the meeting, or by facsimile,
cable, or telegram, overnight courier, or personal service at least three (3)
days before the meeting. Unless otherwise stated in the notice thereof, any
and all business may be transacted at any meeting without specification of
such business in the notice.
Section 2.5 Quorum and Organization of Meetings. A majority
of the total number of members of the Board of Directors as constituted from
time to time shall constitute a quorum for the transaction of business, but,
if at any meeting of the Board of Directors (whether or not adjourned from a
previous meeting) there shall be less than a quorum present, a majority of
those present may adjourn the meeting to another time and place, and the
meeting may be held as
5-
<PAGE>
adjourned without further notice or waiver. Except as otherwise provided by
law or in the Certificate of Incorporation or these By-Laws, a majority of the
directors present at any meeting at which a quorum is present may decide any
question brought before such meeting. Meetings shall be presided over by the
Chairman of the Board, if any, or in his absence by the President, or in the
absence of both by such other person as the directors may select. The
Secretary of the Corporation shall act as secretary of the meeting, but in his
absence the chairman of the meeting may appoint any person to act as secretary
of the meeting.
Section 2.6 Committees. The Board of Directors may, by
resolution passed by a majority of the whole Board, designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation. The Board may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee. In the absence or disqualification of a member
of a committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another member of the Board of Directors to
act at the meeting in place of any such absent or disqualified member. Any
such committee, to the extent provided in the resolution of the Board of
Directors, shall have and may exercise all the powers and authority of the
Board of Directors in the management of the business, property, and affairs of
the Corporation, and may authorize the seal of the Corporation to be affixed
to all papers which may require it; but no such committee shall have power or
authority in reference to: (i) approving or adopting, or recommending to the
stockholders, any action or matter expressly required by the General
Corporation Law of Delaware to be submitted
6-
<PAGE>
to stockholders for approval or (ii) adopting, amending or repealing any
By-Laws of the Corporation. Such committee or committees shall have such name
or names as may be determined from time to time by resolution adopted by the
Board of Directors. Each committee which may be established by the Board of
Directors pursuant to these By-Laws may fix its own rules and procedures.
Notice of meetings of committees, other than of regular meetings provided for
by the rules, shall be given to committee members. All action taken by
committees shall be recorded in minutes of the meetings.
Section 2.7 Action Without Meeting. Nothing contained in
these By-Laws shall be deemed to restrict the power of members of the Board of
Directors or any committee designated by the Board to take any action required
or permitted to be taken by them without a meeting if all members of the Board
or committee, as the case may be, consent thereto in writing.
Section 2.8 Telephone Meetings. Nothing contained in these
By-Laws shall be deemed to restrict the power of members of the Board of
Directors, or any committee designated by the Board, to participate in a
meeting of the Board, or committee, by means of conference telephone or
similar communications equipment by means of which all persons participating
in the meeting can hear each other.
Section 2.9 Board Compensation. The Board shall have the
authority to fix the compensation of directors.
7-
<PAGE>
ARTICLE III
OFFICERS
Section 3.1 Executive Officers. The executive officers of
the Corporation shall be a President, one or more Vice Presidents, a
Treasurer, and a Secretary, each of whom shall be elected by the Board of
Directors. The Board of Directors may elect or appoint such other officers
(including a Controller and one or more Assistant Treasurers and Assistant
Secretaries) as it may deem necessary or desirable. Each officer shall hold
office for such term as may be prescribed by the Board of Directors from time
to time. Any person may hold at one time two or more offices.
Section 3.2 Powers and Duties. The Chairman of the Board, if
any, or, in his absence, the President, shall preside at all meetings of the
stockholders and of the Board of Directors. In the absence of the President, a
Vice President appointed by the President or, if the President fails to make
such appointment, by the Board, shall perform all the duties of the President.
The officers and agents of the Corporation shall each have such powers and
authority and shall perform such duties in the management of the business,
property, and affairs of the Corporation as generally pertain to their
respective offices, as well as such powers and authorities and such duties as
from time to time may be prescribed by the Board of Directors.
8-
<PAGE>
ARTICLE IV
RESIGNATIONS, REMOVALS, AND VACANCIES
Section 4.1 Resignations. Any director or officer of the
Corporation, or any member of any committee, may resign at any time by giving
written notice to the Board of Directors, the President, or the Secretary of
the Corporation. Any such resignation shall take effect at the time specified
therein or, if the time be not specified therein, then upon receipt thereof.
The acceptance of such resignation shall not be necessary to make it
effective.
Section 4.2 Removals. The Board of Directors, by a vote of
not less than a majority of the entire Board, at any meeting thereof, or by
written consent, at any time, may, to the extent permitted by law, remove with
or without cause from office or terminate the employment of any officer or
member of any committee and may, with or without cause, disband any committee.
Any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of the shares
entitled at the time to vote at an election of directors.
Section 4.3 Vacancies. Any vacancy in the office of any
director or officer through death, resignation, removal, disqualification, or
other cause, and any additional directorship resulting from increase in the
number of directors, may be filled at any time by a majority of the directors
then in office (even though less than a quorum remains) or, in the case of any
vacancy in the office of any director, by the stockholders, and, subject to
the provisions
9-
<PAGE>
of this Article IV, the person so chosen shall hold office until his successor
shall have been elected and qualified; or, if the person so chosen is a
director elected to fill a vacancy, he shall (subject to the provisions of
this Article IV) hold office for the unexpired term of his predecessor.
ARTICLE V
CAPITAL STOCK
Section 5.1 Stock Certificates. The certificates for shares
of the capital stock of the Corporation shall be in such form as shall be
prescribed by law and approved, from time to time, by the Board of Directors.
Section 5.2 Transfer of Shares. Shares of the capital stock
of the Corporation may be transferred on the books of the Corporation only by
the holder of such shares or by his duly authorized attorney, upon the
surrender to the Corporation or its transfer agent of the certificate
representing such stock properly endorsed.
Section 5.3 Fixing Record Date. In order that the Corporation
may determine the stockholders entitled to notice of or to vote at any meeting
of stockholders or any adjournment thereof (or to express consent to corporate
action in writing without a meeting), or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion, or exchange of stock,
or for the purpose of any other lawful action, the Board of Directors may fix,
in advance, a record date, which, unless otherwise provided by law, shall not be
more than sixty (60) nor less than ten (10) days before the date of such
meeting, nor more than sixty (60) days prior to any other action. A
10-
<PAGE>
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for
the adjourned meeting.
Section 5.4 Lost Certificates. The Board of Directors or any
transfer agent of the Corporation may direct a new certificate or certificates
representing stock of the Corporation to be issued in place of any certificate
or certificates theretofore issued by the Corporation, alleged to have been
lost, stolen, or destroyed, upon the making of an affidavit of that fact by
the person claiming the certificate to be lost, stolen, or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors (or any transfer agent of the Corporation authorized to do so by a
resolution of the Board of Directors) may, in its discretion and as a
condition precedent to the issuance thereof, require the owner of such lost,
stolen, or destroyed certificate or certificates, or his legal representative,
to give the Corporation a bond in such sum as the Board of Directors (or any
transfer agent so authorized) shall direct to indemnify the Corporation
against any claim that may be made against the Corporation with respect to the
certificate alleged to have been lost, stolen, or destroyed or the issuance of
such new certificates, and such requirement may be general or confined to
specific instances.
Section 5.5 Regulations. The Board of Directors shall have
power and authority to make all such rules and regulations as it may deem
expedient concerning the issue, transfer, registration, cancellation, and
replacement of certificates representing stock of the Corporation.
11-
<PAGE>
ARTICLE VI
MISCELLANEOUS
Section 6.1 Corporate Seal. The corporate seal shall have
inscribed thereon the name of the Corporation and shall be in such form as may
be approved from time to time by the Board of Directors.
Section 6.2 Fiscal Year. The fiscal year of the Corporation
shall be determined by resolution of the Board of Directors.
Section 6.3 Notices and Waivers Thereof. Whenever any notice
whatever is required by law, the Certificate of Incorporation, or these
By-Laws to be given to any stockholder, director, or officer, such notice,
except as otherwise provided by law, may be given personally, or by mail, or,
in the case of directors or officers, by facsimile, telegram, or cable,
addressed to such address as appears on the books of the Corporation. Any
notice given by facsimile, telegram, or cable, shall be deemed to have been
given when transmission is confirmed and any notice given by mail shall be
deemed to have been given when it shall have been deposited in the United
States mail with postage thereon prepaid.
Whenever any notice is required to be given by law, the
Certificate of Incorporation, or these By-Laws, a written waiver thereof,
signed by the person entitled to such notice, whether before or after the
meeting or the time stated therein, shall be deemed equivalent in all respects
to such notice to the full extent permitted by law.
12-
<PAGE>
Section 6.4 Stock of Other Corporations or Other Interests.
Unless otherwise ordered by the Board of Directors, the President, the
Secretary, and such attorneys or agents of the Corporation as may be from time
to time authorized by the Board of Directors or the President, shall have full
power and authority on behalf of the Corporation to attend and to act and vote
in person or by proxy at any meeting of the holders of securities of any
corporation or other entity in which the Corporation may own or hold shares or
other securities, and at such meetings shall possess and may exercise all the
rights and powers incident to the ownership of such shares or other securities
which the Corporation, as the owner or holder thereof, might have possessed
and exercised if present. The President, the Secretary, or such attorneys or
agents, may also execute and deliver on behalf of the Corporation powers of
attorney, proxies, consents, waivers, and other instruments relating to the
shares or securities owned or held by the Corporation.
ARTICLE VII
AMENDMENTS
The holders of shares entitled at the time to vote for the
election of directors shall have power to adopt, amend, or repeal the By-Laws
of the Corporation by vote of not less than a majority of such shares, and
except as otherwise provided by law, the Board of Directors shall have power
equal in all respects to that of the stockholders to adopt, amend, or repeal
the By-Laws by vote of not less than a majority of the entire Board. However,
any By-Law adopted by the Board may be amended or repealed by vote of the
holders of a majority of the shares entitled at the time to vote for the
election of directors. Such power to adopt, amend or repeal the By-Laws
13-
<PAGE>
conferred upon the Board of Directors shall not divest or limit the power of
the stockholders to adopt, amend and repeal the By-Laws.
14-
<PAGE>
CERTIFICATE OF DESIGNATION,
POWERS, PREFERENCES AND RIGHTS OF
SERIES A PREFERRED STOCK
PAR VALUE $.001 PER SHARE
OF
WSI ACQUISITIONS CORP.
-------------------
Pursuant to Section 151 of the General
Corporation Law of the State of Delaware
-------------------
IT IS HEREBY CERTIFIED that:
1. The name of the company (hereinafter called the
"Company") is WSI Acquisitions Corp., a corporation organized and existing
under the General Corporation Law of the State of Delaware.
2. The restated certificate of incorporation of the Company
authorizes the issuance of Ten Million (10,000,000) shares of preferred stock,
$.001 par value per share ("Preferred Stock"), and expressly vests in the
Board of Directors of the Company the authority provided therein to issue any
or all of said shares in one (1) or more series and by resolution or
resolutions to establish the designation and number and to fix the relative
rights and preferences of each series to be issued.
3. The Board of Directors of the Company, pursuant to the
authority expressly vested in it as aforesaid, and pursuant to the provisions
of Section 151 of the General Corporation Law of the State of Delaware, has
adopted the resolutions set forth below creating a Series A issue of Preferred
Stock:
RESOLVED, that One Million (1,000,000) shares of the Ten
Million (10,000,000) authorized shares of Preferred Stock of the Company shall
be designated Series A Preferred Stock, $.001 par value per share, and shall
possess the rights and preferences set forth below:
-1-
<PAGE>
Section 1. Designation and Amount. The shares of such series
shall have a par value of $.001 per share and shall be designated as Series A
Preferred Stock (the "Series A Preferred Stock") and the number of shares
constituting the Series A Preferred Stock shall be One Million (1,000,000).
The Series A Preferred Stock shall be issued or offered at a purchase price of
One Dollar ($1.00) per share (the "Original Issue Price").
Section 2. Rank. The Series A Preferred Stock shall rank:
(i) junior to any other class or series of capital stock of the Company
hereafter created specifically ranking by its terms senior to the Series A
Preferred Stock (the "Senior Securities"); (ii) prior to all of the Company's
common stock, $.001 par value per share (the "Common Stock"); (iii) prior to
any class or series of capital stock of the Company hereafter created not
specifically ranking by its terms senior to or on parity with any Series A
Preferred Stock of whatever subdivision (collectively, with the Common Stock,
"Junior Securities"); and (iv) on parity with any class or series of capital
stock of the Company hereafter created specifically ranking by its terms on
parity with the Series A Preferred Stock ("Parity Securities") in each case as
to distribution of assets upon liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary (all such distributions being
referred to collectively as "Distributions").
Section 3. Dividends. The Series A Preferred Stock will bear
no dividends, and the holders of the Series A Preferred Stock (the "Holders")
shall not be entitled to receive dividends on the Series A Preferred Stock.
Section 4. Liquidation Preference.
(a) In the event of any liquidation, dissolution
or winding up of the Company, either voluntary or involuntary, the Holders of
shares of Series A Preferred Stock shall be entitled to receive, immediately
after any distributions to Senior Securities required by the Company's Restated
Certificate of Incorporation or any certificate of designation, and prior in
preference to any distribution to Junior Securities but in parity with any
distribution to Parity Securities, an amount per share equal to the sum of the
Original Issue Price. If upon the occurrence of such event, and after payment in
full of the preferential amounts with respect to the Senior Securities, the
assets and funds available to be distributed among the Holders of the Series A
Preferred Stock and Parity Securities shall be insufficient to permit the
payment to such Holders of the full preferential amounts due to the Holders of
the Series A Preferred Stock and the Parity Securities, respectively, then the
entire assets and funds of the Company legally available for distribution shall
be distributed among the Holders of the Series A Preferred Stock and the Parity
Securities, pro rata, based on the respective liquidation amounts to which each
such series of stock is entitled by the Company's Restated Certificate of
Incorporation and any certificate(s) of designation relating thereto.
(b) Upon the completion of the distribution
required by Section 4(a), if
-2-
<PAGE>
assets remain in the Company, they shall be distributed to holders of Junior
Securities in accordance with the Company's Restated Certificate of
Incorporation including any duly adopted certificate(s) of designation.
(c) At each Holder's option, a sale, conveyance or
disposition of all or substantially all the assets of the Company to a private
entity, the common stock of which is not publicly traded, shall be deemed to be
a liquidation, dissolution or winding up within the meaning of this Section 4;
provided, however, that an event described in the prior clause that the Holder
does not elect to treat as a liquidation and a consolidation, merger,
acquisition, or other business combination of the Company with or into any other
company or companies shall not be treated as a liquidation, dissolution or
winding up within the meaning of this Section 4, but instead shall be treated
pursuant to Section 5(c) hereof (a Holder who elects to have the transaction
treated as a liquidation is herein referred to as a "Liquidating Holder").
(d) Prior to the closing of a transaction described
in Section 4(c) which would constitute a liquidation event, the Company shall
either (i) make all cash distributions it is required to make to the Liquidating
Holders pursuant to the first sentence of Section 4(a), (ii) set aside
sufficient funds from which the cash distributions required to be made to the
Liquidating Holders can be made, or (iii) establish an escrow or other similar
arrangement with a third party pursuant to which the proceeds payable to the
Company from a sale of all or substantially all the assets of the Company will
be used to make the liquidating payments to the Liquidating Holders immediately
after the consummation of such sale. In the event that the Company has not fully
complied with any of the foregoing alternatives, the Company shall either: (x)
cause such closing to be postponed until such cash distributions have been made,
or (y) cancel such transaction, in which event the rights of the Holders or
other arrangements shall be the same as existing immediately prior to such
proposed transaction.
Section 5. Conversion of Series A Preferred Stock. The
record Holders of the Series A Preferred Stock shall have conversion rights as
follows:
(a) Right to Convert. Each record Holder of
Series A Preferred Stock shall be entitled to convert whole shares of Series A
Preferred Stock for the Common Stock issuable upon conversion of the Series A
Preferred Stock, as follows: each outstanding share of Series A Preferred Stock
is convertible into one fully-paid and non-assessable share of Common Stock,
subject to adjustment as provided in Section 5(c) hereof. The number of shares
of Common Stock issuable upon conversion of one share of Series A Preferred
Stock is hereafter referred to as the "Conversion Rate."
(b) Mechanics of Conversion. In order to convert
Series A Preferred Stock into full shares of Common Stock, the Holder shall (i)
fax a copy of a fully executed notice of
-3-
<PAGE>
conversion ("Notice of Conversion") to the Company at the office of the Company
or to the Company's designated transfer agent (the "Transfer Agent") for the
Series A Preferred Stock stating that the Holder elects to convert, which notice
shall specify the date of conversion, the number of shares of Series A Preferred
Stock to be converted, the Conversion Rate and a calculation of the number of
shares of Common Stock issuable upon such conversion (together with a copy of
the front page of each certificate to be converted) and (ii) surrender to a
common courier for either overnight or two (2) day delivery to the office of the
Company or the Transfer Agent, the original certificates representing the Series
A Preferred Stock being converted (the "Preferred Stock Certificates"), duly
endorsed for transfer; provided, however, that the Company shall not be
obligated to issue certificates evidencing the shares of Common Stock issuable
upon such conversion unless either the Preferred Stock Certificates are
delivered to the Company or the Transfer Agent as provided above, or the Holder
notifies the Company or its Transfer Agent that such certificates have been
lost, stolen or destroyed (subject to the requirements of subsection 5(b)(i)
below).
(i) Lost or Stolen Certificates. Upon
receipt by the Company of evidence of the loss, theft, destruction or mutilation
of any Preferred Stock Certificates representing shares of Series A Preferred
Stock, and (in the case of loss, theft or destruction) of indemnity or security
reasonably satisfactory to the Company, and upon surrender and cancellation of
the Preferred Stock Certificates, if mutilated, the Company shall execute and
deliver new Preferred Stock Certificates of like tenor and date. However, the
Company shall not be obligated to re-issue such lost or stolen Preferred Stock
Certificates if Holder contemporaneously requests the Company to convert such
Series A Preferred Stock into Common Stock.
(ii) Delivery of Common Stock Upon
Conversion. The Company no later than 6:00 p.m. (New York City time) on the
third (3rd) business day after receipt by the Company or its Transfer Agent of
all necessary documentation duly executed and in proper form required for
conversion, including the original Preferred Stock Certificates to be converted
(or after provision for security or indemnification in the case of lost, stolen
or destroyed certificates, if required), shall issue and surrender to a common
courier for either overnight or (if delivery is outside the United States) two
(2) day delivery to the Holder as shown on the stock records of the Company a
certificate for the number of shares of Common Stock to which the Holder shall
be entitled as aforesaid.
(iii) Date of Conversion. The date on
which conversion occurs (the "Date of Conversion") shall be deemed to be the
date such Notice of Conversion is faxed to the Company or the Transfer Agent, as
the case may be, provided that the advance copy of the Notice of Conversion is
faxed to the Company on or prior to 6:00 p.m., New York City time, on the Date
of Conversion. The original Preferred Stock Certificates representing the shares
of Series A Preferred Stock to be converted shall be surrendered by depositing
such certificates with a common courier for either overnight or two (2) day
delivery, as soon as practicable following the
-4-
<PAGE>
Date of Conversion. 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 on the Date of
Conversion.
(c) Adjustment to Conversion Rate.
(i) Adjustment to the Conversion Rate due
to Stock Split, Stock Dividend or Other Similar Event. If, prior to the
conversion of all the Series A Preferred Stock, the number of outstanding shares
of Common Stock is increased by a stock split, stock dividend or other similar
event, the Conversion Rate shall 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 shall be
proportionately increased.
(ii) Adjustment Due to Consolidation,
Merger, Exchange of Shares, Recapitalization, Reorganization or Other Similar
Event. If, prior to the conversion of all the Series A Preferred Stock, there
shall be any merger, consolidation, exchange of shares, recapitalization,
reorganization or other similar event, as a result of which shares of Common
Stock of the Company shall 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 or there is a sale of all or substantially the
Company's assets that is not deemed to be a liquidation pursuant to Section
4(c), then the Holders of Series A Preferred Stock thereafter shall have the
right to receive upon conversion of Series A Preferred Stock, upon the basis and
upon the terms and conditions specified herein and in lieu of the shares of
Common Stock immediately theretofore issuable upon conversion, such stock,
securities and/or other assets which the Holder would have been entitled to
receive in such transaction had the Series A Preferred Stock been converted
immediately prior to such transaction, and in any such case appropriate
provisions shall be made with respect to the rights and interests of the Holders
of the Series A Preferred Stock to the end that the provisions hereof
(including, without limitation, provisions for the adjustment of the Conversion
Rate and of the number of shares issuable upon conversion of the Series A
Preferred Stock) shall thereafter be applicable, as nearly as may be practicable
in relation to any securities thereafter deliverable upon the exercise hereof.
The Company shall not effect any transaction described in this subsection
5(c)(ii) unless (a) it first gives thirty (30) calendar days prior notice of
such merger, consolidation, exchange of shares, recapitalization, reorganization
or other similar event (during which time the Holder shall be entitled to
convert its shares of Series A Preferred Stock into Common Stock to the extent
permitted hereby) and (b) the resulting successor or acquiring entity (if not
the Company) assumes by written instrument the obligation of the Company under
this Certificate of Designation, including the obligation of this subsection
5(c)(ii).
(iii) No Fractional Shares. If any
adjustment under this Section 5(c) would create a fractional share of Common
Stock or a right to acquire a fractional share of Common Stock, such fractional
share shall be disregarded and the number of shares of Common
-5-
<PAGE>
Stock issuable upon conversion shall be the next higher number of shares.
Section 7. Voting Rights. Except to the extent otherwise
expressly provided by the General Corporation Law of Delaware and until each
such share is converted into a share of Common Stock, Holders of Series A
Preferred Stock shall not be entitled to vote on matters to be voted on by the
stockholders of the Company.
Section 8. Protective Provision. So long as shares of Series
A Preferred Stock are outstanding, the Company shall not without first
obtaining the approval (by vote or written consent, as provided by the General
Corporation Law of Delaware) of the Holders of at least sixty-six percent
(66%) of the then outstanding shares of Series A Preferred Stock:
(a) alter or change the rights, preferences or
privileges of the Series A Preferred Stock or any Senior Securities so as to
affect adversely the Series A Preferred Stock;
(b) increase the size of the authorized number of
Series A Preferred Stock; or
(c) do any act or thing not authorized or
contemplated by this Certificate of Designation which would result in taxation
of the holders of shares of the Series A Preferred Stock under Section 305 of
the Internal Revenue Code of 1986, as amended (or any comparable provision of
the Internal Revenue Code as hereafter from time to time amended).
In the event Holders of at least sixty-six percent (66%) of
the then outstanding shares of Series A Preferred Stock agree to allow the
Company to alter or change the rights, preferences or privileges of the shares
of Series A Preferred Stock, pursuant to subsection (a) above, so as to affect
adversely the Series A Preferred Stock, then the Company will deliver notice
of such approved alteration or change to the Holders of the Series A Preferred
Stock that did not agree to such alteration or change (the "Dissenting
Holders") and the Dissenting Holders shall have the right for a period of
thirty (30) days to convert pursuant to the terms of this Certificate of
Designation as they exist prior to such alteration or change or continue to
hold their shares of Series A Preferred Stock subject to the approved
alteration or change of the rights, preferences or privileges of the Series A
Preferred Stock.
-6-
<PAGE>
Section 9. Status of Converted Stock. In the event any
shares of Series A Preferred Stock shall be converted pursuant to Section 5
hereof, the shares so converted shall be canceled, shall return to the status
of authorized but unissued Preferred Stock of no designated series, and shall
not be issuable by the Company as Series A Preferred Stock.
Section 10. Preference Rights. Nothing contained herein
shall be construed to prevent the Board of Directors of the Company from
issuing one (1) or more series of Preferred Stock with dividend and/or
liquidation preferences junior to the dividend and liquidation preferences of
the Series A Preferred Stock.
IN WITNESS WHEREOF, the Company has caused this Certificate
to be duly executed on its behalf by its President this 30th day of June,
1998.
WSI ACQUISITIONS CORP.
By: ______________________________
Name: Joel S. Dumaresq
Title: President
Attest:
______________________
Ajmal Khan, Secretary
-7-
<PAGE>
AGREEMENT AND PLAN OF MERGER
BETWEEN
IPARTY CORP.
AND
WSI ACQUISITIONS CORP.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
I. THE MERGER.................................................................................... -2-
Section 1.02 Effective Time................................................................ -2-
Section 1.03 Closing....................................................................... -2-
Section 1.04 Certificate of Incorporation and By-laws of the Surviving Corporation......... -3-
Section 1.05 Directors and Officers of the Surviving Corporation........................... -3-
Section 1.06 Effects of the Merger......................................................... -4-
II. STATUS AND CONVERSION OF SECURITIES........................................................... -4-
Section 2.01 Stock of IPC.................................................................. -4-
(a) IPC Common Stock............................................................ -4-
(b) Exchange of IPC Common Stock................................................ -4-
Section 2.02 Capital Stock of Acquisition.................................................. -5-
III. COVENANTS..................................................................................... -5-
Section 3.01 [INTENTIONALLY OMITTED]....................................................... -5-
Section 3.02 [INTENTIONALLY OMITTED]....................................................... -5-
Section 3.03 Blue Sky Filings.............................................................. -5-
Section 3.04 [INTENTIONALLY OMITTED]....................................................... -5-
Section 3.05 NASD Listing.................................................................. -5-
Section 3.06 Directors' and Officers' Indemnification and Insurance........................ -6-
Section 3.07 [INTENTIONALLY OMITTED]....................................................... -8-
IV. REPRESENTATIONS AND WARRANTIES................................................................ -8-
Section 4.01 Certain Representations and Warranties of IPC................................. -8-
(a) Organization and Qualification.............................................. -8-
(b) Organizational Documents; Capital Stock..................................... -9-
(c) Authority Relative to this Agreement....................................... -10-
(d) Non-Contravention; Approvals and Consents.................................. -10-
(e) Financial Statements....................................................... -12-
(f) Absence of Certain Changes or Events....................................... -13-
(g) Absence of Undisclosed Liabilities......................................... -13-
(h) Legal Proceedings.......................................................... -13-
(i) Compliance with Laws and Orders............................................ -14-
(j) Compliance with Agreements; Certain Agreements............................. -14-
(k) Tax Matters................................................................ -15-
(l) Environmental Matters...................................................... -17-
(m) Employee Benefit Plans..................................................... -18-
(n) Patents, Trademarks, Et Cetera............................................. -19-
(o) Insurance.................................................................. -19-
(p) Labor Matters.............................................................. -19-
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
(q) Tangible Property and Assets............................................... -19-
(r) Shareholder Approval. ..................................................... -20-
(s) Broker..................................................................... -20-
(t) Consents Without Any Condition............................................. -20-
(u) Transfer Taxes............................................................. -20-
Section 4.02 Certain Representations and Warranties of Acquisition........................ -21-
(a) Organization and Qualification............................................. -21-
(b) Organizational Documents; Capital Stock.................................... -21-
(c) Authority Relative to this Agreement....................................... -23-
(d) Non-Contravention; Approvals and Consents.................................. -24-
(e) Financial Statements....................................................... -25-
(f) Absence of Certain Changes or Events....................................... -26-
(g) Absence of Undisclosed Liabilities......................................... -26-
(h) Legal Proceedings.......................................................... -27-
(i) Information Supplied....................................................... -27-
(j) Compliance with Laws and Orders............................................ -27-
(k) Compliance with Agreements; Certain Agreements............................. -28-
(l) Tax Matters................................................................ -28-
(m) Environmental Matters...................................................... -30-
(n) Employee Benefit Plans..................................................... -31-
(o) Patents, Trademarks, Et Cetera............................................. -32-
(p) Insurance.................................................................. -32-
(q) Labor Matters.............................................................. -32-
(r) Tangible Property and Assets............................................... -32-
(s) Shareholder Approval....................................................... -33-
(t) Brokers.................................................................... -33-
(u) Consents Without Any Condition............................................. -33-
V. CONDITIONS................................................................................... -33-
Section 5.01 Conditions to Each Party's Obligation to Effect the Merger................... -33-
(a) State Securities Laws...................................................... -34-
(c) No Injunctions or Restraints............................................... -34-
(d) Consents and Approvals..................................................... -34-
Section 5.02 Conditions to Obligation of Acquisition to Effect the Merger................. -35-
(a) Representations and Warranties............................................. -35-
(c) Other Closing Documents.................................................... -35-
(d) Review of Proceedings...................................................... -36-
(e) Legal Action............................................................... -36-
(f) No Governmental Action..................................................... -36-
(g) Material Adverse Change.................................................... -37-
Section 5.03 Conditions to Obligation of IPC to Effect the Merger......................... -37-
(a) Representations and Warranties............................................. -37-
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
(b) Performance of Obligations................................................. -37-
(c) Other Closing Documents.................................................... -37-
(d) Review of Proceedings...................................................... -38-
(e) Legal Action............................................................... -38-
(f) No Governmental Action..................................................... -38-
(g) Material Adverse Change.................................................... -38-
(h) Registration Rights........................................................ -39-
VI. INDEMNIFICATION.............................................................................. -39-
Section 6.01 Indemnification by Acquisition............................................... -39-
VII. TERMINATION.................................................................................. -40-
VIII. MISCELLANEOUS................................................................................ -40-
Section 8.01 Further Actions.............................................................. -40-
Section 8.02 Availability of Equitable Remedies........................................... -40-
Section 8.03 Survival..................................................................... -41-
Section 8.04 Modification................................................................. -41-
Section 8.05 Notices...................................................................... -41-
Section 8.06 Waiver....................................................................... -42-
Section 8.07 Binding Effect............................................................... -42-
Section 8.08 No Third-Party Beneficiaries................................................. -43-
Section 8.09 Severability................................................................. -43-
Section 8.10 Headings..................................................................... -43-
Section 8.11 Counterparts; Governing Law.................................................. -43-
</TABLE>
-iii-
<PAGE>
TABLE OF SCHEDULES
Schedule 4.01(d) Consents for IPC
Schedule 4.01(j) Selected Agreements
Schedule 4.02(a) Equity interests owned by Acquisition
Schedule 4.02(b) Options
Schedule 4.02(d) Consents for Acquisition
Schedule 4.02(f) Changes with respect to Acquisition
Schedule 4.02(l) Tax Matters
TABLE OF EXHIBITS
Exhibit 4.01(b) Certificate of Incorporation and By-laws of IPC
Exhibit 4.02(b) Certificate of Incorporation and By-laws of Acquisition
Exhibit 5.03(i) Registration Rights Agreement
-iv-
<PAGE>
AGREEMENT AND PLAN OF MERGER
BETWEEN
IPARTY CORP.
AND
WSI ACQUISITIONS CORP.
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of
July 2nd, 1998, between iParty Corp., a Delaware corporation whose address is
1350 Avenue of the Americas, New York, New York 10019 ("IPC"), and WSI
Acquisitions Corp., a Delaware corporation formerly incorporated in Texas
whose address is 1434 West Alabama, Houston, Texas 77006 ("Acquisition").
Acquisition in its capacity as the surviving corporation is herein sometimes
called the "Surviving Corporation," and Acquisition and IPC are herein
sometimes called the "Constituent Corporations."
W I T N E S S E T H:
WHEREAS, the Board of Directors of each of IPC and
Acquisition has determined that it is advisable and in the best interests of
its respective shareholders to consummate, and the Board of Directors of each
of IPC and Acquisition has approved, the business combination transaction
provided for herein in which IPC would merge with and into Acquisition (the
"Merger");
WHEREAS, the shareholders of each of IPC and Acquisition have
approved the Merger; and
WHEREAS, IPC and Acquisition desire to make certain
representations, warranties and agreements in connection with the Merger and
also to prescribe various conditions to the Merger.
<PAGE>
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows:
I. THE MERGER.
Section 1.01 The Merger
At the Effective Time (as defined in Section 1.02), upon
the terms and subject to the conditions of this Agreement, IPC shall be merged
with and into Acquisition in accordance with the Delaware General Corporation
Law (the "DGCL"). Acquisition shall be the surviving corporation in the
Merger. As a result of the Merger, the outstanding shares of capital stock of
IPC shall be converted and cancelled in the manner provided in Article II.
Section 1.02 Effective Time.
At the Closing (as defined in Section 1.03), a certificate
of merger (the "Certificate of Merger") shall be duly prepared by the
Surviving Corporation and thereafter delivered to the Secretary of State of
Delaware for filing as provided in Section 251 of the DGCL, on, or as soon as
practicable after, the Closing Date (as defined in Section 1.03). The Merger
shall become effective as soon as the Certificate of Merger has been filed
with the Secretary of State of Delaware (the date and time when such condition
has been satisfied being referred to herein as the "Effective Time").
Section 1.03 Closing.
The closing of the Merger (the "Closing") will take place
at the offices of Camhy Karlinsky & Stein LLP, 1740 Broadway, New York, New
York 10019-4315, or at such other place as the parties hereto mutually agree,
on a date and at a time to be specified by the parties, which shall
-2-
<PAGE>
in no event be later than 10:00 a.m., local time, on the next business day
following satisfaction of the condition set forth in Section 5.01(a), provided
that the other closing conditions set forth in Article V have been satisfied
or, if permissible, waived in accordance with this Agreement, or on such other
date as the parties hereto mutually agree (the "Closing Date"). At the Closing
there shall be delivered to IPC and Acquisition the certificates and other
documents and instruments required to be delivered under Article V.
Section 1.04 Certificate of Incorporation and By-laws of the
Surviving Corporation.
At the Effective Time, (i) the certificate of incorporation
of Acquisition as in effect immediately prior to the Effective Time shall be
amended to change the name of Acquisition to "iParty Corp.," and, as so amended,
such certificate of incorporation shall be the certificate of incorporation of
the Surviving Corporation until thereafter amended as provided by law and such
certificate of incorporation, and (ii) the By-laws of Acquisition as in effect
immediately prior to the Effective Time shall be the By-laws of the Surviving
Corporation until thereafter amended as provided by law, the certificate of
incorporation of the Surviving Corporation, and such By-laws.
Section 1.05 Directors and Officers of the Surviving Corporation.
The directors of Acquisition immediately prior to the
Effective Time shall, from and after the Effective Time, be the directors of
the Surviving Corporation and such directors shall appoint the officers of
Acquisition immediately prior to the Effective Time to be the officers of the
Surviving Corporation. The directors and officers of the Surviving Corporation
shall serve until their successors shall have been duly elected or appointed
and qualified or until their earlier death,
-3-
<PAGE>
resignation or removal in accordance with the Surviving Corporation's
certificate of incorporation and By-laws.
Section 1.06 Effects of the Merger.
Subject to the foregoing, the effects of the Merger shall
be as provided in the applicable provisions of the DGCL.
II. STATUS AND CONVERSION OF SECURITIES.
Section 2.01 Stock of IPC.
(a) IPC Common Stock. Each share of common stock, par
value $.01 per share, of IPC ("IPC Common Stock") issued and outstanding at
the Effective Time shall, by virtue of the Merger and without any action on
the part of the holders thereof, be converted into 60,000 shares (the "Merger
Consideration") of common stock, par value $0.001 per share, of Acquisition
("Acquisition Common Stock").
(b) Exchange of IPC Common Stock.
(i) At the Effective Time, upon surrender to
Acquisition of all the outstanding shares of IPC Common
Stock, Acquisition shall deliver to the sole shareholder
of IPC, iParty LLC, a Delaware limited liability company
("iParty"), such number of certificates as may be directed
by iParty representing in the aggregate the Merger
Consideration.
(ii) After the Effective Time, iParty shall cease
to have any rights as a shareholder of IPC, except such
rights, if any, as it may have pursuant to Delaware law.
-4-
<PAGE>
Section 2.02 Capital Stock of Acquisition.
At the Effective Time, each share of common stock, $.001 par
value, of Acquisition issued and outstanding immediately prior to the Effective
Time shall, by virtue of the Merger and without any action on the part of the
holder thereof, be converted into one share of common stock, $.001 par value, of
the Surviving Corporation.
III. COVENANTS.
Section 3.01 [INTENTIONALLY OMITTED].
Section 3.02 [INTENTIONALLY OMITTED].
Section 3.03 Blue Sky Filings.
Acquisition shall have taken all actions (other than
qualifying as a foreign corporation or taking any action which would subject
it to service of process in any jurisdiction where Acquisition is not now so
qualified or subject) required to be taken under applicable state blue sky or
securities laws in connection with the issuance of Acquisition Common Stock
pursuant to the Merger.
Section 3.04 [INTENTIONALLY OMITTED].
Section 3.05 NASD Listing.
Acquisition shall have used its best efforts to cause the
shares of Acquisition Common Stock to be issued in the Merger in accordance
with this Agreement to be admitted for trading or authorized for quotation on
the National Association of Securities Dealers, Inc. Bulletin Board (the "NASD
Bulletin Board") and on each national securities exchange on which shares of
-5-
<PAGE>
Acquisition Common Stock may at such time be admitted for trading or listed,
subject to official notice of issuance, prior to the Effective Time.
Section 3.06 Directors' and Officers' Indemnification and
Insurance.
(a) IPC, and from and after the Effective Time, the
Surviving Corporation (each, an "Indemnifying Party"), shall until the sixth
(6th) anniversary of the Effective Time, indemnify, defend and hold harmless
each person who is now, or has been at any time prior to the date hereof or
who becomes prior to the Effective Time, a director or officer of IPC (the
"Indemnified Parties") against (i) all losses, claims, damages, costs and
expenses (including reasonable attorneys' fees), liabilities, judgments, and
settlement amounts that are paid or incurred in connection with any claim,
action, suit, proceeding or investigation (whether civil, criminal,
administrative or investigative and whether asserted or claimed prior to, at
or after the Effective Time) that are based in whole or in part on, or arise
in whole or in part out of, the fact that such Indemnified Party is or was a
director or officer of IPC and relates to or arises out of an action or
omission occurring at or prior to the Effective Time ("Indemnified
Liabilities"), and (ii) all Indemnified Liabilities based in whole or in part
on, or arising in whole or in part out of or pertaining to, this Agreement or
the transactions contemplated hereby, in each case to the full extent a
corporation is permitted under applicable law to indemnify its own directors,
officers, employees or agents, as the case may be; provided, however, that no
Indemnifying Party shall be liable for any settlement of any claim effected
without its written consent, which consent shall not be unreasonably withheld.
Without limiting the foregoing, in the event that any such claim, action,
suit, proceeding or investigation is brought against any Indemnified Party
(whether arising prior to or after the Effective Time), (w) the Indemnifying
Parties
-6-
<PAGE>
will pay expenses in advance of the final disposition of any such claim,
action, suit, proceeding or investigation to each Indemnified Party to the
full extent permitted by applicable law provided that the person to whom
expenses are advanced provides an undertaking to repay such advance if it is
ultimately determined that such person is not entitled to indemnification; (x)
the Indemnified Parties shall retain counsel reasonably satisfactory to the
Indemnifying Parties; (y) the Indemnifying Parties shall pay all reasonable
fees and expenses of such counsel for the Indemnified Parties (subject to the
final sentence of this paragraph) promptly as statements therefor are
received; and (z) the Indemnifying Parties shall use all commercially
reasonable efforts to assist in the vigorous defense of any such matter. Any
Indemnified Party wishing to claim indemnification under this Section 3.06,
upon learning of any such claim, action, suit, proceeding or investigation,
shall notify the Indemnifying Parties, but the failure to so notify an
Indemnifying Party shall not relieve it from any liability which it may have
under this paragraph except to the extent such failure irreparably prejudices
such party. The Indemnified Parties as a group may retain only one law firm to
represent them with respect to each such matter unless there is, under
applicable standards of professional conduct, a conflict on any significant
issue between the positions of any two or more Indemnified Parties.
(b) The provisions of this Section 3.06 are intended to be
for the benefit of, and shall be enforceable by, each Indemnified Party and
his or her heirs and legal representatives, and shall be in addition to any
other rights an Indemnified Party may have under the certificate of
incorporation or By-laws of Acquisition, under the DGCL or otherwise.
-7-
<PAGE>
(c) In the event the Surviving Corporation or any of its
successors or assigns (i) consolidates with or merges into any other person
and shall not be the continuing or surviving corporation or entity of such
consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any person, then, and in each such case, proper
provision shall be made so that the successors and assigns of the Surviving
Corporation shall assume the obligations set forth in this Section 3.06.
Section 3.07 [INTENTIONALLY OMITTED]
IV. REPRESENTATIONS AND WARRANTIES.
Section 4.01 Certain Representations and Warranties of IPC. IPC
represents and warrants to Acquisition as follows:
(a) Organization and Qualification. IPC is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has full corporate power and authority to conduct its
business as and to the extent now conducted and to own, use and lease its
assets and properties, except for such failures to have such corporate power
and authority which, individually or in the aggregate, do not and are not
reasonably expected to have a Material Adverse Effect (as defined in this
Section 4.01(a)) on IPC. IPC is duly qualified, licensed or admitted to do
business and is in good standing in each jurisdiction in which the ownership,
use or leasing of its assets and properties, or the conduct or nature of its
business makes such qualification, licensing or admission necessary, except
for such failures to be so qualified, licensed or admitted and in good
standing which, individually or in the aggregate, do not and are not
reasonably expected to have a Material Adverse Effect on IPC. As used in this
Agreement, a "Material Adverse Effect" shall mean
-8-
<PAGE>
a material adverse effect on the businesses, properties, assets, liabilities,
condition (financial or otherwise) or results of operations of an entity (or
group of entities taken as a whole). Notwithstanding the foregoing, a Material
Adverse Effect shall not include any change in political or economic matters
of general applicability. IPC does not directly or indirectly own any equity
or similar interest in, or any interest convertible into or exchangeable or
exercisable for, any equity or similar interest in, any corporation,
partnership, joint venture or other business association or entity.
(b) Organizational Documents; Capital Stock.
(i) Attached hereto as Exhibit 4.01(b) is a true
and complete copy of the certificate of incorporation and
By-laws of IPC as in effect on the date hereof.
(ii) The authorized capital stock of IPC consists
solely of 1,000 shares of IPC Common Stock. As of the date
of this Agreement, 100 shares of IPC Common Stock are
issued and outstanding. All the issued and outstanding
shares of IPC Common Stock are duly authorized, validly
issued, fully paid and nonassessable. Except pursuant to
this Agreement, there are no outstanding subscriptions,
options, warrants, rights (including "phantom" stock
rights), preemptive rights or other contracts,
commitments, understandings or arrangements, including any
right of conversion or exchange under any outstanding
security, instrument or agreement (collectively,
"Options"), obligating IPC to issue or sell any shares of
capital stock of IPC or to grant, extend or enter into any
Option with respect thereto.
(iii) There are no outstanding contractual
obligations of IPC to repurchase, redeem or otherwise
acquire any shares of IPC Common Stock or any capital
stock
-9-
<PAGE>
of IPC or to provide funds to, or make any investment (in
the form of a loan, capital contribution or otherwise) in,
any person.
(iv) Since the date of its formation, IPC has not
authorized, declared, paid or effected any cash or
non-cash dividend or liquidating or other distribution or
stock split.
(c) Authority Relative to this Agreement. IPC has full
corporate power and authority to enter into this Agreement and to perform its
obligations hereunder and to consummate the transactions contemplated hereby.
The execution, delivery and performance of this Agreement by IPC and the
consummation by IPC of the Merger and the transactions contemplated hereby have
been duly and validly approved by the Board of Directors of IPC and by iParty,
and no other corporate proceedings on the part of IPC or iParty are necessary to
authorize the execution, delivery and performance of this Agreement by IPC and
the consummation by IPC of the transactions contemplated hereby. This Agreement
has been duly and validly executed and delivered by IPC and constitutes a legal,
valid and binding obligation of IPC enforceable against IPC in accordance with
its terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
(d) Non-Contravention; Approvals and Consents.
(i) The execution and delivery of this Agreement by
IPC do not, and the performance by IPC of its obligations
hereunder and the consummation of the
-10-
<PAGE>
transactions contemplated hereby will not, conflict with,
result in a violation or breach of, constitute (with or
without notice or lapse of time or both) a default under,
result in or give to any person any right of payment or
reimbursement, termination, cancellation, modification or
acceleration of, or result in the creation or imposition
of any lien, claim, mortgage, encumbrance, pledge,
security interest, equity or charge of any kind (any of
the foregoing, a "Lien") upon any of the assets or
properties of IPC under any of the terms, conditions or
provisions of (x) the certificate of incorporation or
By-laws of IPC or (y) subject to the taking of the actions
described in paragraph (ii) of this Section 4.01(d), (A)
any statute, law, rule, regulation or ordinance
(collectively, "Laws"), or any judgment, decree, order,
writ, permit or license (collectively, "Orders"), of any
court, tribunal, arbitrator, authority, agency,
commission, official or other instrumentality of the
United States, any foreign country, or any domestic or
foreign state, county, city or other political subdivision
(a "Governmental or Regulatory Authority"), applicable to
IPC or any of its assets or properties, or (B) any note,
bond, mortgage, security agreement, indenture, license,
franchise, permit, concession, contract, lease (capital or
operating) or other instrument, obligation or agreement of
any kind (collectively, "Contracts") to which IPC is a
party or by which IPC or any of its assets or properties
is bound, excluding from the foregoing clauses (A) and (B)
conflicts, violations, breaches, defaults, terminations,
modifications, accelerations and creations and impositions
of Liens which, individually or in the aggregate, could
not
-11-
<PAGE>
be reasonably expected to have a Material Adverse Effect
on IPC or on its ability to consummate the transactions
contemplated by this Agreement.
(ii) Except (x) for the filing of the Certificate
of Merger and other appropriate merger documents required
by the DGCL with the Secretary of State of Delaware and
appropriate documents with the relevant authorities of
other states in which the Constituent Corporations are
qualified to do business and (y) as disclosed in Schedule
4.01(d) hereto, no consent, approval, or action of, filing
with, or notice to any Governmental or Regulatory
Authority or other public or private third party is
necessary or required under any of the terms, conditions
or provisions of any Law or Order of any Governmental or
Regulatory Authority or any Contract to which IPC is a
party or by which IPC or any of its assets or properties
is bound for the execution and delivery of this Agreement
by IPC, the performance by IPC of its obligations
hereunder or the consummation of the transactions
contemplated hereby, except for such consents, approvals,
or actions of, filings with or notices to any Governmental
or Regulatory Authority or other public or private third
party the failure of which to make or obtain could not
reasonably be expected to have a Material Adverse Effect
on IPC or on its ability to consummate the transactions
contemplated by this Agreement.
(e) Financial Statements. IPC has previously provided to
Acquisition an unaudited balance sheet dated as of June 30, 1998.
-12-
<PAGE>
(f) Absence of Certain Changes or Events. Since the date
of the formation of IPC, (i) no change, event or development or combination of
changes or developments (including any worsening of any condition currently
existing) has occurred or is reasonably expected to have, individually or in
the aggregate, a Material Adverse Effect on IPC (a "Material Adverse Change in
IPC") and (ii) IPC has conducted its business only in the ordinary course
consistent with past practice.
(g) Absence of Undisclosed Liabilities. Since the date of
its formation, IPC has not incurred any liabilities or obligations (whether
absolute, accrued, contingent, fixed or otherwise, or whether due or to become
due), of any nature that would be required by generally accepted accounting
principles ("GAAP") to be reflected on a balance sheet of IPC, except
liabilities or obligations incurred in the ordinary course of business
consistent with past practice and which have not had, and are not reasonably
expected to have, individually or in the aggregate, a Material Adverse Effect
on IPC.
(h) Legal Proceedings. There are no actions, suits,
arbitrations or proceedings pending or, to the knowledge of IPC, threatened
against, relating to or affecting, nor to the knowledge of IPC are there any
Governmental or Regulatory Authority investigations or audits pending or
threatened against, relating to or affecting, IPC or any of its assets and
properties which, individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect on IPC or on the ability of IPC to
consummate the transactions contemplated by this Agreement. IPC is not subject
to any judgment, decree, court order or writ of any Governmental or Regulatory
Authority.
-13-
<PAGE>
(i) Compliance with Laws and Orders. IPC holds all
permits, licenses, variances, exemptions, orders and approvals of all
Governmental and Regulatory Authorities necessary for the lawful conduct of
its business (the "IPC Permits"), except for failures to hold such permits,
licenses, variances, exemptions, orders and approvals which, individually or
in the aggregate, do not and are not reasonably expected to have a Material
Adverse Effect on IPC. IPC is in compliance with the terms of the IPC Permits,
except failures so to comply which, individually or in the aggregate, do not
and are not reasonably expected to have a Material Adverse Effect on IPC. IPC
is not in violation of or default under any Law or Order of any Governmental
or Regulatory Authority, except for violations which, individually or in the
aggregate, do not and are not reasonably expected to have a Material Adverse
Effect on IPC.
(j) Compliance with Agreements; Certain Agreements.
(i) Neither IPC, nor to the knowledge of IPC, any
other party thereto, is in breach or violation of, or in
default in the performance or observance of any term or
provision of, and no event has occurred which, with notice
or lapse of time or both, is reasonably expected to result
in a default under, (x) the certificate of incorporation
or By-laws of IPC or (y) any Contract to which IPC is a
party or by which IPC or any of its assets or properties
is bound, except in the case of clause (y) for breaches,
violations and defaults which, individually or in the
aggregate, do not and are not reasonably expected to have
a Material Adverse Effect on IPC.
(ii) Except as disclosed in Schedule 4.01(j) hereto
or as provided for in this Agreement, as of the date
hereof, IPC is not a party to any oral or written (u)
-14-
<PAGE>
capital or operating leases providing for the payment of
more than $50,000 per annum, (v) consulting agreement not
terminable on thirty (30) days' or less notice involving
the payment of more than $25,000 per annum, (w) union or
collective bargaining agreement which covers more than 15
employees, (x) agreement with any executive officer or
other key employee of IPC the benefits of which are
contingent or vest, or the terms of which are materially
altered, upon the occurrence of a transaction involving
IPC of the nature contemplated by this Agreement, (y)
agreement with respect to any executive officer or other
key employee of IPC providing any term of employment or
compensation guarantee extending for a period longer than
one year and for the payment of more than $100,000 per
annum or (z) agreement or plan, including any stock
option, stock appreciation right, restricted stock or
stock purchase plan, any of the benefits of which will be
increased, or the vesting of the benefits of which will be
accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the
benefits of which will be calculated on the basis of any
of the transactions contemplated by this Agreement.
(k) Tax Matters. For purposes of this Section 4.01(k) and
Section 4.02(1) the terms "Tax" and "Taxes" include without limitation all
liabilities for federal, state, local, foreign or other taxes, whether based on,
or related to income, profits, capital, premiums, sales, use, gross receipts,
property, ad valorem, franchise, employment, excise, payroll import and other
taxes, duties,
-15-
<PAGE>
leases and assessments, and include all related penalties, interest, additions
to tax and liabilities for taxes related to contractual obligations with
customers and suppliers.
(i) IPC has filed all material Tax returns required
to be filed by applicable law prior to the Closing Date.
All material Tax returns were true, complete and correct
and filed on a timely basis. IPC (i) has paid all material
Taxes due, or claimed or asserted by any taxing authority
to be due, for the periods covered by such Tax returns or
(ii) has duly and fully provided reserves (in accordance
with GAAP) adequate to pay all such Taxes.
(ii) IPC has established (and until the Closing
Date will maintain) on its books and records reserves
adequate to reflect all material Taxes not yet due and
payable.
(iii) There are no Tax Liens upon the assets of IPC
which are reasonably expected to have a Material Adverse
Effect on IPC except Liens for Taxes not yet due.
(iv) IPC has not requested (and no request has been
made on its behalf) any extension of time within which to
file any material Tax return.
(v) No audits or other administrative proceedings
or court proceedings are presently pending with regard to
any Taxes or Tax returns of IPC.
(vi) IPC has not received a written ruling of a
taxing authority relating to Taxes or entered into a
written and legally binding agreement with any taxing
authority relating to Taxes.
-16-
<PAGE>
(vii) No agreements relating to allocating or
sharing of any material Tax liability have been entered
into by IPC.
(viii) Except for the execution, delivery and
performance of this Agreement, no event has occurred which
would cause the limitations under Section 382 of the
Internal Revenue Code of 1986, as amended (the "Code"), to
apply to IPC.
(l) Environmental Matters.
(i) As of the date hereof, to the knowledge of IPC,
no underground storage tanks are present under any
property that IPC has at any time owned, operated,
occupied or leased. To the knowledge of IPC, as of the
date hereof, no material amount of any substance that has
been designated by any government entity or by applicable
federal, state or local law to be radioactive, toxic,
hazardous or otherwise a danger to health or the
environment, including, without limitation, PCBs,
asbestos, petroleum, urea-formaldehyde and all substances
listed as hazardous substances pursuant to the
Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended, or defined as a
hazardous waste pursuant to the United States Resource
Conservation and Recovery Act 1976, as amended, and the
regulations promulgated pursuant to said laws (any of the
foregoing, a "Hazardous Material"), but excluding office
and janitorial supplies, are present, as a result of the
actions of IPC in, on or under any property, including the
land and the improvements, ground water and surface water,
that IPC has at any time owned, operated, occupied or
leased.
-17-
<PAGE>
(ii) At no time has IPC transported, stored, used,
manufactured, disposed of, released or exposed its
employees or others to Hazardous Materials in violation of
any Law in effect on or before the Effective Time, which
has had or is reasonably likely to have a Material Adverse
Effect on IPC, nor has IPC engaged in Hazardous Materials
Activities (as defined in Section 4.02(m)(ii) hereof) in
violation of any law or order promulgated by any
Governmental or Regulatory Authority which has or is
reasonably likely to have a Material Adverse Effect on
IPC.
(iii) IPC has all material environmental approvals,
permits, licenses, clearances and consents (the
"Environmental Permits") necessary for the conduct of its
current business.
(iv) No action, proceeding, revocation proceeding,
amendment procedure, writ, injunction or claim is pending
or, to the knowledge of IPC, as of the date hereof,
threatened concerning any Environmental Permit or any
Hazardous Materials Activity of IPC which could reasonably
be expected to have a Material Adverse Effect on IPC. IPC
is not aware of any fact or circumstance which could
involve IPC in any environmental litigation or impose upon
IPC any environmental liability which in either case would
be reasonably likely to have a Material Adverse Effect on
IPC.
(m) Employee Benefit Plans. IPC does not have or contribute
to any pension, profit-sharing, option, other incentive plan or any other type
of Employee Benefit Plan (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")),
-18-
<PAGE>
or have any obligation to or customary arrangement with employees for bonuses,
incentive compensation, vacations, severance pay, sick pay, sick leave,
insurance, service award, relocation, disability, tuition refund or other
benefits, whether oral or written.
(n) Patents, Trademarks, Et Cetera. IPC has all right,
title and interest in, or a valid and binding license to use all patents,
patent applications, trademarks, trademark applications, trade names, service
marks, copyrights, copyright applications, franchises, trade secrets, computer
programs (in object or source code form), or other intangible property or
asset (collectively, "Intangibles") which are individually or in the aggregate
material to the conduct of its business. IPC is not in default (or with the
giving of notice or lapse of time or both, would be in default) in any
material respect under any license to use such Intangibles. To IPC's
knowledge, no such Intangibles are being infringed by any third party, and IPC
is not infringing any Intangible of any third party, except for such defaults
and infringements which, individually or in the aggregate, do not and are not
reasonably expected to have a Material Adverse Effect on Acquisition.
(o) Insurance. IPC does not currently maintain and since
its formation, has never maintained liability, property, workers'
compensation, directors' and officers', liability or any other insurance
policies that insure the business, operations, properties, assets or employees
of IPC.
(p) Labor Matters. Since the date of its formation, IPC has
had no employees.
(q) Tangible Property and Assets. IPC has marketable title
to, or has valid leasehold interests in or valid rights under contract to use,
all tangible property and assets used in and, individually or in the aggregate,
material to the conduct of the business of IPC free and clear of all Liens other
than (i) any statutory Lien arising in the ordinary course of business by
operation
-19-
<PAGE>
of law with respect to a liability that is not yet due or delinquent and (ii)
any minor imperfection of title or similar Lien which individually or in the
aggregate with other such Liens does not materially impair the value of the
property or asset subject to such Lien or the use of such property or asset in
the conduct of the business of IPC. All such property and assets are, in all
respects material to IPC, in good working order and condition, ordinary wear
and tear excepted, and adequate and suitable for the purposes for which they
are presently being used.
(r) Shareholder Approval. IPC has obtained the approval of
its sole shareholder with respect to the Merger, this Agreement and the other
transactions contemplated hereby.
(s) Broker. All negotiations relative to this Agreement
and the transactions contemplated hereby have been carried out by IPC directly
with Acquisition and its affiliates without the intervention of any person on
behalf of IPC in such manner as to give rise to any valid claim by any person
against Acquisition and its affiliates for a finder's fee, brokerage
commission or similar payment.
(t) Consents Without Any Condition. IPC has not made any
agreement or reached any understanding not approved by Acquisition as a
condition for obtaining any consent, authorization, approval, order, license,
certificate or permit required for the consummation of the transactions
contemplated by this Agreement.
(u) Transfer Taxes. IPC has prepared and filed all
declarations and filings necessary to comply with any transfer tax statutes
that require any such filings before the Effective Time.
-20-
<PAGE>
Section 4.02 Certain Representations and Warranties of Acquisition.
Acquisition represents and warrants to IPC as follows:
(a) Organization and Qualification. Acquisition is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation and has full corporate power and authority
to conduct its business as and to the extent now conducted and to own, use and
lease its assets and properties, except for such failures to have such corporate
power and authority which, individually or in the aggregate, do not and are not
reasonably expected to have a Material Adverse Effect on Acquisition.
Acquisition is duly qualified, licensed or admitted to do business and is in
good standing in each jurisdiction in which the ownership, use or leasing of its
assets and properties, or the conduct or nature of its business, makes such
qualification, licensing or admission necessary, except for such failures to be
so qualified, licensed or admitted and in good standing which, individually or
in the aggregate, do not and are not reasonably expected to have a Material
Adverse Effect on Acquisition. Delaware is the only jurisdiction in which
Acquisition is qualified, licensed or admitted to do business. Except as
disclosed in Schedule 4.02(a) hereto, Acquisition does not directly or
indirectly own any equity or similar interest in, or any interest convertible
into or exchangeable or exercisable for, any equity or similar interest in, any
corporation, partnership, joint venture or other business association or entity.
(b) Organizational Documents; Capital Stock.
(i) Attached hereto as Exhibit 4.02(b) is a true and
complete copy of the certificate of incorporation and
By-laws of Acquisition as in effect on the date
-21-
<PAGE>
hereof. Such documents provide for a board of directors
consisting of six members and authorize the issuance by
Acquisition of 10,000,000 shares of preferred stock.
(ii) The authorized capital stock of Acquisition
consists solely of 50,000,000 shares of Acquisition Common
Stock and 10,000,000 shares of preferred stock, par value
$.001 per share ("Acquisition Preferred Stock"). As of the
date hereof, 5,000,000 shares of Acquisition Common Stock
are issued and outstanding, no shares of Acquisition
Preferred Stock are outstanding, no shares of Acquisition
Common Stock or Acquisition Preferred Stock are held in
the treasury of Acquisition and 1,000,000 shares of
Acquisition Common Stock and 1,000,000 shares of
Acquisition Preferred Stock are reserved for issuance
pursuant to the instruments described in Schedule 4.02(b)
hereto. All of the issued and outstanding shares of
Acquisition Common Stock are, and all shares of
Acquisition Common Stock and Acquisition Preferred Stock
reserved for issuance will be, upon issuance in accordance
with the terms specified in the instruments or agreements
pursuant to which they are issuable, duly authorized,
validly issued, fully paid and nonassessable. Except
pursuant to this Agreement and the warrants described in
Schedule 4.02(b), there are no outstanding Options
obligating Acquisition to issue or sell any shares of
capital stock of Acquisition or to grant, extend or enter
into any Option with respect thereto. The shares of
Acquisition Common Stock issuable to the holder of IPC
Common Stock pursuant to Article II hereof will be, when
issued in accordance with this Agreement, duly authorized,
validly issued, fully paid and
-22-
<PAGE>
nonassessable. The outstanding shares of Acquisition Common
Stock are eligible for quotation on the NASD Bulletin Board.
(iii) There are no outstanding contractual
obligations of Acquisition to repurchase, redeem or
otherwise acquire any shares of Acquisition Common Stock.
(iv) Since the date of its formation, Acquisition
has not authorized, declared, paid or effected any cash or
non-cash dividend or liquidating or other distribution or
stock split other than the 40 to 1 reverse stock split
with respect to the Acquisition Common Stock effective as
of June 18, 1998.
(c) Authority Relative to this Agreement. Acquisition has
full corporate power and authority to enter into this Agreement and to perform
its obligations hereunder and to consummate the transactions contemplated
hereby. The execution, delivery and performance of this Agreement by Acquisition
and the consummation by Acquisition of the Merger and the transactions
contemplated hereby have been duly and validly approved by the Board of
Directors of Acquisition and by its shareholders and no other corporate
proceedings on the part of Acquisition or its shareholders are necessary to
authorize the execution, delivery and performance of this Agreement by
Acquisition and the consummation by Acquisition of the transactions contemplated
hereby. This Agreement has been duly and validly executed and delivered by
Acquisition and constitutes a legal, valid and binding obligation of Acquisition
enforceable against Acquisition in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditors' rights
generally and by
-23-
<PAGE>
general equitable principles (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
(d) Non-Contravention; Approvals and Consents.
(i) The execution and delivery of this Agreement by
Acquisition do not, and the performance by Acquisition of
its obligations hereunder and the consummation of the
transactions contemplated hereby will not, conflict with,
result in a violation or breach of, constitute (with or
without notice or lapse of time or both) a default under,
result in or give to any person any right of payment or
reimbursement, termination, cancellation, modification or
acceleration of, or result in the creation or imposition
of any Lien on any of the assets or properties of
Acquisition under, any of the terms, conditions or
provisions of (x) the certificate of incorporation or
By-laws of Acquisition or (y) subject to the taking of the
actions described in paragraph (ii) of this Section
4.02(d), (A) any Laws or Orders of any Governmental or
Regulatory Authority applicable to Acquisition or any of
its assets or properties, or (B) any Contracts to which
Acquisition is a party or by which Acquisition or any of
its assets or properties is bound, excluding from the
foregoing clauses (A) and (B) conflicts, violations,
breaches, defaults, terminations, modifications,
accelerations and creations and impositions of Liens,
which individually or in the aggregate, could not be
reasonably expected to have a Material Adverse Effect on
Acquisition or on the ability of Acquisition to consummate
the transactions contemplated by this Agreement.
-24-
<PAGE>
(ii) Except (x) for filings with various state
securities authorities that are required in connection
with the transactions contemplated by this Agreement, (y)
for the filing of the Certificate of Merger and other
appropriate merger documents required by the DGCL with the
Secretary of State of Delaware and appropriate documents
with the relevant authorities of other states in which the
Constituent Corporations are qualified to do business and
(z) as disclosed in Schedule 4.02(d) hereto, no consent,
approval, or action of, filing with or notice to any
Governmental or Regulatory Authority or other public or
private third party is necessary or required under any of
the terms, conditions or provisions of any Law or Order of
any Governmental or Regulatory Authority or any Contract
to which Acquisition is a party or by which Acquisition or
any of its assets or properties is bound for the execution
and delivery of this Agreement by Acquisition, the
performance by Acquisition of its obligations hereunder or
the consummation of the transactions contemplated hereby,
except for such consents, approvals or actions of, filing
with or notices to any Governmental or Regulatory
Authority or other public or private third party the
failure of which to make or obtain could not reasonably be
expected to have a Material Adverse Effect on Acquisition
or on its ability to consummate the transactions
contemplated by this Agreement.
(e) Financial Statements. Acquisition delivered to IPC prior
to the execution of this Agreement a true, correct and complete copy of each
audited and unaudited financial statement (the "Acquisition Financial
Statements") of Acquisition since January 1, 1992. The
-25-
<PAGE>
Acquisition Financial Statements were prepared in accordance with GAAP applied
on a consistent basis during the periods involved (except as may be indicated
therein or in the notes thereto and except with respect to unaudited
statements) and fairly present (subject, in the case of the unaudited interim
financial statements, to normal, recurring year-end audit adjustments which
are not expected to be, individually or in the aggregate, materially adverse
to Acquisition), the financial position of Acquisition as at the respective
dates thereof and the results of operations and cash flows for the respective
periods then ended.
(f) Absence of Certain Changes or Events. Except as set
forth in Schedule 4.02(f) hereto, (i) since February 28, 1998 no change, event
or development or combination of changes or developments (including any
worsening of any condition currently existing) has occurred or is reasonably
expected to have, individually or in the aggregate, a Material Adverse Effect
on Acquisition (a "Material Adverse Change in Acquisition"), and (ii) between
such date and the date hereof Acquisition has conducted its business only in
the ordinary course consistent with past practice.
(g) Absence of Undisclosed Liabilities. Except for matters
reflected or reserved against in the balance sheet for the period ended
December 31, 1997 included in the Acquisition Financial Statements,
Acquisition did not have at such date and has not incurred since that date,
any liabilities or obligations (whether absolute, accrued, contingent, fixed
or otherwise, or whether due or to become due) of any nature, except
liabilities or obligations which were incurred in the ordinary course of
business consistent with past practice which have not had, and are not
reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect on Acquisition.
-26-
<PAGE>
(h) Legal Proceedings. (i) There are no actions, suits,
arbitrations or proceedings pending or to the knowledge of Acquisition,
threatened against, relating to or affecting, nor to the knowledge of
Acquisition, are there any Governmental or Regulatory Authority investigations
or audits pending or threatened against, relating to or affecting, Acquisition
or any of its assets and properties which, individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect on Acquisition
or on the ability of Acquisition to consummate the transactions contemplated
by this Agreement, and (ii) Acquisition is not subject to any judgment,
decree, court order or writ of any Governmental or Regulatory Authority.
(i) Information Supplied. Any documents to be filed by
Acquisition with any Governmental or Regulatory Authority in connection with
the Merger and the other transactions contemplated hereby will comply as to
form in all material respects with the requirements of all applicable Laws and
will not, on the date of its filing and at the Effective Time, contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading, except that no representation is made by Acquisition with respect
to information supplied by or on behalf of IPC expressly for inclusion
therein.
(j) Compliance with Laws and Orders. Acquisition holds all
permits, licenses, variances, exemptions, orders and approvals of all
Governmental and Regulatory Authorities necessary for the lawful conduct of
its business (the "Acquisition Permits"), except for failures to hold such
permits, licenses, variances, exemptions, orders and approvals which,
individually or in the aggregate, do not and are not reasonably expected to
have a Material Adverse Effect on
-27-
<PAGE>
Acquisition. Acquisition is in compliance with the terms of the Acquisition
Permits, except failures so to comply which, individually or in the aggregate,
do not have and are not reasonably expected to have a Material Adverse Effect
on Acquisition. Acquisition is not in violation of or default under any Law or
Order of any Governmental or Regulatory Authority except for violations which,
individually or in the aggregate, do not and are not reasonably expected to
have a Material Adverse Effect on Acquisition.
(k) Compliance with Agreements; Certain Agreements.
Neither Acquisition, nor to the knowledge of Acquisition, any other party
thereto, is in breach or violation of, or in default in the performance or
observance of any term or provision of and no event has occurred which, with
notice or lapse of time or both, is reasonably expected to result in a default
under, (x) the certificate of incorporation or By-laws of Acquisition or (y)
any Contract to which Acquisition is a party or by which Acquisition or any of
its assets or properties is bound, except in the case of clause (y) for
breaches, violations and defaults which, individually or in the aggregate, do
not and are not reasonably expected to have a Material Adverse Effect on
Acquisition.
(l) Tax Matters.
(i) Except as set forth in Schedule 4.02(l) hereto,
Acquisition has filed all material Tax returns to be filed
by applicable law prior to the Closing Date. All material
Tax returns were (and, as to Tax returns not filed as of
the date hereof, will be) true, complete and correct and
filed on a timely basis. Acquisition (i) has paid all
material Taxes due, or claimed or asserted by any taxing
authority to be due, for
-28-
<PAGE>
the periods covered by such Tax returns or (ii) has duly
and fully provided reserves (in accordance with GAAP)
adequate to reflect all such Taxes.
(ii) Acquisition has established (and until the
Closing Date will maintain) on its books and records
reserves adequate to reflect all material Taxes not yet
due and payable. Acquisition has made available to IPC the
complete and accurate copies of all work papers associated
with the calculation of Acquisition's Tax reserves.
(iii) There are no Tax Liens upon the assets of
Acquisition which could reasonably be expected to have a
Material Adverse Effect on Acquisition except Liens for
Taxes not yet due.
(iv) Acquisition has not requested (and no request
has been made on its behalf) any extension of time within
which to file any material Tax return.
(v) (A) No income Tax returns have been examined by
any taxing authorities for any periods; and (B) no
deficiency for any material Taxes has been suggested,
proposed, asserted or assessed against Acquisition that
has not been resolved and paid in full.
(vi) No audits or other administrative proceedings
or court proceedings are presently pending with regard to
any Taxes or Tax returns of Acquisition.
(vii) Acquisition has not received a written ruling
of a taxing authority relating to Taxes or entered into a
written and legally binding agreement with any taxing
authority relating to Taxes.
-29-
<PAGE>
(viii) To the extent requested by IPC, Acquisition
has made available to IPC (or, in the case of Tax returns
to be filed on or before the Closing Date, will make
available) complete and accurate copies of all Tax returns
and associated work papers filed by or on behalf of
Acquisition for all taxable years ending on or prior to
the Closing Date.
(ix) No agreements relating to allocating or
sharing of any material Taxes have been entered into by
Acquisition.
(x) Acquisition has not entered into any
transactions that could give rise to an understatement of
federal income Tax within the meaning of Section 6661 of
the Code for Tax returns filed on or before December 31,
1989 and within the meaning of Section 6662 of the Code
for Tax returns filed after December 31, 1989.
(m) Environmental Matters.
(i) As of the date hereof, to the knowledge of
Acquisition, no underground storage tanks are present
under any property that Acquisition has at any time owned,
operated, occupied or leased. To the knowledge of
Acquisition, as of the date hereof, no material amount of
any Hazardous Materials, but excluding office and
janitorial supplies, are present, as a result of the
actions of Acquisition in, on or under any property,
including the land and the improvements, ground water and
surface water, that Acquisition has at any time owned,
operated, occupied or leased.
-30-
<PAGE>
(ii) At no time has Acquisition transported,
stored, used, manufactured, disposed of, released or
exposed its employees or others to Hazardous Materials
(collectively, "Hazardous Materials Activities") in
violation of any Law in effect on or before the Effective
Time, which has had or is reasonably likely to have a
Material Adverse Effect on Acquisition, nor has
Acquisition engaged in Hazardous Materials Activities in
violation or any Law or Order promulgated by any
Governmental or Regulatory Authority which has or is
reasonably likely to have a Material Adverse Effect on
Acquisition.
(iii) Acquisition currently holds all Environmental
Permits necessary for the conduct of its business.
(iv) No action, proceeding, revocation proceeding,
amendment procedure, writ, injunction or claim is pending
or, to the knowledge of Acquisition, as of the date
hereof, threatened concerning any Environmental Permit or
any Hazardous Materials Activity of Acquisition which
could reasonably be expected to have a Material Adverse
Effect on Acquisition. Acquisition is not aware of any
fact or circumstance which could involve Acquisition in
any environmental litigation or impose upon Acquisition
any environmental liability which in either case would be
reasonably likely to have a Material Adverse Effect on
Acquisition.
(n) Employee Benefit Plans. Acquisition does not have or
contribute to any pension, profit-sharing, option, other incentive plan, or any
other type of Employee Benefit Plan, or have any obligation to or customary
arrangement with employees for bonuses, incentive
-31-
<PAGE>
compensation, vacations, severance pay, sick pay, sick leave, insurance,
service award, relocation, disability, tuition refund or other benefits,
whether oral or written.
(o) Patents, Trademarks, Et Cetera. Acquisition has all
right, title and interest in, or a valid and binding license to use,
Intangibles which are individually or in the aggregate material to the conduct
of the business of Acquisition. Acquisition is not in default (or with the
giving of notice or lapse of time or both, would be in default) in any
material respect under any license to use any such Intangible. To
Acquisition's knowledge, no, such Intangible is not being infringed by any
third party, and Acquisition is not infringing any Intangible of any third
party, except for such defaults and infringements which, individually or in
the aggregate, do not and are not reasonably expected to have a Material
Adverse Effect on Acquisition.
(p) Insurance. Acquisition does not currently maintain and
since its formation, has never maintained liability, property, workers'
compensation, directors' and officers', liability or any other insurance
policies that insure the business, operations, properties, assets or employees
of Acquisition.
(q) Labor Matters. Since the date of its formation
Acquisition has not had any employees.
(r) Tangible Property and Assets. Acquisition has good and
marketable title to, or has valid leasehold interests in or valid rights under
contract to use, all tangible property and assets used in and, individually or
in the aggregate, material to the conduct of the business of Acquisition, free
and clear of all Liens other than (i) any statutory Lien arising in the
ordinary course of business by operation of law with respect to a liability
that is not yet due or delinquent and (ii) any
-32-
<PAGE>
minor imperfection of title or similar Lien which individually or in the
aggregate with other such Liens does not materially impair the value of the
property or asset subject to such Lien or the use of such property or asset in
the conduct of the business of Acquisition. All such property and assets are,
in all respects material to Acquisition, in good working order and condition,
ordinary wear and tear excepted, and adequate and suitable for the purposes
for which they are presently being used.
(s) Shareholder Approval. Acquisition has obtained the
approval of the necessary percentage of its shareholders as required by the
DGCL and any other applicable law with respect to the Merger, this Agreement
and the other transactions contemplated hereby.
(t) Brokers. All negotiations relative to this Agreement
and the transactions contemplated hereby have been carried out by Acquisition
and its affiliates directly with IPC without the intervention of any person on
behalf of Acquisition and its affiliates in such manner as to give rise to any
valid claim by any person against IPC for a finder's fee, brokerage commission
or similar payment.
(u) Consents Without Any Condition. Acquisition has not made
any agreement or reached any understanding not approved by IPC as a condition
for obtaining any consent, authorization, approval, order, license, certificate
or permit required for the consummation of the transactions contemplated by this
Agreement.
V. CONDITIONS.
Section 5.01 Conditions to Each Party's Obligation to Effect the
Merger.
The respective obligation of each party to effect the Merger
is subject to the fulfillment, at or prior to the Closing, of each of the
following conditions:
-33-
<PAGE>
(a) State Securities Laws. Acquisition shall have received
all state securities or "Blue Sky" permits and other authorizations necessary
to issue the Acquisition Common Stock pursuant to this Agreement after the
Merger.
(b) NASD Bulletin Board Listing. The shares of Acquisition
Common Stock issuable to IPC's shareholder in the Merger in accordance with
this Agreement shall be eligible for quotation on the NASD Bulletin Board.
(c) No Injunctions or Restraints. No court of competent
jurisdiction or other competent Governmental or Regulatory Authority shall
have enacted, issued, promulgated, enforced or entered any Law or Order
(whether temporary, preliminary or permanent) which is then in effect and has
the effect of making illegal or otherwise restricting, preventing or
prohibiting consummation of the Merger or the other transactions contemplated
by this Agreement.
(d) Consents and Approvals. Other than the filings
provided for by Section 1.02, all consents, approvals and actions of, filings
with and notices to any Governmental or Regulatory Authority or any other
public or private third parties required of Acquisition or IPC to consummate
the Merger and the other matters contemplated hereby (including, without
limitation, those listed on Schedules 4.01(d) and 4.02(d)), the failure of
which to be obtained or taken could be reasonably expected to have a material
adverse effect on Acquisition, IPC or the Surviving Corporation or on the
ability of Acquisition and IPC to consummate the transactions contemplated
hereby shall have been obtained, all in form and substance reasonably
satisfactory to Acquisition and IPC, and no such consent, approval or action
shall contain any term or condition which could be reasonably expected
-34-
<PAGE>
to result in a material diminution of the benefits of the Merger to the
shareholders of Acquisition and IPC.
Section 5.02 Conditions to Obligation of Acquisition to Effect the
Merger.
The obligation of Acquisition to effect the Merger is
further subject to the fulfillment, at or prior to the Closing, of each of the
following additional conditions (all or any of which may be waived in whole or
in part by Acquisition and in its sole discretion):
(a) Representations and Warranties. The representations
and warranties made by IPC in this Agreement shall be true and correct in all
material respects as of the Closing Date as though made on and as of the
Closing Date or, in the case of representations and warranties made as of a
specified date earlier than the Closing Date, on and as of such earlier date,
and IPC shall have delivered to Acquisition a certificate, dated the Closing
Date and executed on behalf of IPC by its Chairman of the Board, President or
any Senior Vice President, to such effect.
(b) Performance of Obligations. IPC shall have performed
and complied with, in all material respects, each agreement, covenant and
obligation required by this Agreement to be so performed or complied with by
IPC at or prior to the Closing, and IPC shall have delivered to Acquisition a
certificate dated the Closing Date and executed on behalf of the Company by
its Chairman of the Board, President or any Senior Vice President, to such
effect.
(c) Other Closing Documents. IPC shall have delivered to
Acquisition at or prior to the Effective Time such other documents as
Acquisition may reasonably request in order to enable Acquisition to determine
whether the conditions to its obligations under this Agreement have been met
and otherwise to carry out the provisions of this Agreement.
-35-
<PAGE>
(d) Review of Proceedings. All actions, proceedings,
instruments and documents required by IPC to carry out this Agreement or
incidental thereto and all other related legal matters shall be subject to the
reasonable approval of William Stocker, Esq., counsel to Acquisition, and IPC
shall have furnished such counsel such documents as such counsel may have
reasonably requested for the purpose of enabling them to pass upon such
matters.
(e) Legal Action. There shall not have been instituted or
threatened any legal proceeding relating to, or seeking to prohibit or
otherwise challenge the consummation of, the transactions contemplated by this
Agreement, or to obtain substantial damages with respect thereto.
(f) No Governmental Action. There shall not have been any
action taken, or any law, rule, regulation, order, judgment or decree
proposed, promulgated, enacted, entered, enforced or deemed applicable to the
transactions contemplated by this Agreement by any federal, state, local or
other governmental authority or by any court or other tribunal, including the
entry of a preliminary or permanent injunction, which, in the reasonable
judgment of Acquisition, (i) makes this Agreement, the Merger or any of the
other transactions contemplated by this Agreement illegal, (ii) results in a
material delay in the ability of IPC or Acquisition to consummate the Merger
or any of the other transactions contemplated by this Agreement, (iii)
requires the divestiture by Acquisition of a material portion of the business
of either Acquisition or IPC, or (iv) otherwise materially prohibits,
restricts or delays consummation of the Merger or any of the other
transactions contemplated by this Agreement or materially impairs the
contemplated benefits to Acquisition of this Agreement, the Merger or any of
the other transactions contemplated by this Agreement.
-36-
<PAGE>
(g) Material Adverse Change. There shall not have been a
Material Adverse Change in IPC.
Section 5.03 Conditions to Obligation of IPC to Effect the Merger.
The obligation of IPC to effect the Merger is further
subject to the fulfillment, at or prior to the Closing, of each of the
following additional conditions (all or any of which may be waived in whole or
in part by IPC in its sole discretion):
(a) Representations and Warranties. The representations
and warranties made by Acquisition in this Agreement shall be true and correct
in all material respects as of the Closing Date as though made on and as of
the Closing Date or, in the case of representations and warranties made as of
a specified date earlier than the Closing Date, on and as of such earlier
date, and Acquisition shall have delivered to IPC a certificate, dated the
Closing Date and executed on behalf of Acquisition by its Chairman of the
Board, President or any Vice President, to such effect.
(b) Performance of Obligations. Acquisition shall have
performed and complied with in all material respects, each agreement, covenant
and obligation required by this Agreement to be so performed or complied with
by Acquisition at or prior to the Closing, and Acquisition shall have
delivered to IPC a certificate, dated the Closing Date and executed on behalf
of Acquisition by its Chairman of the Board, President or any Vice President,
to such effect.
(c) Other Closing Documents. Acquisition shall have
delivered to IPC at or prior to the Effective Time such other documents as IPC
may reasonably request in order to enable IPC to determine whether the
conditions to its obligations under this Agreement have been met and otherwise
to carry out the provisions of this Agreement.
-37-
<PAGE>
(d) Review of Proceedings. All actions, proceedings,
instruments and documents required by Acquisition to carry out this Agreement
or incidental thereto and all other related legal matters shall be subject to
the reasonable approval of Camhy Karlinsky & Stein LLP, counsel to IPC, and
Acquisition shall have furnished such counsel such documents as such counsel
may have reasonably requested for the purpose of enabling it to pass upon such
matters.
(e) Legal Action. There shall not have been instituted or
threatened any legal proceeding relating to, or seeking to prohibit or
otherwise challenge the consummation of, the trans actions contemplated by
this Agreement, or to obtain substantial damages with respect thereto.
(f) No Governmental Action. There shall not have been any
action taken, or any law, rule, regulation, order, judgment or decree
proposed, promulgated, enacted, entered, enforced or deemed applicable to the
transactions contemplated by this Agreement by any federal, state, local or
other governmental authority or by any court or other tribunal, including the
entry of a preliminary or permanent injunction, which, in the reasonable
judgment of IPC, (i) makes this Agreement, the Merger or any of the other
transactions contemplated by this Agreement illegal, (ii) results in a
material delay in the ability of Acquisition or IPC to consummate the Merger
or any of the other transactions contemplated by this Agreement, or (iii)
otherwise materially prohibits, restricts or delays consummation of the Merger
or any of the other transactions contemplated by this Agreement or materially
impairs the contemplated benefits to IPC and iParty of this Agreement, the
Merger or any of the other transactions contemplated by this Agreement.
(g) Material Adverse Change. There shall not have been a
Material Adverse change in Acquisition.
-38-
<PAGE>
(h) Registration Rights. As of the Effective Time,
Acquisition shall have entered into with iParty a registration rights
agreement substantially in the form attached hereto as Exhibit 5.03(i).
(i) Capital. As of the Effective Time, Acquisition shall
have at least $999,024.43 of readily available cash in its capital account.
VI. INDEMNIFICATION.
Section 6.01 Indemnification by Acquisition.
(a) Acquisition agrees to indemnify and hold harmless IPC
and its officers, directors, employees, counsel and agents against and in
respect of any and all Claims as and when incurred, arising out of or based
upon any breach or inaccuracy of any representation, warranty, covenant or
agreement of Acquisition contained in this Agreement (including the Exhibits
and Schedules attached hereto) or any certificates delivered pursuant to this
Agreement.
(b) Each indemnified party (an "Indemnitee") shall give
Acquisition prompt notice (including reasonable detail) of any claim asserted
or threatened against such Indemnitee on the basis of which such Indemnitee
intends to seek indemnification (but the obligations of Acquisition shall not
be conditioned upon receipt of such notice, except to the extent that
Acquisition is actually prejudiced by such failure to give notice). If the
claim is a third party claim, demand, action or proceeding, Acquisition
promptly shall assume the defense of any Indemnitee, with counsel reasonably
satisfactory to such Indemnitee, and the fees and expenses of such counsel
shall be the sole cost and expense of Acquisition. Notwithstanding the
foregoing, any Indemnitee shall be entitled, at his or its expense, to employ
counsel separate from counsel for Acquisition and
-39-
<PAGE>
from any other party in such action, proceeding or investigation. No Indemnitee
may agree to a settlement of claim without the prior written approval of
Acquisition which approval shall not be unreasonably withheld. Acquisition may
not agree to a settlement of a claim involving anything other than the payment
of money without the prior written approval of the Indemnitee which shall not be
unreasonably withheld.
VII. TERMINATION.
[INTENTIONALLY OMITTED].
VIII. MISCELLANEOUS.
Section 8.01 Further Actions.
Each party hereto will execute such further documents and
instruments and take such further actions as may reasonably be requested by
the other party to consummate the Merger, to vest the Surviving Corporation
with full title to all assets, properties, rights, approvals, immunities and
franchises of either of the Constituent Corporations or to effect the other
purposes of this Agreement.
Section 8.02 Availability of Equitable Remedies.
Since a breach of the provisions of this Agreement could
not adequately be compen sated by money damages, any party shall be entitled,
either before or after the Effective Time, in addition to any other right or
remedy available to it, to an injunction restraining such breach or threatened
breach and to specific performance of any such provision of this Agreement,
and, in either case, no bond or other security shall be required in connection
therewith, and the parties hereby consent to the issuance of such an
injunction and to the ordering of specific performance.
-40-
<PAGE>
Section 8.03 Survival.
The representations, warranties, covenants and agreements
contained in this Agreement or in any instrument delivered pursuant to this
Agreement shall survive the Merger for a period of one year after the
Effective Time.
Section 8.04 Modification.
This Agreement may be amended, supplemented or modified by
action taken by or on behalf of the respective Board of Directors of the
parties hereto at any time prior to the Effective Time, but after such
adoption and approval only to the extent permitted by applicable law. No such
amendment, supplement or modification shall be effective unless set forth in a
written instrument duly executed by or on behalf of each party hereto.
Section 8.05 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 by Federal Express, express mail or similar
overnight delivery or courier service or delivered (in person or by telecopy,
telex or similar telecommunications equipment) against receipt to the party to
which 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 8.05) with copies
as follows:
If to Acquisition:
Law Offices of William Stocker
34700 Pacific Coast Highway
Suite 303
Capistrano Beach, California 92624
-41-
<PAGE>
If to IPC:
Camhy Karlinsky & Stein LLP
1740 Broadway
New York, New York 10019
Attention: Daniel I. DeWolf
Any notice shall be addressed to the attention of the Chairman. 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
will be deemed given at the time of receipt thereof. Any notice given by other
means permitted by this Section 8.05 shall be deemed given at the time of
receipt hereof.
Section 8.06 Waiver.
Any waiver by any party of a breach of any term of this
Agreement shall not operate as or be construed to be a waiver of any other
breach of that term or of any breach of any other term of this Agreement. The
failure of a party to insist upon strict adherence to any term of this
Agreement on one or more occasions will 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 and be
authorized by a resolution of the Board of Directors or by an officer of the
waiving party.
Section 8.07 Binding Effect.
The provisions of this Agreement shall be binding upon and
inure to the benefit of Acquisition and IPC and their respective successors
and assigns.
-42-
<PAGE>
Section 8.08 No Third-Party Beneficiaries.
This Agreement does not create, and shall not be construed
as creating, any rights enforceable by any person not a party to this
Agreement, except for the sole shareholder of IPC with respect to Section
2.01, the respective officers, directors, representatives, affiliates of IPC
and Acquisition with respect to Section 6.01(a) and the Indemnitees with
respect to Section 6.01.
Section 8.09 Severability.
If any provision of this Agreement is hereafter held to be
invalid, illegal or unenforceable for any reason, such provision shall be
reformed to the maximum extent permitted so as to preserve the parties'
original intent, failing which, it shall be severed from this Agreement, with
the balance of this Agreement continuing in full force and effect. If any
provision of this Agreement is so broad as to be unenforceable, the provision
shall be interpreted to be only so broad as is enforceable. If any provision
is inapplicable to any person or circumstance, it shall nevertheless remain
applicable to all other persons and circumstances.
Section 8.10 Headings.
The headings in this Agreement are solely for convenience
of reference and shall be given no effect in the construction or
interpretation of this Agreement.
Section 8.11 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 conflict of laws, any action,
suit or proceeding arising out of, based on,
-43-
<PAGE>
or in connection with this Agreement, any document relating hereto or
delivered in connection with the transactions contemplated hereby, any
statement, certificate, or other instrument delivered by or on behalf of, or
delivered to, any party hereto or thereto in connection with the transactions
contemplated hereby or thereby, any breach of this Agreement or such other
document, the Merger, or the other transactions contemplated hereby or thereby
may be brought only in the United States District Court for the Southern
District of New York and each party covenants and agrees not to assert, by way
of motion, as a defense or otherwise, in any such action, suit or proceeding,
any claim that it is not subject personally to the jurisdiction of such court
if it has been duly served with process, that its property is exempt or immune
from attachment or execution, that the action, suit or proceeding is brought
in an inconvenient forum, that the venue of the action, suit or proceeding is
improper, or that this Agreement or the subject matter hereof may not be
enforced in or by such court.
-44-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by
duly authorized officers of each of the parties hereto as of the date first
above written.
IPARTY CORP.
By /s/ Daniel I. DeWolf
---------------------------------
Name: Daniel I. DeWolf
Title: Secretary
WSI ACQUISITIONS CORP.
By /s/ Joel Dumaresq
---------------------------------
Name: Joel Dumaresq
Title: President
-45-
<PAGE>
SCHEDULE 4.01(d)
None
<PAGE>
SCHEDULE 4.01(j)
Selected Agreements
<PAGE>
SCHEDULE 4.02(a)
None
<PAGE>
SCHEDULE 4.02(b)
Warrants to purchase an aggregate of 1,000,000 shares of Series A Preferred
Stock at an exercise price of $1.00 per share issued to Henslowe Trading
Limited and Ruffino Developments Limited.
<PAGE>
SCHEDULE 4.02(d)
None
<PAGE>
SCHEDULE 4.02(f)
None
<PAGE>
SCHEDULE 4.02(l)
Acquisitions has not filed any Federal Tax returns prior to the Closing Date
other than the tax return for 1997.
<PAGE>
iPARTY CORP.
1998 INCENTIVE AND NONQUALIFIED
STOCK OPTION PLAN
---------------------------------------
1. Purpose
The purpose of this Stock Option Plan (the "Plan") is to encourage
and enable key employees (which term, as used herein, shall include officers),
and directors, of iParty Corp. or a parent (if any) or subsidiary thereof
(collectively, unless the context otherwise requires, the "Corporation"),
consultants, and advisors to the Corporation, and other persons or entities
providing goods or services to the Corporation to acquire a proprietary
interest in the Corporation through the ownership of common stock of the
Corporation. As used herein, the term "parent" or "subsidiary" shall mean any
present or future corporation which is or would be a "parent corporation" or
"subsidiary corporation" of the Corporation as the term is defined in section
424 of the Internal Revenue Code of 1986, as amended (the "Code") (determined
as if the Corporation were the employer corporation). Such directors,
consultants, advisors, and other persons or entities providing goods or
services to the Corporation and entitled to receive options hereunder are
hereinafter collectively referred to as the "Associates," and the relationship
of the Associates to the Corporation is hereinafter referred to as
"association with" the Corporation. An employee or Associate to whom an option
has been granted is referred to as a "Grantee". Such ownership will provide
such Grantees with a more direct stake in the future welfare of the
Corporation and encourage them to remain employed by or associated with the
Corporation. It is also expected that the Plan will encourage qualified
persons to seek and accept employment or association with the Corporation.
2. Administration
(a) The Plan shall be administered by the Board of Directors
(the "Board").
(b) As it applies to the administration of the Plan, a
majority of the members of the Board shall constitute a quorum, and the action
of a majority of the members of the Board present at a meeting at which a
quorum is present, as well as actions taken pursuant to the unanimous written
consent of all the members of the Board without holding a meeting, shall be
deemed to be actions of the Board. All actions of the Board and all
interpretations and decisions made by the Board with respect to any question
arising under the Plan shall be final and conclusive and shall be binding upon
the Corporation and all other interested parties.
1
<PAGE>
(c) Subject to the terms and conditions of the Plan, the
Board shall be responsible for the overall management and administration of
the Plan and shall have such authority as shall be necessary or appropriate in
order to carry out its responsibilities, including, without limitation, the
authority to (i) interpret and construe the Plan and to determine the terms of
all options granted pursuant to the Plan, including, but not limited to, the
persons to whom, and the time or times at which grants shall be made, the
number of options to be included in the grants, the number of options which
shall be treated as incentive stock options (in the case of options granted to
employees) as described in section 422 of the Code, the number of options
which do not qualify as incentive stock options ("nonqualified options"), and
the terms and conditions thereof; (ii) to adopt rules and regulations and to
prescribe forms for the operation and administration of the Plan; and (iii) to
take any other action not inconsistent with the provisions of the Plan that it
may deem necessary or appropriate.
3. Eligibility and Participation
(a) Key employees and Associates of the Corporation are
eligible to receive options. Each option shall be granted, and the number of
shares and the vesting schedule of such shares subject thereto shall be
determined by the Board.
(b) Each Director who is not an executive officer of the
Corporation shall be granted on the effective date of the beginning of such
term as Director of the Corporation, stock options for 25,000 shares of the
Corporation's common stock, par value $.001 per share (the "Common Stock"). In
addition, each Director who is not an executive officer of the Corporation
shall be granted, on an annual basis on the last trading day of each August,
commencing August 1998, stock options for 25,000 shares of the Common Stock,
at an exercise price equal to the fair market value of the stock on the date
of grant, and such options shall vest immediately upon grant. The Secretary of
the Corporation shall receive the same compensation as Directors who are not
executive officer of the Corporation. The fair market value shall be
determined in accordance with Section 8 hereof.
4. Shares Subject to the Plan
(a) Options shall be evidenced by written agreements which
shall, among other things (i) designate the option as either an incentive
stock option or a nonqualified stock option, (ii) specify the number of shares
covered by the option; (iii) specify the exercise price, determined in
accordance with paragraph 7 hereof, for the shares subject to the option; (iv)
specify the option period determined in accordance with paragraph 6 hereof;
(v) set forth specifically or incorporate by reference the applicable
provisions of the Plan; and (vi) contain such other terms and conditions
consistent with the Plan as the Board may, in its discretion, prescribe.
2
<PAGE>
(b) The stock to be offered and delivered under the Plan,
pursuant to the exercise of an option, shall be shares of Common Stock and may
be unissued shares or reacquired shares, as the Board may from time to time
determine. Subject to adjustment as provided in paragraph 13 hereof, the
aggregate number of shares to be delivered under the Plan shall not exceed two
million (2,000,000) shares. If an option expires or terminates for any reason
during the term of the Plan prior to the exercise thereof in full, the shares
subject to but not delivered under such option shall be available for options
thereafter granted.
5. Incentive Stock Options
(a) An option designated by the Board as an "incentive stock
option" is intended to qualify as an "incentive stock option" within the
meaning of section 422 of the Code. An incentive stock option shall be granted
only to an employee of the Corporation.
(b) No incentive stock option shall provide any person with
a right to purchase shares to the extent that such right first becomes
exercisable during a prescribed calendar year and the sum of (i) the fair
market value (determined as of the date of grant) of the shares subject to
such incentive stock option which first become available for purchase during
such calendar year, plus (ii) the fair market value (determined as of the date
of grant) of all shares subject to incentive stock options previously granted
to such person under all plans of the Corporation first become available for
purchase during such calendar year exceeds $100,000.
(c) Without prior written notice to the Board, a Grantee may
not dispose of shares acquired pursuant to the exercise of an incentive stock
option until after the later of (i) the second anniversary of the date on
which the incentive stock option was granted, or (ii) the first anniversary of
the date on which the shares were acquired; provided, however, that a transfer
to a trustee, receiver, or other fiduciary in any insolvency proceeding, as
described in section 422(c)(3) of the Code, shall not be deemed to be such a
disposition. The optionee shall make appropriate arrangements with the
Corporation for any taxes which the Corporation is obligated to collect in
connection with any disposition of shares acquired pursuant to the exercise of
an incentive stock option, including any Federal, state or local withholding
taxes.
(d) Should Section 422 of the Code be amended during the
term of the Plan, the Board may modify the Plan consistently with such
amendment.
6. Term of Option Period
The term during which options may be exercised under the Plan shall
expire not later than the tenth anniversary of the date the option is granted,
as may be determined by the Board; provided, however, that in the case of
incentive stock options granted to a person who owns
3
<PAGE>
(within the meaning of Section 424(d) of the Code) more than 10 percent of the
total combined voting power of all classes of stock of the Corporation, such
term shall not exceed 5 years.
7. Option Price
The price at which shares may be purchased upon exercise of a
particular option shall be such price as may be fixed by the Board but in no
event less than the minimum required in order to comply with any applicable
law, rule or regulation and, in the case of incentive stock options, shall not
be less than 100 percent, or in the case of incentive stock options granted to
an optionee who is a 10 percent stockholder (within the meaning of paragraph 6
hereof), shall not be less than 110 percent, of the fair market value (as
defined in paragraph 8) of such shares on the date such option is granted.
8. Stock as Form of Exercise Payment
At the discretion of the Board, a Grantee who owns shares of the
Common Stock may elect to use such shares, with the value thereof to be
determined as the fair market value of such shares on the day prior to the
date of exercise of the option, to pay all or part of the option price
required under the Plan. As used herein, fair market value shall be deemed to
be the closing price on such day of the Common Stock if the Common Stock is
then traded on a national securities exchange or the closing bid price on such
day of the Common Stock, if such stock is traded on the NASDAQ National Market
System or Small-Cap Market System or, if not so traded, the average of the
closing bid and asked prices thereof on such day.
9. Exercise of Options
(a) Each option granted shall be exercisable in whole or in
part at any time, or from time to time, during the option period as the Board
may provide in the terms of such option; provided that the election to
exercise an option shall be made in accordance with applicable federal and
state laws and regulations.
(b) No option may at any time be exercised with respect to a
fractional share.
(c) No shares shall be delivered pursuant to the exercise of
any option, in whole or in part, until qualified for delivery under such
securities laws and regulations as may be deemed by the Board to be applicable
thereto, until such shares are listed on each securities exchange on which the
Common Stock may then be listed, until, in the case of the exercise of an
option, payment in full of the option price is received by the Corporation in
cash or stock as provided in paragraph 8 and until payment in cash of any
applicable withholding taxes is received by the Corporation. Unless prior to
the exercise of the option the shares of the Common Stock issuable upon such
exercise have been registered with the Securities and Exchange Commission
pursuant
4
<PAGE>
to the Securities Act of 1933, as amended (the "Act"), the notice of exercise
shall be accompanied by a representation or agreement of the individual
exercising the option to the Corporation to the effect that such shares are
being acquired for investment and not with a view to the resale or
distribution thereof or such other documentation as may be required by the
Corporation unless in the opinion of counsel to the Corporation such
representation, agreement, or documentation is not necessary to comply with
the Act. No holder of an option, or such holder's legal representative,
legatee, or distributee shall be or be deemed to be a holder of any shares
subject to such option unless and until a certificate or certificates therefor
is issued in his name.
10. Acceleration of Vesting
(a) An option shall automatically be vested and immediately
exercisable in full upon the occurrence of any of the following events:
(i) Any person within the meaning of
Sections 13(d) and 14(d) of the Securities Exchange Act of
1934, as amended (the "'34 Act"), other than the
Corporation, has become the beneficial owner, within the
meaning of Rule 13d-3 under the '34 Act, of 30 percent or
more of the combined voting power of the Corporation's then
outstanding voting securities, unless such ownership by such
person has been approved by the Board immediately prior to
the acquisition of such securities by such person;
(ii) The first day on which shares of the
Common Stock are purchased pursuant to a tender offer or
exchange offer, unless such offer is made by the Corporation
or unless such offer has been approved or not opposed by the
Board;
(iii) The stockholders of the Corporation
have approved an agreement to merge or consolidate with or
into another corporation (and the Corporation is not the
survivor of such merger or consolidation) or an agreement to
sell or otherwise dispose of all or substantially all of the
Corporation's assets (including a plan of liquidation),
unless the Board has resolved that options shall not
automatically vest; or
(iv) During any period of two consecutive
years, individuals who at the beginning of such period
constitute the Board of the Corporation cease for any reason
to constitute at least a majority thereof, unless the
election or the nomination for the election by the
Corporation's stockholders of each new director was approved
by a vote of at least a majority of the directors then still
in office who were directors at the beginning of the period.
5
<PAGE>
(b) Other than upon the occurrence of any of the events
described in paragraph 10(a), the Board shall have the authority at any time
or from time to time to accelerate the vesting of any individual option and to
permit any stock option not theretofore exercisable to become immediately
exercisable.
11. Transfer of Options
Except with the prior written consent of the Corporation,
options granted under the Plan may not be transferred except by will or the
laws of descent and distribution, pursuant to a domestic relations order, as
defined by the Internal Revenue Code of 1986, as amended, or Title I of the
Employee Retirement Income Securities Act or the Rules thereunder, and, during
the lifetime of the Grantee to whom granted, may be exercised only by such or
by such Grantee's guardian or legal representative.
12. Termination of Employment
(a) Except as specifically provided in this paragraph 12, if
the Grantee's employment or association with the Corporation shall terminate
for any reason before the option has vested in full, then the unvested portion
of the option shall automatically terminate on the date of termination of
employment or association and all rights and interests of the Grantee in and
to such unvested portion shall thereupon terminate.
(b) After the date on which an incentive stock option vests,
if the Grantee's employment by the Corporation is terminated for any reason,
the incentive stock option shall be exercisable for the lesser of (i) three
(3) months from the date of such termination of employment or (ii) the balance
of such incentive stock option's term; provided, however, that in the event
that the termination is as a result of the death or disability (within the
meaning of section 22(e)(3) of the Code) of the Grantee, the incentive stock
options held by such Grantee which were otherwise exercisable on the date of
his termination of employment shall expire unless exercised by such Grantee,
or, in the case of the death of a Grantee, by his heirs, legatees, or personal
representatives, within a period of twelve (12) months after the date of
termination of employment. In no event, however, shall any incentive stock
option be exercisable after ten years from the date it was granted. Nothing in
the Plan or in any option shall confer upon any Grantee the right to continue
in the employ of the Corporation or interfere in any way with the right of the
Corporation to terminate the employment of a Grantee at any time. The Board's
determination that a Grantee's employment has terminated and the date thereof
shall be final and conclusive on all persons affected thereby.
(c) The Board may, if it determines that to do so would be
in the Corporation's best interests, provide in a specific case or cases for
the exercise of options which would otherwise
6
<PAGE>
terminate upon termination of employment with the Corporation for any reason,
upon such terms and conditions as the Board determines to be appropriate.
(d) In the case of a Grantee on an approved leave of
absence, the Board may, if it determines that to do so would be in the best
interests of the Corporation, provide in a specific case for continuation of
options during such leave of absence, such continuation to be on such terms
and conditions as the Board determines to be appropriate. Leaves of absence
for such period and purposes conforming to the personnel policy of the
Corporation as may be approved by the Board shall not be deemed terminations
or interruptions of employment.
13. Adjustments Upon Changes in Capitalization
(a) If the Corporation's outstanding common stock is
hereafter changed by reason of reorganization, merger, consolidation,
recapitalization, reclassification, stock split-up, combination, or exchange
of shares or the like, or dividends payable in shares of the Corporation's
common stock, an appropriate adjustment shall be made by the Board in the
aggregate number of shares available under the Plan and in the number of
shares and price per share subject to outstanding options. If the Corporation
shall be reorganized, consolidated, or merged with another corporation, or if
all or substantially all of the assets of the Corporation shall be sold or
exchanged, the holder of an option shall, after the occurrence of such a
corporate event, be entitled to receive upon the exercise of his option the
same number and kind of shares of stock or the same amount of property, cash,
or securities as he 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. All adjustments made pursuant to this paragraph to the terms or
conditions of an incentive stock option shall be subject to the requirements
of section 424 of the Code.
(b) Any adjustment in the number of shares shall apply
proportionately to only the unexercised portion of any option granted
hereunder. If fractions of a share would result from any such adjustment, the
adjustment shall be revised to the next higher whole number of shares.
14. Termination, Modification, and Amendment
(a) The Plan may from time to time be terminated, modified,
or amended by the affirmative vote of a majority of the votes cast at a duly
held stockholders' meeting at which a quorum representing a majority of all
outstanding voting stock is, either in person or by proxy, present and voting
on the plan, or pursuant to any other procedure allowed under applicable state
law.
7
<PAGE>
(b) The Board may at any time terminate the Plan or from
time to time make such modifications or amendments of the Plan as it may deem
advisable including, without limitation, modifications to reflect changes in
applicable law; provided, however, that the Board of Directors shall not (i)
modify or amend the Plan in any way that would disqualify any incentive stock
option issued pursuant to the Plan as an incentive stock option as defined in
section 422 of the Code or (ii) without approval by the affirmative vote of a
majority of the votes cast at a duly held stockholders' meeting at which a
quorum representing a majority of all outstanding voting stock is, either in
person or by proxy, present and voting on the Plan, or pursuant to any other
procedure allowed under applicable state law, increase (except as provided by
paragraph 14) the maximum number of shares as to which options may be granted
under the Plan.
(c) No termination, modification, or amendment of the Plan,
may, without the consent of the Grantee, adversely affect the rights conferred
by such option.
15. Effective Date
The Plan became effective on July 14, 1998 upon the adoption
by the Board subject to the approval by the affirmative vote of the holders of
a majority of the outstanding shares of the Corporation which occurred on July
14, 1998. All options granted prior to the date of such stockholder approval
shall be subject to such approval.
8
<PAGE>
EXHIBIT 10.3
WEB SITE DEVELOPMENT AGREEMENT
This Web Site Development Agreement ("Agreement") is made by
and between IParty, Corp. with its principal place of business at 1350 Avenue of
Americas, New York, NY 10019 ("CLIENT") and Fry Multimedia ("Fry"), a wholly
owned subsidiary of Fry Communications, Inc., with its principal place of
business at 3971 South Research Park Drive, Ann Arbor, MI 48108.
WHEREAS, CLIENT desires to retain Fry to develop the World
Wide Web site (the "Web Site") for CLIENT as described in the Work Plan (as
defined in Section 1 below);
WHEREAS, Fry desires to undertake the development of the Web
Site and agrees to do so under the terms and conditions set forth in this
Agreement;
NOW, THEREFORE, for good and valuable consideration, the
parties agree as follows:
Section 1. Work Plan. Fry has prepared a Work Plan for the
Web Site which includes the following:
(a) a description of services to be provided by Fry;
(b) a listing of all items to be delivered to CLIENT
(the "Deliverables");
(c) a schedule containing a delivery date for each
Deliverable; and
(d) a schedule setting forth the amount and timing of
Fry's compensation, including provisions for payment
of Fry's reasonable travel expenses.
Fry shall deliver the Work Plan to CLIENT. Upon approval of
the Work Plan by CLIENT, it will be attached as Exhibit A and will become part
of this Agreement. Fry shall immediately commence development of the Web Site in
conformity to the Work Plan.
Section 2. Payment. The total contract price for the Web Site
shall be as set forth in the Work Plan and shall be payable in installments
according to the payment schedule set forth therein. Each installment shall be
payable upon completion of each project phase by Fry and acceptance by CLIENT.
If this agreement is terminated pursuant to Section 13 prior to completion of
Exhibit A - Web Site Work Plan and Costs, Deliverable and Payment Schedule
becomes null and void and CLIENT is responsible only for payments as outlined in
Section 13.
Section 3. Changes in Project Scope. If at any time
following acceptance of the Work Plan, CLIENT should desire to change the
specifications or other elements of the Work Plan, CLIENT shall submit to Fry
a written proposal specifying such changes. Fry shall evaluate each such
proposal and shall submit to CLIENT a written response within ten (10) working
days following receipt thereof. Fry's response shall include a statement of the
availability of its personnel and resources, as well as the effect the proposed
changes will have on the price, delivery dates or warranty provisions of this
Agreement.
Any changes to the Work Plan shall be evidenced by a "Work
Plan Amendment." The Work Plan Amendment shall be signed by authorized
representatives of CLIENT and Fry, and shall be deemed a part of this Agreement.
If Fry does not approve the Work Plan Amendment, it shall not be obligated to
perform any additional services thereunder.
Section 4. Delays. Fry recognizes and agrees that its failure
to deliver the Web Site according to the Work Plan's delivery schedule will
result in expense and damage to CLIENT. Fry shall inform CLIENT immediately of
any anticipated delays in the delivery schedule and of the actions being taken
to assure completion of the Web Site within such schedule. If any delivery date
is missed, CLIENT may, at its sole option, declare a default under this
Agreement and may pursue all remedies set forth in Section 13. CLIENT may not
declare a default thereunder if such delay is caused by any action or failure to
act of CLIENT.
Section 5. Acceptance Testing. Upon completion of the Web Site
and the delivery of all items required to be provided under the Work Plan,
CLIENT shall have thirty (30) days from such completion to inspect, test and
evaluate the Web Site to determine whether it satisfies the acceptance criteria
set forth in the Work Plan.
If the Web Site does not satisfy the acceptance criteria,
CLIENT shall give Fry written notice stating why the Web Site is unacceptable.
Fry shall have ten (10) days from the receipt of such notice to correct the
deficiencies. CLIENT
<PAGE>
shall then have ten (10) days to inspect, test and reevaluate the Web Site. If
the Web Site still does not satisfy the acceptance criteria, CLIENT shall have
the option of either: (1) repeating the procedures set forth above, or (2)
terminating this Agreement pursuant to Section 13.
If and when the acceptance tests establish that the Web Site
complies with the acceptance criteria, CLIENT shall notify Fry that it accepts
the Web Site. The date of such notification shall be the date on which CLIENT
shall be obligated to make the final payment specified in the schedule set forth
in the Work Plan.
Quality Assurance. Fry will test the Web Site with the
following browsers: Netscape (Macintosh and Windows), America Online (Macintosh
and Windows), and Microsoft's Internet Explorer. Fry will notify CLIENT of any
deficiencies with the Web Site under any of these browsers and CLIENT will
notify Fry if it notices deficiencies. Fry will fix these deficiencies at no
charge in the event that Fry did not notify CLIENT in advance that its intended
design would lead to said deficiencies. If Fry has notified CLIENT in advance,
CLIENT will be liable for the cost of any necessary changes to the site.
Section 6. Authority. Fry hereby represents and warrants that
the execution, delivery and performance of this Agreement has been duly
authorized and that the Agreement is a legal, valid and binding agreement of
Fry, enforceable in accordance with its terms. Fry further represents that this
Agreement does not breach or violate any agreement to which it is a party or to
which it is bound.
Section 7. Rights to Work Product. Fry hereby acknowledges
that the Deliverables and any other documentation, materials or intellectual
property thereunder (collectively, the "Work Product") are works which have been
specifically commissioned by CLIENT and are "work made for hire" for CLIENT and
CLIENT shall own all right, title, and interest therein. CLIENT shall be
considered the author of the Work Product for purposes of copyright and shall
own all the rights in and to the copyright of the Work Product and, as between
Fry and CLIENT, only CLIENT shall have the right to obtain a copyright
registration on the same which CLIENT may do in its name, its trade name or the
name of its nominees(s). Accordingly, among other things, CLIENT is the author
and owner of the Work Product and shall have the sole and exclusive rights to do
and authorize any and all of the acts set forth in Section 106 of the Copyright
Act with respect to the Work Product and any derivatives thereof, and to secure
any and all renewals and extensions of such copyrights. Fry retains no right to
use the Work Product and agrees not to challenge the validity of CLIENT's
ownership in the Work Product. To the extent CLIENT does not own such Work
Product as a work made for hire, Fry hereby assigns, transfers, releases and
conveys to CLIENT all rights, title and interest to such Work Product, including
but not limited to all other patent rights, copyrights, and trade secret rights.
Fry agrees to execute all documents requested by CLIENT to further evidence the
foregoing assignment and to provide all reasonable assistance to CLIENT in
perfecting or protecting rights in such Work Product.
Section 8. Ownership of Background Technology. CLIENT
acknowledges that Fry owns, holds a license to use and sublicense, or has all
required permissions or consents, to use all pre-existing development tools,
routines, subroutines and other programs, data and materials that Fry may
include in the Web Site developed under this Agreement. This material shall be
referred to hereafter as "Background Technology." Fry's Background Technology
includes those items identified in Exhibit B attached hereto.
CLIENT agrees that Fry shall retain any and all rights Fry may
have in the Background Technology. To the extent legally possible, Fry hereby
grants to CLIENT an unrestricted, nonexclusive, perpetual, fully paid-up
worldwide license to use the Background Technology exclusively in the Web Site
developed and delivered to CLIENT under this Agreement.
Section 9. Representations and Warranties.
(a) Warranty of Web Site Performance: Fry represents and
warrants that, for one (1) year, not withstanding subsection 9(f) below,
following acceptance of the Web Site by CLIENT, the Web Site will be free from
programming errors and defects in workmanship and materials, and will conform to
the specifications in the Work Plan. If programming errors or other defects are
discovered during the warranty period, Fry shall promptly remedy them at its
expense.
(b) Warranty of Title: Fry represents and warrants that it
owns and has the complete right to license, convey title without any
encumbrances to the Web Site, Background Technology and Deliverables covered by
this Agreement. Fry further represents and warrants that it has obtained all
required registrations, permissions and consents from all third parties
necessary to deliver the Web Site, Background Technology and Deliverables. Fry
shall not grant any rights or licenses to any intellectual property or
technology that would conflict with its obligations or CLIENT's rights under
this Agreement.
<PAGE>
(c) Warranty Against Disablement: Fry expressly represents and
warrants that no portion of the Web Site contains or will contain any protection
feature designed to prevent its use. This includes, without limitation, any
computer virus, worm, software lock, drop dead device, Trojan-horse routine,
trap door, time bomb or any other codes or instructions that may be used to
access, modify, delete, damage or disable the Web Site or computer system.
(d) Warranty of Compatibility: Fry represents and warrants
that the Web Site shall be compatible with CLIENT's hardware and software as set
forth in the specifications in the Work Plan.
(e) Warranty Against Intellectual Property Infringement: Fry
represents that the Web Site, Background Technology used in the Web Site and
Deliverables shall not infringe on the trademark, copyright, patent, trade
secrets or any other rights of any third party. To the extent the Web Site,
Background Technology used in the Web Site or the Deliverables infringe upon the
rights of any third party, Fry shall obtain a license, at Fry's expense, or
consent from such third party permitting the use of the Web Site, Background
Technology and Deliverables by both Fry and CLIENT for the term of this
contract.
(f) Fry hereby warrants that each hardware, software, and
firmware product delivered under this contract and listed below shall be able to
accurately process date/time data (including but not limited to, calculating,
comparing, and sequencing) from, into, and between the twentieth and
twenty-first centuries, and the years 1999 and 2000 and leap year calculations
to the extent that other information technology, used in combination with the
information technology being acquired, properly exchanges date/ time data with
it. If the contract requires that specific listed products must perform as a
system in accordance with the foregoing warranty, then that warranty shall apply
to those listed products as a system. The duration of this warranty and the
remedies available to the CLIENT for breach of this warranty shall survive and
supplement the terms and limitations of the contractor's standard commercial
warranty or warranties contained in this contract, provided that notwithstanding
any provision to the contrary in such commercial warranty or warranties, the
remedies available to the CLIENT under this warranty shall include repair or
replacement of any listed product whose non-compliance is discovered and made
known to the contractor in writing within ninety(90) days after such discovery.
Nothing in Ws warranty shall be construed to limit any rights or remedies the
CLIENT may otherwise have under this contract with respect to defects other than
Year 2000 performance.
Section 10. Indemnity.
(a) Indemnification Against Liability for Infringement: Fry
shall indemnify CLIENT and any of its of firers, directors, employees or agents
against all claims, liabilities, costs, damages, fees and expenses (including
reasonable attorney fees) arising from any breach or alleged breach of warranty
under this Agreement or any claim or suit alleging infringement by the Web Site,
Background Technology or Deliverables of any patent, copyright, trade secret or
trademark rights or any other rights of any third party for so long as Web Site
is in existence and 5 years thereafter. CLIENT shall promptly notify Fry in
writing of any third party claim or suit and Fry shall have sole control of the
defense of any such action and all negotiations for its settlement of
compromise. CLIENT may participate at its own expense in the defense of any such
action at its sole discretion.
(b) Indemnification of CLIENT Against Personal Injury and
Property Damage: Fry shall indemnify CLIENT and any of its officers, directors,
employees or agents against any and all liability for personal injuries or
physical property damage (excluding damage to CLIENT's data) arising out of the
performance of this Agreement by Fry or its employees, agents or representatives
for so long as Web Site is in existence and 5 years thereafter.
(c) Indemnity by CLIENT: CLIENT shall indemnify Fry and any of
its officers, directors, employees or agents against all claims, liabilities,
costs, damages, fees and expenses (including reasonable attorney's fees) arising
from any action based upon any content on the Web Site that is solely provided
by CLIENT for so long as Web Site is in existence and 5 years thereafter
Section 11. Confidentiality:
(a) Confidential Information: For purposes of this Agreement,
the term "Confidential Information" means all information that is not generally
known by the public and that: (i) is obtained by Fry from CLIENT, or that is
learned, discovered, developed, conceived, originated, or prepared by Fry during
the process of performing this Agreement to CLIENT, and (ii) relates directly to
the business or assets of CLIENT. The term "Confidential Information" shall
include, but shall not be limited to: the reports described in Section 17,
inventions, discoveries, trade secrets, and know-how; computer software code,
designs, routines, algorithms, and structures; product information; research and
development
<PAGE>
information; lists of clients and other information relating thereto; financial
data and information; business plans and processes; and any other information of
CLIENT that CLIENT informs Fry, or that Fry should know by virtue of its
position, is to be kept confidential.
(b) Obligation of Confidentiality: During the term of this
Agreement with CLIENT, and for five years thereafter, Fry agrees that it will
not disclose to others, use for its own benefit or for the benefit of anyone
other than CLIENT, or otherwise appropriate or copy, any Confidential
Information, whether or not developed by Fry, except as required in the
performance of its obligations to CLIENT thereunder. The obligations of Fry
under this paragraph shall not apply to any information that becomes public
knowledge through no fault of Fry.
Section 12. Term of Agreement. This Agreement commences on the
date it is executed and shall continue for the period of one year or for as long
as Fry performs services pursuant to this Agreement, whichever is longer.
Section 13. Termination of Agreement. This Agreement may be
terminated by CLIENT at its sole election upon ten (10) days prior written
notice to Fry. Upon such termination, all amounts owed to Fry under this
Agreement for work in accordance with the Work Plan and performed to completion,
along with all remaining months hosting fees, if applicable, shall become due
and payable. At such time, Fry shall deliver all completed work to CLIENT in the
form of a Digital Audio Tape (DAT) compatible with Unix "tar" format so that
CLIENT may ask a third-party to reconstruct the Web Site.
If this Agreement is terminated by CLIENT because of Fry's
default of its obligations thereunder, CLIENT may:
(a) require Fry to immediately deliver to CLIENT all Work
Product developed by Fry under this Agreement and pay Fry all amounts owed for
the work performed and completed under this Agreement and accepted by CLIENT,
whereupon CLIENT shall have complete right, title and interest in such work and
all rights, permissions and licenses granted to CLIENT by Fry under this
Agreement shall continue, in perpetuity as royalty-free and full paid rights;
and
(b) pursue all legal and equitable remedies against Fry.
If Fry terminates this Agreement because of CLIENT's default,
after a ten (10) day written notice to CLIENT and a reasonable opportunity to
cure, Fry may require:
(a) CLIENT to pay all amounts then due to Fry under this
Agreement for any work which has been completed and accepted by CLIENT,
whereupon CLIENT shall have complete right, title and interest in such work and
all rights and licenses granted to CLIENT by Fry under this Agreement shall
survive as royalty-free and full paid-up; and
(b) pursue all legal and equitable remedies against CLIENT.
Section 14. Assignment. Neither party may assign or
subcontract its rights or obligations under this Agreement without the prior
written consent of the other party, which shall not be unreasonably withheld.
Section 15. General Provisions.
(a) Complete Agreement: This Agreement together with all
exhibits, appendices or other attachments, is the sole and entire Agreement
between the parties relating to the subject matter hereof. This Agreement
supersedes all prior understandings, agreements and documentation relating to
such subject matter. In the event of a conflict between the; provisions of the
main body of this Agreement and any attached exhibits, appendices or other
materials, this Agreement shall take precedence.
(b) Modification to Agreement: Modifications and amendments to
this Agreement shall be enforceable only if they are in writing and are signed
by authorized representatives of both parties.
(c) Waiver: No term or provision of this Agreement shall be
deemed waived and no breach excused unless such waiver or consent is in writing
and signed by the party claimed to have waived or consented.
(d) No Agency: Nothing contained herein will be construed as
creating any agency, partnership, joint venture or other form of joint
enterprise between the parties.
(e) Independent Contractor: The parties acknowledge that Fry
shall perform its obligations thereunder as an independent contractor. The
manner and method of performing such obligations will be under Fry's sole
control and
<PAGE>
discretion. CLIENT's sole interest is in the result of such services. It is also
expressly understood that Fry's employees and agents, if any, are not CLIENT's
employees or agents, and have no authority to bind CLIENT by contract or
otherwise. CLIENT shall make no deduction from any payments due Fry thereunder
for federal and state tax purposes. In the event that CLIENT is found liable for
Social Security, withholding, insurance, or other such taxes, CLIENT shall have
the right to immediately recover such amount from Fry.
(f) Notices: All notices and other communications required or
permitted under this Agreement shall be in writing and shall be deemed given
when delivered personally, or five (5) days after being deposited in the United
States mail, postage prepaid and addressed as follows, or to such other address
as each party may designate in writing:
CLIENT: IParty, Corp.
1350 Avenue of Americas
New York, NY 10019
Attn.: Bryon Hero
FRY: Fry Multimedia
3971 South Research Park Drive
Ann Arbor, MI 48108
Attn.: David Fry
(g) Reasonable Costs: In the event of any controversy
concerning or related to this Agreement or the performance of this Agreement,
the prevailing party shall be entitled to recover its reasonable expenses
(including reasonable attorney's fees) incurred in resolving such controversy,
in addition to any other relief that may be available.
(h) Applicable Law: This Agreement will be governed by the
laws of the State of Michigan.
(i) Severability: If any provision of this Agreement is held
invalid, void or unenforceable under any application statute or rule of law, it
shall to that extent be deemed omitted, and the balance of this Agreement shall
be enforceable in accordance with its terms.
(j) Time of the Essence: Time is of the essence in performance
of the covenants of the parties thereunder, including without limitation
delivery covenants to be performed by the CLIENT and Fry.
(k) Bankruptcy: If either party hereto (a) shall be
adjudicated a bankrupt or an order appointing a receiver of it or of the major
part of its property shall be made, or an order shall be made approving a
petition or answer seeking its reorganization under any applicable bankruptcy
law, and in any such case shall not be stayed within 10 days, or (b) shall
institute proceedings for a voluntary bankruptcy or apply for or consent to the
appointment of a receiver of itself or its property, or shall make an assignment
for the benefit of its creditors, or shall admit in writing its inability to pay
its debts generally as they become due, for the purpose of seeking a
reorganization under the federal bankruptcy laws or otherwise, then in any one
or more of such events listed in (a) or (b) above, the other party may terminate
this agreement by giving at least 10 days prior notice.
Each party represents and warrants that on this date they are duly authorized to
bind their respective principals by their signature below
Fry Multimedia IParty Corp.
Signed: /s/ David Fry Signed: /s/ B.A. Hero
---------------------------- ---------------------------------
Name: Name: B.A. Hero
------------------------------ -----------------------------------
Title: Title: CEO
----------------------------- ----------------------------------
Date: Date: 7/6/98
------------------------------ -----------------------------------
<PAGE>
Deliverable and Payment Schedule
Deliverable Date Payment*
- -------------------------------------------------------------------------------
Accepted Work Plan, signed contract 3/20/98 $30,000
Additional Payments Monthly on Payment will be based on
the 20th the work completed to
date in comparison to the
payments already made.
- --------------------------------------------------------------------------------
Final Web Site Launch 8/2/98 $2,500 plus additional
cost for site development
(includes first month
of hosting)
- --------------------------------------------------------------------------------
Next Month's Hosting Fee 9/2/98 $2,500
- --------------------------------------------------------------------------------
*Payment figures are based on charges outlined in Exhibit A. Each payment
associated to a Deliverable will also include any associated extra expenses due
at that time, which may include data conversion costs, shipping costs, requested
hourly labor, and documented travel expenses.
Payment due at Site Launch will be based on work done to date under the terms
of this Agreement, minus payments already made to date.
After Site Launch, charges for maintenance and updates will be invoiced monthly.
Terms will be Net 30.
<PAGE>
Exhibit A--IParty, Corp.
Web Site Work Plan and Costs
(7/6/98)
- -------------------------------------------------------------------------------
Function Cost
- -------------------------------------------------------------------------------
Web Site Strategy and Analysis - Includes a needs assessment meeting $4,800
in which project goals, objectives and technical requirements will be
discussed with client. A flowchart and work schedule will result from
these meetings. This includes 24 hours of work. Additional hours will
be billed at the rates specified below. Fry will notify CLIENT if changes
will result in additional charges beyond the initially specified amount.
Web Site Design- As outlined in the iParty Service and Feature $9,100
Specification document dated March 12, 1998. This includes 60 hours
of work. Additional hours will be billed at the rates specified below.
Fry will notify CLIENT if changes will result in additional charges
beyond the initially specified amount.
Web Site Interaction Design - As outlined in the iParty Service and $77,750
Feature Specification document dated March 12, 1998. This includes
490 hours of work. Additional hours will be billed at the rates
specified below. Fry will notify CLIENT if changes will result in
additional charges beyond the initially specified amount.
Launch - This includes 24 hours of work. Additional hours will be $3,400
billed at the rates specified below. Fry will notify CLIENT if
changes will result in additional charges beyond the initially
specified amount.
Monthly Hosting - this include 8 hours of changes to the site. $2,500 monthly
Default Hourly Rates if the actual hours exceed the contracted
hours stated above. These hourly rates will be used for
additional work not specifically quoted.
Web Site Creative development $175 per hour
Web Site Graphic Design $175 per hour
Web Site Account Executive/HTML Creation/HTML Editing $125 per hour
Web Site Programming $175 per hour
Web Advertising Banner Ad creation $175/hour
Web Advertising Banner Ad Placement Cost + 15%
- -------------------------------------------------------------------------------
Costs do not include standard data conversion charges, which are: $5 per 1000
characters of non-electronic text, $20 per image or electronic image that needs
cropping or other retouching . After a page goes live, updates are billed as
"standard" charges as outlined above. Fry will also not be responsible for
shipping costs incurred in returning items to CLIENT or its agents.
If travel is required (subsequent to prior written agreement and approval by
CLIENT) on the part of Fry personnel to complete their work for this Agreement,
CLIENT agrees to pay their reasonable and documented travel expenses.
Other features will be quoted on a "per item" basis before work begins.
<PAGE>
Exhibit B--Background Technology
o Custom usage tracking software
o WAIS(TM) Text Search Engine
o Online Commerce System, including integration with WAIS(TM) and
CheckFree(TM)
o Online Bulletin Board, Discussion System
o Oracle 7 RDBMS
o Real Audio Server, Versions 1 and 2
o Microsoft Merchant Online Commerce System
<PAGE>
WEB SITE DEVELOPMENT SERVICE AGREEMENT
THIS WEB SITE DEVELOPMENT SERVICE AGREEMENT, dated as of
February 4, 1998 is made by and between iParty LLC ("iParty"), a Delaware
limited liability company with an address of 1350 Avenue of Americas, New
York, NY 10019 and iVillage, Inc.("Service Provider"), which has an address of
170 Fifth Avenue, New York, NY 10010.
Terms and Conditions
1. iParty hereby engages Service Provider, and Service Provider agrees
to provide to iParty, full services (the "Services") to develop,
design, build, operate, and maintain iParty's Internet web site (the
"Web Site").
2. This Agreement shall commence on the date hereof and remain in effect
until the earlier of (i) twelve (12) months from the launch of the
Web Site and (ii) April 15, 1999.
3. Payment for the Services shall be $358,000, payable quarterly as
follows: $89,500 due upon the execution of this Agreement, $89,500
due three months from the date hereof, $89,500 due six months from
the date hereof, and the remainder due nine months from the date
hereof. Each of such quarterly payments shall be for the three months
following the payment. If this Agreement is terminated prior to
completion for any reason whatsoever, iParty will have no obligation
to make any additional payments which would become due after the date
of termination.
4. Service Provider will perform and provide the following services
during the design, development, and building phase of the Web Site:
(a) Initial Site Specification. Overall treatment and discovery of
the Web Site's goals and concepts and development of
implementation framework.
(b) Initial Hosting Specification. Bandwidth and traffic analysis
to meet reasonable hardware and network requirements.
(c) Site Map. Graphical definition of site architecture, content
layout and navigation.
(d) Development of Co-Marketing Strategy. Define marketing needs
through discussions with iParty to define a marketing
strategy and to drive traffic between Service Provider's web
sites and the Web Site.
<PAGE>
(e) Overall Design. Define and develop overall site design
including, but not limited to, navigation schemes, menu
bars, general site flow and interactivity, original artwork
and image processing and treatment.
(f) Content Development. Develop and refine original content
pursuant to a business plan of iParty submitted to Service
Provider.
(g) Overall Site Production. Actual construction of the Web Site
including HTML build, image licensing, art formatting and
placement.
(h) Message Board Design, Installation, and Monitoring. Full
implementation of messaging capabilities.
(i) Chat Room Design, Installation, and Monitoring. Full
implementation of live chat capabilities.
(j) Mock Installation and Pre-Launch Testing. Four (4) week mock
installation and beta-testing period.
(k) Final Modifications. Implementation of final modification
and fine tuning of the procedures.
(l) Quality Assurance. Overall quality assurance, including HTML
validation, broken links verification and image integrity.
(m) Weekly Progress Reports. Service Provider shall provide
iParty with progress reports (either written, via e-mail, or
orally to an authorized representative of iParty) each week
detailing the status of the design, development, and
building phase.
5. Service Provider will perform and provide the following services
following the design, development and building phase of the Web Site:
(a) Site launch;
(b) Weekly site management;
(c) Technical support;
(d) Content refreshment;
2
<PAGE>
(e) Basic site traffic reporting;
(f) Quality assurance management;
(g) Community monitoring; and
(h) Regular usage reports showing visitors and page views at the
Web Site.
6. Subject to iParty's approval, Service Provider will include iParty in
Service Provider's public relations and press materials, where
appropriate.
7. Service Provider will provide consultation to iParty, on a reasonable
and ongoing basis during the term of this Agreement, utilizing
Service Provider's online marketing, creative, and technical staffs.
8. iParty agrees as follows:
(a) iParty will provide Service Provider with detailed
conceptual material for the Web Site.
(b) iParty or a third party contracted by iParty will be
responsible for all backend components for the Web Site,
including databases, scripting, transactions and credit card
verification.
(c) iParty will be responsible for the total integration of the
backend of the Web Site.
(d) iParty will be responsible for all software licensing fees.
(e) iParty will review and approve all of the creative and
production work by Service Provider prior to the launch of
the Web Site.
(f) iParty will use reasonable good faith efforts to promote
Service Provider's online properties, so long as such
efforts are at no additional cost to iParty.
9. iParty shall hotlink its site to Service Provider's sites. Service
Provider shall hotlink its sites to iParty's site.
10. Service Provider agrees that any materials specifically developed for
the Web Site shall be the exclusive property of iParty and will not
be used by Service Provider for any other Internet web sites.
3
<PAGE>
11. Service Provider agrees that it shall not provide similar services as
it is providing under this Agreement to or promote any company (other
than iParty) which company provides comprehensive party planning
services or is principally in the business of selling party goods over
the Internet for a period of two (2) years from the date hereof;
provided, however, that if this Agreement is terminated by iParty prior
to the end of its term, this provision shall remain in effect for a
period of one (1) year from the date of termination; provided, further,
however, that this provision shall not be enforceable if iParty
terminates this Agreement and uses a competitor of the Service Provider
for services provided by the Service Provider.
12. As between Service Provider and iParty, Service Provider acknowledges
iParty's exclusive right, title, and interest in and to the tradename
"iParty" and all marks used or proposed to be used in the Web Site
("Marks") and Service Provider agrees that all uses of the Marks now
and hereafter developed or used by iParty shall be owned by and shall
inure to the benefit of iParty.
13. Service Provider shall treat all information regarding iParty which
Service Provider compiles or obtains from iParty as strictly
confidential. Without limiting the foregoing, Service Provider shall
not sell, lease or otherwise authorize a third party to use such
confidential information. This provision shall survive termination of
this agreement.
14. iParty has the right, in its sole discretion, to terminate this
Agreement at any time during its term without penalty by thirty (30)
days written notice to the Service Provider.
15. Each party hereto agrees to indemnify and hold harmless the other
party, its officers, members and Board of Managers (or Directors, where
applicable), employees and its affiliates and each other person, if
any, who controls any thereof, against any loss, liability, claim,
damage and expense whatsoever (including, but not limited to, any and
all expenses whatsoever reasonably incurred in investigating, preparing
or defending against any litigation commenced or threatened or any
claim whatsoever) arising out of or based upon any false representation
or action or breach or failure by either party to comply with any
agreement made by such party herein or in any other document furnished
by such party to any of the foregoing in connection with this
transaction.
16. If any of the provisions or a portion of any provision of this
Agreement is held to be unenforceable or invalid by a court of
competent jurisdiction, the validity and enforceability of the
enforceable portion of any such provision and/or the remaining
provisions shall not be affected thereby.
4
<PAGE>
17. Each of the parties hereto hereby waives its respective rights to
jury trial of any claim or cause of action based upon or arising out
of this Agreement.
18. Service Provider shall provide advertising banners regarding iParty
on certain of Service Provider's sites. Further, Service Provider
will provide promotional services to iParty including, without
limitations, inclusion in Service Provider's e-mail newsletters and
editorial taglines. Additional advertising and promotional services
shall be subject to the terms of a separate agreement between Service
Provider and iParty.
19. Any notice, demand or other communication which any party hereto may
be required, or may elect, to give hereunder shall be sufficiently
given if personally delivered, mailed by certified mail, return
receipt requested or by Federal Express, or similar overnight
delivery or courier service or delivered (in person or by telecopy,
or similar telecommunications equipment) against receipt to the party
to whom it is to be given at the address of such party set forth in
this Agreement (or to such other address as the party shall have
furnished in writing in accordance with the provisions of this
paragraph).
20. This Agreement is not transferable or assignable by Service Provider.
21. This Agreement may be modified or amended at any time, in a writing,
executed authorized representatives of each party.
22. This Agreement shall be governed by and construed in accordance with
the internal laws of the State of New York applicable to contracts
made and to be performed wholly within that state, without regard to
the conflict of law rules thereof.
23. This Agreement may be executed through the use of separate signature
pages (and by facsimile signature), and each of such counterparts
shall, for all purposes, constitute one agreement binding on all
parties, notwithstanding that all parties are not signatories to the
same counterpart.
24. It is agreed to and understood by the parties that this Agreement
constitutes the entire agreement between the parties with respect to
the subject matter hereof. Sections 13, 15, and 17 herein shall
survive termination of this Agreement.
iVILLAGE INC. iPARTY LLC
By: By: /s/ Daniel DeWolf
--------------------------- ---------------------------
Name: Name: Daniel DeWolf
Title: Title: Secretary
5
<PAGE>
CONFIDENTIAL AND PROPRIETARY
ORDERTRUST AFFILIATE:
Account No.:
SERVICE SPECIFICATION - APPENDIX 1
The following Service Specification includes terms and is incorporated by
reference in our OrderTrust Management Agreement dated _______, 1999
("Agreement"). This Service Specification is effective commencing on the date
such Service Specification is accepted by OrderTrust ("Effective Date") until
the 2nd year anniversary of the Effective Date ("Initial Term").
1 DEFINITIONS:
1.1 Authorization Request Transaction: shall mean each
independent electronic information request or transmittal
associated with an order and constructed by a merchant or
its agent in order to secure a payment processor's
conditional guarantee for the payment of the fees associated
with the order.
1.2 Authorization Response Transaction: shall mean each
independent electronic information request or transmittal
constructed by a payment processor in response to an
Authorization Request Transaction in order to deliver
information regarding the processor's ability to guarantee
the payment as requested in the Authorization Request
Transaction.
1.3 Certify: shall mean the process of testing and / or
establishing an entity's Configuration so as to enable that
entity to be a Presenter of, or Destination for,
Transactions and such Certified Configuration will be set
forth in a Configuration Document mutually agreed upon by
Order Trust and Affiliate.
1.4 Commerce Partner: shall mean any Network Endpoint that is
designated by Affiliate, accepted by OrderTrust, and
Certified in conjunction with the services as set forth in
section 4 of this Service Specification.
1.5 Destination: shall mean any entity to which OrderTrust
Presents or makes Transactions available.
1.6 Preexisting Configuration: Shall mean Configuration(s) which
include only components in effect on the date of
Certification and require no development or testing in
addition to that which OrderTrust anticipates as part of the
standard Certification process.
1.7 File: shall mean one or more Transactions grouped together
within a defined data package
Page 1 of 13
<PAGE>
CONFIDENTIAL AND PROPRIETARY
1.8 Line Item: shall mean information specifying the quantity of
each SKU being ordered within an individual Order
Transaction and may include other relevant information as
accepted by OrderTrust.
1.9 Network Endpoint: shall mean any entity Certified on the
OrderTrust Network
1.10 Order Transaction: shall mean each independent electronic
information request or transmittal that includes information
regarding a single customer and one or more SKUs; and may
include payment method(s), delivery location(s), delivery
method(s), and other relevant information as accepted by
OrderTrust.
1.11 Presenter: shall mean a Network Endpoint that is responsible
for Presenting or making Transactions available to OrderTrust.
1.12 Present: shall mean the process of delivering or making
available data to an entity.
1.13 Settlement Request Transaction: shall mean each independent
electronic information request or transmittal referencing a
specific Authorization Transaction and constructed by a
merchant or its agent with the intent of notifying a
processor that payment of the fees associated with the
Authorization Transaction should be initiated to the
merchant in accordance with the merchant's relationship with
the processor.
1.14 Settlement Response Transaction: shall mean each independent
electronic information request or transmittal constructed by
a payment processor in response to a Settlement Request
Transaction in order to deliver information regarding the
processor's ability to comply with the request represented
by the Settlement Request Transaction.
1.15 SKU: shall mean shelf keeping unit, which is an identifier of
a product or service.
1.16 Status Transaction: shall mean each independent electronic
information request or transmittal that includes information
regarding the status of fulfillment of one or more Line
Items contained in a single Order Transaction.
1.17 Transaction: shall mean each independent electronic
information request or transmittal that includes a specific
set of information as defined by OrderTrust.
1.18 Vendor ID: shall mean the unique code assigned by Affiliate
to each Commerce Partner and registered with OrderTrust.
2 FEES
2.1 One-Time Setup Fees: Affiliate shall pay OrderTrust fees, as
set forth in the Rate and Fee Schedule attached as Appendix
1 Schedule A, to:
Page 2 of 13
<PAGE>
CONFIDENTIAL AND PROPRIETARY
Payment Services:
2.1.1 Certify Affiliate or its agent as a
Presenter of Authorization Request
Transactions as per an attached
Configuration Document.
2.1.2 Certify, using a Pre-existing
Configuration, one Payment Commerce
Partner: FDC, as Destination for
Authorization Request Transactions,
presented to OrderTrust by Affiliate, as
per attached Configuration Document. The
initial Payment Commerce Partner shall be
listed on Appendix 1 Schedule B.
2.1.3 Certify Payment Commerce Partner(s) as
Presenter of Authorization Response
Transactions, presented to OrderTrust on
behalf of Affiliate, as per attached
Configuration Document(s).
2.1.4 Certify Affiliate or its agent as a
Destination for Authorization Response
Transactions as per an attached
Configuration Document.
2.1.5 Certify Affiliate or its agent as a
Presenter of Settlement Request
Transactions as per an attached
Configuration Document.
2.1.6 Certify Payment Commerce Partner(s) as
Destination for Settlement Request
Transactions, presented to OrderTrust by
Affiliate, as per attached Configuration
Document(s).
2.1.7 Certify Payment Commerce Partner(s) as
Presenter of Settlement Response
Transactions, presented to OrderTrust on
behalf of Affiliate, as per attached
Configuration Document(s).
2.1.8 Certify Affiliate or its agent as a
Destination for Settlement Response
Transactions as per an attached
Configuration Document.
Order Services:
2.1.9 Certify Affiliate or its agent as a
Presenter of Order Transactions as per an
attached Configuration Document.
2.1.10 Manage implementation, which shall include
providing a primary contact point to
implement end-to-end order flow, interfacing
with each endpoint for the purpose of
identifying appropriate formats, managing
custom mapping, for up to three (3) initial
Commerce Partners which initial Commerce
Partners must be identified within 15 days
of the execution of this Service
Specification and listed an Appendix I
Schedule B. Certify, using Pre-existing
Configurations, the initial Commerce
Partners listed on Appendix I Schedule B as
Destinations
Page 3 of 13
<PAGE>
CONFIDENTIAL AND PROPRIETARY
for Order Transactions presented to
OrderTrust by Affiliate as per Configuration
Document(s) to be attached hereto.
2.1.11 Certify, using Pre-existing
Configurations, the Commerce Partners
listed on Appendix I Schedule B as
Presenters of Order Status Transactions,
presented to OrderTrust on behalf of
Affiliate, as per Configuration
Document(s) to be attached hereto.
2.1.12 Certify Affiliate or its agent as a
Destination for Order Status Transactions
as per an attached Configuration Document.
2.2 Transaction Fees: Affiliate shall pay OrderTrust a fee, as
set forth in Appendix I Schedule A. for each Transaction
Presented to, processed by, or Presented by OrderTrust in
support of the Services as forth in this Agreement.
2.3 Monthly Minimum Transaction Fees: Affiliate shall pay
OrderTrust a minimum Transaction Fee each month as set forth
in Appendix 1, Schedule A. This fee represents the minimum
Transaction Fees OrderTrust will charge Affiliate tor any
given month independent of actual Transaction volumes or
service usage. Any non-Transaction Fees, including
Transaction Surcharges, will be charged independent of
Monthly Minimum Transaction Fees.
2.4 Certification Fees: Affiliate shall pay OrderTrust a fee, as
set forth in Appendix 1 Schedule A, for each entity
Certified or re-Certified in order to enable that entity to
send, receive, or exchange data with other Network
Endpoint(s) or service(s) available within or through
OrderTrust. Any Certifications explicitly identified as part
of the One-Time Setup Fee will not result in separate
Certification Fees.
2.5 Configuration Customization Fee: Affiliate shall pay
OrderTrust an hourly fee, as set forth in Appendix 1,
Schedule A. for the development and testing of any
customized formats or other Configuration Components that
OrderTrust agrees to provide which are not listed and shown
to be compatible in the OrderTrust Configurations Components
Catalog at the time of the Certification, A Configuration
Customization Fee will also be charged for any extended
servicing required by or requested by any endpoint in the
Certification process. OrderTrust will charge a minimum
number of hours of work as set forth in Appendix 1 Schedule
A for each customization.
2.6 Monthly Network Maintenance Fee: Affiliate shall pay
OrderTrust a fee, as set forth in Appendix 1 Schedule A, for
the support of Affiliate's Configuration(s) and for the
support of the Configuration(s) of each of Affiliate's
Commerce Partners.
2.7 Transaction Surcharge Fees: Affiliate shall pay OrderTrust
an additional fee for each Transaction Presented by or to
OrderTrust on behalf of Affiliate in a manner set forth in
Appendix 1 Schedule A or in any Configuration Document
related hereto.
Page 4 of 13
<PAGE>
CONFIDENTIAL AND PROPRIETARY
2.8 Expense Fees: Affiliate shall pay all expenses as set forth
in Appendix 1 Schedule A or in any Configuration Document
related hereto that are incurred by OrderTrust as a result
of providing the Services as set forth in this Agreement.
2.9 Service Cancellation Fee: In addition to any damages, legal
or equitable, due to OrderTrust for breach of this Agreement
should Affiliate cancel this Agreement prior to the
expiration of its term for any reason other than
OrderTrust's breach, Affiliate will pay OrderTrust a Service
Cancellation Fee as set forth in Appendix 1 Schedule A
2.10 Survival Fees: In addition to any Service Cancellation Fee,
and any other legal or equitable damages, Affiliate shall
pay to OrderTrust any fee set forth in any Configuration
Document related hereto which is identified as surviving the
term of this Agreement.
3 SUPPORT:
3.1 Telephone Support: OrderTrust shall provide reasonable
telephone support for Affiliate's Information Technology
employees only in connection with maintaining the standard
Services provided to Affiliate by OrderTrust pursuant to
this Agreement. Such support shall be limited to answering
questions about use and/or operation of such Services, Such
telephone support shall be available between 8:30 a.m. and
5:30 p.m., Eastern Time, Monday through Friday exclusive of
OrderTrust holidays. OrderTrust shall have no obligation
pursuant to this Section to perform any design or consulting
services for Affiliate.
4 SERVICE DESCRIPTION:
The Services performed by OrderTrust for Affiliate under this Service
Specification areas follows:
Authorization:
4.1 OrderTrust will accept Authorization Request Transactions
Presented to OrderTrust by Affiliate in accordance with its
Certification.
4.2 OrderTrust will accept Authorization Response Transactions
Presented to OrderTrust by Affiliate's Payment Partner(s) in
accordance with their Certification.
4.3 OrderTrust will Present Authorization Request Transactions,
as instructed by Affiliate, to Payment Partner(s) who have
compatible Configurations as set forth in their respective
Configuration Documents.
4.4 OrderTrust will Present to Affiliate, in accordance with its
Configuration Document, all Authorization Response
Transactions Presented to OrderTrust by Affiliate's Payment
Partner(s) pertaining to Authorization Request Transactions
presented by OrderTrust to those Payment Partner(s) on behalf
of Affiliate.
Page 5 of 13
<PAGE>
CONFIDENTIAL AND PROPRIETARY
Settlement:
4.5 OrderTrust will accept Settlement Request Transactions
Presented to OrderTrust by Affiliate in accordance with its
Certification.
4.6 OrderTrust will Present Settlement Request Transactions, as
instructed by Affiliate, to Payment Partner(s) who have
compatible Configurations as set forth in their respective
Configuration Documents.
4.7 OrderTrust will accept Settlement Response Transactions
Presented to OrderTrust by Affiliate's Payment Partner(s) in
accordance with their Certification.
4.8 OrderTrust will Present to Affiliate, in accordance with its
Configuration Document, all Settlement Response Transactions
Presented to OrderTrust by Affiliate's Payment Partner(s)
pertaining to Settlement Request Transactions presented by
OrderTrust to those Payment Partner(s) on behalf of Affiliate.
Order Routing:
4.9 OrderTrust will accept Order Transactions Presented to
OrderTrust by Affiliate.
4.10 OrderTrust will determine the Commerce Partners that
Affiliate has designated to receive each Line Item based on
a Vendor ID included with each Line Item within every Order
Transaction Presented to OrderTrust by Affiliate, and
OrderTrust will group Line Items into separate Order
Transactions for each Commerce Partner based upon the Vendor
ID designations.
4.11 OrderTrust will Present these Order Transactions to the
appropriate Commerce Partner(s).
4.12 OrderTrust will accept from each Commerce Partner Status
Transactions that reference Order Transactions previously
Presented to that Commerce Partner by OrderTrust.
4.13 OrderTrust will Present to Affiliate Status Transactions
that reference Order Transactions previously Presented to
OrderTrust by Affiliate.
4.14 OrderTrust will provide all Commerce Partners Certified to
receive Order Transactions with the OrderTrust standard
Daily Fulfillment Reconciliation Report in a manner
consistent with each Commerce Partner's Configuration. This
report will reference the number of Transactions exchanged
between OrderTrust and the receiving Commerce Partner during
the 24-hour period of the previous business day;
non-business day activity will be reported on or before the
next business day.
Page 6 of 13
<PAGE>
CONFIDENTIAL AND PROPRIETARY
4.15 OrderTrust will provide Affiliate with OrderTrust standard
Daily Transaction Summary Report in a manner consistent with
Affiliate's Configuration on each business day. This report
will cover all activity processed by OrderTrust on behalf of
Affiliate during the 24-hour period of the previous business
day; non-business day activity will be reported on or before
the next business day.
4.16 OrderTrust will maintain online storage of all transaction
activity pertaining to an Order Transaction processed
through OrderTrust on behalf of Affiliate for a period of 90
Days past the date OrderTrust receives a Status Transaction
that indicates that the Order has been fulfilled or
canceled, or 180 days whichever is greater.
5 SERVICE LEVEL STANDARDS
When OrderTrust's performance is dependent upon obtaining a response or reply
on behalf of Affiliate from a service or application outside the OrderTrust
network, Service Levels are represented as the maximum latency introduced by
OrderTrust. All service level commitments are independent of delays caused by
inefficiencies or bandwidth limitations in networks, services, or applications
outside the OrderTrust network. All service level commitments assume a
transaction volume of 1,000 Transactions or fewer per hour. Transaction
volumes in excess of 1,000 Transactions per hour whether in real-time or by
batch may impact the total elapsed time or latency introduced by OrderTrust
for some transactions.
5.1 Time to process Order Transactions: The elapsed time from
when OrderTrust receives a complete, error-free Order
Transaction to the time OrderTrust Presents the Line Items
contained within that Order Transaction to the appropriate
Commerce Partner(s) as designated by Affiliate.
Monthly average not to exceed: 90 Minutes
Individual Order Transaction never to exceed: 1 Business Day
5.2 Time to process Status Transactions: The elapsed time from
when OrderTrust receives a complete, error-free Order Status
Transaction to the time OrderTrust presents an updated Order
Status Transaction to Affiliate.
Monthly average not to exceed: 90 Minutes
Individual Status Transactions never to exceed: 1 Business Day
5.3 Escalation Procedures: Issues that affect production will be
escalated according to the following categorization and
escalation table:
Severity 1: A hardware, software or network communications
issue which affects a production system, multiple customers
or a single customer such that it prevents or seriously
impedes the system/customer from completing business
transactions over the OrderTrust network. There is no known
effective workaround for the issue.
Page 7 of 13
<PAGE>
CONFIDENTIAL AND PROPRIETARY
Severity 2: A hardware, software or network communication
issue which affects a system/customers ability to process
but does not prevent the system/customer from processing
business transactions. Severity 1 problems typically are
downgraded to Severity 2 once a functional workaround is
identified.
Severity 3: A hardware, software or network communications
issue (or request) that affects a production system/customer
but has no impact on the ability to process business
transactions. It may also be an issue that affects only
non-production processing, but is not "critical path" in a
deployment effort.
Escalation based on Severity Level
<TABLE>
<CAPTION>
Severity Level 1 2 3
<S> <C> <C> <C>
Lead Operator Immediately Immediately Immediately
2nd Level Support 30 Minutes 30 Minutes 30 Minutes
Account Manager 30 Minutes 30 Minutes 2 Hours
VP of Operations 2 Hours 2 Hours 4 Hours
VP of Customer Service 2 Hours 4 Hours 4 Hours
Sales Executive 4 Hours 4 Hours 6 Hours
CTO 6 Hours
</TABLE>
5.4 Reporting and Error Notification Responsibility: OrderTrust
will provide to Affiliate and Commerce Partners the daily
reports as set forth in Service Description sections 4.6 and
4.7. Each recipient is responsible for notifying OrderTrust
of non-receipt of the report or any inconsistencies between
the report and its own records. OrderTrust will inform each
recipient of this obligation and if a recipient does not
notify OrderTrust within 72 hours after receipt of the
report, the information contained in the report will be
deemed accepted and OrderTrust will have no further
liability for transmission errors regarding the Transactions
represented in the report.
5.5 Notification to Affiliate of Commerce Partner Issues:
OrderTrust will notify Affiliate as soon as possible
regarding any errors in acceptance of Order Transactions by
any Commerce Partner and/or any errors by Commerce Partners
in sending Status Transactions. Per section 6.1 below,
Affiliate is responsible for working with Commerce Partners
to correct any such errors.
Page 8 of 13
<PAGE>
CONFIDENTIAL AND PROPRIETARY
5.6 Quarterly Review: OrderTrust and Affiliate will, at a
minimum, have a conference call at a scheduled time each
quarter to review OrderTrust's provision of the Services and
the Service Levels, and any additional related issues that
may arise during any quarter.
5.7 Security and Network Redundancy: OrderTrust provides
security against loss of data in the event of a power outage
through emergency generators onsite. OrderTrust also
provides redundancy through a West Coast data center in
California. Both of these environments are secure and
protected by firewalls. In addition the network is monitored
7x24 to ensure the highest possible security, availability
and performance.
5.8 Network Availability: OrderTrust maintains at least 99%
system availability in any calendar year (except for the
downtime due to scheduled maintenance or the time when
merchants are switched to another communications processor).
6 COMMERCE PARTNERS AND NETWORK ENDPOINTS:
6.1 Responsibility for Commerce Partner Relationships: Affiliate
is responsible for the business and technical relationships
with its Commerce Partners. OrderTrust's sole responsibility
is to provide services in support of Affiliates as set forth
in section 4 of this Agreement. OrderTrust is in no way
responsible for managing Affiliate's relationship with any of
its Commerce Partners. OrderTrust's interaction with
Affiliate's Commerce Partners as a result of this Agreement
will be limited to work directly relating to the Certification
Process as set forth herein.
6.2 Service Dependency relevant to Commerce Partners: Affiliate
acknowledges and agrees that OrderTrust's ability to perform
any Certifications or provide ongoing support is dependent
on the cooperation of all entities directly affected by the
process, particularly Commerce Partners. Affiliate
acknowledges and agrees that any lack of cooperation from a
Commerce Partner in Certification or in ongoing support may
entitle OrderTrust to refuse to Certify or to continue to
support a Commerce Partner without liability under this
Agreement. OrderTrust will notify Affiliate of any issues
with Commerce Partners prior to terminating ongoing support.
6.3 Impact of Commerce Partner Non-Cooperation: Affiliate
acknowledges and agrees that if additional expenses,
including time, are incurred by OrderTrust because of lack
of cooperation from a Commerce Partner in either
Certification or in ongoing support, those expenses may be
charged to Affiliate in addition to and separate from any
other fees set forth in this Agreement. OrderTrust will
notify Affiliate prior to incurring any additional fees, if
possible. Should Affiliate choose not to pay any of these
additional fees, OrderTrust reserves the right to decline to
provide additional services, refuse or revoke any Commerce
Partner's Certification and terminate any Commerce Partner's
support on the OrderTrust network.
Page 9 of 13
<PAGE>
CONFIDENTIAL AND PROPRIETARY
6.4 Re-Certification of Commerce Partner: Affiliate acknowledges
and agrees that Commerce Partners who are taken off of the
network for any period of time and Commerce Partners that
require or request any change to their Configuration must be
re-Certified and a Certification Fee will be charged to
Affiliate. OrderTrust will notify Affiliate prior to
incurring any additional Configuration Fees. Affiliate
acknowledges and agrees that OrderTrust's services are
provided pursuant to the Configuration(s) as defined in
Configurations Documents for Affiliate and each of its
Commerce Partners. If any additional service requested by
Affiliate or a Commerce Partner, which OrderTrust agrees to
provide, cannot be supported using the existing
Configuration for any one entity, that entity may have to
undergo a new Certification, which would incur an additional
Certification Fee.
6.5 Reservation of Rights: OrderTrust reserves the right to
refuse to Certify any entity or to terminate the support of
any Network Endpoint for any reason whatsoever.
IN WITNESS WHEREOF, the parties have caused this Service Specification to be
executed by their duly authorized representatives as of the date first written
above.
ORDERTRUST LLC iPARTY
- ---------------------------- ----------------------------
Authorized Signature Authorized Signature
- ---------------------------- ----------------------------
Name Name
- ---------------------------- ----------------------------
Title Title
Page 10 of 13
<PAGE>
CONFIDENTIAL AND PROPRIETARY
Appendix 1 - Schedule A Rate and Payment Schedule
1. ONETIME SET UP FEE: $50,000
2. TRANSACTION FEES: $0.90 A single transaction shall include: Authorization
Request Transaction Presented to Payment Commerce Partner, Settlement Request
Transaction Presented to OrderTrust; Order Transaction Presented by OrderTrust
to a Commerce Partner; Order Status Transaction received by OrderTrust from a
Commerce Partner; Consumer e-mail notification.
The above transaction fee is assigned based on the assumption that the average
number of points of fulfillment in a single order transaction will be five or
less. Should the average number of points of fulfillment per order transaction
exceed five, OrderTrust has the right to adjust pricing in accordance with the
increased number of points of fulfillment per order transaction.
3. MONTHLY MINIMUM TRANSACTION FEES:
February 1999 $5,000
March 1999 $7,500
April 1999 and forward $10,000/mo.
Monthly Minimum Transaction Fees are comprised of Transaction Fees (per
Section 2 above), Monthly Network Maintenance Fees (per Section 6 below), as
well as operational support, monitoring and reporting.
4. CERTIFICATION FEES:
Per FTP Certification: TBD
Per E-Mail Certification: TBD
Per Fax Certification: TBD
5. CONFIGURATION CUSTOMIZATION FEES:
Per Hour: $150
Minimum hours per customization: 4
6. MONTHLY NETWORK MAINTENANCE FEES:
For Affiliate: $100
Per Commerce Partner: $100
7. TRANSACTION SURCHARGE FEES:
ORDERTRUST LLC iPARTY
Page 11 of 13
<PAGE>
CONFIDENTIAL AND PROPRIETARY
- ----------------------------- -----------------------------
Authorized Signature Authorized Signature
- ----------------------------- -----------------------------
Name Name
- ----------------------------- -----------------------------
Title Title
Page 12 of 13
<PAGE>
CONFIDENTIAL AND PROPRIETARY
Appendix 1 - Schedule B Commerce Partners Schedule
1. CERTIFICATION FEES FOR THE CERTIFICATION OF THE FOLLOWING COMMERCE
PARTNER(S) IN ACCORDANCE WITH THE ATTACHED CONFIGURATION DOCUMENT(S)
IS INCLUDED IN THE ONE TIME SETUP FEE AS REPRESENTED IN APPENDIX 1
SCHEDULE A.
o First Data Corp.
o Michel's Distribution Services
o Virtual Growth
o Fry Multimedia
o Star Greetings
ORDERTRUST LLC iPARTY
- ----------------------------- -----------------------------
Authorized Signature Authorized Signature
- ----------------------------- -----------------------------
Name Name
- ----------------------------- -----------------------------
Title Title
Page 13 of 13
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT (the "Agreement") is being made as of
this 7th day of July, 1998 between iPARTY CORP., a Delaware corporation having
its principal offices at 1350 Avenue of the Americas, Suite 2701, New York, New
York 10019 (the "Company"), and BYRON HERO, an individual residing at 418 East
59th Street, New York, New York 10022 ("Hero").
W I T N E S S E T H :
WHEREAS, the Company desires to employ Hero and Hero 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 Hero and Hero agrees to serve the Company as its Chief
Executive Officer upon the terms and conditions contained herein, for a term
commencing as of July 7, 1998 and continuing until June 30, 2001 (the
"Employment Term").
2. Duties and Powers as Employee. During the Employment Term,
Hero shall be employed by the Company as its Chief Executive Officer. Hero
agrees to devote substantially all his full working time, energy and efforts to
the business of the Company. In performance of his duties, Hero shall be subject
to the direction of the Board of Directors of the Company. As Chief Executive
Officer, Hero shall be responsible for managing, directing and supervising all
aspects of the business of the Company. The Chief Executive Officer shall be
responsible for developing the business plan and
<PAGE>
objectives of the Company and managing the execution of such plan. Hero shall be
available to travel as the needs of the business require.
3. Compensation.
(a) As compensation for his services hereunder, the
Company shall pay Hero, during the Employment Term, a base salary (the "Base
Salary"), payable in equal semi-monthly installments in arrears, at the annual
rate of Two Hundred Fifty Thousand Dollars ($250,000). Additionally, Hero 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,
Hero may be entitled to receive an annual performance bonus payment as
determined in the sole discretion of the Compensation Committee, or in the
absence of a Compensation Committee, the Board of Directors of the Company. The
annual target bonus payment shall be Fifty Thousand Dollars ($50,000).
(c) Hero shall be granted stock options for an
aggregate of 300,000 shares of common stock of the Company pursuant to the
iParty Stock Option Plan which options shall vest as follows: provided Hero
remains continuously employed by the Company on January 15, 1999, options for
50,000 shares shall vest on January 15, 1999; provided Hero remains continuously
employed by the Company on July 15, 1999, options for 50,000 shall vest on July
15, 1999; provided Hero remains continuously employed by the Company on January
15, 2000, options for 50,000 shares shall vest on January 15, 2000; provided
Hero remains continuously employed by the Company on July 15, 2000, options for
50,000 shares shall vest on July 15, 2000; and provided Hero remains
continuously employed by the Company on January 15, 2000, options for 50,000
shares shall vest on January 15, 2001.
-2-
<PAGE>
(d) The Company shall provide Hero with a car allowance
of up to One Thousand Dollars ($1,000) per month with Hero to be responsible for
all expenses of operation, including insurance and repairs.
4. Expenses; Vacations. Hero 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
procedures of the Company. Hero shall be entitled to four (4) weeks vacation
time per annum 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. Hero 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. Hero represents
and warrants to the Company that (a) Hero 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) Hero is under no physical or mental disability that
would hinder his performance of duties under this Agreement.
6. Non-Competition. Hero 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
-3-
<PAGE>
same business as the Company, or be employed by, or act as consultant or lender
to, or be a director, 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 6 will not be deemed breached merely because Hero owns not more
than five percent (5.0%) of the outstanding common stock of a corporation, if,
at the time of its acquisition by Hero, 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.
7. Confidential Information. All confidential information
which Hero 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. Hero shall return all
tangible evidence of such confidential information to the Company prior to or
at the termination of his employment.
8. Termination.
(a) Notwithstanding anything herein contained, if on
or after the date hereof and prior to the end of the Employment Term, Hero is
terminated "For Cause" (as defined below) then the Company shall have the right
to give notice of termination of Hero's services hereunder as of a date to be
specified in such notice, and this Agreement shall terminate on the date so
specified. Termination "For Cause" shall mean Hero shall (i) be charged with 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 direction of the Board of Directors, (iv) commit an act
of fraud against the
-4-
<PAGE>
Company, or (v) breach any term of this Agreement and fail to correct such
breach within ten days after written notice of commission thereof.
(b) In the event that Hero shall be physically or
mentally incapacitated or disabled or otherwise unable fully to discharge his
duties hereunder for a period of six months, then this Agreement shall terminate
upon 30 (thirty) days' written notice to Hero, and no further compensation shall
be payable to Hero, except for any accrued and unpaid Base Salary and expenses
as contemplated under Section 4 and as may otherwise be provided under any
disability insurance policy, if any.
(c) In the event that Hero shall die, then this
Agreement shall terminate on the date of Hero's death, and no further
compensation shall be payable to Hero, except for any accrued and unpaid Base
Salary and expenses as contemplated under Section 4 and as may otherwise be
provided under any insurance policy or similar instrument.
(d) In the event that this Agreement is terminated "For
Cause" pursuant to Section 8(a), then Hero 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 Hero for
any reason other than as provided under Section 8(a), (b) or (c), then this
Agreement shall terminate upon thirty (30) days' written notice to Hero and the
Company shall be obligated to pay to Hero an amount equal to any unpaid expenses
as contemplated under Section 4 and a severance payment equal to twelve (12)
months salary at the Base Salary then in effect, payable in twelve (12) equal
monthly installments. 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.
-5-
<PAGE>
(f) Nothing contained in this Section 8 shall be deemed
to limit any other right the Company may have to terminate Hero's employment
hereunder upon any ground permitted by law.
9. 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.
10. Survival. The covenants, agreements, representations and
warranties contained in or made pursuant to this Agreement shall survive
Hero's termination of employment, irrespective of any investigation made by or
on behalf of any party.
11. 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.
12. 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 12). 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 Hero shall be sufficient if addressed to Hero as provided in
this Section 12. Any notice or other
-6-
<PAGE>
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.
13. 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.
14. Binding Effect. Hero'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 claims of Hero'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 Hero 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 9.
15. 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.
16. 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.
-7-
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the date first written above.
iPARTY CORP.
By:
------------------------------
Name: Daniel I. DeWolf
Title: Secretary
------------------------------
Byron Hero
-8-
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT (the "Agreement") is being made as of this
6th day of July, 1998, between iParty Corp., a Delaware corporation having its
principal offices at 1350 Avenue of the Americas, Suite 2701, New York, New
York 10019 (the "Company"), and Maureen Broughton Murrah, an individual
residing at 508 Lemaster Drive, Ponte Vedra Beach, Florida 32082 (the
"Employee").
W I T N E S E T H:
WHEREAS, the Company desires to employ the Employee and the
Employee desires to be employed by the Company as its President 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 the Employee and the Employee agrees to serve the Company as
its President upon the terms and conditions contained herein, for a three year
term commencing as of July 6, 1998 and continuing until July 6, 2001 (the
"Employment Term").
2. Duties and Powers as Employee. During the Employment
Term, the Employee shall be employed by the Company as its President. The
Employee agrees to devote substantially all her full working time, energy and
efforts to the business of the Company. In the
<PAGE>
performance of her duties, the Employee shall be subject to the direction of
the Board of Directors of the Company. The Employee shall be available to
travel as the needs of the business require.
3. Compensation.
(a) As compensation for her services hereunder, the
Company shall pay the Employee, during the Employment Term, a base salary (the
"Base Salary"), payable in equal semi-monthly installments in arrears at the
annual rate of One Hundred Fifty Thousand Dollars ($150,000). Additionally,
the Employee shall be entitled to participate in the present or future
employee benefit plans of the Company provided that she meets the eligibility
requirements therefor.
(b) The Employee shall be granted stock options for an
aggregate of 300,000 shares of common stock of the Company pursuant to the
iParty Stock Option Plan which options shall vest as follows: options with
respect to 150,000 shares shall vest on the date of this Agreement; provided
the Employee remains continuously employed by the Company on January 6, 1999,
options with respect to 50,000 shares shall vest on January 6, 1999; provided
the Employee remains continuously employed by the Company on July 6, 1999,
options with respect to 50,000 shares shall vest on July 6, 1999; and provided
the Employee remains continuously employed by the Company on January 6, 2000,
options with respect to 50,000 shares shall vest on January 6, 2000.
(c) In addition to the Base Salary provided herein, the
Employee may be entitled to receive an annual performance bonus payment, as
determined in the sole discretion of
-2-
<PAGE>
the Compensation Committee, or in the absence of a Compensation Committee, the
Board of Directors of the Company.
4. Expenses; Vacations. The Employee shall be entitled to
reimbursement for reasonable travel and other out-of-pocket expenses
necessarily incurred in the performance of her duties hereunder, upon
submission and approval of written statements and bills in accordance with the
then regular procedures of the Company. The Employee shall be entitled to four
(4) weeks vacation time in accordance with the then regular procedures of the
Company governing executives as determined from time to time by the Company's
Board of Directors. The Employee also shall be eligible to participate in all
medical, health and disability benefit programs provided to executives of the
Company.
5. Representations and Warranties of Employee. The Employee
represents and warrants to the Company that she (a) is under no contractual or
other restriction or obligation which is inconsistent with the execution of
this Agreement, the performance of her duties hereunder, or the other rights
of the Company hereunder; and (b) is under no physical or mental disability
that would hinder her performance of duties under this Agreement.
6. Non-Competition. The Employee agrees that she will not
(a) during the period she is employed under this Agreement 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 she ceases to be employed by
the Company under this Agreement,
-3-
<PAGE>
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, 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 6 will not be deemed breached merely because she owns not more
than five percent (5.0%) of the outstanding common stock of a corporation, if,
at the time of its acquisition by the Employee, 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.
7. Patents; Copyrights. Any interest in patents, patent
applications, inventions, copyrights, developments, and processes ("Such
Inventions") which the Employee now or hereafter during the period she is
employed by the Company under this Agreement may own or develop relating to
the fields in which the Company may then be engaged shall belong to the
Company; and forthwith upon request of the Company, the Employee shall execute
all such assignments and other documents and take all such other action as the
Company may reasonably request in order to vest in the Company all her right,
title, and interest in and to Such Inventions, free and clear of all liens,
charges, and encumbrances.
8. Confidential Information. All confidential information
which the Employee may now possess, may obtain during the Employment Term, or
may create prior to the end of the period she is employed by the Company under
this Agreement, relating to the business of the Company or of any customer or
supplier of the Company shall not be published, disclosed, or
-4-
<PAGE>
made accessible by her to any other person, firm, or corporation during the
Employment Term or any time thereafter without the prior written consent of
the Company. The Employee shall return all tangible evidence of such
confidential information to the Company prior to or at the termination of her
employment.
9. Termination.
(a) Notwithstanding anything herein contained, if on or
after the date hereof and prior to the end of the Employment Term, the Employee
is terminated "For Cause" (as defined below) then the Company shall have the
right to give notice of termination of Employee's services hereunder as of a
date to be specified in such notice, and this Agreement shall terminate on the
date so specified. Termination "For Cause" shall mean the Employee shall (i)
be charged with a felony crime, (ii) commit any act or omit to take any action
in bad faith and to the detriment of the Company, (iii) commit an act of moral
turpitude, (iv) commit an act of fraud against the Company, or (v) materially
breach any term of this Agreement and fail to correct such breach within ten
days after written notice of commission thereof.
(b) In the event that the Employee shall be physically
or mentally incapacitated or disabled or otherwise unable fully to discharge
her duties hereunder for a period of six months, then this Agreement shall
terminate upon thirty (30) days' written notice to the Employee, and no further
compensation shall be payable to the Employee, except for any accrued but
unpaid Base Salary and expenses as contemplated under Section 4 and as may
otherwise be provided under any disability insurance policy, if any.
-5-
<PAGE>
(c) In the event that the Employee shall die, then this
Agreement shall terminate on the date of the Employee's death, and no further
compensation shall be payable to the Employee, except for any accrued but
unpaid Base Salary and expenses as contemplated under Section 4 and as may
otherwise be provided under any insurance policy or similar instrument.
(d) In the event that this Agreement is terminated "For
Cause" pursuant to Section 9(a), then the Employee 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 the
Employee for any reason other than as provided under Section 9(a), 9(b) or
9(c), then this Agreement shall terminate upon thirty (30) days' written notice
to the Employee and the Company shall be obligated to pay to the Employee an
amount equal to any unpaid expenses as contemplated under Section 4 and
one-half of the annualized amount of the Base Salary.
(f) Nothing contained in this Section 9 shall be deemed
to limit any other right the Company may have to terminate the Employee's
employment hereunder upon any ground permitted by law.
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 corporation.
-6-
<PAGE>
11. Survival. The covenants, agreements, representations and
warranties contained in or made pursuant to this Agreement shall survive the
Employee's termination of employment, irrespective of any investigation made
by or on behalf of any party.
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 the Employee shall be sufficient if addressed to __________
__________ 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
-7-
<PAGE>
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. The Employee'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 claims of the
Employee'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 the Employee and her 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. 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 (and by facsimile), 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 given effect to the rules governing
the conflicts of laws.
-8-
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the date first written above.
IPARTY CORP.
By: /s/ Byron Hero
----------------------------
Name: Byron Hero
Title: CEO
/s/ Maureen Broughton Murrah
----------------------------
Maureen Broughton
<PAGE>
1/15/99
Ms. Leslye Faulk
325 W. 52nd Street #PHG
New York, NY 10019
Dear Leslye:
This letter will confirm our agreement to hire you as Vice-President of iParty
Corp., effective January 17, 1999. The basic terms of our agreement are as
follows:
1. Base compensation: $120,000 per year minimum; to be reviewed in July, 1999.
Initial term is 1/17/99 through 12/31/00.
2. Options: Options to purchase 120,000 shares of iParty common stock granted as
of 1/17/99, at a strike price of then market (approx. $4.25), and vesting as
follows: 60,000 shares on 4/17/99 and 60,000 shares on 7/17/99. Company
policy is to issue additional options annually in an amount equal to the
employee's base salary (at a minimum). Our counsel will prepare an option
agreement for your approval.
3. Vacation: Four weeks per year; no more than two weeks at a time.
4. Benefits: Medical, dental, and disability insurance coverage; and
participation in company 401(k) plan, all as defined in the company handbook.
5. Severance: In the event that your employment is terminated by iParty for
reasons other than cause or violation of the company confidentiality
agreement (attached hereto), and provided you have been employed by iParty
for at least three months, you will continue to be paid at your full base
salary rate for a period of three months from date of termination, and at
half your base salary rate for an additional three months. Such severance
payment will cease at such time as you obtain other employment. iParty will
pay to continue your health insurance coverage under COBRA for six months
from the date of termination (or, if lesser, until such time as you obtain
other employment).
6. Other: Such matters as maternity leave, optional benefits, travel and
entertainment policies, etc., are fully described in the company handbook.
<PAGE>
If the above terms are agreeable to you, please sign a copy of this letter and
return it to me with a signed copy of the enclosed confidentiality agreement.
Maureen and I, as well as the members of the Board of Directors, are delighted
that you are joining the iParty team and we look forward to working with you.
Sincerely,
/s/ B.A. Hero, Jr.
------------------
B.A. Hero, Jr.
Agreed:
/s/ Leslye Faulk
- ----------------
Leslye Faulk
<PAGE>
[Logo] www.iparty.com
10/22/98
Mr. Eric Berg
25 East 86th Street
New York, NY 10028
Dear Eric:
This letter will confirm our agreement to hire you as Chief Technology Officer
of iParty Corp., effective October 26, 1998. The basic terms of our agreement
are as follows:
1. Base compensation: $90,000 per year minimum; to be reviewed in January, 1999.
Initial term is 10/26/98 through 12/31/99.
2. Signing bonus: $10,000 cash, payable 10/26/98.
3. Options: 90,000 options to purchase iParty common stock granted as of
10/26/98, at a strike price of then market (approx. $1.25), and vesting six
months from date of grant. Company policy is to issue additional options
annually in an amount equal to the employee's base salary (at a minimum). Our
counsel will prepare an option agreement for your approval.
4. Vacation: Four weeks per year; no more than two weeks at a time.
5. Benefits: Medical, dental, and disability insurance coverage; and
participation in company 401(k) plan, all as defined in the company handbook.
6. Severance: In the event that your employment is terminated by iParty for
reasons other than cause or violation of the company confidentiality
agreement (attached hereto), and provided you have been employed by iParty
for at least three months, you will continue to be paid at your full base
salary rate for a period of three months from date of termination, and at
half your base salary rate for an additional three months. Such severance
payment will cease at such time as you obtain other employment. iParty will
pay to continue your health insurance coverage under COBRA for six months
from the date of termination (or, if lesser, until such time as you obtain
other employment).
7. Other: Such matters as paternity leave, optional benefits, travel and
entertainment policies, etc., are fully described in the company handbook.
<PAGE>
If the above terms are agreeable to you, please sign a copy of this letter and
return it to me with a signed copy of the enclosed confidentiality agreement.
Maureen, Katie and I, as well as the members of the Board of Directors, are
delighted that you are joining the iParty team and we look forward to working
with you.
Sincerely,
/s/ B.A. Hero, Jr.
------------------
B.A. Hero, Jr.
Agreed:
Eric Berg
- -------------
Eric Berg
<PAGE>
STAR GREETINGS
LICENSE AGREEMENT
LICENSE AGREEMENT dated as of August 15th, 1998 (this "Agreement"),
by and between STAR GREETINGS LLC, ("Licensor") a Delaware Limited Liability
Company and STAR GREETINGS, INC., a Delaware corporation ("Licensee").
W I T N E S S E T H:
WHEREAS, Licensor is the creator of the "star greetings" concept
(the "Star Greetings Concept");
WHEREAS, Licensor desires to grant Licensee an exclusive license
to the use of its Star Greetings Concept; and
WHEREAS, Licensee desires to implement Licensor's Star Greetings
Concept on its Internet business operations.
NOW, THEREFORE, in consideration of the foregoing and for good and
valuable consideration, the receipt, sufficiency and adequacy of which are
hereby acknowledged, the parties hereto hereby agree as follows:
1. The Star Greetings Concept. The Star Greetings Concept was created
and developed by Byron Hero, a member and the manager of Licensor. The Star
Greetings Concept will involve the deliverance of personalized greetings from
sports and entertainment celebrities, corporate personalities, and animated
characters (the "Star Greeting"). Individuals will purchase the Star Greeting
over the Internet and the Star Greeting purchased will then be sent to the
recipient via Internet, videotape or other electronic means.
2. Terms Relating to the License.
(a) Term. Licensor agrees to provide Licensee with the
exclusive, perpetual and worldwide rights to use the Star Greetings Concept
(the "License") for a twenty (20) year term, beginning on the date first
written above.
(b) Use. Pursuant to the License, Licensee will be permitted to
sell Star Greetings for general audiences (excluding adult content versions) on
its two current URLs located on the world wide web at "Stargreetings.com" and
"iParty.com."
1
<PAGE>
(c) Royalty. In exchange for the License, Licensee agrees to
pay Licensor 22% (the "Royalty") of the gross revenues received by Licensee
from the sale of Star Greetings. The Royalty will be paid to Licensor within
fifteen days after the end of each fiscal quarter.
3. Termination of License.
(a) Change of Control. This Agreement and the License granted
hereunder shall terminate immediately and Licensee shall have no further rights
to use the Star Greetings Concept in the event of a Change of Control
(hereinafter defined) in Licensee or a Change in Control in iParty Corp., the
parent of Licensee. For purposes of this Agreement, the term Change in Control
shall include any merger or consolidation in which Licensee is not the surviving
entity, and a sale of more than 49% of the assets or stock of Licensee to a
third party or a change of control of its parent, iParty Corp.
(b) Event of Default. In the event that Licensee fails to pay the
Royalty to Licensor as provided in Section 2(c) hereof (an "Event of Default"),
and such Event of Default is not cured within thirty (30) days after receipt of
a notice to cure such Event of Default from Licensor, this Agreement shall
terminate immediately and Licensee shall have no further rights to use the Star
Greetings Concept.
4. Governing Law. This Agreement 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. Any action, suit, or proceeding
arising out of, based on, or in connection with this Agreement may be brought
only in the United States District Court for the Southern District of New York
and each party covenants, and agrees not to assert, by way of motion, as a
defense, or otherwise, in any such action, suit, or proceeding, any claim that
it is not subject personally to the jurisdiction of such court if it has been
duly served with process, that its property is exempt or immune from
attachment or execution, that the action, suit, or proceeding is brought in
any inconvenient forum, that the venue of the action, suit, or proceeding is
improper, or that this Agreement or the subject matter hereof may not be
enforced in or by such court.
5. Assignability. This Agreement shall not be transferable or
assignable by Licensee.
6. 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 comparable method if mailed from a location
outside the United States), sent by telecopy or facsimile transmission (with
receipt confirmed in writing), or delivered against receipt to the party to
whom it is to be given at the address of such party set forth below (or to
such other address as the party shall have furnished in writing in accordance
with the provisions of this Section.
2
<PAGE>
If to Licensor:
Byron Hero
c/o iParty Corp.
41 East 11th Street, 11th Floor
New York, NY 10003
If to Licensee:
Katie Broughton
President
Star Greetings, Inc.
c/o iParty Corp.
41 East 11th Street, 11th Floor
New York, NY 10003
Any notice or other communication given by certified mail (or by such
comparable method) shall be deemed given at the time of certification thereof.
Any notice or other communication sent by telecopy or facsimile transmission
shall be given at the time of written confirmation of receipt.
7. Unenforceability. If any provision of this Agreement is invalid,
illegal, or unenforceable, the balance of this Agreement shall remain in
effect, and if any provision is inapplicable to any person or circumstance, it
shall nevertheless remain applicable to all other persons and circumstances.
8. Counterparts. This Agreement may be executed through the use of
separate signature pages or in any number of counterparts (and by facsimile
signature) and each of such counterparts shall, for all purposes, constitute
one agreement binding on all parties, notwithstanding that all parties are not
signatories to the same counterpart.
9. Modification. This Agreement may not be amended, modified or
terminated except by an instrument in writing signed by all parties hereto.
10. Entire Agreement. This Agreement contains the entire agreement of
the parties with respect to the subject matter hereof and there are no
representations, covenants or other agreements except as stated or referred to
herein.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first written above.
STAR GREETINGS LLC
By: ___________________________
Name: Byron Hero
Title: Member/Manager
STAR GREETINGS, INC.
By: ____________________________
Name: Katie Broughton
Title: President
4
<PAGE>
TECHSPACE, LLC
SERVICE AGREEMENT
This Agreement is entered into in New York, NY by and between TechSpace, LLC
(hereinafter "TS") and iParty Corporation (hereinafter "Client").
TS and Client agree that TS shall grant to Client for and in consideration of
the agreements and fee(s) set forth herein, a license to use a portion of the
TS premises (hereinafter referred to as Client's Area) as from time to time
designated by TS and, in common with TS's other clients, a license to use TS's
premises and services, in accordance with the terms hereof.
1. BASIC TERMS.
This Section I contains the basic terms of this Agreement and all
provisions of this Agreement are to be read in accord therewith:
Base Services: Use of Client's designated area (Client's Area)
complete with other inclusive services as are defined in Schedule "A".
Additional Services: Access to additional business services for
purchase as needed by Client, including secretarial, administrative,
telecommunications and such other services are as defined in Schedule
"B".
A. Building/Floor: 41 East 11th Street, 11th floor, New York,
New York
B. Area [number(s)]: 1 having a maximum occupancy capacity as
indicated in Schedule "C".
C. Commencement Date: November 1, 1998
D. Initial Term: Three (3) Months
E. End of Initial Term February 28, 1998
F. Total Monthly Base Services Fee: $ 4,200
G. Total Monthly Additional Services Fee: $ 635
H. Total One Time Set-up & Installation Charges: $ 1,500
I. Refundable Services Retainer: $ 9,670
J. Total Due On Signing of Agreement $16,005
(A description and calculation of all charges can be found in
Schedule "C".)
-1-
<PAGE>
2. CLIENT'S AREA.
Client shall, as part of the Base Services, be granted license to use
the Client's Area and shall have access to the Client's Area
twenty-four (24) hours a day, seven (7) days a week. TS agrees to
provide Client's Area cleaning, maintenance services, electric
heating and air conditioning to the Client's Area for normal office
use in such reasonable quantities between 8:00 a.m. and 8:00 p.m. In
addition, Client will have reasonable use of TS common area
facilities. Client shall use the Client's Area and common areas of
the TS premises solely for general office use in the conduct of the
Client's business.
If, for any reason whatsoever, TS in unable to provide use of the
Client's Area or a mutually agreed upon alternative area at the time
herein agreed, Client may either extend the Commencement Date until
the Client's Area becomes available or, as its sole remedy for such
failure, cancel and terminate this Agreement if the use of the
Client's Area is not available to the Client within five (5) business
days after written notice to TS by Client, in which case any prior
payments shall be fully refunded. No such failure to provide use of
the Client's Area shall subject TS to any liability for loss or
damage, nor affect the validity of this Agreement or the obligations
of the Client hereunder.
TS will have the right to relocate Client to another Client's Area
within the TS premises, and to substitute such other Client's Area
for the Client's Area licensed hereby, provided such other Client's
Area is substantially similar in area and configuration to Client's
contracted Client's Area and provided Client shall incur no increase
in the Monthly Base Services Fee or any relocation cost or expense.
3. SERVICES.
TS agrees, in consideration of the Monthly Base Services Fee, to
provide Base Services to Client as described in Schedule "A". From
time to time during the Term, TS may, at its option, make other
services available to Client of the nature described in Schedule "B",
at fees that are from time to time established by TS. TS shall be
under no obligation to provide Schedule "B" services if the monthly
cost thereof exceeds the Refundable Services Retainer. In the event
Client is in default of this Agreement, TS may, at its option, cease
furnishing any and all services including telephone services.
Client will not offer to any party in the TS premises or the
Building, any of the services that TS provides to its clients
including, but not limited to, the services described in Schedule "A"
or "B".
Client will use only telecommunications systems and services as
provided by TS. Client will pay to TS a monthly equipment rental and
service fee for the use of each telephone instrument and voice lines.
In the event TS discontinues the offering of long distance service,
-2-
<PAGE>
Client will provide its own long distance service through a locally
accessed long distance carrier.
Client acknowledges that due to the imperfect nature of verbal,
written and electronic communications, neither TS nor any of its
officers, directors, employees, shareholders, partners, agents or
representatives shall be responsible for damages, direct or
consequential, that may result from the failure of TS to furnish any
services, including but not limited to the service of conveying
messages, communications and other utility or services required under
this Agreement or agreed to by TS. Client's sole remedy and TS's sole
obligation for any failure to render any service, any error or
omission, or any delay or interruption with respect thereto, is
limited to an adjustment to Client's billing in an amount equal to
the charge for such service for the period during which the failure,
delay or interruption continues.
CLIENT EXPRESSLY WAIVES, AND AGREES NOT TO MAKE ANY CLAIM FOR
DAMAGES, DIRECT OR CONSEQUENTIAL, ARISING OUT OF ANY FAILURE TO
FURNISH ANY UTILITY, SERVICE OR FACILITY, ANY ERROR OR OMISSION WITH
RESPECT THERETO, OR ANY DELAY OR INTERRUPTION OF THE SAME.
4. DURATION OF AGREEMENT.
Upon the End of Initial Term, or any extension thereof, the term of
this Agreement and the license herein granted shall be automatically
extended for the same period of time as the Initial Term, upon the
same terms and conditions as contained herein, unless either party
gives notice to the other in writing to the contrary at least sixty
(60) days prior to the End of Initial Term (90 days if Client has
licensed the use of three or more offices).
5. PAYMENTS AND ESCALATIONS.
Client agrees to pay to TS the Monthly Base Services Fee plus
applicable sales or use taxes, in advance, on the first day of each
calendar month during the Initial Term and all extensions thereof,
without any deduction, offset, notice or demand. If the Commencement
Date shall be other than the first day of a month or end on the last
day of a month, fees for any such month shall be prorated. Charges
for any Schedule "B" service purchased by Client from TS shall be due
and payable on the 10th of the month following the order for any
such service.
One year after the Commencement Date of this Agreement and each and
every anniversary date thereafter, the Monthly Base Services Fee will
automatically increase by six percent (6%) of the Monthly Base
Services Fee due for the month preceding such anniversary date.
All Monthly Base Services Fees and other sums payable hereunder shall
be payable at the TS premises or at such other location or to any
agent designated in writing by TS. In addition to any other sums due,
Client shall pay monthly late charges equal to five percent (5%) of
all amounts that have not been paid to TS within five (5) days of
their respective due dates.
-3-
<PAGE>
The parties agree that such late charges are fair and reasonable
compensation for costs incurred by TS where there is default in any
payment due under this Agreement.
Upon execution of this Agreement, Client shall pay TS or its agent
the Refundable Services retainer. The Refundable Services Retainer
need not be kept separate and apart from other funds of TS, no
interest shall be paid thereon, and may be used by TS to provide
Schedule "A" and "B" services under this Agreement. In addition to
the Refundable Services Retainer, Client will, upon execution hereof,
pay to TS the Monthly Base Services Fee for the first full month of
the Initial Term and any applicable Set-Up and Installation Charges.
Client agrees that the Refundable Services Retainer shall not be used
by Client as payment of the Monthly Base Services Fee for the last
month of the Initial Term, or any extension thereof. In the event
Client defaults in the performance of any of the terms hereof, TS may
terminate this Agreement and the license herein granted and may also
use, apply or retain the whole, or any part, of the Refundable
Services Retainer for the payment of any service fee or any other
payment due hereunder, or for payment of any other sum that TS may
spend by reason of Client's default. If Client shall, at the end of
the term of this Agreement, have fully and faithfully complied with
all of the terms and provisions of this Agreement, and surrendered
all keys, access cards and building passes, the Refundable Services
Retainer, or any balance thereof, shall be returned to Client within
forty-five (45) days thereafter.
6. DAMAGES AND INSURANCE.
Client will not damage or deface the furnishings, walls, floors or
ceilings, nor make holes for the hanging of pictures or make or
suffer to be made any waste, obstruction or unlawful, improper or
offensive use of the Client's Area or the common area facilities.
Client will not cause damages to any part of the Building or the
property of TS or disturb the quiet enjoyment of any other licensee
or occupant of the Building. At the termination of this Agreement,
the Client's Area shall be in as good condition as when Client
commenced the use thereof, normal wear and tear excepted. TS will
have the right, at any time and from time to time, to enter the
Client's Area to inspect the same, to make such repairs and
alterations as TS deems necessary, and the cost of any such repair
resulting from the act or omission of Client shall be reimbursed to
TS by Client upon demand. TS shall have the right to show the
Client's Area to prospective Clients, provided TS will use reasonable
efforts not to disrupt Client's business.
TS and its respective directors, licensers, officers, agents,
servants and employees shall not, to the extent permitted by the law,
except upon the affirmative showing of TS's gross negligence or
willful misconduct, be liable for, and Client waives all right of
recovery against such entities and individuals for any damage or
claim with respect to any injury to person or any damage to, or loss
or destruction of any property of Client, its employees, authorized
persons and invitees due to any act, omission or occurrence in or
about the TS premises or the Building. Without limitation of any
other provision hereof, each party hereto hereby
-4-
<PAGE>
agrees to indemnify, defend and hold harmless the other party hereto,
and such other party's officers, directors, employees, shareholders,
partners, agents and representatives from and against any liability
to third parties arising out of, in the case of Client as an
indemnifying party, Client's use and occupancy of the Office or any
negligent act or omission of Client or Client's officers, directors,
employees, shareholders, partners, agents, representatives,
contractors, customers or invitees and, in the case of TS as an
indemnifying party, any act or omission constituting gross negligence
or willful misconduct of TS or TS's officers, directors, employees,
shareholders, partners, agents or representatives. Subject to the
foregoing, Client assumes all risk of loss with respect to all
personal property of Client, its agents, employees, contractors, and
invitees, within or about the TS premises or the Building. Client
acknowledges that it is the Client's responsibility to maintain
insurance to cover the risks set forth in this paragraph.
TS and Client each hereby waive any and all rights of recovery
against the other, or against the directors, licensers, officers,
agents, servants and employees of the other, for loss of or damage to
its property or the property of others under its control, to the
extent such loss or damage is covered by any insurance policy.
If the TS premises is made unusable, in whole or in part, by fire or
other casualty not due to negligence of Client, TS may, at its
option, terminate the Agreement upon notice to Client, effective upon
such casualty, or may elect to repair, restore or rehabilitate, or
cause to be repaired, restored or rehabilitated, the TS premises,
without expense to Client, within ninety (90) days or within such
longer period of time as may be required because of events beyond
TS's control. The Monthly Base Services Fee shall be abated on a per
diem basis for the portions of the Client's Area that are unusable.
7. DEFAULT.
Client shall be deemed to be in default under this Agreement if: (a)
Client defaults in the payment of the Monthly Base Services Fee or
other sums due hereunder or (b) Client defaults in the prompt and
full performance of any other provision of this Agreement and any
such default continues in excess of five (5) business days after
written notice by TS.
Should Client be in default hereunder, TS shall have the option to
pursue any one or more of the following remedies without any
additional notice or demand whatsoever and without limitation to TS
in the exercise of any remedy:
(1) TS may, if TS so elects, without any additional notice
of such election or demand to Client, either forthwith
terminate this Agreement and the license to use any portion
of the TS premises, and may enter into the Client's Area and
take and hold possession of the contents thereof, without
releasing Client, in whole or in part, from the Client's
obligations hereunder. In the event of such termination, TS
may, at its option, declare the entire amount of the Monthly
Base Services Fee which would become due and
-5-
<PAGE>
payable during the remainder of the term, to be due and
payable immediately, in which event Client agrees to pay the
same at once.
(2) Pursue any other remedy now or hereafter available to
TS. TS's exercise of any right or remedy shall not prevent
it from exercising any other right or remedy.
Client agrees to pay all costs and expenses, including reasonable
attorney's fees, expended or incurred by TS in connection with the
enforcement of this Agreement, the collection of any sums due
hereunder, any action for declamatory relief in any way related to
this Agreement, or the protection or preservation of any rights of TS
hereunder.
8. RESTRICTION ON HIRING.
Client agrees that during the term of this Agreement and within one
(1) year of the termination of this Agreement, neither Client nor any
of its principals, employees or affiliates will hire directly or as
an independent contractor, any person who is at that time, or was
during the term of this Agreement, an employee of TS. In the event of
a breach of any obligation of Client contained in this paragraph,
Client shall be liable to TS for, and shall pay to TS, on demand,
liquidated damages in the sum of $10,000.00 for each employee with
respect to whom such breach shall occur.
9. MISCELLANEOUS.
A. This is the only Agreement between the parties. No other
agreements are effective. All amendments to this Agreement
shall be in writing and signed by all parties. Any other
attempted amendment shall be void. The invalidity or
unenforceability of any provision hereof shall not affect
the remainder hereof.
B. All waivers must be in writing and signed by the waiving
party. TS's failure to enforce any provision of this
Agreement or its acceptance of fees shall not be a waiver
and shall not prevent TS from enforcing any provision of
this Agreement in the future. No receipt of money by TS
shall be deemed to waive any default of Client or to extend,
reinstate or continue the term hereof.
C. All Schedules and Addenda attached hereto are hereby
incorporated herein by this reference. The laws of the State
in which the TS premises is located shall govern this
Agreement.
D. All parties signing this Agreement as a partnership or
co-signing individuals shall be jointly and severally liable
for all obligations of Client.
-6-
<PAGE>
E. Client represents and warrants to TS that there are no
agents, brokers, finders or other parties with whom Client
has dealt who are or may be entitled to any commission or
fee with respect to this Agreement.
F. Neither Client nor anyone claiming by, through or under
Client shall assign this Agreement or permit the use of any
portion of the TS premises by any person other than Client;
provided, however, Client may assign this Agreement to an
affiliated corporation of Client. In the event of any such
permitted assignment, Client shall not thereby be relieved
of any of its obligations under this Agreement.
G. The Rules and Regulations of the Building and of TS as
defined on Schedule "D" hereto and any additional schedules
that may be attached hereto are expressly made a part of
this Agreement and Client expressly covenants and agrees to
abide by all of such Rules and Regulations and such
additional terms, as well as such reasonable modifications
to such Rules and Regulations as may be hereafter adopted by
TS.
H. All notices hereunder shall be in writing. Notices to Client
shall be deemed to be duly given if mailed by registered or
certified mail, postage prepaid, addressed to Client at:
--------------------------------------------------------------
--------------------------------------------------------------
Notice to TS shall be deemed to be duly given if mailed by
registered or certified mail, postage prepaid, to TS at the
Building and as follows:
Mr. Eric Pickens
Chief Financial Officer
TechSpace, LLC
41 East 11th Street, 11th Floor
New York, New York 10003
I. THIS AGREEMENT IS NOT INTENDED TO CREATE A LEASE OR ANY
OTHER INTEREST IN REAL PROPERTY IN FAVOR OF THE CLIENT, BUT
MERELY CREATES A REVOCABLE LICENSE IN ACCORDANCE WITH THE
TERMS HEREOF. This Agreement grants Client the license to
use the TS premises and the Client's Area for the specific
purposes herein set forth without diminution of the legal
possession or control thereof by TS and shall be revocable
at the option of TS upon the destruction of the TS premises
or the breach by Client of any term or condition herein set
forth. This Agreement is subject and subordinate to any
underlying lease or contract of the Building or of the
premises comprising the Client's Area or the TS premises as
such lease or contract may be amended from time to time
-7-
<PAGE>
(such underlying lease or contract together with any
amendments, is hereinafter referred to as the "Master
Lease"). This Agreement shall terminate simultaneously with
the termination of the TS premises operation for any reason.
Client is not a party to nor shall Client have any rights
under the Master Lease.
J. Client acknowledges that TS will comply with US Postal
Service regulations regarding Client mail and, upon
termination of this Agreement, it will be Client's
responsibility to notify all parties of termination of the
use of the above described address, assigned telephone
number, telex and facsimile numbers. For a period of thirty
(30) days after the termination of this Agreement, TS will,
at Client's written request and cost, provide Client's new
telephone number and address to all incoming callers and will
hold or forward to Client once a week all mail, packages,
facsimiles and telexes.
K. TS may assign this Agreement and/or any fees hereunder and
Client agrees to attorn to any such assignee.
-8-
<PAGE>
TECHSPACE, LLC
A Delaware Corporation
By:
-------------------------------
Its:
-------------------------------
CLIENT
Corporation:
A(n) corporation
-------------------------------
By:
-------------------------------
Its:
-------------------------------
-9-
<PAGE>
SCHEDULE "A"
Base Services
o Furnished Client Area
o Furnished and Decorated Reception Area
o Professional Receptionist
o Use of Furnished and Audio-Visually Equipped
Conference Rooms (8)
o Hours Per Month at No Charge
o Business Address
o Business Identity on Building Lobby Directory
o Facsimile Number for Client's Use
o Mail and Package Receipt
o Utilities
o Janitorial Service
o Building Operating Expenses
-10-
<PAGE>
SCHEDULE "B"
Additional Services
o Telephone Equipment
o Local and Long Distance Telephone Service
o Internet Connection Via T1
o Voice Messaging Services
o Secretarial Services
o Word Processing Services
o Excess Filing and Storage
o Facsimile Services
o Copying and Business Machines and Binding Services
o Outgoing Mail and Express Mail
o Printing and Office Supplies
o Miscellaneous Purchasing Services
o Catering, Food and Beverage Services
o Excess Conference Room Service
-11-
<PAGE>
SCHEDULE "C"
Breakdown of Total Monthly Base Service Fee:
<TABLE>
<CAPTION>
Client Area Number Maximum Occupancy Monthly Fee
<S> <C> <C>
1 10 $4,200
TOTAL $4,200
Breakdown of Monthly Additional Services Fee:
<CAPTION>
Additional Service Number of Units Monthly Fee Per Unit Total Monthly Fee
<S> <C> <C> <C>
Phone Equip. & Service 4 $100 $400
Facsimile Installation 1 $ 35 $ 35
Internet Service 4 $ 50 $200
TOTAL $635
Breakdown of One Time Set-Up and Installation Charges:
<CAPTION>
<S> <C> <C> <C>
Additional Service Number of Units Fee Per Unit Total Fee
Phone Installation 4 $100 $400
Facsimile Installation 1 $100 $100
Internet Service 4 $100 $400
Card Key/Codes Set-Up 4 $150 $600
Signage 1 $100 Waived
TOTAL $1,500
Total Monthly Fee for Base and Additional Services: $4,835
Total Set-Up and Installation Charges: $1,500
Refundable Service Retainer (2 Times Monthly Total): $9,670
TOTAL DUE UPON EXECUTION OF AGREEMENT: $16,005
(1st Month's Rent, Set-Up & Installation Charges and Retainer)
</TABLE>
-12-
<PAGE>
SCHEDULE "D"
Rules and Regulations
1. Client's employees and guests will conduct themselves in a
businesslike manner; the noise level will be kept to a level so as
not to interfere with or annoy other clients and Client will abide by
TS's directives regarding security, keys, and other such matters
common to all occupants.
2. Client will not affix anything to the windows, walls or any other
part of the Client's Area or the TS premises or make alterations to
the Area or TS premises without the prior written consent of TS.
3. Client will not prop open any corridor doors, exit doors or door
connecting corridors during or after business hours.
4. Client can only use public areas with the consent of TS those areas
must be kept neat and attractive at all times.
5. All corridors, halls, elevators and stairways shall not be obstructed
by Client or used for any purpose other than egress and ingress.
6. No advertisement or identifying signs, other than provided by TS, or
other notices shall be inscribed, painted, or affixed on any part of
the corridors, doors or public areas.
7. Client shall not, without TS's prior written consent store or operate
in the Client's Area or the TS premises any computer (except a
personal computer) or any other large business machine, reproduction
equipment, heating equipment, stove, radio, stereo equipment or other
mechanical amplification equipment, vending or coin operated machine,
refrigerator or coffee equipment, or conduct mechanical business
therein, do any cooking therein, or use or allow to be used in the
Building, oil burning fluids, gasoline, kerosene for heating, warming
or lighting. No article deemed hazardous on account of fire or any
explosives shall be brought into the TS premises. No offensive gases,
odors or liquids will be permitted.
8. The electrical current shall be used for ordinary lighting purposed
only unless written permission to do otherwise shall first have been
obtained from TS at an agreed cost to Client.
9. If Client requires any special installation or wiring for electrical
use, telephone equipment or otherwise, such wiring shall be done at
Client's expense by the personnel designated by TS.
10. Client will bring no animals other than seeing-eye dogs in the
company of blind persons into the Building.
11. Client shall not remove furniture, fixtures or decorative material from
the Client's Area or the TS premises.
12. Client will not use TS premises for manufacturing or storage of
merchandise except as such storage may be incidental to general
office purposes.
13. Client will not occupy or permit any portion of the TS premises to be
occupied or used for the manufacture, sale, gift or use of liquor,
narcotics or tobacco in any form.
14. Client will not use the Client's Area for lodging or sleeping or for
any immoral or illegal purposes.
-13-
<PAGE>
15. No additional locks or bolts of any kind shall be placed upon any of
the doors or windows of the TS premises by Client nor shall any
changes be made on existing locks or the mechanisms thereof.
16. Client, shall before leaving the Client's Area for an extended period
of time, shall shut off all lights and other electrical apparatus.
Any damage resulting from failure to do so shall be paid by the
Client.
17. Canvassing, soliciting and peddling in the Building are prohibited
and Client shall not solicit other clients for any business or other
purpose without the prior written approval of TS.
18. All property belonging to Client or any employee, agent or invitee of
Client shall be at the risk of such person only and TS shall not be
liable for damages thereto or for theft or misappropriation thereof.
19. If Client does not remove any property belonging to Client from the
TS premises by the end of the term, at the option of TS, Client shall
be conclusively presumed to have conveyed such property to TS under
this Agreement as a bill of sale without further payment or credit by
TS to Client and TS may remove the same and Client shall pay TS all
costs of such removal upon demand.
20. Smoking shall be prohibited in all public areas, including conference
and training rooms. No smoking shall be permitted at any time in any
area of the TS premises.
TS shall have no responsibility to Client for the violation or non-performance
and shall use reasonable efforts to uniformly enforce all Rules and Regulations.
-14-
<PAGE>
September 15, 1998
Sal Perisano
Chairman of the Board
The Big Party
1457 VFW Parkway
West Roxbury, MA 02132
Dear Sal:
Bob and I are delighted at the prospect of having you on the iParty
Board of Directors and look forward to the benefits of your experience and
wise counsel.
Per our current by-laws, non-management directors are compensated
with options to purchase 25,000 shares of iParty common stock granted on the
date of commencement of service on the Board and an additional 25,000 granted
on the last trading day of August each year (provided the director is still on
the Board). The strike price is the price at time of grant. In addition,
directors are reimbursed for any travel or other expenses incurred in
connection with attending Board meetings or other company functions.
As we discussed, iParty would also like to enter into a consulting
agreement with you and Dorice. We suggest an initial term commencing as of
today and continuing until December 31, 1999, with compensation in the form of
options to purchase iParty common stock, as follows: (a) 25,000 granted as of
today (at today's closing price), and (b) an additional 25,000 in the event
that (and at such time as) your consulting time exceeds 100 hours.
<PAGE>
If the above terms are satisfactory to you, please so indicate by
signing a copy of this letter and returning it to me. I will then ask our
counsel to draft the appropriate option agreements.
All of us on the Board look forward to working with you and Dorice.
Together I am confident we will turn iParty into a big success.
Best regards,
/s/ B.A. Hero, Jr.
----------------------------
Byron A. Hero, Jr.
Agreed:
/s/ Sal Perisano
- -------------------------
Sal Perisano
cc: R.H. Lessin
A. Khan
S. Belzberg
M. Broughton
D. De Wolf
<PAGE>
BYRON A. HERO, JR.
418 EAST 59TH STREET
NEW YORK, N.Y. 10022
(212) 759-1454
(FAX) 980-0904
April 29, 1998
Dan DeWolf, Esq.
Camhy Karlinsky & Stein
1740 Broadway
New York, N.Y. 10019
Re: iParty
Dear Dan:
This letter will confirm our understanding concerning my compensation
in the event that my efforts to raise capital for iParty are successful. As Bob
Lessin and I have previously agreed, I will be entitled to a cash fee of 5% with
respect to the next $2,000,000 raised by iParty if I introduce the investor to
iParty. The fee is apart from and in addition to any equity participation to
which I may be entitled as a result of my continuing involvement with iParty.
In the particular case of the Verus Group and its affiliates, which
have tentatively agreed to an investment of $2 million for a 50% interest in
iParty, the terms of our agreement would entitle me to a cash fee of $100,000,
payable in two equal installments of $50,000 payable at the closings of each of
the two rounds of financing presently contemplated.
Please sign this letter and return a copy to me at your convenience.
Best regards,
/s/ B.A. Hero
B.A. Hero
Agreed:
/s/ Dan DeWolf
- ---------------------
Dan DeWolf, Secretary
iParty, LLC
<PAGE>
EXHIBIT 21
Subsidiaries of the Company
StarGreeting, Inc., a Delaware corporation, and a wholly-owned subsidiary of
iParty Corp.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contaings financial information extracted from Balance, Statement
of operations, Statement of Cash flows and notes thereto incorporated in Part
F/S of this Form 10-SB and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 346,751
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 491,049
<PP&E> 341,441
<DEPRECIATION> 0
<TOTAL-ASSETS> 842,160
<CURRENT-LIABILITIES> 547,508
<BONDS> 0
0
0
<COMMON> 11,006
<OTHER-SE> 283,646
<TOTAL-LIABILITY-AND-EQUITY> 842,160
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 873,087
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 401
<INCOME-PRETAX> (862,398)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (862,398)
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> (0.08)
</TABLE>
