<PAGE>
As filed with the Securities and Exchange Commission on July 12, 1999
Registration No. 0-25507
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION 12(b)
OR 12(g) OF THE SECURITIES ACT OF 1934
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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) 331-1225
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(Address and telephone number of principal executive offices)
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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
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Common Stock, par value $0.001 OTC Bulletin Board
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<PAGE>
PART I
Special Note Regarding Forward-Looking Statements.
Some of the statements contained in or incorporated by reference in this Form
10-SB discuss the Company's plans and strategies for its business or state other
forward-looking statements, as this term is defined in the Private Securities
Litigation Reform Act. The words "anticipates," "believes," "estimates,"
"expects," "plans," "intends" and similar expressions are intended to identify
these forward-looking statements, but are not the exclusive means of identifying
them. The Company assumes no obligation to update publicly any forward-looking
statements, whether as a result of new information, future events or otherwise.
These forward-looking statements reflect the current views of the Company's
management; however, various risks, uncertainties and contingencies could cause
the Company's actual results, performance or achievements to differ materially
from those expressed in, or implied by, these statements, including, without
limitation, the following: the success or failure of the Company's efforts to
implement its business strategy, the Company's ability to market and brand
successfully its on-line party planning concept, changes in the fulfillment
partners and other on-line affiliates, changes in consumer demand, changes in
general economic conditions, changes in technology, the rate of acceptance of
the Internet as a marketing and commercial vehicle, and competition in the
Internet party supply and planning business.
Item 1. Description of Business.
iParty Corp., a Delaware corporation (the "Company") is a development
stage company that intends to become the premier brand in the on-line party
industry and the leading resource on the Internet for consumers seeking party
goods, party services, party planning advice and information, and personalized
video greetings called "StarGreetings" from celebrities. The Company's web site,
www.iparty.com (the "Site"), was launched in February 1999.
From children's birthday parties to weddings, from Super Bowl parties
to Halloween, the Company intends to make it easy and convenient for the party
giving consumer to select themes, make comprehensive plans, and purchase all of
the goods and services for a successful event. The Company's operational goal is
to provide a simple, seamless transaction process for the consumer. When the
consumer comes to the Site, the consumer will be able to select a theme, fill a
virtual shopping basket with goods and services, and pay for everything at one
time at the check-out screen. Once the order has been placed, the consumer will
be notified of the order's status via e-mail. The consumer will also be able to
dial the Company's toll-free number, 1-800-4iParty, to talk to a customer
service representative who is knowledgeable about the Company's products.
Although the consumer will interact only with the Company, the actual
fulfillment will come from a network of strategic partners, vendors, or
subcontractors. These strategic partners will ship direct to the consumer.
Typically, the strategic partners will be catalog companies and/or established
direct marketing merchants.
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In furtherance of this strategy, on July 8, 1999 the Company entered
into a product fulfillment agreement with Taymark, one of the largest direct
marketer's of party supplies in the United States. Pursuant to the agreement,
the Company will utilize Taymark's inventory and fulfillment services to deliver
merchandise ordered on the Site, or through a toll-free telephone number,
directly to consumers. Taymark will purchase the Company's inventory and, in
addition, the Company will integrate Taymark's inventory into the Site's
store-front. Taymark will provide Company customers with customer service
through a toll-free telephone number
The initial term of the agreement runs through December 31, 2002 and it
may be renewed by the Company under certain circumstances. The agreement
contains certain restrictions on competition by Taymark. Nothing in the
agreement prohibits the Company fulfilling orders placed on the Site directly or
through third-parties.
The Company has engaged OrderTrust to process credit card payments for
orders placed on the Site. Under this agreement, the Company pays OrderTrust a
transaction fee for each order processed by OrderTrust, and has agreed to pay
certain minimum monthly fees in the event that the per-order transaction fees do
not reach certain levels. In addition, the Company paid OrderTrust a one time
set-up fee of $50,000. This agreement runs through December 21, 2000.
The Company currently has 10 employees.
The History of the Company
The Company was previously known as WSI Acquisitions, Inc. and was
incorporated under the laws of the State of Texas. On June 30, 1998, in order to
change domicile, WSI Acquisitions, Inc. merged with WSI Acquisitions, Corp., a
Delaware corporation, with WSI Acquistions Corp. being the surviving entity.
Neither WSI Acquisitions Corp. nor WSI Acquisitions, Inc. had operations prior
to the merger with iParty Corp.
On July 2, 1998, iParty Corp., a Delaware corporation, which was a
wholly-owned subsidiary of iParty LLC, a Delaware limited liability company,
merged into WSI Acquisitions Corp. and WSI Acquisitions Corp. changed its name
to iParty Corp. iParty LLC, which was created on December 11, 1997, commenced
operations in January 1998 to launch an Internet- based merchant of party goods
and services. Shares of the Company's common stock are currently trading on the
OTC Bulletin Board under the symbol "IPTY." See "Recent Sale of Unregistered
Securities." As a result of the merger, iParty LLC became the majority
shareholder of the Company.
Design and Content of the Company Web Site
The initial design, construction, operation and maintenance of the Site
was, in large part, out-sourced to the Company's three operating partners,
iVillage, Fry MultiMedia ("Fry"), and Ordertrust. The Site was launched in
February 1999. Over the following two months, the Site was further developed by
iParty's internal staff, Ordertrust and Snowmass Technologies. The
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re-developed Site was launched in April 1999. The Company's goal in designing
the Site was, and continues to be, to allow the consumer to easily navigate the
Site and to be able to pay for everything ordered in one payment transaction
without ever having to leave the Site.
Currently, the Site contains three (3) key features: the PartyMarket,
PartyTalk, and StarGreetings. 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, favors, gift
wrap, cards and invitations and personalized celebrity greetings for direct
shipment. As the consumer selects products, they are added to the shopping
basket, and when the consumer is finished shopping, the transaction is completed
at a simple check-out screen.
Party Talk is a continuation of the PartyMarket. It carries news,
articles and features, and will soon carry gossip from the party circuit. The
content is directed at our target consumers: mothers, and party-givers. Articles
will include topics such as Ask the Experts, The Party Circuit, and Party Crafts
& Activities. The Company is in the process of creating an animated character
named "iPatty" that will host the PartyTalk section. "iPatty" will be the editor
for PartyTalk magazine and will write from the perspective of a harried, working
mother. iPatty will be representative of the "ultimate consumer" and will give
voice and personality to PartyTalk via her e-mail communications with family,
friends and co-workers. 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 and bridal
showers; and seasonal parties such as Halloween, New Year's Eve, and the Super
Bowl.
Once fully developed, which is expected to be by the end of the fourth
quarter of 1999, the Site will offer the Party Planner and the Party Resource.
The Party Planner will be a resource for party related advice, tips and party
planning information. Once a consumer has selected a theme and party, the party
planner icon will be displayed. By clicking on the Party Planner icon, the
consumer will arrive at the Party Planning page. The Party Planner page will be
a "road map" that provides specific tips and ideas for the consumers selected
party. The information will include location ideas, activities, decoration tips,
and helpful cues as to what products to look for in each of the PartyMarket
shops. The Party Resource will be a directory for party related services
including entertainers (orchestras, bands, clowns, magicians, pony rides);
caterers; bakers; rental firms (tents, furniture, equipment); and, facilities
operators (skating rinks, pools, bowling alleys). These local partners will be
classified advertisers in the party resource directory. Consumers will be able
to enter their zip code, and select from a list of service providers.
The Company also has a wholly-owned subsidiary, StarGreetings, Inc., a
Delaware corporation. StarGreetings, Inc. is operational and offers a
personalized video greeting (called a "StarGreeting") from a celebrity who
addresses the recipient by name, talks about the special occasion, and mentions
the person's age (if it's a birthday). StarGreetings currently offers greetings
from sports celebrities, and plans to add celebrities from entertainment, music,
fashion, politics and animation. StarGreetings currently offers birthday
greetings and plans to offer other greetings for anniversaries and bachelor
parties, among other occasions.
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Each greeting lasts between 60 and 120 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
clicks on the StarGreetings icon in the Site and then clicks 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 submits to order. The StarGreeting's system
will then seamlessly edit the name and age into the selected greeting and
deliver it, as directed.
As of July 1, 1999, the Company has entered into exclusive StarGreeting
contracts with ten (10) celebrities. There are currently six (6) StarGreetings
to choose from on the Site: Cobi Jones, Jennfier Azzi, Mark Allen, Will Perdue,
Sean Elliot and Katarina Witt. There are four (4) more currently in production:
Doc Rivers, Ahmad Rashad, Sheryl Swoopes, and Darryl Strawberry. The Company
will continue to attempt to sign up additional celebrities as long as the demand
for the StarGreetings product continues.
Development Costs.
Since inception, the Company has spent approximately $450,000 on
construction of the Site and $100,000 on development of StarGreetings video
software. The Company expects to invest a minimum of $750,000 on construction
and further development of the Site in the next six months.
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 Corporation 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.
Party City and The Big Party Corporation have locations throughout the
United States. Mr. Perisano, the Chief Executive Officer and a Director of the
Company, is a co-founder and a director of and consultant to The Big Party
Corporation. While Mr. Perisano remains a director of and consultant to The Big
Party Corporation, he is not involved in its day-to-day operations and has
permission from its board of directors to engage in e-commerce within the party
industry.
Although barriers to entry are minimal, as new competitors can launch
new sites at a relatively low cost, the Company believes that in order to be
competitive, the costs can be significant for the development of a robust site,
the hiring of human resources with industry knowledge and the marketing costs
associated with the building of a widely-recognized brand.
The Company is similarly unaware of competitors to the StarGreetings
concept. However, the Company does recognize the potential that, despite the
intended patent protection for the StarGreetings concept, others may see a
market and try to compete and develop their own celebrity greeting offering. The
Company believes that by being first, by protecting its
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proprietary rights and by locking celebrities into exclusive agreements, the
Company will be able to maintain a competitive advantage.
Sales and Marketing.
The Company intends to pursue several avenues relating to sales and
marketing in the next year of operations. The Company believes that on-line
affiliations are one of the most efficient formats for brand building. The
Company is currently weighing affiliations with portals and service providers
because of their strength in the Company's target customer bases. The Company
has formed a strategic marketing relationship with iVillage Inc., a leading
online women's network and one of the most demographically targeted online
communities on the World Wide Web, that includes a 6-month banner campaign and
key placement in the iVillage shopping and editorial sections. This relationship
began on June 1, 1999.
In terms of public relations, the Company believes that through the
announcement 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 intends to enter into cross-promotions with its strategic
partners, 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 to negotiate for logo placement with licensors on packaging and
advertising material. There can be no assurance that the Company will be
successful in such efforts.
Patents and Trademarks.
The proprietary technology underlying the StarGreetings system is
licensed to StarGreetings for 20 years pursuant to a License Agreement dated
August 15, 1998, by and between StarGreetings and Star Greetings, LLC, a
Delaware limited liability company (the "Licensor"). See "Certain Relationships
and Related Transactions."
StarGreetings: The patent application for the Company's StarGreetings
"athlete/celebrity" video greeting concept was applied for in the name of Mr.
Byron Hero, a former director and the former Chief Executive Officer of the
Company and a principal shareholder of the Company. Mr. Hero has agreed to
assign the patent, if issued, to StarGreetings LLC which will assign the patent
to StarGreetings, Inc. The Company is preparing for filing two patents
associated with the StarGreetings technology.
The Company has applied for the trademarks "iParty" and "iParty.com"
and is applying for the trademark "StarGreetings".
The Company owns the following URLs:
o iParty.com
o iLiquor.com
o iLiquors.com
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o iBakers.com
o iInvite.com
Year 2000 Compliance
Many currently installed computer systems and software products are
coded to accept or recognize only two digit entries in the date code field.
These systems and software products will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, computer
systems and software used by many companies and governmental agencies may need
to be upgraded to comply with such Year 2000 requirements or risk system failure
or miscalculations causing disruptions of normal business activities.
State Of Readiness
The Company has made a preliminary assessment of the Year 2000
readiness of its operating, financial and administrative systems, including the
hardware and software that support its systems. The Company's assessment plan
consists of:
o quality assurance testing of its internally developed
proprietary software;
o contacting third-party vendors and licensors of material
hardware, software and services that are both directly and
indirectly related to the delivery of the Company's services to its
users;
o contacting vendors of third-party systems;
o assessing repair or replacement requirements;
o implementing repair or replacement;
o implementation of the plan; and
o creating of contingency plans in the event of Year 2000
failures.
The Company's plan is to perform a Year 2000 simulation on its systems
during the third quarter of 1999 to test system readiness. All of the Company's
systems were designed subsequent to January 1, 1999, well after the year 2000
compliance problem was identified. Accordingly, all of the systems the Company
has developed use four digits to identify the year rather than two digits.
Although the Company believes that each of its material systems is Year 2000
compliant, it intends to revise its internally developed proprietary software as
necessary to improve its Year 2000 compliance. Many vendors of material hardware
and software components of the Company's systems have indicated that the
products the Company's use are currently Year 2000 compliant. The Company will
require vendors of its other material hardware and software components to
provide assurances of their Year 2000 compliance. The Company plans to complete
this process during the second half of 1999. Until such testing is completed and
such vendors and providers are contacted, the Company will not be able to
completely evaluate whether its systems will need to be revised or replaced.
Costs To Date
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The Company has not incurred any material expenditures in connection with
identifying, evaluating or addressing Year 2000 compliance issues. Most of its
expenses have related to, and are expected to continue to relate to, the
operating costs associated with time spent by employees in the evaluation
process and Year 2000 compliance matters generally. At this time, the Company
does not possess the information necessary to estimate the potential costs of
revisions to its systems should such revisions be required or the replacement of
third-party software, hardware or services that are determined not to be Year
2000 compliant. Although the Company does not anticipate that such expenses will
be material, such expenses, if higher than anticipated, could have a material
adverse effect on the Company's business, results of operations and financial
condition.
Item 2. Plan of Operation.
General.
The Company launched the Site in February 1999. To date, the Company has
only generated de minimus revenues and expects to begin to generate revenues by
the end of 1999. There can be no assurance that the Company will ever generate
substantial revenues. The Company 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 expects that its
future revenues, if any, will be derived from: (i) retail sales to consumers of
party related goods; (ii) commissions or royalties paid by strategic partners
for orders received through the Company; (iii) sales of StarGreetings
personalized messages; and (iv) advertising on the Site's pages, particularly
the content features such as the Party Planner and PartyTalk.
The Company expects to hire between five and ten additional employees
in the next six months as the needs of the Company may require to sustain
growth, and to remain competitive and creative.
The Site.
The Company is launching the Site in two stages, as follows:
First Stage. Currently, the Site contains the PartyMarket, PartyTalk
and StarGreetings. In this first stage, the Company offers party related
products, editorial content, and StarGreetings. On-site shopping is currently
limited to party goods, favors, gift wrap, cards and
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invitations. During this stage, the Company owns inventory of party goods which
is warehoused at Michel's Distribution Services in Maryland. Michel's is
responsible for consumer fulfillment and customer service.
Second Stage. By the end of the third quarter of 1999, the Company
expects to expand the PartyMarket offering to include cakes, gifts, costumes,
music, flowers, food and beverages. During the third and fourth quarter of 1999,
the Company expects to continue to introduce additional features to the Site,
such as the Party Planner, the Party Resource, Gift Registry, Party Workbook,
Party Web Page, Photo Gallery, Birthday Club, interactive party planning tools
and an Invitation Channel. During this stage, the Company will attempt to
establish a relationship with third-party vendors to fulfill the orders for
party goods.
Acquisitions.
The Company operates in an un-branded business arena which has many
small players. As a result, the Company is considering consolidating the field
through acquisitions of other entities. Any determination to make an acquisition
will be based upon a variety of factors, including, without limitation, the
purchase price and other financial terms of the transaction, the business
prospects, and the extent to which any acquisition would enhance the Company's
prospects. The Company is not currently engaged in identifying any potential
acquisition and has no plans, agreement, understanding, or arrangement with
respect to any acquisition.
Item 3. Description of Property.
The Company leases office space at 41 East 11th Street, 11th Floor, New
York, NY 10003 from TechSpace LLC. The lease commenced November 1, 1998 for an
initial term of three (3) months, which expired on February 28, 1999. On March
1, 1999 the lease automatically renewed for a three month period, upon the same
terms and conditions. The Company has entered into a new lease on May 1, 1999
which expires on August 1, 1999. The total monthly rent is $6,200 with an
additional variable monthly service fee of an average of $1,940, depending on
office equipment usage. 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. This property is used by the Company for
office space and the Company believes that this space is adequately covered by
its insurance.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of July 1, 1999, (i) by each person
who is known by the Company to beneficially own more than 5% of the Company's
Common Stock, (ii) by each of the Company's directors, (iii) by each named
executive officer listed on the Executive Compensation table in Item 6 and (iv)
by all executive officers and directors as a group. Except as indicated in the
footnotes to this table, the persons named in the table have sole voting and
investment power with respect to all shares beneficially owned, subject to
community property
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laws where applicable. As of July 1, 1999, there were 11,005,691 shares of
Common Stock outstanding. In addition, as of July 1, 1999, there were 1,000,000
shares of Series A Preferred Stock issued and outstanding.
<TABLE>
<CAPTION>
Number of Shares
Beneficially Percent of
Name and Address of Beneficial Owner(1) Owned(2) Class
- --------------------------------------- -------- -----
<S> <C> <C>
Sal Perisano 75,000(3) *
Maureen Broughton Murrah 250,000(4) 2.22%
Robert H. Lessin 6,240,785(5)(7) 55.49%
c/o WIT Capital
826 Broadway, 6th Floor
New York, NY 10003
James McCann 699,600(6) 6.36%
1-800 Flowers
1000 Stewart Avenue
Westbury, NY 11590
iParty LLC 6,000,000(7) 54.5%
Ajmal Khan 540,000(8) 4.69%
The Verus Group, Suite 2000
1177 West Hastings Street
Vancouver, British Columbia
Canada V6E 2K3
Samuel Belzberg 50,000(9) *
The Verus Group, Suite 2000
1177 West Hastings Street
Vancouver, British Columbia
Canada V6E 2K3
Byron Hero 700,000(10) 6.3%
420 East 54th Street
New York, New York 10022
All officers and directors 7,205,785 59.25%
as a group (6 persons)
</TABLE>
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* Less than one percent (1%).
(1) Unless otherwise indicated, all addresses are c/o iParty Corp., 41 East 11th
Street., 11th Floor, New York, New York 10003.
(2) Beneficial ownership has been determined in accordance with Rule 13d-3 under
the Securities and Exchange Act of 1934, as amended (the "Exchange Act"),
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and unless otherwise indicated, represents shares for which the beneficial owner
has sole voting and investment power. The percentage of class is calculated in
accordance with Rule 13d-3.
(3) Includes 75,000 shares which may be acquired upon the exercise of presently
exercisable options issued pursuant to the Company's 1998 Incentive and
Nonqualified Stock Option Plan (the "Plan")(50,000 options in connection with
his consulting agreement with the Company and 25,000 options in connection with
his role as Director of the Company. See "Executive Compensation.")
(4) Includes 250,000 shares of Common Stock which may be acquired upon the
exercise of presently exercisable options issued pursuant to the Plan.
(5) Includes 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 Common Stock which may be acquired upon the exercise of presently
exercisable options issued pursuant to the Plan and 190,785 shares of Common
Stock which may be acquired upon the exercise of presently exercisable warrants.
(6) Includes 699,000 shares of Common Stock owned by iParty LLC, in which Mr.
McCann is a member and a 11.66% owner. Such shares represent his ownership
interest in iParty LLC.
(7) iParty LLC is a Delaware limited liability company and a 54.5% shareholder
of the Company. Mr. Lessin is the manager and 78.334% owner of iParty LLC.
(8) Includes 50,000 shares of Common Stock which may be acquired upon the
exercise of presently exercisable options issued pursuant to the Plan, and
25,000 shares of Common Stock held by Verus Capital Corp., of which Mr. Khan is
the sole stockholder. Also includes presently exercisable options, held by Verus
Capital Corp., to purchase 225,000 and 240,000 shares of Series A Preferred
Stock from Henslowe Trading Limited and Ruffino Developments Limited,
respectively.
(9) Includes 50,000 shares of Common Stock which may acquired upon the exercise
of presently exercisable options issued pursuant to the Plan.
(10) Includes 600,000 shares of Common Stock owned by iParty LLC, in which Mr.
Hero is a member and a 10% owner, such shares represent Mr. Hero's membership
interest in iParty LLC. Also includes 50,000 shares which may be acquired by the
exercise of presently exercisable options issued pursuant to the Plan and 50,000
which may be acquired on July 15, 1999 upon the exercise of options issued
pursuant to the Plan.
Item 5. Directors, Executive Officers and Promoters.
The following sets forth, are the names of the Company's directors and
executive officers.
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<TABLE>
<CAPTION>
Name Age Position
- --------------------------------------------------------------------------------
<S> <C> <C>
Sal Perisano 48 Chief Executive Officer, Director
Maureen Broughton Murrah 36 President, Director
Patrick Farrell 31 Chief Financial Officer
Samuel Belzberg 60 Director
Ajmal Khan 37 Director
Robert H. Lessin 44 Director
</TABLE>
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 Robert H. Lessin and Ajmal Khan. The Company also has an
executive committee consisting of Robert H. Lessin and Sal Perisano. The Company
currently does not carry any key-man life insurance on any of its officers.
Set forth below is biographical information about the Directors and
Executive Officers of the Company.
Sal Perisano has been a Director of the Company since October 1998 and
the Chief Executive Officer since April 15, 1999. In December 1992, Mr. Perisano
co-founded The Big Party Corporation, a retail chain of 51 party supply stores,
headquartered in West Roxbury, Massachusetts. Mr. Perisano served as President
and Chairman of The Big Party Corporation from 1992 to January 1999. Mr.
Perisano currently serves as a director of and a consultant to The Big Party
Corporation. In 1981, he co-founded Videosmith, which became Boston's dominant
video retailer. In 1989 Videosmith was sold to a publicly traded company called
Xtravision PLC, which owned 250 stores throughout the U.K. and Ireland. Mr.
Perisano stayed on as director and was later named Chief Executive of the parent
company, which was subsequently acquired by Blockbuster Video. Mr. Perisano
holds a B.A. from Boston College and an M.A. from Harvard University.
Maureen Broughton Murrah has been President of the Company since July
1998. From 1996 until joining the Company in 1998, Ms. Murrah was a senior
account executive at Nike, Inc. ("Nike") where she directed all major national
account programs for Nike's new equipment business (skates, sunglasses, watches,
and other hard goods). Prior to joining Nike, from early 1993 until 1996, she
was Vice President of Merchandising and Marketing at Danskin, Inc., an apparel
company, where she directed all aspects of the Danskin brand business, including
design, merchandising, marketing, advertising, and public relations.
Patrick Farrell has been the Chief Financial Officer of the Company
since April 1999. From 1996 until joining the Company, Mr. Farrell was Director,
Financial Planning & Analysis and Controller for N2K Inc. where he recently
helped negotiate that company's merger with CDnow. Prior to N2K, he served as
Controller at EMI Music Group/Angel Records and as Manager of Finance and
Accounting at Polygram/DefJam Recordings, Inc. He began his professional career
at Arthur Andersen & Co., where he was an Audit Senior when he left in 1994. Mr.
Farrell holds an M.B.A. from New York University and graduated with honors in
Accounting from Temple University and is a Certified Public Accountant.
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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.
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
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<PAGE>
than $100,000 in salary and bonus pursuant to their contracts. Currently,
options have been granted to management as indicated below.
<TABLE>
<CAPTION>
Name and Principal 1998 Salary 1998 Bonus Options Other Annual
Position Compensation
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Byron Hero, $250,000(2) 12,000(3) 50,000
Former Chief
Executive Officer (1)
Maureen Broughton $150,000(4) 300,000(5)
Murrah, President
</TABLE>
- ------------
(1) Mr. Hero resigned as Chief Executive Officer of the Company on April 14,
1999.
(2) 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.
(3) Represents maximum annual car allowance.
(4) Represents annualized salary. Ms. Murrah did not begin her employment with
the Company until July 6, 1998.
(5) Represents options with respect to 250,000 shares currently vested, and
options with respect to 50,000 shares of Common Stock scheduled to vest on
January 6, 2000.
Employment and Consulting Agreements.
The Company and Mr. Perisano, a director of the Company, entered into a
consulting agreement for the services of Mr. Perisano and his wife, Dorice
Dionne. The consulting period terminates on December 31, 1999. Pursuant to this
agreement, Mr. Perisano was entitled to options to purchase 25,000 shares of
Common Stock, at the price on the date of grant ($1.43), and additional options
to purchase 25,000 shares of Common Stock in the event their consulting hours
exceed 100. Their consulting hours exceeded 100 on January 19, 1999.
Consequently, Mr. Perisano was granted options to purchase 25,000 shares of
Common Stock at an exercise price of $5.38 per share, the price of the Common
Stock on such date.
The Company is in the process of finalizing the terms of an employment
agreement with Mr. Perisano. The agreement will provide that he will act as
Chief Executive Officer of the Company for a term expiring on March 30, 2002 and
devote substantially his full working time and attention to the Company provided
that he may continue fulfill his duties and obligations to The Big Party
Corporation as a consultant and a member of its board of directors. The
agreement will provide for an initial annual salary of $150,000, plus a
discretionary bonus to be determined by the Board of Directors. As will be
described in the agreement, on March 30, 1999 Mr. Perisano was granted options
to purchase an aggregate of 337,500 shares of Common Stock
-13-
<PAGE>
pursuant to the Plan with an exercise price equal to the fair market value of
the Common Stock on the date of grant. Such options shall vest as follows:
provided that Mr. Perisano remains continuously employed by the Company, options
with respect to 112,500 shares of Common Stock shall vest on 30th day of March
of each of the years 2000, 2001, and 2002, respectively. In addition, it is
anticipated that the agreement will provide that in the event that, prior to
December 31, 1999, the Company completes one or more equity financing, Mr.
Perisano shall be granted additional options under the Plan (the "Additional
Options") equal to 5% of the number of shares of Common Stock into which the
securities issued in any such equity financing(s) may convert; provided,
however, that such Additional Options will only be granted with respect to
securities issued in connection with up to the first $5,000,000 raised in such
equity financing(s). It is anticipated that the exercise price of such
Additional Options shall be the lower of (i) the conversion price (into Common
Stock) of the securities issued in the equity financing triggering such grant,
or (ii) the fair market value of the Common Stock on the date of grant (which
date shall be the date of the closing of the equity financing triggering such
grant). The Additional Options will vest in three equal annual installments so
long as Mr. Perisano has remained in the continuous employ of the Company on
each such vesting date. It is anticipated that the agreement will provide that
if Mr. Perisano is terminated without cause, or resigns for "good reason" he
will be entitled to receive his then current salary for a period of nine months.
The Agreement will contain certain restrictions on competition.
The Company and Ms. Murrah entered into an employment agreement, dated
July 6, 1998 and expiring on July 6, 2001. The agreement provides that she will
act as President of the Company, devote substantially her full working time and
attention to the Company, and provides for an annual salary of $150,000, plus a
discretionary bonus to be determined by the Board of Directors. In addition, Ms.
Murrah will be granted stock options to purchase an aggregate of 300,000 shares
of Common Stock pursuant to the Plan which vest as follows: options with respect
to 250,000 shares of Common Stock are currently vested, and provided that Ms.
Murrah remains continuously employed by the Company, options with respect to
50,000 shares of Common Stock shall vest on January 6, 2000. If the employment
agreement is terminated by the Company without cause, Ms. Murrah is entitled to
receive an amount equal to any unpaid out-of-pocket necessary expenses as
contemplated under the employment agreement and one-half of the amortized annual
amount of the base salary then in effect. The employment agreement also provides
for a one year non-compete following the termination of Ms. Murrah's employment.
The Company and Mr. Farrell entered in an employment agreement, dated
March 12, 1999 which provides for Mr. Farrell to serve as Chief Financial
Officer of the Company for a term which expires on December 31, 2000. The
agreement provides for an initial base salary of $115,000 per year. In
connection with the Agreement Mr. Farrell was granted options to purchase an
aggregate of 115,000 shares of Common Stock pursuant to the Plan. So long as Mr.
Farrell remains continuously employed by the Company, options with respect to
50,000 shares shall vest on August 1, 1999 and options with respect to the
remaining 65,000 shares shall vest on February 1, 2000. If the employment
agreement is terminated by the Company without cause, Mr. Farrell is entitled to
receive his full then current base salary for a period of three months from the
date of termination and half of his then current base salary for a period of
three months thereafter.
-14-
<PAGE>
Stock Option Plan
In July 1998, the Company's Board of Directors adopted the Plan, under
which there are currently 2,500,000 shares of Common Stock 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.
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,
-15-
<PAGE>
the Plan may be terminated by the Board of Directors as it shall determine in
its sole discretion, in the absence of stockholder approval; provided, however,
that any such termination will not adversely alter or impair any option awarded
under the Plan prior to such termination without the consent of the holder
thereof.
Directors who are not executive officers of the Company are entitled to
options to acquire 25,000 shares of Common Stock at the beginning of their term
as director. In addition, non-executive officer directors are entitled to
options to acquire 25,000 shares of Common Stock annually, on the last trading
day in August, at an exercise price equal to the fair market value of the stock
on the date of grant. These options vest on the date of the grant. The secretary
of the Company is entitled to receive the same option compensation as directors
who are not executive officers of the Company.
In addition to those options granted to the Company's non-executive
officer directors under the Plan, the following paragraph summarizes the options
that have been granted pursuant to the Plan to the Company's Executive Officers.
Pursuant to his consulting agreement, Mr. Perisano was granted options
to acquire 50,000 shares of Common Stock, at an exercise price equal to the fair
market value on the date of grant. In addition, he was granted options to
purchase 25,000 shares of Common Stock, at an exercise price equal to the fair
market value on the date of grant, upon his election as a Director. These
options are currently exercisable. In addition, in connection with his
appointment as Chief Executive Officer of the Company, Mr. Perisano was granted
options to purchase an aggregate of 337,500 shares of Common Stock with an
exercise price equal to the fair market value on the date of grant. These
options vest as provided in his proposed employment agreement described above.
Pursuant to her employment agreement, Ms. Murrah was granted options to acquire
an aggregate of 300,000 shares of Common Stock at an exercise price of $2.50.
These options will vest according to the schedule set forth in her employment
agreement, described above. Pursuant to his employment agreement, Mr. Farrell
was granted options to acquire an aggregate of 115,000 shares of Common Stock at
an exercise price equal to the fair market value on the date of grant. These
options will vest according to the schedule set forth in his employment
agreement, described above. Mr. Hero was granted options to acquire an aggregate
of 300,000 shares of Common Stock at an exercise price of $2.50. These options
will vest according to the schedule set forth in his consulting agreement,
described below.
Item 7. Certain Relationships and Related Transactions.
StarGreetings License
Star Greetings, Inc. a wholly owned subsidiary of the Company (the
"Licensee") licenses the StarGreetings concept (the "StarGreetings Concept")
from StarGreetings, LLC (the "Licensor"). Mr. Hero, a former director and the
former Chief Executive Officer of the Company, is a member and the manager of
the Licensor, and is the creator of the StarGreetings concept. Pursuant to a
license agreement dated as of August 15, 1998, by and between the
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<PAGE>
Licensor and the Licensee (the "License Agreement"), the Licensee was granted
exclusive, perpetual and worldwide rights to use the StarGreetings Concept for a
twenty (20) year term, expiring August 15, 2016.
Pursuant to the License Agreement, the Licensee will be permitted to
sell StarGreetings for general audiences (excluding adult content versions) on
its two current URLs located on the world wide web at "Stargreetings.com" and
"iParty.com."
In exchange for the license for use of the StarGreetings Concept, the
Licensee has agreed to pay the Licensor 2 1/2% (the "Royalty") of the gross
revenues received by the Licensee from the sale of StarGreetings. The Royalty is
to be paid to Licensor within fifteen days after the end of each fiscal quarter.
The License Agreement terminates in the event of a change of control in
the Licensee or a change of control in the Company, the parent of the Licensee.
For purposes of the License Agreement, the term change in control includes any
merger or consolidation in which the Licensee is not the surviving entity, and a
sale of more than 49% of the assets or stock of the Licensee to a third party or
a change of control of the Company, the Licensee's parent.
Consulting Agreement with Former Director
The Company and Mr. Byron Hero, the former Chief Executive Officer and a
former Director of the Company, entered into a consulting agreement dated
April 14, 1999. In connection with the consulting agreement, the employment
agreement, dated July 7, 1998 between the Company and Mr. Hero (the "Prior
Agreement") was terminated and Mr. Hero resigned as Chief Executive Officer and
a Director of the Company. Pursuant to the terms of the consulting agreement,
Mr. Hero shall serve as non-executive Chairman of StarGreeting, Inc. until
April 14, 2000. During the term of the agreement, Mr. Hero shall receive a fee
(the "Fee") of $20,833.33 per month. If Mr. Hero is terminated for any reason
during the first six months of the term(other than for a violation of the
agreement's prohibition on competition) then Mr. Hero shall be entitled to
receive the Fee for the remainder of such initial six month period. In the event
Mr. Hero is terminated other than For Cause after such initial six month period,
Mr. Hero shall be entitled to six months Fee, payable in six equal monthly
installments. The agreement contains certain prohibitions on competition.
Pursuant to terms of the Prior Agreement, Mr. Hero was granted options to
purchase an aggregate of 300,000 shares of Common Stock Pursuant to Plan. Such
options remain in effect. Options to purchase 50,000 shares have vested, and
provided that Mr. Hero remains engaged by the Company on the following dates,
options to acquire 50,000 shares shall vest on each such date: July 15, 1999,
January 15, 2000, July 15, 2000, January 15, 2001, July 15, 2001.
Finder's Fee Agreement with Former Director
iParty LLC and Mr. Hero, entered into an agreement prior to Mr. Hero
becoming a Director or officer of the Company in April 1998, which calls for
him to receive a finder's fee in the amount of 5% of the first $2,000,000 in
equity raised from any party introduced by him (the "Finder's Fee
-17-
<PAGE>
Agreement"). The Company has assumed the obligations of iParty LLC under the
Finder's Fee Agreement. In connection with the Finder's Fee Agreement,
$2,000,000 was raised. As a result, the Company paid Mr. Hero $100,000.
Funding Agreement with Certain Directors
The Company entered into a Funding Agreement, dated as of March 31, 1999
and amended as of April 14, 1999, with Mr. Ajmal Khan and Mr. Robert H. Lessin,
Directors of the Company (the "Funding Agreement"). Pursuant to the terms of the
Funding Agreement each of Mr. Kahn (or his designees) and Mr. Lessin will
advance certain funds to the Company. In connection with each such funding, the
funding party will receive a 10% Senior Secured Promissory Note for the amount
funded and warrants to purchase such number of shares of Common Stock equal to
the amount funded divided by the closing bid price of the Common Stock on the
date of each such funding. As of July 1, 1999 $1,500,000 has been funded
pursuant to the Funding Agreement and warrants to purchase an aggregate of
359,616 shares of Common Stock have been issued.
Employment Agreement with Spouse of Director and Executive Officer
The Company is in the process of finalizing the terms of an Employment
Agreement with Dorice Dionne, the wife of Sal Perisano, the Chief Executive
Officer and a Director the Company. The agreement will provide that she will act
as Senior Vice President -- Merchandising for a term expiring on March 30, 2002
and devote substantially her full working time and attention to the Company
provided that she may continue to fulfill her duties and obligations to The Big
Party Corporation as a consultant. The agreement will provide for an initial
annual salary of $100,000, plus a discretionary bonus to be determined by the
Board of Directors. As will be described in the agreement, on March 30, 1999 she
was granted options to purchase an aggregate of 337,500 shares of Common Stock
pursuant to the Plan with an exercise price equal to the fair market value of
the Common Stock on the date of grant. Such options shall vest as follows:
provided that she remains continuously employed by the Company, options with
respect to 112,500 shares of Common Stock shall vest on the 30th day of March of
each of the years 2000, 2001, and 2002, respectively. It is anticipated that the
agreement will provide that if she is terminated without cause, she will be
entitled to receive her then current salary for a period of six months. The
Agreement will also contain certain customary restrictions on competition.
Item 8. Description of Securities.
Common Stock
The Company's Restated Certificate of Incorporation authorizes the
issuance of an aggregate of 50,000,000 shares of Common Stock, par value $.001
per share. As of July 1, 1999, there were 11,005,691 shares of Common Stock
issued and outstanding. As of July 1, 1999, the number of holders of the
Company's Commoon Stock was at least 94. Each holder of record of Common Stock
is entitled to one vote for each share held on all matters promptly submitted to
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<PAGE>
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 shares of preferred stock, par value
$.001 per share (the "Preferred Shares"). The Board of Directors is authorized
from time to time to issue the Preferred Shares as Preferred Shares of any
series and in connection with the creation of each such series, to fix by
resolution or resolutions providing for the issue of shares thereof, the number
of shares of such series, the designations, powers and preferences and rights
and the qualifications, limitations and restrictions of such series to the full
extent now or hereafter permitted by the laws of the State of Delaware. At
present, the Company's Board of Directors has designated 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"), Ruffino Developments Limited
and Henslowe Trading Limited hold 556,550 and 443,500 shares, respectively,
after exercising a like number of warrants originally purchased from the Company
in June 1998, all of which are issued and outstanding.
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, then 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
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<PAGE>
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.
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<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.
<TABLE>
<CAPTION>
Period High Low
- -------------------------------------------------------------------------------
<S> <C> <C>
First Quarter - 1999 $6.6875 $3.125
Fourth Quarter - 1998 3.375 1.065
Third Quarter - 1998 3.375 .05
Second Quarter - 1998 .06 .03125
First Quarter - 1998 .0625 .01
</TABLE>
The Company has never paid any cash dividends nor does it intend, at
this time, to make cash distributions to its shareholders in the near future. As
of July 1, 1999 the number of holders of the Company's Common Stock was at least
94.
Item 2. Legal Proceedings.
The Company is not currently a party to any material litigation.
Item 3. Changes in and Disagreements with Accountants.
The Company has not changed its accountants since the merger, and there
are no disagreements with the Company's accountants concerning accounting and
financial disclosure.
Item 4. Recent Sale of Unregistered Securities.
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<PAGE>
During the past three fiscal years the Company has issued securities
pursuant to exemptions to registration under the Securities Act of 1933, as
amended (the "Securities Act"). The Company issued an aggregate of 4,585,000
shares of Common Stock and warrants to purchase an aggregate of 1,000,000 shares
of Series A Preferred Stock to certain off-shore holding companies, for
$997,197.43 in cash. The Company did not use an underwriter. This sale was
exempt from registration pursuant to Section 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.
On June 25, 1998, the Company sold, in the first issue, an aggregate of
3,624,043 shares of Common Stock, at a purchase price of $.01 per share, to the
following entities, in the amounts set forth below:
<TABLE>
<CAPTION>
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>
On June 26, 1998, the Company sold, in the second issue, an aggregate
of 80,000 shares of Common Stock and warrants to purchase an aggregate of
1,000,000 shares of Series A Preferred Stock, at $1.00 per share (the
"Warrants"), to the following entities, in the amounts set forth below:
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<PAGE>
Name of Purchaser Number of Shares and Total Purchase
Warrants Purchased Price
- --------------------------------------------------------------------------------
Ruffino Developments 40,000 shares of common $40,000
Limited stock and Warrants to
purchase 556,500 shares of
Series A Preferred Stock
Henslowe Trading Limited 40,000 shares of common $40,000
stock and Warrants to
purchase 443,500 shares of
Series A Preferred Stock
TOTAL: 80,000 shares of Common $80,000
Stock, and Warrants to
purchase 1,000,000 shares of
Series A Preferred Stock
The Warrants issued to each of Henslowe and Ruffino were exercisable
from December 28, 1998 through June 30, 1999, after which they expire. All such
warrants have been exercised into the 1,000,000 shares of Series A Preferred
Stock which are currently outstanding.
Also, on June 26, 1998, the Company sold, in the third issue, an
aggregate of 880,957 shares of Common Stock at a purchase price of $1.00 per
share, to the following entities, in the amounts set forth below:
Number of Shares Total Purchase
Name of Purchaser Purchased Price
- ------------------------------------------------------------------------------
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
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.
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TABLE OF CONTENTS
Page
Consolidated Financial Statements
Independent auditors' report..........................................F-1
Balance sheet as of December 31, 1998 and March 31, 1999..............F-2
Statement of operations for the year ended December 31, 1998
and three month period ended March 31, 1999......................F-3
Statement of changes in stockholders' equity for the year ended
December 31, 1998 and three month period ended March 31, 1999...F-4
Statement of cash flows for the year ended December 31, 1998
and three month period ended March 31, 1999....................F-5
Notes to financial statements...................................F-6
-24-
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders iParty Corp.
New York, New York
We have audited the accompanying consolidated balance sheet of iParty
Corp. and subsidiary (a development stage company) as of December 31, 1998 and
the related consolidated statements of operations, changes in stockholders'
equity and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present
fairly, in all material respects, the consolidated financial position of iParty
Corp. and subsidiary as of December 31, 1998, and the consolidated results of
their operations, and their cash flows for the year then ended in conformity
with generally accepted accounting principles.
Richard A. Eisner & Company, LLP
New York, New York
February 26, 1999
F-1
<PAGE>
IPARTY CORP.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31
1999 1998
------------------- ----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 220,265 $ 346,751
Cash, restricted 50,000 50,000
Inventory 68,006 -
Due from officers 32,125 34,021
Prepaid expenses 75,626 60,277
------------------- ----------------
Total current assets 446,022 491,049
Property and equipment, net 446,197 341,441
Other assets 32,756 9,670
------------------- ----------------
$ 924,975 $ 842,160
=================== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 629,704 $ 297,508
Notes payable - 250,000
------------------- ----------------
Total current liabilities 629,704 547,508
Commitments and contingencies - -
Stockholders' Equity:
Preferred stock - $.001 par value; 10,000,000 shares authorized;
871,000 and 0 shares issued and outstanding, respectively 871 -
Common stock - $.001 par value; 50,000,000 shares authorized;
11,005,691 shares issued and outstanding 11,006 11,006
Additional paid in capital 2,107,627 1,146,044
Deficit accumulated during the development stage (1,824,232) (862,398)
------------------- ----------------
Total stockholders' equity 295,271 294,652
------------------- ----------------
$ 924,975 $ 842,160
=================== ================
</TABLE>
See notes to financial statements
F-2
<PAGE>
IPARTY CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE FOR THE THREE FOR THE
MONTHS ENDED MONTHS ENDED YEAR ENDED
MARCH 31, MARCH 31, DECEMBER 31
1998 1999 1998
----------------- ------------------- ----------------
<S> <C> <C> <C>
Revenues - - -
Costs and expenses:
Loss on impairment of assets $ - $ 273,288 $ -
Stock based compensation $ - $ 134,134 $ 23,089
General and administrative expenses $ 69,182 $ 555,227 $ 849,998
----------------- ------------------- ----------------
Net loss before interest and provision for income taxes (69,182) (962,649) (873,087)
Interest income - 814 11,090
Interest expense - - (401)
----------------- ------------------- ----------------
Net loss before income taxes (69,182) (961,835) (862,398)
Provision for income taxes - - -
----------------- ------------------- ----------------
Net loss $ (69,182) $ (961,835) $ (862,398)
================= =================== ================
Earnings per share:
Basic $ (0.01) $ (0.09) $ (0.08)
================= =================== ================
Diluted $ (0.01) $ (0.09) $ (0.08)
================= =================== ================
Weighted Average Shares Outstanding:
Basic 6,000,000 11,005,691 10,525,213
================= =================== ================
Diluted 6,000,000 11,005,691 10,525,213
================= =================== ================
</TABLE>
See notes to financial statements
F-3
<PAGE>
IPARTY CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE THREE FOR THE THREE FOR THE
MONTHS ENDED MONTHS ENDED YEAR ENDED
MARCH 31, MARCH 31, DECEMBER 31
1998 1999 1998
----------------- ------------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net loss $ (69,182) $ (961,835) $ (862,398)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation/amortization - 9,466 12,364
Write-off of "impared" development costs - 273,288 -
Stock based compensation - 134,134 23,089
Decrease (increase) in:
Other current assets - (83,355) (60,277)
Other assets - (23,086) (9,670)
Increase (decrease) in:
Accounts payable 85,093 332,196 297,508
----------------- ------------------- ----------------
Net cash used in operating activities 15,911 (319,192) (599,384)
----------------- ------------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (15,911) (387,510) (353,805)
Increase in restricted cash - - (50,000)
----------------- ------------------- ----------------
Net cash used in investing activities (15,911) (387,510) (403,805)
----------------- ------------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable - - 250,000
Conversion of notes payable to stock - (250,000) -
Advances to officer - 1,896 (34,021)
Capital contributions on initial capitalization - - 246,961
Proceeds from sale of stock - 871,870 1,000,000
Costs of sale of stock - (43,550) (113,000)
----------------- ------------------- ----------------
Net cash provided by investing activities - 580,217 1,349,940
----------------- ------------------- ----------------
Net increase in cash and cash equivalents - (126,486) 346,751
Cash and cash equivalents, beginning of period - 346,751 -
----------------- ------------------- ----------------
Cash and cash equivalents, ending of period $ - $ 220,265 $ 346,751
================= =================== ================
Cash expended for:
Interest expense $ - $ - $ -
================= =================== ================
Income taxes $ - $ - $ -
================= =================== ================
</TABLE>
See notes to financial statements
F-4
<PAGE>
IPARTY CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED COMMON
# OF SHARES STOCK # OF SHARES STOCK
----------------- ------------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Issuance of common stock 6,000,000 $ 6,000
Recapitalization resulting from the acquisition of
WSI Acquistions Corp. 420,691 421
Issuance of common stock 3,624,043 3,624
Issuance of common stock and warrants 960,957 961
Value of options granted under consulting
agreement with outside director
Net loss - -
----------------- ------------------- ---------------- ----------------
Balance December 31, 1998 - - 11,005,691 11,006
Issuance of preferred stock upon exercise
of warrants 871,000 871
Value of options granted under consulting
agreements with outside director and others
Net loss
----------------- ------------------- ---------------- ----------------
Balance March 31, 1999 871,000 $ 871 11,005,691 $ 11,006
================= =================== ================ ================
</TABLE>
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
DURING THE TOTAL
PAID-IN DEVELOPMENT SHAREHOLDERS'
CAPITAL STAGE EQUITY
------------------- ---------------- ----------------
<S> <C> <C> <C>
Issuance of common stock $ 240,961 $ - $ 246,961
Recapitalization resulting from the acquisition of
WSI Acquistions Corp. (421) - 0
Issuance of common stock 32,616 - 36,240
Issuance of common stock and warrants 849,799 850,760
Value of options granted under consulting
agreement with outside director 23,089 23,089
Net loss - (862,398) (862,398)
------------------- ---------------- ----------------
Balance December 31, 1998 1,146,044 (862,398) 294,652
Issuance of preferred stock upon exercise
of warrants 827,450 828,321
Value of options granted under consulting
agreements with outside director and others 134,133 134,133
Net loss (961,834) (961,834)
------------------- ---------------- ----------------
Balance March 31, 1999 $ 2,107,627 $(1,824,232) $ 295,271
=================== ================ ================
</TABLE>
See notes to financial statements
F-5
<PAGE>
iPARTY CORP. AND SUBSIDIARY
(a development stage company)
Notes to Financial Statements
March 31, 1999
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] Basis of Presentation:
Three months ended March 31, 1998 and 1999. The unaudited interim
financial statements for the three months ended March 31, 1998 and 1999
included herein have been prepared by the Company, without audit,
pursuant to the rules and regulations of the Securities and Exchange
Commission and, in the opinion of the
F-6
<PAGE>
Company, reflect all adjustments (consisting only of normal recurring
adjustments) and disclosure which are necessary for a fair presentation.
The results of operations for the three months ended are not necessarily
indicative of the results for the full year.
[2] Principles of consolidation:
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary after elimination of all significant
intercompany transactions and balances.
[3] Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from these
estimates.
[4] Cash and cash equivalents:
For purposes of the statement of cash flows, the Company considers all
highly liquid investments purchased with an original maturity of three
months or less to be cash equivalents. At December 31, 1998 and March 31,
1999, the Company maintains its cash deposits in accounts which are in
excess of Federal Deposit Insurance Corporation limits by $126,199 and
$95,941, respectively. At December 31, 1998 and March 31, 1999, the
Company maintains a cash deposit of $50,000 in the form of a certificate
of deposit which serves as the collateral for a corporate Visa credit
account.
[5] Financial instruments:
The carrying amounts for the Company's cash and cash equivalents,
restricted cash, accounts payable and notes payable approximate fair
value.
[6] Inventory:
Inventories are stated at the lower of cost, determined on a first-in,
first-out basis, or market.
[7] Per share data:
Basic and diluted loss per share is based on the weighted average number
of outstanding shares of common stock and excludes the effect of stock
options and warrants. In computing the weighted average number of shares
outstanding, the
F-7
<PAGE>
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.
[8] Stock-based compensation:
The Company has elected to follow the intrinsic value method set forth in
Accounting Principles Board Opinion 25, "Accounting for Stock Issued to
Employees" in accounting for its stock option incentive plan. As such,
compensation expense would be recorded on the date of grant if the
current market price of the underlying stock exceeded the exercise price
of the option.
[9] Property and equipment:
Property and equipment are stated at cost less accumulated depreciation
which is provided on the straight-line method over the estimated useful
lives of the assets.
[10] Software costs:
In accordance with Statement of Position 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use", issued in
March 1998 and adopted by the Company, external direct costs of materials
and services incurred in connection with developing or obtaining internal
use software were capitalized. Such costs will be amortized using the
straight-line method over an estimated useful life of 3 years beginning
when the software is ready for its intended use. For the three months
ended March 31, 1999, the Company wrote-off $273,288 of impaired software
costs.
[11] Income taxes:
The Company accounts for income taxes using the liability method.
Deferred income taxes are measured by applying enacted statutory rates to
net operating loss carryforwards and to the differences between the
financial reporting and tax bases of assets and liabilities. Deferred tax
assets are reduced, if necessary, by a valuation allowance for any tax
benefits which are not expected to be realized.
NOTE C - PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1998 and March
31, 1999:
December 31, 1998 March 31, 1999
---------------------------------------------------------------------
Office Equipment $3,109 $1,091
Furniture and fixtures $2,744 $4,130
Computer equipment $71,021 $139,569
Website and related software $276,931 $323,237
F-8
<PAGE>
$353,805 $468,027
Less accumulated depreciation
and amortization $(12,364) $(21,830)
Total $341,441 $446,197
NOTE D - INCOME TAXES
The reconciliation of income tax benefit computed at the federal statutory tax
rate to the income tax benefit in the consolidated statement of operations is as
follows for the year ended December 31, 1998:
December 31, 1998 March 31, 1999
-----------------------------------------------------------------------
Income tax benefit computed at the
federal statutory income tax rate
of 35% $(301,839) $(336,642)
Increase resulting from state and
local taxes, net of federal benefit $(97,434) $(100,302)
Valuation allowance provided $399,273 $445,311
Income tax benefit in statement of
operations $0 $0
The tax effects of significant items comprising the Company's net deferred tax
asset as of December 31, 1998 is as follows:
December 31, 1998 March 31, 1999
-----------------------------------------------------------------------
Net operating loss carryforward $399,273 $844,584
Less valuation allowance $399,273 $844,584
Net deferred tax asset $0 $0
As of December 31, 1998 and March 31, 1999, the Company has estimated net
operating loss carryforwards of $862,398 and $1,824,233, respectively, which
expire in 2018 and 2019. The Company has recorded a deferred tax asset offset by
a valuation allowance as the Company has not determined that it is more likely
than not that the available net operating loss carryforward will be utilized in
the future.
NOTE E - COMMITMENTS
[1] Leases:
The Company leases facilities and equipment under several month-to-month
and three month operating leases. The Company's rental expense under
operating
F-9
<PAGE>
leases for the year ended December 31, 1998 and for the three months
ended March 31, 1999 amounted to $27,983 and $23,499, respectively.
[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. At
March 31, 1999, two of the three companies had completed the services as
outlined in the above mentioned contracts.
[3] Finder's fee arrangement:
The Company and its former 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, as of March 31, 1999, approximately
$1,871,000 has been raised and an additional $129,000 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. As of March 31,
1999, $43,550 has been accrued related to the equity raised in 1999.
[4] License agreement:
Star entered into an agreement with Star Greetings, LLC, as the creator
of the Star Greetings concept ("Star Concept"), to license the exclusive
use of the Star Concept on the web sites of the Company and Star. The
agreement calls for a royalty of 2 1/2% of revenues derived from the
Star Concept, payable quarterly. Star Greetings, LLC is owned, in part,
by the Company's CEO. No amounts were payable to Star Greetings, LLC
under the agreement for the year ended December 31, 1998 and for the
three months ended March 31, 1999.
[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. As of March 31,
1998, the Company has entered into ten such agreements. The Company
issued options to acquire 180,000 shares of common stock at exercise
prices of $1.00 and $3.50 per share in connection with Star Greetings
agreements. For the period ended December 31, 1998 and the three months
ended March 31,
F-10
<PAGE>
1999, the Company charged $0 and $54,973 of the value of the options
granted ($612,440) to expense.
[6] Consulting agreement:
The Company entered into a consulting agreement with one of its outside
directors. The agreement is in effect from September 15, 1998 through
December 31, 1999. Compensation under the agreement consists of options
to purchase 50,000 shares of the Company's common stock, of which 25,000
options were granted on September 15, 1998 and 25,000 options were
granted on January 20, 1999 when the consultant's time on behalf of the
Company exceeded 100 hours. For the period ended December 31, 1998, the
Company charged $23,089 of the value of the options granted ($102,250)
to expense. On April 1, 1999, the consulting agreement was terminated
and the remaining $79,161 value of the options granted was charged to
expense on March 31, 1999.
[7] Employment agreements:
The Company has entered into employment agreements with several of its
executives. The agreements expire from December 31, 1999 through July 6,
2001 and provide for annual salaries aggregating $965,000. In addition,
the executives were granted options (see Note H) to purchase an
aggregate of 1,170,000 shares of the Company's common stock, which vest
in various increments provided the executives remain continuously
employed by the Company. In addition to base salary, the agreements
provide that the executives may receive an annual performance bonus at
the discretion of the Compensation Committee of the Board of Directors.
The agreements also have termination clauses which call for severance
payments ranging up to one year's salary.
[8] Transaction agreement:
On January 8, 1999, the Company entered into a two-year agreement with a
service provider to process financial transactions in connection with
its websites. The agreement 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.
[9] Advertising agreement:
On January 12, 1999, the Company entered into an advertising agreement
for the period June 1, 1999 through October 31, 1999, to solicit
advertising of its website on other websites. The agreement calls for
the Company to pay setup and related fees of $20,000 and a transaction
fee of $80,000.
NOTE F - STOCKHOLDERS' EQUITY
F-11
<PAGE>
[1] Series A preferred stock:
On June 30, 1998, the Company's Board of Directors designated 1,000,000
shares of the Company's authorized 10,000,000 shares of preferred stock
as Series A preferred stock. Such shares have a par value of $.001, an
original issue price per share of $1.00, bear no dividends, have a
liquidation preference senior to the Company's common stock and are
convertible, on a one to one basis, as adjusted, into shares of the
Company's common stock. As of December 31, 1998 and March 31, 1999,
there were 0 and 871,000 shares of preferred stock outstanding,
respectively.
[2] Warrants:
In connection with the sale of common stock, the Company issued warrants
to two shareholders, which, if exercised in full, entitles the holders
to purchase an aggregate of 1,000,000 shares of Series A preferred stock
at $1.00 per share. Such warrants cannot be exercised earlier than six
months from the date of issue (July 2, 1998), and must be exercised by
June 30, 1999 (see Note G). As of December 31, 1998 and March 31, 1999,
warrants to purchase 0 and 871,000 shares, respectively, had been
exercised.
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.
NOTE H - STOCK OPTION PLAN
On July 14, 1998, the Company adopted the 1998 Incentive and Nonqualified Stock
Option Plan (the "98 Plan") under which options to acquire 2,500,000 shares of
common stock may be granted to officers, directors, key employees and
consultants. The exercise price for incentive options cannot be less than the
fair 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.
F-12
<PAGE>
A summary of the status of the Company's stock options outstanding as of
December 31, 1998 and March 31, 1998 and changes during the year ended December
31, 1998 and the three months ended are as follows:
[1] Employee and director Stock Options:
<TABLE>
<CAPTION>
December March 31,
31, 1998 1999
-------------------------------------------------------------------------------------------------
Shares Weighted Shares Weighted
Average Average
Exercise Exercise
Price Shares Price
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at beginning of period 0 $0 1,025,000 $2.19
Stock Options:
Granted 1,025,000 $2.19 420,000 $4.93
Exercised 0 $0 0 $0
Outstanding at end of period 1,025,000 $2.19 1,445,000 $2.97
Exercisable at end of period 450,000 $2.31 525,000 $2.42
Weighted average fair value of
options granted during the year $1.69 $3.83
</TABLE>
The effect of applying Statement of Financial Accounting Standards No. 123
"Accounting for Stock-Based Compensation" ("SFAS 123") on the year ended
December 31, 1998 and the three months ended March 31, 1999 pro forma net loss
as stated below is not necessarily representative of the effects on reported net
loss for future years due to, among other things, the vesting period of the
stock options and the fair value of additional stock options in future years.
The 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. The fair value of the options granted during the three
months ended March 31, 1999 have been estimated at $3.47 to $4.05 per share on
the date of grant using the Black-Scholes option-pricing model with the
following assumptions: no dividend yield, volatility of 100%, a risk-free
interest rate of 5.38% to 5.81%, and an expected life of 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:
F-13
<PAGE>
<TABLE>
<CAPTION>
December 31, 1998 March 31, 1999
-----------------------------------------------------------------------------------
<S> <C> <C>
Net loss - as reported $(862,398) $(961,835)
- pro forma $(1,789,766) $(2,474,165)
Net loss per share - as reported $(.08) $(.09)
- pro forma $(.17) $(.22)
</TABLE>
[2] StarGreetings Stock Options:
<TABLE>
<CAPTION>
March 31, 1999
Shares Weighted Average
Exercise Price
<S> <C> <C>
Stock Options:
Granted 180,000 $1.81
Exercised 0 $0
Outstanding at end of period 180,000 $1.81
Exercisable at end of period 155,000 $1.53
Weighted average fair value of options
granted during the year $3.40
</TABLE>
NOTE I - SUBSEQUENT EVENTS
[1] Employment agreements:
In April 1999, the Company entered into employment agreements with four
executives. The agreements expire from December 31, 2000 through March
30, 2002 and provide for annual salaries aggregating $425,000. In
addition, the executives were granted options to purchase an aggregate of
925,000 shares of the Company's common stock at $3.63 - $5.00 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 up to nine months.
In addition, it is anticipated that the employment agreement with the
Company's Chief Executive Officer ("CEO") will provide that in the event
that, prior to December 31, 1999, the Company completes one or more
equity financing, the CEO shall be granted additional options under the
Plan (the "Additional Options") equal to 5% of the number of shares of
Common Stock into which the securities issued in any such equity
financing(s) may convert; provided, however, that such Additional Options
will only be granted with respect to securities issued in connection with
up to the first $5,000,000 raised in such equity financing(s). It is
F-14
<PAGE>
anticipated that the strike price of such Additional Options shall be the
lower of (i) the conversion price (into Common Stock) of the securities
issued in the equity financing triggering such grant, or (ii) the fair
market value of the Common Stock on the date of grant (which date shall
be the date of the closing of the equity financing triggering such
grant).
[2] Funding agreements:
The Company entered into a Funding Agreement, dated as of March 31, 1999
and amended as of April 14, 1999, with two of its directors. Pursuant to
the terms of the Funding Agreement each director will advance certain
funds to the Company totalling $2,000,000. In connection with each such
funding, the funding party will receive a 10% Senior Secured Promissory
Note for the amount funded and warrants to purchase such number of shares
of Common Stock equal to the amount funded divided by the closing bid
price of the Common Stock on the date of each such funding. The exercise
price for these warrants range from $4.13 to $5.13 per share.
F-15
<PAGE>
PART III
Item 1. Index to Exhibits and Item 2. Description of Exhibits.
<TABLE>
<CAPTION>
Exhibit No. Description Location
<S> <C> <C>
3.1 Restated Certificate of Previously Filed
Incorporation of WSI
Acquisitions Corp., and
Certificate of Merger by
iParty Corp. into WSI
Acquisition Corp.
3.2 By-Laws of WSI Acquisitions Previously Filed
Corp.
4 Certificate of Designation of Previously Filed
Series A Preferred Stock of
WSI Acquisitions, Corp.
10.1 Merger Agreement by and Previously Filed
between iParty Corp. and
WSI Acquisitions Corp.
10.2 1998 Incentive and Non- Previously Filed
Qualified Stock Option Plan
10.3 Fry MultiMedia Web Site Previously Filed
Development Agreement
10.4 iVillage Web Site Previously Filed
Development Service
Agreement
10.5 Order Trust Agreement by Previously Filed
and between the Company
and Order Trust.
10.6 Consulting Agreement of Filed Herewith
Byron Hero
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description Location
<S> <C> <C>
10.7 Employment Agreement of Previously Filed
Maureen Broughton Murrah
10.8 Employment Agreement of Filed Herewith
Patrick Farrell
10.9 Form of Employment Filed Herewith
Agreement by and between
the Company and Sal Perisano
10.10 StarGreetings License Previously Filed
Agreement
10.11 Service Agreement between Filed Herewith
the Company and TechSpace
LLC (as amended)
10.12 Consulting Agreement of Sal Previously Filed
Perisano
10.13 Finder's Fee Agreement Previously Filed
between iParty LLC and
Byron Hero
10.14 Form of "StarGreeting" Filed Herewith
Agreement with Celeberties
10.15 Funding Agreement between Filed Herewith
the Company, Robert H.
Lessin and Ajmal Khan
10.16 Fulfillment Agreement Filed Herewith
between the Company and
Taymark
21 Subsidiaries of the Company Previously Filed
27.1 Financial Data Schedule Filed Herewith
</TABLE>
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<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities and Exchange Act of
1934, the registrant has caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized.
iPARTY CORP.
By: /s/Sal Perisano
-----------------------
Name: Sal Perisano
Title: Chief Executive Officer
July 12, 1999
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<PAGE>
Exhibit 10.6
CONSULTING AGREEMENT
THIS AGREEMENT (the "Agreement") is being made as of this 14th
day of April, 1999 between iPARTY CORP., a Delaware corporation having its
principal offices at 41 East 11th Street, 11th Floor, New York, New York 10003
(the "Company") and BYRON HERO, an individual residing at 420 East 54th Street,
Apt. 22-H, New York, New York 10022 ("Hero").
W I T N E S S E T H:
WHEREAS, the Company and Hero have previously entered in an
Employment Agreement dated as of July 7, 1998 (the "Prior Employment Agreement")
whereby Hero was employed by the Company as its Chief Executive Officer; and
WHEREAS, the Company and Hero mutually desire terminate the
Prior Employment Agreement; and
WHEREAS, the Company desires to retain Hero as a consultant
and Hero desires to be retained by the Company as a consultant, subject to 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-
<PAGE>
1. Resignation; Termination of Prior Employment Agreement.
Effective April 14, 1999, Hero resigns as Chief Executive Officer and as a
Director of the Company.
2. Nature of Engagement; Term. The Company hereby retains Hero
and Hero agrees to serve the Company as (i) a consultant and (ii) as the
non-executive Chairman of the Company's subsidiary, Star Greetings, Inc., on an
independent contract basis, subject to the terms and conditions contained
herein. This engagement shall commence effective April 14, 1999 (the
"Commencement Date") and shall terminate on October 14, 1999 (the "Guaranteed
Term"). This Agreement shall be automatically extended for an additional six
months, until April 14, 2000 (the "Extended Term"), provided that Hero is not
terminated pursuant to Section 10(a) hereof for actions committed subsequent to
the Commencement Date.
3. Duties and Powers as Consultant. During the Guaranteed Term
(and the Extended Term, if applicable), Hero shall be engaged by the Company as
a consultant and as the non-executive Chairman of Star Greetings, Inc., a
subsidiary of the Company. In such capacity, Hero shall lead and direct the
Company in the further development and implementation of the "Star Greetings
Concept" (the deliverance of personalized greetings from sports and
entertainment celebrities, corporate personalities and animated characters via
the Internet, videotape and other electronic means). Hero shall be responsible
for developing all aspects of the business concepts of Star Greetings. In
addition, Hero shall be available to coordinate other tasks relating to the
Company as directed by the then current Chief Executive Officer of the Company.
-2-
<PAGE>
In the performance of his duties hereunder, Hero shall be
subject to the direction of the then current Chief Executive Officer of the
Company.
4. Compensation.
(a) As compensation for his services hereunder, the
Company shall pay Hero, during the Guaranteed Term, and during the Extended
Term, if applicable, a monthly fee (the "Fee") of $20,833.33.
(b) So long as Hero is engaged pursuant to this Agreement,
the Company shall continue to provide Hero with the health and medical benefits
provided to him under the Prior Employment Agreement, and Hero shall be eligible
to participate in all other benefits enjoyed by senior employees of the Company.
5. Stock Option. Pursuant to the terms of the Prior Employment
Agreement, Hero was granted stock options for an aggregate of 300,000 shares of
common stock of the Company pursuant to the iParty Stock Option Plan at an
exercise price of $2.50 per share. Options to purchase 50,000 of such shares
vested on January 15, 1999. The remainder of such options shall vest in
accordance with the terms of the Prior Employment Agreement as follows: provided
Hero remains engaged by the Company on July 15, 1999, options for 50,000 shares
shall vest on July 15, 1999; provided Hero remains engaged by the Company on
January 15, 2000, options for 50,000 shares shall vest on January 15, 2000;
provided Hero remains engaged by the Company on July 15, 2000, options for
50,000 shares shall vest on July 15, 2000; provided Hero remains engaged by the
Company on January 15, 2001, options for 50,000 shares shall vest on January 15,
2001; and provided Hero remains
-3-
<PAGE>
engaged by the Company on July 15, 2001, options for 50,000 shares shall vest on
July 15, 2001. In the event that the Company or its assets are sold
substantially as an entirety or ownership of more than 50% of the Common Stock
is transferred to a non-affiliated party, than any unvested options shall
immediately vest. The options will be evidenced by the standard option grant
certificates issued to the Company to employees, which shall include standard
adjustments for recapitalizations, etc.
6. Expenses; Travel.
(a) 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 prior written approval of and submission and
approval of written statements and bills to the Chief Financial Officer of the
Company in accordance with the then regular procedures of the Company governing
consultants. Hero shall be available to travel as the needs of the Company
require.
(b) Hero shall not cause the Company to be obligated for
any costs or obligations without the prior written approval of the Chief
Executive Officer or Chief Financial Officer of the Company.
(c) Hero shall have office space at the main offices of
the Company.
7. Representations and Warranties of Hero. 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,
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<PAGE>
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.
8. Non-Competition. Hero agrees that he will not (a) during
the period he is engaged by the Company or receiving the Fee in Section 4 hereof
(whichever is longer), 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, member, agent or partner of, any other business, organization
or entity that is or shall then be competing with the Company, and (b) for a
period of six months after the termination of this Agreement or six months after
he receives his last Fee payment from the Company (whichever is longer),
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, member, agent or partner of, any business,
organization or entity 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 8 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.
9. Confidential Information. All confidential information
which Hero may now possess, may obtain during the Guaranteed Term or the
Extended Term, if applicable, or
-5-
<PAGE>
may create prior to the end of the period he is engaged 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, corporation or entity during the Guaranteed Term or Extended Term,
if applicable, 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 engagement by
the Company.
10. Termination.
(a) Notwithstanding anything herein contained, if on or
after the date hereof and prior to the end of the Guaranteed Term, or the
Extended Term, if applicable, 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 that, for the period subsequent to the Commencement Date, 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 then current Chief
Executive Officer of the Company, (iv) commit an act of fraud against the
Company, or (v) breach any term of this Agreement and fail to correct such
breach within three 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,
-6-
<PAGE>
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 Fee and expenses as contemplated under Sections 4 and 6(a)
respectively, and as may otherwise be provided under any disability insurance
policy, if any.
(c) In the event that Hero shall die, all unvested
options shall vest and the Company shall continue to pay the Fee through the
balance of the term of the Agreement and any accrued but unpaid expenses
pursuant to Section 6(a).
(d) In the event that this Agreement is terminated during
the Guaranteed Term, for any reason, including "For Cause" pursuant to Section
10(a) (but excluding a breach of the covenants contained in Section 8 hereof),
then Hero shall be entitled to receive the Fee at the rate provided in Section 4
hereof for the remainder of the Guaranteed Term and any accrued but unpaid
expenses as contemplated by Section 6(a) hereof.
(e) In the event that this Agreement is terminated during
the ExtendedTerm, "For Cause" pursuant to Section 10(a), then Hero shall be
entitled to receive only the Fee at the rate provided in Section 4 to the date
on which termination shall take effect and any unpaid expenses as contemplated
by Section 6(a).
(f) In the event that the Company terminates Hero during
the Extended Term, for any reason other than as provided under Section 8(a),
(b), (c) or (e), then this Agreement shall terminate upon five (5) 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 6(a) and a severance
payment equal to six (6) months Fee, payable in six (6) equal
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<PAGE>
monthly installments. If this Agreement is not renewed at the end of the
Extended Term, if applicable, such non-renewal shall not be deemed a termination
of this Agreement without cause.
11. 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.
12. Survival. The covenants, agreements, representations and
warranties contained in or made pursuant to this Agreement shall survive Hero's
termination, irrespective of any investigation made by or on behalf of any
party.
13. Modification. This Agreement sets forth the entire
understanding of the parties with respect to the subject matter hereof,
supersedes all existing agreements between them, including the Prior Employment
Agreement, concerning such subject matter, and may be modified only by a written
instrument duly executed by each party.
14. 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 14). In
the case of a notice to the Company, a copy of such notice (which copy shall not
constitute
-8-
<PAGE>
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 14.
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.
15. 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.
16. 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
11. The Prior Employment Agreement has been mutually terminated in its entirety,
and shall not be deemed a termination "with cause" or a termination "without
cause".
-9-
<PAGE>
17. 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.
18. 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.
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<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the date first written above.
iPARTY CORP.
By:
-------------------------------------------
Name:
Title:
----------------------------------------------
Byron Hero
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<PAGE>
Exhibit 10.8
[iParty letterhead]
March 12, 1999
Mr. Patrick F. Farrell
235 East 13th Street, Apt. 5B
New York, NY 10003
Dear Patrick:
This letter will confirm our agreement to hire you as Chief Financial Officer of
iParty Corp., effective April 3, 999. The basic terms of our agreement are as
follows:
1. Base compensation: $115,000 per year minimum; to be reviewed in July, 1999.
Initial term is 3/1/99 through 12/31/00.
2. Options: Options to purchase 115,000 shares of iParty common stock granted
as of 3/12/99, at a strike price of then market (approx. $5.00), and vesting
as follows: 50,000 shares on 8/1/99 and 65,000 shares on 2/1/00. 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), or in the event that you resign because your
duties have been substantially diminished, 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).
<PAGE>
6. Other: Such matters as paternity leave, optional benefits, travel and
entertainment policies, etc., are fully described in the company handbook.
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/ Patrick Farrell
- -------------------
Patrick Farrell
<PAGE>
Exhibit 10.9
EMPLOYMENT AGREEMENT
THIS AGREEMENT (the "Agreement") is being made as of this ____
day of _____, 1999 between iPARTY CORP., a Delaware corporation having its
principal offices at 41 East 11th Street, New York, New York 10003 (the
"Company"), and SAL PERISANO, an individual residing at 288 Huron Avenue,
Cambridge, Massachusetts 02138 ("Perisano").
W I T N E S S E T H:
WHEREAS, the Company desires to employ Perisano and Perisano
desires to be employed by the Company as its Chief Executive Officer upon the
terms and conditions contained herein.
NOW, THEREFORE, in consideration of the mutual premises and
agreements contained herein, and intending to be legally bound hereby, the
parties hereto agree as follows:
1. Nature of Employment; Term of Employment. The Company
hereby employs Perisano and Perisano agrees to serve the Company as its Chief
Executive Officer upon the terms and conditions contained herein, for a term
commencing retroactively as of March 30, 1999 and continuing until the close of
business on March 30, 2002 (unless terminated sooner pursuant to the provisions
hereof, the "Employment Term"). So long as Perisano is Chief Executive Officer
of the Company, he shall be nominated to serve as a Director of the Company.
<PAGE>
2. Duties and Powers as Employee. During the Employment
Term, Perisano shall be employed by the Company as its Chief Executive Officer.
Perisano agrees to devote substantially all his full working time, energy and
efforts to the business of the Company, provided, however, that Perisano may
continue fulfill his duties and obligations to The Big Party Corporation as a
consultant and a member of its board of directors. As Chief Executive Officer of
the Company, Perisano shall be in charge of all business operations of the
Company including but not limited to directing and supervising all day-to-day
operations of the Company, and managing and supervising its employees. All
employees shall report to Perisano. Perisano shall be based in New York City and
shall be available to travel as the needs of the Company require.
3. Compensation.
(a) As compensation for his services hereunder, the
Company shall pay Perisano, 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). The Base Salary shall be
reviewed on an annual basis by the Compensation Committee of the Board of
Directors, with a target annual increase of at least 20% per year, provided that
such increase is consistent with the then current business plan of the Company.
Additionally, Perisano shall be entitled to participate in the present or future
employee benefit plans of the Company provided that he meets the eligibility
requirements therefor.
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<PAGE>
(b) In addition to the Base Salary provided herein,
Perisano may be entitled to receive an annual performance bonus payment as
determined in the sole discretion of the Compensation Committee of the Board of
Directors of the Company.
(c) On March 30, 1999, Perisano was granted stock options
(the "Option") for an aggregate of 337,500 shares of common stock of the Company
pursuant to the iParty Stock Option Plan (the "Plan") which Options vest as
follows: provided Perisano remains continuously employed by the Company on March
30, 2000, options for 112,500 shares shall vest on March 30, 2000; provided
Perisano remains continuously employed by the Company on March 30, 2001, options
for 112,500 shall vest on March 30, 2001; and provided Perisano remains
continuously employed by the Company on March 30, 2002, options for 112,500
shares shall vest on March 30, 2002 (the "Options"). The strike price of the
Options is the closing price on the date of grant, which price was $3.75.
In the event that, prior to December 31, 1999, the Company
completes one or more equity financing, Perisano shall be granted additional
common stock options under the Plan (the "Additional Options") equal to 5% of
the number of shares of common stock into which the securities issued in such
equity financing(s) may convert; provided, however, that such Additional Options
will only be granted with respect to securities issued in connection with up to
the first $5,000,000 raised in such equity financing(s). The strike price of
such Additional Options shall be the lower of (i) the conversion price (into
common stock) of the securities issued in the equity financing triggering such
grant, or (ii) the fair market value of the common stock on the date of grant
(which date shall be the date of the closing of the equity financing triggering
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<PAGE>
such grant). The Additional Options shall vest in three equal annual
installments so long as Perisano has remained in the continuous employ of the
Company on each such vesting date.
(d) For the first twelve (12) months of the Employment
Term, the Company will provide Perisano with temporary housing in the New York
City area. The parties agree that such temporary housing may be used, at the
option of the Company, by persons other than Perisano. The parties agree that
the cost of such temporary housing shall not exceed $2,500 per month and shall
be paid directly by the Company. For the first twelve (12) months of the
Employment Term, the Company shall reimburse Perisano for all of his reasonable
commuting expenses relating to his travel to New York as required by the
Company.
4. Expenses; Vacations. Perisano shall be entitled to
reimbursement for reasonable travel and other out-of-pocket expenses necessarily
incurred in the performance of his duties hereunder, upon submission and
approval of written statements and bills in accordance with the then regular
procedures of the Company. Perisano shall be entitled to vacation time in
accordance with the regular procedures of the Company governing senior executive
officers as determined from time to time by the Company's Board of Directors.
Perisano also shall be eligible to participate in all medical, health and
disability benefit programs provided to senior executives of the Company.
5. Representations and Warranties of Employee. Perisano
represents and warrants to the Company that (a) Perisano is under no contractual
or other restriction or obligation which is inconsistent with the execution of
this Agreement, the performance of his
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<PAGE>
duties hereunder, or the other rights of the Company hereunder; and (b) Perisano
is under no physical or mental disability that would hinder his performance of
duties under this Agreement.
6. Representations and Warranties of the Company. The Company
represents and warrants to Perisano that (i) pursuant to the Delaware General
Corporation Law, the Company's Certificate of Incorporation provides for
indemnification of officers and directors of the Company and that so long as
Perisano serves as Chief Executive Officer of the Company it will not be amended
to limit such indemnification without Perisano's written consent, and (ii) the
Company maintains an officers and directors liability insurance policy and will
maintain such a policy for so long as Perisano serves as Chief Executive Officer
of the Company.
7. Non-Competition. Perisano agrees that he will not (a)
during the period he is employed by the Company engage in, or otherwise directly
or indirectly be employed by, or act as a consultant or lender to, or be a
director, officer, employee, owner or partner of, any other business or
organization that is or shall then be competing with the Company, and (b) for a
period of one year after he ceases to be employed by the Company, directly or
indirectly compete with or be engaged in the same business as the Company, or be
employed by, or act as consultant or lender to, or be a director, officer,
employee, owner or partner of, any business or organization which, at the time
of such cessation, competes with or is engaged in the same business as the
Company, except that in each case the provisions of this Section 7 will not be
deemed breached merely because Perisano owns not more than five percent (5.0%)
of the outstanding common stock of a corporation, if, at the time of its
acquisition by Perisano, such stock is listed on a national securities exchange,
is reported on NASDAQ, or is regularly traded in the
-5-
<PAGE>
over-the-counter market by a member of a national securities exchange. Nothing
in this Section 7 shall preclude Perisano from continuing in his role as a
director and consultant to The Big Party Corporation or being a stockholder of
The Big Party Corporation, provided, however, that it is agreed and understood
that Perisano may not be employed by The Big Party Corporation in the event it
acquires a presence on the World Wide Web that competes with or is engaged in
the same business as the Company.
8. Confidential Information. All confidential information
which Perisano may now possess, may obtain during the Employment Term, or may
create prior to the end of the period he is employed by the Company, relating to
the business of the Company or of any customer or supplier of the Company shall
not be published, disclosed, or made accessible by him to any other person,
firm, or corporation during the Employment Term or any time thereafter without
the prior written consent of the Company. Perisano shall return all tangible
evidence of such confidential information to the Company prior to or at the
termination of his employment.
9. Termination.
(a) Notwithstanding anything herein contained, if on or
after the date hereof and prior to the end of the Employment Term, Perisano is
terminated "For Cause" (as defined below) then the Company shall have the
right to give notice of termination of Perisano's services hereunder as of a
date to be specified in such notice, and this Agreement shall terminate on the
date so specified. Termination "For Cause" shall mean Perisano shall (i) be
convicted of a felony crime, (ii) commit any act or omit to take any action in
bad faith and to the detriment of the
-6-
<PAGE>
Company, (iii) intentionally fail to follow any commercially reasonable and
lawful direction of the Board of Directors and continue to fail to follow such
direction within three (3) days of written notification of same, (iv) commit an
act of fraud against the Company, or (v) breach any term of this Agreement and
fail to correct such breach within ten (10) days after written notice of
commission thereof.
(b) In the event that Perisano shall be physically or
mentally incapacitated or disabled or otherwise unable fully to discharge his
duties hereunder, with reasonable accommodation, for a period of six months,
then this Agreement shall terminate upon thirty (30) days' written notice to
Perisano, and no further compensation shall be payable to Perisano, except for
any accrued and unpaid Base Salary and bonus, if any, as contemplated under
Section 3, and any accrued and unpaid expenses as contemplated under Section 4
and as may otherwise be provided under any disability insurance policy, if any.
(c) In the event that Perisano shall die, then this
Agreement shall terminate on the date of Perisano's death, and no further
compensation shall be payable to Perisano, except for any accrued and unpaid
Base Salary and bonus, if any, as contemplated under Section 3 and any accrued
and unpaid expenses as contemplated under Section 4 and as may otherwise be
provided under any insurance policy or similar instrument.
(d) In the event that this Agreement is terminated "For
Cause" pursuant to Section 8(a), then Perisano shall be entitled to receive only
the Base Salary at the rate provided in Section 3 to the date on which
termination shall take effect.
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<PAGE>
(e) In the event that the Company terminates Perisano for
any reason other than as provided under Section 9(a), (b), (c) or (d), then this
Agreement shall terminate upon thirty (30) days' written notice to Perisano and
the Company shall be obligated to pay to Perisano an amount equal to any unpaid
expenses as contemplated under Sections 4 and a severance payment equal to nine
(9) months salary at the Base Salary then in effect, payable in nine (9) equal
monthly installments; in addition, for such nine (9) month period, Perisano
shall be entitled to continue to receive his then current medical benefits. If
this Agreement is not renewed at the end of the Employment Term, such
non-renewal shall not be deemed a termination of this Agreement without cause.
(f) Nothing contained in this Section 9 shall be deemed to
limit any other right the Company may have to terminate Perisano's employment
hereunder upon any ground permitted by law.
(g) In the event that Perisano desires to resign
voluntarily as Chief Executive Officer, Perisano covenants to provide the
Company with not less than thirty (30) days written notice of any such voluntary
resignation; and further Perisano covenants to cooperate in good faith in order
to facilitate a smooth transfer of authority during the period from notice of
resignation to the date of termination. In the event that this Agreement is
terminated by Perisano pursuant to this Section 9(g), then Perisano shall be
entitled to receive an amount payable in a lump sum within ten (10) business
days following the date of termination, equal to the sum of any accrued and
unpaid Base Salary and bonus, if any, as contemplated by Section 3 and any
accrued and unpaid expenses as contemplated by Section 4.
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<PAGE>
(h) Notwithstanding anything herein to the contrary, Perisano
may, upon thirty (30) days written notice, terminate this Agreement for "Good
Reason". "Good Reason" shall mean any material breach by the Company of its
obligations hereunder which are not cured within ten (10) days following receipt
of written notice from Perisano detailing such breach. The parties agree that a
material breach shall include, but not be limited to, (x) any reduction in
Perisano's duties, authority, reporting relationships or responsibilities
(whether or not accompanied by a title change), and (y) the relocation of the
principal executive offices of the Company a distance of more than 35 miles from
its current location. In the event Perisano terminates this Agreement pursuant
to this Section 9(h), the Company shall be obligated to pay to Perisano an
amount equal to any unpaid expenses as contemplated under Section 4 and a
severance payment equal to nine (9) months salary at the Base Salary then in
effect, payable in nine (9) equal monthly installments; in addition, for such
nine (9) month period, Perisano shall be entitled to continue to receive his
then current medical benefits
10. Merger, Etc. In the event of a future disposition of the
properties and business of the Company, substantially as an entirety, by merger,
consolidation, sale of assets, sale of stock, or otherwise, then the Company may
elect to assign this Agreement and all of its rights and obligations hereunder
to the acquiring or surviving entity.
11. Survival. The covenants, agreements, representations and
warranties contained in or made pursuant to this Agreement shall survive
Perisano's termination of employment, irrespective of any investigation made by
or on behalf of any party.
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<PAGE>
12. Modification. This Agreement sets forth the entire
understanding of the parties with respect to the subject matter hereof,
supersedes all existing agreements between them concerning such subject matter,
and may be modified only by a written instrument duly executed by each party.
13. Notices. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be mailed by
certified mail, return receipt requested, or delivered against receipt to the
party to whom it is to be given at the address of such party set forth in the
preamble to this Agreement (or to such other address as the party shall have
furnished in writing in accordance with the provisions of this Section 13). In
the case of a notice to the Company, a copy of such notice (which copy shall not
constitute notice) shall be delivered to Camhy Karlinsky & Stein LLP, 1740
Broadway, 16th Floor, New York, New York 10019, Attn. Daniel I. DeWolf. Notice
to the estate of Perisano shall be sufficient if addressed to Perisano as
provided in this Section 13. Any notice or other communication given by
certified mail shall be deemed given at the time of certification thereof,
except for a notice changing a party's address which shall be deemed given at
the time of receipt thereof.
14. Waiver. Any waiver by either party of a breach of any
provision of this Agreement shall not operate as or be construed to be a waiver
of any other breach of such provision or of any breach of any other provision of
this Agreement. The failure of a party to insist upon strict adherence to any
term of this Agreement on one or more occasions shall not be
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<PAGE>
considered a waiver or deprive that party of the right thereafter to insist upon
strict adherence to that term or any other term of this Agreement. Any waiver
must be in writing.
15. Binding Effect. Perisano's rights and obligations under
this Agreement shall not be transferable by assignment or otherwise, such rights
shall not be subject to encumbrance or the claims of Perisano's creditors, and
any attempt to do any of the foregoing shall be void. The provisions of this
Agreement shall be binding upon and inure to the benefit of Perisano and his
heirs and personal representatives, and shall be binding upon and inure to the
benefit of the Company and its successors and those who are its assigns under
Section 10.
16. Termination of Prior Agreement. This Agreement terminates
and supercedes any and all prior agreements and understandings between the
parties with respect to employment with or compensation of Perisano by the
Company, including the letter consulting agreement dated September 28, 1999.
16. Headings. The headings in this Agreement are solely for
the convenience of reference and shall be given no effect in the construction or
interpretation of this Agreement.
17. Counterparts; Governing Law. This Agreement may be
executed in any number of counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument. It shall be governed by, and construed in accordance with, the laws
of the State of New York, without giving effect to the rules governing the
conflicts of laws.
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<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
-----------------------------
Sal Perisano
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<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".)
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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,
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<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.
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<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
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<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
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<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.
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<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
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<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.
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TECHSPACE, LLC
A Delaware Corporation
By:
-------------------------------
Its:
-------------------------------
CLIENT
Corporation:
A(n) corporation
-------------------------------
By:
-------------------------------
Its:
-------------------------------
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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
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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
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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>
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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.
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<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.
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<PAGE>
Amendment #2
To The
Service Agreement
Between
TechSpace, LLC and iParty Corporation
This Amendment #2 to the Service Agreement ("Agreement") between TechSpace, LLC
("TechSpace") and iParty Corporation ("Client") effective May 1, 1999.
1. Pursuant to Paragraph 1, Basic Terms, Section B, Area number(s), 26
shall be added.
2. Pursuant to Paragraph 1, Basic Terms, Section B, Area number(s), 55
shall be deleted.
3. Pursuant to Paragraph 1, Basic Terms, Section E, Initial Term and
Section F, End of Initial Term, both parties agree to extend the
Agreement to and including August 1, 1999.
4. Pursuant to Paragraph 1, Basic Terms, Section G, Total Monthly Base
Service Fee, the fee shall be changed to $6,200.
5. Pursuant to Paragraph 1, Basic Terms, Section II, Total Monthly
Additional Services Fee, the fee shall be changed to $1,940.
6. Pursuant to Paragraph 1, Basis Terms, Section I, Refundable Service
Retainer, the amount shall be reduced to $16,280.
7. Schedule "C" of the existing contract shall be replaced with the
Modified Schedule "C" attached hereto.
8. All other terms and conditions of the Agreement remain in full force
and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment #2 effective this
19 day of May, 1999.
iParty Corporation TechSpace, LLC
By: By:
-------------------------- --------------------------
Name: Name:
------------------------ ------------------------
Title: Title:
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Exhibit 10.14
[iParty Corp. Letterhead]
[Date]
Dear [Celebrity]:
This letter sets forth the terms of an agreement between
iParty Corp (Att: Katie Broughton, 41 East 11th St. 11th floor, N.Y., N.Y.
10003, phone number 212-331-1228 and fax number 212-331-1207), and [Celebrity].
iPARTY AGREES:
iParty will record and prepare a StarGreeting featuring
[Celebrity]. A StarGreeting is a customized video message for milestone
events created with iParty patented technologies that is sold exclusively on
the iParty web-site.
1. iParty will pay [Celebrity] a commission equal to 25% of
the sales price of every [Celebrity] StarGreeting sold. The estimated sales
price of each StarGreeting is $39.99. iParty will send a quarterly payment
and report to [Celebrity] with StarGreetings sales data. [Celebrity] will
have the right to audit the records of iParty as it relates to the sale of
her StarGreeting, in order to confirm the accuracy of any commissions paid
to [Celebrity].
2. iParty will pay to a charity of [Celebrity's] choice, an
additional commission equal to 5% of the sales price of every [Celebrity]
StarGreeting sold. The estimated price of each StarGreeting is $39.99.
iParty will send a quarterly payment to the charity and a report to
[Celebrity].
3. iParty will pay a [$______] fee to [Celebrity] for the
StarGreetings filming, payable to __________, acting as [Celebrity's] agent,
on or prior to the day of filming.
4. _______ iParty will provide first class travel to New York
City and accommodations for [Celebrity] for all StarGreetings meetings and
filmings described in this letter.
5. If [Celebrity] prefers not to travel to New York City for
any Star Greetings meeting or filming, iParty will send a film crew to
[Celebrity's] home, or any other location in the United States he chooses,
for the meeting or filming at a mutually agreeable date.
6. iParty will issue [Celebrity] an option to purchase a total
of _______ shares of stock at $_____ per share. Stock options vest in ___
days and are exercisable in approximately ___ months from the date of the
signing of this agreement.
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[CELEBRITY] AGREES:
1. [Celebrity] will participate in one 3 1/2 hour filming of
StarGreetings. The filming will include the recording of several
StarGreetings, 100 names per greeting, and 100 numbers that will be used to
create [Celebrity's] Star Greetings database. iParty will also film a
30-second promotional spot for [Celebrity's] StarGreeting which may be used
in any electronic or video media.. iParty will own the StarGreetings
database. [Celebrity's] StarGreetings database will only be used for the
StarGreetings and it will not be used for any other purpose.
2. [Celebrity] will be available for a 1/2 hour pre-production
meeting by phone prior to the film date at an agreeable date, time and
location.
3. [Celebrity] will have the right to reasonably reject the
first version of the Star Greetings filming. If the first version of the
filming does not meet with [Celebrity's] approval, [Celebrity] agrees to
attend a second filming within 30 days of the first filming. If the second
filming is not reasonably acceptable to [Celebrity], this agreement will
terminate with no further obligations on either party's behalf. If this
should happen, [Celebrity] would keep the $_______ fee, but the stock
options would not vest. [Celebrity] will submit written notification of
rejection to iParty within 5 business days from receipt of video footage.
4. [Celebrity] will permit iParty to use his image and name
from [Celebrity's] StarGreeting in all iParty PR, marketing, promotion and
advertising materials in all media that are exclusively for the purposes of
selling StarGreetings by iParty. [Celebrity] and her agents retain the right
to approve or reject all such materials.
5. [Celebrity] will attend (1) StarGreetings press event for 1
hour at a mutually agreed time and location.
6. If a revision or update of the StarGreetings database is
needed, [Celebrity] will be available for additional Star Greetings filming
at a mutually agreed time, but no more than once per year for the remaining
term of the contract. All terms regarding initial filming mentioned in page
1, paragraph 5, shall apply.
7. [Celebrity] will keep secret and confidential (and require
[Celebrity's] agents to keep secret and confidential) all information
concerning StarGreetings' technology that she (or they) may obtain from
iParty.
8. The term of this agreement shall be one year from the date
hereof.
Please indicate your agreement with the terms of this letter
by signing your name below.
Very truly yours,
K.D. Broughton
President, StarGreetings
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I have read this letter and I agree to be bound by its terms.
- ------------------ ---------------
Date
- ------------------- ----------------- ---------------
Ms. Katie Broughton Title Date
<PAGE>
Exhibit 10.15
FUNDING AGREEMENT
THIS FUNDING AGREEMENT, dated this 31st day of March, 1999
("Agreement"), is by and among iParty Corp., a Delaware corporation, ("iParty"),
Ajmal Khan, ("Khan"), and Robert H. Lessin, ("Lessin").
W I T N E S S E T H:
WHEREAS, pursuant to a warrant certificate dated June 30, 1998, Ruffino
Developments Limited ("Ruffino") was granted warrants to purchase a total of
556,500 shares of iParty Series A Preferred Stock at $1.00 per share (the
"Ruffino Warrant"), of which warrants to purchase 214,500 shares of iParty
Series A Preferred Stock remain unexercised;
WHEREAS, pursuant to a warrant certificate dated June 30, 1998,
Henslowe Trading Limited ("Henslowe") was granted warrants to purchase a total
of 443,500 shares of iParty Series A Preferred Stock at $1.00 per share (the
"Henslowe Warrant"), of which warrants to purchase 97,500 shares of iParty
Series A Preferred Stock remain unexercised;
WHEREAS, in order to facilitate a financing, which may include a
private placement or a rights offering (the "Financing") contemplated by iParty,
and to resolve iParty's short term capital needs, the parties hereto desire to
reduce the time frame in which the Warrant Funds (defined below) are required to
be invested in iParty pursuant to the terms of the Henslowe and Ruffino
Warrants; and
WHEREAS, in order to facilitate the Financing and to resolve the
short-term capital needs of iParty, Lessin desires to commit to advance certain
funds to iParty;
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. Time Frame For Investment of Warrant Funds. Khan shall cause each of
Henslowe and Ruffino to exercise their respective warrants in full by April 6,
1999. On exercise of such warrants, Henslowe and Ruffino shall transfer to
iParty a total of $312,000 ($97,500 by Henslowe and $214,500 by Ruffino,
collectively, the "Warrant Funds"). Payment of the Warrant Funds shall be made
by wire transfer in accordance with instructions provided to Khan by iParty.
2. Advances by Robert H. Lessin. (a) On or before April 2, 1999, Lessin
shall advance $250,000 to iParty. Payment shall be made by wire transfer in
accordance with wire instructions provided to Lessin by iParty. Lessin's
$250,000 shall be credited against his investment in the Financing to be
effected by iParty.
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(b) Further, Lessin agrees to advance the sum of $250,000 on or before
the 2nd of each month until the earlier of (i) the completion of the Financing
and (ii) August 2, 1999. Any advance will be senior debt of the Company and
shall be evidenced by a convertible promissory note.
3. 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.
4. Counterparts; Governing Law. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. It shall be
governed by, and construed in accordance with, the laws of the State of New
York, without giving effect to the rules governing the conflicts of laws.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first written above.
iPARTY CORP.
By: /s/ Byron Hero
------------------------------------
Name: BYRON HERO
Title: PRESIDENT
/s/ Robert H. Lessin
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ROBERT H. LESSIN
/s/ Ajmal Khan
- -----------------------------------------
AJMAL KHAN
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Exhibit 10.16
FULFILLMENT AGREEMENT
This FULFILLMENT AGREEMENT, including all schedules hereto (the
"Agreement") is entered into this 8th day of July, 1999 and is by and between
Taymark, with its principal place of business at 4875 White Bear Parkway, White
Bear Lake Minnesota, 55110 ("Taymark"), a division of Taylor Corporation, a
Minnesota Corporation, and iParty Corp., a Delaware corporation with its
principal place of business at 41 East 11th Street, 11th Floor, New York, New
York 10003 ("iParty").
WHEREAS, Taymark is, among other things, in the business of the
stocking, sale and distribution of party goods and related merchandise to
commercial customers; and
WHEREAS, iParty is the owner and operator of the iParty Site (as
defined herein) on which it, among other things, intends to sell Products (as
defined herein) to retail customers; and
WHEREAS, iParty desires to engage Taymark, and Taymark wishes to be
engaged by iParty, for the purpose of fulfilling purchase orders placed on the
iParty Site for Products on the terms and conditions set forth herein.
NOW THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. DEFINITIONS.
As used herein the following terms shall have the following meanings:
"Adjustments" shall mean the net dollar amount of any increase or
decrease in the dollar amount of any Order due to changes in the nature
of the Order or refunds, chargebacks, service charges, credits,
returns, and discounts with respect to such Order.
"Agreement" shall mean this Fulfillment Agreement and all schedules and
exhibits hereto, as such may be amended from time to time in accordance
with the terms hereof.
"Business Day" shall mean Monday thru Friday, excluding holidays or
days recognized as holidays by Taymark.
"Customer" shall mean any person accessing or navigating the iParty
Site or calling the iParty Number.
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"Customer Information" shall mean any information submitted by or
collected from a Customer while such Customer is accessing or
navigating the iParty Site or inquiring about or placing an Order on
the iParty Site or by calling the iParty Number.
"Common Stock" shall mean the common stock, par value $.001 per share,
of iParty.
"Force Majeure" shall mean earthquake, flood, fire, storm, natural
disaster, act of God, war, armed conflict, labor strike, lockout, or
boycott that results in the cessation, interruption or delay in the
performance of a party's obligations hereunder.
"Intellectual Property Rights" shall mean any and all patent,
trademark, service mark, copyright, trade secret or other intellectual
property or similar rights or interest.
"iParty" shall mean iParty Corp., a Delaware corporation with its
principal place of business at 41 East 11th Street, 11th Floor, New
York, New York 10003
"iParty Number" shall mean the 1-800-4-iparty (1-800-447-2789)
toll-free telephone number established by iParty and/or any additional
or successor numbers.
"iParty Site" shall mean the World Wide Web site located at URL address
"http://www.iparty.com" and/or any additional or successor sites
operated by iParty.
"Order" shall mean any order for Products placed by a Customer on the
iParty Site or by calling the iParty Number.
"Order Information" shall mean that portion of the Customer Information
which is required by Taymark to process Orders in accordance with the
terms hereof, including, without limitation, any payment information or
instructions provided by a Customer.
"Products" shall mean all party related items and merchandise contained
in all of the catalogs published by Taymark as such catalogs may be
amended and updated from time to time and such other items and
merchandise as the parties may from time to time agree to sell
hereunder.
"Purchasing Volumes" shall mean gross dollar amount of orders placed on
the iParty Site or through the iParty Number in any given calender year
for Products shipped by Taymark to Customers pursuant to the terms of
this Agreement, plus or minus any Adjustments. Where used herein as a
benchmark amount for any given calendar year, the Purchasing Volumes
shall be as follows:
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Calendar Year Dollar Amount
1999 $150,000
2000 $2,500,000
2001 $7,500,000
Any Subsequent An increase of 10% from
Year the previous required
dollar amount for the
previous year
"Taylor Corporation" shall mean Taylor Corporation, a Minnesota
corporation with its principal executive offices at 1725 Roe Crest
Drive, North Mankato, Minnesota 56003, and all subsidiaries and
division thereof.
"Taymark" shall mean that division of Taylor Corporation which is
providing the fulfillment services hereunder, with offices at 4875
White Bear Parkway, White Bear Lake Minnesota, 55110.
2. TERM.
2.1 INITIAL TERM. This Agreement shall be effective as of the date
hereof and shall terminate (unless terminated sooner pursuant to the terms of
Section 11 hereof) on December 31, 2002.
2.2 OPTIONAL RENEWAL. iParty shall have the option to renew this
Agreement for additional terms of one (1) year if iParty meets or exceeds the
Purchasing Volumes for the calender year in which this Agreement would otherwise
expire.
2.3 RIGHT OF FIRST REFUSAL. Upon expiration or termination of this
agreement, other than a termination by iParty pursuant to Section 11.1 hereof,
iParty shall not enter into an agreement for party related merchandise
fulfillment services with a third-party until and unless iParty has, in writing,
offered Taymark, the opportunity to provide such services to iParty on identical
terms and conditions as such third-party and further provided Taymark with ten
(10) Business Days to accept or reject said offer.
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3. BASIC BUSINESS TERMS.
3.1 BASIC AGREEMENT. iParty and Taymark shall develop an information
exchange system (the "Information Exchange System") for the purpose of
conducting Order transactions via the iParty Site and transmitting to each other
Customer Information, Order Information and such other information as is
necessary and required pursuant to the terms of this Agreement. Customers will
place Orders on the iParty Site or via the iParty Number. Order Information for
Orders placed on the iParty Site will be transmitted to Taymark via the
Information Exchange System. Order Information for Orders placed via the iParty
Number will be collected directly by Taymark. iParty will be responsible for
approving the credit of customers and shall pay for all orders fulfilled by
Taymark without deduction for any uncollected accounts. After such approval has
been communicated to Taymark, Taymark will be responsible for picking, packing
and shipping Orders directly to Customers in accordance with the terms of this
Agreement. Customer Information collected by Taymark via the iParty Number shall
be transmitted to iParty via the Information Exchange System. Nothing contained
in this Agreement shall prohibit iParty from fulfilling Orders directly or
through a third-party. Taymark and iParty hereby accept such terms and agree to
process and fulfill such Orders as set forth herein.
3.2 INTERNET FULFILLMENT.
3.2.1 Taylor Corporation shall not, directly or indirectly,
utilizing any of the facilities operated by its Taymark division (including, but
not limited to the White Bear Parkway facility identified in the preamble
hereto) or any of the inventory contained in any such facilities, provide
"Fulfillment Services" (as defined below) to enable any third-party entity to
sell party related items or merchandise via the Internet or the World Wide Web
(or any successors thereto); provided, however, that Taylor Corporation may use
its Taymark Division and related facilities to provided Fulfillment Services to
any entity that is an "Affiliated Corporation" (as defined below), division or
subsidiary of Taylor Corporation. For the purposes of this Section 3.2.1 a
corporation is an "Affiliated Corporation" if more than 50 percent of its
capital stock is in common ownership with the stock of Taylor Corporation. For
the purposes of Section 3.2, "Fulfillment Services" shall include the receipt of
individual retail customer orders for Products via telephone, e-mail (or other
electronic means), the picking, packing and shipping of those orders to retail
consumers, and providing customer service in connection with such orders.
"Fulfillment Services" shall not include the mere sale of Products to
third-parties who may elect to resell such Products on the Internet or the World
Wide Web (or any successors thereto). Nothing contained in this Agreement shall
prohibit or prevent Taylor Corporation from providing Fulfillment Services to
third-parties using any of its facilities, divisions, subsidiaries or Affiliated
Corporations other than Taymark and the facilities operated by Taymark.
3.2.2 The terms of Section 3.2.1 shall apply for the term of
this Agreement, as such may be extended in accordance with the provisions
hereof. Notwithstanding the foregoing, Taylor Corporation and/or Taymark may use
the Taymark facilities to provide Fulfillment
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Services directly or to any third-party entity, on 30 days prior written notice
to iParty, in the event that iParty has not met the Purchasing Volume for the
previous calendar year; provided, however; that if iParty is within 25 percent
of such Purchasing Volume, and within such 30 day period makes a cash payment to
Taymark in an amount equal to difference between the Purchasing Volume for such
year and the actual dollar volume of Orders for such year, then the prohibitions
contained in Section 3.2.1 shall remain in full force and effect.
3.3 COMPLIANCE. The parties will agree to implement such reasonable
practices and procedures as are necessary to assure the compliance of the
parties with the terms and conditions of this Agreement.
3.4 SET UP. The parties will provide database and technical assistance
to one another for the testing of the Information Exchange System.
3.5 CURRENT iPARTY INVENTORY. Within thirty (30) days of the date
hereof, Taymark shall purchase from iParty, at a price equal to iParty's cost
for such items, and transport to and store in its warehouse, all inventory owned
by iParty and located at Michael's Distribution Services in Baltimore, Maryland;
provided, however, that Taymark shall not be required to pay in excess of
$100,000 pursuant to this Section 3.5; and provided, further, that Taymark shall
not be required to purchase any inventory which, in its reasonable opinion, is
not in saleable condition. iParty will pay any charges or costs imposed by
Michael's Distribution Services in connection with making the inventory
available for transport.
3.6 CATALOG. Taymark and iParty shall prepare a private label iParty
catalog which features certain items available on the iParty Site. Taymark's
responsibilities shall include photography, layout and design of the catalog.
iParty shall be responsible for the cost of paper, printing, mailing and all
other costs associated with the catalogs. The parties will work together to
achieve cost efficiencies in the production and distribution of the catalogs.
3.7 CUSTOMER SERVICE. Taymark shall staff a department to provide
customer service for iParty Customers. Taymark shall initially respond to
Customer inquiries via the iParty Number regarding Products and the status of
shipped Orders and, by the end of 1999 shall implement a system to reply to such
inquiries via e-mail as well. In performing these services Taymark shall
identify itself to Customers as "iParty". Taymark shall correspond with
Customers in a polite and courteous manner in an accordance with the same
standards Taymark applies to those customer service representatives who service
Taymark's own business. Taymark shall respond to all inquiries as promptly as is
reasonably possible. By the end of 1999 iParty shall implement a system to allow
for Customers to check the status of shipped Orders via the iParty Site.
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4. ORDER PROCEDURE.
4.1 ORDER RECEIPT. Orders will be received by Taymark as follows:
4.1.1 ORDERS FROM iPARTY SITE. Order Information for Orders
placed on the iParty Site will be transmitted to Taymark via the Information
Exchange System. Such Orders will be deemed received by Taymark at the time of
electronic acknowledgment by Taymark of receipt of the electronic transmission
of such Orders.
4.1.2 TELEPHONE ORDERS. Taymark shall receive and process
Orders placed via the iParty Number. Taymark shall transmit such Customer
Information to iParty via the Information Exchange System. Such Orders shall be
deemed received at the time Taymark receives credit approval from iParty.
4.2 FULFILLMENT. The following sets forth iParty's service requirements
from Taymark's fulfillment and warehouse operational systems:
4.2.1 STANDARD. "Standard Orders" means Orders shipped
domestically and internationally via carriers other than overnight carriers and
two-day carriers. Provided that Taymark has received credit approval from iParty
by 12:00 noon Central Time on the day of receipt of a Standard Order, Taymark
will ship such Standard Order no later than 6:00 p.m., Central Time, the second
Business Day following receipt by Taymark of credit approval for such Standard
Order. Standard Orders for which credit approval is received after 12:00 Noon,
Central Time on any Business Day, or at any time on any day which is not a
Business Day, will be shipped no later than 6:00 p.m., Central Time the third
Business Day following receipt of credit approval. Commencing six months from
the date hereof, and provided iParty maintains the Purchasing Volume, Taymark
will use its reasonable efforts to ship all Standard Orders within one Business
Day of receipt by Taymark of each such credit approval.
4.2.2 PRIORITY. "Priority Orders" means Orders shipped
domestically or internationally via overnight or two-day carrier. Priority
Orders for which credit approval has been received by Taymark on any Business
Day before 12:00 Noon, Central Time will be shipped on the same day. Priority
Orders for which credit approval is received after 12:00 Noon, Central Time on
any Business Day, or at any time on any day which is not a Business Day, will be
shipped on the following Business Day.
4.2.3 BACK-ORDERS. iParty may elect to have Taymark hold an
Order that has one or more items out of stock until it is completely filled by
so indicating in the Information Exchange System transmission relating to such
Order. iParty may inform Taymark from time to time of the number of days (the
"Back-Order Period"), that Taymark is to hold such Orders before shipping the
available Products and canceling the out of stock Products. In the event that
all Products included in an Order are out stock, Taymark will hold the Order for
the full Back-Order Period before canceling the Order (subject to prior
cancellation of such Order by iParty).
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4.2.4 INVENTORY. Taymark will provide iParty with inventory
updates, via the Information Exchange System, not less than three times per day,
in an electronic format mutually agreed to by the parties hereto. These updates
shall occur during Taymark business hours (which are 7:00 AM to 6:00 PM Central
Time) and anytime that Taymark updates its inventory database and shall be
spaced in reasonable intervals so as to informative and useful to iParty. iParty
Customers will have the option of canceling an Order that can not be filled, or
choosing to elect an option of waiting no longer than the Back-Order Period for
the Order to be filled.
4.2.5 LABELS; PACKING SLIPS. Subject to iParty's prior written
approval, Taymark will create (a) customer mailing labels and packing slips
identifying iParty for all Orders shipped pursuant to this Agreement and (b)
labels with the iParty logo to be applied to the exterior of all packages
shipped pursuant to this Agreement.
4.2.6 PICK, PACK, AND SHIP. Taymark will put forward its best
efforts to maintain its current high level of standards of service and quality
in all of its dealings with iParty Customers. Taymark will use its best efforts
to minimize human error in picking, packing and shipping Orders. Taymark will
strive for a high quality package presentation for all Orders shipped to iParty
Customers hereunder. Taymark shall not be in breach of this Agreement so long as
the service and quality provided to Customers of iParty meets the same standards
that Taymark applies to the customers of Taymark.
4.2.7 PAYMENTS TO TAYMARK; PRICING. Taymark shall invoice
weekly, in a format mutually agreeable to iParty and Taymark, iParty for the
Orders shipped for such week, including shipping costs, plus or minus the net
dollar amount of any Adjustments realized in such month. Taymark represents and
warrants to iParty that all times the prices charged to iParty for Products
shall be discounted by not less than 20 percent from the then lowest current
retail price at which such Products are sold by Taymark in its other marketing
channels. Taymark will provide greater discounts on certain items as may be
agreed upon by the parties from time to time on not more than five percent of
the Products sold pursuant to this Agreement. Subject to Section 4.2.7.1, iParty
shall pay all invoices within 30 days of receipt. All payments due Taymark shall
be made in United States Dollars. Taymark shall separately state on each
invoice, and iParty shall pay in accordance with the terms hereof, any shipping
charges, sales or other taxes or duties which Taymark may be required to pay or
collect upon delivery of the Products. iParty shall not be liable for any income
taxes due by Taymark.
4.2.7.1 If iParty reasonably, and in good faith,
disputes any charge or amount on any invoice and such dispute cannot be resolved
promptly through good faith discussions between the parties, iParty shall pay
the amounts due under such invoice less the disputed amount, and the parties
shall diligently proceed to resolve such disputed amount. iParty shall notify
Taymark in writing of any disputed amount within a reasonable period following
iParty's discovery of same, but in no case later than the earlier of the due
date or 30 days following receipt of the relevant invoice.
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4.2.8 MONTHLY REPORTS. iParty and Taymark shall prepare and
deliver to the other party summary reports of Orders each month within 15 days
of the end of each calendar month. These reports will verify and confirm that
unit sales and costs are accurate and the respective sales reporting systems are
functioning properly.
4.2.9 AUDITS. Each party shall maintain complete, clear,
accurate records in connection with services provided under this Agreement and
shall maintain such records for a minimum of three years following the record's
creation. Each party shall, at all times during the term of this Agreement, have
full and complete access to all such records, in whatever medium, related to the
services performed, including, without limitation, records concerning all
information associated with Orders and the picking, packing and shipping
thereof. Each party shall have the right, at its own expense, to direct a
reputable independent public certified accounting firm reasonably acceptable to
the other party (subject to the execution by such accounting firm the reasonable
confidentiality agreement of the inspected party) to conduct a reasonable
inspection of all or portions of the records which are directly or indirectly
related to performance under this Agreement. Any such inspection may be
conducted at such time the parties agree, but in no event later than 15 Business
Days following written notice to the party to be inspected.
Taymark agrees to allow representatives of iParty inspect the
facilities from which the fulfillment services are performed, upon reasonable
notice to Taymark and execution of Taymark's reasonable confidentiality
agreement by all parties entering the facility.
4.2.10 CUSTOMER INVOICING. iParty shall be responsible for
Customer collections, including applicable sales tax.
5. PRODUCT RETURNS.
5.1 ORDER ERRORS. Taymark will re-fill Orders to Customers at no
additional fulfillment or return processing costs to iParty for returned
Products, under the following circumstances:
(a) Products reported as missing by the Customer that
were listed on the packing slip or invoice as fulfilled;
(b) Products returned as incorrect items shipped (items
included in the package that were not ordered); and
(c) Products returned which are defective (excludes
customer errors on imprinting instructions).
5.2 RETURNS. iParty has established a return policy which is attached
hereto as Schedule 5.2 and may be amended from time to time by iParty upon 30
days written notice to
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Taymark. All Products returns shall be handled in accordance with such policy
and in accordance with the terms of Schedule 5.2 attached hereto; provided,
however, that Taymark reserves the right to charge a re-stocking fee of not more
than 15 percent of the price of the returned portion of the Order.
6. SHIPPING.
6.1 CHOICE OF CARRIER. Taymark shall select reputable carriers for
shipment of products. Orders will be deemed shipped when delivered by Taymark to
the carrier.
6.2 SHIPPING COSTS. iParty shall pay Taymark shipping costs per the
shipping tables attached hereto as Schedule 6.2 (as may be reasonably amended
from time to time by Taymark). Taymark agrees that if that if the dollar amount
per Order provides cost efficiencies for Taymark, Taymark will use its best
efforts to share a portion of such cost efficiencies with iParty.
6.3 MERCHANDISE INSERTS. At iParty's request, Taymark shall insert
promotional merchandise inserts in packages containing Orders. iParty shall
supply such inserts to Taymark at no cost to Taymark.
7. FURTHER OBLIGATIONS.
7.1 DESIGNATED EMPLOYEES. Each party shall designate appropriate staff
members to act as the principal points of contact between iParty and Taymark for
the implementation and operation of such party's performance and the obtaining
of necessary approvals hereunder. The contact persons will be responsible for
coordinating efforts applicable to this Agreement and reporting and resolving
issues that may arise on day-to-day working basis.
The initial such contact persons are as follows:
iParty: Maureen Broughton Murrah, and Sal Perisano
Taymark: Jon Done, Paul Griffiths, and Angie Holmstrom
Each party may change such contact persons upon written notice
to the other.
7.2 CONFIDENTIAL INFORMATION. During the Term of this Agreement, iParty
and Taymark mutually agree to keep in confidence and prevent the acquisition,
disclosure, use or misappropriation by any person or entity of information
relating to this Agreement, including, but not limited to, all types of
information regarding Customer Information, pricing information, new product
development, technical information, methods, techniques, marketing plans,
business procedures, agreements, techniques or know-how, processes or other
proprietary or confidential or intellectual proprietary information
(collectively, "Confidential Information") which is received from either party
under this Agreement; provided, however, that neither party shall be
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liable to the other for disclosure of any data or information if the same is
disclosed with the prior written approval of the other party.
The foregoing obligations shall not apply to information which
the recipient can demonstrate by written evidence:
(i) is or becomes publicly available without breach of
this Agreement by the party receiving the
Confidential Information (Customer Information shall
not be deemed publicly available merely because the
components which make up the Customer Information are
in the public domain);
(ii) is released for disclosure by the disclosing party
with its written consent;
(iii) is known by the receiving party prior to its receipt
thereof from the disclosing party;
(iv) is rightly received by the receiving party from a
third party (other than in connection with this
Agreement) without confidential limitations;
(v) is required to be disclosed by a court order,
provided the disclosing party is given prompt notice
of such order and given opportunity to contest it and
the scope of the disclosure is limited to the minimum
extent consistent with compliance with such order; or
(vi) is independently developed by the receiving party
without reliance upon any information provided by the
disclosing party.
7.2.1 RETURN OF CONFIDENTIAL INFORMATION. Confidential
Information shall be returned to the owner of same upon the earlier of (i)
demand of the owner of such Confidential Information, or (ii) the termination or
expiration of this Agreement.
7.2.2 INJUNCTIVE RELIEF. Each party expressly agrees that
monetary damages would be inadequate to compensate the other for any breach of
this Section 7.2, that any such breach or threatened breach by either party of
this Section 7.2 will cause irreparable injury to the other party and that, in
addition to any other remedies that may be available, at law or in equity, the
other party shall be entitled to seek injunctive relief against the breach or
threatened breach of any provision of this Section 7.2 or the continuation of
any breach without the necessity of proving actual damages or posting a bond.
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8. REPRESENTATIONS AND WARRANTIES.
8.1 REPRESENTATIONS AND WARRANTIES OF TAYLOR CORPORATION. With
knowledge that iParty is relying thereon in entering into this Agreement, Taylor
Corporation hereby represents and warrants to iParty as follows:
(i) Taylor Corporation is a corporation duly organized,
validly existing and in good standing under the laws of the State of Minnesota.
(ii) This Agreement constitutes the legal, valid and binding
obligation of Taylor Corporation, enforceable against Taylor Corporation in
accordance with its terms. Taylor Corporation has taken all corporate action
necessary for the authorization, execution and delivery of this Agreement, and
for the performance by Taylor Corporation of its obligations under this
Agreement. The execution, delivery and performance of this Agreement by Taylor
Corporation will not result in a breach of or default under any contract or
agreement to which Taylor Corporation is a party.
(iii) Taymark will use its reasonable efforts to assure that
the facilities (including, without limitation, all equipment) utilized to
provide the fulfillment services have been designed or will be modified to
ensure continuous operation and use prior to, during and after the calendar year
2000, and to operate during such time periods so that iParty will not experience
any loss of information or assets, interruption in service, invalid and/or
incorrect reporting or results and so that Customers will not experience any
delay in receiving Products. In the event that, at any time, such facilities are
found not to conform with this warranty, Taymark shall correct any such
nonconformance so as to enable such facilities to function in full conformance
herewith.
(iv) Taymark is, to its knowledge, and at all times during the
term of this Agreement shall be, in material compliance with all applicable
laws, rules and regulations, including but not limited to, the laws, rules and
regulations of the Federal Trade Commission.
(v) Taymark has (a) obtained the sufficient rights to all the
computer code, documentation, trademarks, trade names, copyrights and other
Intellectual Property Rights that are used in it's business or on the Products
to be sold by it or otherwise in connection with this Agreement, and (b) has the
right to grant the rights contemplated by this Agreement.
(vi) Taymark will use its best efforts to assure that, with
respect to any computer hardware, software, and any other items, in whatever
form or medium and notwithstanding the manner provided by it (including, without
limitation, any reports or other information or items transmitted in any manner)
(collectively, the " Taymark Technology"), such Taymark Technology does not and
will not contain any program, routine, device or other undisclosed feature,
including, without limitation, a so-called time bomb, virus, software lock, drop
dead device, malicious logic, worm, trojan horse, or trap or back door which is
designed to
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delete, deactivate, interfere with or otherwise harm any software, program,
data, device, system or service, or which is intended to provide unauthorized
access or to produce unauthorized modification (collectively "Disabling
Procedures"). Taymark agrees to notify iParty immediately upon discovery of any
Disabling Procedure that is or may be included in any Taymark Technology. If
Disabling Procedures are discovered or reasonably suspected to be present in any
Taymark Technology, Taymark agrees to take immediate action, at its own expense,
to identify and eradicate such disabling procedures and carry out any recovery
necessary to remedy any impact of such Disabling Procedures.
(vii) All employees and agents utilized by Taymark in the
performance of its obligations hereunder shall possess the requisite skill to
perform their assigned tasks and all such tasks shall be performed in a
professional manner, in accordance with industry standards.
8.2 REPRESENTATIONS AND WARRANTIES OF iPARTY. With knowledge that
Taylor Corporation is relying thereon in entering into this Agreement, iParty
hereby represents and warrants to Taylor Corporation as follows:
(i) iParty is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware.
(ii) This Agreement constitutes the legal, valid and binding
obligation of iParty, enforceable against iParty in accordance with its terms.
iParty has taken all corporate action necessary for the authorization, execution
and delivery of this Agreement, and for the performance by iParty of its
obligations under this Agreement. The execution, delivery and performance of
this Agreement by iParty will not result in a breach of or default under any
contract or agreement to which iParty is a party.
(iii) iParty will use its reasonable efforts to assure that
it's facilities (including, without limitation, all equipment) utilized to
provide the fulfillment services have been designed or will be modified to
ensure continuous operation and use prior to, during and after the calendar year
2000, and to operate during such time periods so that Taylor Corporation will
not experience any loss of information or assets, interruption in service,
invalid and/or incorrect reporting or results and so that Customers will not
experience any delay in receiving Products. In the event that, at any time, such
facilities are found not to conform with this warranty, iParty shall correct any
such nonconformance so as to enable such facilities to function in full
conformance herewith.
(iv) iParty is, to its knowledge, and at all time during the
term of this Agreement shall be, in material compliance with all applicable
laws, rules and regulations, including but not limited to, the laws, rules and
regulations of the Federal Trade Commission.
(v) iParty has (a) obtained the sufficient rights to all the
code, documentation, trademarks, trade names, copyrights and other intellectual
properties that are contained on the
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iParty Site or to be placed on the Products to be sold, and (b) has the right to
grant the rights contemplated by this Agreement.
(vi) iParty will use its best efforts to assure that, with
respect to any computer hardware, software, and any other items, in whatever
form or medium and notwithstanding the manner provided (including, without
limitation, any reports or other information or items transmitted in any manner)
(collectively, the "iParty Technology"), such iParty Technology does not and
will not contain any Disabling Procedures. iParty agrees to notify Taymark
immediately upon discovery of any Disabling Procedures that are or may be
included in any iParty Technology. If Disabling Procedures are discovered or
reasonably suspected to be present in any iParty Technology, iParty agrees to
take immediate action, at its own expense, to identify and eradicate such
Disabling Procedures and carry out any recovery necessary to remedy any input of
such Disabling Procedures.
9. OWNERSHIP OF MATERIALS; SECURITY AND PRIVACY
9.1 OWNERSHIP OF MATERIALS.
9.1.1 iParty shall retain all rights, title and interest in
and to (i) all of its Intellectual Property Rights existing as of the date
hereof, (ii) all Customer Information, and (iii) all Intellectual Property
Rights developed solely by iParty (collectively, the "iParty Materials").
9.1.2 Taylor Corporation shall retain all rights, title and
interest in and to (i) all its Intellectual Property Rights existing as of the
date hereof, and (ii) all other Intellectual Property Rights developed solely by
Taymark (collectively, the "Taymark Materials").
9.1.3 For the purposes of this Section 9.1, a party shall be
considered as having "solely" developed a work if such work has been developed
utilizing such party's own resources, including financial resources and
personnel, notwithstanding the input of general concepts, ideas and suggestions
by the other party.
9.1.4 Subject to the terms and conditions contained in this
Agreement, iParty hereby grants Taymark a non-exclusive, non-transferable,
non-assignable license to use, at no cost, (i) the Order Information, solely for
the purpose of shipping Orders pursuant to the terms of this Agreement, and (ii)
any other iParty Materials provided by iParty, solely for the purpose of
providing services under this Agreement to which the iParty Materials relate.
Taymark may use and copy the iParty trademark and service mark for the purpose
of manufacturing Products by Taymark pursuant to this Agreement and in preparing
other materials to include with Orders. Taylor Corporation acknowledges that use
of iParty Materials by Taylor Corporation for any purpose other than as set
forth in this Section 9.1.4 shall constitute an infringement and
misappropriation by Taylor Corporation of the rights of iParty, including
without limitation, Intellectual Property Rights. All use of the iParty
Materials by Taylor Corporation, including
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without limitation any goodwill generated by such use, shall inure to the
benefit of iParty. All Customer Information shall be deemed Confidential
Information of iParty.
9.2 SECURITY; PRIVACY. iParty has established a Customer privacy policy
(a copy of which is attached hereto as Schedule 9.2, and which may be amended by
iParty from time to time) relating to all information obtained from Customers
via the iParty Site. Taylor Corporation agrees to comply with the provisions of
Schedule 9.2. Both parties shall use best efforts to maximum security of all
information, including, without limitation, Customer Information being
transferred or exchanged via the Information Exchange System, gathered over the
telephone, or otherwise. Taylor Corporation shall not use Customer Information,
including, but not limited to, the name, mailing address, e-mail address, or
telephone number of any Customer, for any purpose except pursuant to the terms
hereof.
10. INDEMNIFICATION
10.1 INDEMNIFICATION BY TAYLOR CORPORATION. Subject to the
limitations in this Section 10.1, Taylor Corporation shall indemnify, hold
harmless and defend iParty and each person or entity that is a stockholder,
officer, director, partner, employee, affiliate or agent of iParty from and
against any and all losses, claims, damages, liabilities, whether joint or
several, expenses (including reasonable legal fees and expenses) judgments,
fines and other amounts paid in settlement, as and when incurred or suffered by
any such person or entity arising out of or in connection with (i) the
inaccuracy of any representation or warranty made by Taylor Corporation
hereunder, (ii) any breach of this Agreement by Taylor Corporation, (iii) any
negligent act or omission by Taylor Corporation or its employees or agents,
provided such negligent act or omission was not committed at the direction of
iParty, (iv) Taylor Corporation's improper use of any Customer Information or
Taylor Corporation's failure to adequately safeguard same, and (v) any claim or
action for personal injury, death, property damage or other cause of action (1)
involving a Products liability claim arising from or relating to Products
provided to iParty or any Customers by Taylor Corporation hereunder, or (2)
resulting from alleged defects in, or the inherently dangerous nature of,
Products which are the subject of this Agreement.
10.2 INDEMNIFICATION BY iPARTY. Subject to the limitations in this
Section 10.2, iParty shall indemnify, hold harmless and defend Taylor
Corporation and each person or entity that is a stockholder, officer, director,
partner, employee, affiliate or agent of Taylor Corporation from and against any
and all losses, claims, damages, liabilities, whether joint or several, expenses
(including reasonable legal fees and expenses) judgments, fines and other
amounts paid in settlement, as and when incurred or suffered by any such person
or entity arising out of or in connection with (i) the inaccuracy of any
representation or warranty made by iParty hereunder, (ii) any breach of this
Agreement by iParty, (iii) any negligent act or omission by iParty or its
employees or agents, provided such negligent act or omission was not committed
at the direction of Taylor Corporation, and (iv) any claim that any intellectual
property designated
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by iParty for reproduction or use by Taymark in connection with this Agreement
infringes upon the intellectual party rights of any third party.
10.3 NOTICE AND DEFENSE OF THIRD-PARTY CLAIMS. The party seeking
indemnification pursuant to this Section 10 (the "Indemnified Party") shall
promptly notify the other party (the "Indemnifying Party") upon becoming aware
of any subject claim, demand, suit, action or proceeding ("Claim"). Failure of
the Indemnified Party to promptly notify the Indemnifying Party of any such
Claim shall only relieve the Indemnifying Party of its obligations hereunder to
the extent that such Indemnifying Party is actually prejudiced by such failure.
If the Indemnifying Party fails to undertake and continue the defense of the
Claim, the Indemnified Party shall have the right (but not the obligation) to
make and continue such defense as it considers appropriate, and the expenses and
costs thereof, including without limitation, attorneys' fees, out-of-pocket
expenses and the costs of an appeal and bond thereof, together with the amounts
of any judgment rendered against the Indemnified Party, shall be paid by the
Indemnifying Party. The Indemnified Party shall provide the Indemnifying Party,
at the Indemnifying Party's expense, all reasonable assistance in connection
with the Indemnifying Party's defense of any Claim. The Indemnifying Party shall
not be liable for any settlement of any Claim effected without its written
consent, which consent shall not be unreasonably withheld, but if settled with
such written consent, or if there be a final judgment against any Indemnified
Party in any such Claim, the Indemnifying Party agrees to indemnify and hold
harmless any Indemnified Party as provided above.
11. TERMINATION.
11.1 TERMINATION. This Agreement may be terminated as follows:
11.1.1 BREACH. By either party, upon 30 days prior written
notice to the other party, in the event of a material breach of this Agreement
by the other party. The written notice shall specify the precise nature of the
breach. In the event the breaching party cures the breach within the 30 day
notice period, this Agreement shall not terminate pursuant to this Section
11.1.1.
11.1.2 INSOLVENCY. By either party, immediately upon written
notice to the other party, in the event the other party voluntarily files or has
filed involuntarily against it a petition under the United States Bankruptcy
Code, including a petition under the United States Bankruptcy Code.
11.1.3 CERTAIN ACTIONS BY TAYLOR CORPORATION. By iParty,
immediately upon written notice to Taylor Corporation, in the event that Taylor
Corporation sells, conveys, eliminates, or otherwise disposes of more than 50
percent of the property or assets of Taymark to an unrelated third-party and
such disposition renders Taymark unable to provide the services contemplated
hereunder.
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11.1.4 FORCE MAJEURE. By either party, immediately upon
written notice to the other party, in the event that the party receiving the
notice has failed to perform its material obligations hereunder in accordance
with the terms of this Agreement for a period of 60 days due to a Force Majeure
event (defined in Section 1).
11.2 POST TERMINATION PERFORMANCE. The parties will have the following
obligations to each other following the expiration or termination of this
Agreement.
11.2.1 Upon the termination or expiration of this Agreement
for any reason, Taymark shall provide iParty, at iParty's request, with
reasonable assistance to facilitate the orderly transition of the services
provided hereunder to iParty or its designee ("Termination Assistance"). In the
event of a termination of this Agreement due to a material breach by iParty,
iParty will pay Taymark, in advance, its reasonable fees in connection with such
Termination Assistance and for any goods or services provided hereunder for
which payment had not been made. Upon the expiration or termination of this
Agreement for any reason, other than non payment by iParty in accordance with
the terms hereof, Taymark shall continue to provide iParty all services
hereunder, without interruption or adverse effect, at the rates and on the terms
set forth in this Agreement, for the period of time necessary (not to exceed 30
days) for iParty to find an alternative source for services. In connection with
the Termination Assistance, each party shall utilize commercially reasonable
efforts to complete such transition in an expeditious manner.
11.2.2 Upon the termination or expiration of this Agreement,
iParty will purchase from Taymark, at a price equal to the price paid by
Taymark, all inventory held by Taymark (a) which is branded with the iParty name
or logo, and (b) which Taymark reasonably determines was purchased specifically
for the purposes of this Agreement and which Taymark did not at the time of
purchase of such inventory, and does not at the time of termination or
expiration of this Agreement, sell through any of its other marketing channels;
provided, however, that in no event shall the aggregate dollar amount to be paid
by iParty to Taymark pursuant to this Section 11.2.2 exceed the two (2) month
average cost of inventory of Orders fulfilled hereunder for the twelve (12)
months preceding the termination or expiration of this Agreement (or such
shorter period if this Agreement had not been in effect for such twelve (12)
month period).
11.3 EFFECT OF TERMINATION. Upon expiration or termination of this
Agreement, each party shall return or destroy any items which embody any
Intellectual Property Rights of the other party. Commercial distribution of any
such items shall constitute an infringement and misappropriation of the other
parties Intellectual Property Rights of the other party.
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12. COMMON STOCK PURCHASE WARRANTS.
12.1 GRANT OF WARRANTS. As additional consideration for the services
to be provided hereunder by Taymark, iParty shall issue to Taymark warrants (the
"Warrants") to purchase Three Million (3,000,000) shares of Common Stock of
iParty. Such Warrants shall contain customary anti-dilution provisions regarding
stock splits, recapitalizations, etc. occurring following the grant of the
Warrants. Such Warrants shall be evidenced by a warrant certificate issued by
the Company in the form attached as Schedule 12.1 hereto.
12.2 EXERCISE PRICE. Such Warrants shall have an exercise price of
$3.75 per share.
12.3 VESTING OF WARRANT. Subject to the provisions of Section 12.5
hereof, the Warrants shall vest as follow:
o Warrants to purchase 500,000 shares of Common Stock shall vest on
October 1, 1999
o Warrants to purchase 1,000,000 shares of Common Stock shall vest
on January 1, 2000
o Warrants to purchase 750,000 shares of Common Stock shall vest on
July 1, 2000
o Warrants to purchase 750,000 shares of Common Stock shall vest on
January 1, 2001
12.4 TERM OF WARRANTS. All unexercised Warrants shall expire and
terminate on October 1, 2002.
12.5 SPECIAL PROVISIONS REGARDING WARRANTS. Notwithstanding
anything to the contrary in this Section 12, the Warrants shall be subject to
the following provisions:
12.5.1 If iParty terminates this Agreement pursuant to
Sections 11.1.1, 11.1.2, 11.1.3, or 11.1.4, then, after applicable notice and
cure periods, all non-vested Warrants shall immediately terminate and shall no
longer be exercisable and, in addition, if so requested by iParty in writing
within ten (10) days of such termination, Taymark shall sell to iParty all
vested Warrants at a price equal to the greater of (x) the exercise price of the
Warrants on the date of termination or (y) the difference between the fair
market value of the Common Stock and the exercise price of the Warrants on the
date of termination.
12.5.2 If Taymark terminates this Agreement pursuant to
Sections 11.1.1, 11.1.2, 11.1.3, or 11.1.4, then all non-vested Warrants shall
immediately vest upon termination of this Agreement, after applicable notice and
cure periods.
12.5.3 If iParty (a) enters into an agreement to sell all or
substantially all of its assets or capital stock, or (b) enters into an
agreement to merge with an entity that is not a
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subsidiary of iParty in a transaction in which iParty is not the surviving
entity, then all non-vested warrants shall vest simultaneously with the closing
of any such transaction.
12.6 REGISTRATION RIGHTS. iParty covenants and agrees that if at any
time iParty proposes to register any of its securities under the Securities Act
of 1933, as amended (the "Act" (other than employee stock options) it will give
written notice, at least thirty (30) days prior to the filing of such
registration statement, to Taymark of is intention to do so. If Taymark notifies
the iParty in writing within twenty (20) days after mailing of any such notice
of its desire to include the shares of Common Stock underlying the Warrants in
such proposed registration statement, the iParty shall afford Taymark the
opportunity to have the shares of Common Stock underlying the Warrants included
in such registration statement (subject, in the case of an underwritten
offering, to the approval of the managing underwriter). In the event that iParty
does not file a registration statement under the Act within 180 days of the date
of this Agreement, iParty will, if requested in writing by Taymark, file a
registration statement with respect to the shares of Common Stock underlying the
Warrants.
13. MISCELLANEOUS.
13.1 IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY LOST DATA OR
CONTENT, LOST PROFITS, BUSINESS INTERRUPTION, OR EXCEPT FOR DAMAGES PAYABLE TO
THIRD PARTIES ARISING OUT OF SECTION 10, DAMAGES ARISING OUT OF A PARTY'S BREACH
OF ITS OBLIGATIONS UNDER SECTION 7.1, 9.1 OR 11.3, FOR ANY INDIRECT, INCIDENTAL,
SPECIAL, CONSEQUENTIAL, EXEMPLARY OR PUNITIVE DAMAGES ARISING OUT OF OR RELATING
TO THIS AGREEMENT, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF
SUCH DAMAGES, OR OTHERWISE FOR ANY SUCH CLAIM.
13.2 RELATIONSHIP OF THE PARTIES. iParty and Taymark are independent
parties and nothing in this Agreement shall be construed as constituting iParty
and Taymark as partners, joint venturers, or as creating the relationship of
employer and employee, franchiser and franchisee, principal and agent, or any
other form of legal association that would impose liability on one party for the
failure of the other party.
13.3 ASSIGNMENT. This Agreement and the rights and obligations
hereunder shall not be assigned by either party without the prior written
consent of the other party.
13.4 ENTIRE AGREEMENT. This Agreement, and the Warrant Certificate
issued in connection herewith pursuant to Section 12 hereof, constitute the
final and complete understandings and agreements of the parties concerning the
subject matter hereof, superseding all prior proposals, negotiations and
agreements concerning the subject matter hereof.
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13.5 SURVIVAL. The provisions and covenants of this Agreement which, by
their terms, expressed or implied, require performance by the parties after the
expiration or termination of this Agreement shall be enforceable notwithstanding
said expiration or termination for any reason whatsoever.
13.6 FURTHER ASSURANCES. iParty and Taymark will execute such other
documents and take such actions as the other may reasonably request in order to
effect the services and activities contemplated by this Agreement.
13.7 WAIVER. No waiver by either party hereto of any breach or series
of breaches or defaults in performance shall constitute a waiver of any such
provisions of this Agreement with respect to any subsequent breach thereof or
waiver by such party of its rights at any time thereafter to require strict
compliance with the provisions thereof.
13.8 INTERPRETATION. Each party acknowledges it has participated in the
negotiation and preparation of this Agreement and has reviewed this Agreement
and had the opportunity to consult with its counsel and accountants with respect
to its terms. Therefore, each Party agrees that the rule of construction to the
effect that any ambiguities in a document shall be interpreted against the
drafting party, will not be utilized in the interpretation, construction, or
enforcement if this Agreement, and no consideration shall be given to the issue
of which party hereto actually prepared, drafted or requested any term or
condition of this Agreement.
13.9 SEVERABILITY. The provisions of this Agreement shall be severable
if any of the provisions hereof (including any provision within a single
section, paragraph or sentence) are held by a court of competent jurisdiction to
be invalid, void or otherwise unenforceable, and the remaining provisions shall
remain enforceable to the fullest extent permitted by law.
13.10 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.
13.11 MODIFICATION. Neither this Agreement nor any provisions hereof
shall be modified, discharged or terminated except by an instrument in writing
signed by the party against whom any waiver, change, discharge or termination is
sought.
13.12 HEADINGS. Headings of particular Sections or clauses of this
Agreement are inserted for convenience and are in no way to be construed as part
of this Agreement or a limitation of the scope of the particular Sections or
clauses to which they refer.
13.13 NOTICES. All notices, authorizations, demands or requests
required or permitted to be delivered to any party in connection with this
Agreement, other than those
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which pursuant to the Term of this Agreement are to be sent via the Information
Exchange System or in any other manner specifically provided herein, shall be in
writing and shall be deemed to have been duly given if personally delivered, if
sent by facsimile transmission (with receipt confirmed by automatic transmission
report), if sent by a nationally-recognized overnight courier with charges
prepaid, if sent by registered or certified mail, return receipt requested and
postage prepaid (or by the most nearly comparable method if mailed from or to a
location outside the United States), or addressed as follows:
If to iParty, to:
iParty Corp.
41 East 11th Street, 11th Floor
New York, New York, 10003
Attn: CEO
Fax: (212) 331-1207
With copies (which copies shall not constitute notice) to:
Camhy Karlinsky & Stein LLP
1740 Broadway
New York, New York 10019
Attn: Daniel I. DeWolf, Esq.
Fax: 212-977-8389
If to Taylor Corporation or Taymark to both:
Taymark
4875 White Bear Parkway
White Bear Lake, Minnesota, 55110
Attention: President
Fax: (508) 386-2031
and
Taylor Corporation
1725 Roe Crest Drive
North Mankato, Minnesota, 56003
Attention: General Counsel
Fax: (508) 386-2031
Or, in every case, to such other address as the party to whom the notice is to
be given may have furnished to the other party hereto in writing in accordance
with the provisions of this Section 13.13. Any such notice or communication
shall be deemed to have been received (i)
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in the case of personal delivery, on the date of such delivery, (ii) in the case
of facsimile transmission (with receipt confirmed by automatic transmission
report), on the date of such transmission, (iii) in the case of a
nationally-recognized overnight courier, on the next business day after the date
when delivered to such courier, and (iv) in the case of mailing, on the third
business day following that on which the piece of mail containing such
communication is posted.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly signed in duplicate originals by their duly authorized representatives as
of the day and year first above written.
iPARTY CORP. TAYMARK, A DIVISION OF
TAYLOR CORPORATION
By: /s/ Sal Perisano By: /s/ Paul Griffiths
------------------------- ----------------------------
Name: Sal Perisano Name: Paul Griffiths
Title: CEO Title: President
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SCHEDULE 5.2
iParty Return Policy
Our goal is to offer outstanding products and service, and our return policy is
simple. Within 30 days of receipt of your order, you may return any unopened
merchandise in new condition, with its original packaging, for a full refund.
Please note that we can process returns and refund only for items purchased from
iParty.com.
You may also cancel any item from an order that has not yet entered the shipping
process, by calling Customer Service at 1-800-4iParty.
We will notify you via e-mail once we have received and processed the returned
item. Please note that we can refund shipping costs only if the return is a
result of our error.
Please write the reason for your return on the back of your packing slip.
Include the slip in the box containing the returned merchandise, wrap the
package securely and send it to the address listed on the back of the packing
slip. If you do not have your packing slip, please include a sheet of paper
detailing the buyer's name, the order number and the reason for the return, and
send the package to the following address:
iParty.com
Returns Department
{address}
Be sure to include your name, address and phone number. For your protection,
please use UPS or Insured Parcel Post.
If you have any questions, please contact Customer Service at 1-800-4iParty or
e-mail us at Customer [email protected].
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SCHEDULE 9.2
Your Privacy
At iParty, we are committed to protecting your privacy. We use the information
we collect about you to process orders and to provide a more personalized
shopping experience. Please read on for more details about our privacy policy.
What information do we collect? How do we use it?
When you order, we need to know your name, e-mail address, mailing address,
credit card number, and expiration date. This allows us to process and fulfill
your order and to notify you if necessary, of your order status.
When you submit a customer review, we also ask for your e-mail address, although
you can choose not to have your e-mail address displayed with your review.
When you enter a contest or other promotional feature, we may ask for your name,
address, and e-mail address so we can administer the contest and notify winners.
We personalize your shopping experience by using your purchases to shape our
recommendations about party goods and other merchandise that might be of
interest to you. We also monitor customer traffic patterns and site usage to
help us develop the design features to optimize your shopping experience.
We may also use the information we collect to occasionally notify you about
important functionality changes to the Web site, new iParty services, and
special offers we think you'll find valuable.
When you send a greeting through the StarGreetings digital service, we ask for
your e-mail address and that of the recipient in order to complete your request.
iParty will never disclose or send promotional e-mail to recipient addresses
provided only to the StarGreetings service.
How does iParty protect customer information?
When you place orders or access your account information, we offer the use of a
secure server. The secure server software (SSL) encrypts all information you
input before it is sent to us. Furthermore, all of the customer data we collect
is protected against unauthorized access.
What about "cookies"?
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"Cookies" are small pieces of information that are stored by your browser on
your computer's hard drive. Our cookies do not contain any personally
identifying information. Most Web browsers automatically accept cookies, but you
can usually change your browser to prevent that.
Even without a cookie, you can still use most of the features in our store,
including placing items in your shopping cart and purchasing them.
Will iParty disclose the information it collects to outside parties?
iParty does not sell, trade, or rent your personal information to others. We may
choose to do so in the future with trustworthy third parties, but you can tell
us not too by sending a blank e-mail message to [email protected]. (If
you use more than one e-mail address to shop with us, send this message from
each e-mail account you use.) Also, iParty may provide aggregate statistics
about our
customers, sales, traffic patterns, and related site information to reputable
third-party vendors, but these statistics will include no personally identifying
information.
In summary
We are committed to protecting your privacy. We use the information we collect
on the site to make shopping at iParty possible and to enhance your overall
shopping experience. We do not sell, trade, or rent your personal information to
others. We may choose to do so in the future with trustworthy third parties, but
you can tell us not too by sending a blank e-mail message to
[email protected].
Your consent
By using our Web site, you consent to the collection and use of this information
by iParty. If we decide to change our privacy policy, we will post those changes
on this page so that you are always aware of what information we collect, how we
use it, and under what circumstances we disclose it.
Tell us what you think
IParty welcomes your questions and comments about privacy. Please send e-mail to
[email protected].
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SCHEDULE 12.1
THIS WARRANT AND ANY SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), NOR
UNDER ANY STATE SECURITIES LAW AND SUCH SECURITIES MAY NOT BE PLEDGED, SOLD,
ASSIGNED, HYPOTHECATED, OR OTHERWISE TRANSFERRED UNTIL (1) A REGISTRATION
STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND ANY APPLICABLE
STATE SECURITIES LAW OR (2) THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE
COMPANY OR COUNSEL TO THE HOLDER OF SUCH SECURITIES, WHICH COUNSEL AND OPINION
ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH SECURITIES MAY BE PLEDGED,
SOLD, ASSIGNED, HYPOTHECATED, OR TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS.
THE TRANSFER OF THIS WARRANT AND SHARES ISSUABLE UPON THE
EXERCISE HEREOF IS RESTRICTED AS DESCRIBED HEREIN.
WARRANT CERTIFICATE TO PURCHASE UP TO 3,000,000 SHARES
OF COMMON STOCK
OF
iPARTY CORP.
THIS CERTIFIES THAT, FOR VALUE RECEIVED, and in accordance with that certain
Fulfillment Agreement of even date herewith by and between iParty Corp. and
Taymark, a division of Taylor Corporation, a Minnesota Corporation ("Taymark")
(the "Fulfillment Agreement"), Taymark is the owner of one Warrant (the
"Warrant") which shall initially entitle Taymark to purchase, subject to the
terms and conditions set forth in this Warrant Certificate, up to Three Million
(3,000,000) shares of common stock, par value $.001 per share (each, a
"Conversion Share" and collectively, the "Warrant Shares"), of iParty Corp., a
Delaware corporation (the "Company"), from time to time as provided herein,
commencing October 1, 1999, until 5:00 p.m., New York City time on October 1,
2002 (the "Expiration Date").
1. (a) Subject to the acceleration and termination provisions
contained in Section 9 hereof and the adjustment provisions contained in Section
8 hereof, this Warrant is exercisable by Taymark, as to the following number of
Conversion Shares on the following dates: (i) as to 500,000 Conversion Shares
commencing as of October 1, 1999; (ii) as to an additional 1,000,000 Conversion
Shares commencing as of January 1, 2000; (iii) as to an additional 750,000
Conversion Shares commencing as of July 1, 2000; and (iv)
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as to the remaining 750,000 Conversion Shares commencing as of January 1, 2001.
Subject to the foregoing, this Warrant is exercisable upon the presentation and
surrender of this Warrant Certificate with the Form of Election attached hereto
duly executed, at the offices of the Company, accompanied by payment of $3.75
per Conversion Share subject to adjustment (the "Purchase Price"), in lawful
money of the United States of America in cash or by check made payable to the
Company.
2. In the event of certain contingencies provided for herein,
the Purchase Price and the number of Conversion Shares subject to purchase upon
the exercise of the Warrant represented hereby are subject to modification or
adjustment.
3. The Warrant represented hereby is exercisable at the option
of Taymark, but no fractional Conversion Shares will be issued. In the case of
the exercise as to less than all of the Warrant Shares, the Company shall cancel
this Warrant Certificate upon the surrender hereof and shall execute and deliver
a new Warrant Certificate or Warrant Certificates of like tenor, for the balance
of the Warrant Shares.
4. Neither this Warrant nor any Conversion Shares issuable
upon the exercise of this Warrant have been registered under the securities act
of 1933, as amended (the "Act"), nor under any state securities law and such
securities may not be pledged, sold, assigned, hypothecated, or otherwise
transferred until (i) a registration statement with respect thereto is effective
under the Act and any applicable state securities law or (ii) the Company
receives an opinion of counsel to the Company or counsel to Taymark of such
securities, which counsel and opinion are reasonably satisfactory to the
Company, that such securities may be pledged, sold, assigned, hypothecated, or
transferred without an effective registration statement under the Act and
applicable state securities laws. Upon exercise of this Warrant, in whole or in
part, each certificate issued representing Conversion Shares underlying this
Warrant shall, if then applicable, bear a legend to the foregoing effect.
5. This Warrant Certificate is exchangeable, upon the
surrender hereof by Taymark at the corporate office of the Company, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrant Shares covered by the Warrant, each of such new
Warrant Certificates to represent such number of Warrant Shares covered by the
Warrant as shall be designated by Taymark at the time of such surrender. Upon
due presentment and payment of any tax or other charge imposed in connection
therewith or incident thereto, for registration of transfer of this Warrant
Certificate at such office, a new Warrant Certificate or Warrant Certificates
representing an equal aggregate number of Warrant Shares covered by the Warrant
will be issued to the transferee in exchange therefor.
6. Prior to the exercise of the Warrant represented hereby,
Taymark shall not be entitled to any rights of a stockholder of the Company by
virtue of this Warrant, including, without limitation, the right to vote or to
receive dividends or other distributions, and shall not be entitled to receive
any notice of any proceedings of the Company, except as provided herein.
7. The Company shall at all times reserve and keep available
out of its authorized and unissued shares of common stock, solely for the
purpose of providing for the exercise of the rights to purchase all Warrants
Shares granted pursuant to the Warrant, such number of Conversion Shares as
shall then be issuable upon the exercise of the Warrant.
8. The Purchase Price in effect at any time and the number and
kind of securities issuable
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upon the exercise of this Warrant shall be subject to adjustment from time to
time upon the happening of certain events, as follows:
(a) In case the Company shall (i) declare a dividend or
make a distribution on its outstanding common shares, (ii) subdivide or
reclassify its outstanding common shares into a greater number of shares, or
(iii) combine or reclassify its outstanding common shares into a smaller number
of shares, the Purchase Price in effect at the time of the record date for such
dividend or distribution or of the effective date of such subdivision,
combination or reclassification shall be adjusted so that it shall equal the
price determined by multiplying the Purchase Price by a fraction, the
denominator of which shall be the number of common shares outstanding after
giving effect to such action, and the numerator of which shall be the number of
common shares outstanding immediately prior to such action. Such adjustment
shall be made successively whenever any event listed above shall occur.
(b) Upon each adjustment of the Purchase Price pursuant
to the provisions of this Section 8, the number of Warrant Shares issuable upon
the exercise at the adjusted Purchase Price of the Warrant shall be adjusted to
the nearest number of whole Shares by multiplying a number equal to the Purchase
Price in effect immediately prior to such adjustment by the number of Warrant
Shares issuable upon exercise of the Warrant immediately prior to such
adjustment and dividing the product so obtained by the adjusted Purchase Price.
(c) In case of any consolidation of the Company with,
or merger of the Company into, another corporation (other than a consolidation
or merger which does not result in any reclassification or change of the
outstanding common shares), the corporation formed by such consolidation or
merger shall execute and deliver to the Holder a supplemental warrant agreement
providing that the Holder of the Warrant shall have the right thereafter (until
the expiration of such Warrant) to receive, upon exercise of such Warrant, the
kind and amount of shares of stock and other securities and property receivable
upon such consolidation or merger by a holder of the number of Conversion Shares
for which such Warrant might have been exercised immediately prior to such
consolidation, merger, sale or transfer. Such supplemental warrant agreement
shall provide for adjustments which shall be identical to the adjustments
provided in this Section 8. The above provision of this paragraph shall
similarly apply to successive consolidations or mergers.
(d) No adjustment in the number of Warrant Shares shall
be required if such adjustment is less than one; provided, however, that any
adjustments which by reason of this paragraph are not required to be made shall
be carried forward and taken into account in any subsequent adjustment. All
calculations under this Section 8 shall be made to the nearest one-thousandth of
a share.
(e) In any case in which this Section 8 shall require
that an adjustment in the number of Warrant Shares be made effective as of a
record date for a specified event, the Company may elect to defer, until the
occurrence of such event, issuing to the Holder, if the Holder exercised the
Warrant after the record date, the Warrant Shares, if any, issuable upon such
exercise over and above the Warrant Shares, if any, issuable upon such exercise
prior to such adjustment; provided, however, that the Company shall deliver to
the Holder a due bill or other appropriate instrument evidencing the Holder's
right to receive such additional Warrant Shares upon the occurrence of the event
requiring such adjustment.
(f) Whenever there shall be an adjustment as provided
in this Section 8, the Company shall promptly cause written notice thereof to be
sent by certified mail, postage prepaid, to the
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Holder, at its address as it shall appear in the Warrant Register, which notice
shall be accompanied by an officer's certificate setting forth the number of
Warrant Shares issuable upon the exercise of the Warrant if such Warrant were
exercisable on the date of such notice, and setting forth a brief statement of
the facts requiring such adjustment and the computation thereof, which officer's
certificate shall be conclusive evidence of the correctness of any such
adjustment absent manifest error.
9. Notwithstanding anything to the contrary contained herein,
this Warrant shall be subject to the following provisions:
(a) If, prior to the Expiration Date, the Fulfillment
Agreement is terminated by the Company in accordance with the provisions of
Sections 11.1.1, 11.1.2, 11.1.3, or 11.1.4 thereof, then, after applicable
notice and cure periods, this Warrant shall immediately terminate as to any and
all such Conversion Shares which are not exercisable on such date, and in
addition, if so requested by the Company, within ten (10) days of such
termination, Taymark shall deliver this Warrant to the Company in exchange for a
cash payment equal to the greater of (i) the product of the Purchase Price then
in effect and the number of Conversion Shares as to which this Warrant is then
exercisable, or (ii) the product of (y) the number of Conversion Shares as to
which this Warrant is then exercisable and (z) the difference between the fair
market value of the common shares of the Company and Purchase Price on such
date.
(b) If, prior to the Expiration Date, the Fulfillment
Agreement is terminated by Taymark in accordance with the provisions of Sections
11.1.1, 11.1.2, 11.1.3, or 11.1.4 thereof, then, all of the Warrant Shares which
not yet then exercisable shall become exercisable upon the effective date of
such termination, after applicable notice and cure periods.
(c) If, prior to the Expiration Date, the Company
enters into an agreement to (i) sell all or substantially all of its assets or
capital stock, or (ii) merge with an entity that is not a subsidiary of the
Company in a transaction in which the Company is not the surviving entity, then
all of the Warrant Shares which not yet then exercisable shall become
exercisable upon the closing of any such transaction.
10. In case at any time the Company shall propose
(a) to pay any dividend or make any distribution on
common shares in common shares or make any other distribution (other than
regularly scheduled cash dividends which are not in a greater amount per share
than the most recent such cash dividend) to all holders of common shares; or
(b) to issue any rights, warrants, or other securities
to all holders of Shares entitling them to purchase any additional common shares
or any other rights, warrants, or other securities; or
(c) to effect any reclassification or change of
outstanding Shares, or any consolidation or merger as described in Section 8;
or
(d) to effect any liquidation, dissolution, or
winding-up of the Company, then, and in any one or more of such cases,
the Company shall give written notice thereof, not less than 90 days prior to
the effective date of such action (or, if the Company is not aware of such
action 90 days prior to the effective date, within three days after
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such action is approved the Company's Board of Directors) by registered mail,
postage prepaid, to the Holder at the Holder's address as it shall appear in the
Warrant Register, of (i) the date as of which the holders of record of common
shares to be entitled to receive any such dividend, distribution, rights,
warrants, or other securities are to be determined, or (ii) the date on which
any such reclassification, change of outstanding common shares, consolidation,
merger, liquidation, dissolution, or winding-up is expected to become effective,
and the date as of which it is expected that holders of record of common shares
shall be entitled to exchange their shares for securities or other property, if
any, deliverable upon such reclassification, change of outstanding shares,
consolidation, merger, sale, lease, conveyance of property, liquidation,
dissolution, or winding-up.
11. The issuance of any Conversion Shares or other securities
upon the exercise of the Warrant, and the delivery of certificates or other
instruments representing such Conversion Shares or other securities, shall be
made without charge to the Holder for any tax or other charge in respect of such
issuance, other than applicable transfer taxes. The Company shall not, however,
be required to pay any tax which may be payable in respect of any transfer
involved in the issue and delivery of any certificate in a name other than that
of the Holder, and the Company shall not be required to issue or deliver any
such certificate unless and until the person or persons requesting the issue
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
12. Prior to due presentment for registration of transfer
hereof, the Company may deem and treat Taymark as the absolute owner hereof and
of the Warrant represented hereby (notwithstanding any notations of ownership or
writing hereon made by anyone other than a duly authorized officer of the
Company) for all purposes and shall not be affected by any notice to the
contrary.
13. This Warrant Certificate and the Fulfillment Agreement
constitute the final and complete understandings and agreements of the parties
concerning the subject matter hereof, superseding all prior proposals,
negotiations and agreements concerning the subject matter hereof.
14. This Warrant Certificate shall be governed by and
construed in accordance with the laws of the State of Delaware without giving
effect to conflicts of laws.
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IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed, manually or in facsimile by one of its officers
thereunto duly authorized and a facsimile of its corporate seal to be imprinted
hereon.
Dated:_________________
iPARTY CORP.
By:
------------------------------------
Name: Sal Perisano
Title: Chief Executive Officer
ACCEPTED AND AGREED
TAYMARK, a Division of TAYLOR CORPORATION
By:
--------------------------------------
Name:
Title:
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<TABLE> <S> <C>
<PAGE>
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 270,265
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 68,006
<CURRENT-ASSETS> 446,022
<PP&E> 446,197
<DEPRECIATION> 0
<TOTAL-ASSETS> 924,975
<CURRENT-LIABILITIES> 629,704
<BONDS> 0
0
871
<COMMON> 11,006
<OTHER-SE> 283,394
<TOTAL-LIABILITY-AND-EQUITY> 924,975
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 962,649
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (961,835)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (961,835)
<EPS-BASIC> (0.09)
<EPS-DILUTED> (0.09)
</TABLE>
