<PAGE>
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant :
Filed by a Party other than the Registrant 9
<TABLE>
<CAPTION>
Check the appropriate box:
<S> <C>
/ / Preliminary Proxy Statement / / Confidential, For Use of the Commission
/X/ Definitive Proxy Statement Only (as permitted by Rule 14a-6(e)(2))
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
</TABLE>
iPARTY CORP.
--------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
--------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
--------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
--------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
--------------------------------------------------------------------------------
(5) Total fee paid:
--------------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
--------------------------------------------------------------------------------
/ / Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid:
--------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement no.:
--------------------------------------------------------------------------------
(3) Filing Party:
--------------------------------------------------------------------------------
(4) Date Filed:
--------------------------------------------------------------------------------
<PAGE>
iPARTY CORP.
130 WEST 30TH STREET, 10TH FLOOR
NEW YORK, NEW YORK 10001
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 7, 2000
------------------------
NOTICE IS HEREBY GIVEN that the annual meeting (the "Annual Meeting") of
Stockholders of iParty Corp. (the "Company") will be held at the offices of
Camhy Karlinsky & Stein LLP, 1740 Broadway, 16th Floor, New York, New York
10019, on Monday, the 7th day of August 2000, at 9:00 a.m., E.D.T., for the
following purposes, all as more fully described in the attached Proxy Statement:
(1) To elect six directors to the Board of Directors who shall serve until
the 2001 Annual Meeting of Stockholders, or until their successors have
been elected and qualified;
(2) To authorize an amendment to the Company's 1998 Incentive and
Nonqualified Stock Option Plan (the "Plan") to increase the number of
shares authorized for issuance available for grant under the Plan;
(3) To ratify the appointment of Arthur Andersen LLP as the Company's
independent public accountants for the fiscal year ending December 31,
2000; and
(4) To transact such other business as may properly come before the Annual
Meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on July 7, 2000 as
the record date for the determination of the stockholders of the Company
entitled to notice of, and to vote at, the Annual Meeting. Representation of at
least a majority of all outstanding shares of Common Stock is required to
constitute a quorum. Accordingly, it is important that your stock be represented
at the Annual Meeting. The list of stockholders entitled to vote at the Annual
Meeting will be available for examination by any stockholder at the Company's
offices at 130 West 30th Street, 10th Floor, New York, New York 10001 for ten
(10) days prior to August 7, 2000.
A copy of the Company's Annual Report for the year ended December 31, 1999
is enclosed.
You are earnestly requested to date, sign and return the accompanying form
of proxy in the envelope enclosed for that purpose (to which no postage need be
affixed if mailed in the United States) whether or not you expect to attend the
meeting in person. The proxy is revocable by you at any time prior to its
exercise and will not affect your right to vote in person in the event you
attend the meeting or any adjournment thereof. The prompt return of the proxy
will be of assistance in preparing for the meeting and your cooperation in this
respect will be appreciated.
By Order of the Board of Directors
Daniel DeWolf, Secretary
New York, New York
July 13, 2000
<PAGE>
iPARTY CORP.
130 WEST 30TH STREET, 10TH FLOOR
NEW YORK, NEW YORK 10001
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 7, 2000
INTRODUCTION
This Proxy Statement and the accompanying proxy are being furnished to
stockholders of record of iParty Corp. (the "Company") as of July 7, 2000, in
connection with the solicitation by the Board of Directors of the Company of
proxies by the Board of Directors for use in voting at the Annual Meeting of
Stockholders to be held at the offices of Camhy Karlinsky & Stein LLP, 1740
Broadway, 16th Floor, New York, New York 10019, at 9:00 a.m. (local time), or at
any and all adjournments thereof (the "Annual Meeting" or "Meeting"), for the
purposes stated in the Notice of Annual Meeting of Stockholders to which this
Proxy Statement is annexed.
If the enclosed proxy is properly signed and returned, your shares will be
voted on all matters that properly come before the Annual Meeting for a vote. If
instructions are specified in your signed proxy with respect to the matters
being voted upon, your shares will be voted in accordance with your
instructions. If no instructions are so specified, your shares will be voted FOR
the election of the nominees named in Proposal 1, FOR the approval of
Proposal 2 (to authorize the amendment to the Company's 1998 Incentive and
Nonqualified Stock Option Plan (the "Plan")) and FOR the approval of Proposal 3
(ratification of independent public accountants for the year ending
December 31, 2000). In their discretion, the proxies are authorized to consider
and vote upon such matters incident to the conduct of the Annual Meeting and
upon such other business matters or proposals as may properly come before the
Meeting that the Board of Directors of the Company did not know, within a
reasonable time prior to this solicitation, would be presented at the Meeting.
Your proxy may be revoked at any time prior to being voted by: (1) filing
with the Secretary of the Company at the above address, written notice of such
revocation, (2) submitting a duly executed proxy bearing a later date or
(3) attending the Annual Meeting and giving the Secretary notice of your
intention to vote in person.
On or about July 13, 2000, this Proxy Statement and the accompanying proxy,
together with a copy of the Annual Report of the Company for the year ended
December 31, 1999, including financial statements, are being mailed to each
stockholder of record at the close of business on July 7, 2000 (the "Record
Date").
VOTING SECURITIES
The Board of Directors has fixed the close of business on July 7, 2000 as
the Record Date for the determination of stockholders entitled to notice of the
Annual Meeting, and holders of record of the common stock, $.001 par value per
share (the "Common Stock"), the Series A Convertible Preferred Stock, par value
$.01 per share (the "Series A Preferred Stock"), the Series B Convertible
Preferred Stock, par value $.01 per share (the "Series B Preferred Stock"), the
Series C Convertible Preferred Stock, par value $.01 per share (the "Series C
Preferred Stock") and the Series D Convertible Preferred Stock, par value $.01
per share (the "Series D Preferred Stock") of the Company on that date will be
entitled to notice of, and to vote at, the Annual Meeting.
As of the Record Date, the Company had outstanding 11,136,107 shares of
Common Stock, 1,000,000 shares of Series A Preferred Stock, 1,044,452 shares of
Series B Preferred Stock, 100,000 shares of Series C Preferred Stock and 250,000
shares of Series D Preferred Stock. Each share of Common Stock is entitled to
one vote on all matters presented at the Annual Meeting. Each share of Series A
Preferred Stock is entitled to one vote (i.e., the number of shares of Common
Stock into which each share of Series A Preferred Stock is convertible) on all
matters presented at the Annual Meeting, each share of Series B Preferred Stock
is entitled to ten votes (i.e., the number of shares of Common Stock into which
each share of Series B Preferred Stock is convertible) on all matters presented
at the Annual Meeting, each share of Series C Preferred Stock is entitled to ten
votes (i.e., the number of shares of Common Stock into which each share of
Series C Preferred Stock is convertible) on all matters presented at the Annual
Meeting and each share of Series D Preferred Stock is entitled to ten votes
(i.e., the number of shares of Common Stock into which each share of Series D
Preferred Stock is convertible) on all matters presented at the Annual Meeting.
The Series C Preferred Stock shall vote alone for the
<PAGE>
election of a Series C Director. The Series D Preferred Stock shall vote alone
for the election of a Series D Director. On all other matters, the Common Stock,
Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock
shall vote together as one class on all matters presented at the Annual Meeting.
The presence, in person or by proxy, of the holders of a majority of the
shares of Common Stock issued and outstanding and entitled to vote at the Annual
Meeting (on a converted basis) is necessary to constitute a quorum at the Annual
Meeting. Neither abstentions nor broker non-votes (i.e., votes withheld by
brokers on non-routine proposals in the absence of instructions from beneficial
owners) will be counted as present or represented at the Annual Meeting for
purposes of determining whether a quorum is present.
SECURITY OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information, as of June 30, 2000,
regarding the beneficial ownership of the Common Stock by: (1) each Director of
the Company; (2) each executive officer of the Company who is not a Director
whose compensation for 1999 exceeded $100,000 (the "Named Executive Officer");
and (3) all Directors and Named Executive Officers as a group. Unless otherwise
indicated, the Company believes that the beneficial owners of the Common Stock
listed below, based on information provided by such owners, have sole investment
and voting power with respect to such shares.
<TABLE>
<CAPTION>
NUMBER OF
COMMON SHARES
NAME OF BENEFICIAL OWNER(1) BENEFICIALLY OWNED(2) PERCENT OF CLASS
------------------------------------------------------------ --------------------- ----------------
<S> <C> <C>
Sal Perisano................................................ 214,625(3) 1.89%
Patrick Farrell............................................. 115,000(4) 1.02%
Robert H. Lessin ........................................... 7,900,558(5)(7) 60.60%
c/o WIT Capital
826 Broadway, 6th Floor
New York, NY 10003
James McCann ............................................... 699,600(6) 6.28%
1-800 Flowers
1000 Stewart Avenue
Westbury, NY 11590
iParty LLC ................................................. 6,000,000(7) 53.88%
c/o Robert H. Lessin
826 Broadway, 6th Floor
New York, NY 10003
Ajmal Khan ................................................. 565,000(8) 4.83%
The Verus Group
1177 West Hastings Street
Vancouver, British Columbia
Canada V6E 2K3
Stuart G. Moldaw ........................................... 180,229(9) 1.59%
700 Airport Boulevard
Burlingame, California 94010
Byron Hero ................................................. 750,000(10) 6.65%
420 East 54th Street
New York, NY 10022
Roccia Partners, L.P. ...................................... 2,788,074(11) 20.02%
826 Broadway
New York, NY 10003
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
COMMON SHARES
NAME OF BENEFICIAL OWNER(1) BENEFICIALLY OWNED(2) PERCENT OF CLASS
------------------------------------------------------------ -------------------- ----------------
<S> <C> <C>
Boston Millennia Partners, LP .............................. 1,552,290(12) 12.23%
30 Rowes Wharf
Suite 330
Boston, MA 02110
Hampton Associates Limited ................................. 951,020(13) 7.87%
1702 Dina House
Ruttonjee Centre
11 Duddell Street
Central Hong Kong
HMTF-iPC, LLC .............................................. 3,750,000(14) 25.19%
200 Crescent Court, Suite 1600
Dallas, TX 75201
Robert Jevon ............................................... 25,000(15) --
Boston Millennia Partners, LP
30 Rowes Wharf
Suite 330
Boston, MA 02110
Michael Levitt ............................................. 25,000(6) --
Hicks Muse, Tate & Furst
Incorporated
200 Crescent Court, Suite 1600
Dallas, TX 75201
Taymark .................................................... 1,500,000(17) 11.88%
4875 White Bear Parkway
White Bear Lake, MN 55110
All Officers and Directors as a Group ...................... 9,025,412 63.84%
(7 persons)
</TABLE>
------------------
(1) Unless otherwise indicated, all addresses are c/o iParty Corp., 130 West
30th Street, 10th Floor, New York, NY 10001.
(2) Beneficial ownership has been determined in accordance with Rule 13d-3
under the Securities and Exchange Act of 1934, as amended, 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 that may be acquired upon the exercise of
presently exercisable options issued pursuant to the Plan (50,000 options
in connection with his consulting agreement 25,000 options in connection
with his role as a Director of the Company).
(4) Includes 115,000 shares that may be acquired upon the exercise of
presently exercisable options issued pursuant to the Plan.
(5) Includes (1) 6,000,000 shares of Common Stock owned by iParty LLC, of
which Mr. Lessin is a member and the manager and a 78.34% owner, (2)
75,000 shares of Common Stock which may be acquired upon the exercise of
presently exercisable options issued under the Plan, (3) 273,268 shares
of Common Stock that may be acquired upon the exercise of presently
exercisable warrants, (4) 1,000,000 shares of Common Stock that may be
acquired upon the conversion of 100,000 shares of presently convertible
Series B Preferred Stock and (5) 552,290 shares of Common Stock that may
be acquired upon the exercise of redeemable common stock purchase
warrants.
(Footnotes continued on next page)
3
<PAGE>
(Footnotes continued from previous page)
(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 iParty Corp. Mr. Lessin is the manager and 78.334% owner
of iParty LLC.
(8) Includes 75,000 shares of Common Stock that may be acquired upon the
exercise of presently exercisable options issued pursuant to the Plan and
25,000 shares of Common Stock held by Verus Capital Corp., of which Mr.
Khan is the sole stockholder. Also includes presently exercisable
options, held by Verus Capital Corp., to purchase 225,000 and 240,000
shares of Series A Preferred Stock from Henslowe Trading Limited and
Ruffino Developments Limited, respectively.
(9) Includes 100,000 shares of Common Stock that may be acquired upon the
conversion of 10,000 shares of presently convertible Series B Preferred
Stock, 55,229 shares of Common Stock that may be acquired upon the
exercise of redeemable common stock purchase warrants and 25,000 shares
of Common Stock that may be acquired upon the exercise of presently
exercisable options issued under 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 150,000 shares that may
be acquired by the exercise of presently exercisable options issued under
the Plan.
(11) Includes 1,796,104 shares of Common Stock that may be acquired upon the
conversion of 179,610 shares of presently convertible Series B Preferred
Stock and 991,970 shares of Common Stock that may be acquired upon the
exercise of redeemable common stock purchase warrants.
(12) Includes 1,000,000 shares of Common Stock that may be acquired upon the
conversion of 100,000 shares of presently convertible Series C Preferred
Stock and 552,290 shares of Common Stock that may be acquired upon the
exercise of redeemable common stock purchase warrants owned by Boston
Millennia Partners Limited Partnership and an affiliated entity. Mr.
Jevon disclaims beneficial ownership of such shares except to the extent
of his ownership interest in the entities that own such shares.
(13) Includes 448,420 shares of Common Stock that may be acquired upon the
conversion of 44,842 shares of presently convertible Series B Preferred
Stock, 247,658 shares of Common Stock that may be acquired upon the
exercise of redeemable common stock purchase warrants and 254,942 shares
of Common Stock that may be acquired upon the exercise of presently
exercisable warrants.
(14) Includes 2,500,000 shares of Common Stock that may be acquired upon the
conversion of 250,000 shares of presently convertible Series D Preferred
Stock and 1,250,000 shares of Common Stock that may be acquired upon the
exercise of redeemable common stock purchase warrants owned by HMTF-iPC,
LLC. HMTF-iPC, LLC is a limited liability company of which the sole
member is HMTF Bridge Partners, L.P., a limited partnership the sole
general partner of which is HMTF Bridge Partners, LLC, a limited
liability company of which Mr. Thomas O. Hicks is the sole member.
Accordingly, Mr. Hicks may be deemed to be the beneficial owner of all or
a portion of the stock owned of record by HMTF-iPC, LLC. Mr. Hicks
expressly disclaims (1) the existence of any group and (2) beneficial
ownership with respect to any shares of Common Stock not owned of record
by him. Mr. Michael J. Levitt, a limited partner of HMTF Bridge Partners,
L.P. and an executive officer of HMTF Bridge Partners, LLC, serves as a
Director of the Company.
(15) Includes 25,000 shares of Common Stock that may be acquired upon the
exercise of presently exercisable options issued under the Plan.
(16) Includes 25,000 shares of Common Stock that may be acquired upon the
exercise of presently exercisable options issued under the Plan.
(17) Includes 1,500,000 shares of Common Stock that may be acquired upon the
exercise of presently exercisable warrants.
4
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
At the Meeting, six individuals will be elected to serve as Directors until
the next Annual Meeting, and until their successors are elected and qualified.
During the fiscal year ended December 31, 1999, the Company's Board of Directors
consisted of Messrs. Perisano, Khan, Lessin and Moldaw. Mr. Jevon joined the
Board of Directors as a designee of the Series C Preferred Stock ("Series C
Director") in February 2000. Mr. Levitt joined the Board of Directors as a
designee of the Series D Preferred Stock ("Series D Director") in February 2000.
Unless a stockholder WITHHOLDS AUTHORITY, a properly signed and dated proxy
will be voted FOR the election of the persons named below, unless the proxy
contains contrary instructions. Management has no reason to believe that any of
the nominees will not be a candidate or will be unable to serve as a Director.
However, in the event any nominee is not a candidate or is unable or unwilling
to serve as a Director at the time of the election, unless the stockholder
withholds authority from voting, the proxies will be voted for any nominee who
shall be designated by the present Board of Directors to fill such vacancy.
The name and age of each of the six nominees, his principal occupation and
the period during which such person has served as a Director are set out below.
<TABLE>
<CAPTION>
DIRECTOR
NAME OF NOMINEE AGE POSITION SINCE
------------------------------------------ --- ------------------------------------------------------ --------
<S> <C> <C> <C>
Sal Perisano.............................. 49 Chief Executive Officer, Chairman of the Board 1998
Ajmal Khan................................ 37 Director 1998
Robert H. Lessin.......................... 44 Director 1998
Stuart G. Moldaw.......................... 72 Director 1999
SERIES C DIRECTOR NOMINEE
------------------------------------------
(To be elected only by the holders of
Series C Preferred Stock)
Robert Jevon.............................. 47 Series C Director 2000
SERIES D DIRECTOR NOMINEE
------------------------------------------
(To be elected only by the holders of
Series D Preferred Stock)
Michael Levitt............................ 41 Series D Director 2000
</TABLE>
Sal Perisano has been a Director of the Company since October 1998, the
Company's Chief Executive Officer since April 15, 1999 and the Chairman of the
Board of Directors since May 11, 2000. 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 a 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.
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 Verus 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,
5
<PAGE>
Mr. Lessin was Vice Chairman of Salomon Smith Barney, where he served as head of
its Investment Banking Division. Mr. Lessin also serves on the Board of
Directors of CBS MarketWatch.com, a financial and news provider on the Internet.
Stuart G. Moldaw has been a Director of the Company since October 1999.
Mr. Moldaw has been Chairman of Gymboree Corporation, a specialty retailer of
apparel and accessories for children, since 1994. From 1980 through February
1990, Mr. Moldaw served as a general partner of U.S. Venture Partners and he
currently serves as a special venture partner of such entity. Mr. Moldaw also
serves as a Director and Chairman Emeritus of Ross Stores, Inc., an off-price
retailer of apparel and home accessories.
Robert Jevon has been a Series C Director of the Company since February
2000. Mr. Jevon is a Partner of Boston Millennia Partners, a venture capital
firm and has held such position since February 2000, and has been a Principal of
the firm since 1997. Mr. Jevon's primary investment focus is business services,
information technology and life sciences. Mr. Jevon serves on the Board of
Directors of Proteome, Inc., an Internet-based provider of biological knowledge
databases to pharmaceutical and biotechnology researchers, and TeleCommute
Solutions, Inc., a provider of telecommunication services. Prior to his current
position, Mr. Jevon was a Venture Affiliate of Boston Capital Ventures from 1995
to 1996 and was a Principal of Watch Hill Corporation from 1993 to 1995. From
1989 to 1992, he was the Controller of Bolt Beranek & Newman's Communications
Division. He is a graduate of Haverford College and holds an M.B.A. from the
Amos Tuck School at Dartmouth College.
Michael Levitt has been a Series D Director of the Company since February
2000. Mr. Levitt has been a partner of Hicks, Muse, Tate & Furst Incorporated
("Hicks Muse"), a global investment firm, since 1996. He is responsible for
originating, structuring and monitoring Hicks Muse's investments and is involved
in building relationships with investment banks and commercial banking firms
worldwide. Mr. Levitt serves on the Board of Directors of AMFM Corp., El Sitio,
Inc., Globix Corporation, International Home Foods, Inc., RCN Corporation,
Metrocall, Inc., Regal Cinemas, Inc., Rhythms NetConnections, Inc., and STC
Broadcasting, Inc., among others. Prior to joining Hicks Muse, Mr. Levitt was a
Managing Director and Deputy Head of Investments with Smith Barney, and a
Managing Director with Morgan Stanley & Co., responsible for corporate finance
and mergers and acquisitions. Mr. Levitt received his undergraduate and Juris
Doctor degrees from the University of Michigan.
In September 1999, the Company consummated a private offering of securities
for an aggregate purchase price of $2.0 million (the "Series C Offering"). The
securities issued in the Series C Offering consisted of 100,000 shares of Series
C Preferred Stock convertible into 1,000,000 shares of Common Stock and common
stock purchase warrants (the "Warrants") exercisable for an aggregate of 500,000
shares of Common Stock. The Series C Offering memorandum provided that the
holders have the right to appoint one person to be a member of the Company's
Board of Directors. Mr. Jevon is the designee of the holders of the Series C
Preferred Stock.
In December 1999, the Company consummated a private offering of securities
for an aggregate purchase price of $5.0 million (the "Series D Offering"). The
securities issued in the Series D Offering consisted of 250,000 shares of
Series D Preferred Stock convertible into 2,500,000 shares of Common Stock and
common stock purchase warrants (the "Warrants") exercisable for an aggregate of
1,250,000 shares of Common Stock. The Series D Offering memorandum provided that
the holders have the right to appoint one person to be a member of the Company's
Board of Directors. Mr. Levitt is the designee of the holders of the Series D
Preferred Stock.
EXECUTIVE OFFICERS
Sal Perisano, Chief Executive Officer.
Patrick Farrell has been the Company's Senior Vice President and Chief
Financial Officer since April 1999. From 1996 until joining iParty, Mr. Farrell
was a Director, Financial Planning & Analysis and Controller for N2KInc. where
he 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 of Polygram/Def Jam Recordings, Inc. He began his professional career
at Arthur Andersen LLP, 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.
6
<PAGE>
John Jolly has been the Company's Senior Vice President and Chief Operating
Officer since April 2000. From 1998 until joining iParty, Mr. Jolly was Vice
President of Operations and Customer Care for KBkids.com, where he established
their Distribution and Customer Care strategies and operations. Mr. Jolly lead
their operations to over $50 million in sales during their initial year after
merging BrainPlay.com and KBToys.com. From 1988 through 1998, Mr. Jolly was Vice
President of Operations for QVC Network, a leader in Electronic Retailing.
Mr. Jolly was responsible for four Distribution Facilities, Engineering, Quality
Control and Customer Care operations. Mr. Jolly holds a B.A. from LaSalle
University.
COMMITTEES OF THE BOARD OF DIRECTORS
Audit Committee. On May 11, 2000, the Board of Directors appointed Messrs.
Khan, Levitt and Moldaw to the Board of Director's Audit Committee. The Audit
Committee operates pursuant to a Charter approved by the Board of Directors. The
Charter is attached to this Proxy Statement as Appendix A. The Audit Committee
is responsible for assisting the Board of Directors in fulfilling its oversight
responsibilities relating to the Company's accounting, reporting and financial
control practices. The committee reviews the Company's annual and interim
financial statements and certain other public disclosure documents required by
regulatory authorities and makes recommendations to the Board with respect to
such statements and documents. The committee also makes recommendations to the
Board regarding the appointment of independent auditors, reviews the nature and
scope of the annual audit as proposed by the auditors and management, and
reviews with management the risks inherent in the Company's business and risk
management programs relating thereto. The committee reviews with the auditors
and management the adequacy of the Company's internal accounting control
procedures and systems. The committee conducts, on an ongoing basis, an
appropriate review of related party transactions. The committee also reviews the
systems and procedures for direct communication between the committee and the
Company's internal accounting staff and the auditors. All three members of the
Audit Committee are "independent" as defined under the American Stock Exchange's
listing standards.
Compensation Committee. The Compensation Committee of the Board determines
the compensation to be paid to the key officers of the Company. The current
members of the Compensation Committee are Messrs. Khan and Moldaw.
Nominating Committee. We have no nominating committee.
Executive Committee. The Executive Committee of the Board has and may
exercise, during the intervals between meetings of the Board, all the powers of
the Board in the management of the Company's business and affairs, subject to
certain statutory restrictions. The current members of the Executive Committee
are Messrs. Perisano, Lessin and Moldaw.
DIRECTOR COMPENSATION
Under the Plan, each non-employee director is 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 of the Company's Directors who is not
an executive officer is 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.
CERTAIN REPORTS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
No person who, during the fiscal year ended December 31, 1999, was a
Director, Officer or beneficial owner of more than ten percent of the Common
Stock (which is the only class of the Company's securities registered under
Section 12 of the Securities Exchange Act of 1934, as amended, (the "Act") (a
"Reporting Person"), failed to file on a timely basis, reports required by
Section 16 of the Act during the most recent fiscal year, except that, in
connection with the Company becoming subject to the provisions of the Act,
Messrs. Farrell, Khan, Lessin and Perisano were late in filing a Form 3, and
Messrs. Lessin and Perisano were late in filing a Form 4. The foregoing is based
solely upon the Company's review of Forms 3 and 4 during the most recent fiscal
year as furnished to the Company under Rule 16a-3(d) under the Act, and Forms 5
and amendments thereto furnished to the Company with respect to the Company's
most recent fiscal year.
7
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
SUMMARY EXECUTIVE OFFICER COMPENSATION TABLE
The following table summarizes the aggregate cash compensation paid during
1999, 1998 and 1997 (see footnotes below) to the Company's Chief Executive
Officer and other executive officers that received compensation during 1999 in
excess of $100,000 in salary and bonus pursuant to their contracts. Currently,
options have been granted to management as indicated below.
<TABLE>
<CAPTION>
SECURITIES
OTHER ANNUAL UNDER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS/SAR'S
------------------------------------------------------ ---- -------- ----- ------------ --------------
<S> <C> <C> <C> <C> <C>
Sal Perisano ......................................... 1999 $111,442 -- $ -- 797,230
Chief Executive Officer(1) 1998 -- -- -- 50,000
1997 -- -- -- --
Byron Hero ........................................... 1999 72,917 -- 145,836 --
Former Chief Executive Officer(2) 1998 104,166 -- -- 300,000
1997 -- -- -- --
Maureen Broughton Murrah ............................. 1999 154,919 -- 5,000 --
Former President(3) 1998 69,327 -- -- 300,000
1997 -- -- -- --
</TABLE>
------------------
(1) Mr. Perisano did not begin his employment with the Company until March 30,
1999.
(2) Mr. Hero resigned as the Company's Chief Executive Officer as of April 15,
1999. Mr. Hero did not receive any severance payment in connection with his
resignation. On April 15, 1999, Mr. Hero entered into a 12 month consulting
agreement. Payments made under this agreement are reflected in other annual
compensation.
(3) Ms. Broughton Murrah resigned as the Company's President on November 15,
1999. Ms. Broughton Murrah did not receive any severance payment in
connection with her resignation.
OPTION GRANTED IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES IN EXPIRATION
NAME AND PRINCIPAL POSITION GRANTED FISCAL YEAR EXERCISE PRICE DATE
----------------------------------------------------------- ---------- ------------- -------------- ----------
<S> <C> <C> <C> <C>
Sal Perisano .............................................. 25,000 35.7% $ 5.38 1/19/09
Chief Executive Officer and Director 337,500 3.75 3/30/09
434,730 2.00 8/26/09
Patrick Farrell ........................................... 115,000 8.5% 3.63 4/5/09
Senior Vice President and Chief Financial Officer 75,000 3.81 10/11/09
</TABLE>
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS
The Company's certificate of incorporation and bylaws provides that the
Company indemnify all of its Directors and Officers to the fullest extent
permitted by the Delaware General Corporation Law. Under the Company's
certificate of incorporation and bylaws, any Director or Officer, who in his
capacity as such is made or threatened to be made, party to any suit or
proceeding, will be indemnified. A Director or Officer will be indemnified if it
is determined that the Director or Officer acted in good faith and in a manner
he reasonably believed to be in or not opposed to our best interests. Insofar as
indemnification for liabilities arising under the Securities Act of 1933, as
amended (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 Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
8
<PAGE>
The Company maintains a directors' and officers' liability insurance policy
covering certain liabilities that may be incurred by directors and officers in
connection with the performance of their duties. The Company pays the entire
premium for the liability insurance.
EMPLOYMENT AND CONSULTING AGREEMENTS
The Company has entered into a consulting agreement with Mr. Perisano for
the services of Mr. Perisano and his wife, Ms. Dorice Dionne. The consulting
period terminated 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 has entered into an employment agreement with Mr. Perisano that
provides for him to act as the Company's Chief Executive Officer for a term
expiring on March 30, 2002 and devote substantially his full working time and
attention to the Company's business provided that he may continue to fulfill his
duties and obligations to The Big Party Corporation as a consultant and a member
of its Board of Directors. The agreement provided for an initial annual salary
of $150,000, which amount was increased to $250,000 beginning January 1, 2000
plus a discretionary bonus to be determined by the Board of Directors. As
described in the agreement, on March 30, 1999 Mr. Perisano was granted options
to purchase an aggregate of 337,500 shares of Common Stock under the Plan with
an exercise price equal to the fair market value of the Common Stock on the date
of grant ($3.75). Such options have vested or will vest as follows: provided
that Mr. Perisano remains continuously employed by the Company, options with
respect to 112,500 shares of Common Stock vested on March 30, 2000, 1/24th of
the remaining 225,000 shares of Common Stock will vest each month beginning on
April 30, 2000 for a period of 24 months. As further described in the agreement,
on August 26, 1999 Mr. Perisano was granted options to purchase an aggregate of
434,730 shares of Common Stock pursuant to the Plan with an exercise price equal
to $2.00. Such options will vest as follows: provided that Mr. Perisano remains
continuously employed by the Company, options with respect to 144,910 shares of
Common Stock will vest on August 26, 2000, 1/24th of the remaining 289,820 will
vest each month beginning September 26, 2000 for a period of 24 months. The
agreement provides 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 contains certain restrictions on
competition.
The Company has entered into an employment agreement with Ms. Dionne. The
agreement provides that she will act as Senior Vice President--Merchandising for
a term expiring on March 30, 2002 and devote substantially her full working time
and attention to the Company's business provided that she may continue to
fulfill her duties and obligations to The Big Party Corporation as a consultant.
The agreement provides for an initial annual salary of $100,000, which amount
was increased to $125,000 beginning January 1, 2000, plus a discretionary bonus
to be determined by the Board of Directors. As described in the agreement, on
March 30, 1999 she was granted options to purchase an aggregate of 337,500
shares of Common Stock pursuant to the Plan with an exercise price equal to the
fair market value of the Common Stock on the date of grant ($3.75 per share).
Such options have vested or will vest as follows: provided that she remains
continuously employed by the Company, options with respect to 112,500 shares of
Common Stock vested on March 30, 2000, 1/24th of the remaining 225,000 shares of
Common Stock vested each month beginning on April 30, 2000 for a period of
24 months. The agreement provides that if she is terminated without cause, she
will be entitled to receive her then current salary for a period of six months.
The agreement contains certain customary restrictions on competition.
The Company has entered into an employment agreement with Mr. Farrell dated
March 12, 1999 that provides for Mr. Farrell to serve as the Company's Senior
Vice President and Chief Financial Officer 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 under the Plan. Options
with respect to 50,000 shares vested on August 1, 1999 and options with respect
to the remaining 65,000 shares vested on February 1, 2000. If the Company
terminates the employment agreement 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.
9
<PAGE>
The Company has entered into a consulting agreement with Mr. Moldaw, a
Director of the Company, dated September 7, 1999. The agreement has a term of
three years but may be terminated by either party upon 90 days' written notice.
Under the terms of agreement, Mr. Moldaw was granted options to purchase 100,000
shares of Common Stock with an exercise price of $2.00 per share. Such options
vest as follows: provided that Mr. Moldaw is still providing the Company with
consulting services, options with respect to 33,334 shares of Common Stock will
vest on September 6, 2000. 1/24th of options with respect to 66,666 shares of
Common Stock will vest each month beginning on September 6, 2001 for a period of
24 months.
The Company has entered into a consulting agreement with Mr. Byron Hero,
the Company's former Chief Executive Officer and a former Director, dated
April 14, 1999. In connection with the consulting agreement, Mr. Hero's
employment agreement was terminated and Mr. Hero resigned as Chief Executive
Officer and a Director of the Company. Mr. Hero did not receive any severance
payment in connection with his resignation as Chief Executive Officer. Pursuant
to the terms of the consulting agreement, Mr. Hero served as non-executive
Chairman of StarGreeting, Inc., our wholly-owned subsidiary, until April 14,
2000. During the term of the agreement, Mr. Hero received a fee of $20,833.33
per month. As a result of the modification of the StarConcept, Mr. Hero was
terminated on September 30, 1999 and he will be entitled to receive his fee for
the remainder of the contract. Under Mr. Hero's employment agreement, he was
granted options to purchase an aggregate of 300,000 shares of Common Stock under
the Plan. Such options remain in effect. Options to purchase 150,000 shares have
vested.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information concerning the employment agreements and consulting
agreements between us and certain of our officers and directors see "Executive
Compensation." Mr. Perisano and Ms. Dionne are husband and wife.
Star Greetings, Inc. the Company's wholly-owned subsidiary, licenses the
StarGreetings concept from StarGreetings, LLC. Mr. Hero, a former Director and
the Company's former Chief Executive Officer, is a member and the manager of
StarGreetings LLC. In exchange for the license, the Company pays the licensor 2
1/2% royalty from the gross revenues received from the sale of StarGreetings.
Pursuant to the terms of a April 1998 finders fee agreement between
Mr. Hero and a predecessor entity, prior to Mr. Hero becoming a Director and
Officer of the Company, he was entitled 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.
In connection with the Company's merger, the Company assumed the obligations
under this agreement. In connection with the agreement, $2,000,000 was raised.
As a result, the Company paid Mr. Hero $100,000. Mr. Hero is not a registered
broker-dealer.
The Company entered into a Funding Agreement, dated as of March 31, 1999,
and amended as of April 14, 1999, with Messrs. Khan and Mr. Lessin, who are
Directors (the "Funding Agreement"). Pursuant to the terms of the Funding
Agreement each of Mr. Khan (or his designees) and Mr. Lessin advanced certain
funds to the Company. In connection with each such funding, the funding party
received a 10% Senior Secured Promissory Note for the amount funded and warrants
to purchase such number of shares of Common Stock equal to the amount funded
divided by the closing bid price of the Common Stock on the date of each such
funding. $2,000,000 was funded pursuant to the Funding Agreement ($1,125,000 by
Mr. Lessin and $875,000 by Hampton Associates Limited. Mr. Khan's designee under
the Funding Agreement) and warrants to purchase 528,210 shares of Common Stock
were issued at a weighted-average exercise price of $3.79. In connection with
the Company's private placement of Series B Preferred Stock and common stock
purchase warrants, the $2,000,000 principal amount of the notes and an aggregate
of $55,850 of interest were converted into the units offered in the private
placement at the offering price. In addition, Mr. Lessin purchased $841,000 of
units at the offering price.
10
<PAGE>
VOTE REQUIRED
Directors are elected by a plurality of the votes cast. The four Common
Stock candidates receiving the highest number of votes will be elected as
Directors.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends that the stockholders vote FOR each of
the above nominees for Director.
PROPOSAL 2
APPROVAL OF THE AMENDMENT TO THE COMPANY'S 1998 INCENTIVE
AND NONQUALIFIED STOCK OPTION PLAN
STOCK OPTION PLAN
On August 24, 1999, the Board of Directors of the Company amended the Plan,
to increase the number of shares available for issuance under the Plan from
2,000,000 to 4,000,000 shares. On June 16, 2000, the Board of Directors of the
Company further amended the Plan, to increase the number of shares available for
issuance under the Plan from 4,000,000 to 7,000,000 shares. A copy of the Plan,
as amended is set forth in Appendix B to this Proxy Statement. The amendment to
the Plan will not become effective unless it is approved by the holders of
record of a majority of the shares of the Company's Common Stock. The Plan
provides for the granting of stock options to the employees, officers, and
consultants of the Company. Approximately 37 employees, Officers and Directors
were eligible to participate in the Plan as of June 30, 2000. Except for the
increase in the number of shares available for issuance thereunder, Plan remains
unchanged.
The Plan is intended to assist the Company in securing and retaining key
employees and Directors by allowing them to participate in the ownership and
growth of the Company through the grant of incentive stock options, as defined
in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or
non-qualified stock options to which Section 422 of the Code does not apply
(collectively, the "Options"). The granting of Options will serve as partial
consideration for and give key employees, directors and consultants an
additional inducement to remain in the service of the Company and will provide
them with an increased incentive to work for the Company's success.
The Board of Directors believes that it would be in the best interests of
the Company for the stockholders to ratify the amendment to the Plan to increase
the number of shares available for the grant of Options under the Plan from
2,000,000 to 7,000,000 shares. Stockholder approval of the Board's amendment to
the Plan is required within twelve months of the Board's approval of the
amendment. As of June 30, 2000, Options to purchase 5,348,307 shares of Common
Stock had been reserved for exercise of Options granted under the Plan, leaving
1,651,693 shares remaining available for the grant of Options under the Plan. As
of June 30, 2000, 335,000 Options granted under the Plan had been exercised.
The following discussion of the principle features and effects of the Plan,
as amended, is qualified in its entirety by reference to the text of the Plan,
as amended, set forth in Appendix B attached hereto.
ADMINISTRATION
The Plan is administered by the Company's Board of Directors or a Stock
Option Committee of the Board of Directors appointed by the Board (the
"Administrator"). Each member of the Stock Option Committee will be a
"non-employee director" as defined in Rule 16b-3 of the Securities Exchange Act
of 1934, as amended. The Administrator will select the employees, directors and
consultants who will be granted Options under the Plan and, subject to the
provisions of the Plan, will determine the terms and conditions and number of
shares subject to each Option. The Administrator will also make any other
determinations necessary or advisable for the administration of the Plan and its
determinations will be final and conclusive.
SHARES SUBJECT TO THE PLAN
The Plan authorizes the granting of either incentive stock options or
non-incentive stock options to purchase in the aggregate up to 2,000,000 shares
of the Company's Common Stock. The amendment to the Plan approved by the Board
will increase the number of shares available for grant of Options under the Plan
to 7,000,000 shares.
11
<PAGE>
The shares available for issuance will be increased or decreased according to
any reclassification, recapitalization, stock split, stock dividend or other
such subdivision or combination of the Common Stock. Shares of the Common Stock
subject to unexercised Options that expire or are terminated prior to the end of
the period during which Options may be granted under the Plan will be restored
to the number of shares available for issuance under the Plan. Assuming the
receipt of stockholder approval for the adoption of the amendment to the Plan,
1,651,693 shares of Common Stock will remain available for issuance under the
Plan.
ELIGIBILITY
Any employee of the Company or any subsidiary of the Company shall be
eligible to receive incentive stock options and non-qualified stock options
under the Plan. Non-qualified stock options may be granted to employees as well
as non-employee directors and consultants of the Company under the Plan as
determined by the Board or the Stock Option Committee. Any person who has been
granted an Option may, if he is otherwise eligible, be granted an additional
Option or Options.
Each grant of an Option shall be evidenced by an Option Agreement, and each
Option Agreement shall (1) specify whether the Option is an incentive stock
option or a non-qualified stock option and (2) incorporate such other terms and
conditions as the Board of Directors or the Stock Option Committee acting in its
absolute discretion deems consistent with the terms of the Plan, including,
without limitation, a restriction on the number of shares of Common Stock
subject to the Option which first become exercisable during any calendar year.
To the extent that the aggregate fair market value of the Common Stock of
the Company subject to a grant incentive stock options (determined as of the
date such an incentive stock option is granted) which first become exercisable
in any calendar year exceeds $100,000, such Options shall be treated as
non-incentive stock options. This $100,000 limitation shall be administered in
accordance with the rules under Section 422(d) of the Code.
EXERCISE PRICE OF OPTIONS
Upon the grant of an Option to an employee, director or consultant of the
Company, the Administrator will fix the number of shares of the Common Stock
that the optionee may purchase upon exercise of the Option and the price at
which the shares may be purchased. The Option price for incentive stock options
shall not be less than the fair market value of the Common Stock at the time the
Option is granted, except that the Option price shall be at least 110% of the
fair market value where the Option is granted to an employee who owns more than
10% of the voting power of all classes of stock of the Company or any parent or
subsidiary. Under the terms of the Plan, the aggregate fair market value of the
stock (determined at the time the Option is granted) with respect to which
incentive stock options are exercisable for the first time by such individual
during any calendar year shall not exceed $100,000. Non-qualified stock options
may be granted at less than fair market value of the Common Stock. "Fair market
value" is determined by the Administrator based on the closing price of the
Common Stock on the American Stock Exchange ("AMEX"). On July 5, 2000, the
closing price of the Common Stock, as reported by the AMEX, was $.6875.
TERMS
All Options available to be granted under the Plan must be granted by
July 14, 2008. The Administrator will determine the actual term of the Options
but no Option will be exercisable after the expiration of 10 years from the date
granted. No incentive stock option granted to an employee who owns more than 10%
of the combined voting power of all the outstanding classes of stock in the
Company may be exercised after five years from the date of grant.
The Options granted pursuant to the Plan shall not be transferable except
(1) by will or the laws of descent and distribution and (2) non-qualified
options may be transferred in limited circumstances to immediate family members
and family limited partnerships, with the consent of the Administrator.
EXERCISE OF OPTIONS
Options granted to employees, directors or consultants under the Plan may
be exercised during the optionee's lifetime only by the optionee during his
employment or service with the Company or for a period not exceeding three
months after voluntary termination, or for a period not exceeding one year if
the optionee ceased employment or service as a director or consultant because of
permanent or total disability within the meaning of Section 22(e)(3) of the
Code. Options may be exercised by the optionee's estate, or by any person who
acquired the right to exercise such Option by bequest or inheritance from the
optionee for a period of twelve months from
12
<PAGE>
the date of the optionee's death. If such Option shall by its terms sooner
expire, such Option shall not be extended as a result of the optionee's death.
The consideration to be paid to the Company upon exercise of an Option may
consist of any combination of cash, checks, promissory notes, shares of Common
Stock, and/or any other forms of consideration permitted under Delaware law and
approved by the Stock Option Committee and/or the Board of Directors. With the
exception of the consideration received by the Company upon the exercise of
Options granted under the Plan, no consideration is received by the Company for
the granting or extension of any Options.
FEDERAL INCOME TAX CONSEQUENCES RELATING TO INCENTIVE STOCK OPTIONS
Certain Options granted under the Plan are intended to qualify as
"incentive stock options" within the meaning of Section 422 of the Code. Set
forth below is a general summary of certain of the principal Federal income tax
consequences to participants and the Company of incentive stock options granted
under the Plan.
An employee to whom an incentive stock option is granted pursuant to the
Plan will not recognize any compensation income and the Company will not
recognize any compensation deductions, at the time an incentive stock option is
granted or at the time an incentive stock option is exercised. In the year of
exercise, however, the amount by which the fair market value of the Common Stock
exceeds the Option price will constitute a tax preference item under the
alternative minimum tax. If the employee incurs minimum tax in the year of
exercise, however, he should qualify for the credit for prior year maximum tax
liability in the first future year he has regular tax liability.
In order to obtain incentive stock option treatment for Federal income tax
purposes upon the subsequent sale (or other disposition) by the optionee of the
shares of Common Stock received upon exercise of the Option, the sale (or other
disposition) must not occur within two years from the date the Option was
granted nor within one year after the issuance of such shares upon exercise of
the Option (the "incentive stock option holding period requirements"). If the
incentive stock option holding period requirements are satisfied, on the
subsequent sale (or other disposition) by the optionee of the shares of Common
Stock received upon the exercise of an Option, the optionee generally will
recognize income from the sale of a capital asset equal to the difference, if
any, between the proceeds realized from the sale (or other disposition) and the
amount paid as the exercise price of the Option. Alternatively, if the incentive
stock option holding period requirements are not satisfied, on the subsequent
sale (or other disposition) by the optionee of the shares of Common Stock
received upon the exercise of the Option, the optionee generally will recognize
income taxable as compensation (and the Company will recognize a compensation
deduction) in an amount equal to the lesser of (a) the difference, if any,
between the fair market value of the shares on the date of exercise and the
amount paid as the exercise price of the Option and (b) the difference, if any,
between the proceeds realized from the sale or other disposition and the amount
paid as the exercise price of the Option. Any additional gain realized on such
sale or disposition (in addition to the compensation income referred to above)
would give rise to income from the sale of a capital asset and taxed
accordingly.
FEDERAL INCOME TAX CONSEQUENCES RELATING TO NON-QUALIFIED STOCK OPTIONS
The non-qualified stock options that may be granted under the Plan are not
intended to qualify as incentive stock options within the meaning of Section 422
of the Code. An individual to whom a non-qualified stock option is granted
pursuant to the Plan will generally not recognize any compensation income, and
the Company will not realize any compensation deduction, at the time the
non-qualified stock option is granted. In the year of exercise, however, the
optionee generally will realize income taxable as compensation (and the Company
will realize a compensation deduction) in an amount equal to the difference, if
any, between the fair market value of the shares on the date of exercise and the
amount paid as the exercise price of the Option.
The tax basis of the shares of Common Stock received by the optionee upon
exercise will be equal to the amount paid as the exercise price plus the amount,
if any, includable in his gross income as compensation income. The holding
period for the shares will commence on the date of exercise.
On the subsequent sale (or other disposition) by the optionee of the shares
of Common Stock received upon the exercise of the Option, any gain realized on
such sale or disposition would give rise to income from the sale of a capital
asset and taxed accordingly.
13
<PAGE>
PREVIOUSLY GRANTED OPTIONS
As of June 30, 2000, the Company had granted options to purchase an
aggregate of 5,348,307 shares of Common Stock under the Plan at a weighted
average exercise price of $2.24 per share. Of such options, 1,574,812 shares and
3,773,495 shares were vested and unvested, respectively, and 335,000 Options
granted under the Plan had been exercised. The following table sets forth
information as of June 30, 2000 concerning option grants made during fiscal 1999
and the six months ended June 30, 2000, with respect to (1) each executive
officer; (2) all current executive officers as a group; (3) each nominee for
election as a Director; (4) all current Directors who are not executive officers
as a group; and (5) all employees, including all current officers who are not
executive officers, as a group:
<TABLE>
<CAPTION>
OPTIONS GRANTED DURING
FISCAL 1999 AND THE
SIX MONTHS
WEIGHTED AVERAGE
ENDED JUNE 30, 2000 EXERCISE PRICE
--------------------------- --------------
<S> <C> <C>
Sal Perisano .............................................. 25,000 $ 5.38
337,500 3.75
434,750 2.00
464,260 0.69
Patrick Farrell ........................................... 115,000 3.63
75,000 3.81
165,657 0.69
John Jolly ................................................ 250,000 1.50
58,675 0.69
All Executive Officers as a group (3 persons) ............. 1,895,822 2.00
Robert H. Lessin .......................................... 25,000 3.13
Samuel Belzberg ........................................... 25,000 3.13
Ajmal Khan ................................................ 25,000 3.13
Stuart Moldaw ............................................. 25,000 3.81
100,000 2.00
Michael Levitt ............................................ 25,000 3.38
Rob Jevon ................................................. 25,000 3.38
All current Directors who are not
Executive Officers as a group (5 persons)................ 250,000 2.80
All employees, including current officers
who are not executive officers as a group
(29 persons)............................................. 2,188,485 2.46
</TABLE>
AMENDMENTS AND DISCONTINUANCE OF THE PLAN
The Plan can be amended, suspended or terminated at any time by action of
the Company's Board of Directors except that no amendment to the Plan can be
made without prior stockholder approval where such amendment would result in (1)
any material increase in the total number of shares of Common Stock subject to
the Plan, (2) any change in the class of eligible participants for Options under
the Plan, (3) any material increase in the benefits accruing to participants
under the Plan, or (4) stockholder approval being required for continued
compliance with Rule 16b-3 promulgated under the Securities Exchange Act of
1934, as amended.
14
<PAGE>
VOTE REQUIRED
The affirmative vote of the holders of a majority of the shares of Common
Stock of the Company is required for the approval of the amendment to the Plan.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends a vote FOR the approval of the amendment
to the Plan.
PROPOSAL 3
RATIFICATION OF APPOINTMENT OF INDEPENDENT
PUBLIC ACCOUNTANTS
There will also be submitted for consideration and voting at the Meeting
the ratification of the appointment by the Company's Board of Directors of
Arthur Andersen LLP as independent public accountants for the purpose of
auditing and reporting upon the financial statements of the Company for the
fiscal year ending December 31, 2000. The Board of Directors of the Company
previously selected and approved the accounting firm of Arthur Andersen LLP as
independent public accountants to audit and report upon the Company's financial
statements for the fiscal year ended December 31, 1999. Arthur Andersen has no
direct or indirect financial interest in the Company.
Representatives of Arthur Andersen LLP are expected to be present at the
Meeting, and they will be afforded an opportunity to make a statement at the
Meeting if they desire to do so. It is also expected that such representatives
will be available at the Meeting to respond to appropriate questions by
stockholders.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends a vote FOR the ratification of the
appointment of Arthur Andersen LLP as the Company's independent public
accountants for the fiscal year ending December 31, 2000.
GENERAL
OTHER MATTERS
The Board of Directors does not know of any matters that are to be
presented at the Annual Meeting other than those stated in the Notice of Annual
Meeting and referred to in this Proxy Statement. If any other matters should
properly come before the Annual Meeting, it is intended that the proxies in the
accompanying form will be voted as the persons named therein may determine, in
their discretion.
SOLICITATION OF PROXIES
The cost of solicitation of proxies in the accompanying form will be borne
by the Company, including expenses in connection with preparing and mailing this
Proxy Statement. In addition to solicitation of proxies by mail, Directors,
officers and employees of the Company (who will receive no additional
compensation therefor) may solicit the return of proxies by telephone, telegram
or personal contact. Arrangements have also been made with brokerage houses and
other custodians, nominees and fiduciaries for the forwarding of solicitation
material to the beneficial owners of Common Stock, Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock
held of record by such persons, and the Company will reimburse them for the
reasonable out-of-pocket expenses incurred by them in connection therewith. Each
holder of the Common Stock, Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock and Series D Preferred Stock who does not expect to be
present at the Annual Meeting or who plans to attend but who does not wish to
vote in person, is urged to fill in, date and sign the enclosed proxy and return
it promptly in the enclosed return envelope.
By Order of the Board of Directors
Daniel DeWolf, Secretary
15
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APPENDIX A
AUDIT COMMITTEE CHARTER
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iPARTY CORP.
CHARTER OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
I. PURPOSE
The primary function of the Audit Committee is to represent the Board of
Directors in fulfilling its oversight responsibilities by:
1. Reviewing the financial reports and other financial related information
released by iParty Corp. (the "Corporation") to the public, or in
certain circumstances governmental bodies.
2. Reviewing the Corporation's system of internal controls regarding
finance, accounting, business conduct and ethics and legal compliance
that management and the Board have established.
3. Reviewing the Corporation's accounting and financial reporting
processes.
4. Reviewing and appraising with management the performance of the
Corporation's independent auditors.
5. Providing an open avenue of communication between the independent
auditors and the Board of Directors.
II. COMPOSITION
The Audit Committee shall be comprised of three directors, each of whom
shall be independent directors and free from any relationship that, in the
opinion of the Board, would interfere with the exercise of his or her
independent judgment as a member of the Committee.
All members of the Committee shall have a working familiarity with basic
finance and accounting practices, and at least one member of the Committee shall
have financial management expertise.
The members of the Committee shall be elected or reappointed by the Board
annually for a one year term. A Chairperson shall be appointed by the Board.
III. MEETINGS
The Committee will meet at least three times annually and be available to
meet more frequently as circumstances dictate. Scheduled meetings of the Audit
Committee are (a) to review and approve the scope of the annual audit to be
performed by the Corporation's independent auditors and (b) to review and
discuss the results of the audit and the Company's Annual Report on
Form 10-KSB, prior to its filing. Incidental to any of these regularly scheduled
meetings, the Committee should meet, if necessary, with management and the
independent auditors in separate executive sessions to discuss any matters that
the Committee and each of these groups believe should be discussed privately.
IV. RESPONSIBILITIES AND DUTIES
To fulfill its responsibilities and duties the Audit Committee shall:
DOCUMENTS/REPORTS REVIEW
1. Review and reassess the adequacy of this Charter on an annual basis or
as conditions dictate.
2. Review and approve the Corporation's Business Conduct policies.
3. Review the Corporation's annual financial statements and other reports
and financial and related information released to the public, or in
certain circumstances governmental bodies, including any certification,
report, opinion or review rendered by the independent auditors.
4. Review the quarterly financial information with management as necessary.
The Chairperson of the Committee may represent the entire Committee for
purposes of this review.
5. Review with independent auditors the recommendations included in their
management letter, if any, and their informal observations regarding the
adequacy of overall financial and accounting procedures of the
Corporation. On the basis of this review, make recommendations to senior
management for any changes that seem appropriate.
A-1
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6. Prepare the minutes of each meeting, distribute to all members of the
Audit Committee and provide periodic summary reports to the Board of
Directors. The permanent file of the minutes will be maintained by the
Secretary of the Corporation.
INDEPENDENT AUDITORS
7. Review with management and recommend to the Board of Directors the
selection of the independent auditors. On an annual basis, the Committee
will review and discuss with the auditors all significant relationships,
including non-audit services proposed or performed, the auditors have
with the Corporation to determine the auditors' independence. The
independent auditors are ultimately accountable to the Board of
Directors and the Audit Committee.
8. Review the fees, expenses and performance of the independent auditors.
9. Annually consult with the independent auditors out of the presence of
management about internal controls and the fullness and accuracy of the
Corporation's financial statements.
FINANCIAL REPORTING PROCESS
10. In consultation with the independent auditors, review the integrity of
the Corporation's financial reporting process, both internal and
external.
11. Review and consider the independent auditors' judgments about the
appropriateness of the Corporation's accounting principles as applied
in its financial reporting.
12. Review and consider major changes to the Corporation's accounting
principles and practices as proposed by management or the independent
auditors.
PROCESS IMPROVEMENT
13. Establish regular reporting to the Audit Committee by management and
the independent auditors regarding any principal/critical risks,
emerging or developing issues and significant judgments made or to be
made in management's preparation of the financial statements.
14. Following completion of the annual audit, review separately with
management and the independent auditors any significant difficulties
encountered during the course of the audit, including any restrictions
on the scope of work or access to required information.
15. Review any significant disagreement among management and the
independent auditors in connection with the preparation of the
financial statements.
16. Review with the independent auditors and management the extent to which
changes or improvements in financial or accounting practices, as
approved by the Audit Committee, have been implemented.
ETHICAL AND LEGAL COMPLIANCE
17. Review the Corporation's operations and determine whether management
has established and maintains effective programs and processes to
ensure compliance with its Business Conduct policies.
18. Review management's programs and processes for risk management and
protection of the Corporation's assets and business.
19. Review management's monitoring of the Corporation's compliance with the
above programs to ensure that management has the proper review system
in place to ensure that the Corporation's financial statements, reports
and other financial information disseminated to governmental
organizations and the public satisfy legal requirements.
20. Review, with the Corporation's counsel, legal compliance matters,
including corporate securities trading policies.
21. Review, with the Corporation's counsel, any legal matter that could
have a significant impact on the Corporation's financial statements.
22. Perform any other activities consistent with this Charter, the
Corporation's By-laws and government law, as the Committee or the Board
deems necessary or appropriate.
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APPENDIX B
TEXT OF AMENDMENT TO THE 1998 INCENTIVE AND
NONQUALIFIED STOCK OPTION PLAN
RESOLVED, that the 1998 Incentive and Nonqualified Plan of iParty Corp., be
amended by modifying the second sentence of Section 4(b) thereof to read in its
entirety as follows: "Subject to adjustment as provided in paragraph 13 hereof,
the aggregate number of shares to be delivered under the Plan shall not exceed
seven million (7,000,000) shares. "
<PAGE>
PROXY THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
iPARTY CORP.
ANNUAL MEETING OF STOCKHOLDERS: MONDAY, AUGUST 7, 2000
The undersigned stockholder of iParty Corp., a Delaware corporation (the
"Company"), hereby appoints Mr. Sal Perisano and Mr. Patrick Farrell, or any of
them, voting singly in the absence of the others, as his/her/its
attorney(s) and proxy(ies), with full power of substitution and revocation, to
vote, as designated on the reverse side, all of the shares of Common Stock,
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and
Series D Preferred Stock of the Company that the undersigned is entitled to vote
at the Annual Meeting of Stockholders of the Company to be held at the offices
of Camhy Karlinsky & Stein LLP, 1740 Broadway, 16th Floor, New York, New York
10019 at 9:00 a.m. (local time), on Monday, August 7, 2000, or any adjournment
or adjournments thereof, in accordance with the instructions on the reverse side
hereof.
This Proxy, when properly executed, will be voted in the manner directed
herein by the undersigned stockholder. If no direction is made, this Proxy will
be voted "FOR" Proposal No. 1, No. 2 and No. 3. The proxies are authorized to
vote as they may determine, in their discretion, upon such other business as may
properly come before the Meeting.
Please mark your votes as indicated in this example /x/
The Board of Directors recommends a vote "FOR" Proposals No. 1, No. 2 and No. 3
Proposal No. 1--ELECTION OF DIRECTORS:
/ / FOR all nominees listed below (except as withheld in the space provided)
/ / WITHHOLD AUTHORITY to vote for all nominees listed below
SAL PERISANO, AJMAL KHAN, ROBERT LESSIN, STUART MOLDAW, ROBERT
JEVON*, MICHAEL LEVITT**
* To be elected only by a vote of the holders of the Series C Preferred Stock.
** To be elected only by a vote of the holders of the Series D Preferred Stock.
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below)
--------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ALL NOMINEES.
<PAGE>
Proposal No. 2--APPROVAL OF THE AMENDMENT TO THE COMPANY'S 1998 STOCK OPTION
PLAN:
/ / For / / Against / / Abstain
Proposal No. 3--RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS.
/ / For / / Against / / Abstain
The proxies are authorized to vote as they may determine, in their
discretion, upon such other business as may properly come before the meeting.
Date: _____________________ , 2000
__________________________________
SIGNATURE
__________________________________
SIGNATURE
NOTE: Please sign as name appears
hereon. Joint owners should each
sign. When signing as attorney,
executor, administrator, trustee
or guardian, please give full
title as such. If a corporation,
please sign in full corporate name
by an authorized officer. If a
partnership, please sign in
partnership name by an authorized
person.
