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As filed with the Securities and Exchange Commission on February 14, 2000
Registration No. 333-__________
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM S-8
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
iPARTY CORP.
(Exact Name of Registrant as Specified in its Charter)
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Delaware 13-4012236
(State of Incorporation) (I.R.S. Employer Identification No.)
41 East 11th Street, 11th Floor 10003
New York, NY (Zip Code)
(Address of Principal Executive Offices)
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iParty Corp.
1998 INCENTIVE AND
NONQUALIFIED STOCK OPTION PLAN
(Full Title of the Plan)
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Sal Perisano
Chief Executive Officer
iParty Corp.
41 East 11th Street, 11th Floor, New York, New York 10003
(Name and Address of Agent for Service)
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(212) 331-1114
(Telephone Number, Including Area Code, of Agent for Service)
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Please send copies of all communications to:
Michael L. Pflaum, Esq.
Karla A. Olivier, Esq.
Camhy Karlinsky & Stein LLP
1740 Broadway, New York, New York 10019-4315
(212) 977-6600
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CALCULATION OF REGISTRATION FEE
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Proposed Maximum Proposed Maximum
Title of Securities Amount to be Offering Price Aggregate Offering Amount of
to be Registered Registered Per Share (1)(2) Price (1)(2) Registration Fee
- ------------------------- ----------------------- ----------------------- ----------------------- --------------------
Common Stock,
$.001 par value 4,000,000 shares $3.25 $13,000,000 $3,432
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(1) Issuable upon the exercise of options granted or to be granted under the
1998 Incentive and Nonqualified Stock Option Plan.
(2) The proposed maximum offering price per share has been estimated solely
for the purpose of calculating the registration fee, in accordance with
Rule 457(h), on the basis of the average of the high and low prices of the
shares of the common stock as reported by the American Stock Exchange on
February 8, 2000.
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PART I
INFORMATION REQUIRED IN THE SECTION 10(a) PROSPECTUS
Pursuant to Rule 428(b)(1) under the Securities Act of 1933, as amended
(the "Securities Act"), the documents containing the information specified in
Part I of Form S-8 will be sent to each participant of the iParty Corp. 1998
Incentive and Nonqualified Stock Option Plan (the "Plan"). These documents and
the documents incorporated by reference in this Registration Statement pursuant
to Item 3 of Part II hereof, taken together, constitute the Section 10(a)
Prospectus.
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PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
Item 3. Incorporation of Documents by Reference.
We incorporate by reference the documents listed below and all future
filings we will make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of
the Exchange Act:
(1) Registration Statement on Form 10-SB, as filed with the SEC on
March 8, 1999, including all amendments or reports.
(2) Quarterly Report on Form 10-QSB for the quarter ended
June 30, 1999.
(3) Quarterly Report on Form 10-QSB for the quarter ended
September 30, 1999.
(4) Registration Statement on Form 10-SB, as filed with the SEC on
March 8, 1999, including all amendments or reports (with
respect to the description of the common stock).
Item 4. Description of Securities.
Not applicable.
Item 5. Interests of Named Experts and Counsel.
We granted options to purchase an aggregate of 75,000 shares of our common
stock to an attorney affiliated with the firm of Camhy Karlinsky & Stein LLP,
our legal counsel, at an exercise price of $2.50 per share with respect to
25,000 shares, at an exercise price of $2.00 with respect to 25,000 shares and
at an exercise price of $3.13 with respect to 25,000 shares.
Item 6. Indemnification of Directors and Officers.
Our certificate of incorporation and bylaws provide that we indemnify all
of our directors and officers to the fullest extent permitted by the Delaware
General Corporation Law. Under our 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, shall 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 may be permitted to directors, officers and
persons controlling us pursuant to the foregoing provision, or otherwise, we
have been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable.
We maintain a directors' and officers' liability insurance policy
covering certain liabilities that may be incurred by directors and officer in
connection with the performance of their duties. We pay the entire premium for
the liability insurance.
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Item 7. Exemption from Registration Claimed.
Not applicable.
Item 8. Exhibits.
The following is a complete list of exhibits filed as a part of this
registration statement:
Exhibit No. Document
5.1 Opinion of Camhy Karlinsky & Stein LLP regarding
the legality of shares of common stock being
registered.
23.1 Consent of Richard A. Eisner & Company, LLP.
23.2 Consent of Camhy Karlinsky & Stein LLP (included
in Exhibit 5.1).
24.1 Power of Attorney (included on signature page of
this registration statement).
Item 9. Undertakings.
(a) The undersigned company hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by
Section 10(a)(3) of the Securities Act;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which, individually
or in the aggregate, represents a fundamental change in the
information set forth in the registration statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed by
iParty pursuant to Section 13 or Section 15(d) of the Exchange Act that
are incorporated by reference in this registration statement.
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(2) That for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold
at the termination of the offering.
(b) The undersigned company hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of iParty's
annual report pursuant to Section 13(a) or Section 15(d) of the Exchange Act
that is incorporated by reference in this registration statement shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or controlling persons
of the company pursuant to any arrangement, provision or otherwise, iParty
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by iParty of expenses incurred or paid by a
director, officer or controlling person of the iParty in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, iParty
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
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SIGNATURES
Pursuant to the requirements of the Securities Act, iParty certifies that
it has reasonable grounds to believe that it meets all of the requirements for
filing a registration statement on Form S-8 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York, State of New York, on February 10,
2000.
iPARTY CORP.
By: /s/ Sal Perisano
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Sal Perisano, Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below under the heading "Signature" constitutes and appoints Sal Perisano as his
true and lawful attorney-in-fact and agent for him and in his name, place and
stead, in any and all capacities to sign any or all amendments to this
registration statement on Form S-8, and to file the same with all exhibits
thereto, and other documents in connection therewith, with the SEC, granting
unto said attorney-in-fact and agent, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully for all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
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Signature Title Date
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February 10, 2000
/s/ Sal Perisano Chief Executive Officer and Director
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Sal Perisano
/s/ Ajmal Kahn Director February 10, 2000
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Ajmal Kahn
/s/ Robert H. Lessin Director February 10, 2000
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Robert H. Lessin
/s/ Stuart G. Moldaw Director February 10, 2000
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Stuart G. Moldaw
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EXPLANATORY NOTE
The Reoffer Prospectus which is filed as a part of this Registration
Statement has been prepared in accordance with the requirements of Part I of
Form S-3 and may be used for reoffers or resales of the shares of common stock
of iParty Corp. acquired by the persons named therein pursuant to the stock
option plan.
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REOFFER PROSPECTUS
iPARTY CORP.
4,000,000 Shares of Common Stock Under our
1998 Incentive and Nonqualified Stock Option Plan
The shares of common stock offered in this prospectus were acquired by
stockholders through the exercise of options granted to them under our stock
option plan. These selling stockholders are offering and selling up to 4,000,000
shares of our common stock. All of the selling stockholders are "affiliates"
which the Securities Act of 1933, as amended defines as: "a person that
directly, or indirectly, through one or more intermediaries, controls, or is
controlled by, or is under common control with," iParty.
The selling stockholders may offer their iParty stock from time to time, in
one or more transactions, at market prices or at negotiated prices. We will not
receive any money from the stockholders when they sell their shares of common
stock, but we will receive monies upon the exercise of our stock options. On
February 8, 2000, the closing price of one share on the American Stock Exchange
was $3.4375 per share.
The shares of our common stock are listed on the American Stock
Exchange under the symbol "IPT."
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The securities offered hereby are speculative and involve a high degree of
risk. See "Risk Factors" commencing on page 6.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities, or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
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The date of this Reoffer Prospectus is February 14, 2000
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TABLE OF CONTENTS
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ADDITIONAL INFORMATION ABOUT iPARTY...............................................................................4
THE COMPANY.......................................................................................................4
RISK FACTORS......................................................................................................6
Insignificant historical revenues makes it difficult to evaluate whether we will
operate profitably..........................................................................................6
Since we have a history of net losses, we expect to continue to incur net losses..................................6
We are uncertain that we will be able to obtain the additional capital that may be necessary to establish our
business....................................................................................................7
Third-party suppliers inability to fulfil their obligations may injure our reputation and brand...................7
If our operating results decrease, then our stock price may also decrease and our stockholders may not be able
to resell their shares......................................................................................8
If we do not successfully expand our web site and the systems that process customers' orders, we could lose
customers and our net sales could be reduced................................................................9
If our online security measures fail our customers personal information may be
compromised and damage our customer dealings................................................................9
Inability to prevent credit card fraud could reduce our profits...................................................9
If our business grows, our managerial, financial and operational resources may
be strained...............................................................................................9
A loss of any key personnel could impair our ability to succeed..................................................10
We recently recruited most of our management team, if they are unable to work
together it could impede our ability to develop our business...............................................10
Our inability to expand our sales and support organizations may result in a failure to increase market
awareness of our products and services.....................................................................11
If we are unable to develop our brand, we may be unable to build our business....................................11
Since we will not receive significant revenue from this offering, we are uncertain
we can obtain the capital to grow our business.............................................................11
Since we are in the process of establishing our name recognition, we may
be unable to effectively compete against our current and potential competitors.............................12
If Internet usage does not grow, we may be unable to execute our business plan
to increase our operations.................................................................................13
Our inability to adapt to evolving Internet technologies and customer demands
may impede our future growth...............................................................................13
If our systems do not perform as expected, our revenues may be significantly reduced.............................14
If we are unable to protect our intellectual property rights or are held liable for infringing on the
intellectual property rights of others, we may be forced to devote significant time, attention and money
to defend these claims.....................................................................................14
If we are unable to acquire the necessary web domain names, our brand and reputation
could be damaged and we could lose customers...............................................................15
If a new law or new government regulation is created pertaining to the Internet,
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it could decrease the demand for our services or increase the cost of doing business.......................15
If we are held liable for publishing certain content on the Internet, we may be forced to devote significant
resources to defend those claims...........................................................................16
Since we have entered into revenue-sharing contracts with third parties, this exposure may subject us to legal
risks and possible liabilities.............................................................................16
If we experience problems in our distribution operations, we could lose customers................................17
If we ever decide to collect personal information about our users, we may face
potential liability for invasion of privacy................................................................17
Since our officers and directors own a large percentage of our outstanding shares,
they are able to significantly influence matters regarding stockholder approval............................17
Since the market for stocks of Internet companies historically has experienced extreme price fluctuations, our
shares may experience extreme price and volume fluctuations................................................18
If holders of our options exercise their options, our common stock may be diluted
and sales of the shares may reduce our stock price.........................................................18
Future sales of common stock by our existing stockholders could reduce the price of our common stock.............18
Provisions in our charter or agreements may prevent or delay a change of control.................................18
We do not expect to pay dividends................................................................................19
If our systems or material third-party systems are not year 2000 compliant,
we may lose revenues and incur significant costs...........................................................19
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS.......................................................................20
USE OF PROCEEDS..................................................................................................20
SELLING STOCKHOLDERS.............................................................................................20
PLAN OF DISTRIBUTION.............................................................................................23
INTEREST OF NAMED EXPERTS AND COUNSEL............................................................................26
DOCUMENTS INCORPORATED BY REFERENCE..............................................................................26
INDEMNIFICATION OF DIRECTORS AND OFFICERS........................................................................26
LEGAL MATTERS....................................................................................................27
EXPERTS..........................................................................................................27
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ADDITIONAL INFORMATION ABOUT iPARTY
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any materials we file with the
SEC at the SEC's public reference room at 450 Fifth Street, N.W., Washington,
D.C. 29549. You may obtain information on the operation of the public reference
room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an
Internet web site (http://www.sec.gov) that also contains the periodic reports,
proxy statements and other information filed by iParty. We also maintain an
Internet web site (http://www.iparty.com).
You may also request a copy of these filings, at no cost, by writing or
telephoning us at the following address:
iParty Corp.
41 East 11th Street, 11th Floor
New York, New York 10003
(212) 331-1114
This reoffer prospectus is part of a registration statement we filed with
the SEC. You should rely on the information or representations provided in this
prospectus. We have not authorized anyone to provide you with different
information. We are not making an offer of these securities in any state where
the offer is not permitted. The information in this prospectus is accurate as of
the date on the front page, and you should not assume that it is accurate after
that date.
THE COMPANY
iParty, a Delaware corporation, is a development stage company that intends
to become the premier brand in the on-line party industry and a leading resource
on the Internet for consumers seeking party goods, party services, party
planning advice and information, and personalized video greetings that we called
"StarGreetings" from celebrities. Our web site, was launched in February 1999.
Industry sources estimate the annual size of the party supplies market to be
approximately $9.4 billion. Two-thirds of that market consists of paper goods
and accessories, such as balloons, paper napkins, plastic tableware, banners,
invitations and costumes. Toys, party favors, entertainment and food are not
included in this party supplies market analysis.
On October 12, 1999, we launched the new iParty.com site, a premier
destination for party goods and party planning. From Pokemon costumes to
birthday party packs to fog machines, an online party magazine to party safety
tips, iParty.com presents consumers with a sophisticated, yet fun and
easy-to-navigate online party resource. Offering breakthrough convenience and an
extensive assortment of merchandise, iParty.com is refocusing the party goods
industry back to the needs of the consumer. At the click of a mouse, party
givers can enjoy
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one-stop shopping and easy-to-find pricing while purchasing all
their party needs for birthday bashes, Super Bowl parties, Halloween festivities
and more. The consumer will also be able to dial our toll-free number,
1-800-4iParty, to talk to a customer service representative who is knowledgeable
about our products.
Although the consumer will interact only with us, the actual order
fulfillment will come from a network of strategic partners, vendors, or
subcontractors. These strategic partners will ship direct to the consumer.
Typically, the strategic partners will be catalog companies and/or established
direct marketing merchants.
In furtherance of this strategy, on July 8, 1999 we entered into a product
fulfillment agreement with Taymark, one of the largest direct marketers of party
supplies in the United States. Under the agreement, we will utilize Taymark's
inventory and fulfillment services to deliver merchandise ordered on the web
site, or through a toll-free telephone number, directly to consumers. Taymark
will purchase our inventory and, in addition, we will integrate Taymark's
inventory into the web site's storefront. Taymark will provide our customers
with customer service through a toll-free telephone number.
The initial term of the agreement runs through December 31, 2002 and we may
renew it under various circumstances. The agreement contains some restrictions
on competition by Taymark. Nothing in the agreement prohibits us from fulfilling
orders placed on the web site directly or through other third parties. In
connection with the agreement, we granted Taymark options to purchase 3,000,000
shares of our common stock at an exercise price of $3.75 per share.
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RISK FACTORS
You should carefully consider the following risk factors and the material
in this prospectus, before you purchase any shares of common stock from iParty.
Insignificant historical revenues makes it difficult to evaluate whether we will
operate profitably.
We first launched our web site in February 1999. Given our limited
operating history, it is extremely difficult to evaluate our business and
prospects. Our revenue and income potential are unproven and our business model
is constantly evolving. Because the way in which uses for the Internet are
constantly changing, we may need to further change our business model to adapt
to those changes. Frequent changes in organizational structure could impose
significant burdens on our management and our employees and could further result
in loss of productivity or even increased attrition.
Any investment in our company must be considered in light of the problems
frequently encountered by companies in an early stage of development in newly
and rapidly evolving markets. To address the risks we face, we must, among other
things:
o Maintain and enhance our web site;
o Expand our product and service offerings;
o Increase the amount of traffic to our web site by obtaining new
customers at reasonable cost, and retaining customers or
encouraging repeat purchases;
o Expend significant amounts of capital to establish, build and
maintain brand awareness of our services;
o Expand our affiliate network;
o Attract, integrate, retain and motivate qualified personnel; and
o Maintain the leadership and quality of our services.
We cannot be certain that our business strategy, services or products will
be successful, and we may need to adjust our strategy, services or products in
order to enable our operations to become profitable.
Since we have a history of net losses, we expect to continue to incur net
losses.
Our financial statements reflect that we have incurred losses since
inception, including a
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net loss of $2,752,467 in the quarter ended September 30, 1999. As of
September 30, 1999, we had an accumulated deficit of $5,683,641. We expect to
have increasing net losses and negative cash flows for the foreseeable future.
The size of these net losses will depend, in part, on the rate of growth in our
revenues from sales of party goods, our advertisers and affiliate relationships,
and on our expenses. It is critical to our success that we continue to expend
financial and management resources to develop brand loyalty through marketing
and promoting and enhancing our services. As a result, we expect that our
operating expenses will increase significantly for the foreseeable future. With
increased expenses, we will need to generate significant additional revenues to
achieve profitability. Consequently, it is possible that we may never achieve
profitability, and even if we do achieve profitability, we may not sustain or
increase profitability on a quarterly or annual basis in the future.
We are uncertain that we will be able to obtain the additional capital that may
be necessary to establish our business.
Our recurring operating losses and growing working capital needs may
require us to obtain additional capital to operate our business before we have
established that our business will generate significant revenue. Although
management believes that we will be able to achieve our plans to begin
generating revenue, we cannot be sure that those plans will succeed. If
additional financing is required, the terms of the financing may be adverse to
the interests of existing stockholders, including the possibility of
substantially diluting their ownership position.
Third-party suppliers inability to fulfil their obligations may injure our
reputation and brand.
We have no fulfillment operation or facility of our own and, accordingly,
are dependent on third parties to fulfill product orders placed on our web site.
We have created systems necessary to transmit orders placed on our web site to
Taymark, our fulfillment provider. However, if Taymark is unable to satisfy our
increasing requirements or deliveries to customers on a timely basis our
reputation and brand will be damaged.
Our agreement with Taymark expires on December 31, 2002. There can be no
assurance that we will maintain our relationship with Taymark beyond December
31, 2002. Moreover, in the event that our relationship with Taymark ends, we may
be unable to find an alternative, comparable vendor capable of providing
fulfillment services on satisfactory terms. An unanticipated termination of our
relationship with Taymark, particularly during the fourth quarter of the
calendar year, could result in a loss in profits, even if we were able to
establish a relationship with an alternative vendor.
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If our operating results decrease, then our stock price may also decrease and
our stockholders may not be able to resell their shares.
Due to a variety of factors that could affect our revenues or our expenses
in any particular quarter our quarterly operating results may decrease
significantly in the future. It is possible that in some future periods our
results of operations or other performance measures may be below the
expectations of public market analysts and investors. If this occurs, the price
of our common stock will likely fall.
You should not rely on our results of operations during any particular
quarter as an indication of our future results for a full year or any other
quarter. Our quarterly revenues and operating results may vary significantly in
the future due to a number of factors including but not limited to, the
following:
o Fluctuations in demands for our services, including seasonality;
o Unexpected rescheduling or cancellations of significant orders
and affiliate relationships;
o An unexpected termination of our relationship with Taymark;
o Our ability to develop and introduce new technology;
o Announcements and new technology introductions by our competitors;
o Our ability to achieve required cost reductions;
o Pricing competition;
o High levels of product returns;
o Increased costs of online or offline advertising;
o Fluctuations in shipping costs and delivery times, particularly
during holiday seasons;
o Our ability to attract and retain key personnel; and
o Costs relating to possible acquisitions and integration of
technologies or businesses.
Our operating expenses are based on our expectations of our future revenues
and are relatively fixed in the short term. Given our limited operating history,
user traffic on our web site is extremely difficult to forecast accurately.
Moreover, obtaining new affiliate relationships is time-consuming and depends on
many factors that we are unable to control. Therefore, it is
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difficult to predict the number of affiliate relationship customers that we
will have in the future. In particular, we intend to spend significant amounts
of capital to build brand awareness of iParty. We may be unable to adjust the
amount of money we spend on building brand awareness and developing third-party
supplier relationships quickly enough to offset any unexpected revenue
shortfall. As such, our revenues are difficult to predict accurately.
If we do not successfully expand our web site and the systems that process
customers' orders, we could lose customers and our net sales could be reduced.
If we fail to rapidly upgrade our web site in order to accommodate
increased traffic, we may lose customers, which would reduce our net sales.
Similarly, if we fail to rapidly expand the computer systems that we use to
process customer orders, we may be unable to successfully distribute customer
orders. As a result, we could lose customers and our net sales could be reduced.
In addition, our failure to rapidly upgrade our web site or expand these
computer systems without system downtime, particularly during the fourth
calendar quarter, would further reduce our net sales. We may experience
difficulty in improving and maintaining such systems if our employees or
contractors that develop or maintain our computer systems become unavailable to
us. In the past, we have experienced periodic systems interruptions while
enhancing and expanding these computer systems, we believe these interruptions
will continue to occur.
If our online security measures fail our customers personal information may be
compromised and damage our customer dealings.
Our relationships with our customers may be damaged if the security
measures that we use to protect their personal information, such as credit card
numbers, are ineffective. We cannot predict whether events or developments will
result in a compromise or breach of the technology that we or our third-party
suppliers use to protect customer's personal information.
Inability to prevent credit card fraud could reduce our profits.
All orders placed on our web site are paid for with credit cards. Failure
to adequately control fraudulent credit card transactions would reduce our net
sales and our gross margins because we do not carry insurance against this risk.
Under current credit card practices, we are liable for fraudulent credit card
transactions because we cannot obtain a cardholder's signature.
If our business grows, our managerial, financial and operational resources may
be strained.
We have experienced, and may continue to experience, rapid growth, which
has placed, and could continue to place, a significant strain on our managerial,
financial and operational resources. Any growth we may experience will result in
increased responsibility for existing and new management personnel. Effective
growth management will depend on our ability to:
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o Integrate new personnel into our corporate structure;
o Improve our operational, management and financial systems and
controls; and
o Recruit, train, motivate and manage employees.
We cannot assure you that our systems, procedures or controls will be
adequate to support our operations. In addition, we are unable to guarantee that
we will be able to manage any growth effectively. If we do not manage growth
effectively then our expenses may exceed our revenues.
A loss of any key personnel could impair our ability to succeed.
In part, our future success depends on the continued service of our key
management personnel, particularly: (1) Sal Perisano, our Chief Executive
Officer, (2) Dorice Dionne, our Senior Vice President - Merchandising and wife
of Mr. Perisano, and (3) Patrick Farrell, our Chief Financial Officer. The loss
of their services, or the services of other key employees, could impair our
ability to grow our business. Currently, we have employment agreements with
these employees. However, the employment agreements expire in 2001 and 2002.
We are in the process of applying for key-man life insurance policies in
the amount of $2,000,000 on the lives of both Mr. Perisano and Ms. Dionne.
However, we cannot be certain that the proceeds from such policies would enable
us to retain suitable replacement for them in the event we lose either of their
services.
Our future success also depends on our ability to attract, retain and
motivate highly skilled employees. Competition for employees in our industry is
intense. We may be unable to attract, assimilate or retain other highly
qualified employees in the future. In the past we have experienced from time to
time, difficulty hiring and retaining highly skilled employees with appropriate
qualifications. We expect this difficulty to continue in the future.
We recently recruited most of our management team, if they are unable to work
together it could impede our ability to develop our business.
Many members of our management team have recently been hired, including our
Chief Executive Officer and our Chief Financial Officer. These individuals do
not have significant experience working with each other or with our other
employees. We cannot assure you that they will be able to successfully work
together or manage any growth we may experience. The process of integrating
these individuals may detract from the operation of our business and could
impair our ability to grow our business.
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Our inability to expand our sales and support organizations may result in a
failure to increase market awareness of our products and services.
We need to substantially expand both our advertising sales and corporate
sales operations as well as our marketing efforts to increase market awareness
and sales of our products and services. We plan to hire additional sales
personnel. Competition for qualified sales personnel is intense, and we may be
unable to hire the kind and number of sales personnel we are targeting. We will
need to increase our staff if our customer base increases. Hiring qualified
customer service and support personnel is very competitive in our industry due
to limited number of people available with the necessary technical skills and
understanding of the Internet. If we are unable to hire additional sales
personnel we will not be able to increase market awareness of our products and
services.
If we are unable to develop our brand, we will be unable to build our business.
We believe that broader brand recognition and a favorable consumer
perception of the iParty brand are essential to our future success. Accordingly,
we intend to continue pursuing an aggressive brand-enhancement strategy, which
will include mass marketing and multimedia advertising, promotional programs and
public relations activities. To date we have spent approximately $4,000,000 on
these activities and we intend to incur significant expenditures on these
advertising and promotional programs and activities in the future. These
expenditures may not result in a sufficient increase in revenues to cover our
advertising and promotion expenses. In addition, even if brand recognition
increases, the number of new users may not increase. Further, even if the number
of new users increases, the amount of our sales may not increase sufficiently to
justify the expenditures. If our brand enhancement strategy is unsuccessful,
these expenses may never be recovered and we may be unable to increase future
revenues.
Since we will not receive significant revenue from this offering, we are
uncertain we can obtain the capital to grow our business.
To fully realize our business objectives and potential, we may require
significant additional financing. Based on our current operating plan, we
anticipate that we may require additional financing by the second quarter of
2000. In the past, we have been largely dependent upon private debt and
financing when we required funds. We may need to raise additional funds in the
future to:
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o Fund more aggressive brand promotion or more rapid expansion;
o Develop new or enhanced services; and
o Respond to competitive pressures or to make acquisitions.
We may be unable to obtain required additional financing on terms favorable
to us. If adequate funds are not available on acceptable terms, we may be unable
to:
o Fund our expansion;
o Successfully promote our brand;
o Develop or enhance services;
o Respond to competitive pressures, or
o Take advantage of acquisition opportunities.
Additional financing may be debt, equity or a combination of debt and
equity. If we raise additional funds through the issuance of equity securities,
our stockholders may experience dilution of their ownership interest and the
newly issued securities may have rights superior to those of the common stock.
If we raise additional funds by issuing debt, we may be subject to limitations
on our operations, including limitations on the payment of dividends.
Since we are in the process of establishing our name recognition, we may be
unable to effectively compete against our current and potential competitors.
Our ability to compete effectively depends on numerous factors, many of
which are outside of our control. These factors include, but are not limited to
the following:
o The quality of our products, services and content;
o The ease of use of our online services;
o The timing and market acceptance of our new and enhanced online
services; and
o The sales and marketing efforts by our competitors and us.
We have competitors in various markets. For example, we compete against
Hallmark and American Greetings in the greeting cards and invitation business;
Party City and the Big Party Corporation in the retail party-goods supply
business; and FTD in the flower delivery services markets. We also compete with
a number of online business such as Birthday Express.com, GreatEntertaining.com,
ShindigZ.com, Partyetc.com, Party Headquarters, Party Pavilion, Tumbles,
Celebration, Metro Party Supply and Partybynet.com. All of these businesses
provide customers with party-related products and services.
Many of our existing competitors, as well as potential new competitors,
have longer operating histories, greater name recognition, larger customer bases
and significantly greater financial, technical and marketing resources than we
do. This may allow them to devote greater resources than we can to develop and
promote their services. In addition, many of these
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competitors offer a wider range of services than we do in certain categories.
These services may attract users to our competitors and, consequently, result
in a decrease of traffic to our web site.
These competitors may also engage in more extensive research and
development, adopt more aggressive pricing policies and make more attractive
offers to existing and potential employees, partners, advertisers and electronic
commerce partners. Our competitors may develop products and services that are
equal or superior to ours, which could achieve greater market acceptance.
Moreover, current and potential competitors have established or may establish
cooperative relationships among themselves or with third parties to better
address the needs of advertisers and businesses engaged in electronic commerce.
As a result, it is possible that existing or new competitors may emerge and
rapidly acquire a significant market share.
If Internet usage does not grow, we may be unable to execute our business plan
to increase our operations.
Our business will be unable to succeed if Internet usage does not continue
to grow or grows at significantly lower rates compared to current trends. The
continued growth of the Internet depends on various factors, many of which are
outside our control. These factors include, but are not limited to the following
factors:
o The Internet infrastructure's ability to support the demands
placed on it;
o The public's concerns regarding security and authentication
concerns with respect to the transmission over the Internet of
confidential information, such as credit card numbers and attempts
by unauthorized computer users, so-called hackers, to penetrate
online security systems; and
o The public's concern regarding privacy issues, including those
related to the ability of web sites to gather user information
without the user's knowledge or consent.
Our inability to adapt to evolving Internet technologies and customer demands
may impede our future growth.
To be successful, we must adapt to rapidly changing Internet technologies
and customer demands. To that end, we must continually enhance our products and
services and introduce new services to address our customers' changing needs. If
we need to modify our services or infrastructure to adapt to changes affecting
providers of Internet services, we could incur substantial development or
acquisition costs. If we cannot adapt to these changes, or do not sufficiently
increase the features and functionality of our products and services, our
customers may switch to the product and service offerings of our competitors or
potential competitors. Furthermore, our competitors or potential competitors may
develop novel Internet applications that are equal or superior to our services.
As a result, customer demand for our services may decrease.
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If our systems do not perform as expected, our revenues may be significantly
reduced.
Any system failure, including network, software or hardware failure, that
causes an interruption in our service or a decrease in our responsiveness could
result in reduced user traffic on our web site and therefore cause a reduction
in revenues. Our web site and data are backed-up on tapes and are stored
remotely. Although we believe that our current back-up methods are adequate, we
cannot assure you that the back-up tapes will not cause an interruption in our
service. Computer viruses, electronic break-ins or other similar disruptions
could also affect our web site. Our users and customers depend on Internet
service providers, online service providers and other web site operators for
access to our web site. Each of these providers has experienced significant
outages in the past, and could experience outages, delays and other difficulties
due to system failures unrelated to our systems in the future. Our systems are
vulnerable to damage or interruption from fire, flood, power loss,
telecommunications failure, break-ins, earthquake and other similar events. Our
insurance policies have low coverage limits and may not adequately compensate us
for losses that may occur due to interruptions in our service.
If we are unable to protect our intellectual property rights or are held liable
for infringing on the intellectual property rights of others, we may be forced
to devote significant time, attention and money to defend these claims.
Third parties may infringe or misappropriate our patents, trademarks or
other proprietary rights, which could injure our reputation and business. We
have filed a patent application covering the StarGreeting concept, but there can
be no assurance that we will be issued a patent. We may be subject to or may
initiate proceedings in the United States Patent and Trademark Office, which may
demand significant financial and management resources. While we enter into
confidentiality agreements with our employees and consultants, and generally
control access to and distribution of our proprietary information, the steps we
have taken to protect our proprietary rights may not prevent misappropriation.
In addition, we do not know whether we will be able to defend our proprietary
rights since the validity, enforceability and scope of protection of proprietary
rights in Internet-related industries is uncertain and still evolving. Although
we believe our products and information system do not infringe upon the
proprietary rights of others, there can be no assurance that third parties will
not assert infringement claims against us. From time to time in the ordinary
course of business we may be subject to claims of alleged infringement of the
trademarks and other intellectual property rights of third parties. These claims
and any resultant litigation, should this occur, could further subject us to
significant liability for damages. In addition, even if we prevail, litigation
could be time-consuming and expensive to defend, and could result in the
diversion of our time and attention and a reduction in any potential profits.
Any claims from third parties may also result in limitations on our ability to
use the intellectual property subject to these claims unless we are able to
enter into agreements with the third parties making these claims.
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If we are unable to acquire the necessary web domain names, our brand and
reputation could be damaged and we could lose customers.
We may be unable to acquire or maintain web domain names relating to our
brand in the United States and other countries in which we may conduct business.
As a result, we may be unable to prevent third parties from acquiring and using
domain names relating to our brand. Such use could damage our brand and
reputation and take customers away from our web site. We currently hold various
relevant domain names, including the "iparty.com" domain name.
Governmental agencies and their designees generally regulate the
acquisition and maintenance of domain names. The regulation of domain names in
the United States and in foreign countries is subject to change in the near
future. Such changes in the United States are expected to include a transition
from the current system to a system that is controlled by a non-profit
corporation and the creation of additional top-level domains. Governing bodies
may establish additional top-level domains, appoint additional domain name
registrars or modify the requirements for holding domain names.
If a new law or new government regulation is created pertaining to the Internet,
it could decrease the demand for our services or increase the cost of doing
business.
Any new law or regulation pertaining to the Internet, or the application or
interpretation of existing laws, could decrease the demand for our services or
increase our cost of doing business. There is, and will likely continue to be,
an increasing number of laws and regulations pertaining to the Internet. These
laws or regulations may relate to liability for information retrieved from or
transmitted over the Internet, online content regulation, user privacy, taxation
and the quality of products and services. Furthermore, the growth and
development of electronic commerce may prompt calls for more stringent consumer
protection laws that may impose additional burdens on electronic commerce
companies as well as companies like ours that provide electronic commerce
services. Moreover, the applicability to the Internet of existing laws governing
intellectual property ownership and infringement, copyright, trademark, trade
secret, obscenity, libel, employment, personal privacy and other issues is
uncertain and developing.
We file tax returns in such states as required by law based on principles
applicable to traditional businesses. However, one or more states could seek to
impose additional income tax obligations or sales tax collection obligations on
out-of-state companies, such as ours, that engage in or facilitate electronic
commerce. A number of proposals have been made at state and local levels that
could impose such taxes on the sale of products and services through the
Internet. Such proposals, if adopted, could substantially impair the growth of
electronic commerce and adversely affect our opportunity to become profitable.
The Untied States Congress has enacted legislation limiting the ability of
the states to impose taxes on Internet-based transactions. This legislation,
known as the Internet Tax Freedom Act was enacted on October 1, 1998 and ends on
October 21, 2001. The legislation imposes only a three-year moratorium on state
and local taxes on (1) electronic commerce where
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such taxes are discriminatory and (2) Internet access unless such taxes were
generally imposed and actually enforced prior to October 1, 1998. It is
possible that the tax moratorium could fail to be renewed prior to October 21,
2001. Failure to renew this legislation would allow various states to impose
taxes on Internet-based commerce. The imposition of such taxes could adversely
affect our ability to become profitable.
If we are held liable for publishing certain content on the Internet, we may be
forced to devote significant resources to defend those claims.
As a publisher of online content, we face potential liability for
defamation, negligence, copyright, patent or trademark infringement, or other
claims based on the nature and content of materials that we publish or
distribute. In the past, plaintiffs have brought these types of claims and
sometimes successfully litigated them against online services. If a plaintiff
were to bring a claim against our company, we would incur legal expenses
associated with defending the litigation. Furthermore, there exists the
possibility that we may not prevail. Litigating any one of these claims would be
time-consuming and expensive to defend and could impair our ability to become
profitable.
Since we plan to enter into revenue-sharing contracts with third parties, this
exposure may subject us to legal risks and possible liabilities.
As part of our business, we plan to enter into agreements with sponsors,
content providers, service providers and merchants. As a result, we will be
entitled to receive a share of revenues from the purchase of goods and services
by users of our online properties. Such arrangements may expose us to additional
legal risks and uncertainties, including potential liabilities to consumers of
such products and services. Although we carry general liability insurance, our
insurance may not cover potential claims of this type or may not be adequate to
indemnify us against all potential liability.
Some of the risks that may result from these arrangements with businesses
engaged in electronic commerce include, but are not limited to the following:
o Potential liabilities for illegal activities that may be
conducted by participating merchants;
o Product liability or other tort claims relating to goods or
services sold through third-party commerce web sites;
o Consumer fraud and false or deceptive advertising or sales
practices;
o Breach of contract claims relating to merchant transactions;
o Claims that materials included in merchant web sites or sold by
merchants through these web sites infringe third-party patents,
copyrights, trademarks or other
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intellectual property rights, or are libelous, defamatory or in
breach of third-party confidentiality or privacy rights; and
o Claims relating to any failure of merchants to appropriately
collect and remit sales or other taxes arising from electronic
commerce transactions.
Even to the extent that such claims do not result in material liability,
investigating and defending such claims could cause a strain on our finances,
damage our reputation and distract the attention of our management.
If we experience problems in our distribution operations, we could lose
customers.
We rely upon third-party carriers for product shipments. We are therefore
subject to the risks, including employee strikes and inclement weather,
associated with such carriers' ability to provide delivery services to meet our
shipping needs. Failure to deliver products to our customers in a timely manner
would damage our reputation and brand.
If we ever decide to collect personal information about our users, we may face
potential liability for invasion of privacy.
Although we have a policy against using personal information, current
computing and Internet technology allows us to collect personal information
about our users. We may decide in the future to compile and provide such
information to our electronic commerce partners. If we begin collecting such
information, we may face potential liability for invasion of privacy for
compiling and providing to our electronic commerce partners information based on
questions asked by users and visitors on our web site. Because we may not obtain
permission from users to distribute this information, we may potentially face
liability for invasion of privacy.
Since our officers and directors own a large percentage of our outstanding
shares, they are able to significantly influence matters regarding stockholder
approval.
Our executive officers and directors beneficially own in the aggregate
approximately 25.2% of our outstanding common stock, on a fully diluted basis
and 63.50% of our currently issued and outstanding common stock. These
stockholders may be able to exercise control over all matters requiring approval
by our stockholders, including the election of directors and the approval of
significant corporate transactions. This concentration of ownership may also
have the effect of delaying or preventing an acquisition or change in control of
our company, which could significantly reduce our stock price.
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Since the market for stocks of Internet companies historically has experienced
extreme price fluctuations, our shares may experience extreme price and volume
fluctuations.
The market for the stocks of Internet-related companies has experienced
extreme price and volume fluctuations. The market price of our common stock may
be volatile and may decline. In the past, securities class action litigation has
often been initiated against companies following periods of volatility in the
market price of their securities. If initiated against us, regardless of the
outcome, litigation could result in substantial costs and a diversion of our
management's attention and resources.
If holders of our options or convertible preferred stock exercise their options
or convert their shares, our common stock may be diluted and sales of the shares
may reduce our stock price.
The existence of options and convertible preferred stock may make it more
difficult for us to raise capital when necessary and may depress the market
price of our common stock in any market that may develop for such securities.
Future sales of a substantial number of shares of our common stock in the public
market could reduce the market price of the stock. It could also impair our
ability to raise additional capital by selling more of our common stock.
Future sales of common stock by our existing stockholders could reduce the price
of our common stock.
The market price of our common stock could decline as a result of sales by
our existing stockholders of shares of common stock in the market. Likewise, the
perception that these sales could occur may result in the decline of the market
price of our common stock. These sales also might make it more difficult for us
to sell equity securities in the future at a time and at a price that we deem
appropriate.
Provisions in our charter or agreements may prevent or delay a change of
control.
Provisions of our certificate of incorporation and bylaws as well as
provisions of applicable Delaware law may discourage, delay or prevent a merger
or other change of control that a stockholder may consider favorable. Our board
of directors has the authority to issue up to 10,000,000 shares of preferred
stock and to determine the price and terms, including preferences and voting
rights, of those shares without stockholder approval. We have issued the
following: (1) 1,000,000 shares of Series A preferred stock, convertible into
1,000,000 shares of our common stock, (2) 1,044,950 shares of Series B preferred
stock, convertible into 10,449,500 shares of our common stock, (3) 100,000
shares of Series C preferred stock, convertible into 1,000,000 shares of our
common stock, and (4) 125,000 shares of Series D preferred stock convertible
into 1,250,000 shares of our common stock. Although we have no current plans to
issue additional shares of our preferred stock, any such issuance could, among
other things have the following effect:
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o Delay, defer or prevent an acquisition or a change in control of
our company;
o Discourage bids for our common stock at a premium over the market
price; or
o Reduce the market price of, and the voting and other rights of
the holders of, our common stock.
Furthermore, we are subject to Delaware laws that could have the effect of
delaying, deterring or preventing a change in control of our company. One of
these laws prohibits us from engaging in a business combination with any
interested stockholder for a period of three years from the date the person
became an interested stockholder, unless certain conditions are met. In
addition, certain provisions of our certificate of incorporation and by-laws,
and the significant amount of common stock held by our executive officers,
directors and affiliates, could together have the effect of discouraging
potential takeover attempts or making it more difficult for stockholders to
change management.
We do not expect to pay dividends.
We have not paid dividends on our common stock or preferred stock and do
not expect to do so in the foreseeable future.
If our systems or material third-party systems are not Year 2000 compliant, we
may lose revenues and incur significant costs.
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
failures or miscalculations causing disruptions of normal business activities.
The failure of our internal systems, or any material third-party systems, to be
Year 2000 compliant would have a material adverse effect on our business.
All of our systems were designed subsequent to January 1, 1999, well after
the Year 2000 compliance problem was identified. Accordingly, all of the systems
we have developed use four digits to identify the year rather than two digits.
We have not experienced any adverse effects due to Year 2000 compliance
problems. However, no assurances can be given that we or our suppliers will not
suffer from any unanticipated Year 2000 compliance problems.
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SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
Some of the statements contained in or incorporated by reference in this
prospectus discuss our plans and strategies for our 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 other similar expressions are intended to
identify these forward-looking statements, but are not the exclusive means of
identifying them. These forward-looking statements reflect the current views of
our management; however, various risks, uncertainties and contingencies could
cause our actual results, performance or achievements to differ materially from
those expressed in, or implied by, these statements, including the following:
o the success or failure of our efforts to implement our business
strategy; and
o the other factors discussed under the heading "Risk Factors"
and elsewhere in this prospectus.
We assume no obligation to update publicly any forward-looking statements,
whether as a result of new information, future events or otherwise. For a
discussion of important risks of an investment in our securities, including
factors that could cause actual results to differ materially from results
referred to in the forward-looking statements, see the "Risk Factors" section.
You should carefully consider the information set forth under the caption the
"Risk Factors" section. In light of these risks, uncertainties and assumptions,
the forward-looking events discussed in or incorporated by reference in this
prospectus might not occur.
USE OF PROCEEDS
We will not receive any part of the proceeds from the sale by our
stockholders of our common stock. However, we will receive approximately
$4,430,285 from our stockholders upon the exercise of their currently issued
stock options. The proceeds from their exercises will be used to grow iParty's
business.
SELLING STOCKHOLDERS
This prospectus covers shares of common stock being registered for reoffer
and resale by stockholders who may acquire these shares upon the exercise of
options that they received under the stock plan. The selling stockholders
may decide to resell all, a portion, or none of their shares. We cannot
guarantee that any of the stockholders will sell any or all of the shares of
common stock which they are offering below.
We may file supplements to this prospectus in the future in order to list
additional stockholders. Any stockholders listed will be our "affiliates" (the
definition of affiliates is on the cover page of this prospectus) and will have
acquired any shares they offer under our stock
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option plan.
Following is information about the selling stockholders as of the date of
this prospectus. The column under the heading "Number of Shares of Common Stock
Owned" includes all shares of the named individual, including shares that the
person has the right to acquire within 60 days of the date of this prospectus.
The column under the heading "Number of Shares of Common Stock Acquired Under
the Plan That May be Sold" includes shares that the named individual has the
right to acquire by exercising options granted under our stock option plan
whether or not fully vested.
<TABLE>
<CAPTION>
Name Number of Shares Number of Shares of
of Common Stock Common Stock Acquired Number of Shares of Percentage of
Owned(1) Under the Plan That Common Stock Owned Class After the
May be Sold After the Offering(1)
Offering(2)
- ------------------------------ -------------------- ----------------------- --------------------- ------------------
<S> <C> <C> <C> <C>
Sal Perisano 872,230 (3) 872,230 -- *
Chief Executive Officer
Maureen Broughton Murrah 300,000(4) 300,000 -- *
Former President
Patrick Farrell 190,000(5) 190,000 -- *
Senior Vice President and
Chief Financial Officer
Ajmal Kahn 565,000(6) 75,000 490,000 4.27%
Director
Robert H. Lessin 7,348,268(7) 75,000 7,273,268 59.23%
Director
Stuart G. Moldaw 125,000(8) 25,000 100,000 *
Director
</TABLE>
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<TABLE>
<CAPTION>
Name Number of Shares Number of Shares of
of Common Stock Common Stock Acquired Number of Shares of Percentage of
Owned(1) Under the Plan That Common Stock Owned Class After the
May be Sold After the Offering(1)
Offering(2)
- ------------------------------ -------------------- ----------------------- --------------------- ------------------
<S> <C> <C> <C> <C>
- ------------------------------ -------------------- ----------------------- --------------------- ------------------
TOTALS 9,400,498 1,537,230 7,863,268 63.50%
============================== ==================== ======================= ===================== ==================
</TABLE>
- --------------------------
* Represents less than one (1%) percent.
(1) 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, represent shares for which the beneficial owner
has sole voting and investment power. The percentage of class is
calculated in accordance with Rule 13d-3.
(2) Does not constitute a commitment to sell any or all of the stated
number of shares of Common Stock. The number of shares offered shall be
determined from time to time by each selling stockholder at his sole
discretion.
(3) Includes 75,000 shares which may be acquired upon the exercise of
presently exercisable options issued pursuant to our stock option plan.
(4) Includes 250,000 shares which may be acquired upon the exercise of
presently exercisable options issued pursuant to our stock option plan.
(5) Includes 50,000 shares which may be acquired upon the exercise of
presently exercisable options issued pursuant to our stock option plan.
(6) Includes 75,000 shares which may be acquired upon the exercise of
presently exercisable options issued pursuant to our stock option plan,
and 25,000 shares of Common Stock held by Verus Capital Corp., of which
Mr. Kahn 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.
(7) Includes (i) 6,000,000 shares of Common Stock owned by iParty LLC, in
which Mr. Lessin is a member and the manager and a 78.34% owner; (ii)
75,000 shares of Common Stock which may be acquired upon the exercise
of presently exercisable options issued pursuant to our stock option
plan; (iii) 273,268 shares of Common Stock which may acquired upon the
exercise of presently exercisable warrants; and (iv) 1,000,000 shares
of
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Common Stock which may be acquired upon the conversion of 100,000
shares of presently convertible Series B Convertible Preferred Stock.
(8) Includes 100,000 shares of Common Stock which may be acquired upon the
conversion of 10,000 shares of presently convertible Series B
Convertible Preferred Stock and 25,000 shares of Common Stock which may
be acquired upon the exercise of presently exercisable options issued
pursuant to our stock option plan.
PLAN OF DISTRIBUTION
This prospectus relates to the offer of our common stock by the selling
stockholders stock from time to time following the effective date of the
registration statement filed with the SEC with respect to this prospectus. As
used herein, "selling stockholders" includes donees and pledgees selling shares
received from a named selling stockholder after the date of this document.
Registration of our common stock does not necessarily mean that any of the
shares of our common stock will be sold by the selling stockholders within any
particular time frame.
We will not receive any of the proceeds from the sale of our common stock
offered by the selling stockholders.
The selling stockholders may sell shares of common stock in transactions on
the American Stock Exchange, in negotiated transactions, or a combination of the
two. The shares may be sold at market prices prevailing at the time of sale, at
prices related to market prices or at negotiated prices. The selling
stockholders may sell the shares directly to purchasers or through underwriters
or broker-dealers who may act as agents or principals.
The sale of our common stock by the selling stockholders may be affected
from time to time by selling the stock directly to purchasers or to or through
broker-dealers. In connection with any sale, a broker-dealer may act as agent
for the selling stockholders or may purchase from the selling stockholders all
or a portion of our common stock registered herein for the selling stockholders
as principal, and sales may be made pursuant to any of the methods described
below. These sales may be made on the American Stock Exchange, in negotiated
transactions or otherwise, in each case at prices and at terms then prevailing
or at prices related to the then-current market prices or at prices otherwise
negotiated.
The sale of our common stock by a selling stockholder may be also affected
from time to time in one or more underwritten transactions at a fixed price or
prices, which may be changed, or in other transactions at market prices
prevailing at the time of sale, at prices related to the prevailing market
prices or at negotiated prices. Any underwritten offering may be on either a
"best efforts" or a "firm commitment" basis. In connection with any underwritten
offering, underwriters or agents may receive compensation in the form of
discounts, concessions or commissions from the selling stockholders and/or from
purchasers for whom they may act as agents. Underwriters may sell our common
stock to or through dealers, and the dealers may receive compensation in the
form of discounts, concessions or commissions from the underwriters and/or
commissions from the purchasers for whom they may act as agents. Any such
compensation may be higher than customary compensation.
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The selling stockholders and any underwriters, dealers or agents that
participated in the distribution of our common stock may be deemed to be
underwriters within the meaning of the Securities Act of 1933, as amended, and
any profit on the sale of our common stock by them and any discounts,
commissions or concessions received by those underwriters, dealers or agents
might be deemed to be underwriting discounts and commissions under the
Securities Act.
At the time a particular offer of our common stock is made by a selling
stockholder, a prospectus supplement, if required, will be distributed that will
set forth the names of any underwriters, dealers or agents and any discounts,
commissions and other terms constituting compensation from the selling
stockholders and any other required information.
The selling stockholders may also sell our shares in one or more of the
following transactions:
o block transactions, which may involve crosses, in which a
broker-dealer may sell all or a portion of the shares as agent but
may position and resell all or a portion of the block as principal
to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by a
broker-dealer for its own account pursuant to a prospectus
supplement;
o a special offering, an exchange distribution or a secondary
distribution in accordance with applicable exchange rules;
o ordinary brokerage transactions and transactions in which these
broker-dealers solicit purchasers;
o sales at the market to or through a specialist or market maker
or into an existing trading market, on an exchange or otherwise,
for the shares; and
o sales in other ways not involving market makers or established
trading markets, including direct sales to purchasers.
In effecting sales, broker-dealers engaged by the selling stockholders may
arrange for other broker-dealers to participate. Broker-dealers will receive
commissions or other compensation from the selling stockholders in amounts to be
negotiated immediately prior to the sale. Broker-dealers also may receive
compensation from purchasers of our common stock from the selling stockholders,
which is not expected to exceed amounts that are customary for the types of
transactions involved.
In connection with distributions of our common stock or otherwise, the
selling stockholders may enter into hedging transactions with broker-dealers or
others prior to or after the effective time of this registration statement.
These broker-dealers may engage in short sales of our common stock or other
transactions in the course of hedging the positions assumed by persons in
connection with hedging transactions or otherwise. The selling stockholders also
may sell our common stock short and redeliver our common stock to close out
short positions; enter into option or other transactions with broker-dealers or
others which may involve the delivery to these persons of our common stock
offered hereby, which common stock these people may resell pursuant to this
prospectus; and/or pledge our common stock to a broker or dealer or others and,
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upon a default, these people may effect sales of our common stock pursuant to
this prospectus. In addition, any of our common stock covered by this prospectus
that qualifies for resale pursuant to Rule 144 of the Securities Act may be sold
under Rule 144, rather than with this prospectus.
In order to comply with securities laws of certain states, if applicable,
our common stock held by the selling stockholders may be sold only through
registered or licensed brokers or dealers.
Until the distribution of our common stock held by the selling stockholders
is completed, rules of the SEC may limit the ability of any underwriters and
selling group members to bid for and purchase our common stock. As an exception
to these rules, underwriters are permitted to engage in certain transactions
that stabilize the price of our common stock. These transactions consist of bids
or purchases for the purpose of pegging, fixing or maintaining the price of our
common stock.
The lead underwriters also may impose a penalty bid on certain other
underwriters participating in the offering and selling group members. This means
that, if the lead underwriters purchase our common stock in the open market to
reduce the underwriters' short position or to stabilize the price of our common
stock, they may reclaim the amount of any selling concession from the
underwriters and selling group members who sold our common stock as part of the
offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of these purchases. The imposition of a penalty bid
also might have an effect on the price of a security to the extent that it
discouraged resale of the security before the distribution is completed.
We make no representation or prediction as to the direction or magnitude of
any effect that the transactions described above might have on the price of our
common stock. In addition, we make no representation that underwriters will
engage in these transactions or that these transactions, once commenced, will
not be discontinued without notice.
Under the rules and regulations of the Exchange Act, a person engaged in an
offering of securities may not simultaneously engage in buying and selling of
securities for its own account, prior to the day of the pricing of the
securities that are part of the distribution for a period of:
o one (1) business day if such securities have an average daily
trading volume over a two month period of $100,000 and the value
of the issuer's equity securities held by no-affiliate is $25
million or more; or
o five (5) business days.
These restrictions do not apply to those trading in "actively traded
securities" but always apply to the issuer or selling stockholders and
affiliates. "Actively traded securities" are securities with an average daily
trading volume of $1 million issued by companies with at least $150 million
worth of shares held by non-affiliates. In addition, and without limiting the
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foregoing, the stockholders and any other person participating in that
distribution will be subject to applicable provisions of the Exchange Act. These
provisions may limit the timing of purchases and sales of any of the shares of
common stock by the stockholders and any other person.
We will pay all expenses associated with filing and maintaining the
effectiveness of this registration statement. Other expenses incident to the
offering and sale of our common stock by the selling stockholders, including
brokerage and underwriting commissions, will be paid by the selling
stockholders.
INTEREST OF NAMED EXPERTS AND COUNSEL
We granted options to purchase an aggregate of 75,000 shares of our common
stock to an attorney affiliated with the firm of Camhy Karlinsky & Stein LLP,
our legal counsel, at an exercise price of $2.50 per share with respect to
25,000 shares, at an exercise price of $2.00 with respect to 25,000 shares and
at an exercise price of $3.13 with respect to 25,000 shares.
DOCUMENTS INCORPORATED BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be a part of this prospectus. Information that we file with the
SEC in the future will automatically update and supercede this information. We
incorporate by reference the documents listed below and all future filings we
will make with the SEC under Sections 13(a), 13(c) 14 or 15(d) of the Exchange
Act:
1. Registration Statement on Form 10-SB, as filed with the SEC on
March 8, 1999, including all amendments or reports.
2. Quarterly Report on Form 10-QSB for the quarter ended June 30, 1999.
3. Quarterly Report on Form 10-QSB for the quarter ended
September 30, 1999.
4. Registration Statement on Form 10-SB, as filed with the SEC on
March 8, 1999, including all amendments or reports (with respect to
the description of the common stock).
You may obtain copies of any of these documents as well as future filings
by iParty, from the SEC or from us. Our address and those of the SEC are located
on page 4 of this prospectus.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our certificate of incorporation and bylaws provide that we indemnify all
of our directors and officers to the fullest extent permitted by the Delaware
General Corporation Law. Under our
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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, shall 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 may be permitted to directors, officers and
persons controlling our company pursuant to the foregoing provision, or
otherwise, we has been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
We maintain a directors' and officers' liability insurance policy covering
certain liabilities that may be incurred by directors and officer in connection
with the performance of their duties. We pay the entire premium for the
liability insurance.
LEGAL MATTERS
Camhy Karlinsky & Stein LLP, New York, New York will review certain legal
matters in connection with this offering on behalf of iParty.
EXPERTS
Our consolidated financial statements as of December 31, 1998 and for the
year then ended (included in our registration statement on Form 10-SB, filed
with the SEC on March 8, 1999 including all amendments or reports), have been
audited by Richard A. Eisner & Company, LLP, independent auditors, as set forth
in their report thereon included therein and incorporated herein by reference.
Such financial statements are incorporated by reference in reliance upon such
report given upon the authority of that firm as experts in accounting and
auditing.
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Page No.
- ------ --------
<S> <C> <C>
5.1 Opinion of Camhy Karlinsky & Stein LLP.
23.1 Consent of Richard A. Eisner & Company, LLP, certified accountants.
23.2 Consent of Camhy Karlinsky & Stein LLP (contained in
Exhibit 5.1).
24.1 Power of Attorney (included on signature page of this
registration statement).
</TABLE>
<PAGE>
EXHIBIT 5.1
OPINION OF CAMHY KARLINSKY & STEIN LLP
<PAGE>
February 10, 2000
iParty Corp.
41 East 11th Street, 11th Floor
New York, New York 10003
Re: iParty Corp.
Registration Statement on Form S-8
Filed on February 14, 2000
Dear Sir/Madam:
We have acted as counsel to iParty Corp., a Delaware corporation (the
"Registrant"), in connection with a Registration Statement on Form S-8 (the
"Registration Statement") being filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the "Act"), relating to
the offering of up to 4,000,000 shares common stock, $.001 par value per share
(the "Shares") issuable under the Registrant's 1998 Incentive and Nonqualified
Stock Option Plan (the "Plan").
In connection with the foregoing, we have examined originals or copies,
satisfactory to us, of all such corporate records and of all such agreements,
certificates and other documents as we have deemed relevant and necessary as a
basis for the opinion hereinafter expressed. In such examination, we have
assumed the genuineness of all signatures, the authenticity of all documents
submitted to us as copies. As to any facts material to such opinion, we have, to
the extent that relevant facts were not independently established by us, relied
on certificates of public officials and certificates of officers or other
representatives of the Registrant.
Based upon and subject to the foregoing, we are of the opinion that, when
the Registration Statement has become effective under the Act, and when the
Shares have been issued and paid for in accordance with the plan or otherwise as
described in the Registration Statement, the Shares will be validly issued,
fully paid and non-assessable.
We are members of the bar of the State of New York and are not licensed or
admitted to practice law in any other jurisdiction. Accordingly, we express no
opinion with respect to the laws of any jurisdiction other than the State of New
York, Delaware General Corporate Law and the federal laws of the United States.
We assume no obligation to advise you of any changes to this opinion which
may come to our attention after the date hereof. This opinion may not be relied
upon or furnished to any other person except the addressee hereof without the
express written consent of this firm.
We hereby consent to the reference to our name in the Registration
Statement under the caption "Legal Matters" and further consent to the inclusion
of this opinion as Exhibit 5.1 to the Registration Statement. In giving such
consent, we do not thereby concede that we are in the category of persons whose
consent is required under Section 7 of the Securities Act, or the rules and
regulations thereunder, or that we are "experts" within the meaning of the
Securities Act or such rules and regulations.
Very truly yours,
CAMHY KARLINSKY & STEIN LLP
<PAGE>
EXHIBIT 23.1
CONSENT OF RICHARD A. EISNER & COMPANY, LLP
<PAGE>
Consent of Independent Certified Public Accountants
We consent to the reference to our firm under the caption "Experts" in this
Registration Statement on Form S-8 pertaining to the 1998 Incentive and
Nonqualified Stock Option Plan of iParty Corp., and to the incorporation by
reference therein of our report dated February 26, 1999, with respect to the
consolidated financial statements of iParty Corp. as at and for the year ended
December 31, 1998 included in Amendment No. 2 to the Registration Statement on
Form 10-SB filed on October 19, 1999 with the Securities and Exchange
Commission.
RICHARD A. EISNER & COMPANY, LLP
New York, New York
February 8, 2000
<PAGE>
EXHIBIT 23.2
CONSENT OF CAMHY KARLINSKY & STEIN LLP
(Contained in EXHIBIT 5.1)
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
(Included on signature page of this registration statement)
