Exhibit 10.1

SUPPLY AGREEMENT

This Supply Agreement (the “Agreement”) is dated as of August 7, 2006, by and
between Amscan Inc., a New York corporation (“Amscan”), and iParty Corp. a
Delaware corporation (“iParty”).  Amscan and iParty are sometimes referred to
herein collectively as the “parties”.

In consideration of the mutual promises herein contained and for all valuable
consideration, the parties hereby agree to be legally bound as follows:

1.             SUPPLY AGREEMENT.

A.                                   DURING THE TERM, AND SUBJECT TO THE TERMS
AND CONDITIONS SET FORTH HEREIN, IPARTY HEREBY APPOINTS AMSCAN AS A SUPPLIER OF
PARTY GOODS (AS HEREINAFTER DEFINED) AND AMSCAN SHALL SUPPLY IPARTY WITH PARTY
GOODS AS ORDERED BY IPARTY ON THE TERMS SET FORTH IN THIS AGREEMENT.

B.                                     IPARTY AGREES THAT, DURING THE TERM, AND
SUBJECT TO THE TERMS AND CONDITIONS SET FORTH HEREIN, AMSCAN SHALL SUPPLY PARTY
GOODS FOR STORES WHICH IPARTY NOW OR HEREAFTER OWNS OR OPERATES DURING THE TERM
AND IPARTY SHALL PURCHASE PARTY GOODS FROM AMSCAN IN THE AGGREGATE ANNUAL
MINIMUM AMOUNTS  SET FORTH ON SCHEDULE “A” ATTACHED HERETO (THE “ANNUAL PURCHASE
COMMITMENT”).  NOTWITHSTANDING THE FOREGOING, THIS AGREEMENT SHALL NOT PROHIBIT
IPARTY FROM: (I) OBTAINING ANY PARTY GOODS FROM ANY PERSON IN EXCESS OF THE
ANNUAL PURCHASE COMMITMENT, (II) OBTAINING PARTY GOODS FROM ANY OTHER PERSON TO
THE EXTENT THAT AMSCAN IS UNABLE TO FILL AN ORDER FROM IPARTY FOR SUCH PARTY
GOODS, OR (III) OBTAINING PARTY GOODS FROM ANY OTHER PERSON IF AMSCAN SHALL NOT
BE ABLE TO PROVIDE IPARTY WITH COMPETITIVE PRICING.  AMSCAN SHALL BE DEEMED
“UNABLE TO FILL AN ORDER” FOR PURPOSES OF THIS AGREEMENT IF AMSCAN IS UNABLE TO
FILL AT LEAST EIGHTY PERCENT (80%) OF PARTY GOODS ORDERS WITHIN TEN (10) DAYS OF
SUBMISSION OF SUCH ORDERS BY IPARTY FOR A PERIOD OF AT LEAST SIXTY (60) DAYS.

C.                                     “PARTY GOODS” MEANS ALL KINDS OF PARTY
GOODS, INCLUDING WITHOUT LIMITATION PAPER AND PLASTIC TABLEWARE, ACCESSORIES AND
NOVELTIES, DISTRIBUTED BY AMSCAN OR ITS AFFILIATES, INCLUDING (I) ALL SUCH GOODS
CURRENTLY STOCKED BY IPARTY AND (II) ANY NEW GOODS EITHER DEVELOPED OR ACQUIRED
BY AMSCAN OR ITS AFFILIATES AFTER THE DATE HEREOF.  NOTWITHSTANDING ANYTHING SET
FORTH HEREIN, “PARTY GOODS” FOR THE PURPOSES OF THIS AGREEMENT SHALL NOT INCLUDE
METALLIC BALLOONS.

D.                                    THIS AGREEMENT IS NOT A REQUIREMENTS
CONTRACT AND NOTHING HEREIN SHALL BE CONSTRUED TO OBLIGATE IPARTY TO PURCHASE
ANY PARTICULAR PRODUCT OR PRODUCTS OR TYPE OF PRODUCT OR PRODUCTS EXCLUSIVELY
FROM AMSCAN.

2.             PRICING AND ANNUAL PURCHASE COMMITMENT.

A.                                   DURING THE TERM, “NON-CONTRACT PARTY GOODS”
SOLD BY AMSCAN TO IPARTY IN ACCORDANCE WITH THE PROVISIONS OF THIS AGREEMENT
WILL BE INVOICED BY AMSCAN IN ACCORDANCE WITH THE PRICING SCHEDULE SET FORTH ON
SCHEDULE B, BASED ON AMSCAN’S

--------------------------------------------------------------------------------

 

manufacturer’s suggested retail price (“MSRP”), as reflected in Amscan’s
catalog.  “Non-contract Party Goods,” as used herein, shall mean all Party Goods
contained in Amscan catalogs, except for those Party Goods set forth on Schedule
“B” hereto, as the same may be from time to time amended.  In the event that
Amscan’s price to iParty for any particular Party Goods, calculated in
accordance with Schedule B, is not competitive with pricing available from a
competitive supplier, nothing herein shall require iParty to buy such Party
Goods from Amscan, however, iParty shall remain subject to the terms of this
Agreement, including the Annual Purchase Commitment.

B.                                     NON-CONTRACT PARTY GOODS PURCHASED BY
IPARTY FOR ITS STORES SHALL ALSO INITIALLY BE SUBJECT TO AN ADDITIONAL
DISCRETIONARY TERRITORY DEVELOPMENT REBATE (THE “BASE REBATE”) AS SET FORTH ON
SCHEDULE C HERETO, CALCULATED BASED ON THE INVOICED PRICE OF PRODUCTS SHIPPED IN
EACH CALENDAR QUARTER DURING THE TERM, BEFORE REDUCTION FOR CREDITS FOR DAMAGED
GOODS, REBATES AND ALLOWANCES (INCLUDING ANY REDUCTION ON ACCOUNT OF ANY BASE
REBATES AND INCENTIVE REBATES UNDER THIS AGREEMENT OR UNDER ANY TERM SHEET IN
EFFECT BETWEEN THE PARTIES).  NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH
HEREIN, THE BASE REBATE IS A DISCRETIONARY REBATE BY AMSCAN AND MAY BE
ELIMINATED OR REDUCED AT ANY TIME IN AMSCAN’S SOLE DISCRETION BASED UPON
IPARTY’S GOOD FAITH CONTINUED DEVELOPMENT OF THE TERRITORY; PROVIDED, HOWEVER,
THAT DEVELOPMENT OF THE TERRITORY SHALL NOT BE DEEMED TO REQUIRE THE OPENING OF
ANY NEW STORES (AS OPPOSED TO PROMOTING STORES ALREADY OPEN).  NO BASE REBATE
PREVIOUSLY APPLIED TO PURCHASES BY IPARTY IS SUBJECT TO RECAPTURE BY AMSCAN,
EXCEPT TO THE EXTENT OF RETURNS FOR DAMAGED OR DEFECTIVE GOODS.  THE BASE REBATE
SHALL BE PAID OR CREDITED IN ACCORDANCE WITH THE PROVISIONS OF SCHEDULE B.

C.                                     NON-CONTRACT PARTY GOODS SHALL ALSO BE
SUBJECT TO AN INCENTIVE REBATE (AS DEFINED ON SCHEDULE “C”), WHICH SHALL
COMMENCE ON THE DATE HEREOF.  THE INCENTIVE REBATE SHALL BE CALCULATED, BASED ON
INCREASED PURCHASES, IN ACCORDANCE WITH SCHEDULE “C”.  THE INCENTIVE REBATE IS
NON-DISCRETIONARY, IRRESPECTIVE OF ANY REDUCTION IN OR ELIMINATION OF THE BASE
REBATE AND IRRESPECTIVE OF WHETHER OR NOT IPARTY HAS ACHIEVED THE ANNUAL
PURCHASE COMMITMENT DESCRIBED IN SECTION 2.F.  THE INCENTIVE REBATE SHALL BE
PAID IN ACCORDANCE WITH THE PROVISIONS OF SCHEDULE B.

D.                                    DURING THE TERM, “CONTRACT PARTY GOODS”
(AS HEREINAFTER DEFINED) SHALL BE SOLD BY AMSCAN TO IPARTY IN ACCORDANCE WITH
THE PROVISIONS OF THIS AGREEMENT, AND SHALL BE INVOICED BY AMSCAN AT THE NET
PRICES SET FORTH ON SCHEDULE “B”.  “CONTRACT PARTY GOODS” SHALL MEAN THE PARTY
GOODS SET FORTH ON SCHEDULE “B” HERETO, AS THE SAME MAY BE AMENDED FROM TIME TO
TIME.

E.                                      COMMENCING ON THE DATE OF THIS
AGREEMENT, IPARTY SHALL COMMENCE TO INCREASE, IN A COMMERCIALLY REASONABLE
MANNER, ITS PURCHASES OF AMSCAN PARTY GOODS OVER THE BASE PURCHASE AMOUNT, AS
DEFINED ON SCHEDULE “A”, TO THE “ANNUAL PURCHASE COMMITMENT,” AS DEFINED ON
SCHEDULE “A”.

2

--------------------------------------------------------------------------------

 

I.                                          DURING EACH CALENDAR YEAR BEGINNING
ON JANUARY 1, 2008, IPARTY SHALL PURCHASE NOT LESS THAN THE ANNUAL PURCHASE
COMMITMENT FOR SUCH CALENDAR YEAR.

II.                                       IN THE EVENT THAT IPARTY FAILS TO
PURCHASE AT LEAST THE ANNUAL PURCHASE COMMITMENT, AS DETERMINED AT THE END OF
ANY SUCH CALENDAR YEAR, IPARTY MAY PLACE AN ORDER TO FULFILL ITS ANNUAL PURCHASE
COMMITMENT FOR THE IMMEDIATELY PRECEDING CALENDAR YEAR NO LATER THAN THE
THIRTIETH (30TH) DAY FOLLOWING THE END OF SUCH CALENDAR YEAR.

III.                                    IN THE EVENT THAT IPARTY DOES NOT PLACE
AN ORDER SUFFICIENT TO FULFILL ITS ANNUAL PURCHASE COMMITMENT FOR SUCH CALENDAR
YEAR WITHIN SUCH THIRTY (30) DAY PERIOD, AMSCAN SHALL BILL IPARTY AN AMOUNT
EQUAL TO (I) THE ANNUAL PURCHASE COMMITMENT FOR SUCH IMMEDIATELY PRECEDING
CALENDAR YEAR MULTIPLIED BY THE TOTAL NUMBER OF IPARTY STORES OPEN DURING SUCH
CALENDAR YEAR, LESS (II) THE AGGREGATE TOTAL AMOUNT INVOICED TO IPARTY FOR PARTY
GOODS PURCHASED FROM AMSCAN FOR ALL IPARTY STORES DURING OR IN RESPECT OF SUCH
IMMEDIATELY PRECEDING CALENDAR YEAR (THE “PENALTY”).  THE PENALTY SHALL BE DUE
AND PAYABLE ON THE TERMS SET FORTH ON SCHEDULE B ATTACHED HERETO.

IV.                                   IN CALCULATING THE PENALTY FOR IPARTY
STORES OPEN FOR ONLY A PORTION OF SUCH CALENDAR YEAR (IF ANY), THE CALCULATION
SHALL BE MADE ON A PRO RATA BASIS FOR SUCH STORES BASED ON THE NUMBER OF MONTHS
DURING SUCH YEAR THAT EACH SUCH STORE WAS OPEN (SUCH NUMBER, WITH RESPECT TO
EACH SUCH STORE, ROUNDED TO THE NEAREST WHOLE NUMBER).

V.                                      IN THE EVENT THAT EITHER (I) A PENALTY
IS PAID IN RESPECT OF A PRECEDING CALENDAR YEAR, OR (II) IPARTY ORDERS AN AMOUNT
OF PARTY GOODS WITHIN 30 DAYS FOLLOWING THE CLOSE OF ANY CALENDAR YEAR IN ORDER
TO AVOID A SHORTFALL IN THE ANNUAL PURCHASE COMMITMENT FOR THE PREVIOUS CALENDAR
YEAR, THEN NEITHER THE DOLLAR AMOUNT OF SUCH PENALTY PAID AND/OR THE PARTY GOODS
ORDERED THAT REPRESENT A SHORTFALL FROM A PRIOR CALENDAR YEAR SHALL BE INCLUDED
IN THE CALCULATION OF TOTAL PARTY GOODS PURCHASED FOR PURPOSES OF DETERMINING
WHETHER IPARTY HAS ACHIEVED ITS ANNUAL PURCHASE COMMITMENT FOR THE CALENDAR YEAR
IN WHICH THE PENALTY WAS PAID OR SHORTFALL MADE UP, AS THE CASE MAY BE.

VI.                                   NOTWITHSTANDING ANYTHING TO THE CONTRARY
SET FORTH HEREIN, IF IPARTY FAILS TO MEET THE ANNUAL PURCHASE COMMITMENT FOR ANY
RELEVANT CALENDAR YEAR, AS A RESULT OF (I) AMSCAN BEING “UNABLE TO FILL AN
ORDER,” AS DEFINED IN PARAGRAPH 1.B, OR (II) THE RETURN OF DAMAGED AND/OR
DEFECTIVE PRODUCTS IN EXCESS OF THE CUSTOMARILY ANTICIPATED RATE OF DAMAGED OR
DEFECTIVE PRODUCTS OCCURRING IN THE ORDINARY COURSE, THEN, THE PURCHASE PRICE OF
THE GOODS ORDERED, BUT NOT AVAILABLE, OR RETURNED AS DAMAGED OR DEFECTIVE SHALL
BE DEDUCTED FROM THE ANNUAL PURCHASE COMMITMENT SOLELY FOR PURPOSES OF
CALCULATING WHETHER A PENALTY IS DUE IN RESPECT OF SUCH CALENDAR YEAR (AND ANY
SUBSEQUENT CALENDAR YEAR FOR WHICH SUCH CALCULATION MAY BE RELEVANT).

3

--------------------------------------------------------------------------------

 

THE ANNUAL PURCHASE COMMITMENT SHALL ALSO BE SUBJECT TO ADJUSTMENT AS PROVIDED
FOR IN SCHEDULE B IN THE EVENT THAT AMSCAN IS UNABLE TO PROVIDE COMPETITIVE
PRICING IN ACCORDANCE WITH SCHEDULE B.

F.                                      Notwithstanding anything to the
contrary, Amscan and iParty acknowledge that the Annual Purchase Commitment is
an aggregate commitment and nothing in this Agreement shall be construed to mean
or to imply that iParty shall be obligated to purchase any specific amount of
Party Goods with respect to any individual store or group of stores, and any
such failure in respect of any store or group of stores will not result in a
Penalty so long as iParty has purchased an aggregate amount of Amscan Party
Goods equal to or greater than the Annual Purchase Commitment.

F.                                      NOTWITHSTANDING ANYTHING TO THE CONTRARY
SET FORTH HEREIN, THE PARTIES ACKNOWLEDGE AND AGREE THAT AMSCAN’S MSRP PRICES
FOR NON-CONTRACT PARTY GOODS AND/OR PRICES FOR CONTRACT PARTY GOODS MAY INCREASE
FROM TIME TO TIME, SUBJECT TO MARKET CONDITIONS AND CONSISTENT WITH AMSCAN’S
USUAL PRACTICES.

H.                                    In addition to the Base Rebate and the
Incentive Rebate provided for under this Agreement, iParty shall be eligible for
such other rebates, allowances, credits, freight, seasonal dating, new store
dating, and other similar incentives contained in Term Sheets in effect from
time to time between Amscan and iParty, consistent with past practices, custom,
and usage between the Parties in this respect.

3.             PAYMENT TERMS.

A.                                   PAYMENT FOR ALL “EVERYDAY PARTY GOODS”,
SHIPPED BY AMSCAN SHALL BE MADE ON THE TERMS SET FORTH ON SCHEDULE B.

B.                                     ANY AND ALL TAXES, EXCISES, ASSESSMENTS,
LEVEES, IMPORTS, DUTIES, COSTS AND PENALTIES THAT MAY BE ASSESSED OR IMPOSED BY
ANY GOVERNMENTAL AGENCY IN CONNECTION WITH THIS AGREEMENT SHALL BE PAID BY THE
PARTY ON WHICH THEY ARE IMPOSED AND SHALL BE THE SOLE OBLIGATION OF SUCH PARTY.

C.                                   Existing Amscan receivables owed by iParty
to Amscan as of the date hereof, in the approximate amount of $1,150,000.00 (the
“Extended Receivables”), shall have the payment date extended until October 31,
2006.  Commencing on October 2, 2006 until October 31, 2006, iParty, at its
option, may elect to convert the remaining balance of the Extended Receivables
into a promissory note (the “Note”).  The Note, if issued, will bear interest at
the rate of 11.0% per annum, and shall be payable in thirty-six (36) equal
monthly installments of principal and interest commencing on November 1, 2006,
and on the first day of each month thereafter until October 1, 2009, when the
remaining principal balance and all accrued and unpaid interest shall be due and
payable.  The Note, if issued, shall be in the form annexed hereto as Exhibit
“1”, and subordinated to certain “Senior Debt” of iParty, as provided in the
Subordination Agreement in the form of annexed hereto as  Exhibit “2” (the
“Subordination Agreement”), which Amscan will execute upon issuance of the
Note.  At the request of iParty Amscan will also

4

--------------------------------------------------------------------------------

 

execute a Subordination Agreement, on terms materially consistent with and
similar to the Subordination Agreement, with any successor holder of Senior
Indebtedness (as defined in the Note), including specifically with any Senior
Subordinated Lender (as defined in the Note).

4.             SHIPMENT TERMS.

A.                                   SHIPMENT TERMS ARE AS SET FORTH ON SCHEDULE
B.

B.                                     AMSCAN SHALL USE ITS COMMERCIALLY
REASONABLE EFFORTS TO FULFILL THE ORDERS FOR PARTY GOODS PLACED BY IPARTY
PURSUANT TO THE TERMS OF THIS AGREEMENT.

C.                                     AMSCAN AGREES THAT IT WILL:

(i)                                     Continue to handle and fulfill orders by
iParty in a manner consistent with past practice, and in the event of the
occurrence of a force majuere event, including any shortage, embargo, strike or
other similar situation, it will treat iParty consistently with its treatment of
other customers in order fulfillment;

(ii)                                  Provide products of comparable quality to
the products being supplied to iParty and its other customers at the time of the
execution of this Agreement, free from material defects in material, workmanship
and design; and

(iii)                               Provide products manufactured and labeled in
compliance with all applicable laws and regulations.

5.             TERM OF AGREEMENT; TERMINATION.

A.                                   THIS AGREEMENT SHALL BE DEEMED EFFECTIVE
FROM AND AFTER AUGUST 7, 2006 THROUGH AND INCLUDING DECEMBER 31, 2012 (THE
“TERM”), UNLESS SOONER TERMINATED AS FOLLOWS:

I.                                          EITHER PARTY HERETO MAY TERMINATE
THIS AGREEMENT UPON WRITTEN NOTICE TO THE OTHER PARTY IF THE OTHER PARTY HERETO
BECOMES THE SUBJECT OF A VOLUNTARY OR INVOLUNTARY PETITION IN BANKRUPTCY OR ANY
PROCEEDING RELATING TO INSOLVENCY, RECEIVERSHIP, LIQUIDATION, OR COMPOSITION FOR
THE BENEFIT OF CREDITORS, WHICH PETITION OR PROCEEDING IS NOT DISMISSED WITH
PREJUDICE WITHIN SIXTY (60) DAYS AFTER FILING.

II.                                       EITHER PARTY HERETO MAY TERMINATE THIS
AGREEMENT UPON WRITTEN NOTICE TO THE OTHER PARTY IF THE OTHER PARTY BREACHES ANY
EXPRESS MATERIAL TERM OR CONDITION OF THIS AGREEMENT AND FAILS TO CURE THAT
BREACH WITHIN FORTY-FIVE (45) DAYS AFTER RECEIVING WRITTEN NOTICE OF THE
BREACH.  IN THE EVENT THAT IPARTY GIVES WRITTEN NOTICE TO AMSCAN OF ANY GOOD
FAITH DISPUTE WITH RESPECT TO ANY INVOICE(S) (WHICH NOTICE SHALL INCLUDE
SPECIFIC DETAILS REGARDING EACH DISPUTED INVOICE(S)) WITHIN FIFTEEN DAYS AFTER
RECEIPT BY IPARTY OF WRITTEN NOTICE FROM AMSCAN OF NON-PAYMENT OF SUCH
INVOICE(S),

5

--------------------------------------------------------------------------------

 

THEN THE FAILURE BY IPARTY TO PAY SUCH DISPUTED AMOUNT SHALL NOT BE DEEMED TO BE
A BREACH OF THIS AGREEMENT; PROVIDED THAT EITHER PARTY MAY IMMEDIATELY SUBMIT
THE DISPUTE TO ARBITRATION PURSUANT TO THIS AGREEMENT.

B.                                     EXCEPT AS SET FORTH HEREIN, ANY
TERMINATION OR EXPIRATION OF THIS AGREEMENT SHALL BE WITHOUT PREJUDICE TO ANY
RIGHT WHICH SHALL HAVE ACCRUED TO THE BENEFIT OF ANY PARTY AND SHALL NOT RELIEVE
ANY PARTY OF ANY OBLIGATION WHICH HAS ACCRUED PRIOR TO THE EFFECTIVE DATE OF
SUCH TERMINATION OR EXPIRATION (INCLUDING, WITHOUT LIMITATION, ANY CREDITS
AND/OR ALLOWANCES IN ACCORDANCE WITH THE PROVISIONS OF THIS AGREEMENT), WHICH
OBLIGATIONS SHALL REMAIN IN FULL FORCE AND EFFECT FOR THE PERIOD PROVIDED
THEREIN OR, IF NO PERIOD IS PROVIDED THEREIN, THEN SUCH OBLIGATIONS SHALL REMAIN
IN FULL FORCE AND EFFECT INDEFINITELY (PROVIDED THAT TO THE EXTENT THAT A PARTY
IS ENTITLED TO A CREDIT AT A TIME WHEN IT DOES NOT OWE ANY AMOUNTS TO THE OTHER
PARTY PURSUANT TO THIS AGREEMENT, THEN SUCH PARTY SHALL BE ENTITLED TO RECEIVE A
PAYMENT FROM THE OTHER PARTY IN AN AMOUNT EQUAL TO THE CREDIT).  EXCEPT AS
EXPRESSLY STATED OTHERWISE HEREIN, THE REMEDIES HEREUNDER ARE CUMULATIVE, AND
NOTHING IN THIS AGREEMENT SHALL PREVENT ANY PARTY, IN THE CASE OF A BREACH, FROM
NOT TERMINATING THIS AGREEMENT AND SEEKING TO ENFORCE ITS RIGHTS HEREUNDER.

C.                                     UPON ANY TERMINATION OR EXPIRATION OF
THIS AGREEMENT IN ACCORDANCE WITH THE PROVISIONS HEREOF, THE PROVISIONS IN
SECTIONS 8 AND 10 SHALL SURVIVE SUCH TERMINATION OR EXPIRATION.

6.             NOTICES.

Any and all notices required hereunder shall be in writing and shall be (a) sent
by certified, first-class mail, postage prepaid, (b) sent by national overnight
courier or (c) delivered by facsimile (with the original promptly sent by any of
the foregoing manners), to the addresses or facsimile numbers of the other party
as set forth below.  The effective date of any notice hereunder shall be the
date of receipt by the receiving party:

 If to Amscan:

 

 

Amscan Inc.

 

 

 

 

80 Grasslands Road

 

 

 

 

Elmsford, New York 10523

 

 

 

 

Facsimile: (914)345-2056

 

 

 

 

Attention: James M. Harrison, President

 

 

 

 

 

 

 

 

 

and

 

 

 

 

 

 

 

 

 

Kurzman Eisenberg Corbin & Lever, LLP

 

 

 

 

One North Broadway

 

 

 

 

White Plains, New York 10601

 

 

 

 

(914)285-9855

 

 

 

 

Attention: Joel S. Lever, Esq.

 

 

 

 

 

 

 If to iParty:

 

 

iParty Corp.

 

 

 

 

270 Bridge Street, Suite 301

 

 

 

 

Dedham, MA 02026

 

 

 

 

Attn: Sal Perisano, Chief Executive Officer

 

 

 

 

Fax: (781) 326-7143

 

6

--------------------------------------------------------------------------------

 

7.             GOVERNING LAW.

This Agreement and all sales transactions pursuant hereto shall be governed by
and construed in accordance with the internal laws of the State of New York.

8.             ARBITRATION.

Except as expressly set forth in this Agreement, all disagreements, disputes,
controversies and claims arising out of this Agreement, shall be submitted to
and resolved by arbitration in Westchester County, New York before a commercial
panel of three arbitrators in accordance with and pursuant to the Commercial
Arbitration Rules of the American Arbitration Association, as then in effect. 
The arbitrators shall be selected by mutual agreement of the Parties, or if no
agreement can be reached, the arbitrators shall be selected by the American
Arbitration Association.  Each of the arbitrators shall be licensed attorneys
with at least fifteen (15) years experience in the negotiation and performance
of commercial contracts.  The discovery period shall last no more than thirty
(30) days after the arbitrators shall declare the discovery period commenced,
and each Party may conduct no more than five (5) depositions.  The arbitrators
shall issue a reasoned opinion in support of their award.  The determination of
any such panel of arbitrators shall be final and binding on the parties.  The
service of any notice, process, motion or other document in connection with an
arbitration proceeding or for the enforcement of any arbitration award may be
made as set forth in Section 6 (other than by telecopier).  The provisions of
this Section shall not be deemed to preclude any party hereto from seeking
preliminary injunctive or other equitable relief to protect or enforce its
rights hereunder pending arbitration, or to prohibit any court from making
preliminary findings of fact in connection with granting or denying such
preliminary injunctive relief pending arbitration, or to preclude any party
hereto from seeking permanent injunctive or other equitable relief after and in
accordance with the decision of the arbitrators.  Nothing herein shall be
construed to mean that any decision of the arbitrator is subject to judicial
review or appeal, and the parties hereto hereby waive any and all rights of
judicial appeal or review, on any ground whatsoever.  Each party shall bear its
own costs and expenses in the event of any dispute hereunder.

9.             PRESS RELEASES.

NO PRESS RELEASE, PUBLICITY OR OTHER FORM OF PUBLIC WRITTEN DISCLOSURE RELATED
TO THIS AGREEMENT SHALL BE PERMITTED BY EITHER PARTY TO BE PUBLISHED OR
OTHERWISE DISCLOSED UNLESS THE OTHER PARTY HAS INDICATED ITS CONSENT TO THE FORM
OF THE RELEASE IN WRITING, EXCEPT FOR ANY DISCLOSURE AS IS DEEMED NECESSARY OR
ADVISABLE, IN THE REASONABLE JUDGMENT OF THE RESPONSIBLE PARTY, TO COMPLY WITH
NATIONAL, FEDERAL OR STATE LAWS OR REGULATIONS WITH RESPECT TO REGULATORY
REPORTING OR DISCLOSURE OBLIGATIONS.

10.          CONFIDENTIAL INFORMATION.

A.                                   CONFIDENTIAL INFORMATION DEFINED. 
“CONFIDENTIAL INFORMATION” SHALL MEAN EACH PARTY’S BUSINESS, TECHNICAL,
ENGINEERING, MANUFACTURING, MARKETING, SALES, CUSTOMER, FINANCIAL AND OTHER
INFORMATION RELATING TO SUCH PARTY OR ANY OF ITS

7

--------------------------------------------------------------------------------

 

AFFILIATES OR THEIR RESPECTIVE BUSINESSES THAT CONSTITUTES TRADE SECRETS OR
KNOW-HOW OR IS OTHERWISE PROPRIETARY OR NOT GENERALLY KNOWN TO THE PUBLIC OR
OTHER INFORMATION WHICH THE DISCLOSING PARTY OTHERWISE INFORMS THE RECEIVING
PARTY IS CONFIDENTIAL WHETHER BY SO INDICATING ON SUCH INFORMATION OR OTHERWISE,
AND SHALL INCLUDE ANY SUCH INFORMATION RECEIVED BY A RECEIVING PARTY PRIOR TO OR
FOLLOWING EXECUTION OF THIS AGREEMENT.  CONFIDENTIAL INFORMATION SHALL INCLUDE
INFORMATION IN ANY FORM, WHETHER WRITTEN, GRAPHIC, ELECTRONIC, PHYSICAL OR OTHER
FORM AND MAY INCLUDE RAW DATA, GRAPHS, CHARTS, DRAWINGS, MODELS, SAMPLES,
HARDWARE, PHOTOGRAPHS, SOFTWARE OR ELECTRONIC CODE.

B.                                     LOSS OF STATUS.  CONFIDENTIAL INFORMATION
SHALL NOT INCLUDE INFORMATION, DATA, KNOWLEDGE AND KNOW-HOW THAT, AS SHOWN BY
WRITTEN RECORDS, (I) IS KNOWN TO THE RECEIVING PARTY PRIOR TO DISCLOSURE TO SUCH
PARTY; (II) IS IN THE PUBLIC DOMAIN PRIOR TO DISCLOSURE TO SUCH PARTY;
(III) ENTERS THE PUBLIC DOMAIN THROUGH NO VIOLATION OF THIS AGREEMENT AFTER
DISCLOSURE TO SUCH PARTY; OR (IV) THE RECEIVING PARTY INDEPENDENTLY DEVELOPS
WITHOUT RELIANCE ON CONFIDENTIAL INFORMATION.

C.                                     DISCLOSURES.  EACH PARTY SHALL KEEP THE
CONFIDENTIAL INFORMATION COMMUNICATED TO IT BY THE OTHER PARTY CONFIDENTIAL AND
SHALL NOT DISCLOSE SUCH INFORMATION OR PROVISIONS TO ANY THIRD PARTY WITHOUT THE
PRIOR WRITTEN APPROVAL OF THE OTHER PARTY, EXCEPT THAT EITHER PARTY MAY DISCLOSE
SUCH PROVISIONS TO THE EXTENT REQUIRED BY LAW OR OTHER DEMAND UNDER LAWFUL
PROCESS; PROVIDED THE RECEIVING PARTY GIVES THE DISCLOSING PARTY PROMPT NOTICE
PRIOR TO ANY DISCLOSURE REQUIRED BY DEMAND UNDER LAWFUL PROCESS TO ALLOW THE
DISCLOSING PARTY TO MAKE A REASONABLE EFFORT TO OBTAIN A PROTECTIVE ORDER OR
OTHERWISE PROTECT THE CONFIDENTIALITY OF SUCH INFORMATION.  NOTWITHSTANDING THE
FOREGOING, A RECEIVING PARTY MAY DISCLOSE CONFIDENTIAL INFORMATION OF THE
DISCLOSING PARTY (I) TO ITS OFFICERS, DIRECTORS, EMPLOYEES, CONTRACTORS,
AFFILIATES AND REPRESENTATIVES AND TO THIRD PARTIES TO WHOM SUCH DISCLOSURE IS
NECESSARY IN CONNECTION WITH PERFORMANCE OF THIS AGREEMENT PROVIDED THAT SUCH
RECIPIENT IS NOTIFIED OF THE CONFIDENTIAL NATURE OF SUCH CONFIDENTIAL
INFORMATION AND AGREES TO ABIDE BY THE APPLICABLE TERMS OF THIS SECTION 10 WITH
RESPECT TO SUCH CONFIDENTIAL INFORMATION OR (II) AS REQUIRED TO ENFORCE OR
EXERCISE THE RECEIVING PARTY’S RIGHTS UNDER THIS AGREEMENT.  NOTHING CONTAINED
HEREIN SHALL BE DEEMED TO GRANT EITHER PARTY, EITHER EXPRESSED OR IMPLIED, A
LICENSE OR OTHER RIGHT OR INTEREST IN THE CONFIDENTIAL INFORMATION OF THE OTHER
OR IN ANY TRADEMARK OR OTHER SIMILAR PROPERTY OF THE OTHER, EXCEPT AS EXPRESSLY
PROVIDED HEREUNDER.

D.                                    RETURN OF CONFIDENTIAL INFORMATION.  A
RECEIVING PARTY SHALL NOT MAKE OR RETAIN OR PERMIT TO BE MADE OR RETAINED ANY
COPIES OF ANY OF THE DISCLOSING PARTY’S CONFIDENTIAL INFORMATION, EXCEPT AS MAY
BE NECESSARY IN CONNECTION WITH THE RECEIVING PARTY’S PERFORMANCE UNDER THIS
AGREEMENT.  A RECEIVING PARTY SHALL RETURN TO THE DISCLOSING PARTY ALL
CONFIDENTIAL INFORMATION OF THE DISCLOSING PARTY AND ALL COPIES AND OTHER
DUPLICATES AND REPRODUCTIONS THEREOF (I) WITHIN TEN (10) DAYS FOLLOWING REQUEST
BY THE DISCLOSING PARTY OF THE RETURN THEREOF; (II) IMMEDIATELY, IN THE EVENT
THAT THE RECEIVING PARTY’S USE OF THE CONFIDENTIAL

8

--------------------------------------------------------------------------------

 

INFORMATION IS NO LONGER NECESSARY IN CONNECTION WITH THIS AGREEMENT; OR (III)
UPON EXPIRATION OR TERMINATION OF THIS AGREEMENT.

E.                                      REMEDIES.  EACH PARTY ACKNOWLEDGES AND
AGREES THAT A BREACH BY IT OF THE APPLICABLE PROVISIONS OF THIS SECTION 10 COULD
RESULT IN IRREPARABLE DAMAGES TO THE OTHER PARTY, FOR WHICH AN ADEQUATE LEGAL
REMEDY MAY NOT EXIST.  ACCORDINGLY, EACH PARTY AGREES AND ACKNOWLEDGES THAT IN
THE EVENT OF A BREACH BY IT OF ANY OF THE APPLICABLE PROVISIONS OF THIS SECTION
10, THE OTHER PARTY SHALL BE ENTITLED TO SPECIFIC PERFORMANCE, TEMPORARY AND/OR
PERMANENT INJUNCTIVE RELIEF OR ANY OTHER EQUITABLE REMEDY (WITHOUT THE NEED TO
POST A BOND OR SURETY IN CONNECTION THEREWITH), IN ADDITION TO ANY OTHER REMEDY
TO WHICH SUCH PARTY MAY BE ENTITLED AT LAW OR IN EQUITY.

11.          MISCELLANEOUS.

A.                                   INDEPENDENT CONTRACTORS.  EACH PARTY
ACKNOWLEDGES THAT THE RELATIONSHIP BETWEEN THE PARTIES PURSUANT TO THIS
AGREEMENT IS THAT OF INDEPENDENT CONTRACTORS. NO PROVISION OF THIS AGREEMENT
SHALL BE CONSTRUED TO (I) CONSTITUTE THE PARTIES AS PARTNERS, JOINT VENTURERS OR
PARTICIPANTS IN A JOINT UNDERTAKING, OR (II) GIVE ANY PARTY THE POWER TO DIRECT
AND CONTROL THE DAY-TO-DAY ACTIVITIES OF THE OTHER. FURTHER, NO EMPLOYEES OF ANY
PARTY SHALL BE DEEMED OR TREATED AS EMPLOYEES OF ANOTHER PARTY, AND EACH PARTY
SHALL BE SOLELY RESPONSIBLE FOR ANY AND ALL PAYROLL, EMPLOYMENT AND RELATED
TAXES, AND WITHHOLDING APPLICABLE TO ITS OWN EMPLOYEES.

B.                                     WAIVER. ANY WAIVER OF BREACH OR DEFAULT
PURSUANT TO THIS AGREEMENT SHALL NOT BE A WAIVER OF ANY OTHER SUBSEQUENT
DEFAULT. FAILURE OR DELAY BY EITHER PARTY TO ENFORCE ANY TERM OR CONDITION OF
THIS AGREEMENT SHALL NOT CONSTITUTE A WAIVER OF SUCH TERM OR CONDITION.

C.                                     CONFLICTS IN PROVISIONS. IN THE EVENT OF
ANY APPARENT CONFLICTS OR INCONSISTENCIES BETWEEN THIS AGREEMENT AND ANY
SCHEDULES HERETO, TO THE EXTENT POSSIBLE SUCH PROVISIONS SHALL BE INTERPRETED SO
AS TO MAKE THEM CONSISTENT, AND IF SUCH IS NOT POSSIBLE, THE PROVISIONS OF THIS
AGREEMENT SHALL PREVAIL.

D.                                    HEADINGS. THE SECTION HEADINGS HEREIN ARE
FOR REFERENCE AND CONVENIENCE ONLY AND SHALL NOT ENTER INTO THE INTERPRETATION
HEREOF.

E.                                      SEVERABILITY. TO THE EXTENT THAT ANY
PROVISION OF THIS AGREEMENT IS FOUND BY A COURT OF COMPETENT JURISDICTION TO BE
INVALID OR UNENFORCEABLE, THAT PROVISION NOTWITHSTANDING, THE REMAINING
PROVISIONS OF THIS AGREEMENT SHALL REMAIN IN FULL FORCE AND EFFECT AND SUCH
INVALID OR UNENFORCEABLE PROVISION SHALL BE DELETED.

F.                                      ASSIGNMENT.  THIS AGREEMENT SHALL BE
BINDING UPON THE SUCCESSORS AND ASSIGNS OF THE PARTIES AND THE NAME OF A PARTY
APPEARING HEREIN SHALL BE DEEMED TO INCLUDE THE NAMES OF ITS SUCCESSORS AND
ASSIGNS.  NO PARTY MAY ASSIGN, DELEGATE OR TRANSFER ALL OR ANY OF ITS RESPECTIVE
RIGHTS OR OBLIGATIONS UNDER THIS AGREEMENT WITHOUT THE PRIOR WRITTEN CONSENT OF
THE OTHER PARTY WHICH CONSENT WILL NOT BE UNREASONABLY WITHHELD, DELAYED OR
CONDITIONED.  NOTWITHSTANDING THE FOREGOING, EITHER PARTY

9

--------------------------------------------------------------------------------

 

MAY ASSIGN, DELEGATE OR TRANSFER THIS AGREEMENT OR ANY OF ITS RESPECTIVE RIGHTS
OR OBLIGATIONS TO (A) ITS AFFILIATE, SO LONG AS THE ASSIGNING PARTY
UNCONDITIONALLY GUARANTEES THE OBLIGATIONS OF SUCH AFFILIATE OR (B) ANY
SUCCESSOR OF THE ASSIGNING PARTY’S BUSINESS IN THE EVENT OF A MERGER,
ACQUISITION OR CONSOLIDATION INVOLVING SUCH PARTY OR ITS AFFILIATES.

G.                                     AMENDMENT. NO ALTERNATION, WAIVER,
CANCELLATION, OR ANY OTHER CHANGE OR MODIFICATION IN ANY TERM OR CONDITION OF
THIS AGREEMENT, OR ANY AGREEMENT CONTEMPLATED TO BE NEGOTIATED OR REACHED
PURSUANT TO THE TERMS OF THIS AGREEMENT, SHALL BE VALID OR BINDING ON EITHER
PARTY UNLESS MADE IN WRITING AND SIGNED BY DULY AUTHORIZED REPRESENTATIVES OF
BOTH PARTIES.

H.                                    APPROVALS AND SIMILAR ACTIONS. WHEREVER
AGREEMENT, APPROVAL, ACCEPTANCE, CONSENT OR SIMILAR ACTION BY EITHER PARTY
HERETO IS REQUIRED BY ANY PROVISION OF THIS AGREEMENT, SUCH ACTION SHALL NOT BE
UNREASONABLY DELAYED OR WITHHELD.

I.                                         ENTIRE AGREEMENT. THIS AGREEMENT,
CONSTITUTES THE ENTIRE AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE SUBJECT
MATTER HEREOF AND SUPERSEDES ANY PREVIOUS AGREEMENTS AND UNDERSTANDINGS, WHETHER
ORAL OR WRITTEN, BETWEEN THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER
HEREOF, SUBJECT TO SUCH TERM SHEETS RELATING TO ALLOWANCES, CREDITS, DISCOUNTS,
AND DATING, AS IN EFFECT FROM TIME TO TIME, IN A MANNER CONSISTENT WITH PAST
PRACTICE, CUSTOM AND USAGE BETWEEN THE PARTIES.

J.                                        NO JOINT VENTURE.  NOTHING HEREIN
SHALL BE DEEMED TO CREATE A RELATIONSHIP OR PARTNERSHIP, JOINT VENTURE, AGENCY
OR EMPLOYMENT RELATIONSHIP BETWEEN AMSCAN AND IPARTY.  THE NATURE OF THE
RELATIONSHIP BETWEEN AMSCAN AND IPARTY HEREUNDER IS THAT OF INDEPENDENT
CONTRACTING PARTIES.  NEITHER AMSCAN NOR IPARTY SHALL BE A FIDUCIARY OF THE
OTHER.  THIS AGREEMENT IS NOT FOR THE BENEFIT OF ANY THIRD PARTY AND SHALL NOT
BE DEEMED TO GIVE ANY RIGHT OR REMEDY TO OR AGAINST ANY SUCH THIRD PARTY EXCEPT
AS OTHERWISE EXPRESSLY PROVIDED HEREIN.  NEITHER PARTY IS THE AGENT OR LEGAL
REPRESENTATIVE OF THE OTHER FOR ANY PURPOSE WHATSOEVER AND HAS NO RIGHT OR
AUTHORITY TO ASSUME OR CREATE ORALLY OR IN WRITING ANY OBLIGATION OF ANY KIND,
EXPRESS OR IMPLIED, ON BEHALF OF THE OTHER.

K.                                    CONSTRUCTION. THIS AGREEMENT IS THE RESULT
OF NEGOTIATION BETWEEN THE PARTIES AND THEIR RESPECTIVE COUNSEL. THIS AGREEMENT
WILL BE INTERPRETED FAIRLY IN ACCORDANCE WITH ITS TERMS AND CONDITIONS AND
WITHOUT ANY STRICT CONSTRUCTION IN FAVOR OF EITHER PARTY. ANY AMBIGUITY SHALL
NOT BE INTERPRETED AGAINST THE DRAFTING PARTY.

L.                                      COUNTERPARTS. THIS AGREEMENT MAY BE
EXECUTED IN ONE OR MORE COUNTERPARTS, EACH OF WHICH WILL BE DEEMED AN ORIGINAL,
BUT ALL OF WHICH TAKEN TOGETHER WILL CONSTITUTE ONE AND THE SAME INSTRUMENT.

10

--------------------------------------------------------------------------------

 

IN WITNESS WHEREOF the parties have executed this Agreement in the corporate
name by their officers duly authorized as of the day and year first above
written.

iPARTY CORP.

 

 

 

 

By:

 

/s/ SAL PERISANO

 

 

 

Sal Perisano

 

 

 

Chief Executive Officer

 

 

 

 

 

AMSCAN INC.

 

 

 

 

 

By:

 

/s/ JAMES M. HARRISON

 

 

 

James M. Harrison

 

 

 

President

 

11

--------------------------------------------------------------------------------

 

Schedule A

Annual Purchase Commitment

As used in this Agreement, the term “iParty Store” means any party goods retail
store operated under the name “iParty,” other than any store opened or acquired
after the date of this Agreement that has less than 8,000 square feet of retail
space.

As used in this Agreement, the term “Base Purchase Amount” means $112,500
multiplied by the number of iParty Stores open as of June 30, 2006.

As used in this Agreement, the term “Annual Purchase Commitment” with respect to
each calendar year, beginning with the calendar year commencing on January 1,
2008, means the product obtained by multiplying (1) the total number of iParty
Stores open during such calendar year, by (2) $180,000. . In the event that any
iParty Stores are open for only a portion of such calendar year, the calculation
shall be made on a pro rata basis for such stores based on the number of months
(such number, with respect to each such store, rounded to the nearest whole
number) during such year that each such store was open.

The calculation of the Annual Purchase Commitment shall be based on the invoiced
price of products shipped, before reduction for credits for damaged goods,
rebates and allowances (including any reduction on account of any Base Rebates
and Incentive Rebates under this Agreement or under any Term Sheet in effect
between the parties), and shall be subject to adjustment in accordance with the
provisions of Schedule B.

--------------------------------------------------------------------------------

 

Exhibit “1”

SUBORDINATED PROMISSORY NOTE

$[1,150,000.00]

 

    , New York

 

 

October    , 2006

 

iPARTY CORP., a Delaware corporation (the “Company”), the principal office of
which is located at 270 Bridge Street, Dedham, Massachusetts  02026, for value
received hereby promises to pay to AMSCAN INC., or its assigns (the “Holder”),
the sum of [ONE MILLION ONE HUNDRED FIFTY THOUSAND AND 00/100 DOLLARS
($1,150,000.00)], plus interest calculated at the rate of 11.0% per annum.

This Note shall be payable in thirty-six (36) equal monthly installments of
principal and interest of $  *   commencing on November 1, 2006, and thereafter,
on the first date of each month until October 1, 2009, when the entire remaining
principal balance and all accrued interest shall be due and payable.  All
interest shall be computed on the basis of a 365 day year and shall be paid for
the actual number of days elapsed.

1.                                       SUBORDINATION.

This Note is subordinate to the Senior Indebtedness (as hereinafter defined) of
the Company.  “Senior Indebtedness” shall mean any and all obligations and
liabilities of the Company to (i) Wells Fargo Retail Finance II, LLC, (“Wells
Fargo”) as referenced by the certain Subordination Agreement dated as of the
date hereof by and between the Company, Wells Fargo and Holder (the “Senior
Subordination Agreement”) and (ii) to any Senior Subordinated Lender, and
including, without limitation, principal and interest thereon, whether accrued
before or after the filing of a petition in bankruptcy or similar insolvency
proceeding, and whether direct or indirect, absolute or contingent, joint or
several, secured or unsecured, due or to become due, now existing or later
arising and however evidenced, together with all other sums due thereon and all
costs of collecting the same (including, without limitation, reasonable attorney
fees) for which the Company is liable, and any such indebtedness or any
debentures, notes or other evidence of indebtedness issued in exchange for or to
refinance such Senior Indebtedness (in whole or in part), or any indebtedness
arising from the satisfaction of such Senior Indebtedness by a guarantor.  Wells
Fargo, any such Senior Subordinated Lender and any successor holders of Senior
Indebtedness are collectively referred to as the “Senior Lenders.”

“Senior Subordinated Lender” means any current or future lender or lenders to
the Company and/or its subsidiaries, which loan up to $3,200,000 in the
aggregate to the Company and/or its subsidiaries, and which indebtedness is by
its express terms senior hereto and junior to the Senior Indebtedness to Wells
Fargo or any successor to Wells Fargo.

--------------------------------------------------------------------------------

*                    The amount necessary to fully amortize the principal
balance of this note in 36 equal monthly payments of principal and interest at
the rate set forth herein

--------------------------------------------------------------------------------

 

THE HOLDER AGREES THAT THE INDEBTEDNESS EVIDENCED BY THIS NOTE IS, AND UNTIL THE
SENIOR INDEBTEDNESS IS INDEFEASIBLY PAID IN FULL SHALL BE, SUBJECT AND
SUBORDINATE AND JUNIOR IN RIGHT OF REPAYMENT TO THE SENIOR INDEBTEDNESS, SUBJECT
TO THE TERMS OF THE RESPECTIVE SUBORDINATION AGREEMENTS BETWEEN THE HOLDER AND
THE RESPECTIVE SENIOR LENDERS.

2.                                       EVENTS OF DEFAULT.

If any of the events specified in this section shall occur (herein individually
referred to as an “Event of Default”), the Holder of this Note may, so long as
such condition exists, and, subject to the provision of the Subordination
Agreements, declare the entire principal and unpaid accrued interest hereon
immediately due and payable, by notice in writing to the Company:

(I)            DEFAULT IN THE PAYMENT OF THE PRINCIPAL, AND UNPAID ACCRUED
INTEREST OF THIS NOTE WHEN DUE AND PAYABLE IF SUCH DEFAULT IS NOT CURED BY THE
COMPANY WITHIN TEN (10) DAYS AFTER THE HOLDER HAS GIVEN THE COMPANY WRITTEN
NOTICE OF SUCH DEFAULT; OR

(II)           THE INSTITUTION BY THE COMPANY OF ANY INSOLVENCY CASE (AS
HEREINAFTER DEFINED) OR THE TAKING OF CORPORATE ACTION BY THE COMPANY IN
FURTHERANCE OF ANY SUCH INSOLVENCY CASE; OR

(III)          IF, WITHIN SIXTY (60) DAYS AFTER THE COMMENCEMENT OF AN ACTION
AGAINST THE COMPANY (AND SERVICE OF PROCESS IN CONNECTION THEREWITH ON THE
COMPANY) OF AN INSOLVENCY CASE, SUCH INSOLVENCY CASE SHALL NOT HAVE BEEN
RESOLVED IN FAVOR OF THE COMPANY OR ALL ORDERS OR PROCEEDINGS THEREUNDER
AFFECTING THE OPERATIONS OR THE BUSINESS OF THE COMPANY STAYED, OR IF THE STAY
OF ANY SUCH ORDER OR PROCEEDING SHALL THEREAFTER BE SET ASIDE, OR IF, WITHIN
SIXTY (60) DAYS AFTER THE APPOINTMENT WITHOUT THE CONSENT OR ACQUIESCENCE OF THE
COMPANY OF ANY TRUSTEE, RECEIVER OR LIQUIDATOR OF THE COMPANY OR OF ALL OR ANY
SUBSTANTIAL PART OF THE PROPERTIES OF THE COMPANY, SUCH APPOINTMENT SHALL NOT
HAVE BEEN VACATED; OR

(IV)          ANY DECLARED DEFAULT OF THE COMPANY UNDER ANY SENIOR INDEBTEDNESS
THAT GIVES THE HOLDER THEREOF THE RIGHT TO ACCELERATE SUCH SENIOR INDEBTEDNESS,
AND SUCH SENIOR INDEBTEDNESS IS IN FACT ACCELERATED BY THE HOLDER.

 

 

2

--------------------------------------------------------------------------------

 

(v)           The term “Insolvency Case” means (i) any insolvency, bankruptcy,
receivership, custodianship, liquidation, reorganization, readjustment,
composition or other similar proceeding relative to the Company or any of its
properties, whether under any bankruptcy, reorganization or insolvency law or
laws, federal or state, or any law, federal or state, relating to relief of
debtors, readjustment of indebtedness, reorganization, composition or extension,
(ii) proceeding for any liquidation, liquidating distribution, dissolution or
other winding up of the Company, voluntary or involuntary, whether or not
involving insolvency or bankruptcy proceedings, (iii) assignment for the benefit
of creditors of the Company or (iv) other marshalling of assets of the Company.

3.                                   MISCELLANEOUS.

(A)           THE RIGHTS AND OBLIGATIONS OF THE COMPANY AND THE HOLDER SHALL BE
BINDING UPON AND BENEFIT THE PERMITTED SUCCESSORS, ASSIGNS, AND TRANSFEREES OF
THE PARTIES.

(B)          NO PROVISION OF THIS NOTE MAY BE AMENDED, WAIVED OR MODIFIED EXCEPT
UPON THE WRITTEN CONSENT OF THE COMPANY, THE HOLDER AND THE HOLDER OF THE SENIOR
INDEBTEDNESS.

(c)           This Note is governed by, and shall be construed and enforced in
accordance with, the laws of the State of New York.  Each of the parties hereto
expressly submits to the non-exclusive jurisdiction of the Supreme Court, County
of Westchester and the United States District Court for the Southern District of
New York in any action or proceeding relating to any claim, dispute or other
matter pertaining directly or indirectly to this Note.

(d)           THE PARTIES HERETO HEREBY WAIVE TRIAL BY JURY IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR IN CONNECTION WITH THIS NOTE AND FURTHER HEREBY
WAIVE ANY RIGHT OF OFFSET OR RIGHT TO INTERPOSE ANY COUNTERCLAIM IN ANY SUCH
ACTION.

(e)           The provisions of this Note shall be applicable both before and
after the commencement of any Insolvency Case by or against the Company and all
converted and succeeding cases in respect thereof.  The relative rights, as
provided for in this Note, shall continue after the commencement of any such
Insolvency Case on the same basis as prior to the date of the commencement of
any such Insolvency Case, as provided in this Note.

(f)            The Company shall pay to the Holder, upon written demand, all
costs of collection and reasonable attorney’s fees and other costs and expenses
paid or incurred by the Holder in enforcing the obligations of the Company
hereunder and/or in exercising the

3

--------------------------------------------------------------------------------

 

Holder’s rights and remedies hereunder (whether such costs and expenses are
incurred in any work-out, bankruptcy case or proceeding, or otherwise).

[The remainder of this page has been intentionally left blank]

4

--------------------------------------------------------------------------------

 

IN WITNESS WHEREOF, the Company has caused this Note to be issued this    day of
October,  2006, and the Holder, by signing this Note, agrees to be bound by this
Note.

iPARTY CORP.

 

 

 

By:

 

 

Name:

 

 

Title:

 

 

Name of Holder:            AMSCAN INC.

Address:                        80 Grasslands Road, Elmsford, New York  10523

Agreed:

AMSCAN INC.

By:

 

 

 

 

 

Name:

 

 

 

Title:

 

 

5

--------------------------------------------------------------------------------