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”.



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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). 



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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 



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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), 



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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

  



 



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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 



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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 



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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 



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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.



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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

  



 



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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.


 


 



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(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 



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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]



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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:

  	
   

  



 



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