Exhibit 10.5


 


iPARTY CORP.

INCENTIVE STOCK OPTION AGREEMENT


 


THIS AGREEMENT, made as of the [  ] day of [ 
], 200X (the “Grant Date”), between iParty Corp., a Delaware
corporation (“iParty”), and [Grantee’s name] (the “Grantee”).


 


WHEREAS, iParty has adopted the iParty Corp. Amended
and Restated 1998 Stock Incentive and Nonqualified Stock Option Plan (the “Plan”)
in order to provide additional incentives to certain employees, officers,
directors, consultants and advisors of iParty and its subsidiaries (collectively,
the “Corporation,”) and


 


WHEREAS, the Board of Directors (the “Board”) of
iParty has determined to grant an Incentive Stock Option to the Grantee as
provided herein;


 


NOW, THEREFORE, the parties hereto agree as follows:


 


1.             Grant of Option.


 


1.4           iParty
hereby grants to the Grantee the right and option (the “Option”) to
purchase all or any part of an aggregate of [insert #] whole shares of Common
Stock (as defined in the Plan) subject to, and in accordance with, the terms
and conditions set forth in this Agreement.


 


1.5           This
Agreement shall be construed in accordance and consistent with, and
subject to, the provisions of the Plan (the provisions of which are
incorporated herein by reference) and, except as otherwise expressly set forth
herein, the capitalized terms used in this Agreement shall have the same
definitions as set forth in the Plan.


 


1.6           The
Option is intended to qualify as an Incentive Stock Option within the meaning
of Section 422 of the Code and shall be so construed; provided, however,
that nothing in this Agreement shall be interpreted as a representation,
guarantee or undertaking on the part of the Company that the Option is or will
be determined to be an Incentive Stock Option within the meaning of Section 422
of the Code. As noted in the Plan, to the extent that the aggregate Fair Market
Value (determined at the Date of Grant) of the shares of Common Stock with
respect to which this Option plus all other Incentive Stock Options the Grantee
holds are exercisable for the first time by the Grantee during any calendar
year (under all plans of Parent and its Subsidiaries) exceeds one hundred
thousand dollars ($100,000), all or a portion of this Option or any other
Incentive Stock Options held by the Grantee that exceed such limit (according
to the order in which they were granted) shall be treated as Nonqualified Stock
Options. In addition, the Option, to the extent it has not been exercised,
shall no longer be treated as an Incentive Stock Option three (3) months after
employment with Parent or any Subsidiary ceases due to retirement or a
termination of employment, or one (1) year after employment terminates due to
Disability (as defined in the Plan).


 


2.             Option Price.


 


The price at which the Grantee shall be entitled to
purchase shares upon the exercise of the Option shall be $X.XX per share.


 


3.             Duration of Option.


 


The Option shall be exercisable to the extent and in
the manner provided herein until the tenth anniversary of the Grant Date (the “Expiration
Date”); provided, however, that the Option may be earlier
terminated as provided in Section 6 hereof.


 

















 


4.             Exercisability of Option.


 


Unless otherwise provided
in this Agreement or the Plan, the Option shall entitle the Grantee to
purchase, in whole at any time or in part from time to time:  twenty-five percent (25%) of the total number
of shares covered by the Option after the expiration of one (1) year from the
Grant Date, and an additional 2 and 8/100 percent (2.08%) of the total number
of shares covered by the Option after the monthly anniversary of the Grant Date
for each of the thirty-six (36) months after the first anniversary. Each such
right of purchase shall be cumulative and shall continue, unless sooner
exercised or terminated as herein provided, during the remaining period of the
Exercise Term. Any fractional number of shares resulting from the application
of the foregoing percentages shall be rounded down to the nearest whole number
of shares. Subject to the limitations contained herein and Section 7 hereof,
the Option shall vest as set forth herein, provided that vesting shall cease
upon the termination of Grantee’s employment with the Corporation.


 


5.             Manner of Exercise and Payment.


 


5.5           Subject
to the terms and conditions of this Agreement and the Plan, the Option may be exercised
by delivery of notice of exercise to iParty (in the form required by iParty),
specifying the number of shares of Common Stock to be purchased and delivering
the option price pursuant to Section 5.2 hereof.


 


5.6           The
option price may be paid (i) with cash, certified check or bank check, and
(ii) if established by iParty, through a “same day sale” commitment from
Grantee and a broker-dealer selected by iParty that is a member of the National
Association of Securities Dealers (an “NASD Dealer”) whereby the Grantee
irrevocably elects to exercise the Option and to sell a portion of the shares
so purchased having a “fair market value” equal to the total Option exercise
price and whereby the NASD Dealer irrevocably commits upon receipt of such
shares to forward the total option exercise price directly to iParty. In the
discretion of the Board, the exercise price of the option may also be paid by
one or more of the following methods: 
(i) surrender of shares of Common Stock (having a Fair Market Value
equal to the Option exercise price) held by the Grantee for at least six (6)
months prior to exercise (or such longer or shorter period as may be required
to avoid a charge to earnings for financial accounting purposes) or the
attestation of ownership of such shares, in either case, if so permitted by
iParty, (ii) through additional methods prescribed by the Board,
including, without limitation, loans, installment payments and/or guarantees,
all under such terms and conditions as deemed appropriate by the Board in its
discretion, or (iii) by any combination of any of the foregoing methods, and,
in all instances, to the extent permitted by applicable law. The Grantee’s
subsequent transfer or disposition of any shares of Common Stock acquired upon
exercise of the Option shall be subject to any Federal and state laws then
applicable, specifically securities law, and the terms and conditions of this
Plan.


 


5.7           Upon
receipt of notice of exercise and full payment for the shares in respect of
which the Option is being exercised, iParty shall, subject to any applicable
law, take such action as may be necessary to effect the transfer to the Grantee
of the number of shares as to which such exercise was effective.


 


5.8           Effective
upon the exercise of the Option in whole or in part and the receipt by iParty
of the option price for the shares being purchased, the Grantee shall be the
holder of record of such shares and shall have all of the rights of a
shareholder with respect thereto (including the right to vote such shares at any
meeting at which the holders of the Common Stock may vote, the right to receive
all dividends declared and paid upon such shares and the right to exercise any
rights or warrants issued in respect of any such shares). iParty shall, upon
receipt of the option price, issue in the name of the Grantee a certificate
representing the shares purchased from time to time.


 


6.             Termination of Employment.


 


6.1           Termination of
Unvested Portion of Option. If the employment by the Corporation of the
Grantee is terminated for any reason, any unvested portion of the Option shall
immediately expire.


 

















 


6.2           Termination
of Employment other than due to Death or Disability. If the Grantee’s
employment is terminated other than:  (a)
by the Corporation for Cause, (b) by reason of a Voluntary Termination, (c) due
to Grantee’s death or (d) due to Grantee’s Disability of the Plan), the Option
may be exercised, to the extent vested on the date of such termination until
the earlier of:  three months from the
date of termination or the Expiration Date.


 


6.3           Termination
of Employment due to Death or Disability of Grantee. If the Grantee dies
while employed by the Corporation, the Option may be exercised, to the extent
vested on the date of such termination of employment until the earlier of:  one year from the date of termination or the
Expiration Date.


 


7.             Acceleration of Option Vesting.


 


Notwithstanding anything
contained in this Agreement to the contrary, in the event of the occurrence of
a Change in Control, the Option shall automatically be vested and immediately
exercisable in full. Further, the Board reserves the right, in its sole
discretion, to waive any condition to the vesting of the Option and accelerate
the date on which any installment of the Option shall vest for any other reason
in the discretion of the Board.


 


8.             Nontransferability.


 


The Option shall not be
transferable other than by will or by the laws of descent and distribution or
pursuant to a domestic relations order (within the meaning of Rule 16a-12
promulgated under the ‘34 Act). The Option shall be exercisable only by the
Grantee or the Grantee’s guardian or legal representative during the lifetime
of the Grantee.


 


9.             No Right to Continued Employment.


 


Nothing in this Agreement
or the Plan shall be interpreted or construed to confer upon the Grantee any
right with respect to continuance of employment by the Corporation, nor shall
this Agreement or the Plan interfere in any way with the right of the
Corporation to terminate the Grantee’s employment at any time.


 


10.           Adjustments upon Changes in Capitalization.


 


If the Common Stock is
hereafter changed by reason of reorganization, merger, consolidation,
recapitalization, reclassification, stock split-up, combination, or exchange of
shares or the like, or dividends payable in shares of the Common Stock, an
appropriate adjustment shall be made by the Board in the number of shares and
price per share subject to the Option. The Board’s adjustment shall be made in
accordance with the provisions of Section 13 of the Plan and shall be
effective and final, binding and conclusive for all purposes of the Plan and
this Agreement.


 


11.           Effect of a Merger, Consolidation or Liquidation.


 


Subject to Section 7
hereof, upon the effective date of (i) a merger, consolidation or
reorganization of iParty with another corporation, or (ii) a sale or exchange
of all or substantially all the assets of iParty, the Grantee, shall, after the
occurrence of such a corporate event, be entitled to receive upon the exercise
of the Option the same number and kind of shares of stock or the same amount of
property, cash, or securities as the Grantee would have been entitled to
receive upon the happening of any such corporate event as if the Grantee had
exercised the option and had been, immediately prior to the event, the holder
of the number of shares covered by the Option.


 

















 


12.           Withholding Taxes.


 


12.1         Form of Payment of Taxes. Upon the occurrence of a Taxable Event
(as defined herein), the Grantee shall pay an amount equal to the applicable
Withholding Taxes prior to Grantee’s receipt of any Shares or the payment of
any cash due the Grantee as the result of the exercise of any portion of the
Option. The Corporation shall have the right to deduct from any payment of cash
to the Grantee an amount equal to the Withholding Taxes (as defined in the
Plan) in satisfaction of the obligation to pay Withholding Taxes. In
satisfaction of the obligation to pay Withholding Taxes to the Corporation,
Grantee may make a written election, which may be accepted or rejected in the
sole discretion of the Board, to have withheld a portion of the shares then
issuable to Grantee for payment of Withholding Taxes, but not in excess of
Grantee’s required statutory withholding obligation.


 


12.2         New Withholding Obligations on Incentive
Stock Options. If
(i) the purchase of shares of Common Stock pursuant to the exercise of the
Option or (ii) the Grantee’s disposition (within the meaning of Section
424(c) of the Code and the regulations promulgated thereunder) of any such
shares within the two-year period commencing on the day after the date of the
grant or within the one-year period commencing on the day after the date of
transfer of such shares to the Grantee pursuant to such exercise, becomes a
Taxable Event that requires the Corporation to collect Withholding Taxes, the
Grantee shall cooperate with the Corporation in the procedures it may establish
to track any such dispositions and to make appropriate arrangements with the
Corporation for any taxes which the Corporation is obligated to collect.


 


13.           Grantee Bound by the Plan.


 


The Grantee hereby
acknowledges receipt of a copy of the Plan and agrees to be bound by all the
terms and provisions thereof.


 


14.           Modification of Agreement.


 


This Agreement may be
modified, amended, or terminated by iParty, and any terms or conditions may be
waived; provided, however, that no amendment, modification or termination of
this Agreement may, without the consent of the Grantee, adversely affect the
rights conferred by this Agreement.


 


15.           Severability.


 


Should any provision of
this Agreement be held by a court of competent jurisdiction to be unenforceable
or invalid for any reason, the remaining provisions of this Agreement shall not
be affected by such holding and shall continue in full force in accordance with
their terms.


 


16.           Governing Law.


 


The validity,
interpretation, construction and performance of this Agreement shall be
governed by the laws of the State of Delaware without giving effect to the
conflicts of laws principles thereof.


 


17.           Successors in Interest.


 


This Agreement shall
inure to the benefit of and be binding upon any successor to iParty. This
Agreement shall inure to the benefit of the Grantee’s legal representatives. All
obligations imposed upon the Grantee and all rights granted to iParty under
this Agreement shall be final, binding and conclusive upon the Grantee’s heirs,
executors, administrators and successors.


 

















 


18.           Resolution of Disputes.


 


Any dispute or
disagreement which may arise under, or as a result of, or in any way relate to,
the interpretation, construction or application of this Agreement shall be
determined by the Board. Any determination made hereunder shall be final,
binding and conclusive on the Grantee and Corporation for all purposes.


 


SIGNATURE PAGE FOLLOWS –


 


	
   

  	
   

  	
   

  	
  iPARTY CORP.

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Patrick Farrell

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  President &
  CFO

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Acknowledged and
  Accepted by:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  [Grantee’s Name]