**Exhibit10.2**

 

**AMENDEDAND RESTATED EMPLOYMENT AGREEMENT**

 

**THISAMENDED AND RESTATED EMPLOYMENT AGREEMENT** (this “Agreement”)is being made as of this 14th day of May, 2004 between iPARTY CORP., a Delawarecorporation (the “Company”) and PATRICK FARRELL, an individual residingat 70 Perkins Street, No. 4, Jamaica Plains, MA 02130 (the  “Executive”).

 

**W I T NE S S E T H:**

 

**WHEREAS**,the Company and the Executive previously entered into an employment agreementdated as of March 12, 1999, which such agreement was amended and restatedas of November 1, 2000 and December 31, 2001 (the “PriorEmployment Agreements”); and

 

**WHEREAS**,the Company and the Executive desire to amend and restate the Prior EmploymentAgreements in their entirety as set forth herein.

 

**NOW, THEREFORE**,in consideration of the mutual premises and agreements contained herein, andintending to be legally bound hereby, the parties hereto agree as follows:

 

# 1.                                       **Term of Employment**.  Except for earlier termination as provided in Section 11hereof, the Executive’s employment under this Agreement shall be for a three(3) year term (the “Employment Term”) commencing as of April 1,2004.

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# 2.                                       **Duties, Responsibilities andPositions**.

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## (a)                                  During the Employment Term,subject to a Permitted Change (as defined below) the Executive shall serve asPresident and Chief Financial Officer of the Company and its subsidiary, iPartyRetail Stores Corp., and in such other executive positions that he may beappointed to by the Board from time to time, and perform all duties and acceptall responsibilities incidental to such position or positions.   The Executive shall report directly to theChief Executive Officer of the Company (the “CEO”) and shall be subjectat all times to the general supervision, orders, advice and direction of theCEO and the Board.  The Executive shallalso cooperate fully with the Board of Directors of the Company (the “Board”)and other executive officers of the Company.

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As used herein a “PermittedChange” shall mean the appointment by the Company of a person reasonablyacceptable to the Executive (which such acceptance shall not be unreasonablywithheld or delayed) as either President or Chief Financial Officer of theCompany and/or iParty Retail Stores Corp. (i) in connection with any materialacquisition, financing or similar transaction which increases the size andscope of the Company’s business or (ii) in order to comply with generalcorporate governance practices then being followed by companies of similar sizeand scope; provided, that, (y) the Executive remains either thePresident or the Chief Financial Officer of the Company following suchPermitted Change and (z) the Executive reports directly to the CEO followingsuch Permitted Change.

 

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## (b)                                 Upon termination of theExecutive’s employment for any reason, the Executive shall immediately resignfrom any other office or offices within the Company and any subsidiary of theCompany that the Executive may then hold, and from the Board and the board ofdirectors of any subsidiary, if applicable.

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## (c)                                  During the Employment Term, theExecutive shall devote substantially all his full working time, energy andefforts to the business of the Company; provided, however, thatthe Executive shall be allowed, to the extent that such activities do notmaterially interfere with the performance of his duties and responsibilitieshereunder, to manage his personal and family financial and legal affairs and toserve on civic, not-for-profit and charitable industry boards and advisorycommittees.  The Executive shall onlyserve on for-profit corporate boards of directors and advisory committees ifapproved in advance, in writing, by the Board or the Compensation Committee of the Board.

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## (d)                                 The Executive represents to theCompany that  (i) the Executive has the legal capacity toexecute and perform this Agreement and (ii) that he is not currently subject to or bound by anyemployment agreement, non-competition covenant, non-disclosure agreement orother agreement, covenant, understanding or restriction of any nature whatsoeverwhich would prohibit the Executive from executing this Agreement and performingfully his duties and responsibilities hereunder, or which would in any manner,directly or indirectly, materially limit the duties and responsibilities whichit is now reasonably foreseeable may now or in the future be assigned to theExecutive by the CEO or the Board.

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## (e)                                  The Executive shall at all timescomply in all material respects with policies and procedures adopted by theCompany applicable to executives of the Company, including without limitation,procedures and policies regarding conflicts of interest.

 

# 3.                                       **Compensation**.  Forall services rendered by the Executive in any capacity during the EmploymentTerm, including without limitation, services as an officer, director, or memberof any committee of the Company, or any subsidiary, affiliate or divisionthereof, the Executive shall be compensated as follows (subject, in each case,to the provisions of Section 11 below):

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## (a)                                  Base Salary.  During the Employment Term, the Companyshall pay to the Executive a base salary on an annualized basis (the “BaseSalary”) as follows: (i) for the period from April 1, 2004 throughMarch 31, 2005, $175,000;  (ii) forthe period from April 1, 2005 through March 31, 2006, $185,000; and(iii) for the period from April 1, 2006 through March 31, 2007,$195,000.  The term “Base Salary” asused in this Agreement shall refer to Base Salary in effect for the applicableperiod set forth in the immediately preceding sentence.  The Base Salary shall be payable inaccordance with the customary payroll practices of the Company.  If,during the Employment Term, the Company consummates any material acquisitionsor similar transactions which increase the size and scope of the Company’sbusiness, the Compensation Committee of the Board shall convene as promptly asreasonably practicable for the purpose of discussing whether or not it isappropriate to increase the Executive’s Base Salary; provided, however,that no such increase shall be required.

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## (b)                                 Bonus.  In addition to the Base Salary provided herein, the

 

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## Executive shall be entitled to participate in, and may receiveperformance bonus payments under, such annual bonus plan or plans as theCompensation Committee of the Board may establish from time to time for seniorexecutive officers of the Company.  Anysuch performance bonus or bonuses shall be determined in the sole discretion ofthe Compensation Committee of the Board. Without limiting the generality of theforegoing, such performance bonus or bonuses, if paid, may be paid in stock,stock options, restricted stock, cash, or any combination thereof.

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## (c)                                  Benefits.  During the Employment Term, the Executive shall be entitled toparticipate in all employee benefit and equity plans and fringe benefits andprerequisites generally provided to senior executives of the Company, in eachcase subject to the eligibility requirements and other terms and provisions ofsuch plans and programs, and including but not limited to an automobileallowance of $450 per month, as presently provided to the Executive and certainother senior executives.  The Companymay amend, modify or rescind any employee benefit plan or program and changeemployee contribution amounts or benefit costs without notice in itsdiscretion.

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# 4.                                       **Stock Options Matters. **OnMay 6, 2004, the Executive was granted stock options (the “Options”) foran aggregate of 230,000 shares of common stock of the Company, at an exerciseprice of $0.95 per share (the closing price of the common stock on such date),pursuant to the Company’sAmended and Restated 1998 Incentive and Nonqualified Stock Option Plan(the “Plan”).  The Options shallvest as follows:  provided the Executiveremains continuously employed by the Company through March 31, 2005,options for 76,667 shares shall vest on March 31, 2005; provided theExecutive remains continuously employed by the Company through March 31,2006, options for an additional 76,667 shares shall vest on March 31,2006; and provided the Executive remains continuously employed by the Companythrough March 31, 2007, options for the final 76,666 shares shall vest onMarch 31, 2007.  The Options shallbe subject to the terms of the Plan and shall be evidenced by a Stock OptionGrant Agreement between the Company and the Executive.

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# 5.                                       **Expenses; Vacations**. The Executive shall be entitled to reimbursement for reasonable traveland other out-of-pocket expenses necessarily incurred in the performance of hisduties hereunder, upon submission and approval of written statements and billsin accordance with the then regular procedures of the Company.  TheExecutive shall be entitled to four weeks paid vacation per calendar year, withsuch vacation to be scheduled and taken in accordance with the Company’sstandard vacation policies.  Up to two(2) weeks accrued but unused vacation time may be carried forward from year toyear; provided, however, in no event shall more than an aggregateof six (6) weeks of unused vacation time be accrued during the Employment Term.

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# 6.                                       **Representations and Warranties of the Company**.  The Company represents and warrants to, andagrees with, the Executive that (i) pursuant to the Delaware GeneralCorporation Law, the Company’s Certificate of Incorporation, as amended to date(the “Charter”), provides for indemnification of officers and directorsof the Company and that so long as the Executive serves as an executive officerof the Company, unless required by applicable law, the Charter will not beamended to limit such indemnification without the written consent of theExecutive and (ii) the Company maintains an officers and directors liabilityinsurance policy which insures the Executive (subject to the limitationscontained therein) and

 

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will maintain such apolicy for so long as the Executive serves as an executive officer of theCompany.

 

# 7.                                       **Developments**.  Alldevelopments, including inventions, whether patentable or otherwise, tradesecrets, discoveries, improvements, ideas and writings which relate to or maybe useful in the business of the Company, and which the Executive, either byhimself or in conjunction with any other person or persons, has conceived,made, developed, acquired or acquired knowledge of while engaged in anyactivity on behalf of or while acting for the Company during the course of hisemployment by the Company (the “Developments”), shall, on and after thestart of the Employment Term, become the sole and exclusive property of theCompany.  The Executive hereby assigns,transfers and conveys, and agrees to so assign, transfer and convey to theCompany, all of his right, title and interest in and to any and all suchDevelopments and to disclose in writing to the Board, as soon as practicable,all Developments that he believes in his good faith judgment may be of materialsignificance to the Company, and to reduce any such Developments to writing atthe request of Board if he has not already done so.  At any time, and from time to time, upon the request and at theexpense of the Company, the Executive will execute and deliver any and allinstruments, documents and papers, give evidence and do any and all other actswhich, in the reasonable opinion of counsel for the Company, are or mayreasonably be necessary or desirable to document such transfer or to enable theCompany to file and prosecute applications for and to acquire, maintain andenforce any and all patents, trademark registrations or copyrights under UnitedStates or foreign law with respect to any such Developments or to obtain anyextension, validation, reissue, continuance or renewal of any such patent,trademark or copyrights; provided only that any such actions requestedfollowing termination of employment shall not unreasonably interfere withExecutive’s then employment, business or other activities.  The Company will be responsible for thepreparation of any such instruments, documents and papers and for theprosecution of any such proceedings and will reimburse the Executive for allreasonable expenses incurred by him in compliance with the provisions of this Section 7.  The Developments shall not include anyknowledge or information of any kind acquired by or disclosed to the Executivewhile serving in his capacity as a member of the board of directors of anynon-Company entity, in his capacity as a private investor, or in any othercircumstance during which the Executive is not or was not engaged in anyactivity on behalf of or acting for the Company.  Furthermore, nothing herein shall preclude Executive fromutilizing Developments applicable to retailing generally (whether from stores,via catalog, via e-commerce or otherwise) following termination of employment,subject always to the provisions of Section 8 below.

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# 8.                                       **Non-Competition andNon-Solicitation**.

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## (a)                                  Non-Competition.  The Executive agrees that the Executive willnot, during the “Restrictive Period”, as defined below, engage in, or otherwisedirectly or indirectly be employed by, or act as a consultant or lender to, orbe a director, officer, employee, owner, co-venturer, member or partner of, oruse or expressly permit the Executive’s name to be used by (collectively an “EngagementWith”), any business, entity or organization which has a primary line of business(i.e. representing more than 4.9% of its revenue) involving the sale at retail,whether from store locations, and/or by or from direct mail, catalogues and/orwebsites, of party goods and/or supplies anywhere in the United States (a “CompetingEntity”); provided, however, that in each case the provisionsof this Section 8(a) will not be deemed breached

 

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merely because theExecutive owns not more than five percent (5.0%) of the outstanding common stockof a Competing Entity, if, at the time of its acquisition by the Executive,such stock is listed on a national securities exchange, is reported on NASDAQ,or is regularly traded in the over-the-counter market by a member of a nationalsecurities exchange; and provided, further, however, that,subject to the provisions of Section 8(b), nothing herein shallprevent the Executive from working for a business segment or department of aCompeting Entity, or a subsidiary, division or other entity that controls or iscontrolled by a Competing Entity if (and only if), the business segment ordepartment of the Competing Entity for which the Executive provides services,or the subsidiary, division or other entity by which the Executive has anEngagement With (as the case may be), (1) does not itself compete with theCompany, and (2) the Executive does not provide any services, advice,assistance and/or guidance to any business segment or department, subsidiary,division, or other entity of the Competing Entity which competes with theCompany.  As used in thisSection the “Restrictive Period” shall be (i) the period theExecutive is employed by the Company and (ii) the period of one (1) year afterthe Executive ceases to be employed by the Company for any reason, or, in thecase of the Executive’s Engagement With any Competing Entity that operatesretail stores which are located in any states where the Company has retailstores on the date of the Executive’s cessation of employment, the period ofeighteen (18) months period after the Executive ceases to be employed by theCompany for any reason.

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## (b)                                 Non-Solicitation.During the Restrictive Period, the Executive will not, either directly orindirectly, (i) call on or solicit (for the purpose of diverting business fromthe Company) any person, firm, corporation or other entity who or which at thetime of such termination was, or within one (1) year prior thereto had been, acustomer of the Company or (ii) solicit the employment of any person (otherthan any family member) who was employed the Company on a full or part-timebasis at any time during the six (6) months prior to the termination ofExecutive’s employment, unless such person prior to such solicitation ofemployment was involuntarily discharged by the Company.

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# 9.                                       **Confidential Information**.  The Executive recognizes and acknowledges that by reason of hisemployment by and service to the Company, he has had and will have access toconfidential information of the Company and its affiliates, including withoutlimitation, information and knowledge pertaining to products and servicesoffered, ideas, plans, trade secrets, proprietary information, advertising,distribution and sales methods and systems, sales and profit figures, customerand client lists, and relationships between the Company and its customers,clients, suppliers and others who have business dealings with the Company(collectively, “Confidential Information”).  The Executive acknowledges that such Confidential Information isa valuable and unique asset and covenants that he will not, either during or atany time after the end of the Employment Term, use or disclose any suchConfidential Information to any person or entity for any reason whatsoever(except as his duties described herein may require) without the priorauthorization of the Board, unless such information is in or enters the publicdomain through no fault of the Executive or is otherwise lawfully known bythird parties.  In the event theExecutive becomes or may become legally compelled to disclose any ConfidentialInformation (whether by deposition, interrogatory, request for documents,subpoena, civil investigative demand or other process or otherwise), theExecutive shall provide to the Board prompt prior written notice of suchrequirement so that the Company may seek a protective order or otherappropriate remedy and/or waive compliance with the terms of this

 

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Section 9.  In the event that such protective order orother remedy is not obtained, or that the Company waives compliance with theprovisions this Section 9, the Executive shall furnish only thatportion of the Confidential Information which it is advised by counsel islegally required to be disclosed, and shall use his best efforts to insure thatconfidential treatment shall be afforded such disclosed portion of theConfidential Information.

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# 10.                                 **EquitableRelief**.

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## (a)                                  The Executiveacknowledges that the restrictions contained in Sections 7, 8, and 9hereof are reasonable and necessary to protect the legitimate interests of theCompany, that the Company would not have entered into this Agreement in theabsence of such restrictions, and that any violation of any provision of thoseSections will result in irreparable injury to the Company.  The Executive represents that his experienceand capabilities are such that the restrictions contained in Section 8  hereof will not prevent the Executive fromobtaining employment or otherwise earning a living at the same general level ofeconomic benefit as is anticipated by this Agreement.  **THE****EXECUTIVE FURTHER REPRESENTS AND ACKNOWLEDGES THAT (i) HE HAS BEENADVISED BY THE COMPANY TO CONSULT HIS OWN LEGAL COUNSEL IN RESPECT OF THISAGREEMENT, (ii) THAT HE HAS HAD FULL OPPORTUNITY, PRIOR TO EXECUTION OF THISAGREEMENT, TO REVIEW THOROUGHLY THIS AGREEMENT WITH HIS COUNSEL, AND (iii) HEHAS READ AND FULLY UNDERSTANDS THE TERMS AND PROVISIONS OF THIS AGREEMENT**.

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## (b)                                 The Executive agreesthat the Company shall be entitled to preliminary and permanent injunctiverelief, without the necessity of proving actual damages, as well as anequitable accounting of all earnings, profits and other benefits arising fromany violation of Sections 7, 8, or 9 hereof, which rights shall becumulative and in addition to any other rights or remedies to which the Companymay be entitled.  In the event that anyof the provisions of Sections 7, 8, or 9 hereof should ever beadjudicated to exceed the time, geographic, product or service, or otherlimitations permitted by applicable law in any jurisdiction, then suchprovisions shall be deemed reformed in such jurisdiction to the maximum time,geographic, product or service, or other limitations permitted by applicablelaw.

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## (c)                                  The Company and theExecutive each irrevocably and unconditionally (i) agree that any suit, actionor other legal proceeding arising out of this Agreement, including withoutlimitation, any action for preliminary or permanent injunctive relief or otherequitable relief, may be brought in the United States District Court for theDistrict of Eastern Massachusetts, or if such court does not have jurisdictionor will not accept jurisdiction, in any court of general jurisdiction in theCommonwealth of Massachusetts, (ii) consent to the non-exclusive jurisdictionof any such court in any such suit, action or proceeding, and (iii) waive anyobjection which such party may have to the laying of venue of any such suit,action or proceeding in any such court. The Company and the Executive each also irrevocably and unconditionallyconsent to the service of any process, pleadings, notices or other papers in amanner permitted by the notice provisions of Section 15 hereof.

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## (d)                                 The Executive agreesthat he will provide a copy of Sections 7, 8, and 9 of this Agreement toany for-profit business or enterprise (i) which he may directly or

 

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indirectly own, manage,operate, finance, join, participate in the ownership, management, operation,financing, control or control of, or (ii) with which he may be connected withas an officer, director, employee, partner, principal, agent, representative,or consultant, or in connection with which he may use or expressly permit hisname to be used; provided, however, that this provision shall notapply in respect of Section 8 of this Agreement after expiration ofthe time periods set forth therein.

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# 11.                                 **Termination**.

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## (a)                                  Cause.  Notwithstanding anything herein contained, if on or after thedate hereof and prior to the end of the Employment Term, the Executive isterminated “For Cause” (as defined below) then the Company shall havethe right to give notice of termination of the Executive’s services hereunderas of a date to be specified in such notice, and the Employment Term shallterminate on the date so specified. Termination “For Cause” shall mean the Executive shall (i) becharged with the commission of a felony crime; (ii) commit any act or omit totake any action in bad faith and to the detriment of the Company; (iii)intentionally fail to follow any commercially reasonable and lawful directionof the Chief Executive Officer or the Board and continue to fail to follow suchdirection within ten (10) days of written notification of same; (iv) commit anact of fraud against the Company; (v) knowingly provide materially falseinformation concerning the Company to the Board, any governmental body, anyregulatory agency, any lender or other financing source of the Company, or anyshareholder of the Company; or (vi) breach any term of this Agreement and failto correct such breach within ten (10) days after written notice of commissionthereof.  In the event that thisAgreement is terminated “For Cause” pursuant to this Section 11(a),then the Executive shall be entitled to receive only the Base Salary at therate provided in Section 3(a) to the date on which terminationshall take effect, any accrued vacation and unpaid expenses as contemplatedunder Section 5, and (iii) any performance bonus earned and unpaidfor any prior plan periods and, if applicable under any performance bonus planfor the year of termination, the amount, if any, earned thereunder to the dateof termination (collectively, “Accrued Bonus Payments”).

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## (b)                                 Disability.  In the event that the Executive shall be physically or mentallyincapacitated or disabled or otherwise unable fully to discharge his dutieshereunder, with reasonable accommodation, for more than 180 days during anyrolling 12-month period, then the Company may terminate the Executive’semployment hereunder for “Disability” upon thirty (30) days’ writtennotice to the Executive, and no further compensation shall be payable to theExecutive, except for any accrued and unpaid Base Salary as contemplated under Section 3(a),any accrued vacation and unpaid expenses as contemplated under Section 5,any Accrued Bonus Payments and as may otherwise be provided under anydisability insurance policy, if any.

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## (c)                                  Death.  In the event that the Executive shall die, then his employmentshall terminate on the date of his death, and no further compensation shall bepayable to the Executive, except for any accrued and unpaid Base Salary ascontemplated under Section 3(a), any accrued vacation and unpaidexpenses as contemplated under Section 5, any Accrued BonusPayments and as may otherwise be provided under any insurance policy or similarinstrument.

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## (d)                                 Expiration.Unless the Company and the Executive otherwise

 

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agree in writing, thisAgreement shall automatically terminate upon the expiration of the EmploymentTerm, and upon such expiration the Company shall be obligated to pay to theExecutive Base Salary earned, but not yet paid to the Executive, prior to thedate of such termination in accordance with Section 3(a), andreimburse the Executive for any accrued vacation and unpaid expenses incurredby the Executive through the date of termination in accordance with Section 5,and any Accrued Bonus Payments.  Inaddition, subject to the provisions of Section 11(i) hereof and theExecutive’s compliance (and continued compliance) with the provisions of Sections7, 8 and 9 hereof, (i) the Company shall pay to the Executive a severancepayment equal to six (6) months salary at the Base Salary then in effect,payable in six (6) equal monthly installments and (ii) for such six (6) monthperiod, the Executive shall be entitled to continue to receive his then currenthealth, life and disability insurance benefits or, in the case of healthinsurance benefits, payment by the Company of applicable “COBRA” payments.

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## (e)                                  Termination Without Cause.  In the event that the Company terminates the Executive for anyreason other than as provided under Section 11(a), 11(b), 11(c) or11(d), then the Executive’s employment shall terminate upon thirty (30) days’written notice to the Executive and, the Company shall be obligated to pay tothe Executive Base Salary earned, but not yet paid to the Executive,prior to the date of such termination in accordance with Section 3(a),and reimburse the Executive for any accrued vacation and unpaid expensesincurred by the Executive through the date of termination in accordance with Section 5,and any Accrued Bonus Payments.  Inaddition, subject to theprovisions of Section 11(i) hereof and the Executive’scompliance (and continued compliance) with the provisions of Sections 7, 8and 9 hereof, (i) the Company shall pay to the Executive a severance payment equal to six(6) months salary at the Base Salary then in effect, payable in six (6) equalmonthly installments and (ii) for such six (6) month period, the Executiveshall be entitled to continue to receive his then current health, life anddisability insurance benefits or, in the case of health insurance benefits,payment by the Company of applicable “COBRA” payments (collectively (i) and(ii) are called the “Severance Payments”).

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## (f)                                    Change of Control. Subject to the provisions of Sections11(i) and 11(j), in the event that Company shall terminate this Agreementand the Executive’s employment hereunder pursuant to the provisions of Section 11(e)within six (6) months following a Change in Control (as defined below) or theExecutive shall terminate this Agreement and the Executive’s employmenthereunder for Good Reason (as defined in Section 11(h)) within six(6)****months following a Change inControl, then, in lieu of (and not in addition to) the amounts to be paid (andbenefits to be provided) by the Company pursuant to Section 11(e)or Section 11(h), the Company shall have no further obligationsunder this Agreement to the Executive other than the obligation to: (i) pay tothe Executive Base Salary earned, but not yet paid to the Executive, prior tothe date of such termination in accordance with Section 3(a), (ii)reimburse the Executive for any accrued vacation and unpaid expenses incurredby the Executive through the date of termination in accordance with Section 5,and pay any Accrued Bonus Payments and (iii) subject to the provisions of Sections 11(i) and 11(j), pay to theExecutive a lump sum amount equal to twelve (12) months of the Executive’s BaseSalary, as then in effect. In addition, for the twelve (12) month periodfollowing the date of such termination, the Executive shall be entitled tocontinue to receive his then current health, life and disability insurancebenefits or, in the case of health insurance benefits, payment by the Companyof applicable “COBRA” payments.

 

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As used in thisAgreement, “Change in Control” shall mean the occurrence of any one ofthe following events:

 

(i)                                     anyPerson other than an employee benefit plan of the Company or of anywholly-owned subsidiary of the Company becomes the owner of 40% or more of thecombined voting power of the Company’s then outstanding voting securities andthereafter individuals who were not directors of the Company prior to the datesuch Person became a 40% owner are elected as directors pursuant to anarrangement or understanding with, or upon the request of or nomination by,such Person and constitute at least 1/2 of the Board; provided, however,such acquisition of ownership shall not constitute a Change of Control if theExecutive or an Executive Related Party is the Person or a member of a groupconstituting the Person acquiring such ownership; or

 

(ii)                                  thereoccurs any solicitation or series of solicitations of proxies by or on behalfof any Person other than the Board and thereafter individuals who were notdirectors of the Company prior to the commencement of such solicitation orseries of solicitations are elected as directors pursuant to an arrangement orunderstanding with, or upon the request of or nomination by, such Person andconstitute at least 1/2 of the Board of Directors; or

 

(iii)                               theCompany executes an agreement of sale, merger or consolidation whichcontemplates that (x) after the effective date provided for in such agreement,all or substantially all of the business and/or assets of the Company shall beowned, leased or otherwise controlled by another Person and (y) individuals whoare directors of the Company when such agreement is executed shall notconstitute at least 1⁄2 of the board of directors of the survivor or successorentity immediately after the effective date provided for in such agreement; provided,however, that for purposes of this paragraph (iii), if such agreementrequires as a condition precedent approval by the Company’s shareholders of theagreement or transaction, a Change of Control shall not be deemed to have takenplace unless and until such approval is secured (but upon any such approval, aChange of Control shall be deemed to have occurred on the effective date ofsuch agreement).

 

**“Executive Related Party”shall mean any Affiliate or Associate of the Executive other than the Companyor a Subsidiary of the Company.  Theterms “Affiliate” and “Associate” shall have the meanings ascribed thereto inRule 12b-2 under the Securities Exchange Act of 1934, as amended (the “ExchangeAct”) (the term “registrant” in the definition of “Associate” meaning, inthis case, the Company).**

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**“Person” shall have themeaning used in Section 13(d) of the Exchange Act, as in effect on thedate hereof.**

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## (g)                                 Termination byExecutive.  In the event that theExecutive desires to resign voluntarily from the Company, the Executivecovenants to provide the Company with not less than ninety (90) days writtennotice of any such voluntary resignation; and further the Executive covenantsto cooperate in good faith in order to facilitate a smooth transfer ofauthority during the period from notice of resignation to the date oftermination.  In the event that theExecutive’s employment is terminated by the Executive pursuant to this Section 11(g),then

 

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the Executive shall beentitled to receive an amount payable in a lump sum within ten (10) businessdays following the date of termination, equal to the sum of any accrued andunpaid Base Salary as contemplated by Section 3(a), any accruedvacation and unpaid expenses as contemplated by Section 5 and anyAccrued Bonus Payments.

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## (h)                                 Good Reason.  The Executive may, upon thirty (30) dayswritten notice, terminate his employment with the Company for “GoodReason”.  “Good Reason” shallmean any material breach by the Company of its obligations hereunder which arenot cured within ten (10) days following receipt of written notice from theExecutive detailing such breach.  Theparties agree that a material breach shall mean, (x) any material reduction inthe Executive’s duties, authority, reporting relationships or responsibilities(whether or not accompanied by a title change) not consented to by theExecutive, and (y) the relocation of the principal executive offices of theCompany a distance of more than 35 miles from its current location notconsented to by the Executive. Notwithstandingthe foregoing or anything to the contrary contained herein, the Executive shallnot be entitled to terminate his employment for “Good Reason” as a result of aPermitted Change. In the event that the Executive terminates this Agreementfor Good Reason, the Company shall be obligated to pay to the Executive BaseSalary earned, but not yet paid to the Executive, prior to the date of suchtermination in accordance with Section 3(a), reimburse theExecutive for any accrued vacation and unpaid expenses incurred by theExecutive through the date of termination in accordance with Section 5and pay any Accrued Bonus Payments.  Inaddition, subject to the provisions of Section 11(i) hereof, andthe Executive’s compliance (and continued compliance) with the provisions of Sections7, 8 and 9 hereof, the Company shall pay and provide to the Executive theSeverance Payments.

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## (i)                                     Release.  Notwithstanding anything to the contrarycontained in this Agreement, the Executive (or his estate) shall not beentitled to receive the payments and benefits set forth in this Section 11(other than Base Salary through the effective date of termination in accordancewith Section 3(a) hereof and reimbursement of expenses inaccordance with Section 5) prior to (i) the execution and deliveryby the Executive to the Company of a valid and fully effective general release and nondisparagement agreement(in form and substance reasonably satisfactory to the Company) of all claims,including but not limited to the Age Discrimination in Employment Act, TitleVII of the Civil Rights Act of 1964, which the Executive might have at suchtime against the Company and (ii) the resignation of the Executive from allpositions of any nature which the Executive may then have held with the Companyand any subsidiary of the Company.

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## (j)                                     Limitation asto Amounts Payable.  Notwithstandingany provision of this Agreement to the contrary (including without limitationthe provisions of Section 11(f)), if all or any portion of theamounts to be paid to the Executive under this Agreement otherwise would be a“parachute payment,” as defined in section 280G(b)(2) of the InternalRevenue Code of 1986, as amended (the “Code”) and the TreasuryRegulations thereunder, the aggregate present value of the total amounts to bepaid to the Executive under this Agreement shall be limited to an amount thatis less than three times the Executive’s “annualized includible compensationfor the base period,” as defined in section 280G(d) of the Code and anyTreasury Regulations thereunder; provided, however, that in noevent shall the amount payable under this Agreement be reduced pursuant to thisSection 11(j) to less than the maximum amount that may be paid tothe Executive without causing any portion of such amount to becomenondeductible

 

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under section 280Gof the Code and subject to the excise tax imposed by section 4999 of theCode.  The determination of theExecutive’s “annualized includible compensation for the base period” and thedeductibility of payments made pursuant to this Agreement shall be made by theindependent outside accounting firm regularly retained by the Company.  For purposes of this Section 11(j),“present value” shall be determined in accordance with section 280G of theCode and the Treasury Regulations thereunder.

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# 12.                                 **Survival**. Except as otherwise provided in this Agreement,notwithstanding the termination of this Agreement or the Executive’s employmentfor any reason, the Executive’s obligations under Sections 2(b), 7, 8 and 9hereof shall survive and remain in full force and effect for the periodstherein provided, and the provisions for equitable relief against the Executivein Section 10 hereof shall continue in force, along with theprovisions of Sections 12 through 20 hereof.  In addition, the obligations of the Company set forth in Section 11shall survive any termination (as applicable) and shall remain in full forceand effect until such obligations are satisfied in full (subject, asapplicable, to the Executive’s compliance with the provisions of Section 11(i)).

#  

# 13.                                 **Assignment**.  All of the terms and provisions of thisAgreement shall be binding upon and inure to the benefit of and be enforceableby the respective heirs, executors, administrators, legal representatives,successors and assigns of the parties hereto, except that the duties andresponsibilities of the Executive hereunder are of a personal nature and shallnot be assignable or delegatable in whole or in part by the Executive.

#  

# 14.                                 **Modification**.  This Agreement sets forth the entire understanding of the partieswith respect to the subject matter hereof, supersedes all existing agreementsbetween them concerning such subject matter, and may be modified only by awritten instrument duly executed by each party.

#  

# 15.                                 **Notices**.  All notices and other communicationsrequired or permitted hereunder or necessary or convenient in connectionherewith shall be in writing and shall be deemed to have been given when handdelivered or three (3) days after being mailed by registered or certified mail,as follows (provided that notice of change of address shall be deemed givenonly when received):

#  

If to the Company:

 

iParty Corp.

270 Bridge Street

Suite 301

Dedham, MA 02026

Attn: Corporate Secretary

 

With a required copy to:

 

Lowenstein Sandler PC

65 Livingston Avenue

Roseland, NJ 07068

Attn:  Douglas N. Bernstein, Esq.

Fax:  973-597-2400

 

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If to the Executive:

 

Mr. Patrick Farrell

70 Perkins Street, No. 4

Jamaica Plains, MA 02130

 

# 16.                                 **Remedies Cumulative; No Waiver**.  No remedy conferred upon the Company by this Agreement isintended to be exclusive of any other remedy, and each and every such remedyshall be cumulative and shall be in addition to any other remedy givenhereunder or now or hereafter existing at law or in equity.  No delay or omission by the Company inexercising any right, remedy or power hereunder or existing at law or in equityshall be construed as a waiver thereof, and any such right, remedy or power maybe exercised by the Company from time to time and as often as may be deemedexpedient or necessary by the Company in its sole discretion.

#  

# 17.                                 **Binding Effect**.  The Executive’s rights and obligations under this Agreement shallnot be transferable by assignment or otherwise, such rights shall not besubject to encumbrance or the claims of the Executive’s creditors, and anyattempt to do any of the foregoing shall be void.  The provisions of this Agreement shall be binding upon and inureto the benefit of the Executive and his heirs and personal representatives, andshall be binding upon and inure to the benefit of the Company and itssuccessors and those who are its assigns under Section 13.

#  

# 18.                                 **EntireAgreement; Contents of Agreement**.

#  

## (a)                                  This Agreementsupersedes all prior agreements in their entirety, including without limitationthe Prior Employment Agreements, effective as of April 1, 2004, and setsforth the entire understanding among the parties hereto with respect to thesubject matter hereof and cannot be changed, modified, extended or terminatedexcept upon written amendment executed by the Executive and approved by theBoard and executed on behalf of the Company by a duly authorized officer.  The Executive acknowledges that the effectof this provision is that no oral modifications of any nature whatsoever tothis Agreement shall be permitted.

##  

## (b)                                 The Executiveacknowledges that from time to time, the Company may establish, maintain anddistribute manuals or handbooks or personnel policy manuals, and officers orother representatives of the Company may make written or oral statementsrelating to personnel policies and procedures. Such manuals, handbooks and statements are intended only for generalguidance.  No policies, procedures orstatements of any nature by or on behalf of the Company (whether written ororal, and whether or not contained in any manual or handbook or personnelpolicy manual), and no acts or practices of any nature, shall be construed tomodify this Agreement or to create express or implied obligations of any natureto the Executive.

##  

# 19.                                 **Headings**.  The headings in this Agreement are solely for the convenience ofreference and shall be given no effect in the construction or interpretation ofthis Agreement.

 

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# 20.                                 **Counterparts;Governing Law**.  ThisAgreement may be executed in any number of counterparts, each of which shall bedeemed an original, but all of which together shall constitute one and the sameinstrument.  It shall be governed by,and construed in accordance with, the laws of The Commonwealth ofMassachusetts, without giving effect to the rules governing the conflicts oflaws.

 

# **IN WITNESS WHEREOF**,the parties have duly executed this Agreement as of the date first writtenabove.

 
|   | **iPARTY CORP.**          |
|--------|---------------------------|
|   |                      |
|   |                      |
|   | By                        | /s/ SAL PERISANO |   |
|   | Name:                     | Sal Perisano |
|   | Title:                    | Chairman of the Board and Chief Executive  Officer |
|   |                      |   |
|   |                      |   |
|   |  /s/ PATRICK FARRELL |   |
|   | Patrick Farrell           |
|        |                           |  |  |  |  |

 

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