NEITHER
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE
SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS.  THE SECURITIES MAY NOT BE OFFERED
FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE
HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID
ACT.  NOTWITHSTANDING THE FOREGOING, THE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.  NOTICE IS
HEREBY GIVEN TO THE HOLDER OF THESE SECURITIES THAT THESE SECURITIES AND THE
TERMS HEREOF ARE AMENDED BY THAT CERTAIN AMENDMENT AGREEMENT BY AND BETWEEN THE
COMPANY AND HIGHBRIDGE INTERNATIONAL LLC, DATED AS OF JANUARY 9, 2007 (THE “AMENDMENT
AGREEMENT”).


IPARTY
CORP.


WARRANT TO PURCHASE COMMON STOCK


Warrant No.:         1R  


Number of Shares of Common Stock: 2,083,334


Date of
Issuance:  September 15, 2006 (“Issuance Date”)


iParty Corp., a Delaware
corporation (the “Company”),
hereby certifies that, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, HIGHBRIDGE INTERNATIONAL LLC, the
registered holder hereof or its permitted assigns (the “Holder”), is entitled, subject to the terms
set forth below, to purchase from the Company, at the Exercise Price (as
defined below) then in effect, upon surrender of this Warrant to Purchase
Common Stock (including any Warrants to Purchase Common Stock issued in
exchange, transfer or replacement hereof, the “Warrant”), at any time or times on or after the date hereof,
but not after 11:59 p.m., New York time, on the Expiration Date (as defined
below), TWO MILLION EIGHTY THREE THOUSAND THREE HUNDRED THIRTY FOUR (2,083,334)
fully paid nonassessable shares of Common Stock (as defined below) (the “Warrant
Shares”).  Except as otherwise
defined herein, capitalized terms in this Warrant shall have the meanings set
forth in Section 15.  This Warrant is one
of the Warrants to purchase Common Stock (including replacement warrants issued
pursuant to the Amendment Agreement, the “SPA
Warrants”) and amends, supplements, modifies and completely restates
and supersedes the warrants, dated as of the Subscription Date (the “Existing Warrants”), issued by the Company









 



to the Holder for
the exercise of 2,083,334 shares of Common Stock, but shall not, except as
specifically amended hereby or as set forth in the Amendment Agreement,
constitute a release, satisfaction or novation of any of the obligations under
the Existing Warrants or any other Transaction Document (as defined in the
Amendment Agreement).  This Warrant is
one of an issue of warrants issued pursuant to Section 1 of the Amendment
Agreement, dated as of January 9, 2007, by and between the Holder and the
Company.


1.             EXERCISE OF WARRANT.


(a)           Mechanics of Exercise.  Subject to the terms and conditions hereof
(including, without limitation, the limitations set forth in Section 1(f)),
this Warrant may be exercised by the Holder on any day on or after the date
hereof, in whole or in part, by (i) delivery of a written notice, in the
form attached hereto as Exhibit A (the “Exercise Notice”), of the Holder’s election to exercise this
Warrant and (ii) (A) payment to the Company of an amount equal to the
applicable Exercise Price multiplied by the number of Warrant Shares as to
which this Warrant is being exercised (the “Aggregate
Exercise Price”) in cash or by wire transfer of immediately
available funds or (B) by notifying the Company that this Warrant is being
exercised pursuant to a Cashless Exercise (as defined in Section 1(d)).  The Holder shall not be required to deliver
the original Warrant in order to effect an exercise hereunder.  Execution and delivery of the Exercise Notice
shall have the same effect as cancellation of the original Warrant and issuance
of a new Warrant evidencing the right to purchase the remaining number of
Warrant Shares, if any.  On or before the
first (1st)
Business Day following the date on which the Company has received each of the
Exercise Notice and the Aggregate Exercise Price (or notice of a Cashless
Exercise) (the “Exercise Delivery Documents”),
the Company shall transmit by facsimile an acknowledgment of confirmation of
receipt of the Exercise Delivery Documents to the Holder and the Company’s
transfer agent (the “Transfer Agent”).  On or before the third (3rd) Business Day following the date on
which the Company has received all of the Exercise Delivery Documents (the “Share Delivery Date”), the Company shall
(X) provided that the Transfer Agent is participating in The Depository Trust
Company (“DTC”) Fast Automated
Securities Transfer Program, upon the request of the Holder, credit such
aggregate number of shares of Common Stock to which the Holder is entitled
pursuant to such exercise to the Holder’s or its designee’s balance account
with DTC through its Deposit Withdrawal Agent Commission system, or (Y) if the
Transfer Agent is not participating in the DTC Fast Automated Securities
Transfer Program, issue and dispatch by overnight courier to the address as
specified in the Exercise Notice, a certificate, registered in the Company’s
share register in the name of the Holder or its designee, for the number of
shares of Common Stock to which the Holder is entitled pursuant to such
exercise.  Upon delivery of the Exercise
Notice and (x) the Aggregate Exercise Price referred to in clause (ii)(A)
above, or (y) notification to the Company of a Cashless Exercise referred to in
Section 1(d), the Holder shall be deemed for all corporate purposes to have
become the holder of record of the Warrant Shares with respect to which this
Warrant has been exercised, irrespective of the date of delivery of the
certificates evidencing such Warrant Shares. 
If this Warrant is submitted in connection with any exercise pursuant to
this Section 1(a) and the number of Warrant Shares represented by this Warrant
submitted for exercise is greater than the number of Warrant Shares being
acquired upon an exercise, then the Company shall as soon as practicable and in
no event later than three Business Days after any exercise and at its own
expense, issue a new Warrant (in accordance with Section 7(d))



 2
 






 



representing the
right to purchase the number of Warrant Shares purchasable immediately prior to
such exercise under this Warrant, less the number of Warrant Shares with
respect to which this Warrant is exercised. 
No fractional shares of Common Stock are to be issued upon the exercise
of this Warrant, but rather the number of shares of Common Stock to be issued
shall be rounded up to the nearest whole number.  The Company shall pay any and all taxes which
may be payable with respect to the issuance and delivery of Warrant Shares upon
exercise of this Warrant; provided, however, the Company shall
not be required to pay any taxes which may be payable in connection with or in
respect of any transfer involved in the registration of any certificates for
Warrant Shares or Warrants in a name other than that of the Holder, and the
Holder shall be responsible for all other tax liability that may arise as a
result of holding or transferring this Warrant.


(b)           Exercise Price.  For purposes of this Warrant, “Exercise Price” means $0.475, subject to adjustment as
provided herein.


(c)           Company’s Failure to Timely
Deliver Securities.  If the Company
shall fail for any reason or for no reason to issue to the Holder within three
(3) Trading Days of receipt of the Exercise Delivery Documents, a certificate
for the number of shares of Common Stock to which the Holder is entitled and
register such shares of Common Stock on the Company’s share register or
to credit the Holder’s balance account with DTC for such number of
shares of Common Stock to which the Holder is entitled upon the Holder’s
exercise of this Warrant, then, in lieu of any other monetary remedies
available to the Holder, the Holder shall have the option to require that (i)
the Company pay in cash to the Holder on each day after such third Trading Day that the issuance of such shares of Common
Stock is not timely effected an amount equal to 1.0% of the product (the “Sale Price”) of (A) the sum of the number
of shares of Common Stock not issued to the Holder on a timely basis and to
which the Holder is entitled, and (B) the Closing Sale Price of the shares of
Common Stock on the Trading Day immediately preceding the last possible date
which the Company could have issued such shares of Common Stock to the Holder
without violating Section 1(a), provided, however, that the aggregate amount of
the daily payments under this sentence shall not exceed 10.0% of the Sale
Price, or, (ii) if after such third (3rd)
Trading Day the Holder purchases (in an open market transaction or otherwise)
shares of Common Stock to deliver in satisfaction of a sale by the Holder of
shares of Common Stock issuable upon such exercise that the Holder had
anticipated receiving from the Company hereunder (a “Buy-In”),
the Company shall promptly honor its obligation to deliver to the Holder a
certificate or certificates representing such shares of Common Stock within
three (3) Business Days after the Holder’s request and pay cash to the Holder
in an amount equal to the excess (if any) of the Holder’s total purchase price
(including reasonable brokerage commissions, if any) for the shares of Common
Stock so purchased (the “Buy-In Price”)
over the product of (A) such number of shares of Common Stock, times (B) the
Closing Bid Price on the date of such exercise.


(d)           Cashless Exercise.  Notwithstanding
anything contained herein to the contrary, if a Registration Statement (as
defined in the Registration Rights Agreement) covering the Warrant Shares that
are the subject of the Exercise Notice (the “Unavailable
Warrant Shares”) is not available for the resale of such Unavailable
Warrant Shares, the Holder



 3
 






 



may, in its sole discretion, exercise this
Warrant in whole or in part and, in lieu of making the cash payment otherwise
contemplated to be made to the Company upon such exercise in payment of the
Aggregate Exercise Price, elect instead to receive upon such exercise the “Net
Number” of shares of Common Stock determined according to the following formula
(a “Cashless Exercise”):


	
  Net Number = 

  	
  (A x B) - (A x C)

  	
   

  
	
   

  	
  B

  	
   

  



 


For purposes of the foregoing formula:


A= the total number of
shares with respect to which this Warrant is then being exercised.


B= the Closing Sale Price
of the shares of Common Stock (as reported by Bloomberg) on the date
immediately preceding the date of the Exercise Notice.


C= the
Exercise Price then in effect for the applicable Warrant Shares at the time of
such exercise.


(e)           Disputes.  In the case of a dispute as to the
determination of the Exercise Price or the arithmetic calculation of the
Warrant Shares, the Company shall promptly issue to the Holder the number of
Warrant Shares that are not disputed and resolve such dispute in accordance
with Section 12.


(f)            Limitations on Exercises; 


(i)            Beneficial
Ownership.  The Company shall not
effect the exercise of this Warrant, and the Holder shall not have the right to
exercise this Warrant, to the extent that after giving effect to such exercise,
such Person (together with such Person’s affiliates) would beneficially own in
excess of 4.99% (the “Maximum Percentage”)
of the shares of Common Stock outstanding immediately after giving effect to
such exercise.  For purposes of the
foregoing sentence, the aggregate number of shares of Common Stock beneficially
owned by such Person and its affiliates shall include the number of shares of
Common Stock issuable upon exercise of this Warrant with respect to which the
determination of such sentence is being made, but shall exclude shares of
Common Stock which would be issuable upon (x) exercise of the remaining,
unexercised portion of this Warrant beneficially owned by such Person and its
affiliates and (y) exercise or conversion of the unexercised or unconverted
portion of any other securities of the Company beneficially owned by such
Person and its affiliates (including, without limitation, any convertible notes
or convertible preferred stock or warrants) subject to a limitation on
conversion or exercise analogous to the limitation contained herein.



 4
 






 



Except as set forth in the preceding
sentence, for purposes of this paragraph, beneficial ownership shall be
calculated in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended (the “Exchange Act”).  For purposes of this Warrant, in determining
the number of outstanding shares of Common Stock, the Holder may rely on the
number of outstanding shares of Common Stock as reflected in (1) the Company’s
most recent Form 10-K, Form 10-Q, Current Report on Form 8-K or other public
filing with the Securities and Exchange Commission, as the case may be, (2) a
more recent public announcement by the Company or (3) any other notice by the
Company or the Transfer Agent setting forth the number of shares of Common
Stock outstanding.  For any reason at any
time, upon the written or oral request of the Holder, the Company shall within
one Business Day confirm orally and in writing to the Holder the number of
shares of Common Stock then outstanding. 
In any case, the number of outstanding shares of Common Stock shall be
determined after giving effect to the conversion or exercise of securities of
the Company, including the SPA Warrants, by the Holder and its affiliates since
the date as of which such number of outstanding shares of Common Stock was
reported.  By written notice to the
Company, the Holder may, from time to time, increase or decrease the Maximum
Percentage to any other percentage not in excess of 9.99% specified in such
notice; provided that (i) any such increase will not be effective until the
sixty-first (61st)
day after such notice is delivered to the Company, and (ii) any such increase
or decrease will apply only to the Holder and not to any other holder of SPA
Warrants.


(ii)           Principal
Market Regulation.  The Company shall
not be obligated to issue any shares of Common Stock upon exercise of this
Warrant if the issuance of such shares of Common Stock would exceed that number
of shares of Common Stock which the Company may issue upon exercise of this
Warrant without breaching the Company’s obligations under the rules or
regulations of the Principal Market (the “Exchange Cap”), except that such limitation shall not apply
in the event that the Company (A) obtains the approval of its shareholders as
required by the applicable rules of the Principal Market for issuances of
shares of Common Stock in excess of such amount or (B) obtains a written
opinion from outside counsel to the Company that such approval is not required,
which opinion shall be reasonably satisfactory to the Required Holders.  Until such approval or written opinion is
obtained, no Buyer (as defined in the Securities Purchase Agreement) shall be
issued, upon exercise of any SPA Warrants shares of Common Stock in an amount
greater than the product of the Exchange Cap multiplied by a fraction, the
numerator of which is the total number of shares of Common Stock issued to such
Buyer pursuant to the Securities Purchase Agreement on the Issuance Date and
the denominator of which is the aggregate number of shares of Common Stock
issued to the Buyers pursuant to the Securities Purchase Agreement on the
Issuance



 5
 






 



Date (with respect to each Buyer, the “Exchange Cap Allocation”). 
In the event that any Buyer shall sell or otherwise transfer any of such
Buyer’s SPA Warrants, the transferee shall be allocated a pro rata portion of
such Buyer’s Exchange Cap Allocation, and the restrictions of the prior
sentence shall apply to such transferee with respect to the portion of the
Exchange Cap Allocation allocated to such transferee.  In the event that any holder of SPA Warrants
shall exercise all of such holder’s SPA Warrants into a number of shares of
Common Stock which, in the aggregate, is less than such holder’s Exchange Cap
Allocation, then the difference between such holder’s Exchange Cap Allocation
and the number of shares of Common Stock actually issued to such holder shall
be allocated to the respective Exchange Cap Allocations of the remaining
holders of SPA Warrants on a pro rata basis in proportion to the shares of
Common Stock underlying the SPA Warrants then held by each such holder.  In the event that the Company is prohibited
from issuing any Warrant Shares for which an Exercise Notice has been received
as a result of the operation of this Section 1(f)(ii), the Company shall pay
cash in exchange for cancellation of such Warrant Shares, at a price per
Warrant Share equal to the difference between the Closing Sale Price and the
Exercise Price as of the date of the attempted exercise.


(g)           Insufficient Authorized Shares.  If at any time while any of the Warrants
remain outstanding the Company does not have a sufficient number of authorized
and unreserved shares of Common Stock to satisfy its obligation to reserve for
issuance upon exercise of the Warrants at least a number of shares of Common
Stock equal to 130% (the “Required Reserve Amount”) of the number of shares of Common
Stock as shall from time to time be necessary to effect the exercise of all of
the Warrants then outstanding (an “Authorized Share Failure”), then the Company shall
immediately take all action necessary to increase the Company’s authorized
shares of Common Stock to an amount sufficient to allow the Company to reserve
the Required Reserve Amount for the Warrants then outstanding.  Without limiting the generality of the
foregoing sentence, as soon as practicable after the date of the occurrence of
an Authorized Share Failure, but in no event later than ninety (90) days after
the occurrence of such Authorized Share Failure, the Company shall hold a
meeting of its stockholders for the approval of an increase in the number of
authorized shares of Common Stock.  In
connection with such meeting, the Company shall provide each stockholder with a
proxy statement and shall use its best efforts to solicit its stockholders’
approval of such increase in authorized shares of Common Stock and to cause its
board of directors to recommend to the stockholders that they approve such
proposal.


2.     ADJUSTMENT
OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES.  The Exercise Price and the number of Warrant
Shares shall be adjusted from time to time as follows:


(a)           Adjustment upon Issuance of shares
of Common Stock.  If and whenever on
or after the Subscription Date the Company issues or sells, or in accordance
with this Section 2 is deemed to have issued or sold, any shares of Common
Stock (including the



 6
 






 



issuance or sale of shares of
Common Stock owned or held by or for the account of the Company, but excluding
Excluded Securities for a consideration per share less than a price (the “Applicable Price”) equal to the Exercise Price in effect
immediately prior to such issue or sale or deemed issuance or sale (the
foregoing a “Dilutive Issuance”), then
immediately after such Dilutive Issuance, the Exercise Price then in effect
shall be reduced to an amount equal to the product of (A) the Exercise
Price in effect immediately prior to such Dilutive Issuance and (B) the
quotient determined by dividing (1) the sum of (I) the product derived by
multiplying the Exercise Price in effect immediately prior to such Dilutive
Issuance and the number of Common Stock Deemed Outstanding immediately prior to
such Dilutive Issuance plus (II) the consideration, if any, received by
the Company upon such Dilutive Issuance, by (2) the product derived by
multiplying (I) the Exercise Price in effect immediately prior to such
Dilutive Issuance by (II) the number of Common Stock Deemed Outstanding
immediately after such Dilutive Issuance. 
Upon each such adjustment of the Exercise Price hereunder, the number of
Warrant Shares shall be adjusted to the number of shares of Common Stock
determined by multiplying the Exercise Price in effect immediately prior to
such adjustment by the number of Warrant Shares acquirable upon exercise of
this Warrant immediately prior to such adjustment and dividing the product
thereof by the Exercise Price resulting from such adjustment.  For purposes of determining the adjusted
Exercise Price under this Section 2(a), the following shall be applicable:


(i)            Issuance
of Options.  If the Company in any
manner grants any Options and the lowest price per share for which one share of
Common Stock is issuable upon the exercise of any such Option or upon
conversion, exercise or exchange of any Convertible Securities issuable upon
exercise of any such Option is less than the Applicable Price, then such share
of Common Stock shall be deemed to be outstanding and to have been issued and
sold by the Company at the time of the granting or sale of such Option for such
price per share.  For purposes of this
Section 2(a)(i), the “lowest price per share for which one share of Common
Stock is issuable upon exercise of such Options or upon conversion, exercise or
exchange of such Convertible Securities” shall be equal to the sum of the
lowest amounts of consideration (if any) received or receivable by the Company
with respect to any one share of Common Stock upon the granting or sale of the
Option, upon exercise of the Option and upon conversion, exercise or exchange
of any Convertible Security issuable upon exercise of such Option.  No further adjustment of the Exercise Price
or number of Warrant Shares shall be made upon the actual issuance of such
shares of Common Stock or of such Convertible Securities upon the exercise of
such Options or upon the actual issuance of such shares of Common Stock upon
conversion, exercise or exchange of such Convertible Securities.


(ii)           Issuance of
Convertible Securities.  If the
Company in any manner issues or sells any Convertible Securities and the lowest
price per share for which one share of Common Stock is issuable upon the
conversion,



 7
 






 



exercise or exchange thereof is less than the Applicable Price, then
such share of Common Stock shall be deemed to be outstanding and to have been
issued and sold by the Company at the time of the issuance or sale of such
Convertible Securities for such price per share.  For the purposes of this Section 2(a)(ii),
the “lowest price per share for which one share of Common Stock is issuable
upon the conversion, exercise or exchange” shall be equal to the sum of the
lowest amounts of consideration (if any) received or receivable by the Company
with respect to one share of Common Stock upon the issuance or sale of the
Convertible Security and upon conversion, exercise or exchange of such
Convertible Security.  No further
adjustment of the Exercise Price or number of Warrant Shares shall be made upon
the actual issuance of such shares of Common Stock upon conversion, exercise or
exchange of such Convertible Securities, and if any such issue or sale of such
Convertible Securities is made upon exercise of any Options for which
adjustment of this Warrant has been or is to be made pursuant to other
provisions of this Section 2(a), no further adjustment of the Exercise Price or
number of Warrant Shares shall be made by reason of such issue or sale.


(iii)          Change in Option
Price or Rate of Conversion.  If the
purchase price provided for in any Options, the additional consideration, if
any, payable upon the issue, conversion, exercise or exchange of any
Convertible Securities, or the rate at which any Convertible Securities are
convertible into or exercisable or exchangeable for shares of Common Stock
increases or decreases at any time, the Exercise Price and the number of
Warrant Shares in effect at the time of such increase or decrease shall be
adjusted to the Exercise Price and the number of Warrant Shares which would
have been in effect at such time had such Options or Convertible Securities
provided for such increased or decreased purchase price, additional
consideration or increased or decreased conversion rate, as the case may be, at
the time initially granted, issued or sold. 
For purposes of this Section 2(a)(iii), if the terms of any Option or
Convertible Security that was outstanding as of the date of issuance of this
Warrant are increased or decreased in the manner described in the immediately
preceding sentence, then such Option or Convertible Security and the shares of
Common Stock deemed issuable upon exercise, conversion or exchange thereof
shall be deemed to have been issued as of the date of such increase or
decrease.  No adjustment pursuant to this
Section 2(a) shall be made if such adjustment would result in an increase of
the Exercise Price then in effect or a decrease in the number of Warrant
Shares.


(iv)          Calculation of
Consideration Received.  In case any
Option is issued in connection with the issue or sale of other securities of
the Company, together comprising one integrated transaction in which no
specific consideration is allocated to such Options by the parties thereto,



 8
 






 



the Options will be deemed to have been issued for a consideration of
$0.01.  If any shares of Common Stock,
Options or Convertible Securities are issued or sold or deemed to have been
issued or sold for cash, the consideration received therefor will be deemed to
be the net amount received by the Company therefor.  If any shares of Common Stock, Options or
Convertible Securities are issued or sold for a consideration other than cash,
the amount of such consideration received by the Company will be the fair value
of such consideration, except where such consideration consists of securities,
in which case the amount of consideration received by the Company will be the
Closing Sale Price of such security on the date of receipt.  If any shares of Common Stock, Options or
Convertible Securities are issued to the owners of the non-surviving entity in
connection with any merger in which the Company is the surviving entity, the
amount of consideration therefor will be deemed to be the fair value of such
portion of the net assets and business of the non-surviving entity as is attributable
to such shares of Common Stock, Options or Convertible Securities, as the case
may be.  The fair value of any
consideration other than cash or securities will be determined jointly by the
Company and the Required Holders.  If
such parties are unable to reach agreement within ten (10) days after the
occurrence of an event requiring valuation (the “Valuation Event”), the fair value of such consideration will
be determined within five (5) Business Days after the tenth day following the
Valuation Event by an independent, reputable appraiser jointly selected by the
Company and the Required Holders.  The
determination of such appraiser shall be final and binding upon all parties
absent manifest error and the fees and expenses of such appraiser shall be borne
by the Company.


(v)           Record Date.  If the Company takes a record of the holders
of shares of Common Stock for the purpose of entitling them (A) to receive
a dividend or other distribution payable in shares of Common Stock, Options or
in Convertible Securities or (B) to subscribe for or purchase shares of
Common Stock, Options or Convertible Securities, then such record date will be
deemed to be the date of the issue or sale of the shares of Common Stock deemed
to have been issued or sold upon the declaration of such dividend or the making
of such other distribution or the date of the granting of such right of
subscription or purchase, as the case may be.


(b)           Adjustment upon Subdivision or
Combination of Common Stock.  If the
Company at any time on or after the Subscription Date subdivides (by any stock
split, stock dividend, recapitalization or otherwise) one or more classes of
its outstanding shares of Common Stock into a greater number of shares, the
Exercise Price in effect immediately prior to such subdivision will be
proportionately reduced and the number of Warrant Shares will be
proportionately increased.  If the
Company at any time on or after the Subscription Date  combines (by combination, reverse stock split
or otherwise) one or more classes of its



 9
 






 



outstanding shares of Common Stock into a
smaller number of shares, the Exercise Price in effect immediately prior to
such combination will be proportionately increased and the number of Warrant
Shares will be proportionately decreased. 
Any adjustment under this Section 2(b) shall become effective at the
close of business on the date the subdivision or combination becomes effective.


(c)           Other Events.  If any dilutive event occurs of the type
contemplated by the provisions of this Section 2 but not expressly provided for
by such provisions (including, without limitation, the granting of stock
appreciation rights, phantom stock rights or other rights with equity features
but not if granted to employees or directors under any Approved Stock Plan),
then the Company’s Board of Directors will make an appropriate adjustment, in
accordance with the terms of this Warrant, in the Exercise Price and the number
of Warrant Shares so as to protect the rights of the Holder; provided that no
such adjustment pursuant to this Section 2(c) will increase the Exercise Price
or decrease the number of Warrant Shares as otherwise determined pursuant to
this Section 2.


3.     RIGHTS
UPON DISTRIBUTION OF ASSETS.  If the
Company shall declare or make any dividend or other distribution of its assets
(or rights to acquire its assets) to holders of shares of Common Stock, by way
of return of capital or otherwise (including, without limitation, any
distribution of cash, stock or other securities, property or options by way of
a dividend, spin off, reclassification, corporate rearrangement, scheme of
arrangement or other similar transaction) (a “Distribution”),
at any time after the issuance of this Warrant, then, in each such case:


(a)           any Exercise Price in effect
immediately prior to the close of business on the record date fixed for the
determination of holders of shares of Common Stock entitled to receive the
Distribution shall be reduced, effective as of the close of business on such
record date, to a price determined by multiplying such Exercise Price by a
fraction of which (i) the numerator shall be the Closing Bid Price of the
shares of Common Stock on the Trading Day immediately preceding such record
date minus the value of the Distribution (as determined in good faith by the
Company’s Board of Directors) applicable to one share of shares of Common
Stock, and (ii) the denominator shall be the Closing Bid Price of the shares of
Common Stock on the Trading Day immediately preceding such record date; and


(b)           the number of Warrant Shares shall be
increased to a number of shares equal to the number of shares of Common Stock
obtainable immediately prior to the close of business on the record date fixed
for the determination of holders of shares of Common Stock entitled to receive
the Distribution multiplied by the reciprocal of the fraction set forth in the
immediately preceding paragraph (a); provided that in the event that the
Distribution is of shares of Common Stock (or common stock) (“Other Shares of Common Stock”) of a company whose common
shares are traded on a national securities exchange or a national automated
quotation system, then the Holder may elect to receive a warrant to purchase
Other Shares of Common Stock in lieu of an increase in the number of Warrant
Shares, the terms of which shall be identical to those of this Warrant, except
that such warrant shall be exercisable into the number of shares of Other
Shares of Common Stock that would have been payable to the Holder


 



 10














 


 


pursuant to the Distribution had the Holder exercised this Warrant
immediately prior to such record date and with an aggregate exercise price
equal to the product of the amount by which the exercise price of this Warrant
was decreased with respect to the Distribution pursuant to the terms of the
immediately preceding paragraph (a) and the number of Warrant Shares calculated
in accordance with the first part of this paragraph (b).


4.     PURCHASE RIGHTS;
FUNDAMENTAL TRANSACTIONS.


(a)           Purchase Rights. 
In addition to any adjustments pursuant to Section 2 above, if at any
time the Company grants, issues or sells any Options, Convertible Securities or
rights to purchase stock, warrants, securities or other property pro rata to
the record holders of any class of shares of Common Stock (the “Purchase Rights”), then the Holder will be entitled to
acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which the Holder could have acquired if the Holder had held the
number of shares of Common Stock acquirable upon complete exercise of this
Warrant (without regard to any limitations on the exercise of this Warrant)
immediately before the date on which a record is taken for the grant, issuance
or sale of such Purchase Rights, or, if no such record is taken, the date as of
which the record holders of shares of Common Stock are to be determined for the
grant, issue or sale of such Purchase Rights.


(b)           Fundamental
Transactions.  (1)         The
Company shall not enter into or be party to a Fundamental Transaction unless
(x) the Successor Entity assumes in writing all of the obligations of the
Company under this Warrant and the other Transaction Documents in accordance
with the provisions of this Section (4)(b)(1) pursuant to written agreements in
form and substance satisfactory to the Required Holders and approved by the
Required Holders prior to such Fundamental Transaction, including agreements to
deliver to each holder of Warrants
in exchange for such Warrants
a security of the
Successor Entity evidenced by a written instrument substantially similar
in form and substance to this Warrant,
including, without limitation, an adjusted exercise price equal to the value
for the shares of Common Stock reflected by the terms of such Fundamental
Transaction, and exercisable for a corresponding number of shares of capital
stock of the Successor Entity equivalent to the shares of Common Stock
acquirable and receivable upon exercise of this Warrant (without regard to any
limitations on the exercise of this Warrant) prior to such Fundamental
Transaction, and reasonably satisfactory to the Required Holders and (y) the Successor Entity
(including its Parent Entity) is a publicly traded corporation whose
Common Stock is quoted on or listed for trading on an Eligible Market.  Upon
the occurrence of any such Fundamental Transaction, the Successor Entity shall
succeed to, and be substituted for (so that from and after the date of such
Fundamental Transaction, the provisions of this Warrant referring to the “Company”
shall refer instead to the Successor Entity), and may exercise every right and
power of the Company and shall assume all of the obligations of the Company
under this Warrant with the same effect as if such Successor Entity had been
named as the Company herein.  Upon
consummation of such Fundamental Transaction, the Successor Entity shall
deliver to the Holder confirmation that there shall be issued upon exercise of
this Warrant at any time
after the consummation of the Fundamental Transaction, in lieu of the shares of
the Common Stock (or other securities, cash, assets or other property) issuable
upon the exercise of the Warrant prior to such Fundamental Transaction, such
shares of publicly traded Common Stock (or their equvalent) of the Successor
Entity, as adjusted in accordance with the



 11
 






 



Provisions of this
Warrant.  In addition to and not
in substitution for any other rights hereunder, prior to the consummation of
any Fundamental Transaction pursuant to which holders of shares of Common Stock
are entitled to receive securities or other assets with respect to or in
exchange for shares of Common Stock (a “Corporate
Event”), the Company shall make appropriate provision to insure that
the Holder will thereafter have the right to receive upon an exercise of this
Warrant at any time after the consummation of such Fundamental Transaction but
prior to the Expiration Date in lieu of (x) the shares of the Common Stock (or
other securities, cash, assets or other property) purchasable upon the exercise
of the Warrant prior to such Fundamental Tranaction and (y) the Common Stock of
the Successor Entity, such shares of stock, securities, cash, assets or any
other property whatsoever (including warrants or other purchase or subscription
rights) which the Holder would have been entitled to receive upon the happening
of such Fundamental Transaction had the Warrant been exercised immediately
prior to such Fundamental Tranaction.  Provision
made pursuant to the preceding sentence shall be in a form and substance
reasonably satisfactory to the Required Holders.  The provisions of this Section shall apply
similarly and equally to each such successive Fundamental Transactions and
Corporate Events and shall be applied without regard to any limitations on the
exercise of this Warrant.


(2)           Notwithstanding
the provisions of Section 4(b)(1), the Company shall have the right to require
that Holder waive the requirements of Section 4(b)(1) (the “Waiver”) in exchange for a payment of cash in an amount
equal to the value of the remaining unexercised portion of this Warrant on the
date of such Fundamental Transaction, which value shall be determined by use of
the Black Scholes Option Pricing Model, with the Waiver becoming effective, and
this Warrant cancelled, concurrently with such payment of such cash amount (the
“Fundamental Transaction Amount”) to the Holder on the Fundamental Transaction
Closing Date.  Notwithstanding anything
to the contrary in this Section 4(b), but subject to Section 1(f), until such
time that the Holder receives the Fundamental Transaction Amount (at which
point this Warrant shall be cancelled), this Warrant may be exercised, in whole
or in part, by the Holder (x) prior to the Fundamental Transaction Closing
Date, into Common Stock pursuant to Section 1, or (y) upon (which may be
expressly conditioned upon the closing of the Fundamental Transaction) or after
the Fundamental Transaction Closing Date, into any such shares of stock,
securities, cash, assets or any other property whatsoever (including warrants
or other purchase or subscription rights, if applicable) which the Holder would
have been entitled to receive upon the happening of such Fundamental Tranaction
had the Warrant been exercised immediately prior to such Fundamental
Transaction Closing Date.


5.     NONCIRCUMVENTION.  The Company hereby covenants and agrees that
the Company will not, by amendment of its Certificate of Incorporation, Bylaws
or through any reorganization, transfer of assets, consolidation, merger,
scheme of arrangement, dissolution, issue or sale of securities, or any other
voluntary action, avoid or seek to avoid the observance or performance of any
of the terms of this Warrant, and will at all times in good faith carry out all
the provisions of this Warrant and take all action as may be required to protect
the rights of the Holder.  Without
limiting the generality of the foregoing, the Company (i) shall not
increase the par value of any shares of Common Stock receivable upon the
exercise of this Warrant above the Exercise Price then in effect,
(ii) shall take all such actions as may be necessary or appropriate in
order that the Company may validly and legally issue fully paid and
nonassessable shares of



 12
 






 



Common Stock upon
the exercise of this Warrant, and (iii) shall, so long as any of the SPA
Warrants are outstanding, take all action necessary to reserve and keep
available out of its authorized and unissued shares of Common Stock, solely for
the purpose of effecting the exercise of the SPA Warrants, 130% of the number
of shares of Common Stock as shall from time to time be necessary to effect the
exercise of the SPA Warrants then outstanding (without regard to any
limitations on exercise).


6.     WARRANT
HOLDER NOT DEEMED A STOCKHOLDER. 
Except as otherwise specifically provided herein, the Holder, solely in
such Person’s capacity as a holder of this Warrant, shall not be
entitled to vote or receive dividends or be deemed the holder of share capital
of the Company for any purpose, nor shall anything contained in this Warrant be
construed to confer upon the Holder, solely in such Person’s capacity as
the Holder of this Warrant, any of the rights of a shareholder of the Company
or any right to vote, give or withhold consent to any corporate action (whether
any reorganization, issue of stock, reclassification of stock, consolidation,
merger, conveyance or otherwise), receive notice of meetings, receive dividends
or subscription rights, or otherwise, prior to the issuance to the Holder of
the Warrant Shares which such Person is then entitled to receive upon the due exercise
of this Warrant.  In addition, nothing
contained in this Warrant shall be construed as imposing any liabilities on the
Holder to purchase any securities (upon exercise of this Warrant or otherwise)
or as a shareholder of the Company, whether such liabilities are asserted by
the Company or by creditors of the Company. 
Notwithstanding this Section 6, the Company shall provide the Holder
with copies of the same notices and other information given to the shareholders
of the Company generally, contemporaneously with the giving thereof to the
shareholders.


7.     REISSUANCE
OF WARRANTS.


(a)           Transfer of Warrant.  If this Warrant is to be transferred, the
Holder shall surrender this Warrant to the Company, whereupon the Company will
forthwith issue and deliver upon the order of the Holder a new Warrant (in
accordance with Section 7(d)), registered as the Holder may request,
representing the right to purchase the number of Warrant Shares being
transferred by the Holder and, if less then the total number of Warrant Shares
then underlying this Warrant is being transferred, a new Warrant (in accordance
with Section 7(d)) to the Holder representing the right to purchase the number
of Warrant Shares not being transferred.


(b)           Lost, Stolen or Mutilated Warrant.  Upon receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant, and, in the case of loss, theft or destruction, of
any indemnification undertaking by the Holder to the Company in customary form
and, in the case of mutilation, upon surrender and cancellation of this
Warrant, the Company shall execute and deliver to the Holder a new Warrant (in
accordance with Section 7(d)) representing the right to purchase the Warrant
Shares then underlying this Warrant.


(c)           Exchangeable for Multiple Warrants.  This Warrant is exchangeable, upon the
surrender hereof by the Holder at the principal office of the Company, for a
new Warrant or Warrants (in accordance with Section 7(d)) representing in the
aggregate



 13
 






 



the right to purchase the number of Warrant
Shares then underlying this Warrant, and each such new Warrant will represent
the right to purchase such portion of such Warrant Shares as is designated by
the Holder at the time of such surrender; provided, however, that no Warrants
for fractional shares of Common Stock shall be given.


(d)           Issuance of New Warrants.  Whenever the Company is required to issue a
new Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall
be of like tenor with this Warrant, (ii) shall represent, as indicated on the
face of such new Warrant, the right to purchase the Warrant Shares then
underlying this Warrant (or in the case of a new Warrant being issued pursuant
to Section 7(a) or Section 7(c), the Warrant Shares designated by the Holder
which, when added to the number of shares of Common Stock underlying the other
new Warrants issued in connection with such issuance, does not exceed the
number of Warrant Shares then underlying this Warrant), (iii) shall have an
issuance date, as indicated on the face of such new Warrant which is the same
as the Issuance Date, and (iv) shall have the same rights and conditions as
this Warrant.


8.             NOTICES. 
Whenever notice is required to be given under this Warrant, unless
otherwise provided herein, such notice shall be given in accordance with
Section 9(f) of the Securities Purchase Agreement.  The Company shall provide the Holder with
prompt written notice of all actions taken pursuant to this Warrant, including
in reasonable detail a description of such action and the reason
therefore.  Without limiting the
generality of the foregoing, the Company will give written notice to the Holder
(i) immediately upon any adjustment of the Exercise Price, setting forth in
reasonable detail, and certifying, the calculation of such adjustment and (ii)
at least fifteen days prior to the date on which the Company closes its books
or applicable record date (A) with respect to any dividend or distribution upon
the shares of Common Stock, (B) with respect to any grants, issuances or sales
of any Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property to holders of shares of Common Stock or (C) for
determining rights to vote with respect to any Fundamental Transaction,
dissolution or liquidation, provided in each case that such information shall
be made known to the public prior to or in conjunction with such notice being
provided to the Holder.  Failure to
deliver notice hereunder, or any defect in any notice hereunder, shall not
affect the validity of the corporate actions required to be described in such
notice under this Section 8.


9.             AMENDMENT AND WAIVER.  Except as otherwise provided herein, the
provisions of this Warrant may be amended and the Company may take any action
herein prohibited, or omit to perform any act herein required to be performed
by it, only if the Company has obtained the written consent of the Required
Holders; provided that no such action may increase the exercise price of any
SPA Warrant or decrease the number of shares or class of stock obtainable upon
exercise of any SPA Warrant without the written consent of the Holder.  No such amendment shall be effective to the
extent that it applies to less than all of the holders of the SPA Warrants then
outstanding.


10.           GOVERNING LAW.  This Warrant shall be governed by and
construed and enforced in accor­dance with, and all questions concerning the
construction, validity, interpretation and performance of this Warrant shall be
governed by, the internal laws of the State of New York, without giving effect
to any choice of law or conflict of law provision or rule



 14
 






 



(whether of the State of New York or any other
jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York.


11.           CONSTRUCTION; HEADINGS.  This Warrant shall be deemed to be jointly
drafted by the Company and all the Buyers and shall not be construed against
any person as the drafter hereof.  The
headings of this Warrant are for convenience of reference and shall not form
part of, or affect the interpretation of, this Warrant.


12.           DISPUTE RESOLUTION.  In the case of a dispute as to the
determination of the Exercise Price or the arithmetic calculation of the
Warrant Shares, the Company shall submit the disputed determinations or
arithmetic calculations via facsimile within two Business Days of receipt of
the Exercise Notice giving rise to such dispute, as the case may be, to the
Holder.  If the Holder and the Company
are unable to agree upon such determination or calculation of the Exercise
Price or the Warrant Shares within three Business Days of such disputed
determination or arithmetic calculation being submitted to the Holder, then the
Company shall, within two Business Days submit via facsimile (a) the disputed
determination of the Exercise Price to an independent, reputable investment
bank selected by the Company and approved by the Holder (which approval shall
not be unreasonably withheld or delayed) or (b) the disputed arithmetic calculation
of the Warrant Shares to the Company’s independent, outside accountant.  The Company shall cause at its expense the
investment bank or the accountant, as the case may be, to perform the
determinations or calculations and notify the Company and the Holder of the
results no later than ten Business Days from the time it receives the disputed
determinations or calculations.  Such
investment bank’s or accountant’s determination or calculation, as the case may
be, shall be binding upon all parties absent demonstrable error.


13.           REMEDIES, OTHER OBLIGATIONS,
BREACHES AND INJUNCTIVE RELIEF.  The
remedies provided in this Warrant shall be cumulative and in addition to all
other remedies available under this Warrant and the other Transaction
Documents, at law or in equity (including a decree of specific performance
and/or other injunctive relief), and nothing herein shall limit the right of
the Holder right to pursue actual damages for any failure by the Company to
comply with the terms of this Warrant. 
The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Holder and that the remedy at law
for any such breach may be inadequate. 
The Company therefore agrees that, in the event of any such breach or
threatened breach, the holder of this Warrant shall be entitled, in addition to
all other available remedies, to an injunction restraining any breach, without
the necessity of showing economic loss and without any bond or other security
being required.


14.           TRANSFER.  This Warrant may be offered for sale, sold,
transferred or assigned without the consent of the Company, except as may
otherwise be required by Section 2(f) of the Securities Purchase Agreement.


15.           CERTAIN DEFINITIONS.  For purposes of this Warrant, the following
terms shall have the following meanings:


                                (a)           “Approved Stock Plan” means any employee benefit plan
which has been approved by the Board of Directors of the Company, pursuant to
which the Company’s



 15
 






 



securities and any stock appreciation rights or
similar phantom stock rights may be issued to any employee, officer or director
for services provided to the Company.


                                (b)           “Bloomberg”
means Bloomberg Financial Markets.


                                (c)           “Business
Day” means any day other than Saturday, Sunday or other day on which
commercial banks in The City of New York are authorized or required by law to
remain closed.


                                (d)           “Closing
Bid Price” and “Closing Sale Price”
means, for any security as of any date, the last closing bid price and last
closing trade price, respectively, for such security on the Principal Market,
as reported by Bloomberg, or, if the Principal Market begins to operate on an
extended hours basis and does not designate the closing bid price or the
closing trade price, as the case may be, then the last bid price or last trade
price, respectively, of such security prior to 4:00:00 p.m., New York time, as
reported by Bloomberg, or, if the Principal Market is not the principal
securities exchange or trading market for such security, the last closing bid
price or last trade price, respectively, of such security on the principal
securities exchange or trading market where such security is listed or traded
as reported by Bloomberg, or if the foregoing do not apply, the last closing
bid price or last trade price, respectively, of such security in the
over-the-counter market on the electronic bulletin board for such security as
reported by Bloomberg, or, if no closing bid price or last trade price,
respectively, is reported for such security by Bloomberg, the average of the
bid prices, or the ask prices, respectively, of any market makers for such
security as reported in the “pink sheets” by Pink Sheets LLC (formerly the
National Quotation Bureau, Inc.).  If the
Closing Bid Price or the Closing Sale Price cannot be calculated for a security
on a particular date on any of the foregoing bases, the Closing Bid Price or
the Closing Sale Price, as the case may be, of such security on such date shall
be the fair market value as mutually determined by the Company and the Holder.  If the Company and the Holder are unable to
agree upon the fair market value of such security, then such dispute shall be
resolved pursuant to Section 12.  All
such determinations to be appropriately adjusted for any stock dividend, stock
split, stock combination or other similar transaction during the applicable
calculation period.


                                (e)           “Common
Stock” means (i) the Company’s shares of Common Stock, par
value $0.001 per share, and (ii) any share capital into which such Common
Stock shall have been changed or any share capital resulting from a
reclassification of such Common Stock.


                                (f)            “Common
Stock Deemed Outstanding” means, at any given time, the number of
shares of Common Stock actually outstanding at such time, plus the number of
shares of Common Stock deemed to be outstanding pursuant to Sections 2(a)(i)
and 2(a)(ii) hereof regardless of whether the Options or Convertible Securities
are actually exercisable at such time, but excluding any shares of Common Stock
owned or held by or for the account of the Company or issuable upon exercise of
the SPA Warrants.


                                (g)           “Convertible
Securities” means any stock or securities (other than Options)
directly or indirectly convertible into or exercisable or exchangeable for
shares of Common Stock.



 16
 






 



(h)           “Eligible Market”
means the Principal Market, The New York Stock Exchange, Inc., the NASDAQ
Global Select Market, the NASDAQ Global Market or the NASDAQ Capital Market.


(i)            “Excluded Securities” means any Common Stock issued or
issuable: (i) in connection with any Approved Stock Plan; (ii) upon the
exercise of the Warrants; (iii) upon conversion, exercise or exchange of any
Options or Convertible Securities which are outstanding on the day immediately
preceding the Subscription Date, provided that the terms of such Options or
Convertible Securities are not amended, modified or changed on or after the
Subscription Date; or (iv) pursuant to a bona fide firm commitment underwritten
public offering with a nationally recognized underwriter which generates gross
proceeds to the Company of $10,000,000 or more (other than an “at-the-market
offering” as defined in Rule 415(a)(4) under the 1933 Act) or equity lines.


(j)            “Expiration
Date” means the date sixty (60) months after the Issuance Date or,
if such date falls on a day other than a Business Day or on which trading does
not take place on the Principal Market (a “Holiday”), the
next date that is not a Holiday.


(k)           “Fundamental Transaction”
means that the Company shall,
directly or indirectly, in one or more related transactions, (i) consolidate or
merge with or into (whether or not the Company is the surviving corporation)
another Person, or (ii) sell, assign, transfer, convey or otherwise dispose of
all or substantially all of the properties or assets of the Company to another
Person, or (iii) allow another Person to make a purchase, tender or
exchange offer that is accepted by the holders of more than the 50% of the
outstanding shares of Common Stock (not
including any shares of Common Stock held by the Person or Persons making or
party to, or associated or affiliated with the Persons making or party to, such
purchase, tender or exchange offer), or (iv) consummate a stock purchase
agreement or other business combination (including, without limitation,
a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby such other
Person acquires more than the 50% of the outstanding shares of Common
Stock (not including any
shares of Common Stock held by the other Person or other Persons making or
party to, or associated or affiliated with the other Persons making or party
to, such stock purchase agreement or other business combination), or (v) reorganize, recapitalize
or reclassify its Common Stock.


(l)            “Options”
means any rights, warrants or options to subscribe for or purchase shares of
Common Stock or Convertible Securities.


(m)          “Parent Entity”
of a Person means an entity
that, directly or indirectly, controls the applicable Person and whose common
stock or equivalent equity security is quoted or listed on an Eligible Market, or, if there is more than one such
Person or Parent Entity, the Person or Parent Entity with the largest public
market capitalization as of the date of consummation of the Fundamental
Transaction.


(n)           “Person” means
an individual, a limited liability company, a partnership, a joint venture, a
corporation, a trust, an unincorporated organization, any other entity and a
government or any department or agency thereof.



 17
 






 



(o)           “Principal Market”
means the American Stock Exchange.


(p)           “Registration Rights
Agreement” means that certain registration rights agreement by and
among the Company and the Buyers.


(q)           “Required Holders”
means the holders of the SPA Warrants representing at least a majority of
shares of Common Stock underlying the SPA Warrants then outstanding.


(r)            “Securities Purchase
Agreement” means that certain Securities Purchase Agreement dated as
of the Subscription Date by and among the Company and the Buyers referred to
therein, as the same may be amended, modified or supplemented from time to time
in accordance with the terms thereof.


(s)           “Subscription Date”
means September 15, 2006.


(t)            “Successor
Entity” means the
Person (or, if so elected by the Required Holders, the Parent Entity) formed
by, resulting from or surviving any Fundamental Transaction or the Person (or,
if so elected by the Required Holders, the Parent Entity) with which such
Fundamental Transaction shall have been entered into.


(u)           “Trading Day”
means any day on which the Common Stock are traded on the Principal Market, or,
if the Principal Market is not the principal trading market for the Common
Stock, then on the principal securities exchange or securities market on which
the Common Stock are then traded.


[Signature
Page Follows]



 18














 


IN WITNESS WHEREOF, the Company has caused
this Warrant to Purchase Common Stock to be duly executed as of the Issuance
Date set out above.


	
  

  	
   

  	
   

  	
  iPARTY CORP.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
  /s/ SAL PERISANO

  
	
   

  	
   

  	
   

  	
  Name:

  	
  Sal Perisano

  
	
   

  	
   

  	
   

  	
  Title:

  	
  Chief Executive Officer

  



 


 

















 


 


EXHIBIT A


EXERCISE NOTICE


TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS


WARRANT TO PURCHASE COMMON STOCK


 


iPARTY CORP.


The undersigned holder hereby exercises the right to
purchase                              
of the shares of Common Stock (“Warrant
Shares”) of iParty Corp., a Delaware corporation (the “Company”), evidenced by the attached
Warrant to Purchase Common Stock (the “Warrant”).  Capitalized terms used herein and not
otherwise defined shall have the respective meanings set forth in the Warrant.


1.  Form of
Exercise Price.  The Holder intends that
payment of the Exercise Price shall be made as:


                  a “Cash Exercise” with respect to                                       
Warrant Shares; and/or


                  a “Cashless Exercise” with respect to                                 
Warrant Shares.


2.  Payment of
Exercise Price.  In the event that the
holder has elected a Cash Exercise with respect to some or all of the Warrant
Shares to be issued pursuant hereto, the holder shall pay the Aggregate
Exercise Price in the sum of $                      
to the Company in accordance with the terms of the Warrant.


3.  Delivery
of Warrant Shares.  The Company shall
deliver to the holder                 
Warrant Shares in accordance with the terms of the Warrant.


Date:                
     ,           


	
  

  	
   

  
	
    Name of Registered Holder

  
	
   

  
	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
			










 



ACKNOWLEDGMENT


The
Company hereby acknowledges this Exercise Notice and hereby directs Continental Stock Transfer & Trust Co.
to issue the above indicated number of shares of Common Stock in accordance
with the Transfer Agent Instructions dated September      ,
2006 from the Company and acknowledged and agreed to by Continental Stock Transfer & Trust Co.


	
  

  	
  iPARTY CORP.

  
	
   

  	
   

  
	
  

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title: