**Exhibit 10.5**

 

iPARTY CORP.INCENTIVE STOCK OPTION AGREEMENT

 

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

 

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

 

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

 

NOW, THEREFORE, the parties hereto agree as follows:

 

# 1.             Grant of Option.

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

 

1.5           ThisAgreement shall be construed in accordance and consistent with, andsubject to, the provisions of the Plan (the provisions of which areincorporated herein by reference) and, except as otherwise expressly set forthherein, the capitalized terms used in this Agreement shall have the samedefinitions as set forth in the Plan.

 

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

 

# 2.             Option Price.

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

 

# 3.             Duration of Option.

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

 

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# 4.             Exercisability of Option.

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

 

# 5.             Manner of Exercise and Payment.

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

 

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

 

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

 

5.8           Effectiveupon the exercise of the Option in whole or in part and the receipt by iPartyof the option price for the shares being purchased, the Grantee shall be theholder of record of such shares and shall have all of the rights of ashareholder with respect thereto (including the right to vote such shares at anymeeting at which the holders of the Common Stock may vote, the right to receiveall dividends declared and paid upon such shares and the right to exercise anyrights or warrants issued in respect of any such shares). iParty shall, uponreceipt of the option price, issue in the name of the Grantee a certificaterepresenting the shares purchased from time to time.

 

# 6.             Termination of Employment.

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6.1           Termination ofUnvested Portion of Option. If the employment by the Corporation of theGrantee is terminated for any reason, any unvested portion of the Option shallimmediately expire.

 

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

 

6.3           Terminationof Employment due to Death or Disability of Grantee. If the Grantee dieswhile employed by the Corporation, the Option may be exercised, to the extentvested on the date of such termination of employment until the earlier of:  one year from the date of termination or theExpiration Date.

 

# 7.             Acceleration of Option Vesting.

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Notwithstanding anythingcontained in this Agreement to the contrary, in the event of the occurrence ofa Change in Control, the Option shall automatically be vested and immediatelyexercisable in full. Further, the Board reserves the right, in its solediscretion, to waive any condition to the vesting of the Option and acceleratethe date on which any installment of the Option shall vest for any other reasonin the discretion of the Board.

 

# 8.             Nontransferability.

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

 

# 9.             No Right to Continued Employment.

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

 

# 10.           Adjustments upon Changes in Capitalization.

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If the Common Stock ishereafter changed by reason of reorganization, merger, consolidation,recapitalization, reclassification, stock split-up, combination, or exchange ofshares or the like, or dividends payable in shares of the Common Stock, anappropriate adjustment shall be made by the Board in the number of shares andprice per share subject to the Option. The Board’s adjustment shall be made inaccordance with the provisions of Section 13 of the Plan and shall beeffective and final, binding and conclusive for all purposes of the Plan andthis Agreement.

 

# 11.           Effect of a Merger, Consolidation or Liquidation.

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

 

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# 12.           Withholding Taxes.

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

 

12.2         New Withholding Obligations on IncentiveStock Options. If(i) the purchase of shares of Common Stock pursuant to the exercise of theOption or (ii) the Grantee’s disposition (within the meaning of Section424(c) of the Code and the regulations promulgated thereunder) of any suchshares within the two-year period commencing on the day after the date of thegrant or within the one-year period commencing on the day after the date oftransfer of such shares to the Grantee pursuant to such exercise, becomes aTaxable Event that requires the Corporation to collect Withholding Taxes, theGrantee shall cooperate with the Corporation in the procedures it may establishto track any such dispositions and to make appropriate arrangements with theCorporation for any taxes which the Corporation is obligated to collect.

 

# 13.           Grantee Bound by the Plan.

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The Grantee herebyacknowledges receipt of a copy of the Plan and agrees to be bound by all theterms and provisions thereof.

 

# 14.           Modification of Agreement.

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This Agreement may bemodified, amended, or terminated by iParty, and any terms or conditions may bewaived; provided, however, that no amendment, modification or termination ofthis Agreement may, without the consent of the Grantee, adversely affect therights conferred by this Agreement.

 

# 15.           Severability.

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Should any provision ofthis Agreement be held by a court of competent jurisdiction to be unenforceableor invalid for any reason, the remaining provisions of this Agreement shall notbe affected by such holding and shall continue in full force in accordance withtheir terms.

 

# 16.           Governing Law.

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

 

# 17.           Successors in Interest.

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

 

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# 18.           Resolution of Disputes.

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

 

**SIGNATURE PAGE FOLLOWS –**

 
|                           |   |   | iPARTY CORP. |                 |
|--------------------------------|--------|--------|--------------|----------------------|
|                           |   |   |         |                 |
|                           |   |   |         |                 |
|                           |   |   | By:          |                 |   |
|                           |   |   |         | Patrick Farrell      |   |
|                           |   |   |         | President &  CFO |   |
|                           |   |   |         |                 |
| Acknowledged and  Accepted by: |   |   |         |                 |
|                           |   |   |         |                 |
|                           |   |   |         |                 |
| [Grantee’s Name]          |   |   |         |                 |
|                                |        |        |              |                      |  |  |

 

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