Document:

Exhibit
10.2

 

AMENDED
AND RESTATED EMPLOYMENT AGREEMENT

 

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

 

W I T N
E S S E T H:

 

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

 

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

 

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

 

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

 

2.                                       Duties, Responsibilities and
Positions.

 

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

 

As used herein a “Permitted
Change” shall mean the appointment by the Company of a person reasonably
acceptable to the Executive (which such acceptance shall not be unreasonably
withheld or delayed) as either President or Chief Financial Officer of the
Company and/or iParty Retail Stores Corp. (i) in connection with any material
acquisition, financing or similar transaction which increases the size and
scope of the Company’s business or (ii) in order to comply with general
corporate governance practices then being followed by companies of similar size
and scope; provided, that, (y) the Executive remains either the
President or the Chief Financial Officer of the Company following such
Permitted Change and (z) the Executive reports directly to the CEO following
such Permitted Change.

 

 

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

 

(c)                                  During the Employment Term, the
Executive shall devote substantially all his full working time, energy and
efforts to the business of the Company; provided, however, that
the Executive shall be allowed, to the extent that such activities do not
materially interfere with the performance of his duties and responsibilities
hereunder, to manage his personal and family financial and legal affairs and to
serve on civic, not-for-profit and charitable industry boards and advisory
committees.  The Executive shall only
serve on for-profit corporate boards of directors and advisory committees if
approved in advance, in writing, by the 
Board or the Compensation Committee of the Board.

 

(d)                                 The Executive represents to the
Company that  (i) the Executive has the legal capacity to
execute and perform this Agreement and (ii) that he is not currently subject to or bound by any
employment agreement, non-competition covenant, non-disclosure agreement or
other agreement, covenant, understanding or restriction of any nature whatsoever
which would prohibit the Executive from executing this Agreement and performing
fully his duties and responsibilities hereunder, or which would in any manner,
directly or indirectly, materially limit the duties and responsibilities which
it is now reasonably foreseeable may now or in the future be assigned to the
Executive by the CEO or the Board.

 

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

 

3.                                       Compensation.  For
all services rendered by the Executive in any capacity during the Employment
Term, including without limitation, services as an officer, director, or member
of any committee of the Company, or any subsidiary, affiliate or division
thereof, the Executive shall be compensated as follows (subject, in each case,
to the provisions of Section 11 below):

 

(a)                                  Base Salary.  During the Employment Term, the Company
shall pay to the Executive a base salary on an annualized basis (the “Base
Salary”) as follows: (i) for the period from April 1, 2004 through
March 31, 2005, $175,000;  (ii) for
the 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” as
used in this Agreement shall refer to Base Salary in effect for the applicable
period set forth in the immediately preceding sentence.  The Base Salary shall be payable in
accordance with the customary payroll practices of the Company.  If,
during the Employment Term, the Company consummates any material acquisitions
or similar transactions which increase the size and scope of the Company’s
business, the Compensation Committee of the Board shall convene as promptly as
reasonably practicable for the purpose of discussing whether or not it is
appropriate to increase the Executive’s Base Salary; provided, however,
that no such increase shall be required.

 

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

 

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

 

(c)                                  Benefits.  During the Employment Term, the Executive shall be entitled to
participate in all employee benefit and equity plans and fringe benefits and
prerequisites generally provided to senior executives of the Company, in each
case subject to the eligibility requirements and other terms and provisions of
such plans and programs, and including but not limited to an automobile
allowance of $450 per month, as presently provided to the Executive and certain
other senior executives.  The Company
may amend, modify or rescind any employee benefit plan or program and change
employee contribution amounts or benefit costs without notice in its
discretion.

 

4.                                       Stock Options Matters.  On
May 6, 2004, the Executive was granted stock options (the “Options”) for
an aggregate of 230,000 shares of common stock of the Company, at an exercise
price of $0.95 per share (the closing price of the common stock on such date),
pursuant to the Company’s
Amended and Restated 1998 Incentive and Nonqualified Stock Option Plan
(the “Plan”).  The Options shall
vest as follows:  provided the Executive
remains continuously employed by the Company through March 31, 2005,
options for 76,667 shares shall vest on March 31, 2005; provided the
Executive 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 Company
through March 31, 2007, options for the final 76,666 shares shall vest on
March 31, 2007.  The Options shall
be subject to the terms of the Plan and shall be evidenced by a Stock Option
Grant Agreement between the Company and the Executive.

 

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

 

6.                                       Representations and Warranties of the Company.  The Company represents and warrants to, and
agrees with, the Executive that (i) pursuant to the Delaware General
Corporation Law, the Company’s Certificate of Incorporation, as amended to date
(the “Charter”), provides for indemnification of officers and directors
of the Company and that so long as the Executive serves as an executive officer
of the Company, unless required by applicable law, the Charter will not be
amended to limit such indemnification without the written consent of the
Executive and (ii) the Company maintains an officers and directors liability
insurance policy which insures the Executive (subject to the limitations
contained therein) and

 

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will maintain such a
policy for so long as the Executive serves as an executive officer of the
Company.

 

7.                                       Developments.  All
developments, including inventions, whether patentable or otherwise, trade
secrets, discoveries, improvements, ideas and writings which relate to or may
be useful in the business of the Company, and which the Executive, either by
himself or in conjunction with any other person or persons, has conceived,
made, developed, acquired or acquired knowledge of while engaged in any
activity on behalf of or while acting for the Company during the course of his
employment by the Company (the “Developments”), shall, on and after the
start of the Employment Term, become the sole and exclusive property of the
Company.  The Executive hereby assigns,
transfers and conveys, and agrees to so assign, transfer and convey to the
Company, all of his right, title and interest in and to any and all such
Developments 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 material
significance to the Company, and to reduce any such Developments to writing at
the request of Board if he has not already done so.  At any time, and from time to time, upon the request and at the
expense of the Company, the Executive will execute and deliver any and all
instruments, documents and papers, give evidence and do any and all other acts
which, in the reasonable opinion of counsel for the Company, are or may
reasonably be necessary or desirable to document such transfer or to enable the
Company to file and prosecute applications for and to acquire, maintain and
enforce any and all patents, trademark registrations or copyrights under United
States or foreign law with respect to any such Developments or to obtain any
extension, validation, reissue, continuance or renewal of any such patent,
trademark or copyrights; provided only that any such actions requested
following termination of employment shall not unreasonably interfere with
Executive’s then employment, business or other activities.  The Company will be responsible for the
preparation of any such instruments, documents and papers and for the
prosecution of any such proceedings and will reimburse the Executive for all
reasonable expenses incurred by him in compliance with the provisions of this Section 7.  The Developments shall not include any
knowledge or information of any kind acquired by or disclosed to the Executive
while serving in his capacity as a member of the board of directors of any
non-Company entity, in his capacity as a private investor, or in any other
circumstance during which the Executive is not or was not engaged in any
activity on behalf of or acting for the Company.  Furthermore, nothing herein shall preclude Executive from
utilizing 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.

 

8.                                       Non-Competition and
Non-Solicitation.

 

(a)                                  Non-Competition.  The Executive agrees that the Executive will
not, during the “Restrictive Period”, as defined below, engage in, or otherwise
directly or indirectly be employed by, or act as a consultant or lender to, or
be a director, officer, employee, owner, co-venturer, member or partner of, or
use or expressly permit the Executive’s name to be used by (collectively an “Engagement
With”), 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/or
websites, of party goods and/or supplies anywhere in the United States (a “Competing
Entity”); provided, however, that in each case the provisions
of this Section 8(a) will not be deemed breached

 

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merely because the
Executive owns not more than five percent (5.0%) of the outstanding common stock
of 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 national
securities exchange; and provided, further, however, that,
subject to the provisions of Section 8(b), nothing herein shall
prevent the Executive from working for a business segment or department of a
Competing Entity, or a subsidiary, division or other entity that controls or is
controlled by a Competing Entity if (and only if), the business segment or
department of the Competing Entity for which the Executive provides services,
or the subsidiary, division or other entity by which the Executive has an
Engagement With (as the case may be), (1) does not itself compete with the
Company, 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 the
Company.  As used in this
Section the “Restrictive Period” shall be (i) the period the
Executive is employed by the Company and (ii) the period of one (1) year after
the Executive ceases to be employed by the Company for any reason, or, in the
case of the Executive’s Engagement With any Competing Entity that operates
retail stores which are located in any states where the Company has retail
stores on the date of the Executive’s cessation of employment, the period of
eighteen (18) months period after the Executive ceases to be employed by the
Company for any reason.

 

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

 

9.                                       Confidential Information.  The Executive recognizes and acknowledges that by reason of his
employment by and service to the Company, he has had and will have access to
confidential information of the Company and its affiliates, including without
limitation, information and knowledge pertaining to products and services
offered, ideas, plans, trade secrets, proprietary information, advertising,
distribution and sales methods and systems, sales and profit figures, customer
and 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 is
a valuable and unique asset and covenants that he will not, either during or at
any time after the end of the Employment Term, use or disclose any such
Confidential Information to any person or entity for any reason whatsoever
(except as his duties described herein may require) without the prior
authorization of the Board, unless such information is in or enters the public
domain through no fault of the Executive or is otherwise lawfully known by
third parties.  In the event the
Executive becomes or may become legally compelled to disclose any Confidential
Information (whether by deposition, interrogatory, request for documents,
subpoena, civil investigative demand or other process or otherwise), the
Executive shall provide to the Board prompt prior written notice of such
requirement so that the Company may seek a protective order or other
appropriate remedy and/or waive compliance with the terms of this

 

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

 

10.                                 Equitable
Relief.

 

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

 

(b)                                 The Executive agrees
that the Company shall be entitled to preliminary and permanent injunctive
relief, without the necessity of proving actual damages, as well as an
equitable accounting of all earnings, profits and other benefits arising from
any violation of Sections 7, 8, or 9 hereof, which rights shall be
cumulative and in addition to any other rights or remedies to which the Company
may be entitled.  In the event that any
of the provisions of Sections 7, 8, or 9 hereof should ever be
adjudicated to exceed the time, geographic, product or service, or other
limitations permitted by applicable law in any jurisdiction, then such
provisions shall be deemed reformed in such jurisdiction to the maximum time,
geographic, product or service, or other limitations permitted by applicable
law.

 

(c)                                  The Company and the
Executive each irrevocably and unconditionally (i) agree that any suit, action
or other legal proceeding arising out of this Agreement, including without
limitation, any action for preliminary or permanent injunctive relief or other
equitable relief, may be brought in the United States District Court for the
District of Eastern Massachusetts, or if such court does not have jurisdiction
or will not accept jurisdiction, in any court of general jurisdiction in the
Commonwealth of Massachusetts, (ii) consent to the non-exclusive jurisdiction
of any such court in any such suit, action or proceeding, and (iii) waive any
objection 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 unconditionally
consent to the service of any process, pleadings, notices or other papers in a
manner permitted by the notice provisions of Section 15 hereof.

 

(d)                                 The Executive agrees
that he will provide a copy of Sections 7, 8, and 9 of this Agreement to
any 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 with
as an officer, director, employee, partner, principal, agent, representative,
or consultant, or in connection with which he may use or expressly permit his
name to be used; provided, however, that this provision shall not
apply in respect of Section 8 of this Agreement after expiration of
the time periods set forth therein.

 

11.                                 Termination.

 

(a)                                  Cause.  Notwithstanding anything herein contained, if on or after the
date hereof and prior to the end of the Employment Term, the Executive is
terminated “For Cause” (as defined below) then the Company shall have
the right to give notice of termination of the Executive’s services hereunder
as of a date to be specified in such notice, and the Employment Term shall
terminate on the date so specified. 
Termination “For Cause” shall mean the Executive shall (i) be
charged with the commission of a felony crime; (ii) commit any act or omit to
take any action in bad faith and to the detriment of the Company; (iii)
intentionally fail to follow any commercially reasonable and lawful direction
of the Chief Executive Officer or the Board and continue to fail to follow such
direction within ten (10) days of written notification of same; (iv) commit an
act of fraud against the Company; (v) knowingly provide materially false
information concerning the Company to the Board, any governmental body, any
regulatory agency, any lender or other financing source of the Company, or any
shareholder of the Company; or (vi) breach any term of this Agreement and fail
to correct such breach within ten (10) days after written notice of commission
thereof.  In the event that this
Agreement is terminated “For Cause” pursuant to this Section 11(a),
then the Executive shall be entitled to receive only the Base Salary at the
rate provided in Section 3(a) to the date on which termination
shall take effect, any accrued vacation and unpaid expenses as contemplated
under Section 5, and (iii) any performance bonus earned and unpaid
for any prior plan periods and, if applicable under any performance bonus plan
for the year of termination, the amount, if any, earned thereunder to the date
of termination (collectively, “Accrued Bonus Payments”).

 

(b)                                 Disability.  In the event that the Executive shall be physically or mentally
incapacitated or disabled or otherwise unable fully to discharge his duties
hereunder, with reasonable accommodation, for more than 180 days during any
rolling 12-month period, then the Company may terminate the Executive’s
employment hereunder for “Disability” upon thirty (30) days’ written
notice to the Executive, and no further compensation shall be payable to the
Executive, 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 any
disability insurance policy, if any.

 

(c)                                  Death.  In the event that the Executive shall die, then his employment
shall terminate on the date of his death, and no further compensation shall be
payable to the Executive, 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 any insurance policy or similar
instrument.

 

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

 

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agree in writing, this
Agreement shall automatically terminate upon the expiration of the Employment
Term, and upon such expiration the Company shall be obligated to pay to the
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 expenses incurred
by the Executive through the date of termination in accordance with Section 5,
and any Accrued Bonus Payments.  In
addition, subject to the provisions of Section 11(i) hereof and the
Executive’s compliance (and continued compliance) with the provisions of Sections
7, 8 and 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) equal monthly installments and (ii) for such six (6) month
period, the Executive shall be entitled to continue to receive his then current
health, life and disability insurance benefits or, in the case of health
insurance benefits, payment by the Company of applicable “COBRA” payments.

 

(e)                                  Termination Without Cause.  In the event that the Company terminates the Executive for any
reason other than as provided under Section 11(a), 11(b), 11(c) or
11(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 to
the 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 expenses
incurred by the Executive through the date of termination in accordance with Section 5,
and any Accrued Bonus Payments.  In
addition, subject to the
provisions of Section 11(i) hereof and the Executive’s
compliance (and continued compliance) with the provisions of Sections 7, 8
and 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) equal
monthly installments and (ii) for such six (6) month period, the Executive
shall be entitled to continue to receive his then current health, life and
disability 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”).

 

(f)                                    Change of Control. Subject to the provisions of Sections
11(i) and 11(j), in the event that Company shall terminate this Agreement
and 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 the
Executive shall terminate this Agreement and the Executive’s employment
hereunder for Good Reason (as defined in Section 11(h)) within six
(6)  months following a Change in
Control, then, in lieu of (and not in addition to) the amounts to be paid (and
benefits to be provided) by the Company pursuant to Section 11(e)
or Section 11(h), the Company shall have no further obligations
under this Agreement to the Executive other than the obligation to: (i) pay to
the Executive Base Salary earned, but not yet paid to the Executive, prior to
the date of such termination in accordance with Section 3(a), (ii)
reimburse the Executive for any accrued vacation and unpaid expenses incurred
by 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 the
Executive a lump sum amount equal to twelve (12) months of the Executive’s Base
Salary, as then in effect. In addition, for the twelve (12) month period
following the date of such termination, the Executive shall be entitled to
continue to receive his then current health, life and disability insurance
benefits or, in the case of health insurance benefits, payment by the Company
of applicable “COBRA” payments.

 

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

 

(i)                                     any
Person other than an employee benefit plan of the Company or of any
wholly-owned subsidiary of the Company becomes the owner of 40% or more of the
combined voting power of the Company’s then outstanding voting securities and
thereafter individuals who were not directors of the Company prior to the date
such Person became a 40% owner are elected as directors pursuant to an
arrangement 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 the
Executive or an Executive Related Party is the Person or a member of a group
constituting the Person acquiring such ownership; or

 

(ii)                                  there
occurs any solicitation or series of solicitations of proxies by or on behalf
of any Person other than the Board and thereafter individuals who were not
directors of the Company prior to the commencement of such solicitation or
series of solicitations are elected as directors pursuant to an arrangement or
understanding with, or upon the request of or nomination by, such Person and
constitute at least 1/2 of the Board of Directors; or

 

(iii)                               the
Company executes an agreement of sale, merger or consolidation which
contemplates 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 be
owned, leased or otherwise controlled by another Person and (y) individuals who
are directors of the Company when such agreement is executed shall not
constitute at least 1⁄2 of the board of directors of the survivor or successor
entity immediately after the effective date provided for in such agreement; provided,
however, that for purposes of this paragraph (iii), if such agreement
requires as a condition precedent approval by the Company’s shareholders of the
agreement or transaction, a Change of Control shall not be deemed to have taken
place unless and until such approval is secured (but upon any such approval, a
Change of Control shall be deemed to have occurred on the effective date of
such agreement).

 

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

 

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

 

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

 

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the Executive shall be
entitled to receive an amount payable in a lump sum within ten (10) business
days following the date of termination, equal to the sum of any accrued and
unpaid Base Salary as contemplated by Section 3(a), any accrued
vacation and unpaid expenses as contemplated by Section 5 and any
Accrued Bonus Payments.

 

(h)                                 Good Reason.  The Executive may, upon thirty (30) days
written notice, terminate his employment with the Company for “Good
Reason”.  “Good Reason” shall
mean any material breach by the Company of its obligations hereunder which are
not cured within ten (10) days following receipt of written notice from the
Executive detailing such breach.  The
parties agree that a material breach shall mean, (x) any material reduction in
the Executive’s duties, authority, reporting relationships or responsibilities
(whether or not accompanied by a title change) not consented to by the
Executive, and (y) the relocation of the principal executive offices of the
Company a distance of more than 35 miles from its current location not
consented to by the Executive. Notwithstanding
the foregoing or anything to the contrary contained herein, the Executive shall
not be entitled to terminate his employment for “Good Reason” as a result of a
Permitted Change. In the event that the Executive terminates this Agreement
for Good Reason, the Company shall be obligated to pay to the Executive Base
Salary earned, but not yet paid to the Executive, prior to the date of such
termination in accordance with Section 3(a), reimburse the
Executive for any accrued vacation and unpaid expenses incurred by the
Executive through the date of termination in accordance with Section 5
and pay any Accrued Bonus Payments.  In
addition, subject to the provisions of Section 11(i) hereof, and
the Executive’s compliance (and continued compliance) with the provisions of Sections
7, 8 and 9 hereof, the Company shall pay and provide to the Executive the
Severance Payments.

 

(i)                                     Release.  Notwithstanding anything to the contrary
contained in this Agreement, the Executive (or his estate) shall not be
entitled to receive the payments and benefits set forth in this Section 11
(other than Base Salary through the effective date of termination in accordance
with Section 3(a) hereof and reimbursement of expenses in
accordance with Section 5) prior to (i) the execution and delivery
by 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, Title
VII of the Civil Rights Act of 1964, which the Executive might have at such
time against the Company and (ii) the resignation of the Executive from all
positions of any nature which the Executive may then have held with the Company
and any subsidiary of the Company.

 

(j)                                     Limitation as
to Amounts Payable.  Notwithstanding
any provision of this Agreement to the contrary (including without limitation
the provisions of Section 11(f)), if all or any portion of the
amounts to be paid to the Executive under this Agreement otherwise would be a
“parachute payment,” as defined in section 280G(b)(2) of the Internal
Revenue Code of 1986, as amended (the “Code”) and the Treasury
Regulations thereunder, the aggregate present value of the total amounts to be
paid to the Executive under this Agreement shall be limited to an amount that
is less than three times the Executive’s “annualized includible compensation
for the base period,” as defined in section 280G(d) of the Code and any
Treasury Regulations thereunder; provided, however, that in no
event shall the amount payable under this Agreement be reduced pursuant to this
Section 11(j) to less than the maximum amount that may be paid to
the Executive without causing any portion of such amount to become
nondeductible

 

10

 

under section 280G
of the Code and subject to the excise tax imposed by section 4999 of the
Code.  The determination of the
Executive’s “annualized includible compensation for the base period” and the
deductibility of payments made pursuant to this Agreement shall be made by the
independent 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 the
Code and the Treasury Regulations thereunder.

 

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

 

13.                                 Assignment.  All of the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the respective heirs, executors, administrators, legal representatives,
successors and assigns of the parties hereto, except that the duties and
responsibilities of the Executive hereunder are of a personal nature and shall
not be assignable or delegatable in whole or in part by the Executive.

 

14.                                 Modification.  This Agreement sets forth the entire understanding of the parties
with respect to the subject matter hereof, supersedes all existing agreements
between them concerning such subject matter, and may be modified only by a
written instrument duly executed by each party.

 

15.                                 Notices.  All notices and other communications
required or permitted hereunder or necessary or convenient in connection
herewith shall be in writing and shall be deemed to have been given when hand
delivered or three (3) days after being mailed by registered or certified mail,
as follows (provided that notice of change of address shall be deemed given
only 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

 

11

 

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 is
intended to be exclusive of any other remedy, and each and every such remedy
shall be cumulative and shall be in addition to any other remedy given
hereunder or now or hereafter existing at law or in equity.  No delay or omission by the Company in
exercising any right, remedy or power hereunder or existing at law or in equity
shall be construed as a waiver thereof, and any such right, remedy or power may
be exercised by the Company from time to time and as often as may be deemed
expedient or necessary by the Company in its sole discretion.

 

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

 

18.                                 Entire
Agreement; Contents of Agreement.

 

(a)                                  This Agreement
supersedes all prior agreements in their entirety, including without limitation
the Prior Employment Agreements, effective as of April 1, 2004, and sets
forth the entire understanding among the parties hereto with respect to the
subject matter hereof and cannot be changed, modified, extended or terminated
except upon written amendment executed by the Executive and approved by the
Board and executed on behalf of the Company by a duly authorized officer.  The Executive acknowledges that the effect
of this provision is that no oral modifications of any nature whatsoever to
this Agreement shall be permitted.

 

(b)                                 The Executive
acknowledges that from time to time, the Company may establish, maintain and
distribute manuals or handbooks or personnel policy manuals, and officers or
other representatives of the Company may make written or oral statements
relating to personnel policies and procedures. 
Such manuals, handbooks and statements are intended only for general
guidance.  No policies, procedures or
statements of any nature by or on behalf of the Company (whether written or
oral, and whether or not contained in any manual or handbook or personnel
policy manual), and no acts or practices of any nature, shall be construed to
modify this Agreement or to create express or implied obligations of any nature
to the Executive.

 

19.                                 Headings.  The headings in this Agreement are solely for the convenience of
reference and shall be given no effect in the construction or interpretation of
this Agreement.

 

12

 

20.                                 Counterparts;
Governing Law.  This
Agreement may be executed in any number of counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument.  It shall be governed by,
and construed in accordance with, the laws of The Commonwealth of
Massachusetts, without giving effect to the rules governing the conflicts of
laws.

 

IN WITNESS WHEREOF,
the parties have duly executed this Agreement as of the date first written
above.

 

	
   

  	
  iPARTY CORP.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ SAL PERISANO

  	
   

  
	
   

  	
  Name:

  	
  Sal Perisano

  
	
   

  	
  Title:

  	
  Chairman of the Board and Chief Executive

  Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   /s/ PATRICK FARRELL

  	
   

  
	
   

  	
  Patrick Farrell

  
						

 

13Exhibit
10.3

 

AMENDED
AND RESTATED EMPLOYMENT AGREEMENT

 

THIS
AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this “Agreement”)
is being made as of this 14th day of May, 2004 between iPARTY CORP., a Delaware
corporation (the “Company”) and DORICE DIONNE, an individual residing at
288 Huron Avenue, Cambridge, Massachusetts (the  “Executive”).

 

W
I T N E S S E T H:

 

WHEREAS,
the Company and the Executive previously entered into an employment agreement
dated as of March 26, 2002 (the “Prior Employment Agreement”); and

 

WHEREAS,
the Company and the Executive desire to amend and restate the Prior Employment
Agreement in its entirety as set forth herein.

 

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

 

1.                                       Term of Employment.

 

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

 

(b)                                 On or about
September 30, 2006 the Company shall provide the Executive with written
notice regarding whether or not the Company intends to seek to extend the
Employment Term.  A notice which states
that the Company intends to seek to the extend the Employment Term is referred
to herein as a “Renewal Notice” and a notice which states that the
Company does not intend to seek to extend the Employment Term is referred to
herein as a “Non-renewal Notice.” 
If the Company delivers a Non-renewal Notice, the period of time from
the date of the delivery of the Non-renewal Notice to the expiration of the
Employment Term is referred to herein as the “Transition Period.”  If the Company delivers a Renewal Notice to
the Executive (i) the Employment Term shall automatically be extended for a
period of six (6) months and (ii) the Company and the Executive shall seek to
negotiate the terms of a new, mutually agreeable employment agreement.  Such six (6) month extension period, if (and
only if) applicable, is referred to herein as the “Extension Period,”
and during the Extension Period, if (and only if) applicable, all references
herein to the Employment Term shall include the Extension Period.

 

2.                                       Duties, Responsibilities and
Positions.

 

(a)                                  During the Employment Term, the
Executive shall serve as Senior Vice President—Merchandising of the Company and
perform all duties and accept all responsibilities incidental to such position,
as may be assigned to her from time to time. 
The Executive shall be subject at all times to the general supervision,
orders, advice and direction of the Chief Executive Officer of the
Company.  The Executive shall also
cooperate fully with the Board of Directors of the Company (the “Board”)
and other executive officers of the Company.

 

 

(b)                                 Upon termination of the
Executive’s employment for any reason, the Executive shall immediately resign
from any other office or offices within the Company and any subsidiary of the
Company that the Executive may then hold.

 

(c)                                  During the Employment Term, the
Executive shall devote substantially all her full working time, energy and
efforts to the business of the Company; provided, however, that
the Executive shall be allowed, to the extent that such activities do not
materially interfere with the performance of her duties and responsibilities
hereunder, to manage her personal and family financial and legal affairs and to
serve on civic, not-for-profit and charitable industry boards and advisory
committees.  The Executive shall only
serve on for-profit corporate boards of directors and advisory committees if
approved in advance, in writing, by the Chief Executive Officer or the Board.

 

(d)                                 The Executive represents to the
Company that  (i) the Executive has the legal capacity to execute and perform this
Agreement and (ii) that she is not currently subject to or bound by any
employment agreement, non-competition covenant, non-disclosure agreement or
other agreement, covenant, understanding or restriction of any nature
whatsoever which would prohibit the Executive from executing this Agreement and
performing fully her duties and responsibilities hereunder, or which would in
any manner, directly or indirectly, materially limit the duties and
responsibilities which it is now reasonably foreseeable may now or in the
future be assigned to the Executive by the Chief Executive Officer or the
Board.

 

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

 

3.                                       Compensation.  For all services rendered by the Executive in any capacity during
the Employment Term, including without limitation, services as an officer,
director, or member of any committee of the Company, or any subsidiary,
affiliate or division thereof, the Executive shall be compensated as follows
(subject, in each case, to the provisions of Section 11 below):

 

(a)                                  Base Salary.  During the Employment Term, the Company shall pay to the
Executive a base salary on an annualized basis (the “Base Salary”) as
follows: (i) for the period from April 1, 2004 through March 31,
2005, $165,000;  (ii) for the period
from April 1, 2005 through March 31, 2006, $172,500; and (iii) for
the period from April 1, 2006 through March 31, 2007, $180,000.  The term “Base Salary” as used in this
Agreement shall refer to Base Salary in effect for the applicable period set forth
in the immediately preceding sentence. 
The Base Salary shall be payable in accordance with the customary
payroll practices of the Company. If, during the Employment Term, the Company
consummates any material acquisitions or similar transactions which increase
the size and scope of the Company’s business, the Compensation Committee of the
Board shall convene as promptly as reasonably practicable for the purpose of
discussing whether or not it is appropriate to increase the Executive’s Base
Salary; provided, however, that no such increase shall be required.

 

(b)                                 Bonus.  In addition to the Base Salary provided herein, the
Executive shall be entitled to participate in, and may receive performance
bonus payments under,

 

2

 

such annual bonus plan or
plans as the Compensation Committee of the Board may establish from time to
time for senior executive officers of the Company.  Any such performance bonus or bonuses shall be determined in the
sole discretion of the Compensation Committee of the Board. Without limiting
the generality of the foregoing, such performance bonus or bonuses, if paid,
may be paid in stock, stock options, restricted stock, cash, or any combination
thereof.

 

(c)                                  Benefits.  During the Employment Term, the Executive shall be entitled to
participate in all employee benefit and equity plans and fringe benefits and
prerequisites generally provided to senior executives of the Company, in each
case subject to the eligibility requirements and other terms and provisions of
such plans and programs.  The Company
may amend, modify or rescind any employee benefit plan or program and change
employee contribution amounts or benefit costs without notice in its
discretion.

 

4.                                       Stock Options Matters.  On May 6, 2004, the Executive was
granted stock options (the “Options”) for an aggregate of 230,000 shares
of common stock of the Company, at an exercise price of $0.95 per share (the
closing price of the common stock on such date), pursuant to the Company’s Amended and Restated
1998 Incentive and Nonqualified Stock Option Plan (the “Plan”).  The Options shall vest as follows:  provided the Executive remains continuously
employed by the Company through March 31, 2005, options for 76,667 shares
shall vest on March 31, 2005; provided the Executive 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 Company through March 31, 2007,
options for the final 76,666 shares shall vest on March 31, 2007.  The Options shall be subject to the terms of
the Plan and shall be evidenced by a Stock Option Grant Agreement between the
Company and the Executive.

 

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

 

6.                                       Representations and Warranties of
the Company.  The Company represents and warrants to, and
agrees with, the Executive that (i) pursuant to the Delaware General
Corporation Law, the Company’s Certificate of Incorporation, as amended to date
(the “Charter”), provides for indemnification of officers and directors
of the Company and that so long as the Executive serves as an executive officer
of the Company, unless required by applicable law the Charter will not be
amended to limit such indemnification without the written consent of the
Executive and (ii) the Company maintains an officers and directors liability
insurance policy which insures (subject to the limitations contained therein)
the Executive and will maintain such a policy for so long as the Executive
serves as an executive officer of the Company.

 

3

 

7.                                       Developments.  All
developments, including inventions, whether patentable or otherwise, trade
secrets, discoveries, improvements, ideas and writings which relate to or may
be useful in the business of the Company, and which the Executive, either by
herself or in conjunction with any other person or persons, has conceived,
made, developed, acquired or acquired knowledge of while engaged in any
activity on behalf of or while acting for the Company during the course of her
employment by the Company (the “Developments”), shall, on and after the
start of the Employment Term, become the sole and exclusive property of the
Company.  The Executive hereby assigns,
transfers and conveys, and agrees to so assign, transfer and convey to the
Company, all of her right, title and interest in and to any and all such
Developments and to disclose in writing to the Board, as soon as practicable,
all Developments that she believes in her good faith judgment may be of
material significance to the Company, and to reduce any such Developments to
writing at the request of Board if she has not already done so.  At any time, and from time to time, upon the
request and at the expense of the Company, the Executive will execute and
deliver any and all instruments, documents and papers, give evidence and do any
and all other acts which, in the reasonable opinion of counsel for the Company,
are or may reasonably be necessary or desirable to document such transfer or to
enable the Company to file and prosecute applications for and to acquire,
maintain and enforce any and all patents, trademark registrations or copyrights
under United States or foreign law with respect to any such Developments or to
obtain any extension, validation, reissue, continuance or renewal of any such
patent, trademark or copyrights; provided only that any such actions requested
following termination of employment shall not unreasonably interfere with
Executive’s then employment, business or other activities.  The Company will be responsible for the
preparation of any such instruments, documents and papers and for the
prosecution of any such proceedings and will reimburse the Executive for all
reasonable expenses incurred by her in compliance with the provisions of this Section 7.  The Developments shall not include any
knowledge or information of any kind acquired by or disclosed to the Executive
while serving in her capacity as a member of the board of directors of any
non-Company entity, in her capacity as a private investor, or in any other
circumstance during which the Executive is not or was not engaged in any
activity on behalf of or acting for the Company.  Furthermore, nothing herein shall preclude Executive from
utilizing 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.

 

8.                                       Non-Competition and
Non-Solicitation.

 

(a)                                  Non-Competition.  The Executive agrees that the Executive will
not, during the “Restrictive Period”, as defined below, engage in, or otherwise
directly or indirectly be employed by, or act as a consultant or lender to, or
be a director, officer, employee, owner, co-venturer, member or partner of, or
use or expressly permit the Executive’s name to be used by (collectively an “Engagement
With”), 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/or websites, of party goods and/or supplies anywhere in the
United States (a “Competing Entity”); provided, however,
that in each case the provisions of this Section 8(a) will not be
deemed breached merely because the Executive owns not more than five percent
(5.0%) of the outstanding common stock of 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

 

4

 

in the over-the-counter market by a member of a national securities
exchange; and provided, further, however, that, subject to
the provisions of Section 8(b), nothing herein shall prevent the
Executive from working for a business segment or department of a Competing
Entity, or a subsidiary, division or other entity that controls or is
controlled by a Competing Entity if (and only if), the business segment or
department of the Competing Entity for which the Executive provides services,
or the subsidiary, division or other entity by which the Executive has an
Engagement With (as the case may be), (1) does not itself compete with the
Company, 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 the
Company.  As used in this
Section the “Restrictive Period” shall be (i) the period the
Executive is employed by the Company and (ii) the period of one (1) year after
the Executive ceases to be employed by the Company for any reason, or, in the
case of the Executive’s Engagement With any Competing Entity that operates
retail stores which are located in any states where the Company has retail
stores on the date of the Executive’s cessation of employment, the period of
eighteen (18) months period after the Executive ceases to be employed by the
Company for any reason.

 

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

 

9.                                       Confidential Information.  The Executive recognizes and acknowledges that by reason of her
employment by and service to the Company, she has had and will have access to
confidential information of the Company and its affiliates, including without
limitation, information and knowledge pertaining to products and services
offered, ideas, plans, trade secrets, proprietary information, advertising, distribution
and sales methods and systems, sales and profit figures, customer and 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 is a valuable and
unique asset and covenants that she will not, either during or at any time
after the end of the Employment Term, use or disclose any such Confidential
Information to any person or entity for any reason whatsoever (except as her
duties described herein may require) without the prior authorization of the
Board, unless such information is in or enters the public domain through no
fault of the Executive or is otherwise lawfully known by third parties.  In the event the Executive becomes or may
become legally compelled to disclose any Confidential Information (whether by
deposition, interrogatory, request for documents, subpoena, civil investigative
demand or other process or otherwise), the Executive shall provide to the Board
prompt prior written notice of such requirement so that the Company may seek a
protective order or other appropriate remedy and/or waive compliance with the
terms of this Section 9.  In
the event that such protective order or other remedy is not obtained, or that
the Company waives compliance with the provisions this Section 9,
the Executive shall furnish only that portion of the Confidential Information
which it is advised by counsel is legally required to

 

5

 

be disclosed, and shall use her best efforts
to insure that confidential treatment shall be afforded such disclosed portion
of the Confidential Information.

 

10.                                 Equitable Relief.

 

(a)                                  The Executive acknowledges that
the restrictions contained in Sections 7, 8 and 9 hereof are reasonable
and necessary to protect the legitimate interests of the Company, that the
Company would not have entered into this Agreement in the absence of such
restrictions, and that any violation of any provision of those Sections will
result in irreparable injury to the Company. 
The Executive represents that her experience and capabilities are such
that the restrictions contained in Section 8 hereof will not
prevent the Executive from obtaining employment or otherwise earning a living
at the same general level of economic benefit as is anticipated by this
Agreement.  THE  EXECUTIVE FURTHER
REPRESENTS AND ACKNOWLEDGES THAT (i) SHE HAS BEEN ADVISED BY THE COMPANY TO
CONSULT HER OWN LEGAL COUNSEL IN RESPECT OF THIS AGREEMENT, (ii) THAT SHE HAS
HAD FULL OPPORTUNITY, PRIOR TO EXECUTION OF THIS AGREEMENT, TO REVIEW
THOROUGHLY THIS AGREEMENT WITH HER COUNSEL, AND (iii) SHE HAS READ AND FULLY
UNDERSTANDS THE TERMS AND PROVISIONS OF THIS AGREEMENT.

 

(b)                                 The Executive agrees that the
Company shall be entitled to preliminary and permanent injunctive relief,
without the necessity of proving actual damages, as well as an equitable
accounting of all earnings, profits and other benefits arising from any
violation of Sections 7, 8 or 9 hereof, which rights shall be cumulative
and in addition to any other rights or remedies to which the Company may be
entitled.  In the event that any of the
provisions of Sections 7, 8 or 9 hereof should ever be adjudicated to
exceed the time, geographic, product or service, or other limitations permitted
by applicable law in any jurisdiction, then such provisions shall be deemed
reformed in such jurisdiction to the maximum time, geographic, product or
service, or other limitations permitted by applicable law.

 

(c)                                  The Company and the Executive
each irrevocably and unconditionally (i) agree that any suit, action or other
legal proceeding arising out of this Agreement, including without limitation,
any action for preliminary or permanent injunctive relief or other equitable
relief, may be brought in the United States District Court for the District of
Eastern Massachusetts, or if such court does not have jurisdiction or will not
accept jurisdiction, in any court of general jurisdiction in the Commonwealth
of Massachusetts, (ii) consent to the non-exclusive jurisdiction of any such
court in any such suit, action or proceeding, and (iii) waive any objection
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 unconditionally consent to
the service of any process, pleadings, notices or other papers in a manner
permitted by the notice provisions of Section 15 hereof.

 

(d)                                 The Executive agrees that she
will provide a copy of Sections 7, 8 and 9 of this Agreement to any
for-profit business or enterprise (i) which she may directly or indirectly own,
manage, operate, finance, join, participate in the ownership, management,
operation, financing, control or control of, or (ii) with which she may be
connected with as an officer, director, employee, partner, principal, agent,
representative, or consultant, or in

 

6

 

connection with which she may use or
expressly permit her name to be used; provided, however, that
this provision shall not apply in respect of Section 8 of this
Agreement after expiration of the time periods set forth therein.

 

11.                                 Termination.

 

(a)                                  Cause.  Notwithstanding anything herein contained, if on or after the
date hereof and prior to the end of the Employment Term, the Executive is
terminated “For Cause” (as defined below) then the Company shall have
the right to give notice of termination of the Executive’s services hereunder
as of a date to be specified in such notice, and the Employment Term shall
terminate on the date so specified. 
Termination “For Cause” shall mean the Executive shall (i) be
charged with the commission of a felony crime; (ii) commit any act or omit to
take any action in bad faith and to the detriment of the Company; (iii)
intentionally fail to follow any commercially reasonable and lawful direction
of the Chief Executive Officer or the Board and continue to fail to follow such
direction within ten (10) days of written notification of same; (iv) commit an
act of fraud against the Company; (v) knowingly provide materially false
information concerning the Company to the Board, any governmental body, any
regulatory agency, any lender or other financing source of the Company, or any
shareholder of the Company; or (vi) breach any term of this Agreement and fail
to correct such breach within ten (10) days after written notice of commission
thereof.  In the event that this
Agreement is terminated “For Cause” pursuant to this Section 11(a),
then the Executive shall be entitled to receive only the Base Salary at the
rate provided in Section 3(a) to the date on which termination
shall take effect, any accrued vacation and unpaid expenses as contemplated
under Section 5, and (iii) any performance bonus earned and
unpaid for any prior plan periods and, if applicable under any performance
bonus plan for the year of termination, the amount, if any, earned thereunder
to the date of termination (collectively, “Accrued Bonus Payments”).

 

(b)                                 Disability.  In the event that the Executive shall be physically or mentally
incapacitated or disabled or otherwise unable fully to discharge her duties
hereunder, with reasonable accommodation, for more than 180 days during any
rolling 12-month period, then the Company may terminate the Executive’s
employment hereunder for “Disability” upon thirty (30) days’ written
notice to the Executive, and no further compensation shall be payable to the
Executive, 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 any
disability insurance policy, if any.

 

(c)                                  Death.  In the event that the Executive shall die, then her employment
shall terminate on the date of her death, and no further compensation shall be
payable to the Executive, 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 any insurance policy or similar
instrument.

 

(d)                                 Expiration.  This Agreement shall automatically terminate upon the expiration
of the Employment Term and upon such expiration, the following payment
provisions shall apply:

 

7

 

(i)                                     In the event that the Company
delivers a Non-renewal Notice, upon expiration of the Employment Term, no
further compensation shall be payable to the Executive, except for (1) any
accrued and unpaid Base Salary though the effective date of such termination as
contemplated under Section 3(a), (2) any accrued vacation and
unpaid expenses as contemplated under Section 5, and (3) any
Accrued Bonus Payments.  In addition,
subject to the provisions of Section 11(i) hereof and the
Executive’s compliance (and continued compliance) with the provisions of Sections
7, 8 and 9 hereof, (Y) 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) equal monthly installments and (Z) for such six (6) month
period, the Executive shall be entitled to continue to receive her then current
health, life and disability insurance benefits or, in the case of health
insurance benefits, payment by the Company of applicable “COBRA” payments.

 

(ii)                                  In
the event that the Company delivers a Renewal Notice, upon expiration of the
Extension Period no further compensation shall be payable to the Executive,
except for (1) any accrued and unpaid Base Salary though the effective date of
such termination as contemplated under Section 3(a), (2) any
accrued vacation and unpaid expenses as contemplated under Section 5,
and (3) any Accrued Bonus Payments.  For
the avoidance of doubt, the termination of this Agreement upon the expiration
of the Extension Period shall not be deemed a termination without cause
pursuant to Section 11(e) and the Executive shall not be entitled
to receive any severance or similar payment or benefit provided for in Section 11(e)
upon expiration of the Extension Period.

 

(e)                                  Termination Without Cause.  In the event that the Company terminates the Executive for any
reason other than as provided under Section 11(a), 11(b), 11(c) or
11(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 to the 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 expenses
incurred by the Executive through the date of termination in accordance with Section 5,
and any Accrued Bonus Payments.  In
addition, subject to the provisions of Section 11(i) hereof and the
Executive’s compliance (and continued compliance) with the provisions of Sections
7, 8 and 9 hereof, (i) the Company shall pay to the Executive a severance
payment equal to twelve (12) months salary at the Base Salary as then in
effect, payable in twelve (12) equal monthly installments and (ii) for such
twelve (12) month period, the Executive shall be entitled to continue to
receive her then current health, life and disability 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”).

 

(f)                                    Change of Control. Subject to the provisions of Sections
11(i) and 11(j), in the event that Company shall terminate this Agreement
and 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 the
Executive shall terminate this Agreement and the Executive’s employment
hereunder for Good Reason (as defined in Section 11(h)) within six
(6)  months following a Change in
Control, then, in lieu of (and not in addition to) the amounts to be paid (and
benefits to be provided) by the Company pursuant to Section 11(e)
or Section 11(h),

 

8

 

the Company shall have no further obligations
under this Agreement to the Executive other than the obligation to: (i) pay to
the Executive Base Salary earned, but not yet paid to the Executive, prior to
the date of such termination in accordance with Section 3(a), (ii)
reimburse the Executive for any accrued vacation and unpaid expenses incurred
by 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 the
Executive a lump sum amount equal to eighteen (18) months of the Executive’s
Base Salary, as then in effect. In addition, for the twelve (12) month period
following the date of such termination, the Executive shall be entitled to
continue to receive her then current health, life and disability insurance
benefits or, in the case of health insurance benefits, payment by the Company
of applicable “COBRA” payments.

 

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

 

(i)                                     any
Person other than an employee benefit plan of the Company or of any
wholly-owned subsidiary of the Company becomes the owner of 40% or more of the
combined voting power of the Company’s then outstanding voting securities and
thereafter individuals who were not directors of the Company prior to the date
such Person became a 40% owner are elected as directors pursuant to an
arrangement 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 the
Executive or an Executive Related Party is the Person or a member of a group
constituting the Person acquiring such ownership; or

 

(ii)                                  there
occurs any solicitation or series of solicitations of proxies by or on behalf
of any Person other than the Board and thereafter individuals who were not
directors of the Company prior to the commencement of such solicitation or
series of solicitations are elected as directors pursuant to an arrangement or
understanding with, or upon the request of or nomination by, such Person and
constitute at least 1/2 of the Board of Directors; or

 

(iii)                               the
Company executes an agreement of sale, merger or consolidation which
contemplates 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 be
owned, leased or otherwise controlled by another Person and (y) individuals who
are directors of the Company when such agreement is executed shall not
constitute at least 1⁄2 of the board of directors of the survivor or successor
entity immediately after the effective date provided for in such agreement; provided,
however, that for purposes of this paragraph (iii), if such agreement
requires as a condition precedent approval by the Company’s shareholders of the
agreement or transaction, a Change of Control shall not be deemed to have taken
place unless and until such approval is secured (but upon any such approval, a
Change of Control shall be deemed to have occurred on the effective date of
such agreement).

 

“Executive Related Party”
shall mean any Affiliate or Associate of the Executive other than the Company
or a Subsidiary of the Company.  The
terms “Affiliate” and “Associate” shall have the meanings ascribed thereto in
Rule 12b-2 under the Securities Exchange Act of 1934, as

 

9

 

amended (the “Exchange
Act”) (the term “registrant” in the definition of “Associate” meaning, in
this case, the Company).

 

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

 

(g)                                 Termination by Executive.  In the event that the Executive desires to resign voluntarily as
Senior Vice President—Merchandising, the Executive covenants to provide the
Company with not less than ninety (90) days written notice of any such
voluntary resignation; and further the Executive covenants to cooperate in good
faith in order to facilitate a smooth transfer of authority during the period
from notice of resignation to the date of termination.  In the event that the Executive’s employment
is terminated by the Executive pursuant to this Section 0, then the
Executive shall be entitled to receive an amount payable in a lump sum within
ten (10) business days following the date of termination, equal to the sum of
any accrued and unpaid Base Salary as contemplated by Section 3(a),
and any accrued vacation and unpaid expenses as contemplated by Section 5
and any Accrued Bonus Payments.

 

(h)                                 Good Reason.  The Executive may, upon thirty (30) days
written notice, terminate her employment with the Company for “Good
Reason”.  “Good Reason” shall
mean any material breach by the Company of its obligations hereunder which are
not cured within ten (10) days following receipt of written notice from the
Executive detailing such breach.  The
parties agree that a material breach shall mean, (x) any material reduction in
the Executive’s duties, authority, reporting relationships or responsibilities
(whether or not accompanied by a title change) not consented to by the
Executive, and (y) the relocation of the principal executive offices of the
Company a distance of more than 35 miles from its current location not
consented to by the Executive.  Notwithstanding the foregoing or
anything to the contrary contained herein, the Executive shall not be entitled
to terminate her employment for “Good Reason” at any time during the Extension Period or the Transition
Period, for any reason.  In the
event that the Executive terminates this Agreement for Good Reason, the Company
shall be obligated to pay to the Executive Base Salary earned, but not yet paid
to the Executive, prior to the date of such termination in accordance with Section 3(a),
reimburse the Executive for any accrued vacation and unpaid expenses incurred
by the Executive through the date of termination in accordance with Section 5
and pay any Accrued Bonus Payments.  In
addition, subject to the provisions of Section 11(i) hereof, and
the Executive’s compliance (and continued compliance) with the provisions of Sections
7, 8 and 9 hereof, the Company shall pay and provide to the Executive the
Severance Payments.

 

(i)                                     Release.  Notwithstanding anything to the contrary
contained in this Agreement, the Executive (or her estate) shall not be
entitled to receive the payments and benefits set forth in this Section 11
(other than Base Salary through the effective date of termination in accordance
with Section 3(a) hereof and reimbursement of expenses in
accordance with Section 5) prior to (i) the execution and delivery
by 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, Title
VII of the Civil Rights Act of 1964, which the Executive might have at such
time against the Company and (ii) the resignation of the Executive from all
positions of any nature which the Executive may then have held with the Company
and any subsidiary of the Company.

 

10

 

(j)                                     Limitation as
to Amounts Payable.  Notwithstanding
any provision of this Agreement to the contrary (including without limitation
the provisions of Section 11(f)), if all or any portion of the
amounts to be paid to the Executive under this Agreement otherwise would be a
“parachute payment,” as defined in section 280G(b)(2) of the Internal
Revenue Code of 1986, as amended (the “Code”) and the Treasury
Regulations thereunder, the aggregate present value of the total amounts to be
paid to the Executive under this Agreement shall be limited to an amount that
is less than three times the Executive’s “annualized includible compensation
for the base period,” as defined in section 280G(d) of the Code and any
Treasury Regulations thereunder; provided, however, that in no
event shall the amount payable under this Agreement be reduced pursuant to this
Section 11(j) to less than the maximum amount that may be paid to
the Executive without causing any portion of such amount to become
nondeductible under section 280G of the Code and subject to the excise tax
imposed by section 4999 of the Code. 
The determination of the Executive’s “annualized includible compensation
for the base period” and the deductibility of payments made pursuant to this
Agreement shall be made by the independent 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 the Code and the Treasury Regulations
thereunder.

 

12.                                 Survival. Except as otherwise provided
in this Agreement, notwithstanding the termination of this Agreement or the
Executive’s employment for any reason, the Executive’s obligations under Sections
2(b), 7, 8 and 9 hereof shall survive and remain in full force and effect
for the periods therein provided, and the provisions for equitable relief
against the Executive in Section 10 hereof shall continue in force,
along with the provisions of Sections 12 through 20 hereof.  In addition, the obligations of the Company
set forth in Section 11 shall survive any termination (as
applicable) and shall remain in full force and effect until such obligations
are satisfied in full (subject, as applicable, to the Executive’s
compliance with the provisions of Section11(i)).

 

13.                                 Assignment.  All of the terms and provisions of this Agreement shall be
binding upon and inure to the benefit of and be enforceable by the respective
heirs, executors, administrators, legal representatives, successors and assigns
of the parties hereto, except that the duties and responsibilities of the
Executive hereunder are of a personal nature and shall not be assignable or
delegatable in whole or in part by the Executive.

 

14.                                 Modification.  This Agreement sets forth the entire understanding of the parties
with respect to the subject matter hereof, supersedes all existing agreements
between them concerning such subject matter, and may be modified only by a
written instrument duly executed by each party.

 

15.                                 Notices.  All notices and other communications required or permitted
hereunder or necessary or convenient in connection herewith shall be in writing
and shall be deemed to have been given when hand delivered or three (3) days
after being mailed by registered or certified mail, as follows (provided that
notice of change of address shall be deemed given only when received):

 

11

 

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

 

If to the Executive:

 

Dorice Dionne

288 Huron Avenue

Cambridge, MA 02138

 

16.                                 Remedies Cumulative; No Waiver.  No remedy conferred upon the Company by this Agreement is
intended to be exclusive of any other remedy, and each and every such remedy
shall be cumulative and shall be in addition to any other remedy given hereunder
or now or hereafter existing at law or in equity.  No delay or omission by the Company in exercising any right,
remedy or power hereunder or existing at law or in equity shall be construed as
a waiver thereof, and any such right, remedy or power may be exercised by the
Company from time to time and as often as may be deemed expedient or necessary
by the Company in its sole discretion.

 

17.                                 Binding Effect.  The Executive’s rights and obligations under this Agreement shall
not be transferable by assignment or otherwise, such rights shall not be
subject to encumbrance or the claims of the Executive’s creditors, and any
attempt to do any of the foregoing shall be void.  The provisions of this Agreement shall be binding upon and inure
to the benefit of the Executive and her heirs and personal representatives, and
shall be binding upon and inure to the benefit of the Company and its
successors and those who are its assigns under Section 13.

 

18.                                 Entire Agreement; Contents of
Agreement.

 

(a)                                  This Agreement supersedes all
prior agreements in their entirety, including without limitation the Prior
Employment Agreement, effective as of April 1, 2004, and sets forth the
entire understanding among the parties hereto with respect to the subject
matter hereof and cannot be changed, modified, extended or terminated except
upon written amendment executed by the Executive and approved by the Board and
executed on behalf of the Company by a duly authorized officer.  The Executive acknowledges that the effect
of this provision is that no oral modifications of any nature whatsoever to
this Agreement shall be permitted.

 

12

 

(b)                                 The Executive acknowledges that
from time to time, the Company may establish, maintain and distribute manuals
or handbooks or personnel policy manuals, and officers or other representatives
of the Company may make written or oral statements relating to personnel
policies and procedures.  Such manuals,
handbooks and statements are intended only for general guidance.  No policies, procedures or statements of any
nature by or on behalf of the Company (whether written or oral, and whether or
not contained in any manual or handbook or personnel policy manual), and no
acts or practices of any nature, shall be construed to modify this Agreement or
to create express or implied obligations of any nature to the Executive.

 

19.                                 Headings.  The headings in this Agreement are solely for the convenience of
reference and shall be given no effect in the construction or interpretation of
this Agreement.

 

20.                                 Counterparts; Governing Law.  This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument. 
It shall be governed by, and construed in accordance with, the laws of
The Commonwealth of Massachusetts, without giving effect to the rules governing
the conflicts of laws.

 

IN
WITNESS WHEREOF, the parties have duly executed this
Agreement as of the date first written above.

 

	
   

  	
  iPARTY CORP.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
    /s/ PATRICK
  FARRELL

  	
   

  
	
   

  	
  Name:

  	
  Patrick Farrell

  
	
   

  	
  Title:

  	
  President and Chief Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  /s/ DORICE DIONNE

  	
   

  
	
   

  	
  Dorice Dionne

  
						

 

13

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