Document:

Exhibit
10.3

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

IPARTY
CORP.

WARRANT TO PURCHASE COMMON
STOCK

Warrant No.: 1

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

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

iParty Corp., a Delaware
corporation (the “Company”),
hereby certifies that, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, HIGHBRIDGE INTERNATIONAL LLC, the
registered holder hereof or its permitted assigns (the “Holder”), is entitled, subject to the terms
set forth below, to purchase from the Company, at the Exercise Price (as
defined below) then in effect, upon surrender of this Warrant to Purchase
Common Stock (including any Warrants to Purchase Common Stock issued in
exchange, transfer or replacement hereof, the “Warrant”), at any time or times on or after the date hereof,
but not after 11:59 p.m., New York time, on the Expiration Date (as defined
below), TWO MILLION EIGHTY THREE THOUSAND THREE HUNDRED THIRTY FOUR (2,083,334)
fully paid nonassessable shares of Common Stock (as defined below) (the “Warrant
Shares”).  Except as otherwise
defined herein, capitalized terms in this Warrant shall have the meanings set
forth in Section 15.  This Warrant is one
of the Warrants to purchase Common Stock (the “SPA Warrants”) issued pursuant to Section 1 of that certain
Securities Purchase Agreement, dated as of September 15, 2006 (the “Subscription Date”), by and among the
Company and the investors (the “Buyers”)
referred to therein (the “Securities Purchase
Agreement”).

 

 

1.     EXERCISE OF WARRANT.

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

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certificates for Warrant Shares or Warrants in a name other than that
of the Holder, and the Holder shall be responsible for all other tax liability
that may arise as a result of holding or transferring this Warrant.

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

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

(d)           Cashless Exercise.  Notwithstanding
anything contained herein to the contrary, if a Registration Statement (as
defined in the Registration Rights Agreement) covering the Warrant Shares that
are the subject of the Exercise Notice (the “Unavailable
Warrant Shares”) is not available for the resale of such Unavailable
Warrant Shares, the Holder may, in its sole discretion, exercise this Warrant
in whole or in part and, in lieu of making the cash payment otherwise
contemplated to be made to the Company upon such exercise in payment of the
Aggregate Exercise Price, elect instead to receive upon such exercise the “Net
Number” of shares of Common Stock determined according to the following formula
(a “Cashless Exercise”):

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Net Number = (A x B) - (A x
C)

                                                   B

For purposes of the foregoing
formula:

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

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

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

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

(f)            Limitations on Exercises; Principal Market Regulation.  The Company shall not be obligated to issue
any shares of Common Stock upon exercise of this Warrant if the issuance of
such shares of Common Stock would exceed that number of shares of Common Stock
which the Company may issue upon exercise of this Warrant without breaching the
Company’s obligations under the rules or regulations of the Principal
Market (the “Exchange Cap”),
except that such limitation shall not apply in the event that the Company (A)
obtains the approval of its shareholders as required by the applicable rules of
the Principal Market for issuances of shares of Common Stock in excess of such
amount or (B) obtains a written opinion from outside counsel to the Company
that such approval is not required, which opinion shall be reasonably
satisfactory to the Required Holders. 
Until such approval or written opinion is obtained, no Buyer shall be
issued, upon exercise of any SPA Warrants shares of Common Stock in an amount
greater than the product of the Exchange Cap multiplied by a fraction, the
numerator of which is the total number of shares of Common Stock issued to such
Buyer pursuant to the Securities Purchase Agreement on the Issuance Date and
the denominator of which is the aggregate number of shares of Common Stock
issued to the Buyers pursuant to the Securities Purchase Agreement on the
Issuance Date (with respect to each Buyer, the “Exchange Cap
Allocation”).  In the event
that any Buyer shall sell or otherwise transfer any of such Buyer’s SPA
Warrants, the transferee shall be allocated a pro rata portion of such Buyer’s
Exchange Cap Allocation, and the restrictions of the prior sentence shall apply
to such transferee with respect to the portion of the Exchange Cap Allocation
allocated to such transferee.  In the
event that any holder of SPA Warrants shall exercise all of such holder’s
SPA Warrants into a number of shares of Common Stock which, in the aggregate,
is less than such holder’s Exchange Cap Allocation, then the difference
between such holder’s Exchange Cap Allocation and the number of shares
of Common Stock actually issued to such holder shall be allocated to the
respective Exchange Cap Allocations of the remaining holders of SPA Warrants on
a pro rata basis in proportion to the shares of Common Stock underlying the SPA
Warrants then held by 

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each such holder.  In the event that the Company is prohibited
from issuing any Warrant Shares for which an Exercise Notice has been received
as a result of the operation of this Section 1(f)(ii), the Company shall pay
cash in exchange for cancellation of such Warrant Shares, at a price per
Warrant Share equal to the difference between the Closing Sale Price and the
Exercise Price as of the date of the attempted exercise.

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

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

(a)           Adjustment upon Issuance of shares of Common Stock.  If and whenever on or after the Subscription
Date the Company issues or sells, or in accordance with this Section 2 is
deemed to have issued or sold, any shares of Common Stock (including the
issuance or sale of shares of Common Stock owned or held by or for the account
of the Company, but excluding Excluded Securities for a consideration per share
less than a price (the “Applicable
Price”) equal to the Exercise Price in effect immediately prior to
such issue or sale or deemed issuance or sale (the foregoing a “Dilutive Issuance”), then immediately after such Dilutive
Issuance, the Exercise Price then in effect shall be reduced to an amount equal
to the product of (A) the Exercise Price in effect immediately prior to
such Dilutive Issuance and (B) the quotient determined by dividing
(1) the sum of (I) the product derived by multiplying the Exercise Price
in effect immediately prior to such Dilutive Issuance and the number of Common
Stock Deemed Outstanding immediately prior to such Dilutive Issuance plus
(II) the consideration, if any, received by the Company upon such Dilutive
Issuance, by (2) the product derived by multiplying (I) the Exercise Price
in effect immediately prior to such Dilutive Issuance by (II) the number
of Common Stock Deemed Outstanding immediately after such Dilutive
Issuance.  Upon each such adjustment of
the Exercise Price hereunder, the number of Warrant Shares shall be adjusted to
the number of shares of Common Stock determined by multiplying the Exercise
Price in effect immediately prior to such adjustment by the number of Warrant
Shares acquirable upon exercise of this Warrant immediately prior to such
adjustment 

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and dividing the product thereof by the
Exercise Price resulting from such adjustment. 
For purposes of determining the adjusted Exercise Price under this
Section 2(a), the following shall be applicable:

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

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

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adjustment of
the Exercise Price or number of Warrant Shares shall be made by reason of such
issue or sale.

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

(iv)          Calculation of Consideration
Received.  In case any Option is
issued in connection with the issue or sale of other securities of the Company,
together comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto, the Options
will be deemed to have been issued for a consideration of $0.01.  If any shares of Common Stock, Options or
Convertible Securities are issued or sold or deemed to have been issued or sold
for cash, the consideration received therefor will be deemed to be the net
amount received by the Company therefor. 
If any shares of Common Stock, Options or Convertible Securities are
issued or sold for a consideration other than cash, the amount of such
consideration received by the Company will be the fair value of such
consideration, except where such consideration consists of securities, in which
case the amount of consideration received by the Company will be the Closing
Sale Price of such security on the date of receipt.  If any shares of Common Stock, Options or
Convertible Securities are issued to the owners of the non-surviving entity in
connection with any merger in which the Company is the surviving entity, the
amount of consideration therefor will be deemed to be the fair value of such
portion of the net assets and business of the non-surviving entity as is
attributable to such shares of Common Stock, Options or Convertible Securities,
as the case may be.  The fair value of 

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any
consideration other than cash or securities will be determined jointly by the
Company and the Required Holders.  If
such parties are unable to reach agreement within ten (10) days after the
occurrence of an event requiring valuation (the “Valuation Event”), the fair value of such consideration will
be determined within five (5) Business Days after the tenth day following the
Valuation Event by an independent, reputable appraiser jointly selected by the
Company and the Required Holders.  The
determination of such appraiser shall be final and binding upon all parties
absent manifest error and the fees and expenses of such appraiser shall be
borne by the Company.

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

(b)           Adjustment upon Subdivision or Combination of Common
Stock.  If the Company at any time on
or after the Subscription Date subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its outstanding shares of
Common Stock into a greater number of shares, the Exercise Price in effect
immediately prior to such subdivision will be proportionately reduced and the
number of Warrant Shares will be proportionately increased.  If the Company at any time on or after the
Subscription Date  combines (by
combination, reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the
Exercise Price in effect immediately prior to such combination will be
proportionately increased and the number of Warrant Shares will be
proportionately decreased.  Any
adjustment under this Section 2(b) shall become effective at the close of
business on the date the subdivision or combination becomes effective.

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

3.     RIGHTS UPON DISTRIBUTION
OF ASSETS.  If the Company shall
declare or make any dividend or other distribution of its assets (or rights to acquire
its assets) to 

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holders of shares
of Common Stock, by way of return of capital or otherwise (including, without
limitation, any distribution of cash, stock or other securities, property or
options by way of a dividend, spin off, reclassification, corporate
rearrangement, scheme of arrangement or other similar transaction) (a “Distribution”), at any time after the
issuance of this Warrant, then, in each such case:

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

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

4.     PURCHASE RIGHTS;
FUNDAMENTAL TRANSACTIONS.

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

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(b)           Fundamental
Transactions.  (1)         The
Company shall not enter into or be party to a Fundamental Transaction unless
(x) the Successor Entity assumes in writing all of the obligations of the
Company under this Warrant and the other Transaction Documents in accordance
with the provisions of this Section (4)(b)(1) pursuant to written agreements in
form and substance satisfactory to the Required Holders and approved by the
Required Holders prior to such Fundamental Transaction, including agreements to
deliver to each holder of Warrants
in exchange for such Warrants
a security of the
Successor Entity evidenced by a written instrument substantially similar
in form and substance to this Warrant,
including, without limitation, an adjusted exercise price equal to the value
for the shares of Common Stock reflected by the terms of such Fundamental
Transaction, and exercisable for a corresponding number of shares of capital
stock of the Successor Entity equivalent to the shares of Common Stock
acquirable and receivable upon exercise of this Warrant (without regard to any
limitations on the exercise of this Warrant) prior to such Fundamental
Transaction, and reasonably satisfactory to the Required Holders and (y) the Successor Entity
(including its Parent Entity) is a publicly traded corporation whose
Common Stock is quoted on or listed for trading on an Eligible Market.  Upon
the occurrence of any such Fundamental Transaction, the Successor Entity shall
succeed to, and be substituted for (so that from and after the date of such
Fundamental Transaction, the provisions of this Warrant referring to the “Company”
shall refer instead to the Successor Entity), and may exercise every right and
power of the Company and shall assume all of the obligations of the Company
under this Warrant with the same effect as if such Successor Entity had been
named as the Company herein.  Upon
consummation of such Fundamental Transaction, the Successor Entity shall
deliver to the Holder confirmation that there shall be issued upon exercise of
this Warrant at any time after the consummation of the Fundamental
Transaction, in lieu of the shares of the Common Stock (or other
securities, cash, assets or other property) issuable
upon the exercise of the Warrant
prior to such Fundamental Transaction, such shares of publicly traded Common Stock (or
their equivalent) of the Successor Entity, as adjusted in accordance with the
provisions of this Warrant.  In
addition to and not in substitution for any other rights hereunder, prior to
the consummation of any Fundamental Transaction pursuant to which holders of
shares of Common Stock are entitled to receive securities or other assets with
respect to or in exchange for shares of Common Stock (a “Corporate
Event”), the Company shall make appropriate provision to insure that
the Holder will thereafter have the right to receive upon an exercise of this
Warrant at any time after the consummation of
such Fundamental Transaction but prior to the Expiration Date, in lieu of (x) the shares of the Common Stock (or
other securities, cash, assets or other property) purchasable upon the exercise of the Warrant prior to such Fundamental
Transaction and (y) the Common Stock of the Successor Entity, such shares of stock, securities, cash, assets or
any other property whatsoever (including warrants or other purchase or
subscription rights) which the Holder would have been entitled to receive upon
the happening of such Fundamental Transaction had the Warrant been exercised
immediately prior to such Fundamental Transaction.  Provision made pursuant to the
preceding sentence shall be in a form and substance reasonably satisfactory to
the Required Holders.  The provisions of
this Section shall apply similarly and equally to each such successive Fundamental
Transactions and Corporate Events and shall be applied without regard to any
limitations on the exercise of this Warrant.

(2)           Notwithstanding the provisions of Section 4(b)(1), the
Company shall have the right to require that Holder waive the requirements of
Section 4(b)(1) (the
“Waiver”) in exchange for a
payment of cash in an amount equal to the value of the 

 10
 

 

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

5.     NONCIRCUMVENTION.  The Company hereby covenants and agrees that
the Company will not, by amendment of its Certificate of Incorporation, Bylaws
or through any reorganization, transfer of assets, consolidation, merger,
scheme of arrangement, dissolution, issue or sale of securities, or any other
voluntary action, avoid or seek to avoid the observance or performance of any
of the terms of this Warrant, and will at all times in good faith carry out all
the provisions of this Warrant and take all action as may be required to
protect the rights of the Holder. 
Without limiting the generality of the foregoing, the Company
(i) shall not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the Exercise Price then in
effect, (ii) shall take all such actions as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonassessable shares of Common Stock upon the exercise of this Warrant, and
(iii) shall, so long as any of the SPA Warrants are outstanding, take all
action necessary to reserve and keep available out of its authorized and
unissued shares of Common Stock, solely for the purpose of effecting the
exercise of the SPA Warrants, 130% of the number of shares of Common Stock as
shall from time to time be necessary to effect the exercise of the SPA Warrants
then outstanding (without regard to any limitations on exercise).

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

 11
 

 

Holder with copies of the same notices and other information given to
the shareholders of the Company generally, contemporaneously with the giving
thereof to the shareholders.

7.     REISSUANCE OF WARRANTS.

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

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

(c)           Exchangeable for Multiple Warrants.  This Warrant is exchangeable, upon the
surrender hereof by the Holder at the principal office of the Company, for a
new Warrant or Warrants (in accordance with Section 7(d)) representing in the
aggregate the right to purchase the number of Warrant Shares then underlying
this Warrant, and each such new Warrant will represent the right to purchase such
portion of such Warrant Shares as is designated by the Holder at the time of
such surrender; provided, however, that no Warrants for fractional shares of
Common Stock shall be given.

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

8.             NOTICES.  Whenever notice is required to be given under
this Warrant, unless otherwise provided herein, such notice shall be given in
accordance with Section 9(f) of the Securities Purchase Agreement.  The Company shall provide the Holder with
prompt written notice of all actions taken pursuant to this Warrant, including
in reasonable detail a description of such action and the reason
therefore.  Without limiting the
generality of the foregoing, the Company will give written notice to the Holder
(i) immediately upon any adjustment of the 

 12
 

 

Exercise Price,
setting forth in reasonable detail, and certifying, the calculation of such
adjustment and (ii) at least fifteen days prior to the date on which the
Company closes its books or applicable record date (A) with respect to any
dividend or distribution upon the shares of Common Stock, (B) with respect to
any grants, issuances or sales of any Options, Convertible Securities or rights
to purchase stock, warrants, securities or other property to holders of shares
of Common Stock or (C) for determining rights to vote with respect to any
Fundamental Transaction, dissolution or liquidation, provided in each case that
such information shall be made known to the public prior to or in conjunction
with such notice being provided to the Holder. 
Failure to deliver notice hereunder, or any defect in any notice
hereunder, shall not affect the validity of the corporate actions required to
be described in such notice under this Section 8.

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

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

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

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

 13
 

 

determinations or
calculations.  Such investment bank’s
or accountant’s determination or calculation, as the case may be, shall
be binding upon all parties absent demonstrable error.

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

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

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

(a)           “Approved Stock Plan” means any employee benefit plan
which has been approved by the Board of Directors of the Company, pursuant to
which the Company’s securities and any stock appreciation rights or
similar phantom stock rights may be issued to any employee, officer or director
for services provided to the Company.

(b)           “Bloomberg”
means Bloomberg Financial Markets.

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

(d)           “Closing Bid Price”
and “Closing Sale Price” means, for any
security as of any date, the last closing bid price and last closing trade
price, respectively, for such security on the Principal Market, as reported by
Bloomberg, or, if the Principal Market begins to operate on an extended hours
basis and does not designate the closing bid price or the closing trade price,
as the case may be, then the last bid price or last trade price, respectively,
of such security prior to 4:00:00 p.m., New York time, as reported by
Bloomberg, or, if the Principal Market is not the principal securities exchange
or trading market for such security, the last closing bid price or last trade
price, respectively, of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by
Bloomberg, or if the foregoing do not apply, the last closing bid price or last
trade price, respectively, of such security in the over-the-counter market on
the electronic bulletin board for such security as reported by Bloomberg, or,
if no closing bid price or last trade price, respectively, is reported for such
security by Bloomberg, the average of the bid prices, or the ask prices,
respectively, of any market makers for such security as reported in the “pink
sheets” by Pink Sheets LLC (formerly 

 14
 

 

the National Quotation Bureau, Inc.).  If the Closing Bid Price or the Closing Sale
Price cannot be calculated for a security on a particular date on any of the
foregoing bases, the Closing Bid Price or the Closing Sale Price, as the case
may be, of such security on such date shall be the fair market value as
mutually determined by the Company and the Holder.  If the Company and the Holder are unable to
agree upon the fair market value of such security, then such dispute shall be
resolved pursuant to Section 12.  All
such determinations to be appropriately adjusted for any stock dividend, stock
split, stock combination or other similar transaction during the applicable
calculation period.

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

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

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

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

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

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

(k)           “Fundamental Transaction”
means that the Company shall,
directly or indirectly, in one or more related transactions, (i) consolidate or
merge with or into (whether or not the Company is the surviving corporation)
another Person, or (ii) sell, assign, transfer, convey or otherwise dispose of
all or substantially all of the properties or assets of the Company to another
Person, or (iii) allow another Person to make a purchase, tender or
exchange 

 15
 

 

offer that is accepted by the holders of more
than the 50% of the outstanding shares of Common Stock (not including any shares of Common
Stock held by the Person or Persons making or party to, or associated or
affiliated with the Persons making or party to, such purchase, tender or
exchange offer), or (iv) consummate a stock purchase agreement or other
business combination (including, without limitation, a reorganization,
recapitalization, spin-off or scheme of arrangement) with another Person whereby such other
Person acquires more than the 50% of the outstanding shares of Common
Stock (not including any
shares of Common Stock held by the other Person or other Persons making or
party to, or associated or affiliated with the other Persons making or party
to, such stock purchase agreement or other business combination), or (v) reorganize, recapitalize
or reclassify its Common Stock.

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

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

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

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

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

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

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

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

[Signature
Page Follows]

 16

 

 

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

	
  

  	
  iPARTY CORP.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ SAL PERISANO

  
	
   

  	
  Name:

  	
  Sal Perisano

  
	
   

  	
  Title:

  	
  Chief Executive Officer

  

 

 

 

EXHIBIT A

EXERCISE NOTICE

TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE
THIS

WARRANT TO PURCHASE
COMMON STOCK

iPARTY CORP.

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

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

	
  _____________________

  	
   

  	
  a “Cash Exercise” with respect to
  _________________ Warrant Shares;

  and/or

  
	
   

  	
   

  	
   

  
	
  _____________________

  	
   

  	
  a “Cashless Exercise” with respect to
  _______________ Warrant Shares.

  
	
   

  	
   

  	
   

  

 

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

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

	
  Date: _______________ __, ______

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Name of
  Registered Holder

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  

 

 

ACKNOWLEDGMENT

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

	
  

  	
  iPARTY CORP.

  
	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:Exhibit
10.4

REGISTRATION RIGHTS
AGREEMENT

REGISTRATION RIGHTS
AGREEMENT (this “Agreement”), dated as of September 15,
2006, by and among iParty Corp., a Delaware corporation, with headquarters
located at 270 Bridge Street, Suite 301, Dedham, Massachusetts 02026, (the “Company”),
and the undersigned buyers (each, a “Buyer”, and collectively, the “Buyers”).

WHEREAS:

A.   In
connection with the Securities Purchase Agreement, dated as of September 15,
2006, by and among the Company and the Buyers (the “Securities Purchase Agreement”), the Company has agreed, upon
the terms and subject to the conditions set forth in the Securities Purchase
Agreement, to issue and sell to each Buyer (i) senior subordinated notes of the
Company (the “Notes”) and (ii)
warrants (the “Warrants”), which
will be exercisable to purchase shares of the Company’s common stock, $0.001
par value per share (the “Common Stock”,
as exercised collectively, the “Warrant
Shares”).

B.   In
accordance with the terms of the Securities Purchase Agreement, the Company has
agreed to provide certain registration rights under the Securities Act of 1933,
as amended, and the rules and regulations thereunder, or any similar successor
statute (collectively, the “1933 Act”),
and applicable state securities laws.

NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and each
of the Buyers hereby agree as follows:

1.    Definitions.

Capitalized terms used herein and not otherwise
defined herein shall have the respective meanings set forth in the Securities
Purchase Agreement.  As used in this
Agreement, the following terms shall have the following meanings:

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

b.           “Closing Date”
shall have the meaning set forth in the Securities Purchase Agreement.

c.           “Effective Date”
means the date the Registration Statement has been declared effective by the
SEC.

d.           “Effectiveness Deadline”
means the date which is (i) in the event that the Registration Statement is not
subject to a full review by the SEC, 180 calendar days after the Closing Date
or (ii) in the event that the Registration Statement is subject to a full
review by the SEC, 210 calendar days after the Closing Date.

 

 

e.           “Filing Deadline”
means the date which is 120 calendar days after the Closing Date.

f.            “Investor”
means a Buyer or any transferee or assignee thereof to whom a Buyer assigns its
rights under this Agreement and the Securities Purchase Agreement and who
agrees to become bound by the provisions of this Agreement in accordance with
Section 9 and any transferee or assignee thereof to whom a transferee or
assignee assigns its rights under this Agreement and the Securities Purchase
Agreement and who agrees to become bound by the provisions of this Agreement in
accordance with Section 9.

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

h.           “register,” “registered,” and “registration” refer to a registration
effected by preparing and filing one or more Registration Statements (as
defined below) in compliance with the 1933 Act and pursuant to Rule 415 and the
declaration or ordering of effectiveness of such Registration Statement(s) by
the SEC.

i.            “Registrable Securities”
means (i) the Warrant Shares issued or issuable upon exercise of the
Warrants and (ii) any capital stock of the Company issued or issuable with
respect to the Warrant Shares, or the Warrants as a result of any split,
dividend, recapitalization, exchange or similar event or otherwise, without
regard to any limitations on exercise of the Warrants, but shall not include
any securities issued or transferred pursuant to an effective registration
statement under the 1933 Act or pursuant to Rule 144.

j.            “Registration Statement”
means a registration statement or registration statements of the Company filed
under the 1933 Act covering the Registrable Securities.

k.           “Required Holders”
means the holders of at least a majority of the Registrable Securities.

l.            “Required Registration
Amount” means 130% of the number of Warrant Shares issued and
issuable pursuant to the Warrants as of the trading day immediately preceding
the applicable date of determination, all subject to adjustment as provided in
Section 2(e).

m.          “Rule 415”
means Rule 415 under the 1933 Act or any successor rule providing for offering
securities on a continuous or delayed basis.

n.           “SEC” means
the United States Securities and Exchange Commission.

 2
 

 

2.    Registration.

a.           Mandatory Registration.  The Company shall prepare, and, as soon as
practicable but in no event later than the Filing Deadline, file with the SEC
the Registration Statement on Form S-3 covering the resale of all of the
Registrable Securities.  In the event
that Form S-3 is unavailable for such a registration, the Company shall use
such other form as is available for such a registration on another appropriate
form reasonably acceptable to the Required Holders, subject to the provisions
of Section 2(d).  The Registration Statement
prepared pursuant hereto shall register for resale at least the number of
shares of Common Stock equal to the Required Registration Amount as of date the
Registration Statement is initially filed with the SEC.  The Registration Statement shall contain
(except if otherwise directed by the Required Holders) the “Selling
Stockholders” and “Plan of Distribution” sections in substantially
the form attached hereto as Exhibit B. 
The Company shall use its
best efforts to have the Registration Statement declared effective by the SEC
as soon as practicable, but in no event later than the Effectiveness
Deadline.  By 9:30 am on the date
following the Effective Date, the Company shall file with the SEC in accordance
with Rule 424 under the 1933 Act the final prospectus to be used in connection
with sales pursuant to such Registration Statement.

b.           Allocation of Registrable Securities.  The initial number of Registrable Securities
included in any Registration Statement and any increase in the number of
Registrable Securities included therein shall be allocated pro rata among the
Investors based on the number of Registrable Securities held by each Investor
at the time the Registration Statement covering such initial number of
Registrable Securities or increase thereof is declared effective by the
SEC.  In the event that an Investor sells
or otherwise transfers any of such Investor’s Registrable Securities, each
transferee shall be allocated a pro rata portion of the then remaining number
of Registrable Securities included in such Registration Statement for such
transferor.  Any Shares of Common Stock
included in a Registration Statement and which remain allocated to any Person
which ceases to hold any Registrable Securities covered by such Registration
Statement shall be allocated to the remaining Investors, pro rata based on the
number of Registrable Securities then held by such Investors which are covered
by such Registration Statement.  In no
event shall the Company include any securities other than Registrable Securities
on any Registration Statement without the prior written consent of the Required
Holders.

c.           Legal Counsel. 
Subject to Section 5 hereof, the Required Holders shall have the right
to select one legal counsel to review and oversee any registration pursuant to
this Section 2 (“Legal Counsel”),
which shall be Schulte Roth & Zabel LLP or such other counsel as thereafter
designated by the Required Holders.  The
Company and Legal Counsel shall reasonably cooperate with each other in
performing the Company’s obligations under this Agreement. 

d.           Ineligibility for Form S-3.  In the event that Form S-3 is not  available for the registration of the resale
of Registrable Securities hereunder, the Company shall (i) register the resale
of the Registrable Securities on another appropriate form reasonably acceptable
to the Required Holders and (ii) undertake to register the Registrable
Securities on Form S-3 as soon as such form is available, provided that the
Company shall maintain the effectiveness of the Registration Statement then in
effect until such time as a Registration Statement on Form S-3 covering the
Registrable Securities has been declared effective by the SEC.

 3
 

 

 

e.           Sufficient Number of Shares Registered.  In the event the number of shares available
under a Registration Statement filed pursuant to Section 2(a) is insufficient
to cover all of the Registrable Securities required to be covered by such
Registration Statement or an Investor’s allocated portion of the Registrable
Securities pursuant to Section 2(b), the Company shall amend the applicable
Registration Statement, or file a new Registration Statement (on the short form
available therefor, if applicable), or both, so as to cover at least the
Required Registration Amount as of the trading day immediately preceding the
date of the filing of such amendment or new Registration Statement, in each
case, as soon as practicable, but in any event not later than fifteen (15) days
after the necessity therefor arises.  The
Company shall use its best efforts to cause such amendment and/or new
Registration Statement to become effective as soon as practicable following the
filing thereof.  For purposes of the
foregoing provision, the number of shares available under a Registration
Statement shall be deemed “insufficient to cover all of the Registrable
Securities” if at any time the number of shares of Common Stock available for
resale under the Registration Statement is less than the product determined by
multiplying (i) the Required Registration Amount as of such time by (ii)
0.90.  The calculation set forth in the
foregoing sentence shall be made without regard to any limitations on the
exercise of the Warrants and such calculation shall assume that the Warrants
are then exercisable for shares of Common Stock at the then prevailing Exercise
Price (as defined in the Warrants).

f.            Effect of Failure to File and Obtain and Maintain
Effectiveness of Registration Statement. 
If (i) a Registration Statement covering all of the Registrable
Securities required to be covered thereby and required to be filed by the
Company pursuant to this Agreement is (A) not filed with the SEC on or before
the respective Filing Deadline (a “Filing
Failure”) or (B) not declared effective by the SEC on or before the
respective Effectiveness Deadline (an “Effectiveness
Failure”) or (ii) on any day after the Effective Date sales of all
of the Registrable Securities required to be included on such Registration
Statement cannot be made (other than during an Allowable Grace Period (as
defined in Section 3(r)) pursuant to such Registration Statement or otherwise
(including, without limitation, because of a failure to keep such Registration
Statement effective, to disclose such information as is necessary for sales to
be made pursuant to such Registration Statement, to register a sufficient
number of shares of Common Stock or to maintain the listing of the Common
Stock) (a “Maintenance Failure”)
then, as partial relief for the damages to any holder by reason of any such
delay in or reduction of its ability to sell the underlying Shares of Common
Stock (which remedy shall not be exclusive of any other remedies available at
law or in equity), the Company shall pay to each holder of Registrable
Securities relating to such Registration Statement an amount in cash equal to
one percent (1.0%) of the aggregate Purchase Price (as such term is defined in
the Securities Purchase Agreement) of such Investor’s Notes relating to the
Registrable Securities included in such Registration Statement on each of the
following dates: (i) the day of a Filing Failure; (ii) the day of an
Effectiveness Failure; (iii) the initial day of a Maintenance Failure; (iv) on
every thirtieth day after the day of a Filing Failure and thereafter (pro rated
for periods totaling less than thirty days) until such Filing Failure is cured;
(v) on every thirtieth day after the day of an Effectiveness Failure and
thereafter (pro rated for periods totaling less than thirty days) until such
Effectiveness Failure is cured; and (vi) on every thirtieth day after the
initial day of a Maintenance Failure and thereafter (pro rated for periods
totaling less than thirty days) until such Maintenance Failure is cured.  Payments under this Section 2(f) are not
cumulative, and any payment in respect of a Filing Failure, an Effectiveness
Failure, or a Maintenance Failure, as the 

 4
 

 

case may be, shall
preclude any other such payment.  The
payments to which a holder shall be entitled pursuant to this Section 2(f) are
referred to herein as “Registration Delay
Payments.”  Registration Delay
Payments shall be paid on the earlier of (I) the dates set forth above and (II)
the third Business Day after the event or failure giving rise to the
Registration Delay Payments is cured.  In
the event the Company fails to make Registration Delay Payments in a timely
manner, such Registration Delay Payments shall bear interest at the rate of one
percent (1.0%) per month (prorated for partial months) until paid in full.  Notwithstanding anything herein or in the Securities Purchase Agreement
to the contrary, (i) no Registration Delay Payments shall be due and payable
with respect to the Warrants or the Warrant Shares and (ii) in no event shall
the aggregate amount of Registration Delay Payments (other than Registration
Delay Payments payable pursuant to events that are within the control of the
Company) exceed, in the aggregate, 10% of the aggregate Purchase Price of the
Notes.

3.    Related
Obligations.

At such time as the Company is obligated to file a
Registration Statement with the SEC pursuant to Section 2(a), 2(d) or 2(e), the
Company will use its best efforts to effect the registration of the Registrable
Securities in accordance with the intended method of disposition thereof and,
pursuant thereto, the Company shall have the following obligations:

a.           The Company shall submit to the SEC, within two (2)
Business Days after the Company learns that no review of a particular
Registration Statement will be made by the staff of the SEC or that the staff
has no further comments on a particular Registration Statement, as the case may
be, a request for acceleration of effectiveness of such Registration Statement
to a time and date not later than 48 hours after the submission of such
request.  The Company shall keep each
Registration Statement effective pursuant to Rule 415 at all times until the
earlier of (i) the date as of which the Investors may sell all of the
Registrable Securities covered by such Registration Statement without
restriction pursuant to Rule 144(k) (or any successor thereto) promulgated under
the 1933 Act or (ii) the date on which the Investors shall have sold all of the
Registrable Securities covered by such Registration Statement (the “Registration Period”).  Except with respect to information provided
to it by any Buyer, the Company shall ensure that all of the information and
reports by the Company with respect to each Registration Statement (including
any amendments or supplements thereto and prospectuses contained therein) shall
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein, or necessary to make the statements therein
(in the case of prospectuses, in the light of the circumstances in which they
were made) not misleading.

b.           The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to a
Registration Statement and the prospectus used in connection with such
Registration Statement, which prospectus is to be filed pursuant to Rule 424
promulgated under the 1933 Act, as may be necessary to keep such Registration
Statement effective at all times during the Registration Period, and, during
such period, comply with the provisions of the 1933 Act with respect to the
disposition of all Registrable Securities of the Company covered by such
Registration Statement until such time as all of such Registrable Securities
shall have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof as set forth in such Registration
Statement.  In the case of amendments and
supplements to a Registration Statement which are required to be 

 5
 

 

filed pursuant to this
Agreement (including pursuant to this Section 3(b)) by reason of the Company
filing a report on Form 10-Q, Form 10-K or any analogous report under the
Securities Exchange Act of 1934, as amended (the “1934 Act”), the Company shall have incorporated such report by
reference into such Registration Statement, if applicable, or shall file such
amendments or supplements with the SEC on the same day on which the 1934 Act
report is filed which created the requirement for the Company to amend or
supplement such Registration Statement.

c.           The Company shall (A) permit Legal Counsel to review and
comment upon (i) a Registration Statement at least five (5) Business Days prior
to its filing with the SEC and (ii) all amendments and supplements to all
Registration Statements (except for Annual Reports on Form 10-K, and Reports on
Form 10-Q or Form 8-K and any similar or successor reports) within a reasonable
number of days prior to their filing with the SEC, and (B) not file any
Registration Statement or amendment or supplement thereto in a form to which
Legal Counsel reasonably objects.  The
Company shall not submit a request for acceleration of the effectiveness of a
Registration Statement or any amendment or supplement thereto without the prior
approval of Legal Counsel, which consent shall not be unreasonably withheld or
delayed.  The Company shall furnish to Legal
Counsel, without charge, (i) copies of any correspondence from the SEC or the
staff of the SEC to the Company or its representatives relating to any
Registration Statement, (ii) promptly after the same is prepared and filed with
the SEC, one copy of any Registration Statement and any amendment(s) thereto,
including financial statements and schedules, all documents incorporated
therein by reference, if requested by an Investor, and all exhibits and (iii)
upon the effectiveness of any Registration Statement, one copy of the
prospectus included in such Registration Statement and all amendments and
supplements thereto.  The Company shall
reasonably cooperate with Legal Counsel in performing the Company’s obligations
pursuant to this Section 3.

d.           The Company shall furnish to each Investor whose Registrable
Securities are included in any Registration Statement, without charge,  (i) promptly after the same is prepared and
filed with the SEC, at least one copy of such Registration Statement and any
amendment(s) thereto, including financial statements and schedules, all
documents incorporated therein by reference, if requested by an Investor, all
exhibits and each preliminary prospectus, (ii) upon the effectiveness of any
Registration Statement, ten (10) copies of the prospectus included in such
Registration Statement and all amendments and supplements thereto (or such
other number of copies as such Investor may reasonably request) and (iii) such
other documents, including copies of any preliminary or final prospectus, as
such Investor may reasonably request from time to time in order to facilitate
the disposition of the Registrable Securities owned by such Investor.

e.           The Company shall use its best efforts to (i) register and
qualify, unless an exemption from registration and qualification applies, the resale
by Investors of the Registrable Securities covered by a Registration Statement
under such other securities or “blue sky” laws of all applicable jurisdictions
in the United States, (ii) prepare and file in those jurisdictions, such
amendments (including post-effective amendments) and supplements to such
registrations and qualifications as may be necessary to maintain the
effectiveness thereof during the Registration Period, (iii) take such other
actions as may be necessary to maintain such registrations and qualifications
in effect at all times during the Registration Period, and (iv) take all other
actions reasonably necessary or advisable to qualify the Registrable Securities
for sale 

 6
 

 

in such jurisdictions;
provided, however, that the Company shall not be required in connection
therewith or as a condition thereto to (x) qualify to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 3(e), (y) subject itself to general taxation in any such jurisdiction,
or (z) file a general consent to service of process in any such
jurisdiction.  The Company shall promptly
notify Legal Counsel and each Investor who holds Registrable Securities of the
receipt by the Company of any notification with respect to the suspension of
the registration or qualification of any of the Registrable Securities for sale
under the securities or “blue sky” laws of any jurisdiction in the United
States or its receipt of notice of the initiation or threatening of any
proceeding for such purpose.

f.            The Company shall notify Legal Counsel and each Investor
in writing of the happening of any event, as promptly as practicable after
becoming aware of such event, as a result of which the prospectus included in a
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omission to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading (provided that in no
event shall such notice contain any material, nonpublic information), and,
subject to Section 3(r), promptly prepare a supplement or amendment to such
Registration Statement to correct such untrue statement or omission, and
deliver ten (10) copies of such supplement or amendment to Legal Counsel and
each Investor (or such other number of copies as Legal Counsel or such Investor
may reasonably request).  The Company
shall also promptly notify Legal Counsel and each Investor in writing (i) when a
prospectus or any prospectus supplement or post-effective amendment has been
filed, and when a Registration Statement or any post-effective amendment has
become effective (notification of such effectiveness shall be delivered to
Legal Counsel and each Investor by facsimile or e-mail on the same day of such
effectiveness and by overnight mail), (ii) of any request by the SEC for
amendments or supplements to a Registration Statement or related prospectus or
related information, and (iii) of the Company’s reasonable determination that a
post-effective amendment to a Registration Statement would be appropriate.

g.           The Company shall use its best efforts to prevent the
issuance of any stop order or other suspension of effectiveness of a
Registration Statement, or the suspension of the qualification of any of the
Registrable Securities for sale in any jurisdiction and, if such an order or
suspension is issued, to obtain the withdrawal of such order or suspension at
the earliest possible moment and to notify Legal Counsel and each Investor who
holds Registrable Securities being sold of the issuance of such order and the
resolution thereof or its receipt of notice of the initiation or threat of any
proceeding for such purpose.

h.           If any Investor is required to be described in the
Registration Statement as an underwriter, then at the reasonable request of
such Investor, the Company shall furnish to such Investor, on the date of the
effectiveness of the Registration Statement and thereafter from time to time on
such dates as an Investor may reasonably request (i) a letter, dated such date,
from the Company’s independent certified public accountants in form and
substance as is customarily given by independent certified public accountants
to underwriters in an underwritten public offering, addressed to the Investors,
and (ii) an opinion, dated as of such date, of counsel representing the Company
for purposes of such Registration Statement, in form, scope and substance as is
customarily given in an underwritten public offering, addressed to the
Investors.

 

 7

 

i.            If any Investor is
required to be described in the Registration Statement as an underwriter, then
at the reasonable request of such Investor, the Company shall make available
for inspection by (i) such Investor, (ii) Legal Counsel and (iii) one firm of accountants
or other agents retained by the Investors (collectively, the “Inspectors”), all pertinent financial and other records, and
pertinent corporate documents and properties of the Company (collectively, the “Records”), as shall be reasonably deemed necessary by each
Inspector, and cause the Company’s officers, directors and employees to supply
all information which any Inspector may reasonably request; provided, however,
that each Inspector shall agree to hold in strict confidence and shall not make
any disclosure (except to an Investor) or use of any Record or other
information which the Company determines in good faith to be confidential, and
of which determination the Inspectors are so notified, unless (a) the
disclosure of such Records is necessary to avoid or correct a misstatement or
omission in any Registration Statement or is otherwise required under the 1933
Act, (b) the release of such Records is ordered pursuant to a final,
non-appealable subpoena or order from a court or government body of competent
jurisdiction, or (c) the information in such Records has been made generally
available to the public other than by disclosure in violation of this
Agreement.  Each Investor agrees that it
shall, upon learning that disclosure of such Records is sought in or by a court
or governmental body of competent jurisdiction or through other means, give
prompt notice to the Company and allow the Company, at its expense, to
undertake appropriate action to prevent disclosure of, or to obtain a
protective order for, the Records deemed confidential.  Nothing herein (or in any other
confidentiality agreement between the Company and any Investor) shall be deemed
to limit the Investors’ ability to sell Registrable Securities in a manner
which is otherwise consistent with applicable laws and regulations.

j.            The Company shall
hold in confidence and not make any disclosure of information concerning an
Investor provided to the Company unless (i) disclosure of such information is
necessary to comply with any applicable laws, rules or regulations, (ii) the
disclosure of such information is necessary to avoid or correct a misstatement
or omission in any Registration Statement, (iii) the release of such
information is ordered pursuant to a subpoena or other final, non-appealable
order from a court or governmental body of competent jurisdiction, or (iv) such
information has been made generally available to the public other than by
disclosure in violation of this Agreement or any other agreement.  The Company agrees that it shall, upon
learning that disclosure of such information concerning an Investor is sought
in or by a court or governmental body of competent jurisdiction or through
other means, give prompt written notice to such Investor and allow such
Investor, at the Investor’s expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, such information.

k.           The Company shall use
its best efforts either to (i) cause all of the Registrable Securities covered
by a Registration Statement to be listed on each securities exchange on which
securities of the same class or series issued by the Company are then listed,
if any, if the listing of such Registrable Securities is then permitted under
the rules of such exchange or (ii) secure the inclusion for quotation of all of
the Registrable Securities on the American Stock Exchange.  The Company shall pay all fees and expenses
in connection with satisfying its obligation under this Section 3(k).

 8
 

 

 

l.            The Company shall
cooperate with the Investors who hold Registrable Securities being offered and,
to the extent applicable, facilitate the timely preparation and delivery of
certificates (not bearing any restrictive legend) representing the Registrable
Securities to be offered pursuant to a Registration Statement and enable such
certificates to be in such denominations or amounts, as the case may be, as the
Investors may reasonably request and, subject to applicable laws, rules and
regulations, registered in such names as the Investors may request.

m.          If requested by an
Investor, the Company shall (i) as soon as practicable incorporate in a
prospectus supplement or post-effective amendment such information as an
Investor reasonably requests to be included therein relating to the sale and
distribution of Registrable Securities, including, without limitation,
information with respect to the number of Registrable Securities being offered
or sold, the purchase price being paid therefor and any other terms of the
offering of the Registrable Securities to be sold in such offering; (ii) as
soon as practicable make all required filings of such prospectus supplement or
post-effective amendment after being notified of the matters to be incorporated
in such prospectus supplement or post-effective amendment; and (iii) as soon as
practicable, supplement or make amendments to any Registration Statement if
reasonably requested by an Investor holding any Registrable Securities.

n.           The Company shall use
its best efforts to cause the Registrable Securities covered by a Registration
Statement to be registered with or approved by such other governmental agencies
or authorities as may be necessary to consummate the disposition of such
Registrable Securities.

o.           The Company shall
make generally available to its security holders as soon as practical, but not
later than ninety (90) days after the close of the period covered thereby, an
earnings statement (in form complying with, and in the manner provided by, the
provisions of Rule 158 under the 1933 Act) covering a twelve-month period
beginning not later than the first day of the Company’s fiscal quarter next
following the effective date of a Registration Statement.

p.           The Company shall
otherwise use its best efforts to comply with all applicable rules and
regulations of the SEC in connection with any registration hereunder.

q.           Within two (2)
Business Days after a Registration Statement which covers Registrable
Securities is ordered effective by the SEC, the Company shall deliver, and
shall cause legal counsel for the Company to deliver, to the transfer agent for
such Registrable Securities (with copies to the Investors whose Registrable
Securities are included in such Registration Statement) confirmation that such
Registration Statement has been declared effective by the SEC in the form
attached hereto as Exhibit A.

r.            Notwithstanding
anything to the contrary herein, at any time after the Effective Date, the
Company may delay the disclosure of material, non-public information concerning
the Company the disclosure of which at the time is not, in the good faith
opinion of the Board of Directors of the Company and its counsel, in the best
interest of the Company and, in the opinion of counsel to the Company otherwise
required (a “Grace Period”);
provided, that the Company shall promptly (i) notify the Investors in writing
of the existence of material, non-public information giving rise to a Grace
Period (provided that in each notice the Company will 

 9
 

 

not disclose
the content of such material, non-public information to the Investors) and the
date on which the Grace Period will begin, and (ii) notify the Investors in
writing of the date on which the Grace Period ends; and, provided further, that
no Grace Period shall exceed fifteen (15) consecutive days and during any three
hundred sixty five (365) day period such Grace Periods shall not exceed an
aggregate of forty-five (45) days and the first day of any Grace Period must be
at least two (2) trading days after the last day of any prior Grace Period
(each, an “Allowable Grace Period”).  For purposes of determining the length of a
Grace Period above, the Grace Period shall begin on and include the date the
Investors receive the notice referred to in clause (i) and shall end on and
include the later of the date the Investors receive the notice referred to in
clause (ii) and the date referred to in such notice.  The provisions of Section 3(g) hereof shall
not be applicable during the period of any Allowable Grace Period.  Upon expiration of the Grace Period, the
Company shall again be bound by the first sentence of Section 3(f) with respect
to the information giving rise thereto unless such material, non-public
information is no longer applicable. 
Notwithstanding anything to the contrary, subject to any laws, rules,
regulations or stock exchange requirements, the Company shall cause its
transfer agent to deliver unlegended shares of Common Stock to a transferee of
an Investor in accordance with the terms of the Securities Purchase Agreement
in connection with any sale of Registrable Securities with respect to which an
Investor has entered into a contract for sale prior to the Investor’s receipt
of the notice of a Grace Period and for which the Investor has not yet settled.

4.    Obligations
of the Investors.

a.           At least five (5)
Business Days prior to the first anticipated filing date of a Registration
Statement, the Company shall notify each Investor in writing of the information
the Company requires from each such Investor if such Investor elects to have
any of such Investor’s Registrable Securities included in such Registration
Statement.  It shall be a condition
precedent to the obligations of the Company to complete the registration
pursuant to this Agreement with respect to the Registrable Securities of a particular
Investor that such Investor shall furnish to the Company such information
regarding itself, the Registrable Securities held by it and the intended method
of disposition of the Registrable Securities held by it as shall be reasonably
required to effect the effectiveness of the registration of such Registrable
Securities and shall execute such documents in connection with such
registration as the Company may reasonably request.

b.           Each Investor, by
such Investor’s acceptance of the Registrable Securities, agrees to cooperate
with the Company as reasonably requested by the Company in connection with the
preparation and filing of any Registration Statement hereunder, unless such
Investor has notified the Company in writing of such Investor’s election to
exclude all of such Investor’s Registrable Securities from such Registration
Statement.

c.           Each Investor agrees
that, upon receipt of any notice from the Company of the happening of any event
of the kind described in Section 3(g) or the first sentence of 3(f) or Section
3(r), such Investor will immediately discontinue disposition of Registrable
Securities pursuant to any Registration Statement(s) covering such Registrable
Securities until such Investor’s receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(g) or the first sentence of 3(f)
or receipt of notice that no supplement or amendment is required.  Notwithstanding anything to the contrary, the
Company shall, subject 

 10
 

 

to any laws,
rules, regulations or stock exchnage requirements, cause its transfer agent to
deliver unlegended Shares of Common Stock to a transferee of an Investor in
accordance with the terms of the Securities Purchase Agreement in connection
with any sale of Registrable Securities with respect to which an Investor has
entered into a contract for sale prior to the Investor’s receipt of a notice
from the Company of the happening of any event of the kind described in Section
3(g) or the first sentence of 3(f) or Section 3(r) and for which the Investor
has not yet settled.

d.           Each Investor covenants
and agrees that it will comply with the prospectus delivery requirements of the
1933 Act as applicable to it or an exemption therefrom in connection with sales
of Registrable Securities pursuant to the Registration Statement.

5.    Expenses
of Registration.

All reasonable expenses, other than underwriting
discounts and commissions, incurred in connection with registrations, filings
or qualifications pursuant to Sections 2 and 3, including, without limitation,
all registration, listing and qualifications fees, printers and accounting
fees, and fees and disbursements of counsel for the Company shall be paid by
the Company.  The Company shall also
reimburse the Investors for the fees and disbursements of Legal Counsel in
connection with registration, filing or qualification pursuant to Sections 2
and 3 of this Agreement which amount shall be limited to $2,500.

6.    Indemnification.

In the event any Registrable Securities are included
in a Registration Statement under this Agreement:

a.           To the fullest extent
permitted by law, the Company will, and hereby does, indemnify, hold harmless
and defend each Investor, the directors, officers, members, partners,
employees, agents, representatives of, and each Person, if any, who controls
any Investor within the meaning of the 1933 Act or the 1934 Act (each, an “Indemnified Person”), against any losses, claims, damages,
liabilities, judgments, fines, penalties, charges, costs, reasonable attorneys’
fees, amounts paid in settlement or expenses, joint or several, (collectively, “Claims”) incurred in investigating, preparing or defending
any action, claim, suit, inquiry, proceeding, investigation or appeal taken
from the foregoing by or before any court or governmental, administrative or
other regulatory agency, body or the SEC, whether pending or threatened,
whether or not an indemnified party is or may be a party thereto (“Indemnified Damages”), to which any of them may become
subject insofar as such Claims (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon:  (i) any untrue statement or alleged untrue
statement of a material fact in a Registration Statement or any post-effective
amendment thereto or in any filing made in connection with the qualification of
the offering under the securities or other “blue sky” laws of any jurisdiction
in which Registrable Securities are offered (“Blue Sky
Filing”), or the omission or alleged 

 11
 

 

omission to
state a material fact required to be stated therein or necessary to make the statements
therein not misleading, (ii) any untrue statement or alleged untrue statement
of a material fact contained in any preliminary prospectus if used prior to the
effective date of such Registration Statement, or contained in the final
prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the omission or alleged omission
to state therein any material fact necessary to make the statements made
therein, in the light of the circumstances under which the statements therein
were made, not misleading, (iii) any violation or alleged violation by the
Company of the 1933 Act, the 1934 Act, any other law, including, without
limitation, any state securities law, or any rule or regulation thereunder
relating to the offer or sale of the Registrable Securities pursuant to a
Registration Statement or (iv) any violation by the Company of this Agreement
(the matters in the foregoing clauses (i) through (iv) being, collectively, “Violations”).  Subject
to Section 6(c), the Company shall reimburse the Indemnified Persons, promptly
as such expenses are incurred and are due and payable, for any legal fees or
other reasonable expenses incurred by them in connection with investigating or
defending any such Claim. 
Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(a):  (i) shall not apply to a Claim by an
Indemnified Person arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in writing to the
Company by such Indemnified Person for such Indemnified Person expressly for
use in connection with the preparation of the Registration Statement or any
such amendment thereof or supplement thereto, if such prospectus was timely
made available by the Company pursuant to Section 3(d); (ii) shall not be
available to the extent such Claim is based on a failure of the Investor to
deliver or to cause to be delivered the prospectus made available by the Company,
including a corrected prospectus, if such prospectus or corrected prospectus
was timely made available by the Company pursuant to Section 3(d); and (iii)
shall not apply to amounts paid in settlement of any Claim if such settlement
is effected without the prior written consent of the Company, which consent
shall not be unreasonably withheld or delayed. 
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Indemnified Person and shall survive
the transfer of the Registrable Securities by the Investors pursuant to Section
9.

b.           In connection with
any Registration Statement in which an Investor is participating, each such
Investor agrees to severally and not jointly indemnify, hold harmless and
defend, to the same extent and in the same manner as is set forth in Section
6(a), the Company, each of its directors, each of its officers who signs the
Registration Statement and each Person, if any, who controls the Company within
the meaning of the 1933 Act or the 1934 Act (each, an “Indemnified Party”), against any Claim or Indemnified
Damages to which any of them may become subject, under the 1933 Act, the 1934
Act or otherwise, insofar as such Claim or Indemnified Damages arise out of or
are based upon any Violation, in each case to the extent, and only to the
extent, that such Violation occurs in reliance upon and in conformity with
written information furnished to the Company by such Investor expressly for use
in connection with such Registration Statement; and, subject to Section 6(c),
such Investor will reimburse any legal or other expenses reasonably incurred by
an Indemnified Party in connection with investigating or defending any such
Claim; provided, however, that the indemnity agreement contained in this
Section 6(b) and the agreement with respect to contribution contained in
Section 7 shall not apply to amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of such Investor,
which consent shall not be unreasonably withheld or delayed; provided, further,
however, that the Investor shall be liable under this Section 6(b) for only
that amount of a Claim or Indemnified Damages as does not exceed the net
proceeds to such Investor as a result of the sale of Registrable Securities
pursuant to such Registration Statement. 
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such Indemnified Party and shall survive
the transfer of the Registrable Securities by the Investors pursuant to Section
9.

 12
 

 

 

c.           Promptly after
receipt by an Indemnified Person or Indemnified Party under this Section 6 of
notice of the commencement of any action or proceeding (including any
governmental action or proceeding) involving a Claim, such Indemnified Person
or Indemnified Party shall, if a Claim in respect thereof is to be made against
any indemnifying party under this Section 6, deliver to the indemnifying party
a written notice of the commencement thereof, and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the indemnifying
party and the Indemnified Person or the Indemnified Party, as the case may be;
provided, however, that an Indemnified Person or Indemnified Party shall have
the right to retain its own counsel with the fees and expenses of not more than
one counsel for such Indemnified Person or Indemnified Party to be paid by the
indemnifying party, if, in the reasonable opinion of counsel retained by the
indemnifying party, the representation by such counsel of the Indemnified
Person or Indemnified Party and the indemnifying party would be inappropriate
due to actual or potential differing interests between such Indemnified Person
or Indemnified Party and any other party represented by such counsel in such
proceeding.  In the case of an
Indemnified Person, legal counsel referred to in the immediately preceding
sentence shall be selected by the Investors holding at least a majority in interest of the Registrable Securities included in the
Registration Statement to which the Claim relates.  The Indemnified Party or Indemnified Person
shall cooperate fully with the indemnifying party in connection with any
negotiation or defense of any such action or Claim by the indemnifying party
and shall furnish to the indemnifying party all information reasonably
available to the Indemnified Party or Indemnified Person which relates to such
action or Claim.  The indemnifying party
shall keep the Indemnified Party or Indemnified Person reasonably apprised at
all times as to the status of the defense or any settlement negotiations with
respect thereto.  No indemnifying party
shall be liable for any settlement of any action, claim or proceeding effected
without its prior written consent, provided, however, that the indemnifying
party shall not unreasonably withhold, delay or condition its consent.  No indemnifying party shall, without the
prior written consent of the Indemnified Party or Indemnified Person, consent
to entry of any judgment or enter into any settlement or other compromise which
does not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party or Indemnified Person of a release from all
liability in respect to such Claim or litigation, and such settlement shall not
include any admission as to fault on the part of the Indemnified Party.  Following indemnification as provided for
hereunder, the indemnifying party shall be subrogated to all rights of the
Indemnified Party or Indemnified Person with respect to all third parties,
firms or corporations relating to the matter for which indemnification has been
made.  The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement
of any such action shall not relieve such indemnifying party of any liability
to the Indemnified Person or Indemnified Party under this Section 6, except to
the extent that the indemnifying party is prejudiced in its ability to defend
such action.

d.           The indemnification
required by this Section 6 shall be made by periodic payments of the amount
thereof during the course of the investigation or defense, as and when bills
are received or Indemnified Damages are incurred.

 13
 

 

 

e.           The indemnity
agreements contained herein shall be in addition to  (i) any cause of action or similar right of
the Indemnified Party or Indemnified Person against the indemnifying party or
others, and (ii) any liabilities the indemnifying party may be subject to
pursuant to the law.

7.    Contribution.

To the extent any indemnification by an indemnifying
party is prohibited or limited by law, the indemnifying party agrees to make
the maximum contribution with respect to any amounts for which it would
otherwise be liable under Section 6 to the fullest extent permitted by law;
provided, however, that:  (i) no Person
involved in the sale of Registrable Securities which Person is guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933
Act) in connection with such sale shall be entitled to contribution from any
Person involved in such sale of Registrable Securities who was not guilty of
fraudulent misrepresentation; and (ii) contribution by any seller of
Registrable Securities shall be limited in amount to the net amount of proceeds
received by such seller from the sale of such Registrable Securities pursuant
to such Registration Statement.

8.    Reports
Under the 1934 Act.

With a view to making available to the Investors the
benefits of Rule 144 promulgated under the 1933 Act or any other similar rule
or regulation of the SEC that may at any time permit the Investors to sell securities
of the Company to the public without registration (“Rule 144”), the Company agrees to:

a.           make and keep public
information available, as those terms are understood and defined in Rule 144;

b.           file with the SEC in
a timely manner all reports and other documents required of the Company under
the 1933 Act and the 1934 Act so long as the Company remains subject to such
requirements and the filing of such reports and other documents is required for
the applicable provisions of Rule 144; and

c.           furnish to each
Investor so long as such Investor owns Registrable Securities, promptly upon
request, (i) a written statement by the Company, if true, that it has complied
with the reporting requirements of Rule 144, the 1933 Act and the 1934 Act,
(ii) a copy of the most recent annual report of the Company and such other
reports and documents so filed by the Company, and (iii) such other information
as may be reasonably requested to permit the Investors to sell such securities
pursuant to Rule 144 without registration.

9.    Assignment
of Registration Rights.

The rights under this Agreement shall be automatically
assignable by the Investors to any transferee of all or any portion of such
Investor’s Registrable Securities if: 
(i) the Investor agrees in writing with the transferee or assignee to
assign such rights, and a copy of such agreement is furnished to the Company
within a reasonable time after such assignment; (ii) the Company is, within a
reasonable time after such transfer or assignment, furnished with written notice
of (a) the name and address of such transferee or assignee, and (b) the
securities with respect to which such registration rights are being transferred
or assigned; (iii) immediately following such transfer or assignment the
further disposition of such securities by the transferee 

 14
 

 

or assignee is restricted
under the 1933 Act or applicable state securities laws; (iv) at or before the
time the Company receives the written notice contemplated by clause (ii) of
this sentence the transferee or assignee agrees in writing with the Company to
be bound by all of the provisions contained herein; and (v) such transfer shall
have been made in accordance with the applicable requirements and limits of the
Securities Purchase Agreement and any applicable law, rule, regulation, and
stock exchange requirement.

10.  Amendment
of Registration Rights.

Provisions of this Agreement may be amended and the
observance thereof may be waived (either generally or in a particular instance
and either retroactively or prospectively), only with the written consent of
the Company and the Required Holders. 
Any amendment or waiver effected in accordance with this Section 10
shall be binding upon each Investor and the Company.  No such amendment shall be effective to the
extent that it applies to less than all of the holders of the Registrable
Securities.  No consideration shall be
offered or paid to any Person to amend or consent to a waiver or modification
of any provision of any of this Agreement unless the same consideration also is
offered to all of the parties to this Agreement.

11.  Miscellaneous.

a.           A Person is deemed to
be a holder of Registrable Securities whenever such Person owns or is deemed to
own of record such Registrable Securities. 
If the Company receives conflicting instructions, notices or elections
from two or more Persons with respect to the same Registrable Securities, the
Company shall act upon the basis of instructions, notice or election received
from the such record owner of such Registrable Securities.

b.           Any notices,
consents, waivers or other communications required or permitted to be given
under the terms of this Agreement must be in writing and will be deemed to have
been delivered:  (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one Business Day after deposit
with a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. 
The addresses and facsimile numbers for such communications shall be:

If to the Company:

            iParty Corp.

270 Bridge Street, Suite 301

Dedham, Massachusetts 02026

	
  Telephone:

  	
  (781) 329-3952

  
	
  Facsimile:

  	
  (781) 326-7143

  
	
  Attention:

  	
  Sal Perisano, CEO

  

 

 15
 

 

With a copy to:

            Posternak Blankstein & Lund LLP

Prudential Tower 

800 Boylston Street 

Boston, Massachusetts 02199-8004

	
  Telephone:

  	
  (617) 973-6100

  
	
  Facsimile:

  	
  (617) 367-2315

  
	
  Attention:

  	
  Donald H. Siegel, P.C.

  

 

If to Legal Counsel:

            Schulte Roth & Zabel LLP 

919 Third Avenue

New York, New York  10022

	
  Telephone:

  	
  (212) 756-2000

  
	
  Facsimile:

  	
  (212) 593-5955

  
	
  Attention:

  	
  Eleazer N. Klein, Esq.

  

 

If to a Buyer, to its
address and facsimile number set forth on the Schedule of Buyers attached
hereto, with copies to such Buyer’s representatives as set forth on the
Schedule of Buyers, or to such other address and/or facsimile number and/or to
the attention of such other Person as the recipient party has specified by
written notice given to each other party five (5) days prior to the
effectiveness of such change.  Written
confirmation of receipt (A) given by the recipient of such notice, consent,
waiver or other communication, (B) mechanically or electronically generated by
the sender’s facsimile machine containing the time, date, recipient facsimile
number and an image of the first page of such transmission or (C) provided by a
courier or overnight courier service shall be rebuttable evidence of personal
service, receipt by facsimile or receipt from a nationally recognized overnight
delivery service in accordance with clause (i), (ii) or (iii) above,
respectively. 

c.                Failure of any party to exercise
any right or remedy under this Agreement or otherwise, or delay by a party in
exercising such right or remedy, shall not operate as a waiver thereof. 

d.               All questions
concerning the construction, validity, enforcement and interpretation of this
Agreement shall be governed by the internal laws of the State of New York,
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of New York or any other jurisdictions) that would cause
the application of the laws of any jurisdictions other than the State of New
York.  Each party hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting
in The City of New York, Borough of Manhattan, for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein, and hereby irrevocably waives, and agrees not to assert in
any suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of any such court, that such suit, action or proceeding is
brought in an inconvenient forum or that the venue of such suit, action or
proceeding is improper.  Each party
hereby irrevocably waives personal service of process and consents to process
being served in any such suit, action or proceeding by mailing a copy thereof
to such party at the address for such notices to it under this Agreement and
agrees that such service shall constitute good and sufficient 

 16
 

 

 

service of
process and notice thereof.  Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law.  If any
provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement in that jurisdiction or
the validity or enforceability of any provision of this Agreement in any other
jurisdiction.  EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES
NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR
IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION
CONTEMPLATED HEREBY.

e.                This Agreement,
the other Transaction Documents (as defined in the Securities Purchase
Agreement) and the instruments referenced herein and therein constitute the
entire agreement among the parties hereto with respect to the subject matter
hereof and thereof.  There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein and therein.  This
Agreement, the other Transaction Documents and the instruments referenced
herein and therein supersede all prior agreements and understandings among the
parties hereto with respect to the subject matter hereof and thereof.

f.                                Subject to the requirements of
Section 9, this Agreement shall inure to the benefit of and be binding upon the
permitted successors and assigns of each of the parties hereto.

g.               The headings in
this Agreement are for convenience of reference only and shall not limit or
otherwise affect the meaning hereof.

h.               This Agreement
may be executed in identical counterparts, each of which shall be deemed an
original but all of which shall constitute one and the same agreement.  This Agreement, once executed by a party, may
be delivered to the other party hereto by facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.

i.                 Each party shall do and perform, or cause to be done
and performed, all such further acts and things, and shall execute and deliver
all such other agreements, certificates, instruments and documents, as any
other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.

j.                 All consents and other determinations required to be
made by the Investors pursuant to this Agreement shall be made, unless
otherwise specified in this Agreement, by the Required Holders.

k.                The language
used in this Agreement will be deemed to be the language chosen by the parties
to express their mutual intent and no rules of strict construction will be
applied against any party.

 17
 

 

 

l.                 This Agreement is intended for the benefit of the
parties hereto and their respective permitted successors and assigns, and is
not for the benefit of, nor may any provision hereof be enforced by, any other
Person.

m.               The obligations
of each Buyer hereunder are several and not joint with the obligations of any
other Buyer, and no provision of this Agreement is intended to confer any
obligations on any Buyer vis-à-vis any other Buyer.  Nothing contained herein, and no action taken
by any Buyer pursuant hereto, shall be deemed to constitute the Buyers as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Buyers are in any way acting in concert or as a
group with respect to such obligations or the transactions contemplated herein.

[Signature Page Follows]

 

 18

 

IN
WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.

	
  

  	
   

  	
  COMPANY:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  iPARTY CORP.

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
  /s/ SAL
  PERISANO                                

  
	
   

  	
   

  	
   

  	
   

  	
  Name:

  	
   

  	
  Sal Perisano

  
	
   

  	
   

  	
   

  	
   

  	
  Title:

  	
   

  	
  Chief Executive Officer

  
									

 

 

IN WITNESS WHEREOF,
each Buyer and the Company have caused their respective signature page to this
Registration Rights Agreement to be duly executed as of the date first written
above.

	
  

  	
   

  	
  BUYERS:

  	
   

  	
   

  	 

	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
  HIGHBRIDGE INTERNATIONAL LLC

  	 

	
   

  	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
  By: 

  	
  /s/ ADAM J. CHILL                         

  	 

	
   

  	
   

  	
   

  	
   

  	
  Name:

  	
   

  	
  Adam J. Chill

  
	
   

  	
   

  	
   

  	
   

  	
  Title:

  	
   

  	
  Managing Director

  
											

 

 

SCHEDULE OF BUYERS

 

	
  

  Buyer

  	
   

  	
  Buyer’s Address

  and Facsimile Number

  	
   

  	
  Buyer’s Representative’s Address 

  and Facsimile Number

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Highbridge International LLC

  	
   

  	
  c/o Highbridge Capital Management, LLC
 9 West 57th Street, 27th Floor 

  New York, New York 10019 

  Attention: Ari J. Storch 

               Adam
  J. Chill 

  Facsimile: (212) 751-0755 

  Telephone: (212) 287-4720

  	
   

  	
  Schulte Roth & Zabel LLP 

  919 Third Avenue 

  New York, New York 10022 

  Attn: Eleazer Klein, Esq. 

  Facsimile: (212) 593-5955 

  Telephone: (212) 756-2000

  

 

 

 

EXHIBIT A

FORM OF NOTICE OF
EFFECTIVENESS

OF REGISTRATION STATEMENT

Continental Stock
Transfer & Trust Company

17 Battery Place

New York, NY 10004

Attention:  Roger Bernhammer

Re:      iPARTY
CORP.

Ladies and Gentlemen:

We are counsel to iParty
Corp., a Delaware corporation (the “Company”),
and have represented the Company in connection with that certain Securities
Purchase Agreement (the “Securities Purchase Agreement”) entered into
by and among the Company and the buyers named therein (collectively, the “Holders”) pursuant to which the Company
issued to the Holders senior subordinated notes (the “Notes”) and warrants (the “Warrants”). 
exercisable for shares of the Company’s common stock, $0.001 par value
per share (the ”Common Stock”).  Pursuant to the Securities Purchase
Agreement, the Company also has entered into a Registration Rights Agreement
with the Holders (the “Registration Rights
Agreement”) pursuant to which the Company agreed, among other
things, to register the Registrable Securities (as defined in the Registration
Rights Agreement), including the shares of Common Stock issuable upon exercise
of the Warrants, under the Securities Act of 1933, as amended (the “1933 Act”). 
In connection with the Company’s obligations under the Registration
Rights Agreement, on ____________ ___, 200_, the Company filed a Registration
Statement on Form S-3 (File No. 333-_____________) (the “Registration Statement”) with the
Securities and Exchange Commission (the “SEC”)
relating to the Registrable Securities which names each of the Holders as a
selling stockholder thereunder.

In connection with the foregoing, we advise you that a
member of the SEC’s staff has advised us by telephone that the SEC has entered
an order declaring the Registration Statement effective under the 1933 Act at [ENTER TIME OF EFFECTIVENESS] on [ENTER
DATE OF EFFECTIVENESS] and [we][I]
have no knowledge, after telephonic inquiry of a member of the SEC’s staff,
that any stop order suspending its effectiveness has been issued or that any
proceedings for that purpose are pending before, or threatened by, the SEC and
the Registrable Securities are available for resale under the 1933 Act pursuant
to the Registration Statement.

This letter shall serve as our standing opinion to you
that the shares of Common Stock are freely transferable by the Holders pursuant
to the Registration Statement.  You need
not require further letters from us to effect any future legend-free issuance
or reissuance of 

 

shares of Common Stock to the Holders as contemplated
by the Company’s Irrevocable Transfer Agent Instructions dated ________ __,
2006.

	
  

  	
  Very truly yours,

  
	
   

  	
   

  
	
   

  	
  POSTERNAK BLANKSTEIN & LUND LLP

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  

 

CC:           [LIST
NAMES OF HOLDERS]

 

 

EXHIBIT B

SELLING STOCKHOLDERS

The
shares of Common Stock being offered by the selling stockholders are issuable
upon exercise of the warrants.  For
additional information regarding the issuance of those warrants, see “Private
Placement of Warrants” above.  We are
registering the shares of Common Stock in order to permit the selling
stockholders to offer the shares for resale from time to time.  Except for the ownership of the Warrants
issued pursuant to the Securities Purchase Agreement, the selling stockholders
have not had any material relationship with us within the past three years.

The
table below lists the selling stockholders and other information regarding the
beneficial ownership of the shares of Common Stock by each of the selling
stockholders.  The second column lists
the number of shares of Common Stock beneficially owned by each selling
stockholder, based on its ownership of the warrants, as of ________, 200_,
assuming exercise of all warrants held by the selling stockholders on that
date, without regard to any limitations on exercise.

The
third column lists the shares of Common Stock being offered by this prospectus
by the selling stockholders.

In
accordance with the terms of registration rights agreements with the selling
stockholders, this prospectus generally covers the resale of at least 130% of
the number of shares of Common Stock issuable upon exercise of the related
warrants as of the trading day immediately preceding the date the registration
statement is initially filed with the SEC.  Because the exercise price of the
warrants may be adjusted, the number of shares that will actually be issued may
be more or less than the number of shares being offered by this
prospectus.  The fourth column assumes
the sale of all of the shares offered by the selling stockholders pursuant to
this prospectus.

Under
the terms of the warrants, a selling stockholder may not exercise the warrants
to the extent such exercise would cause such selling stockholder, together with
its affiliates, to beneficially own a number of shares of Common Stock which
would exceed 4.99% of our then outstanding shares of Common Stock following
such exercise, excluding for purposes of such determination shares of Common
Stock issuable upon exercise of the warrants which have not been
exercised.  The number of shares in the
second column does not reflect this limitation. 
The selling stockholders may sell all, some or none of their shares in
this offering.  See “Plan of
Distribution.”

 

 

	
  Name of Selling Stockholder

  	
   

  	
  Number of Shares Owned

  Prior to Offering

  	
   

  	
  Maximum Number of Shares

  to be Sold Pursuant to this

  Prospectus

  	
   

  	
  Number of Shares Owned

  After Offering

  	
   

  
	
  Highbridge
  International LLC

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  

(1)             Highbridge
Capital Management, LLC is the trading manager of Highbridge International LLC
and has voting control and investment direction over securities held by
Highbridge International LLC.  Glenn
Dubin and Henry Swieca control Highbridge Capital Management, LLC.  Each of Highbridge Capital Management, LLC,
Glenn Dubin and Henry Swieca disclaim beneficial ownership of the securities
held by Highbridge International LLC.

 

 

PLAN OF DISTRIBUTION

We
are registering the shares of Common Stock issuable upon exercise of the
warrants to permit the resale of these shares of Common Stock by the holders of
the warrants from time to time after the date of this prospectus.  We will not receive any of the proceeds from
the sale by the selling stockholders of the shares of Common Stock.  We will bear all fees and expenses incident
to our obligation to register the shares of Common Stock.

The
selling stockholders may sell all or a portion of the shares of Common Stock
beneficially owned by them and offered hereby from time to time directly or
through one or more underwriters, broker-dealers or agents.  If the shares of Common Stock are sold
through underwriters or broker-dealers, the selling stockholders will be
responsible for underwriting discounts or commissions or agent’s
commissions.  The shares of Common Stock
may be sold in one or more transactions at fixed prices, at prevailing market
prices at the time of the sale, at varying prices determined at the time of
sale, or at negotiated prices.  These
sales may be effected in transactions, which may involve crosses or block
transactions,

·                  on
any national securities exchange or quotation service on which the securities
may be listed or quoted at the time of sale;

·                  in
the over-the-counter market;

·                  in
transactions otherwise than on these exchanges or systems or in the
over-the-counter market;

·                  through
the writing of options, whether such options are listed on an options exchange
or otherwise;

·                  ordinary
brokerage transactions and transactions in which the broker-dealer solicits
purchasers;

·                  block
trades in which the broker-dealer will attempt to sell the shares as agent but
may position and resell a portion of the block as principal to facilitate the
transaction;

·                  purchases
by a broker-dealer as principal and resale by the broker-dealer for its
account;

·                  an
exchange distribution in accordance with the rules of the applicable exchange;

·                  privately
negotiated transactions;

·                  short
sales;

·                  sales
pursuant to Rule 144;

·                  broker-dealers
may agree with the selling securityholders to sell a specified number of such
shares at a stipulated price per share;

 

 

·                  a
combination of any such methods of sale; and

·                  any
other method permitted pursuant to applicable law.

If
the selling stockholders effect such transactions by selling shares of Common
Stock to or through underwriters, broker-dealers or agents, such underwriters,
broker-dealers or agents may receive commissions in the form of discounts,
concessions or commissions from the selling stockholders or commissions from
purchasers of the shares of Common Stock for whom they may act as agent or to
whom they may sell as principal (which discounts, concessions or commissions as
to particular underwriters, broker-dealers or agents may be in excess of those
customary in the types of transactions involved).  In connection with sales of the shares of
Common Stock or otherwise, the selling stockholders may enter into hedging
transactions with broker-dealers, which may in turn engage in short sales of
the shares of Common Stock in the course of hedging in positions they
assume.  The selling stockholders may
also sell shares of Common Stock short and deliver shares of Common Stock covered
by this prospectus to close out short positions and to return borrowed shares
in connection with such short sales.  The
selling stockholders may also loan or pledge shares of Common Stock to
broker-dealers that in turn may sell such shares.

The
selling stockholders may pledge or grant a security interest in some or all of
the warrants or shares of Common Stock owned by them and, if they default in
the performance of their secured obligations, the pledgees or secured parties
may offer and sell the shares of Common Stock from time to time pursuant to
this prospectus or any amendment to this prospectus under Rule 424(b)(3) or
other applicable provision of the Securities Act of 1933, as amended, amending,
if necessary, the list of selling stockholders to include the pledgee,
transferee or other successors in interest as selling stockholders under this
prospectus.  The selling stockholders
also may transfer and donate the shares of Common Stock in other circumstances
in which case the transferees, donees, pledgees or other successors in interest
will be the selling beneficial owners for purposes of this prospectus.

The
selling stockholders and any broker-dealer participating in the distribution of
the shares of Common Stock may be deemed to be “underwriters” within the
meaning of the Securities Act, and any commission paid, or any discounts or
concessions allowed to, any such broker-dealer may be deemed to be underwriting
commissions or discounts under the Securities Act.  At the time a particular offering of the
shares of Common Stock is made, a prospectus supplement, if required, will be
distributed which will set forth the aggregate amount of shares of Common Stock
being offered and the terms of the offering, including the name or names of any
broker-dealers or agents, any discounts, commissions and other terms
constituting compensation from the selling stockholders and any discounts,
commissions or concessions allowed or reallowed or paid to broker-dealers.

Under
the securities laws of some states, the shares of Common Stock may be sold in
such states only through registered or licensed brokers or dealers.  In addition, in some states the shares of
Common Stock may not be sold unless such shares have been registered or qualified
for sale in such state or an exemption from registration or qualification is
available and is complied with.

 

 

There
can be no assurance that any selling stockholder will sell any or all of the
shares of Common Stock registered pursuant to the registration statement, of
which this prospectus forms a part.

The
selling stockholders and any other person participating in such distribution
will be subject to applicable provisions of the Securities Exchange Act of
1934, as amended, and the rules and regulations thereunder, including, without
limitation, Regulation M of the Exchange Act, which may limit the timing of
purchases and sales of any of the shares of Common Stock by the selling
stockholders and any other participating person.  Regulation M may also restrict the ability of
any person engaged in the distribution of the shares of Common Stock to engage
in market-making activities with respect to the shares of Common Stock.  All of the foregoing may affect the
marketability of the shares of Common Stock and the ability of any person or
entity to engage in market-making activities with respect to the shares of
Common Stock.

We
will pay all expenses of the registration of the shares of Common Stock
pursuant to the registration rights agreement, estimated to be
$[     ] in total, including, without limitation,
Securities and Exchange Commission filing fees and expenses of compliance with
state securities or “blue sky” laws; provided, however, that a selling
stockholder will pay all underwriting discounts and selling commissions, if
any.  We will indemnify the selling
stockholders against liabilities, including some liabilities under the
Securities Act, in accordance with the registration rights agreements, or the
selling stockholders will be entitled to contribution.  We may be indemnified by the selling
stockholders against civil liabilities, including liabilities under the
Securities Act, that may arise from any written information furnished to us by
the selling stockholder specifically for use in this prospectus, in accordance
with the related registration rights agreements, or we may be entitled to
contribution.

Once
sold under the registration statement, of which this prospectus forms a part,
the shares of Common Stock will be freely tradable in the hands of persons
other than our affiliates.

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00110-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00110-of-00352.parquet"}]]