UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE
14A
Proxy Statement
Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the
Registrant
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Filed by a Party other
than the Registrant
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Check the appropriate
box:
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Preliminary Proxy
Statement
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Confidential, for Use of the
Commission Only (as permitted by Rule 14a-6(e)(2))
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Definitive Proxy
Statement
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Definitive Additional
Materials
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Soliciting Material
Pursuant to §240.14a-12
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iParty Corp.
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(Name of
Registrant as Specified In Its Charter)
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(Name of Person(s) Filing
Proxy Statement, if other than the Registrant)
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Payment of Filing Fee
(Check the appropriate box):
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No fee required.
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Fee computed on table below
per Exchange Act Rules 14a-6(i)(1) and 0-11.
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securities to which transaction applies:
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underlying value of transaction computed pursuant to Exchange Act Rule 0-11
(set forth the amount on which the filing fee is calculated and state how it
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aggregate value of transaction:
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Total fee paid:
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Fee paid previously
with preliminary materials.
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Check box if any part
of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and
identify the filing for which the offsetting fee was paid previously.
Identify the previous filing by registration statement number, or the Form or
Schedule and the date of its filing.
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Amount Previously Paid:
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Form, Schedule or
Registration Statement No.:
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iParty
Corp.
270 Bridge Street, Suite 301
Dedham, MA 02026
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
The 2009 Annual Meeting
of Stockholders of iParty Corp. will be held as follows:
Date:
Wednesday, May 27, 2009
Time:
11:00 a.m., local time
Place:
Posternak Blankstein & Lund LLP
Prudential Tower
800 Boylston Street, 33rd Floor
Boston, MA 02199
Matters to be voted on:
1.
The election of all six directors;
2.
Approval of the 2009 Stock Incentive Plan (the
2009 Stock Incentive Plan
);
3.
Approval of an amendment to iPartys Restated
Certificate of Incorporation to effect a reverse stock split, pursuant to which
the existing shares of iPartys common stock would be combined into new shares
of iParty common stock at an exchange ratio ranging between one-for-five and
one-for-thirty, with the exchange ratio to be determined by the Board of
Directors (the
Reverse Stock Split
);
4.
Approval to conduct a one-time option repricing /
exchange under which eligible employees (including named executive officers and
non-employee independent directors) would be able to elect to exchange certain
outstanding stock options issued under our Amended and Restated 1998 Incentive
and Nonqualified Stock Option Plan for a fewer number of lower priced options
with the same vesting conditions and term (the
Option Repricing / Exchange
);
5.
Ratification of the selection of Ernst &
Young LLP as our independent registered public accounting firm for the fiscal
year ending December 26, 2009; and
6.
Any other matters properly brought before the annual
meeting or any adjournment thereof.
The Board of Directors
has fixed the close of business on April 6, 2009 as the record date for
determining stockholders entitled to notice of and to vote at the annual
meeting. Representation in person or by
proxy of at least a majority of all outstanding shares of each class of stock
entitled to vote at the meeting is required to constitute a quorum. Accordingly, it is important that your shares
be represented at the annual meeting.
The list of stockholders entitled to vote at the annual meeting will be
available for examination by any stockholder at our offices at 270 Bridge
Street, Suite 301, Dedham, MA 02026 for ten (10) days prior to May 27,
2009. Enclosed with the proxy statement
for the meeting, you will find a copy of our Annual Report on Form 10-K
for fiscal 2008.
Your
vote at the meeting is very important to us regardless of the number of shares
you own. Please vote your shares,
whether or not you plan to attend the meeting, by completing the enclosed proxy
card and returning it to us in the enclosed envelope. Should you want to change your vote prior to
the annual meeting you may do so in accordance with the instructions contained
in the accompanying proxy statement.
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By Order of the Board
of Directors,
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/s/ David
Robertson
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DAVID ROBERTSON
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Secretary
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This
notice, proxy statement, and form of proxy are being distributed on or about April 25,
2009.
iParty Corp.
270 Bridge Street, Suite 301
Dedham, MA 02026
PROXY STATEMENT
for Annual Meeting of Stockholders to Be Held on May 27,
2009
GENERAL INFORMATION
Our Board of Directors (the
Board
) is furnishing you this proxy
statement to solicit proxies on its behalf to be voted at the Annual Meeting of
Stockholders of iParty Corp. (
iParty
or the
Company
). The meeting
will be held at the offices of Posternak Blankstein & Lund LLP, at the
Prudential Tower, 33
rd
Floor, 800 Boylston Street, Boston MA, 02199,
on May 27, 2009, at 11:00 a.m., local time. The proxies also may be
voted at any adjournments or postponements of the meeting.
The mailing address of our
principal executive offices is iParty Corp., 270 Bridge Street, Suite 301,
Dedham, MA, 02026. We are first furnishing the proxy materials to stockholders
on or about April 25, 2009.
All properly executed
written proxies that are delivered pursuant to this solicitation will be voted
at the meeting in accordance with the directions given in the proxy, unless the
proxy is revoked prior to completion of voting at the meeting.
Only owners of record of
shares of common stock, Series B convertible preferred stock (
Series B Preferred Stock
), Series C
convertible preferred stock (
Series C
Preferred Stock
), Series D convertible preferred stock (
Series D Preferred Stock
), Series E
convertible preferred stock (
Series E
Preferred Stock
) and Series F convertible preferred stock (
Series F Preferred Stock
and together
with the Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock, the
Convertible Preferred Stock
) of the
Company at the close of business on April 6, 2009, the record date, are
entitled to notice of and to vote at the meeting, or at any adjournments or
postponements of the meeting.
QUESTIONS AND ANSWERS ABOUT THE
MEETING AND VOTING
What is this document?
This is the Notice of our 2009 Annual Meeting of Stockholders of iParty Corp. (
iParty
or the
Company
), combined with our Proxy Statement which provides important information for your use in voting your shares of our common stock, or our various series of Convertible Preferred Stock, at the annual meeting.
Who can vote?
You can vote your shares of common stock or your shares of Convertible Preferred Stock if our records show that you owned the shares at the close of business on April 6, 2009, which is the record date for the annual meeting. Shares representing a total of 37,663,320 votes are eligible to vote at the meeting.
Common Stock.
You are permitted one vote for each share of common stock you owned at the close of business on April 6, 2009, including (i) shares held in your name as a stockholder of record, and (ii) shares held in street name for you as the beneficial owner through a broker, trustee, or other nominee, such as a bank. Thus, as of April 6, 2009, there were 22,731,667 votes eligible to vote at the meeting associated with shares of common stock. The enclosed proxy card shows the number of shares you can vote.
Convertible Preferred Stock.
Except as otherwise required by Delaware General Corporation Law, the Convertible Preferred Stock is entitled to vote together with the common stock on all matters to which the common stock is entitled to vote. When the Convertible Preferred Stock votes together with the common stock as one class, you are permitted one vote for each whole number of shares of our common stock into which the shares of Convertible Preferred Stock are convertible. Thus, as of April 6, 2009, the number of votes eligible to vote at the meeting were 6,022,133 votes associated with 463,241 shares of Series B Preferred Stock (you are permitted thirteen (13) votes for each share of Series B Preferred Stock), 1,300,000 votes associated with 100,000 shares of Series C
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Preferred Stock (you are permitted thirteen (13) votes for each share of Series C Preferred Stock), 3,500,000 votes associated with 250,000 shares of Series D Preferred Stock (you are permitted fourteen (14) votes for each share of Series D Preferred Stock), 2,966,660 votes associated with 296,666 shares of Series E Preferred Stock (you are permitted ten (10) votes for each share of Series E Preferred Stock), and 1,142,860 votes associated with 114,286 shares of Series F Preferred Stock (you are permitted ten (10) votes for each share of Series F Preferred Stock).
In each such case, the number of votes is calculated based on the number of shares you owned at the close of business on April 6, 2009, including shares held in your name as a stockholder of record and shares held in street name for you as the beneficial owner through a broker, trustee, or other nominee, such as a bank. The enclosed proxy card shows the number of shares you can vote.
Special Voting Rights of Series C and Series D Preferred Stock with Respect to Election of Directors.
So long as at least fifty percent (50%) of the initially issued shares of Series C Preferred Stock remains outstanding, the holders of the Series C Preferred Stock are entitled to vote alone for the election of a Series C Director. So long as at least fifty percent (50%), of the initially issued shares of Series D Preferred Stock remains outstanding, the holders of the Series D Preferred Stock are entitled to vote alone for the election of a Series D Director.
Special Voting Rights of the Convertible Preferred Stock.
Under the various Certificates of Designations, each series of Convertible Preferred Stock has a separate class vote in the following instances:
·
The creation and issuance of any series of preferred stock or other security which is senior as to liquidation and or dividend rights to such Convertible Preferred Stock; and
·
An action that repeals, amends, or otherwise changes the Certificate of Designation or Certificate of Incorporation in a manner that would alter or change the powers, preferences, rights, privileges, restrictions and conditions of the particular class of Convertible Preferred Stock to adversely affect such class.
Unless otherwise specified in the Certificate of Designation, when voting as a separate class, you are permitted one vote for each share of Convertible Preferred Stock you owned at the close of business on April 6, 2009, including (i) shares held in your name as a stockholder of record, and (ii) shares held in street name for you as the beneficial owner through a broker, trustee, or other nominee, such as a bank. In the case of the second bullet point above, each holder, regardless of the number of shares of Convertible Preferred Stock owned of record or beneficially, is permitted one vote.
How do I vote by proxy?
Follow the instructions on the enclosed proxy card to vote on each proposal to be considered at the annual meeting. Sign and date the proxy card and mail it back in the enclosed envelope. The proxy holders named on the proxy card will vote your shares as you instruct. If you sign and return the proxy card but do not vote on a proposal, the proxy holders will vote for you on that proposal. Unless you instruct otherwise, the proxy holders will vote in accordance with the Board of Directors recommendation below.
What is the purpose of the Reverse
Stock Split?
The primary purpose of the Reverse Stock
Split is to increase proportionately the per share trading price of iPartys
common stock. iPartys common stock is
listed on the NYSE Amex. Under the NYSE
Amexs listing standards, if the exchange considers iPartys common stock to be
a low priced stock, iPartys common stock could be subject to a delisting notification. The exchange may consider a stock selling for
a substantial period of time below $1.00 as a low priced stock. Our common stock has not traded above $1 per
share since February 2005, and our price per share has ranged from a low
of $.03 per share to a high of $.30 per share during the one year period ended April 6,
2009. If we were to receive a formal
delisting notification letter from the NYSE Amex, to regain compliance we would
need to effect a reverse stock split, which would require us to convene a
special meeting of stockholders. Given
the time and expense associated with convening a special meeting of
stockholders, the Board of Directors has determined that it is most efficient
to seek stockholder approval of the Reverse Stock Split at this Annual Meeting
to avoid having to convene a special meeting at a later date.
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We also believe
that the increased market price of our common stock expected as a result of
implementing the Reverse Stock Split may improve the marketability and
liquidity of our common stock and encourage interest and trading in our common
stock. Because of the trading volatility
often associated with low-priced stocks, many brokerage houses and
institutional investors have internal policies and practices that either
prohibit them from investing in low-priced stocks or tend to discourage
individual brokers from recommending low-priced stocks to their customers. Some of those policies and practices may
function to make the processing of trades in low-priced stocks economically
unattractive to brokers. Moreover,
because brokers commissions on low-priced stocks generally represent a higher
percentage of the stock price than commissions on higher-priced stocks, the
current average price per share of common stock can result in individual
stockholders paying transaction costs representing a higher percentage of their
total share value than would be the case if the share price were substantially
higher. Although it should be noted that the liquidity of our common stock may
be harmed by the Reverse Stock Split given the reduced number of shares that
would be outstanding after the Reverse Stock Split, our Board of Directors is
hopeful that the anticipated higher market price will offset, to some extent,
the negative effects on the liquidity and marketability of our common stock
inherent in some of the policies and practices of institutional investors and
brokerage houses described above.
What effect will the Reverse Stock Split have on me?
On the date the amendment to our Restated
Certificate of Incorporation effectuating the Reverse Stock Split is filed with
the Secretary of State of the State of Delaware, referred to in this proxy
statement as the effective date, the existing outstanding shares of our Common Stock
would be combined into new shares of our Common Stock at an exchange ratio
ranging from one-for-five to one-for-thirty, with the specific exchange ratio
to be determined by us. This means that you would receive one new share of our
common stock for each five to thirty shares of common stock that you currently
hold, depending on the exchange ratio we determine. In addition, the conversion rate of our
Convertible Preferred Stock would be adjusted proportionally in accordance with
the determined exchange ratio. Our Board
of Directors believes that stockholder approval granting us discretion to set
the actual exchange ratio within the range from one-for-five to one-for-thirty,
rather than stockholder approval of a specified exchange ratio, provides us
with maximum flexibility to react to then-current market conditions and
volatility in the market price of our common stock in order to set an exchange
ratio that is intended to result in a stock price in excess of the $1.00 per share
with the intention of avoiding being considered a low-priced stock under NYSE
Amex rules and therefore stockholder approval granting this discretion is
in the best interests of iParty and its stockholders. However, there can be no
assurance that the Reverse Stock Split will result in our Common Stock trading
above $1.00 per share or avoid being considered a low priced stock in the
future or maintain compliance with the other quantitative and qualitative
requirements under the NYSE Amex listing standards. The Reverse Stock Split would affect all
stockholders uniformly and would not affect any stockholders percentage
ownership interest in iParty, except to the extent that the Reverse Stock Split
would result in some of our stockholders owning a fractional share. You would
receive cash in lieu of any fractional share that would otherwise be issuable.
Am I entitled to appraisal rights from the Reverse Stock
Split?
No. Under the Delaware General Corporation Law,
stockholders are not entitled to appraisal rights with respect to the proposed
amendment to our Restated Certificate of Incorporation to effect the Reverse
Stock Split and we will not independently provide our stockholders with any
such right.
What are the federal income tax consequences of the Reverse
Stock Split?
We
expect that our stockholders generally will not recognize tax gain or loss as a
result of the Reverse Stock Split. However, gain or loss will be recognized on
the small amount of cash received in lieu of any fractional shares. Moreover, the tax consequences to each
stockholder will depend on his or her particular situation. For further
information, see the discussion on page 21under the heading Federal Income Tax
Consequences of the Reverse Stock Split.
Should I send my stock certificates in now with respect to
the Reverse Stock Split?
NO
, do
not send in your stock certificates now. After the Reverse Stock Split is
approved and effected, we will send you instructions for submitting your
pre-split stock certificate(s) in exchange for your post-split stock
certificate and cash, if any, in lieu of a fractional share.
What is the objective of the Option Repricing / Exchange?
We have issued stock options under our Amended and
Restated 1998 Incentive and Nonqualified Stock Option Plan (the 1998 Plan) as
a means of promoting the
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long-term success of our
business by encouraging our employees, officers and directors to devote their
abilities to iParty. However,
substantially all outstanding stock options have exercise prices that are
significantly higher than the current market price of our Common Stock. As a result, the Board of Directors believes
that these stock options have little or no current value as an incentive to
retain and motivate our officers and directors.
As a
result, our Compensation Committee and Board of Directors have determined that
it would be in the best interests of iParty and its stockholders to conduct a
stock option repricing / exchange program, referred to in this proxy statement
as the Option Repricing / Exchange, under which iParty would offer to our named
executive officers, our four non-employee independent directors and certain
senior officers the opportunity to exchange stock options with an exercise
price between $.25 per share and $1.00 per share (which may be adjusted for
stock splits and other changes in capitalization, including the Reverse Stock
Split), on a nine-for-ten basis for our named executive officers and senior officers,
and an eight-for-ten basis for our four non-employee independent directors for
repriced stock options with an exercise price equal to the greatest of (i) 110%
of the six month average daily closing price of our common stock as reported on
the NYSE Amex as of the grant date, (ii) 110% of the closing price of our
common stock as reported on the NYSE Amex as of the grant date, and (iii) $0.10
per share. The vesting conditions and term of the repriced stock options would
remain unchanged. In addition, in order to participate in the Option Repricing
/ Exchange, each participant would agree to cancel each option held by him or
her with an exercise price in excess of $1.00 per share (subject to adjustments
for stock splits and other changes in capitalization, including the Reverse Stock
Split), which we expect to total approximately 75,000 shares. Our Board of Directors believes that the
proposed Option Repricing / Exchange would create better incentives for
employees, officers and directors to remain with iParty and contribute to the attainment
of our business and financial objectives.
Under
the NYSE Amex rules, stockholder approval is required to conduct the Option
Repricing / Exchange. By approving the Option Repricing / Exchange, you would
allow us to conduct the Option Repricing / Exchange on the terms described
herein, at any time, at the Boards discretion.
Can our Board of Directors abandon the Reverse Stock Split,
or the proposed Option Repricing / Exchange?
Our Board of Directors reserves the right, in its
discretion, to abandon the Reverse Stock Split at any time prior to filing the
amendment to our Restated Certificate of Incorporation with the Secretary of
State of the State of Delaware.
While
we intend to undertake the proposed Option Repricing / Exchange in the manner
described in this proxy statement as soon as practicable, our Board of
Directors reserves the right, in its discretion, to abandon the proposed Option
Repricing / Exchange at any time for any reason.
How does the Board of Directors recommend that I vote on the proposals?
The Board of Directors recommends that you vote:
FOR
the election of all six
nominees to serve as directors;
FOR
the approval of the 2009
Stock Incentive Plan;
FOR
the approval of an
amendment to iPartys Restated Certificate of Incorporation to effect a reverse
stock split, pursuant to which the existing shares of iPartys common stock
would be combined into new shares of iParty common stock at an exchange ratio
ranging between one-for-five and one-for-thirty, with the exchange ratio to be
determined by the Board of Directors;
FOR
the
a
pproval for iParty to
conduct a one-time option repricing / exchange under which eligible employees
(including named executive officers and non-employee independent directors)
would be able to elect to exchange certain outstanding stock options issued
under our Amended and Restated 1998 Incentive and Nonqualified Stock Option
Plan for a fewer number of lower priced options with the same vesting
conditions and term;
FOR
the ratification of the
selection of Ernst & Young LLP as our independent registered public
accounting firm for the fiscal year ending December 26, 2009.
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What if other matters come up at the meeting?
The matters described in this proxy statement are the only matters we know that will be voted on at the meeting. If other matters are properly presented at the meeting, the proxy holders will vote your shares in their discretion.
Can I change my vote after I return my proxy card?
Yes. At any time before the annual meeting, you can change your vote either by sending our Chief Financial Officer, David E. Robertson, a written notice revoking your proxy card or by signing, dating, and returning to us a new proxy card. We will honor the proxy card with the latest date.
Can I vote in person at the meeting rather than by completing the proxy card?
Although we encourage you to complete and return the proxy card even if you plan to attend the meeting to ensure that your vote is counted, you can always vote your shares in person at the meeting.
Who will count the votes?
The votes cast by holders of shares of our common stock and our Convertible Preferred Stock will be counted, tabulated and certified by the transfer agent and registrar of our common stock and Series B convertible preferred stock, Continental Stock Transfer & Trust Co. David E. Robertson, our Chief Financial Officer, will serve as the inspector of elections at the annual meeting.
Will my vote be kept confidential?
Yes, your vote will be kept confidential and we will not disclose your vote, unless (1) we are required to do so by law (including in connection with the pursuit or defense of a legal or administrative action or proceeding), (2) a stockholder makes a written comment on the proxy card or otherwise communicates his or her vote to management, (3) to allow the inspector of elections to certify the results of the vote, or (4) there is a contested election for the Board of Directors. The inspector of elections will forward any written comments that you make on the proxy card to our Board of Directors and Chief Executive Officer without providing your name, unless you expressly request disclosure on your proxy card.
What do I do if I am a beneficial owner and my shares are held in street name?
If your shares are held in the name of your broker, a bank, or other nominee, that party will give you instructions for voting your shares, which should be enclosed with this document.
What
constitutes a quorum?
In order for business to be
conducted at the meeting, a quorum must be present. The presence, in person or by proxy, of the
holders of a majority of the outstanding shares of each class of stock entitled
to vote at the annual meeting is necessary to constitute a quorum at the annual
meeting.
Shares of common stock and Convertible Preferred Stock represented in person or by proxy (including broker non-votes, if any, and shares that abstain or do not vote with respect to one or more of the matters to be voted upon) will be counted for the purpose of determining whether a quorum exists. Broker non-votes are those shares that are held in street name by a broker, bank, or other nominee that indicates on its proxy that it does not have discretionary authority to vote on a particular matter. Brokers, banks and other nominees may not be able to use their discretionary authority for the matters involving the Option Repricing / Exchange, the Reverse Stock Split, and the 2009 Stock Incentive Plan.
If a quorum is not
present, the meeting will be adjourned until a quorum is obtained. Under our bylaws, notice need not be given of
any such adjourned meeting if the time and place thereof are announced at the
meeting at which the adjournment is taken.
At the adjourned meeting, our stockholders may transact any business
that might have been transacted at the original meeting. If the adjournment is
for more than thirty (30) days, or if after the adjournment a new record date
is fixed for the adjourned meeting, our by-laws require that a notice of the
adjourned meeting be given to each stockholder of record entitled to vote at
the meeting.
What is
the voting requirement to approve each proposal?
In the
election of directors, the persons receiving the greatest number of
FOR
votes at the meeting will be
elected. Holders of shares of Series C
Preferred Stock alone are entitled to cast votes in respect of the election of
the Series C Director.
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The proposal to approve
our 2009 Stock Incentive Plan requires the affirmative vote of a majority of
the votes cast at the meeting by the holders of outstanding shares of all
classes of our stock entitled to vote thereon who are present at the meeting
either in person or by proxy.
The proposal to authorize
the Reverse Stock Split requires the affirmative vote of a majority of the
outstanding shares of our common stock and Convertible Preferred Stock, voting
together as single class, on an as converted basis.
The proposal to authorize
the Option Repricing / Exchange requires the affirmative vote of a majority of
the votes cast at the meeting by the holders of outstanding shares of all
classes of our stock entitled to vote thereon who are present at the meeting
either in person or by proxy.
The proposal to ratify
the selection of Ernst & Young LLP as our independent registered
public accounting firm for the fiscal year ending December 26, 2009
requires the affirmative vote of a majority of the votes cast at the meeting by
the holders of outstanding shares of all classes of our stock entitled to vote
thereon who are present at the meeting either in person or by proxy.
Votes
withheld for a particular director nominee and broker non-votes, if any, will
have no effect on the outcome of the election of directors. Abstentions and broker non-votes, if any,
will have the same effect as a
NO
vote with
respect to the approval of the Reverse Stock Split. Neither abstentions nor broker non-votes, if
any, will have an effect on the voting for the Option Repricing / Exchange, our
2009 Stock Incentive Plan, or the ratification of the selection of Ernst &
Young LLP as our independent registered public accounting firm.
What are broker non-votes?
If you hold shares beneficially in street name and do not provide your broker with voting instructions, your shares may constitute broker non-votes. Generally, broker non-votes occur on a matter when a broker is not permitted to vote on that matter without instructions from you, as the beneficial owner. Brokers, banks and other nominees may not be able to use their discretionary authority for the matters involving the Option Repricing / Exchange, Reverse Stock Split and 2009 Stock Incentive Plan; however, they may be able to use their discretionary authority for the matters involving the election of directors and the ratification of our independent registered public accounting firm for the fiscal year ended December 26, 2009.
Where can I find the voting results?
We will announce the results of the voting at the annual meeting and report the voting results in our Quarterly Report on Form 10-Q for the second quarter of fiscal 2009, which we expect to file with the Securities and Exchange Commission (
SEC
) in August 2009. The results will be contained in Part II, Item 4 of that Quarterly Report, which will be available via Internet on the Investor Relations page of our licensed website at www.iparty.com and on the SECs website, www.sec.gov.
Who pays for this proxy solicitation?
We do. In addition to sending you these materials, one of our officers, directors or employees may contact you by telephone, by mail, or in person. None of these persons will receive any extra compensation for doing this.
How and when may I submit a stockholder proposal for consideration at next years annual meeting of stockholders or to recommend nominees to serve as directors?
You may submit proposals, including director nominations, for consideration at future stockholder meetings.
Stockholder Proposals:
If you are interested in submitting a proposal for inclusion in our proxy statement for next years annual meeting, or would like to recommend a nominee for director, we must receive your written proposal at our principal executive offices no later than December 26, 2009, which is the 120th calendar day before the one-year anniversary of the proxy statement we are releasing to our stockholders for this years annual meeting. If the date of next years annual meeting (or special meeting in lieu of the annual meeting) is moved more than 30 days before or after the anniversary date of this years meeting, the deadline for inclusion of proposals in our proxy statement will instead be a reasonable time before we begin to print and mail our proxy materials next year. Such proposals also will need to comply with SEC regulations under Rule 14a-8 (Shareholder Proposals) regarding the inclusion of shareowner proposals in company-sponsored proxy materials. Any proposals should be addressed to:
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iParty Corp.
270 Bridge Street, Suite 301
Dedham, MA 02026
ATTN: David E. Robertson, Chief Financial Officer
Fax:
(781) 326-7143
Except in the case of
proposals made in accordance with SEC Rule 14a-8 (Shareholder Proposals),
the Companys proxy holders are allowed to use their discretionary voting
authority on stockholder proposals that the Company did not receive written
notice of at least 45 days prior to the anniversary of the date on which
the Company first mailed its proxy materials for its immediately preceding
annual meeting of stockholders. The deadline for proposals to be presented at
the 2010 Annual Meeting of Stockholders is March 11, 2010.
Copy of By-Law Provisions:
You may contact our Chief Financial Officer (Mr. Robertson) at our principal executive offices for a copy of the relevant by-law provisions regarding the requirements for making stockholder proposals. Our by-laws also are available on the Investor Relations page on our licensed website at www.iparty.com
.
How may I communicate with the board of directors or the non-management directors on the board of directors?
You may submit an e-mail to our Board of Directors at bod@iparty.com. All directors have access to this e-mail address. Communications intended for our non-management independent directors should be directed to the attention of Frank Haydu at fwh23@yahoo.com. You may report your concerns anonymously or confidentially.
Does iParty have a policy regarding the attendance of directors at the meeting?
Our by-laws do not mandate that members of the Board of Directors must attend the annual meeting of stockholders and we have no separate policy regarding such attendance.
How many directors attended last years annual meeting?
With the exception of Mr. DeWolf and Mr. Schindler who were unable to attend the meeting, all of our directors were present in person at last years annual meeting.
Does iParty have a code of conduct applicable to all directors, officers, and employees?
Yes. In accordance with Section 406 of the Sarbanes-Oxley Act, Item 406 of SEC Regulation S-K, and Section 807 of the enhanced corporate governance rules of the NYSE Amex, we have adopted a code of business conduct and ethics that is applicable to all our directors, officers and employees and is available on the Investor Relations page on our licensed website at www.iparty.com. Our written code of business conduct and ethics provides for an enforcement mechanism and requires that waiver of its provisions for any of our directors or officers must be approved by our Board of Directors. We are required to disclose any such waivers on the Investor Relations page of our corporate website at www.iparty.com.
Is the code of conduct publicly available?
Yes. Our code of business conduct and ethics is available on the Investor Relations page on our licensed website at www.iparty.com.
Where can I see the Companys corporate documents and SEC filings?
iPartys website contains its by-laws, the Board Committee charters, corporate governance guidelines, code of business conduct and ethics and the Companys SEC filings. To view the by-laws, the Boards committee charters, corporate governance guidelines, or code of business conduct and ethics, go to www.iparty.com, and click on Investor Relations. To view iPartys SEC filings, including Forms 3, 4, and 5 filed by the Companys directors and executive officers, go to www.iparty.com, click on Investor Relations and then click on SEC Filings.
iParty will also promptly deliver free of charge, upon request, the Companys Restated Certificate of Incorporation, bylaws, Board Committee charters, corporate governance guidelines or the code of business conduct and ethics to any stockholder requesting a copy. Requests for these documents may be made in the same manner as requests for a copy of iPartys Annual Report on Form 10-K.
8
How can I obtain an annual report on Form 10-K?
A copy of our Annual Report on Form 10-K for the year ended December 27, 2008 is enclosed with this proxy statement. Stockholders may request another free copy of our proxy statement and our 2008 Annual Report on Form 10-K by email at investorrelations@iparty.com, by toll free telephone at 888-290-2945, or by making a written or oral request to:
iParty Corp.
270 Bridge Street, Suite 301
Dedham, MA 02026
ATTN: David E. Robertson, Chief Financial Officer
Telephone: (781) 329-3952
Our proxy statement and Annual Report on Form 10-K for fiscal 2008 are also available on the Investor Relations page of our licensed website at www.iparty.com and the SECs website at www.sec.gov.
Where can I get directions to the meeting?
The meeting will be held in the offices of Posternak Blankstein & Lund LLP on the 33rd floor of the Prudential Tower, 800 Boylston Street, Boston, MA. Directions to the meeting location are available at www.pbl.com.
Who should I contact if I have any questions?
If you have any questions about the annual meeting or any matters relating to this proxy statement, please contact David E. Robertson, our Chief Financial Officer, at the address and telephone number above.
Important Notice of Internet Availability of Proxy Materials for the Annual Meeting
This proxy statement and our 2008 Annual Report are also available at [ ]. This web page does not have cookies that identify visitors to the web page.
9
ITEMS TO BE ACTED
ON AT THE MEETING
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Our entire Board of
Directors, to consist of six (6) members, will be elected at the
meeting. Each nominee for director
currently serves on our Board of Directors.
The directors elected will hold office until their successors are
elected and qualified, which should occur at the next annual meeting or special
meeting in lieu thereof, in accordance with our by-laws.
We have no reason to
believe that any of the nominees will not be a candidate or will be unable to
serve as a director. However, in the
event any nominee is not a candidate or is unable or unwilling to serve as a
director at the time of the election, the Board of Directors (on recommendation
of the Nominating Committee) may either propose to reduce the number of
directors or propose a substitute nominee.
Under the Certificate of
Designations-Series C, for so long as at least 50% of the initially issued
shares of Series C Preferred Stock remain outstanding, the holders of the Series C
have the exclusive right, voting separately as a class, to elect one director
of the Company (the
Series C Director
). Robert W. Jevon is the designee of the
holders of the Series C Preferred Stock.
Under the Certificate of
Designations-Series D, for so long as at least 50% of the initially issued
shares of Series D Preferred Stock remain outstanding, the holders of the Series D
Preferred Stock have the exclusive right, voting separately as a class, to
elect one director of the Company (the
Series D
Director
). The holders of
the Series D Preferred Stock have not elected to designate a Series D
Director at the 2009 Annual Meeting.
The Board
recommends that you vote FOR each of the following nominees:
·
Sal V. Perisano
·
Daniel I. De
Wolf
·
Frank W. Haydu
III
·
Eric Schindler
·
Joseph S.
Vassalluzzo
·
Robert W. Jevon, Jr.
(for Series C Director)
Biographical information about
each of these nominees can be found on pages 32 through 34 of this proxy
statement.
Unless you specify otherwise, the
Board intends the accompanying proxy to be voted for these nominees. Thus,
unless you withhold authority or your proxy contains contrary instructions, a
properly signed and dated proxy will be voted
FOR
the
election of these nominees.
Votes
withheld will not affect the outcome of the voting with respect to the election
of any nominee.
10
PROPOSAL NO. 2
APPROVAL OF 2009 STOCK INCENTIVE PLAN
In
March 2009, our Board of Directors adopted, subject to stockholder
approval, the 2009 Stock Incentive Plan (the
2009
Plan
). The 2009 Plan is intended to advance the interests of our
stockholders by enhancing our ability to attract, retain and motivate persons
who make, or are expected to make, important contributions to iParty.
The
2009 Plan is intended to replace our Amended and Restated 1998 Incentive and
Non-Qualified Plan (the
1998 Plan
). As of April 6, 2009, options to purchase
9,241,845 shares of Common Stock at a weighted-average price of $0.54 and a
weighted-average remaining life of 3.9 years were outstanding under the 1998
Plan and 1,322,894 shares were reserved for future awards under the 1998 Plan.
If the 2009 Plan is approved by our stockholders, no further grants will be
made under the 1998 Plan. We do not plan on making any material grants under
the 1998 Plan between April 6, 2009 and the 2009 Annual Meeting.
The
Board of Directors believes that our future success depends, in large part,
upon our ability to attract, retain and motivate key personnel. Accordingly,
the Board of Directors believes adoption of the 2009 Plan is in the best
interests of iParty and its stockholders and recommends a vote
FOR
the approval of the 2009 Plan and the
reservation of 1,322,894 shares of Common Stock for issuance under the 2009
Plan, plus the number of shares covering any options that have been granted
under the 1998 Plan and that expire, are terminated, surrendered or cancelled
without having been fully exercised, or are forfeited in whole or in part,
which includes the number of shares that may be cancelled under the 1998 Plan
if the Option Repricing / Exchange is approved.
The
closing price per share of our Common Stock on the NYSE Amex was $0.09 per
share on April 6, 2009.
Description of the 2009
Plan
The
following is a summary of the material terms of the 2009 Plan, a copy of which
is attached as
Exhibit A
to this Proxy Statement.
Shares Issuable under the 2009 Plan
Awards
may be made under the 2009 Plan for up to 1,322,894 shares of Common Stock
(which may be adjusted for changes in capitalization, including the Reverse
Stock Split and other similar events). This number represents the number of
shares remaining available for grant under the 1998 Plan. At this time, we are
not seeking to increase the number of shares available under our equity
incentive plans.
Under the 2009 Plan, if an award expires,
terminates, is cancelled or otherwise results in shares not being issued, the
unused shares covered by such award will generally become available for future
grant under the 2009 Plan. However, any shares tendered to pay the exercise
price of an award or to satisfy a tax withholding obligation, and any shares
repurchased on the open market using the proceeds from the exercise of an
award, shall not become available for future grant under the 2009 Plan. Also,
the full number of shares subject to any stock-settled Stock Appreciation
Rights (SARs) will count against the shares available for issuance under the
2009 Plan, regardless of the number of shares actually issued to settle such
SAR upon exercise.
In
addition, if an award expires, terminates, is cancelled or otherwise results in
shares not being issued under the 1998 Plan, the unused shares covered by such
award will generally become available for future grant under the 2009 Plan,
including but not limited to, the number of shares that may be cancelled under
the 1998 Plan if the Option Repricing / Exchange is approved.
Types of Awards
The
2009 Plan provides for the grant of incentive stock options intended to qualify
under Section 422 of the Internal Revenue Code of 1986, as amended (the
Code
), non-statutory stock options, SARs, restricted
stock,
11
restricted
stock units (
RSUs
), other
stock-based awards and performance awards, as described below and collectively
referred to as
awards
.
O
ptions.
Optionees receive the right to purchase a
specified number of shares of Common Stock at a specified option price and
subject to such other terms and conditions as are specified in connection with
the option grant. Options must be
granted at an exercise price equal to or greater than the fair market value of
our common stock, as determined by our Board on the date of grant. Options may
not be granted for a term in excess of ten years. The 2009 Plan permits the
following forms of payment of the exercise price of options: payment by cash, check
or in connection with a cashless exercise through a broker; subject to
certain conditions and if permitted by the Board, surrender of shares of our
Common Stock, delivery of a promissory note or any other lawful means; or any
combination of these forms of payment.
No option may provide for the automatic grant of a reload option.
Director Options.
The Board has the
discretion to provide for initial, annual and other option grant awards to
non-employee directors and to set the number of shares subject to such option
grants to non-employee directors. The
Board also has the discretion to issue SARs, restricted stock or RSU awards or
other stock-based awards to the directors, in addition to or in lieu of option
grants.
Stock Appreciation Rights.
An SAR is an
award entitling the holder, upon exercise, to receive an amount in Common Stock
or cash or a combination thereof determined by reference to appreciation, from
and after the date of grant, in the fair market value of a share of Common
Stock. SARs may be granted independently
or in tandem with an option. No SAR may
be granted with a term in excess of 10 years.
Restricted Stock Awards.
Restricted
stock awards entitle recipients to acquire shares of Common Stock, subject to
our right to repurchase all or part of such shares if the conditions specified
in the award are not satisfied prior to the end of the applicable restriction
period established for the award. The Board of Directors will determine the
terms and conditions of the applicable Award, including the conditions for
vesting and repurchase and the issue price, if any.
Restricted Stock Unit Awards
. Instead of
granting restricted stock awards, the Board may grant RSUs, which entitle the
recipient to receive shares of Common Stock or cash to be delivered at the time
the award vests.
Other Stock-Based Awards.
Under the 2009
Plan, the Board of Directors has the right to grant other awards based upon the
Common Stock having such terms and conditions as the Board of Directors may
determine, including the grant of shares based upon certain conditions, the
grant of awards that are valued in whole or in part by reference to, or
otherwise based on, shares of Common Stock, and the grant of awards entitling
recipients to receive shares of Common Stock to be delivered in the future.
Performance Awards
. Restricted stock and RSU
awards and other stock-based awards that are intended to qualify as
performance-based compensation under Section 162(m) will be made
subject to the achievement of performance goals. We refer to these awards as
performance awards
. Performance awards will vest solely upon the
achievement of specified performance criteria designed to qualify for deduction
under Section 162(m) of the Code. The performance criteria for each
performance award will be based on one or more of the following measures:
earnings per share, return on average equity or average assets in relation to a
peer group or companies designated by us, earnings, earnings growth, earnings
before interest, taxes, depreciation and amortization (EBITDA), operating
income, operating margins, revenues, expenses, stock price, market share,
charegeoffs, reductions in non-performing assets, return on sales, assets
equity or investment, regulatory compliance, satisfactory internal or external
audits, improvement of financial ratings, achievement of balance sheet or
income statement objectives, net cash provided from continuing operations,
stock price appreciation, total shareholder return, cost control, strategic
initiatives, net operating profit after tax, pre-tax or after tax income, cash
flow, or other such objective goals established by the Compensation Committee,
or such other Committee that is appointed by the Board of Directors satisfying
the requirements of directors under Section 162(m) of the Code. These
performance measures may be absolute in their terms or measured against or in
relationship to other companies comparably, similarly or otherwise situated.
The performance goals may exclude the impact of charges for restructurings,
discontinued operations, extraordinary items, other unusual or non-recurring
items and the cumulative effect of accounting changes. These performance goals:
12
·
may vary by participant and may be different
for different awards;
·
may be particular to a participant or the
department, branch, line of business, subsidiary or other unit in which the
participant works and may cover such period as may be specified by a committee
of the Board of Directors; and
·
will be set by the committee within the time
period prescribed by, and will otherwise comply with the requirements of, Section 162(m).
The
maximum cash payment that can be made in connection with a performance award is
$500,000 per fiscal year per participant.
Restrictions on Repricings
Unless
approved by our stockholders:
·
no outstanding option or SAR granted under
the 2009 Plan may be amended to provide an exercise price that is lower than
its then-current exercise price (other than adjustments for changes in
capitalization); and
·
the Board may not cancel any outstanding
option or SAR and grant in substitution new awards under the 2009 Plan covering
the same or a different number of shares of Common Stock and having an exercise
price lower than the then-current exercise price of the cancelled option or
SAR.
Eligibility to Receive Awards
Our
employees, officers and directors are eligible to be granted awards under the
2009 Plan. Under the Code, however, incentive stock options may only be granted
to our employees and employees of our subsidiaries. The maximum number of shares with respect to
which awards may be granted to any participant under the 2009 Plan is 3,500,000
shares per fiscal year. This sublimit is included in the 2009 Plan in order to
comply with Section 162(m).
Plan Benefits
As
of April 6, 2009, we had approximately 234 full time employees and 586
part time employees who are eligible to receive awards under the 2009 Plan, as
well as our non-employee directors. However, the Board of Directors has
generally not granted options to lower level employees. The granting of awards
under the 2009 Plan is discretionary, and other than the potential grant of
options potentially issuable to our named executive officers, our four
non-employee independent directors and certain other senior officers, as
described in Proposal No. 4 if the Option Repricing / Exchange is approved by
our stockholders, we cannot now determine the number or type of awards to be
granted in the future to any particular person or group.
Transferability of Awards
Awards
may not be sold, assigned, transferred, pledged or otherwise encumbered by the
person to whom they are granted, either voluntarily or by operation of law,
except by will or the laws of descent and distribution or, other than in the
case of an incentive stock option, pursuant to a qualified domestic relations
order. During the life of the
participant, awards are exercisable only by the participant. The Board may permit the gratuitous transfer
of an award by the participant to or for the benefit of any immediate family
member, family trust or other entity established for the benefit of the
participant or an immediate family member if, with respect to such transferee,
we would be eligible to use a Form S-8 for the registration of the sale of
the Common Stock subject to such award.
Administration
The
2009 Plan is administered by the Board of Directors. The Board has the authority to adopt, amend
and repeal the administrative rules, guidelines and practices relating to the
2009 Plan and to interpret the provisions of the 2009 Plan. Pursuant to the terms of the 2009 Plan, the
Board may delegate authority under the 2009 Plan to one or more committees or
subcommittees of the Board. The Board
has delegated authority under the 2009 Plan to the Compensation Committee. Subject to any applicable limitations
contained in the 2009 Plan, the Board or any committee to whom the Board
delegates authority selects the recipients of awards and determine the terms of
awards.
13
Changes in Capitalization
The
Board is required to make equitable adjustments in connection with the 2009
Plan and any outstanding awards to reflect stock splits, reverse stock splits,
stock dividends, recapitalizations, combination of shares, reclassification of
shares, spin-offs, other similar changes in capitalization, and any other
dividend or distribution other than an ordinary cash dividend. The 2009 Plan
also contains provisions addressing the consequences of any reorganization
event, which is defined as:
·
any merger or consolidation of iParty with or
into another entity as a result of which all of our Common Stock is converted
into or exchanged for the right to receive cash, securities or other property,
or is cancelled, or
·
any exchange of all of our Common Stock for
cash, securities or other property pursuant to a share exchange transaction, or
·
any liquidation or dissolution of iParty.
In
connection with a reorganization event, the Board of Directors will take any
one or more of the following actions as to all or any outstanding awards on
such terms as the Board determines:
·
provide that awards will be assumed, or
substantially equivalent awards will be substituted, by the acquiring or
succeeding corporation;
·
upon written notice, provide that all unexercised
awards will terminate immediately prior to the consummation of the
reorganization event unless exercised within a specified period following the
date of such notice;
·
provide that outstanding awards will become
exercisable, realizable or deliverable, or restrictions applicable to an award
will lapse, in whole or in part prior to or upon the reorganization event;
·
in the event of a reorganization event under
the terms of which holders of Common Stock will receive upon consummation
thereof a cash payment, referred to as the acquisition price, for each share
surrendered in the reorganization event, make or provide for a cash payment to
an award holder equal to (A) the acquisition price times the number of
shares of Common Stock subject to the holders awards minus (B) the
aggregate exercise price of all the holders outstanding awards, in exchange
for the termination of such awards;
·
provide that, in connection with a
liquidation or dissolution, awards will convert into the right to receive
liquidation proceeds; and
·
any combination of the foregoing.
The
2009 Plan also contains provisions addressing the consequences of any change in
control event (as defined in the 2009 Plan). Except to the extent otherwise
provided in the instrument evidencing an award or in any other agreement, upon
the occurrence of a change in control event:
·
all options and SARs then outstanding shall
automatically become immediately exercisable in full; and
·
the restrictions and conditions on all other
awards then outstanding will be deemed waived only if and to the extent
specified by the Board of Directors.
Substitute Awards
In
connection with a merger or consolidation of an entity with us or the
acquisition by us of the assets or stock of an entity, the Board may grant
awards in substitution for any options or other stock or stock-based awards
granted by such entity or an affiliate thereof.
Substitute awards may be granted on such terms as the Board deems
appropriate in the circumstances, notwithstanding any limitations on awards
contained in the 2009 Plan. Substitute awards will not count against the 2009
Plans overall share limit, except as may be required by the Code.
14
Amendment or Termination
No
new awards may be made under the 2009 Plan after May 27, 2019, ten years
after the 2009 Annual Meeting date, but awards previously granted may extend
beyond that date. The Board of Directors may at any time amend, suspend or
terminate the 2009 Plan, provided that stockholder approval will be required to
the extent required by Section 162(m), the NYSE Amex or tax laws relating
to incentive stock options.
Consequences of Nonapproval
If
stockholders do not approve the adoption of the 2009 Plan, the 2009 Plan will
not go into effect, we will not grant any awards under the 2009 Plan and the
shares currently reserved for issuance under the 1998 Plan will remain available
for grant under the 1998 Plan. Without the approval of the 2009 Plan, we will
not have the flexibility to grant other types of incentive awards to current
and future employees and, given that the 1998 Plan is over ten years old, we
will only be able to grant nonstatutory stock options under the 1998 Plan. In such event, our Board may consider whether
to adopt alternative arrangements based on its assessment of our needs.
Federal Income Tax
Consequences
The
following is a summary of the United States federal income tax consequences
that generally will arise with respect to awards granted under the 2009 Plan,
except for options granted under the 2009 Plan in connection with the Option
Repricing / Exchange, which is discussed below in Proposal No. 4. This summary is based on the federal tax laws
in effect as of the date of this proxy statement. In addition, this summary assumes that all
awards are exempt from, or comply with, the rules under Section 409A
of the Code regarding nonqualified deferred compensation. The plan provides
that no award will provide for deferral of compensation that does not comply
with Section 409A of the Code, unless the Board, at the time of grant,
specifically provides that the award is not intended to comply with Section 409A.
Changes to these laws could alter the tax consequences described below.
Incentive Stock Options
A
participant will not recognize income upon the grant of an incentive stock
option. Also, except as described below,
a participant will not recognize income upon exercise of an incentive stock
option if the participant has been employed by iParty at all times beginning
with the option grant date and ending three months before the date the
participant exercises the option. If the
participant has not been so employed during that time, then upon exercise the
participant will be taxed as described below under
Non-statutory Stock Options
. The exercise of an incentive
stock option may subject the participant to the alternative minimum tax.
A
participant will have income upon the sale of the stock acquired under an
incentive stock option at a profit (if sales proceeds exceed the exercise
price). The type of income will depend
on when the participant sells the stock.
If a participant sells the stock more than two years after the option
was granted and more than one year after the option was exercised, then all of
the profit will be long-term capital gain.
If a participant sells the stock prior to satisfying these waiting
periods, then the participant will have engaged in a disqualifying disposition
and a portion of the profit will be ordinary income and a portion may be
capital gain. This capital gain will be
long-term if the participant has held the stock for more than one year and
otherwise will be short-term. If a
participant sells the stock at a loss (sales proceeds are less than the
exercise price), then the loss will be a capital loss. This capital loss will
be long-term if the participant held the stock for more than one year and
otherwise will be short-term. The period
of time during which a participant has held an incentive stock option may not
be added to the participants holding period for the stock purchased upon
exercise of the option. The holding
period for stock begins upon exercise.
Non-statutory Stock Options
A
participant will not recognize income upon the grant of a non-statutory stock
option. A participant will recognize compensation income upon the exercise of a
non-statutory stock option equal to the value of the stock on the day the
participant exercises the option less the exercise price. Upon sale of the stock, the participant will
recognize capital gain or loss equal to the difference between the sales
proceeds and the value of the stock on the
15
day
the option was exercised. This capital
gain or loss will be long-term if the participant has held the stock for more
than one year and otherwise will be short-term.
Stock Appreciation Rights
A
participant will not recognize income upon the grant of an SAR. A participant generally will recognize
compensation income upon the exercise of an SAR equal to the amount of the cash
and the fair market value of any stock received. Upon the sale of the stock, the participant
will recognize capital gain or loss equal to the difference between the sales
proceeds and the value of the stock on the day the SAR was exercised. This capital gain or loss will be long-term
if the participant held the stock for more than one year and otherwise will be
short-term.
Restricted Stock Awards
A
participant will not recognize income upon the grant of restricted stock unless
an election under Section 83(b) of the Code is made within 30 days of
the date of grant. If a timely 83(b) election
is made, then, for the calendar year of the grant, the participant will
recognize compensation income equal to the value of the stock at the time of
grant less the purchase price. When the
stock is sold, the participant will recognize capital gain or loss equal to the
difference between the sales proceeds and the value of the stock on the date of
grant. If the participant does not make
an 83(b) election, then when the stock vests the participant will
recognize compensation income equal to the value of the stock on the vesting
date less the purchase price. When the
stock is sold, the participant will have capital gain or loss equal to the
sales proceeds less the value of the stock on the vesting date. Any capital gain or loss will be long-term if
the participant held the stock for more than one year and otherwise will be
short-term.
Restricted Stock Units
A
participant will not recognize income upon the grant of an RSU. A participant is not permitted to make a Section 83(b)
election with respect to an RSU. When
the RSU vests, the participant will recognize compensation income on the
vesting date in an amount equal to the fair market value of the stock received
by the participant on the vesting date less the purchase price, if any. When the stock is sold, the participant will
recognize capital gain or loss equal to the sales proceeds less the value of
the stock on the vesting date. Any
capital gain or loss will be long-term if the participant held the stock for
more than one year and otherwise will be short-term.
Other Stock-Based Awards
The
tax consequences associated with any other stock-based award granted under the
2009 Plan will vary depending on the specific terms of such award. Among the relevant factors are whether or not
the award has a readily ascertainable fair market value, whether or not the
award is subject to forfeiture provisions or restrictions on transfer, the
nature of the property to be received by the participant under the award and
the participants holding period and tax basis for the award or underlying
Common Stock.
Tax Consequences to iParty
There
will be no tax consequences to us except that we will be entitled to a
deduction when a participant has compensation income. Any such deduction will be subject to the
limitations of Section 162(m) of the Code.
Recommendation of the Board of
Directors
The
Board of Directors recommends that you vote FOR the adoption of the 2009 Stock Incentive Plan. Unless you
specify otherwise, the Board intends the accompanying proxy to be voted for
this Proposal No. 2.
16
PROPOSAL NO. 3
AMENDMENT OF iPARTYS RESTATED CERTIFICATE OF
INCORPORATION TO EFFECT A REVERSE STOCK SPLIT OF ITS OUTSTANDING COMMON STOCK
General
We
are asking our stockholders to approve an amendment to iPartys Restated
Certificate of Incorporation in the form set forth in
Exhibit B
to this Proxy Statement (the
Amendment
) providing for a reverse stock
split of iPartys outstanding common stock (the
R
everse Stock Split
or
reverse split
), which the Board of
Directors, in its discretion, would be authorized to implement at any time
prior to our 2010 Annual Meeting of Stockholders, with an exchange ratio
ranging from one-for-five to one-for-thirty (each an
Exchange Ratio
and collectively, the
Exchange Ratios
).
A
vote
FOR
Proposal No. 3
will constitute your approval of the Amendment and the authorization of the
Board of Directors, in its discretion, to effect a Reverse Stock Split at one
of the Exchange Ratios. This means that
if the Reverse Stock Split is effected, you would receive one new share of our
common stock for each five to thirty shares of common stock that you currently
hold, depending on the exchange ratio we determine. In addition, under our Restated Certificate
of Incorporation, each of the series of Convertible Preferred Stock would
receive a corresponding adjustment in their conversion ratios to reflect the
Reverse Stock Split.
If
stockholders approve Proposal No. 3, the Board of Directors will have the
authority, but not the obligation, to effect the Reverse Stock Split at any
time prior to the date of the 2010 Annual Meeting of Stockholders, without
further approval or authorization of stockholders. If the Board of Directors elects to effect a
Reverse Stock Split pursuant to one of the Exchange Ratios, the Board of
Directors will be deemed to have abandoned its authorization related to the
other Exchange Ratios.
If
Proposal No. 3 is approved by the stockholders, the Reverse Stock
Split will be effected, if at all, only upon a determination by the Board of
Directors that implementing a Reverse Stock Split is in the best interests of
iParty and its stockholders. The
determination as to whether the Reverse Stock Split will be effected and, if
so, pursuant to which Exchange Ratio, will be based upon those market or
business factors deemed relevant by the Board of Directors at that time,
including, but not limited to:
·
existing and expected marketability and
liquidity of iPartys common stock;
·
prevailing stock market conditions;
·
business developments affecting iParty;
·
iPartys actual or forecasted results of
operations;
·
listing standards under NYSE Amex; and
·
the likely effect on the market price of
iPartys common stock.
Our
Board of Directors believes that stockholder approval granting us discretion to
set the actual exchange ratio within the range of the Exchange Ratios, rather
than stockholder approval of a specified exchange ratio, provides us with
maximum flexibility to react to then-current market conditions and volatility
in the market price of our common stock in order to set an exchange ratio that
is intended to result in a stock price in excess of $1.00 per share to avoid
being considered a low priced stock by the NYSE Amex, and therefore, is in the
best interests of iParty and its stockholders.
However, there can be no assurance that the Reverse Stock Split will
result in our common stock trading above $1.00 for any significant period of
time. If the Board of Directors
determines to implement the Reverse Stock Split, we intend to issue a press
release announcing the terms and effective date of the Reverse Stock Split
before we file the Amendment with the Secretary of State of the State of
Delaware.
On
March 4, 2009, the Board of Directors adopted resolutions declaring
advisable and approving the Amendment, subject to stockholder approval, and
authorizing any other action that the Board of Directors may deem necessary to
implement the Reverse Stock Split, without further approval or authorization of
stockholders, at any time prior to the date of the 2010 Annual Meeting of
Stockholders. Under iPartys Restated
Certificate of Incorporation, approval of the Amendment requires the
affirmative vote of a majority of the outstanding shares of
17
our
common stock and Convertible Preferred Stock entitled to vote on the matter,
voting together as a single class on an as converted basis.
Purpose
of the Reverse Stock Split
The primary purpose of
the Reverse Stock Split is to increase proportionately the per share trading
price of our Common Stock. Our Common
Stock is listed on the NYSE Amex. Under
the NYSE Amexs listing standards, if the exchange considers our Common Stock
to be a low-priced stock, our Common Stock could be subject to a delisting
notification. The exchange may consider
a stock selling for a substantial period of time below $1.00 as a low priced
stock. Our Common Stock has not traded
above $1 per share since February 2005, and our price per share has ranged
from a low of $.03 per share to a high of $.30 per share for the twelve month
period ended April 6, 2009. If we
were to receive a formal delisting notification letter from the NYSE Amex, to
regain compliance we would need to effect a reverse stock split, which would
require us to convene a special meeting of stockholders. Given the time and expense associated with
convening a special meeting of stockholders, the Board of Directors has
determined that it is most efficient to seek stockholder approval of a
potential future Reverse Stock Split at this Annual Meeting to avoid having to
convene a special meeting at a later date.
As noted above, if we
were to receive a delisting notice, and we were unable to regain compliance in
the appropriate time, we could be subject to delisting. Delisting could have a material adverse
effect on our business, liquidity and on the trading of our Common Stock. If our Common Stock were delisted, our Common
Stock could trade on the OTC Bulletin Board or on the pink sheets maintained
by the National Quotation Bureau, Inc.
However, such alternates are generally considered to be less efficient
markets. Additionally, under the terms
of our senior subordinated note with Highbridge International, we are required
to maintain the listing of our common stock on an eligible market, which does
not include the OTC or the pink sheets.
Thus, if we were to breach this provision by being delisted, our
business and liquidity could be materially impacted. Further, delisting from the NYSE Amex could
also have other negative effects, including potential loss of confidence by
customers, suppliers and employees.
We
also believe that the increased market price of our Common Stock expected as a
result of implementing the Reverse Stock Split may improve the marketability
and liquidity of our Common Stock and encourage interest and trading in our
Common Stock. Because of the trading
volatility often associated with low-priced stocks, many brokerage houses and
institutional investors have internal policies and practices that either
prohibit them from investing in low-priced stocks or tend to discourage
individual brokers from recommending low-priced stocks to their customers. Some of those policies and practices may
function to make the processing of trades in low-priced stocks economically
unattractive to brokers. Moreover, because brokers commissions on low-priced
stocks generally represent a higher percentage of the stock price than
commissions on higher-priced stocks, the current average price per share of
common stock can result in individual stockholders paying transaction costs
representing a higher percentage of their total share value than would be the
case if the share price were substantially higher. Although it should be noted
that the liquidity of our Common Stock may be harmed by the Reverse Stock Split
given the reduced number of shares that would be outstanding after the Reverse
Stock Split, our Board of Directors is hopeful that the anticipated higher
market price will offset, to some extent, the negative effects on the liquidity
and marketability of our Common Stock inherent in some of the policies and
practices of institutional investors and brokerage houses described above.
Board Discretion to Implement the
Reverse Stock Split
If
Proposal No. 3 is approved by our stockholders, the Reverse Stock
Split will be effected, if at all, only upon a determination by the Board of
Directors that the Reverse Stock Split is in the best interests of iParty and
its stockholders. The Board of Directors
determination as to whether the Reverse Stock Split will be effected and, if
so, at which Exchange Ratio, will be based upon certain factors, including
existing and expected marketability and liquidity of our Common Stock,
prevailing stock market conditions, business developments affecting us, actual
or forecasted results of operations and the likely effect on the market price
of our Common Stock, and the listing standards of the NYSE Amex. If the Board
does not to implement the Reverse Stock Split prior to the date of the 2010
Annual Meeting of Stockholders, the authorization granted by stockholders
pursuant to this Proposal No. 3 would be deemed abandoned and without
any further effect. In that case, the
Board of Directors may again seek stockholder approval at a future date for the
Reverse Stock Split if it deems it to be advisable.
18
Effect
of the Reverse Stock Split
If
approved by our stockholders and implemented by the Board of Directors, as of
the effective time of the Amendment, each issued and outstanding share of our
Common Stock would immediately and automatically be reclassified and reduced
into a fewer number of shares of our Common Stock, depending upon the Exchange
Ratio selected by the Board of Directors, which could range between
one-for-five and one-for-thirty.
Except to the extent that
the Reverse Stock Split would result in any stockholder receiving cash in lieu
of fractional shares described below, the Reverse Stock Split will not:
·
affect any stockholders percentage ownership
interest in us;
·
affect any stockholders proportionate voting
power;
·
substantially affect the voting rights or
other privileges of any stockholder, unless the stockholder holds fewer than
the number of shares selected among the Exchange Ratios, in which case,
depending upon the Exchange Ratio, such stockholder would receive cash for all
of his or her Common Stock held before the Reverse Stock Split and would cease
to be an iParty stockholder following the Reverse Stock Split; or
·
alter the relative rights of common
stockholders, Convertible Preferred Stockholders, warrant holders or holders of
equity compensation plan awards.
Depending
upon the Exchange Ratio selected by the Board of Directors, the principal
effects of the Reverse Stock Split are:
·
the number of shares of Common Stock issued
and outstanding will be reduced by a factor ranging between five and thirty;
·
the per share exercise price will be
increased by a factor between five and thirty, and the number of shares issuable
upon exercise shall be decreased by the same factor, for all outstanding
options, warrants and other convertible or exercisable equity instruments
entitling the holders to purchase shares of our common stock;
·
the number of shares authorized and reserved
for issuance under our existing equity compensation plans will be reduced
proportionately; and
·
the conversion rates for holders of our
Convertible Preferred Stock will be adjusted proportionately.
The
following table contains approximate information relating to our Common Stock,
Convertible Preferred Stock, our outstanding warrants and outstanding options
under our 1998 Plan, under various proposed options, at an assumed date of
April 6, 2009:
|
|
Pre Reverse
Split
|
|
1-for 5
|
|
1-for-10
|
|
1-for-20
|
|
1-for-30
|
|
Authorized Common stock
|
|
150,000,000
|
|
150,000,000
|
|
150,000,000
|
|
150,000,000
|
|
150,000,000
|
|
Outstanding Common Stock
|
|
22,731,667
|
|
4,541,787
|
|
2,271,652
|
|
1,135,712
|
|
756,643
|
|
Reserved for issuance under 1998 Plan
|
|
9,241,845
|
|
1,848,354
|
|
924,165
|
|
462,067
|
|
307,983
|
|
Reserved for issuance under warrants
|
|
2,711,544
|
|
542,304
|
|
271,150
|
|
135,573
|
|
90,380
|
|
Reserved for issuance under Series B
|
|
6,205,576
|
|
1,241,091
|
|
620,520
|
|
310,236
|
|
206,815
|
|
Reserved for issuance under Series C
|
|
1,365,200
|
|
273,040
|
|
136,520
|
|
68,260
|
|
45,506
|
|
Reserved for issuance under Series D
|
|
3,652,250
|
|
730,450
|
|
365,225
|
|
182,612
|
|
121,741
|
|
Reserved for issuance under Series E
|
|
3,073,163
|
|
614,632
|
|
307,316
|
|
153,657
|
|
102,438
|
|
Reserved for issuance under Series F
|
|
1,184,803
|
|
236,960
|
|
118,480
|
|
59,240
|
|
39,493
|
|
If
the Reverse Stock Split is implemented, the Amendment will not reduce the
number of shares of our Common Stock or Preferred Stock authorized under our
Restated Certificate of Incorporation.
Our
Common Stock is currently registered under Section 12(b) of the
Securities Exchange Act of 1934, as amended, and we are subject to the periodic
reporting and other requirements thereof.
Following the effective time of the Reverse Stock Split, we will continue
to be subject to these periodic reporting and other requirements.
19
Fractional Shares
Stockholders will not
receive fractional shares in connection with the Reverse Stock Split. Instead, stockholders otherwise entitled to
fractional shares will receive a cash payment in lieu thereof in an amount
equal to the average closing sales price of our common stock as reported on the
NYSE Amex for the four trading days preceding the effective date of the Reverse
Stock Split multiplied by the amount of factional shares you hold. Stockholders will not be entitled to receive
interest for the period of time between the effective date of the Reverse Stock
Split and the date the stockholder receives his or her cash payment. The
proceeds will be subject to certain taxes as discussed below.
Stockholders
holding fewer than the chosen Exchange Ratio will receive only cash in lieu of
fractional shares and will no longer hold any shares of our Common Stock as of
the effective time of the Amendment. For
example, if the Board of Directors effected a one-for-twenty split, and you
held nineteen shares of our Common Stock immediately prior to the effective
date of the Amendment, you will no longer hold any shares of our Common Stock
and you will receive only the cash for the value of the nineteen shares of our
Common Stock you held immediately prior to the effective date of the
Amendment. Assuming the same
one-for-twenty Reverse Stock Split, if you held twenty-three shares of our
Common Stock immediately prior to the effective date of the Amendment, you
would receive one new share of our Common Stock and cash in lieu of fractional
shares for the three shares of our Common Stock that you held immediately prior
to the effective date of the Amendment.
Effective
Time and Implementation of the Reverse Stock Split
The
effective time for the Reverse Stock Split will be the date on which we file
the Amendment with the office of the Secretary of State of the State of
Delaware or such later date and time as specified in the Amendment, provided
that the effective date must precede the date of the 2010 Annual Meeting of
Stockholders.
As
soon as practicable after the filing of the Amendment, we intend to notify
stockholders and request that they surrender to our transfer agent their
certificates representing shares of pre-reverse split iParty Common Stock, so
that certificates representing the applicable number of shares of post-reverse
split common stock, together with any cash payment in lieu of fractional
shares, may be issued in exchange therefor.
We expect to adopt a new stock certificate in connection with any
implementation of the Reverse Stock Split.
STOCKHOLDERS
SHOULD NOT DESTROY ANY STOCK CERTIFICATE(S) AND SHOULD NOT SUBMIT ANY
STOCK CERTIFICATE(S) UNTIL REQUESTED TO DO SO.
Accounting
Matters
The
Reverse Stock Split will not affect the par value of a share of our Common
Stock. However, at the effective time of
the Reverse Stock Split, the stated capital attributable to common stock on our
balance sheet will be reduced proportionately based on the Exchange Ratio
(including a retroactive adjustment of prior periods), and the additional
paid-in capital account will be credited with the amount by which the stated
capital is reduced. Reported per share net income or loss would be expected to
be proportionally higher because there will be fewer shares of our Common Stock
outstanding.
No
Appraisal Rights
Under
the Delaware General Corporation Law, our stockholders are not entitled to
appraisal rights with respect to the Reverse Stock Split.
Certain Risks Associated with the
Reverse Stock Split
Before
voting on this Proposal No. 3, you should consider the following
risks associated with the implementation of the Reverse Stock Split:
20
·
The price per share of our Common Stock after
the Reverse Stock Split may not reflect the Exchange Ratio implemented by the
Board of Directors and the price per share following the effective time of the
Reverse Stock Split may not be maintained for any period of time following the
Reverse Stock Split. For example, based
on the closing price of our Common Stock on April 6, 2009 of $0.09 per
share, if the Reverse Stock Split was implemented at an Exchange Ratio of
1-for-20, there can be no assurance that the post-split trading price of our
Common Stock would be $1.80, or even that it would remain above the pre-split
trading price. Accordingly, the total market capitalization of our Common Stock
following a Reverse Stock Split may be lower than before the Reverse Stock
Split.
·
Following the Reverse Stock Split, we may
still run the risk of being considered a low priced stock under the listing
standards of the NYSE Amex, which could cause the Company to be delisted.
·
Effecting the Reverse Stock Split may not
attract institutional or other potential investors, or result in a sustained
market price that is high enough to overcome the investor policies and
practices, and other issues relating to investing in lower priced stock
described in
Purpose of the Reverse Stock
Split
above.
·
The trading liquidity of our Common Stock
could be adversely affected by the reduced number of shares outstanding after
the Reverse Stock Split.
If
a Reverse Stock Split is implemented by the Board, some stockholders may
consequently own less than 100 shares of our Common Stock. A purchase or sale of less than 100 shares
(an
odd lot
transaction) may
result in incrementally higher trading costs through certain brokers,
particularly full service brokers.
Therefore, those stockholders who own fewer than 100 shares following
the Reverse Stock Split may be required to pay higher transaction costs if they
should then determine to sell their shares of iParty common stock.
Federal Income Tax Consequences of
the Reverse Stock Split
A
summary of the federal income tax consequences of the proposed Reverse Stock
Split to individual stockholders is set forth below. It is based upon present federal income tax
law, which is subject to change, possibly with retroactive effect. The discussion is not intended to be, nor
should it be relied on as, a comprehensive analysis of the tax issues arising
from or relating to the proposed Reverse Stock Split. In addition, we have not requested and will
not seek an opinion of counsel or a ruling from the Internal Revenue Service
regarding the federal income tax consequences of the proposed Reverse Stock
Split. Accordingly, stockholders are
advised to consult their own tax advisors for more detailed information
regarding the effects of the proposed Reverse Stock Split on them under
applicable federal, state, local and foreign income tax laws.
·
We believe that the Reverse Stock Split will
be a tax-free recapitalization for federal income tax purposes. Accordingly, except with respect to any cash
received in lieu of fractional shares, a stockholder will not recognize any
gain or loss as a result of the receipt of the post-reverse split common stock
pursuant to the Reverse Stock Split.
·
The shares of post-reverse split common stock
in the hands of a stockholder will have an aggregate basis for computing gain
or loss equal to the aggregate basis of the shares of pre-reverse split common
stock held by that stockholder immediately prior to the Reverse Stock Split,
reduced by the basis allocable to any fractional shares which the stockholder
is treated as having sold for cash, as discussed in bullet number 5 below.
·
A stockholders holding period for the
post-reverse split common stock will include the holding period of the
pre-reverse split common stock exchanged.
·
Stockholders who receive cash for all of
their holdings (as a result of owning fewer than the number in the Exchange
Ratio selected by the Board of Directors) and who are not related to any person
or entity that holds our Common Stock immediately after the Reverse Stock
Split, will recognize a gain or loss for federal income tax purposes equal to
the difference between the cash received and their basis in the pre-reverse
split common stock. Such gain or loss will generally be a capital gain or loss
if the stock was held as a capital asset, and such capital gain or loss will be
a long-term gain or loss to the extent that the stockholders holding period
exceeds 12 months.
·
Although the tax consequences to stockholders
who receive cash for fractional shares are not entirely certain, these
stockholders likely will be treated for federal income tax purposes as having
sold their fractional shares and will recognize gain or loss in an amount equal
to the difference between the cash received and the portion of their basis for
the pre-reverse split common stock that is allocated to the
21
fractional shares. It is possible that such stockholders will be
treated as receiving dividend income to the extent of their ratable share of
our current and accumulated earnings and profits (if any) and then a tax-free
return of capital to the extent of their aggregate adjusted tax basis in their
iParty shares, with any remaining amount of cash received being treated as
capital gain.
·
Stockholders who receive cash will be
required to provide their social security or other taxpayer identification
numbers (or, in some instances, additional information) in connection with the
Reverse Stock Split to avoid backup withholding requirements that might
otherwise apply. Failure to provide such
information may result in backup withholding at a rate of 28%.
Recommendation of the Board of
Directors
The
Board of Directors recommends that you vote FOR the amendment to our Restated Certificate of Incorporation to
effect the Reverse Stock Split in accordance with this Proposal No. 3.
Unless you specify otherwise, the Board intends the accompanying proxy to be
voted for this Proposal No. 3.
22
PROPOSAL NO. 4
TO APPROVE A ONE TIME OPTION
REPRICING / EXCHANGE
FOR CERTAIN OPTIONS GRANTED UNDER IPARTYS
AMENDED AND RESTATED 1998 INCENTIVE AND NONQUALIFIED OPTION PLAN
Overview
Our
Board of Directors has approved, and recommended that our stockholders approve,
a one-time option repricing of certain stock options granted to our Chief
Executive Officer, our other named executive officers, our non-employee
independent directors and certain other senior officers (the
Option Repricing / Exchange
), which would
be conducted, if at all, at the Board of Directors discretion.
We
have issued stock options under our Amended and Restated 1998 Incentive and
Nonqualified Option Plan (the
1998 Plan
)
as a means of attracting, retaining and motivating officers, employees and
directors and as a means of promoting the long-term success of our business by
encouraging these individuals to devote their talents and abilities to us
through appropriate equity ownership.
However, our Board of Directors has determined that most of our
outstanding stock options have exercise prices that are significantly higher
than the current market price of our common stock. As a result, these stock
options have little or no current value as an incentive to retain and motivate
our employees, officers and directors.
As a
result, our Compensation Committee and Board of Directors have determined that
it would be in the best interests of iParty and its stockholders to conduct an
Option Repricing / Exchange, under which we would offer our Chief Executive
Officer, our two other named executive officers, our non-employee independent
directors and certain other senior officers (the
Eligible Participants
) the opportunity to exchange stock
options with an exercise price between $.25 per share and $1.00 per share
(which may be adjusted for stock splits and other changes in capitalization,
including the Reverse Stock Split) (the
Eligible
Options
) on a nine-for-ten basis for our named executive officers
and senior officers and eight-for-ten basis for our non-employee independent
directors for repriced stock options with an exercise price equal to the
greatest of (i) 110% of the six month average daily closing price of our
common stock as reported on the NYSE Amex as of the grant date, (ii) 110%
of the closing price of our common stock as reported on the NYSE Amex as of the
grant date and (iii) $.10 per share.
In addition, each stock option held by an Eligible Participant with an
exercise price above $1.00 per share (which may be adjusted for stock splits
and other changes in capitalization, including the Reverse Stock Split) would
be cancelled, which we expect will total approximately 75,000 shares.
The
repriced options would be issued under the 2009 Plan, which is being voted on
at this Annual Meeting and is described in Proposal No. 2. If our stockholders do not approve the 2009
Plan at this Annual Meeting, we would reprice the options under the 1998 Plan.
Each repriced stock option would have the same term and vesting conditions as
the old stock option. Thus, if a stock
option was fully exercisable before the Option Repricing / Exchange with a remaining
term of 5 years, it would be fully exercisable after the Option Repricing /
Exchange with the same 5 year remaining term.
If the
Option Repricing / Exchange is approved, the Board of Directors expects to
proceed with the Option Exchange as soon as practicable after the Annual
Meeting; however, our Board of Directors reserves the right, in its discretion,
to conduct or abandon the proposed Option Repricing / Exchange at any time
after stockholder approval. The Board of
Directors does not expect to conduct the Option Repricing / Exchange as a
tender offer, under the Securities Exchange Act of 1934, as amended, and
therefore reserves the right, in its sole discretion, to modify the terms of
the Option Repricing / Exchange to avoid conducting a tender offer under the
Securities Exchange Act of 1934, as amended.
Reasons
for the Option Repricing / Exchange
Our Board of Directors believes that the
proposed Option Repricing / Exchange would create better incentives for the
Eligible Participants to contribute to the attainment of our business and
financial objectives creating long term stockholder value. If we cannot reprice the Eligible Options,
then we may be forced to consider cash or other alternatives to provide a
market-competitive total compensation package necessary to attract, retain and
motivate the individual talent critical to our future success. These cash replacement alternatives would
then
23
reduce the cash available
for operations, working capital requirements, capital expenditures and
acquisitions, which could adversely affect our business.
Under
the NYSE Amex rules, stockholder approval is required to implement the Option
Repricing / Exchange. By approving
Proposal No. 4, you would allow us to conduct the Option Repricing /
Exchange with respect to the Eligible Options.
You
are being asked to approve this one-time Option Repricing / Exchange. The
Option Repricing / Exchange would permit the one-time repricing of Eligible
Options (which may be adjusted for stock splits and other changes in
capitalization, including the Reverse Stock Split) at any time, at the
discretion of the Board of Directors.
As of April 6,
2009, a total of 1,322,894 shares of common stock were available under the 1998
Plan for the future issuance of stock options.
Consideration
of Alternatives
When
considering how best to continue to incentivize and reward the Eligible
Participants, our Board of Directors considered several alternatives:
Increase cash compensation.
To replace equity incentives, we considered that we
could substantially increase base and target bonus compensation. However,
significant increases in cash compensation would substantially reduce our cash
flow from operations, which could adversely affect our business, operating
results, liquidity and financial position.
Grant additional equity compensation.
We considered granting the Eligible
Participants supplemental stock option grants at current market prices in order
to restore the value of previously granted stock options that are now
out-of-the-money. On March 4, 2009, we granted an option to purchase
200,000 shares of common stock at an exercise price of $.07 per share to David
Robertson, our Chief Financial Officer.
However, such supplemental option grants would substantially increase
the potential dilution to our stockholders and would also decrease our reported
earnings and earnings per share, which could negatively impact our stock price.
In addition, under the terms of our Convertible Preferred Stock and certain of
our warrants, if we issue options in excess of what has been approved under the
1998 Plan, we may trigger certain anti-dilution provisions creating greater
dilution to our common stockholders.
Implement Option Repricing / Exchange.
Finally, we considered implementing a
one-time stock option repricing and exchange program. We determined that the
Option Repricing / Exchange as described herein, was most attractive for a
number of reasons, including the following:
·
Decrease
in the Number of Shares Outstanding Underlying Options
. If we are able to implement the Option
Repricing / Exchange, we could decrease the number of outstanding shares
underlying options by approximately 800,000.
Although these shares would be available for regrant under the 1998 Plan
(or if approved, under the 2009 Plan), the Board of Directors does not expect
to grant additional awards to those officers participating in the Option
Repricing / Exchange in the near future.
·
Enhanced Long-Term
Stockholder Value
.
We believe that ultimately the Option Repricing / Exchange will enhance
long-term stockholder value by restoring competitive incentives to the Eligible
Participants so they are further motivated to achieve our strategic,
operational and financial goals, as exercise prices significantly in excess of
the market price of our Common Stock undermine the effectiveness of options as
performance and retention incentives.
·
Reduced Pressure for
Additional Grants.
If we are unable to implement the Option Repricing / Exchange, we may need to
issue additional options to the Eligible Participants at current market prices,
increasing the potential dilution to our stockholders. These grants would more quickly exhaust the
current pool of options available for future grants under our 1998 Plan (and if
approved our 2009 Plan) and would also result in decreased reported earnings
and earnings per share, which could negatively impact our stock price. In addition, unless we receive a waiver from
the holders of our Convertible Preferred Stock, we are limited in
24
the number of options
that we may award to the aggregate number of options approved under our 1998
Plan without potentially triggering the anti-dilution provisions of the
Convertible Preferred Stock.
·
Participation by Our
Named Executive Officers and Non-Employee Independent Directors
.
Our executive officers work closely as a team and are expected to be
among the primary drivers of the strategic and operational initiatives we have
implemented to advance the creation of long-term stockholder value. As a
result, the retention and motivation of our executive officers are critical to
our long-term success. In addition, a majority of the grants of options have
been to our named executive officers and non-employee independent
directors. If we were to exclude these
individuals from an option repricing, the option repricing would not have the
desired effect of retaining and motivating those individuals most crucial to our
future success, and would not more effectively align the long term interests of
our officers with the long term interests of our stockholders.
Assumed
Option Grants in Option Repricing / Exchange for Our Named Executive Officers
and Non Employee Independent Directors
The
following table demonstrates the aggregate number of shares subject to stock
options that would be repriced for the individuals below if the Option
Repricing / Exchange is implemented and assuming that all eligible stock
options were exchanged in the Option Repricing / Exchange.
Group
|
|
Number of Shares
Underlying Stock
Options Grant Pre-
Option Repricing /
Exchange
|
|
Weighted Average
Exercise Price Pre
Option Repricing /
Exchange
|
|
Number of Shares
Underlying Stock
Options Grant
Post- Option
Repricing /
Exchange
|
|
Assumed Exercise
Price Post Option
Repricing /
Exchange(1)
|
|
Sal Perisano
|
|
2,979,645
|
|
$
|
0.45
|
|
2,681,681
|
|
$
|
0.11
|
|
Dorice Donne
|
|
1,713,613
|
|
$
|
0.44
|
|
1,542,252
|
|
$
|
0.11
|
|
David Robertson
|
|
225,000
|
|
$
|
0.36
|
|
202,500
|
|
$
|
0.11
|
|
Daniel I. DeWolf
|
|
435,000
|
|
$
|
0.48
|
|
348,000
|
|
$
|
0.11
|
|
Frank W. Haydu III
|
|
260,000
|
|
$
|
0.61
|
|
208,000
|
|
$
|
0.11
|
|
Eric Schindler
|
|
235,000
|
|
$
|
0.61
|
|
188,000
|
|
$
|
0.11
|
|
Joseph S. Vassalluzzo
|
|
290,000
|
|
$
|
0.66
|
|
232,000
|
|
$
|
0.11
|
|
All Named Executives as a Group
|
|
4,918,258
|
|
$
|
0.44
|
|
4,426,432
|
|
$
|
0.11
|
|
Non-Employee Director Group
|
|
1,220,000
|
|
$
|
0.57
|
|
976,000
|
|
$
|
0.11
|
|
(1)
Under the terms of the proposed Option Repricing /
Exchange, we cannot determine what the option exercise price will be for the
new stock options. This column assumes
an exercise price of $0.11 per share, which is based on the closing price of
our common stock on April 6, 2009 and for the six months then ended, and
is for illustrative purposes only.
(2)
All cancelled options would be available for future
grant under the 1998 Plan (or if approved the 2009 Plan). However, if the
Option Repricing / Exchange is approved and consummated, the Board of Directors
does not anticipate granting options to officers participating in the Option
Repricing / Exchange in the near future.
Equity
Compensation Plans
The
following table provides certain information as of December 27, 2008 about
our common stock that may be issued under our existing equity incentive
compensation plans:
25
EQUITY COMPENSATION PLAN INFORMATION
|
|
|
|
|
|
(C)
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
|
|
|
|
Remaining Available
|
|
|
|
(A)
|
|
|
|
for Future Issuances
|
|
|
|
Number of Securities
|
|
(B)
|
|
under Equity
|
|
|
|
to be Issued
|
|
Weighted
Average
|
|
Compensation
Plans
|
|
|
|
upon Exercise of
|
|
Exercise
Price of
|
|
(Excluding
Securities
|
|
Plan
Category
|
|
Outstanding
Options
|
|
Outstanding
Options
|
|
Reflected
in Column a)
|
|
Equity compensation plans approved by security holders
|
|
9,082,198
|
|
$
|
0.55
|
|
1,482,541
|
|
Equity compensation plans not approved by security holders
|
|
|
|
|
|
|
|
Total
|
|
9,082,198
|
|
$
|
0.55
|
|
1,482,541
|
|
Under the 1998 Plan, we are authorized to grant options for
the purchase of up to 11,000,000 shares of our common stock. As of December 27, 2008, 435,261 shares
had been issued pursuant to the exercise of previously issued stock
options. As of December 27, 2008,
there were options outstanding to purchase 9,082,198 shares of our common
stock. Consequently, as of December 27,
2008, options for the purchase of up to 1,482,541 common shares remain
available for future grants. Since December 27,
2008, we have issued an option to purchase up to 200,000 shares to David
Robertson, our Chief Financial Officer, which options are not Eligible Options.
Accounting
Treatment
We have adopted
the provisions of Financial Accounting Standards Board Statement of Financial
Accounting Standards No. 123 (Revised) (FAS 123(R)), regarding
accounting for share-based payments. Under FAS 123(R), in addition to the
remaining unrecognized expense of the Eligible Options, if any, that is
required to be recognized under FAS 123R, we will recognize the incremental
compensation cost of the stock options repriced or granted in the Option
Repricing / Exchange. The incremental compensation cost will be measured as the
excess, if any, of the fair value of each new option repriced or granted for
each Eligible Participant in exchange for the surrendered Eligible Options,
measured as of the grant date of the new or repriced option over the fair value
of the Eligible Options surrendered in exchange for the new or repriced option,
measured immediately prior to the cancellation or repricing. The sum of the
remaining unrecognized expense for the Eligible Options and the incremental
compensation cost of the new or repriced options will be recognized ratably
over the remaining vesting period of the new or repriced option. The cancellation of those options with
exercise prices above $1.00 will be accounted for as repurchase with no consideration. Accordingly, any previously unrecognized
compensation cost associated with those options will be recognized at their
cancellation dates.
Upon consummation
of the Option Repricing / Exchange, and assuming that all of the Eligible
Options are repriced or exchanged and the options in excess of $1.00 are
cancelled, as described above, we expect to recognize incremental compensation
expense; however, as we do not know the offering price, we cannot determine
that exact increment. Assuming the new
options had a grant date price of $0.11 (based on the six month average daily
closing price of our common stock as of April 6, 2009, which was $0.099
per share, and on the closing price as reported on NYSE Amex as of April 6,
2009, which was $0.09 per share), we estimated that we would recognize
additional incremental compensation expenses of approximately $120,000. In addition, the Option Repricing / Exchange
is intended to reduce our need to issue supplemental stock options in the
future to remain competitive with other employers.
Federal
Income Tax Consequences of the Option Repricing / Exchange
The following is a
summary of the anticipated material U.S. federal income tax consequences of
participating in the Option Repricing / Exchange. The tax consequences of the
Option Repricing / Exchange are not entirely certain, however, and the Internal
Revenue Service is not precluded from adopting a contrary position, and the law
and regulations themselves are subject to change. We believe the exchange or
repricing of Eligible Options for new or repriced options pursuant to the
Option Repricing / Exchange should be treated as a non-taxable
26
exchange, and no income
should be recognized for U.S. federal income tax purposes by us or our
employees upon the grant or repricing of the new options.
To the extent that
the new options issued to an Eligible Participant under the Option Repricing /
Exchange will qualify as incentive stock options under Section 422 of the
Internal Revenue Code, the Eligible Participant will not recognize any taxable
income upon exercise of the new options, and will not be subject to federal
income tax as a result of the exercise, except possibly for purposes of the
alternative minimum tax, if the Eligible Participant disposes of the option
shares more than two years after the date of grant of the new options and more
than one year after the exercise of the new options (the required statutory holding
period). If an Eligible Participant
satisfies the required statutory holding period, then upon a sale of option
shares by the Eligible Participant, (a) the Eligible Participant will
recognize long-term capital gain or loss, as the case may be, equal to the
difference between the selling price and the option exercise price; and (b) the
Company will not be entitled to a deduction with respect to the shares of stock
so issued. If the holding period requirements are not met or any other
conditions of Section 422 are not satisfied, then any gain realized upon a
disposition of option shares will be taxed to the Eligible Participant as
ordinary income to the extent of the lesser of (i) the fair market value
of the shares at the time of exercise reduced by the option exercise price for
such shares, and (ii) the gain realized by the Eligible Participant on the
disposition. In addition, the Company generally will be entitled to a tax
deduction equal to the amount of ordinary income recognized by the Eligible
Participant.
To the extent that
the new options issued to an Eligible Participant under the Option Repricing /
Exchange are non-statutory stock options, then, in general, upon exercise of
the new options, the Eligible Participant will recognize ordinary income equal
to the excess, if any, of the fair market value of the purchased shares on the
exercise date over the option exercise price paid for those shares.
If the Eligible
Participant is an employee of iParty, the ordinary income recognized by the
Eligible Participant (upon the exercise of the non-statutory stock options)
will be compensation income subject to income tax withholding by iParty. When an Eligible Participant recognizes
ordinary income in connection with the exercise of a non-statutory stock option
(upon exercise of the option), iParty will be able to claim a corresponding
compensation deduction for federal income tax purposes, provided, however,
that, under Section 162(m) of the Internal Revenue Code, iPartys
deduction for the otherwise deductible compensation paid to a covered employee
is limited to $1 million per year. For
purposes of Section 162(m), a covered employee is, in general, (i) our
chief executive officer (or an individual acting in that capacity), and (ii) any
employee whose compensation is required to be reported to our shareholders
under the Securities Exchange Act of 1934, as amended, by reason of such
employees being among the three highest compensated iParty officers (other
than the chief executive officer or the chief financial officer), our named
executive officers.
Upon a sale of
shares acquired pursuant to the exercise of non-statutory stock options, the
Eligible Participant will recognize a capital gain or loss (which will be long
or short-term depending upon whether the shares were held for more than one
year after purchase) equal to the difference between the selling price and the
sum of (i) the amount paid for the shares and (ii) any amount
recognized as ordinary income upon purchase of the shares.
Directors may only be awarded non-statutory
stock options. In addition, if the 2009
Plan is not approved at the Annual Meeting, and the Option Repricing / Exchange
is effectuated, then the Option Repricing / Exchange will be effectuated as a
repricing of the Eligible Options under the 1998 Plan. As we can no longer issue incentive stock
options under the 1998 Plan, any Eligible Options that were incentive stock
options will automatically be converted into non-statutory stock options.
The preceding discussion is based on U.S.
federal income tax laws and regulations presently in effect, which are subject
to change, and the discussion does not purport to be a complete description of
the U.S. income tax aspects of the Option Repricing / Exchange. An Eligible Participant may also be subject
to state and local taxes in connection with the Option Repricing /
Exchange. We suggest that Eligible
Participants consult with their individual tax advisors to determine the
applicability of the tax rules to the awards granted to them in their
personal circumstances.
27
Recommendation
of our Board of Directors
Our
Board of Directors recommends that you vote
FOR
Proposal No. 4 to authorize the Option Repricing / Exchange on the terms
and conditions described herein. Unless you specify otherwise, the Board
intends the accompanying proxy to be voted for this Proposal No. 4. Voting
in favor of Proposal No. 4 does not constitute an election to participate
in the Option Repricing / Exchange.
28
PROPOSAL NO 5
TO RATIFY THE SELECTION
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Our
Audit Committee has selected the independent registered public accounting firm
of Ernst & Young LLP (
E&Y
)
to examine and audit our financial statements for the year ending December 26,
2009. A resolution to ratify this
selection will be presented at the meeting.
Stockholder ratification of the selection of
E&Y is not required under our by-laws or Delaware corporate law. Although not required to do so, the Board is
submitting the selection of E&Y for ratification by iPartys stockholders
for their views, as a matter of good corporate governance. If the stockholders do not ratify the
selection, the Audit Committee will consider the engagement of other
independent auditors and whether to retain E&Y but may, however, ultimately
determine to retain E&Y. However,
the Audit Committee retains the ultimate discretion to appoint or terminate the
appointment of our independent registered public accounting firm, irrespective
of the outcome of this Proposal No 5.
E&Y audited and reported
upon our financial statements for fiscal 2008.
In connection with that audit, E&Y also reviewed our Annual Report
on Form 10-K for the fiscal year ended December 27, 2008, quarterly
financial statements for the fiscal quarters ended March 29, 2008, June 28,
2008 and September 27, 2008, and our filings with the SEC, and consulted
with management as to the financial statement implications of matters under
consideration.
We
expect that one or more representatives of E&Y will be present at the
annual meeting. They will be afforded an opportunity to make a statement at the
annual meeting if they desire to do so and to respond to appropriate questions
by stockholders.
E&Y has advised us that
it has no direct, nor any indirect, financial interest in iParty or any of its
subsidiaries.
This
Proposal No. 5 to ratify the selection of E&Y as our independent
registered public accounting firm for fiscal 2009 requires the affirmative vote
of a majority of the votes cast at the meeting by the holders of outstanding
shares of all classes of our stock entitled to vote thereon who are present at
the meeting either in person or by proxy.
The Board recommends that you vote
FOR
this Proposal No. 5 to ratify the
selection of Ernst & Young LLP.
Unless you specify
otherwise, the Board intends the accompanying proxy to be voted for this
Proposal No. 5.
Information about the fees and services we paid to
E&Y in 2007 and 2008 is contained on page 44 of this proxy statement.
29
OWNERSHIP OF iPARTY STOCK
The following table shows
the number of shares of our common stock beneficially owned as of April 6,
2009 by:
·
each person or entity that we believe beneficially
owns more than 5% of our common stock,
·
each director and nominee for director,
·
each executive officer shown in the summary
compensation table on page 40 below, and
·
all executive officers and directors as a group.
Name of Beneficial Owner (1)
|
|
Number of
Common Shares
Beneficially Owned (2)
|
|
Percent of
Class
|
|
5% Stockholders
|
|
|
|
|
|
|
|
|
|
|
|
Robert H. Lessin
|
|
11,203,961
|
(3)
|
35.6
|
%
|
Jefferies &
Co.
520 Madison Ave., 12
th
Floor
New York, NY 10022
|
|
|
|
|
|
|
|
|
|
|
|
Roccia Partners, L.P.
|
|
3,080,926
|
(4)
|
12.1
|
%
|
c/o
Lorenzo Roccia
220 East 67
th
Street
New York, NY 10021
|
|
|
|
|
|
|
|
|
|
|
|
Naida S. Wharton
|
|
2,474,100
|
(5)
|
10.9
|
%
|
c/o
Sandra Minardo
520 Madison Ave., 12
th
Floor
New York, NY 10022
|
|
|
|
|
|
|
|
|
|
|
|
Highbridge International LLC
|
|
2,619,234
|
(6)
|
10.6
|
%
|
c/o
Eleazer N. Klein
Schulte Roth & Zabel LLP
919 Third Avenue
New York, NY 10022
|
|
|
|
|
|
|
|
|
|
|
|
Boston Millennia Partners, LP
|
|
1,365,200
|
(7)
|
5.7
|
%
|
30
Rowes Wharf, Suite 500
Boston, MA 02110
|
|
|
|
|
|
|
|
|
|
|
|
Patriot Capital Limited
|
|
1,184,803
|
(8)
|
5.0
|
%
|
c/o
Stephen Rasch
Loeb, Block and Partners LLP
505 Park Avenue
New York, NY 10022
|
|
|
|
|
|
|
|
|
|
|
|
Directors, Nominees for Director, and Executive
Officers
|
|
|
|
|
|
Sal V. Perisano
|
|
4,722,958
|
(9)
|
17.0
|
%
|
Dorice P. Dionne
|
|
4,722,958
|
(10)
|
17.0
|
%
|
David Robertson
|
|
84,895
|
(16)
|
0.1
|
%
|
Daniel I. De Wolf
|
|
470,000
|
(11)
|
2.1
|
%
|
Joseph S. Vassalluzzo
|
|
430,000
|
(12)
|
1.8
|
%
|
Frank W. Haydu III
|
|
285,000
|
(13)
|
1.1
|
%
|
Eric Schindler
|
|
260,000
|
(14)
|
1.0
|
%
|
Robert W. Jevon, Jr.
|
|
75,000
|
(15)
|
0.3
|
%
|
Boston
Millennia Partners, LP
30 Rowes Wharf, Suite 500
Boston, MA 02110
|
|
|
|
|
|
All executive officers and directors as a group (8 persons)
|
|
6,327,853
|
|
22.1
|
%
|
30
1.
Unless
otherwise indicated, all addresses are c/o iParty Corp., 270 Bridge Street, Suite 301,
Dedham, MA 02026.
2.
The
number of shares beneficially owned by each entity, person, director or named
executive officer is determined under SEC rules, particularly Rule 13d-3,
and the information is not necessarily indicative of beneficial ownership for
any other purpose. Under such rules,
each entity or individual is considered the beneficial owner of any shares as
to which they have the sole or shared voting power or investment power. Such persons and entities are also deemed
under the same rules to beneficially own any shares that they have the
right to acquire within sixty (60) days of April 6, 2009 (i.e., June 5,
2009) through the conversion of convertible preferred stock, the exercise of
stock options or warrants or other similar rights. This stock ownership information is based
upon information furnished to us by the persons named in the table. The percentage of class is calculated in
accordance with Rule 13d-3 and is based on 22,731,667 shares outstanding
as of April 6, 2009 plus, as to each holder thereof and no other person,
the number of shares (if any) that the person has the right to acquire on or
prior to June 5, 2009, through the exercise of stock options or warrants
or other similar rights and the conversion of Convertible Preferred Stock.
3.
Mr. Lessin
beneficially owns (1) 2,474,100 shares of common stock, (2) 200,000
shares of common stock that may be acquired upon the exercise of presently
exercisable options, (3) 273,268 shares of common stock that may be
acquired upon the exercise of presently exercisable warrants, (4) 1,841,950
shares of common stock that may be acquired upon the conversion of 125,000
shares of presently convertible Series B convertible preferred stock, (5) 3,652,250
shares of common stock which may be acquired upon the conversion of 250,000
shares of presently convertible Series D convertible preferred stock,
which constitutes all of the Series D convertible preferred stock, and (6) 2,762,393
shares of common stock which may be acquired upon the conversion of 266,666
shares of presently convertible Series E convertible preferred stock. The figure listed in the table does not
include any shares reflected as owned by Ms. Wharton, who was formerly Mr. Lessins
spouse (see footnote (5) below). Mr. Lessin
is the beneficially holder of more than 5% of the outstanding Series B
convertible preferred stock, Series D convertible preferred stock and Series E
convertible preferred stock.
4.
The
figure in the table for Roccia Partners, L.P. includes 2,406,056 shares of
common stock, which may be acquired upon the conversion of 179,610 shares of
presently convertible Series B convertible preferred stock held in the
name of Roccia Partners, L.P. The figure
also includes (1) 364,100 shares of common stock held in the name of
Roccia Venture Partners, L.P. and (2) 310,770 shares of common stock,
which may be acquired upon the conversion of 30,000 shares of presently
convertible Series E convertible preferred stock held in the name of
Roccia Venture Partners, L.P. Roccia
Venture Partners, L.P. is the beneficially holder of more than 5% of the
outstanding Series B convertible preferred stock, and Series E
convertible preferred stock.
5.
Ms. Wharton
beneficially owns 2,474,100 shares of common stock.
6.
The
figure in the table for Highbridge International LLC includes (1) 535,900
shares of common stock, and (2) 2,083,334 shares of common stock, which
may be acquired upon the exercise of a presently exercisable warrant.
7.
The
figure in the table for Boston Millennia Partners, LP includes 1,365,200 shares
of common stock that may be acquired upon the conversion of 100,000 shares of
presently convertible Series C convertible preferred stock owned by Boston
Millennia Partners, LP and an affiliated entity, which constitutes all of the Series C
convertible preferred stock. The figure
in the table does not include any of the shares beneficially owned by Mr. Jevon
described in footnote (15) below.
8.
The figure
in the table for Patriot Capital Limited includes 1,184,803 shares of common
stock, which may be acquired upon the conversion of 114,286 shares of presently
convertible Series F convertible preferred stock, which constitutes all of
the outstanding Series F Preferred Stock.
31
9.
Mr. Perisano
holds 204,700 shares of Common Stock jointly with his wife, Ms. Dionne,
and holds options for 4,518,258 shares, which are presently exercisable. The figure in the table includes options for
2,854,645 shares granted to Mr. Perisano and options for 1,663,613 shares
granted to Ms. Dionne. The figure
in the table includes 204,700 shares of common stock held jointly by Mr. Perisano
and Ms. Dionne.
10.
Ms. Dionne
holds 204,700 shares of Common Stock jointly with her husband, Mr. Perisano
and holds options for 4,518,258 shares, which are presently exercisable. The figure in the table includes options for
2,854,645 shares granted to Mr. Perisano, and options for 1,663,613 shares
granted to Ms. Dionne.
11.
Mr. De
Wolf beneficially owns 10,000 shares of common stock and holds options for
460,000 shares, which are presently exercisable or will be exercisable within
60 days of April 6, 2009. The owner of record of the 10,000 shares of
common stock is Pine Street Ventures LLC, a Delaware limited liability
company. The beneficial owners of Pine
Street Ventures are Mr. De Wolfs children. Mr. De Wolf controls sole voting power.
12.
Mr. Vassalluzzo
beneficially owns 140,000 shares of common stock and holds options for 290,000
shares, which are presently exercisable or will be exercisable within 60 days
of April 6, 2009.
13.
Mr. Haydu
beneficially owns 25,000 shares of common stock and holds options for 260,000
shares, which are presently exercisable or will be exercisable within 60 days
of April 6, 2009.
14.
Mr. Schindler
beneficially holds options for 260,000 shares, which are presently exercisable
or will be exercisable within 60 days of April 6, 2009.
15.
Mr. Jevon
beneficially owns 75,000 shares of common stock that may be acquired upon the
exercise of presently exercisable options. Mr. Jevon is employed by Boston
Millenia Partners, LP. Mr. Jevon has been awarded stock options, which are
presently exercisable, to purchase 75,000 shares of common stock, for serving
from February 2000 to June 2001 as director by appointment of Boston
Millenia Partners, LP. The figure for Mr. Jevon does not include any of
the shares described in footnote (7) above with respect to Boston Millenia
Partners, LP.
16.
Mr. Robertson
holds options for 425,000 shares, of which 84,895 are presently exercisable or
will be exercisable within 60 days of April 6, 2009.
BOARD
OF DIRECTORS AND CORPORATE GOVERNANCE MATTERS
The following table sets
forth the name and age of each of our directors, his or her position with us,
and the period during which he has served as a director. Each of our currently serving directors is a
nominee for reelection as a director at the meeting.
Name
|
|
Age
|
|
Position
|
|
Director
Since
|
Sal V. Perisano
|
|
58
|
|
Chairman of the Board,
Chief Executive Officer
|
|
1998
|
Daniel I. De Wolf
|
|
52
|
|
Director
|
|
2003
|
Frank W. Haydu III
|
|
61
|
|
Director
|
|
2003
|
Eric Schindler
|
|
48
|
|
Director
|
|
2003
|
Joseph S. Vassalluzzo
|
|
61
|
|
Director
|
|
2004
|
Series C
Director
|
|
|
|
|
|
|
(Elected only by holders
of Series C convertible preferred stock)
|
|
|
|
|
|
|
Robert W. Jevon, Jr.
|
|
56
|
|
Series C Director
|
|
2006
|
32
Sal V. Perisano,
age 58, has served as a director of
iParty since 1998 and its Chief Executive Officer since 1999. Mr. Perisano served as Chairman of the
Board and President of The Big Party Corporation from 1992 to 1998, and
continued serving as a director until 2000.
In 1981, he co-founded Videosmith, which became a leading video retailer
in the Boston area. In 1989, Videosmith
was sold to a publicly traded company called Xtravision PLC, which owned 250
stores throughout the U.K. and Ireland. Mr. Perisano
stayed on as a director and was later named Chief Executive Officer of the
parent company, which was subsequently acquired by Blockbuster Video. Mr. Perisano holds a bachelors degree
from Boston College and a masters degree from Harvard University. Mr. Perisano is married to Ms. Dorice
Dionne, who is employed by iParty as its Senior Vice President, Merchandising
and Marketing.
Daniel I. De Wolf
,
age 52, has served as a director of
iParty since 2003. Mr. De Wolf is a
member of the corporate practice in the New York office and Co-Chair of the
Ventures and Emerging Company Group of the law firm of Mintz, Levin, Cohen, Ferris,
Glovsky, and Popeo PC. In addition, he
is the President of the Dawntreader Group and a Managing Director of
Dawntreader Ventures, an early stage venture capital firm. Mr. De Wolf is also an adjunct professor
at the New York University Law School, where he teaches venture capital
law. From 1999 to 2003, Mr. De Wolf
was Director of Venture Capital Funds for SoundView Technology Group. Prior to
joining SoundView, Mr. De Wolf was Of Counsel with the law firm of Cahmy,
Karlinsky & Stein LLP (CKS) in New York City. Mr. De Wolf established the Corporate
and Securities Practice Group at CKS in 1994 and was the head of that firms
New Media and E-Law Group. Mr. De
Wolf has over 25 years of corporate transactional experience and has been an
advisor to many early and developmental stage companies. Mr. De Wolf is a graduate of the
University of Pennsylvania as well as the University of Pennsylvania School of
Law. Mr. De Wolf currently serves
as a director of various privately-held companies, including, HNW, Inc.,
Tutor.com, and Visible World.
Frank W. Haydu III
, age 61, has served as a director of
iParty and Chairman of our Audit Committee since November 2003. Since November 2001, Mr. Haydu has
served as a Managing Director of Valuation Perspectives, Inc., a financial
services consulting practice and since August 2005, has served in a
consulting capacity at Source Precision Medicine, a life sciences medical
supplier. Until May 2001, Mr. Haydu
served as the Chairman of Haydu & Lind, LLC, a senior living development
company. Mr. Haydu also serves as a
director of CombinatoRx, Inc. and several private companies. Mr. Haydu holds a Bachelor of Arts
degree in economics from Muhlenberg College.
Eric
Schindler,
age 48, has served as a director of iParty since 2003. Mr. Schindler serves as CEO of ESSA, a
medical aesthetics group in Argentina since 2007. Before 2007, Mr. Schindler headed the
investment banking division at Calyon Securities (USA) Inc., which was formerly
known as Crédit Lyonnais Securities (USA) Inc.
Before joining Crédit Lyonnais Securities in 1995, Mr. Schindler
was employed by Crédit Lyonnais La Défense in France, and was responsible for a
team of senior bankers for the banks global relationships with multinational
corporations in the infrastructure, engineering, telecommunications,
transportation, auto parts, and information systems sectors. Prior to this position, from 1989 to 1992, Mr. Schindler
was a Vice President responsible for Latin American debt restructurings and
debt/equity swaps. He also headed the
investment banking activities at Crédit Lyonnais Argentina from 1987 to
1989. Mr. Schindler is a former
director of Crédit Lyonnais Securities in New York and Crédit Lyonnais in
Brazil. Mr. Schindler has a
National Public Accountant degree from Universidad Católica Argentina and a
B.A. in two languages with a specialization in Economic Sciences from Académie
de Poitiers.
Joseph S.
Vassalluzzo,
age 61, has served as a director of iParty since
2004. From 2000 to 2005, Mr. Vassalluzzo
served as Vice Chairman of Staples, Inc., in which capacity he was
responsible for Staples store growth, both domestic and abroad, oversaw
Staples corporate environmental initiatives, and was responsible for its
merger and acquisition activities worldwide.
He first joined Staples, Inc. in 1989 as its Executive Vice
President, Growth & Support Services.
He was named Executive Vice President, Global Growth and Development of
Staples, Inc. in 1993, was promoted to President, Staples Realty &
Development in 1997, and was further promoted to Vice Chairman of Staples, Inc.
in 2000. Before joining Staples, Mr. Vassalluzzo
held executive positions at American Stores Co., Acme Supermarkets, Mobil Corp.
and Amerada Hess Corp. Mr. Vassalluzzo
currently serves as an independent director and non-executive Chairman of the
Board of Federal Realty Investment Trust, a publicly-held REIT, and as the lead
independent director of Life Time Fitness, Inc. Mr. Vassalluzzo holds a B.S. degree in
Marketing from Pennsylvania State University and an M.B.A. from Temple
University.
33
Robert W. Jevon, Jr.
, age 56, has served as a director of
iParty since 2006 and previously served as a director of iParty from 2000 to
2001. Since 2000, Mr. Jevon has served as a Partner of Boston Millennia
Partners, LP, a venture capital firm, having first joined the firm in 1997 as a
Principal. Mr. Jevons primary
investment focus is business services, health care and life sciences. Mr. Jevon currently serves on the Board
of Directors of Athenix Corp., MedAptus, Inc. and PHT Corporation. Prior to his current position, Mr. Jevon
was a Venture Affiliate of Boston Capital Ventures from 1995 to 1996 and was a
Principal of Watch Hill Corporation from 1993 to 1995. From 1989 to 1992, he was the Controller of
Bolt Beranek & Newmans Communications Division. He is a graduate of Haverford College and
holds an M.B.A. from Amos Tuck School at Dartmouth College.
Director Independence
Our Board of Directors has determined that each of the
six director-nominees is an independent director as defined under applicable rules of
the SEC and NYSE Amex,
except for
(1) Mr. Perisano, who serves as our Chief Executive Officer, and (2) Mr. Jevon,
who is an employee of Boston Millennia Partners, LP, which beneficially owns
all of the outstanding shares of our Series C convertible preferred stock,
which is entitled to designate the Series C Director. As a result, the Board of Directors has
determined that a majority of the director-nominees are independent under
applicable rules of the SEC and NYSE Amex.
Attendance at Annual Meeting and at Meetings of the Board and
Its Committees
Although we do not have a policy on our directors
attending our annual meeting, we normally expect each of our directors to be
present at the stockholders meeting. At last years annual meeting, four
of our six directors attended the meeting.
Mr. DeWolf and Mr. Schindler were unable to attend the 2008
Annual Meeting. Our Board held a total
of four meetings during 2008. Each director attended 75% or more of all
board meetings and committee meetings on which he served during 2008.
Board Committee Matters
Our Board of Directors
met four (4) times during 2008. Our
Board of Directors has three principal committees: the Audit Committee, the
Compensation Committee, and the Nominating Committee. All of the members of each of these
committees are independent directors as defined under applicable NYSE Amex rules and
rules of the SEC, including, in the case of the Audit Committee, the
additional independence criteria for determining eligibility for director
service on audit committees under applicable NYSE Amex and SEC rules.
In
addition to the principal committees described above, our Board of Directors
also has a Real Estate Committee, consisting of Messrs. Perisano and
Vassalluzzo, which considers, from time to time, certain store location and
store lease issues in conjunction with our senior management.
Our Board of Directors has adopted certain corporate
governance guidelines which are available on the Investor Relations page on
our licensed website at www.iparty.com.
The following charts describe the function and number
of times that each committee of the Board of Directors met in 2008 and the
membership of each committee:
Audit Committee 4 Meetings
Function
|
|
Members
|
·
|
Engage the independent registered public accounting
firm
|
|
Frank W. Haydu III
(Chairman)
|
·
|
Review the annual and quarterly financial statements
|
|
Daniel I. De Wolf
|
·
|
Review control procedures and accounting practices
|
|
Eric Schindler
|
·
|
Monitor accounting and reporting practices
|
|
|
·
|
Review compliance with the conflict-of-interest policy
|
|
|
·
|
Review our capital structure
|
|
|
·
|
Exercise such other
functions as mandated by the Sarbanes-Oxley Act and other applicable laws and
regulations
|
|
|
34
We have a
separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of
the Securities Exchange Act of 1934. Each member of our Audit Committee is independent
as defined under applicable rules of the SEC and the NYSE Amex. Our Board of Directors has also determined
that each of Messrs. Haydu, De Wolf and Schindler is an audit committee
financial expert as defined by applicable regulations promulgated by the SEC
pursuant to Section 407 of the Sarbanes-Oxley Act.
The Audit Committee has
adopted a charter which is available on the Investor Relations page on our
licensed website at www.iparty.com. We have also adopted a whistleblower
policy which is available on the Investor Relations page on our licensed
website at www.iparty.com.
See
the report of the Audit Committee on page 36 below.
Compensation Committee 2 Meetings
Function
|
|
Members
|
·
|
Review and approve compensation and benefit programs
|
|
Daniel I. De Wolf
(Chairman)
|
·
|
Determine compensation of senior executives
|
|
Frank W. Haydu III
|
·
|
Make recommendations to the full Board regarding
director compensation
|
|
Eric Schindler
|
·
|
Administer stock option plans
|
|
|
The
Compensation Committee, currently composed of three non-employee directors who
qualify as independent under applicable SEC and NYSE Amex rules, is
responsible for approving all matters concerning our total compensation
practices and philosophy, including the conducting of periodic reviews of those
practices and the philosophy that underlies them to ensure that they support
the objectives of iParty and the interests of its stockholders. In
particular, the Compensation Committee is responsible for the review and
recommendation to the full Board of Directors of the compensation of iPartys
Chief Executive Officer, review and approval of the compensation of our other
executive officers pursuant to employment agreements between iParty and such
executive officers, and review and approval of other employee benefit
plans. The Committee is also primarily responsible for assisting the full
Board in administering and interpreting our Amended and Restated 1998 Incentive
and Non-Qualified Stock Option Plan (and would serve a similar role with
respect to the 2009 Plan if adopted at the Annual Meeting). The Committee also
reviews and makes recommendations to the full Board regarding compensation
arrangements involving iPartys directors.
The
Companys Chief Executive Officer, Mr. Perisano, is not a member of the
Compensation Committee and does not vote at Compensation Committee meetings. Mr. Perisano
does, however, regularly attend Compensation Committee meetings, but does not
participate in executive sessions or discussions about his compensation.
Pursuant to the Compensation
Committees charter, the Committee may form and delegate to subcommittees of
the Committee its responsibilities. To date, however, the Compensation
Committee has not formed or delegated any of its responsibilities to any
subcommittees. To the extent permitted by and consistent with applicable law
and the provisions of a given equity-based plan, the Compensation Committees
charter allows the Committee to delegate to one or more executive officers of
the Company the power to grant options or other stock awards pursuant to an
equity based plan to employees of the Company who are not directors or
executive officers of the Company. To date, however, the Compensation Committee
has not delegated to any executive officer this power, nor does it presently
intend to do so.
The Compensation Committee
has sole authority to retain and/or terminate all external consultants to the
Compensation Committee and to commission surveys or analyses that it determines
necessary to fulfill its responsibilities. Additionally, the Compensation
Committee has sole authority to approve the fees of the external
consultants. The Compensation Committees
charter is available on the Investor Relations page on our licensed
website at www.iparty.com.
35
Nominating Committee 1 Meeting
Function
|
|
Members
|
·
|
Review and recommend to
the full Board nominations for election to the Board of Directors
|
|
Eric Schindler (Chairman)
|
|
|
|
Daniel
I. De Wolf
|
|
|
|
Frank
W. Haydu III
|
|
|
|
Joseph
S. Vassalluzzo
|
The Nominating Committee has
adopted a charter which is available on the Investor Relations page on our
licensed website at www.iparty.com.
The Nominating Committee
will consider candidates for our Board that are recommended by our stockholders
to the extent such nominations are provided no later than the deadline for
stockholder proposals and in the manner for stockholder proposals outlined
above on pages 7 and 8. The
Nominating Committee is committed to evaluating nominees recommended by our
stockholders no differently than other nominees. The Nominating Committee believes that all
nominees must possess, as a minimum qualification, the personal integrity
necessary to comply with all applicable legal and regulatory duties imposed on
directors of public companies, including without limitation, the fiduciary
duties of care and loyalty, and must possess sufficient business and other
relevant experience to be able to exercise business judgment in the best
interests of iParty and its stockholders.
Stockholder recommendations
for director should include: (i) the name and address of the stockholder
recommending the person to be nominated; (ii) a representation that the
stockholder is a holder of record of stock of iParty, including the number of
shares held and the period of holding; (iii) a description of all
arrangements or understandings between the stockholder and the recommended
nominee; (iv) such other information regarding the recommended nominee as
would be required to be included in a proxy statement filed pursuant to
Regulation 14A promulgated by the SEC pursuant to the Securities Exchange
Act of 1934, as amended; and (v) the consent of the recommended nominee to
serve as a director of iParty, if so elected.
It is expected that the Nominating Committee will have
direct input from the Chief Executive Officer. Input on nominees will also be
solicited from the other members of the Board.
Management and other external sources may also identify prospective
Director nominees.
Report of the Audit Committee
The Audit Committee
hereby states that it:
·
Has reviewed and discussed the audited financial statements as of and for the year ended December 27, 2008 with iPartys management;
·
Has discussed with iPartys independent auditors the matters required to be discussed by Statement on Auditing Standards No. 61, as amended (AICPA, Professional Standards Vol. 1, AU Section 380), as adopted by the Public Company Accounting Oversight Board (PCAOB) in Rule 3200T, as may be modified or supplemented, relating to the conduct of the audit;
·
Has received the written disclosures and the letter from the independent auditors required by PCAOB Ethics and Independence Rule 3526, Communicating with Audit Committees Concerning Independence, as may be modified or supplemented, and had discussed with the independent auditors the independent auditors independence; and
·
Based upon the above mentioned reviews and discussions, has recommended to the Board of Directors of iParty (and the Board of Directors has approved) that the audited financial statements be included in iPartys Annual Report on Form 10-K for the fiscal year ended December 27, 2008 for filing with the Securities and Exchange Commission, which was filed with the SEC on March 23, 2009.
36
The Audit Committee is solely responsible for the selection, compensation and oversight of the work of the independent registered public accounting firm for the purpose of preparing and issuing an audit report.
Management has primary responsibility for iPartys financial statements and the overall reporting process, including iPartys system of internal controls.
The independent auditors audit the annual financial statements prepared by management, express an opinion as to whether those financial statements fairly present the financial position, results of operations and cash flows of iParty in conformity with generally accepted accounting principles and discuss with us any issues they believe should be raised with us.
The Audit Committee oversees the financial reporting process on behalf of the Board of Directors, reviews iPartys financial disclosures, and meets privately, outside the presence of management, with the independent auditors to discuss internal accounting control policies and procedures. These discussions address the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments and the clarity of disclosures in iPartys financial statements. The Audit Committee reports on these meetings to the Board of Directors.
Pursuant
to applicable NYSE Amex rules, the Audit Committee certifies that it has
adopted a formal written Audit Committee Charter and that the Audit Committee
has a policy in accordance with said rules of the NYSE Amex of reviewing
and reassessing the adequacy of the Audit Committee Charter on an annual basis.
During
2008, iParty paid no fees to Ernst & Young LLP for consulting work
outside the review and audit of their financial statements and related tax
research and compliance tax return preparation.
Submitted by:
Frank
W. Haydu III,
Chairman
Daniel I. De Wolf
Eric Schindler
DIRECTOR
COMPENSATION
Section 3(b) of
our 1998 Plan provides that each non-employee director shall be granted, on the
effective date of the commencement of his term as director, an option to
purchase 25,000 shares of our common stock.
It further provides that each of our directors who is not an executive
officer shall be granted, on an annual basis on the last trading date in August of
each year, options to acquire 25,000 shares of common stock, at an exercise
price equal to the fair market value of the underlying common stock on the date
of grant.
Pursuant to Section 14(b) of the Stock
Option Plan, beginning in 2004, our Board of Directors has voted that, in lieu
of the stock option grants described in the preceding paragraph, only
independent directors shall be eligible to receive stock options by virtue of
their service as directors in amounts to be determined annually by the Board of
Directors. Accordingly, at a meeting
held on June 4, 2008 our Board of Directors (on recommendation of the
Compensation Committee) voted that each independent director (determined to be
each of Messrs. De Wolf, Haydu, Schindler and Vassalluzzo) would be
granted an option on June 4, 2008 exercisable for the purchase of 25,000
shares of our common stock and be paid a $25,000 cash payment in respect of his
service as a director. The Board of
Directors approved the Compensation Committees recommendation that each such
option would vest quarterly over a one-year period and the $25,000 cash payment
would be paid quarterly over a one-year period.
As a result of these determinations, each of Messrs. De Wolf,
Haydu, Schindler, and Vassalluzzo was granted an option exercisable for 25,000
shares. Each of these stock option
grants was made pursuant to the Stock Option Plan, at an exercise price equal
to the market price of our common stock at the close of business on the grant
date.
At that same meeting held on June 4, 2008, the Board of Directors
also voted to accept the Compensation Committees recommendation to engage Mr. Vassalluzzo
as a part-time consultant to our company for a one-year period at an annual fee
of $60,000. The Board of Directors voted
in favor of the Compensation Committees recommendation and our managements
proposal in this regard. Pursuant to
this arrangement, our Chairman and
37
CEO, Mr. Perisano,
consults with Mr. Vassalluzzo with respect to various retail, operational,
strategic, real estate and store location issues, as may from time to time be
necessary and appropriate. Such services
on occasion require Mr. Vassalluzzos presence at our corporate
headquarters in Dedham, Massachusetts and/or current or proposed store location
sites, principally in New England and Florida.
Also, at the June 4, 2008 meeting, the Board of Directors (on
recommendation of the Compensation Committee) voted that each independent
director would be paid an annual fee of the following amounts in cash, payable
in equal quarterly installments, for serving on the various committees of our
Board of Directors. This amount is in
addition to the annual director fee described above.
Director
|
|
Annual Committee
Compensation
|
|
Frank W. Haydu III
|
|
$
|
20,000
|
|
|
|
|
|
Eric Schindler
|
|
$
|
10,000
|
|
|
|
|
|
Daniel I. De Wolf
|
|
$
|
10,000
|
|
|
|
|
|
Joseph S. Vassalluzzo
|
|
$
|
25,000
|
|
DIRECTOR
COMPENSATION TABLE
The table below
summarizes the compensation that we paid our non-employee, independent
directors for the fiscal year ended December 27, 2008. Our one employee-director, our Chairman of
the Board and Chief Executive Officer, Mr. Perisano, earned no
compensation for his service as a director in 2008. Similarly, our other non-independent
director, Mr. Jevon, earned no compensation for his services as a director
in 2008.
|
|
|
|
|
|
|
|
|
|
Change in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
|
|
|
|
|
Fees
|
|
|
|
|
|
Non-Equity
|
|
Value and
|
|
|
|
|
|
|
|
Earned
|
|
|
|
|
|
Incentive
|
|
Nonqualified
|
|
|
|
|
|
|
|
or Paid in
|
|
Stock
|
|
Option
|
|
Plan
|
|
Deferred
|
|
All Other
|
|
|
|
Name
|
|
Cash
|
|
Awards
|
|
Awards
|
|
Compensation
|
|
Compensation
|
|
Compensation
|
|
Total
|
|
Daniel I. De Wolf
|
|
$
|
35,000
|
|
|
|
$
|
7,284
|
(1)
|
|
|
|
|
|
|
$
|
42,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Frank W. Haydu III
|
|
45,000
|
|
|
|
7,284
|
(1)
|
|
|
|
|
|
|
52,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eric Schindler
|
|
35,000
|
|
|
|
7,284
|
(1)
|
|
|
|
|
|
|
42,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph S. Vassalluzzo
|
|
50,000
|
|
|
|
7,284
|
(1)
|
|
|
|
|
$
|
60,000
|
(2)
|
117,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Reflects the
value of options granted, in amounts equal to the expense recognized for
financial reporting purposes in accordance with Statement of Financial
Accounting Standards No. 123(R),
Share Based Payment
.
(2)
Reflects
payments for consulting services rendered to us by Mr. Vassalluzzo
pursuant to consulting agreements in effect.
38
EXECUTIVE COMPENSATION
Executive Officers
The following sets forth
our current executive officers, their ages, the positions and offices held by
each person, and the year each person first served as an executive officer of
iParty. The officers serve at the discretion
of the Board of Directors.
Mr. Perisanos
background is
summarized on page 33 above.
Dorice P. Dionne,
age 57, has been iPartys Senior Vice
President, Merchandising and Marketing since April 1999. She co-founded The Big Party Corporation with
her husband, Sal Perisano, in 1992 in Boston.
She served as chief merchant and creative director of The Big Party and
has been involved in the party retailing industry since 1985. She is a graduate of Boston College.
David E. Robertson,
age 59, has served as iPartys Chief
Financial Officer since April 2007.
From January 2005 until April 2007, Mr. Robertson was
employed as a private accounting consultant, primarily in the area of
Sarbanes-Oxley compliance, for a variety of public and private
companies. From 1999 to 2005, Mr. Robertson
served as Vice President and Chief Financial Officer of Kitchen Etc. Inc., a
specialty (cooking and dining) retailer, headquartered in Exeter, New
Hampshire, which filed for Chapter 11 bankruptcy protection in 2004. From 1996 to 1999, he established and
operated a professional services firm based in Nashua, New Hampshire. From 1985 to 1996, he held a variety of
positions in the audit, accounting, and financial operations of Lechmere, Inc. From 1980 to 1985, Mr. Robertson worked
as an audit and accounting manager at Zayre Corp. (now TJX Companies).
From 1975 to 1979, he was employed in the audit division of Ernst &
Young. Mr. Robertson is a Certified
Public Accountant. He holds a bachelors
degree from Harvard College, and a masters degree from Northeastern
University.
39
SUMMARY COMPENSATION TABLE
The following table summarizes the compensation earned
during 2007 and 2008 (see footnote below) by our Chief Executive Officer, Chief
Financial Officer and other executive officers (the named executive officers)
that received total compensation during 2008 in excess of $100,000.
Name and Principal
Position
|
|
Year
|
|
Salary
|
|
Bonus
(1)
|
|
Option
Awards (2)
|
|
All Other
Compensation
|
|
Total
|
|
Sal V. Perisano,
Chief Executive Officer
|
|
2008
|
|
$
|
321,635
|
|
$
|
0
|
|
$
|
43,225
|
|
$
|
2,838
|
(3)
|
$
|
367,698
|
|
|
|
2007
|
|
$
|
309,135
|
|
$
|
20,650
|
|
$
|
28,580
|
|
$
|
2,129
|
(3)
|
$
|
360,494
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dorice P. Dionne,
Senior Vice President, Merchandising and Marketing
|
|
2008
|
|
$
|
192,981
|
|
$
|
0
|
|
$
|
17,290
|
|
$
|
2,730
|
(3)
|
$
|
213,001
|
|
|
|
2007
|
|
$
|
185,481
|
|
$
|
12,390
|
|
$
|
11,432
|
|
$
|
1,983
|
(3)
|
$
|
211,286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David E. Robertson,
Chief Financial Officer (4)
|
|
2008
|
|
$
|
164,677
|
|
$
|
0
|
|
$
|
13,436
|
|
$
|
594
|
(3)
|
$
|
178,707
|
|
|
|
2007
|
|
$
|
116,923
|
|
$
|
7,810
|
|
$
|
5,849
|
|
$
|
328
|
(3)
|
$
|
130,910
|
|
1.
These amounts reflect
bonuses earned in fiscal 2007 and fiscal 2008 under the Companys Executive
Incentive Compensation Plan. The
Compensation Committee determined not to pay any bonuses in 2008 under this
plan.
2.
These amounts reflect the
value of options granted, in amounts equal to the expense recognized in fiscal
2007 and 2008 for financial reporting purposes in accordance with Statement of
Financial Accounting Standards No. 123(R),
Share Based
Payment
. For a description of
the assumptions made in the valuation of these awards, see footnote 12 of the
Companys financial statements for the fiscal year ended December 27,
2008. There can be no assurance that the options will ever be exercised (in
which case no value will be realized by the holder). Additionally, there can be
no assurance that the FAS 123(R) amounts shown in the table will ever be
realized by the holder
3.
These amounts are for
additional term life insurance
4.
Mr. Robertson
joined iParty in April 2007.
Individual Compensation of Executive
Officers
Sal V. Perisano (Chief Executive Officer).
At
the beginning of fiscal 2007, we paid Mr. Perisano at an annualized base
salary rate of $300,000. On March 31,
2007 pursuant to the terms of a new three-year employment
agreement with Mr. Perisano,
dated March 22, 2007, we increased Mr. Perisanos annualized base
salary rate to $312,500 effective April 1, 2007, and to $325,000 on April 1,
2008. The agreement further provides that Mr. Perisanos annualized base
salary will increase to $337,500 for the period April 1, 2009 through March 31,
2010. Mr. Perisano has waived his
right to the salary increase that would have been effective April 1,
2009. The employment agreement provides
that Mr. Perisano is also eligible to participate in bonus plans as the
Compensation Committee of the Board may establish from time to time for our
senior executive officers. Under the
terms of his employment agreement, in the event of a termination not for cause
(as defined in the agreement), Mr. Perisano would be entitled to receive a
severance payment equal to 12 months salary at the base salary rate then in
effect, payable in 12 equal monthly installments, as well as the continuation of
his then current health, life and disability insurance benefits or, in the case
of health insurance benefits, payment by us of applicable COBRA payments, for
a period of 12 months. The agreement also provides that in the event of a
termination not for cause that occurs within 13 months of a change in control
(as defined in the agreement), Mr. Perisano would be entitled to receive a
severance payment equal to not less than 2.5 times and not more than 3.0 times
his annual salary rate then in effect,
40
payable
in a lump sum, as well as the continuation of his then current health, life and
disability insurance benefits or, in the case of health insurance benefits,
payment by us of applicable COBRA payments, for a period of 12 months. The agreement also provides for certain
payments to Mr. Perisano in the event he terminates his employment with us
for good reason (as defined in the agreement) and contains certain
non-competition and non-solicitation provisions. Pursuant to the employment agreement with Mr. Perisano,
our Board of Directors granted Mr. Perisano a stock option on June 6,
2007 exercisable for 375,000 shares of our Common Stock, at an exercise price
per share equal to the closing price of our Common Stock on that date.
Dorice P. Dionne (Senior Vice President,
Merchandising and Marketing).
At the beginning of fiscal
2007, we paid Dorice Dionne at an annualized base salary rate of $180,000. On March 31, 2007 pursuant to the terms
of a new three-year employment agreement with Ms. Dionne, dated March 22,
2007, we increased Ms. Dionnes annualized base salary to $187,500 on April 1,
2007, and to $195,000 on April 1, 2008.
The agreement further provides that Ms. Dionnes annualized base
salary will increase to $202,500 for the period April 1, 2009 through March 31,
2010. Ms. Dionne waived her rights
to the salary increase that would have been effective April 1, 2009. The employment agreement provides that Ms. Dionne
is also eligible to participate in bonus plans as the Compensation Committee of
the Board may establish from time to time for our senior executive
officers. Under the terms of her
employment agreement, in the event of a termination not for cause (as defined
in the agreement), Ms. Dionne would be entitled to receive a severance
payment equal to 12 months salary at the base salary rate then in effect,
payable in 12 equal monthly installments, as well as the continuation of her
then current health, life and disability insurance benefits or, in the case of
health insurance benefits, payment by us of applicable COBRA payments, for a
period of 12 months. The agreement also
provides that in the event of a termination not for cause that occurs within 13
months of a change in control (as defined in the agreement), Ms. Dionne
would be entitled to receive a severance payment equal to eighteen (18) months
of her base salary, payable in a lump sum, as well as the continuation of her
then current health, life and disability insurance benefits or, in the case of
health insurance benefits, payment by us of applicable COBRA payments, for a
period of 12 months. The agreement also
provides for certain payments to Ms. Dionne in the event she terminates
her employment with us for good reason (as defined in the agreement) and
contains certain non-competition and non-solicitation provisions. Pursuant to the employment agreement with Ms. Dionne,
our Board of Directors granted Ms. Dionne a stock option on June 6,
2007 exercisable for 150,000 shares of our Common Stock, at an exercise price
per share equal to the closing price of our Common Stock on that date.
David E. Robertson (Chief Financial Officer).
On March 22, 2007, we entered into a
letter agreement with David E. Robertson, pursuant to which Mr. Robertson
commenced employment with us as our Chief Financial Officer effective April 2,
2007. Our letter agreement with Mr. Robertson
provides that we shall pay him an annualized salary of $160,000, with annual
salary and performance reviews starting April 1, 2008. Mr. Robertsons annualized salary was
raised to $166,400 as of April 1, 2008.
Pursuant to the letter agreement, our Board of Directors granted Mr. Robertson
a stock option on June 6, 2007 exercisable for up to 125,000 shares of our
common stock, at an exercise price per share equal to the closing price of the
common stock on that date. Our letter agreement with Mr. Robertson also
entitles him to participate in iPartys Executive Incentive Compensation Plan
and various additional employee benefits, including health, dental and life
insurance and participation in our 401(k) defined contribution retirement
savings plan. Under the terms of the letter agreement, in the event of
termination not for cause, as defined in the letter agreement, Mr. Robertson
would be entitled to receive 6 months of severance pay, payable in accordance
with the normal payroll policies and procedures of the company, as well as the
continuation of health, dental and life insurance benefits on the companys
plans for a period of 6 months. On June 4,
2008 and on March 4, 2009, the Board of Directors granted Mr. Robertson
additional options to purchase up to 100,000 shares and up to 200,000 shares,
respectively, of our Common Stock at exercise prices equal to the closing
prices of our Common Stock on the date of grant.
Indemnification
of Directors and Executive Officers
Our restated certificate
of incorporation, as amended, and bylaws provide that iParty shall indemnify all
of its directors and officers to the fullest extent permitted by the Delaware
General Corporation Law. Under our
restated certificate of incorporation, as amended, and bylaws, any director or
officer, who in his or her capacity as such is made or threatened to be made,
party to any suit or proceeding, will be indemnified. A director or officer will be indemnified if
it is determined that the director or officer acted in good faith and in a
manner he or she reasonably believed to be in, or not opposed to, iPartys best
interests. Insofar as indemnification
for liabilities arising under the
41
Securities Act of 1933,
as amended, may be permitted to directors, officers and persons controlling
iParty pursuant to the foregoing provision, or otherwise, we have been advised
that in the opinion of the SEC such indemnification is against public policy
and is, therefore, unenforceable.
We maintain a directors
and officers liability insurance policy covering certain liabilities that may
be incurred by directors and officers in connection with the performance of
their duties. We pay the entire premium
for the liability insurance. We have
key-person life insurance policies on the lives of each of Mr. Perisano
and Ms. Dionne in the amount of $2,000,000 each.
Related
Party Transactions
Under SEC
rules, we are required to disclose transactions in excess of $120,000 in which
iParty was a participant in which related persons had or will have a direct
or indirect material interest. Related
persons include any of our directors, nominees for director, or executive
officers, and any immediate family members of such persons and any person
(including any group as such term is used in Section 13(d) of the
Exchange Act) who is known to iParty as a beneficial owner of more than 5% of
its voting common stock, and any immediate family member of a significant
shareholder. The term transaction is broadly defined under SEC rules to
include any financial transaction, arrangement or relationship, including any
indebtedness transaction or guarantee of indebtedness. Based on information available to us and
provided to us by our directors and executive officers, we do not believe that
there were any such transactions in effect since December 29, 2007, or any
such transactions proposed to be entered into during fiscal year 2009, except
as follows:
·
On September 15, 2006, we
entered into a Securities Purchase Agreement pursuant to which we raised $2.5
million through a combination of subordinated debt and warrants issued on September 15,
2006 to Highbridge International LLC (Highbridge), an institutional
accredited investor. Under the terms of the financing, we issued Highbridge a
three-year subordinated note (the Highbridge Note) that bears interest at an
interest rate of prime plus one percent. The note matures on September 15,
2009. In addition, we issued Highbridge a warrant (the Highbridge
Warrant) exercisable for 2,083,334 shares of iParty common stock at an
exercise price of $0.475 per share, or 125% of the closing price of iPartys
common stock on the day immediately prior to the closing of the transaction.
The agreements entered into by iParty and Highbridge in connection with the
financing provide for certain restrictions and covenants consistent with
Highbridge Internationals status as a subordinated lender, and also grant
Highbridge resale registration rights with respect to the shares of common
stock underlying the Highbridge Warrant.
In connection with the foregoing financing, we also amended our Rights
Agreement dated as of November 9, 2001, as amended September 15, 2006
(the
Rights Agreement
) to clarify
that issuance of the Highbridge Warrant does not constitute a triggering event
under our Rights Agreement.
42
Compensation
Committee Interlocks and Insider Participation
None of our
executive officers serves as a member of the compensation committee of any
other company that has an executive officer serving as a member of our Board of
Directors. None of our executive officers serves as a member of the board of
directors of any other company that has an executive officer serving as a
member of our Boards Compensation Committee.
None of the directors is a director or executive officer of any other
corporation that has a director or executive officer who is also a director of
the Company.
Outstanding
Equity Awards at end of Fiscal 2008
The following
table sets forth information concerning outstanding equity awards as of the end
of fiscal 2008 on December 27, 2008:
Name
|
|
Number of
Securities
Underlying
Unexercised
Options
(Exercisable)
|
|
Number of
Securities
Underlying
Unexercised
Options
(Unexercisable)
|
|
Option
Exercise Price
|
|
Option Expiration
Date
|
|
Sal V. Perisano
|
|
464,260
|
|
|
|
$
|
0.69
|
|
6/16/2010
|
|
|
|
1,478,772
|
|
|
|
$
|
0.25
|
|
3/9/2011
|
|
|
|
201,613
|
|
|
|
$
|
0.31
|
|
5/2/2012
|
|
|
|
460,000
|
|
|
|
$
|
0.95
|
|
3/31/2014
|
|
|
|
125,000
|
|
250,000
|
(1)
|
$
|
0.42
|
|
6/06/2017
|
|
|
|
|
|
|
|
|
|
|
|
Dorice P. Dionne
|
|
299,245
|
|
|
|
$
|
0.69
|
|
6/16/2010
|
|
|
|
913,400
|
|
|
|
$
|
0.25
|
|
3/9/2011
|
|
|
|
120,968
|
|
|
|
$
|
0.31
|
|
5/2/2012
|
|
|
|
230,000
|
|
|
|
$
|
0.95
|
|
3/31/2014
|
|
|
|
50,000
|
|
100,000
|
(1)
|
$
|
0.42
|
|
6/06/2017
|
|
|
|
|
|
|
|
|
|
|
|
David E. Robertson
|
|
46,874
|
|
78,126
|
(1)
|
$
|
0.42
|
|
6/6/2017
|
|
|
|
|
|
100,000
|
(2)
|
$
|
0.29
|
|
6/4/2018
|
|
(1)
|
Mr. Perisano and
Ms. Dionnes options vest in three equal installments on each of
March 31, 2008, March 31, 2009 and March 31, 2010.
Mr. Robertsons options vest 25% on the anniversary of the grant date
and then in equal monthly increments over the subsequent three years, vesting
in full on June 6, 2011.
|
(2)
|
Mr. Robertsons
stock options vest 25% after one year, then in equal monthly increments over
the subsequent three years, vesting in full on June 4, 2012.
|
43
Other Potential Post Employment
Payments
Upon the occurrence of certain triggering events, our
current employment agreements with each of Mr. Perisano and Ms. Dionne
and our letter agreement with Mr. Robertson require us to pay certain
amounts related to salary and insurance benefits to or on behalf of those
executive officers, as described below. The payments are subject to certain
non-competition, non-solicitation and confidentiality obligations. The following table presents estimates of the
amounts that would have been payable under our new agreements upon the
occurrence of each such event as of the end of our last fiscal year ended December 27,
2008 (assuming each such agreement had been in effect on such date):
Name
|
|
Termination
Without
Cause
|
|
Change in
Control (1)
|
|
Non-Renewal
of
Employment
Contract
|
|
Disability
|
|
Sal V. Perisano
|
|
$
|
331,135
|
|
$
|
981,135
|
|
$
|
165,567
|
|
$
|
201,135
|
|
Dorice P. Dionne
|
|
$
|
201,002
|
|
$
|
298,502
|
|
$
|
100,501
|
|
$
|
42,001
|
|
David E. Robertson
|
|
$
|
89,080
|
|
|
|
|
|
|
|
(1)
In
the event of a change of control, the salary related amounts would be paid as a
lump sum, and the insurance related amounts in monthly installments. For all other triggering events, all amounts
would be paid in monthly or weekly installments.
Pension
Benefits
We did not
have any plan that provides for payments or other benefits at, following, or in
connection with retirement with any of our named executive officers during the
fiscal year ended December 27, 2008. Accordingly, we have omitted the
table otherwise required to be included detailing such compensation to our
named executive officers during our most recently completed fiscal year.
Nonqualified Deferred Compensation
We did not
give any nonqualified deferred compensation to any of our named executive
officers during the fiscal year ended December 27, 2008. Accordingly, we have omitted the table
otherwise required to be included detailing such compensation made for the last
fiscal year to our named executive officers.
INDEPENDENT REGISTERED ACCOUNTING FIRMS FEES AND SERVICES
The following table
specifies the fees for professional services rendered by E&Y for the audit
of our annual financial statements for fiscal 2007 and fiscal 2008 and fees
billed for audit-related services, tax services, and all other services by
E&Y in fiscal 2007 and fiscal 2008.
|
|
Fiscal 2007
|
|
Fiscal 2008
|
|
Audit Fees
|
|
$
|
290,000
|
|
$
|
280,000
|
|
Audit Related Fees
|
|
|
|
|
|
Tax Fees
|
|
47,020
|
|
38,000
|
|
All Other Fees
|
|
|
|
|
|
Totals
|
|
$
|
337,020
|
|
$
|
318,000
|
|
44
Audit Fees
These are fees related to professional services rendered in connection
with the audit of our annual financial statements included in our Annual Report
on Form 10-K for fiscal 2007 and fiscal 2008, the reviews of the financial
statements included in each of our Quarterly Reports on Form 10-Q, and
accounting consultations that relate to the audited financial statements and
are necessary to comply with generally accepted auditing standards. E&Y expresses its views concerning, but
does not audit, and is not required to audit, our internal control over financial
reporting.
Audit-Related Fees
We did not pay E&Y for any audit-related fees in fiscal 2007 or
fiscal 2008. Audit-related fees would be
fees for things such as assurance and related services, such as audits of
employee benefit plans.
Tax Fees
These are fees for professional services related to tax return
preparation services and tax compliance services.
Audit Committees Pre-approval Policy and
Procedures
The Audit Committee of our Board of Directors has adopted policies and
procedures for the pre-approval of audit and non-audit services for the purpose
of maintaining the independence of our independent auditors. We may not engage our independent auditors to
render any audit or non-audit service unless either the service is approved in
advance by the Audit Committee or the engagement to render the service is
entered into pursuant to the Audit Committees pre-approval policies and
procedures. The Audit Committee may
pre-approve services that are expected to be provided to iParty by the
independent auditors during the following 12 months. At the time such pre-approval is granted, the
Audit Committee must (1) identify the particular pre-approved services in
a sufficient level of detail so that management will not be called upon to make
judgment as to whether a proposed service fits within the pre-approved services
and (2) establish a monetary limit with respect to each particular
pre-approved service, which limit may not be exceeded without obtaining further
pre-approval under the policy. At regularly
scheduled meetings of the Audit Committee, management or the independent
auditors must report to the Audit Committee regarding each service actually
provided to iParty.
During fiscal 2008, no services were provided to iParty by E&Y
other than in accordance with the pre-approval policies and procedures
described above.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING
COMPLIANCE
No
person who, during the fiscal year ended December 27, 2008, was a
director, officer or beneficial owner of more than ten percent of our common
stock (which is the only class of our securities registered under Section 12
of the Exchange Act), failed to file on a timely basis, reports required by Section 16
of the Exchange Act during the most recent fiscal year. The foregoing is based solely upon our review
of Forms 3 and 4 during the most recent fiscal year as furnished to us under Rule 16a-3(d) under
the Act, and Forms 5 and amendments thereto furnished to us with respect to our
most recent fiscal year.
OTHER MATTERS
The Board of Directors is not aware of any other matters, which may
come before the annual meeting. If any
other matters should properly come before the annual meeting, the persons named
in the enclosed proxy will vote on such matters as they may determine, in their
discretion.
45
Exhibit A
iPARTY CORP.
2009 STOCK INCENTIVE PLAN
1.
Purpose
The
purpose of this 2009 Stock Incentive Plan (the
Plan
) of iParty Corp., a Delaware corporation (the
Company
), is to advance the interests of
the Companys stockholders by enhancing the Companys ability to attract,
retain and motivate persons who make (or are expected to make) important
contributions to the Company and by providing such persons with equity
ownership opportunities and performance-based incentives and thereby better
aligning the interests of such persons with those of the Companys stockholders.
Except where the context otherwise requires, the term
Company
shall include any present or
future subsidiary corporations of iParty Corp. as defined in Section 424(e) or
(f) of the Internal Revenue Code of 1986, as amended, and any regulations
promulgated thereunder (the
Code
)
and any other business venture (including without limitation, joint venture or
limited liability company) in which the Company has a controlling interest, as
determined by the Board of Directors of the Company (the
Board
) .
2.
Eligibi
lity
All of
the Companys employees, officers, directors, consultants, advisors and other
service providers are eligible to be granted options, stock appreciation rights
(
SARs
), restricted stock,
restricted stock units, other stock-based awards and performance awards (each,
an
Award
) under the Plan. Any
person who has been granted an Award under the Plan shall be deemed a
Participant
.
3.
Administration;
Delegation
(a)
Administration by Board of Directors
.
The Plan will be administered by the
Board. The Board shall have authority to grant Awards and to adopt, amend and
repeal such administrative rules, guidelines and practices relating to the Plan
as it shall deem advisable. The Board may construe and interpret the terms of
the Plan and any Award agreements entered into under the Plan. The Board may
correct any defect, supply any omission or reconcile any inconsistency in the
Plan or any Award in the manner and to the extent it shall deem expedient to
carry the Plan into effect and it shall be the sole and final judge of such
expediency. All decisions by the Board shall be made in the Boards sole
discretion and shall be final and binding on all persons having or claiming any
interest in the Plan or in any Award. No director or person acting pursuant to
the authority delegated by the Board shall be liable for any action or
determination relating to or under the Plan made in good faith.
(b)
Appointment of Committees
.
To the extent permitted by applicable
law, the Board may delegate any or all of its powers under the Plan to one or
more committees or subcommittees of the Board (a
Committee
). The Board shall appoint one such Committee of not
less than two members, each member of which shall be (i) an
independent director
within the meaning of
Section 803 of NYSE Amex Company Guide (or as defined under the listing
standards of such other securities exchange on which the Companys shares are
then listed), (ii) an
outside director
within the meaning of Section 162(m) of the Code and (iii) a
non-employee director
as defined in Rule 16b-3
promulgated under the Securities Exchange Act of 1934 (the
Exchange Act
). All references in the Plan
to the
Board
shall mean the
Board or a Committee of the Board to the extent that the Boards powers or
authority under the Plan have been delegated to such Committee.
4.
Stock
Available for Awards
(a)
Number of Shares; Share Counting
(1)
Authorized Number of Shares
.
Subject to adjustment under
Section 4(c)
,
Awards may be made under the Plan for up to 1,322,894 shares of common stock,
$0.001 par value per share, of the Company (the
Common Stock
). In addition, if any option granted under the
Amended and Restated 1998 Incentive and Nonqualified Option Plan (the
1998 Plan
) expires, is terminated,
surrendered or cancelled without having been fully exercised,
is forfeited in whole or
in part, then in each such case the unused Common Stock covered by such option
shall be available for grant of Awards under the Plan, including, but not
limited to, any such shares cancelled or exchanged under any stockholder
approved option exchange program involving the 1998 Plan and subject, however,
in the case of Incentive Stock Options, to any limitations under the Code. Shares
of Common Stock tendered to the Company to (A) purchase shares of Common
Stock upon the exercise of any such option or (B) satisfy tax withholding
obligations (including shares retained from the option creating the tax
obligation) shall not be added back to the number of shares available for the
future grant of Awards under the Plan. Shares issued under the Plan may consist
in whole or in part of authorized but unissued shares or treasury shares as
determined from time to time by the Board.
(2)
Share Counting Rules
.
For purposes of counting the number of shares available for the grant of Awards
under the Plan and under the sublimits contained in
Sections
8(b)
and
9(b)
, (i) all shares of Common Stock covered by
independent SARs (as defined in
Section 7(b)
)
shall be counted against the number of shares available for the grant of Awards
under the Plan; provided, however, that independent SARs that may be settled in
cash only shall not be so counted; (ii) if any Award (A) expires or is
terminated, surrendered or canceled without having been fully exercised or is
forfeited in whole or in part (including as the result of shares of Common
Stock subject to such Award being repurchased by the Company at the original
issuance price pursuant to a contractual repurchase right) or (B) results
in any Common Stock not being issued (including as a result of an independent
SAR that was settleable either in cash or in stock actually being settled in
cash), the unused Common Stock covered by such Award shall again be available
for the grant of Awards; provided, however, in the case of Incentive Stock
Options (as hereinafter defined), the foregoing shall be subject to any
limitations under the Code; and provided further, in the case of independent
SARs, that the full number of shares subject to any stock-settled SAR shall be
counted against the shares available under the Plan regardless of the number of
shares actually used to settle such SAR upon exercise; (iii) shares of
Common Stock tendered to the Company by a Participant to (A) purchase
shares of Common Stock upon the exercise of an Award or (B) satisfy tax
withholding obligations (including shares retained from the Award creating the
tax obligation) shall not be added back to the number of shares available for
the future grant of Awards; and (iv) shares of Common Stock repurchased by
the Company on the open market using the proceeds from the exercise of an Award
shall not increase the number of shares available for future grant of Awards.
(b)
Sub-limits
.
Subject to adjustment under
Section 4(c)
, the following sub-limits
on the number of shares subject to Awards shall apply:
(1)
Section 162(m) Per-Participant
Limit
.
The maximum
number of shares with respect to which Awards may be granted to any Participant
under the Plan shall be 3,500,000 per fiscal year. For purposes of the
foregoing limit, the combination of an Option in tandem with an SAR (as each is
hereafter defined) shall be treated as a single Award. The per-Participant
limit described in this
Section 4(b)(1)
shall
be construed and applied consistently with Section 162(m) of the Code
or any successor provision thereto, and the regulations thereunder (
Section 162(m)
).
(c)
Adjustment to Common Stock
.
In the event of any stock split, reverse
stock split, stock dividend, recapitalization, combination of shares,
reclassification of shares, spin-off or other similar change in capitalization
or event, or any dividend or distribution to holders of Common Stock other than
an ordinary cash dividend, (i) the number and class of securities
available under this Plan, (ii) the sub-limits and share counting rules set
forth in
Sections 4(a)
,
8(b)
and
9(b)
, (iii) the number and class of securities and
exercise price per share of each outstanding Option, (iv) the share- and
per-share provisions and the exercise price of each SAR, (v) the number of
shares subject to and the repurchase price per share subject to each
outstanding Restricted Stock Award and (vi) the share- and per-share
provisions and the purchase price, if any, of each outstanding Other
Stock-Based Award, shall be equitably adjusted by the Board (or substituted
Awards may be made, if applicable).
(d)
Substitute Awards
.
In connection with a merger or
consolidation of an entity with the Company or the acquisition by the Company
of property or stock of an entity, the Board may grant Awards in substitution
for any options or other stock or stock-based awards granted by such entity or
an affiliate thereof. Substitute Awards may be granted on such terms as the
Board deems appropriate in the circumstances, notwithstanding any limitations
on Awards contained in the Plan. Substitute Awards shall not count against the
overall share limit set forth in
Section 4(a)(1)
,
except as may be required by reason of Section 422 and related provisions
of the Code.
2
5.
Stock
Options
(a)
General
.
The Board may grant options to purchase
Common Stock (each, an
Option
)
and determine the number of shares of Common Stock to be covered by each
Option, the exercise price of each Option and the conditions and limitations
applicable to the exercise of each Option, including conditions relating to
applicable federal or state securities laws, as it considers necessary or
advisable. An Option that is not intended to be an Incentive Stock Option (as
hereinafter defined) shall be designated a
Nonstatutory
Stock Option
.
(b)
Incentive Stock Options
.
An Option that the Board intends to be
an
incentive stock option
as
defined in Section 422 of the Code (an
Incentive
Stock Option
) shall only be granted to employees of the Company and
shall be subject to and shall be construed consistently with the requirements
of
Section 422
of the Code. The
Company shall have no liability to a Participant, or any other party, if an
Option (or any part thereof) that is intended to be an Incentive Stock Option
is not an Incentive Stock Option, or for any action taken by the Board,
including without limitation the conversion of an Incentive Stock Option to a
Nonstatutory Stock Option.
(c)
Exercise Price
.
The Board shall establish the exercise
price of each Option at the time of grant and specify it in the applicable
option agreement; provided, however, that the exercise price shall be not less
than 100% of the fair market value (the
Fair
Market Value
) of the Common Stock, as determined by (or in a manner
approved by) the Board, at the time the Option is granted.
(d)
Duration of Options
.
Each Option shall be exercisable at such
times and subject to such terms and conditions as the Board may specify in the
applicable option agreement; provided, however, that no Option will be granted
with a term in excess of 10 years.
(e)
Exercise of Option
.
Options may be exercised by delivery to
the Company of a written notice of exercise signed by the proper person or by
any other form of notice (including electronic notice) acceptable to the Board,
together with payment in full as specified in
Section 5(f)
for
the number of shares for which the Option is exercised. Shares of Common Stock
subject to the Option will be delivered by the Company following exercise as
soon as practicable following satisfaction of all conditions to the issuance
thereof.
(f)
Payment Upon Exercise
.
Common Stock purchased upon the exercise
of an Option granted under the Plan shall be paid for as follows:
(1) in
cash or by check, payable to the order of the Company;
(2) except as may otherwise be provided in the
applicable option agreement, by (i) delivery of an irrevocable and
unconditional undertaking by a creditworthy broker to deliver promptly to the
Company sufficient funds to pay the exercise price and any required tax
withholding or (ii) delivery by the Participant to the Company of a copy
of irrevocable and unconditional instructions to a creditworthy broker to
deliver promptly to the Company sufficient funds to pay the exercise price and
any required tax withholding;
(3) to
the extent provided for in the applicable option agreement or approved by the
Board, in its sole discretion, by delivery (either by actual delivery or
attestation) of shares of Common Stock owned by the Participant valued at their
Fair Market Value, provided (i) such method of payment is then permitted
under applicable law, (ii) such Common Stock, if acquired directly from
the Company, was owned by the Participant for such minimum period of time, if
any, as may be established by the Board in its discretion and (iii) such
Common Stock is not subject to any repurchase, forfeiture, unfulfilled vesting
or other similar requirements;
(4) to
the extent permitted by applicable law and provided for in the applicable
option agreement or approved by the Board, in its sole discretion, by (i) delivery
of a promissory note of the Participant to the Company on terms determined by the
Board or (ii) payment of such other lawful consideration as the Board may
determine; or
(5) by
any combination of the above permitted forms of payment.
3
(g)
Limitation on Repricing
.
Unless such action is approved by the
Companys stockholders: (1) no outstanding Option granted under the Plan
may be amended to provide an exercise price per share that is lower than the
then-current exercise price per share of such outstanding Option (other than
adjustments pursuant to
Section 4(c)
)
and (2) the Board may not cancel any outstanding option (whether or not
granted under the Plan) and grant in substitution therefor new Awards under the
Plan covering the same or a different number of shares of Common Stock and having
an exercise price per share lower than the then-current exercise price per
share of the cancelled option.
(h)
No Reload Options
.
No Option granted under the Plan shall
contain any provision entitling the Participant to the automatic grant of
additional Options in connection with any exercise of the original Option.
6.
Director
Options
(a)
Initial Grant
.
Upon the commencement of service on the
Board by any individual who is not then an employee of the Company or any
subsidiary of the Company, the Company may grant to such person a Nonstatutory
Stock Option to purchase such number of shares of Common Stock as the Board may
determine in its sole discretion.
(b)
Annual Grant
.
On the date of each annual meeting of
stockholders of the Company, the Company may grant to each member of the Board
of Directors of the Company who is both serving as a director of the Company
immediately prior to and immediately following such annual meeting and who is
not then an employee of the Company or any of its subsidiaries, a Nonstatutory
Stock Option to purchase such number of shares of Common Stock as the Board may
determine in its sole discretion; provided, however, that a director shall not
be eligible to receive an option grant under this
Section 6(b)
until such director has served on the
Board for at least six months. At such other times as the Board may determine
in its discretion, the Board may grant other Nonstatutory Stock Options to
purchase such number of shares of Common Stock as the Board may determine in
its sole discretion.
(c)
Terms of Director Options.
Options
granted under this
Section 6
shall (i) have an exercise price no less than 100% of the Fair Market
Value on the date of grant, (ii) expire on the earlier of 10 years from
the date of grant or at such other time as the Board may determine at the time
of grant and (iii) contain such other terms and conditions as the Board
shall determine.
(d)
Board Discretion
.
The Board retains the specific authority
to from time to time increase or decrease the number of shares subject to
Options granted under this
Section 6
.
The Board also retains the specific authority to issue SARs, Restricted Stock
Awards or Other Stock-Based Awards in addition to or in lieu of some or all of
the Options otherwise issuable under this
Section 6
.
7.
Stock
Appreciation Rights
(a)
General
.
The Board may grant Awards consisting of
a SAR entitling the holder, upon exercise, to receive an amount in cash or
Common Stock or a combination thereof (such form to be determined by the Board)
determined in whole or in part by reference to appreciation, from and after the
date of grant, in the fair market value of a share of Common Stock over the
exercise price established pursuant to
Section 7(c)
.
SARs may be based solely on appreciation in the fair market value of Common
Stock or on a comparison of such appreciation with some other measure of market
growth such as (but not limited to) appreciation in a recognized market index. The
date as of which such appreciation or other measure is determined shall be the
exercise date unless another date is specified by the Board in the SAR Award.
(b)
Grants
.
SARs may be granted in tandem with, or
independently of, Options granted under the Plan.
(1)
Tandem Awards
.
When SARs are expressly granted in
tandem with Options, (i) the SAR will be exercisable only at such time or
times, and to the extent, that the related Option is exercisable (except to the
extent designated by the Board in connection with a Reorganization Event or a
Change in Control Event) and will be exercisable in accordance with the
procedure required for exercise of the related Option; (ii) the SAR will
terminate and no longer be exercisable upon the termination or exercise of the
related Option, except to the extent designated
4
by the Board in
connection with a Reorganization Event or a Change in Control Event and except
that a SAR granted with respect to less than the full number of shares covered
by an Option will not be reduced until the number of shares as to which the
related Option has been exercised or has terminated exceeds the number of
shares not covered by the SAR; (iii) the Option will terminate and no
longer be exercisable upon the exercise of the related SAR; and (iv) the
SAR will be transferable only with the related Option.
(2)
Independent SARs
.
A SAR not expressly granted in tandem
with an Option will become exercisable at such time or times, and on such
conditions, as the Board, subject to the other terms of the Plan, may specify
in the SAR Award.
(c)
Exercise Price
.
The Board shall establish the exercise
price of each SAR on the date of grant and specify it in the applicable SAR
agreement. The exercise price shall not be less than 100% of the Fair Market
Value on the date the SAR is granted.
(d)
Duration of SARs
.
Each SAR shall be exercisable at such
times and subject to such terms and conditions as the Board may specify in the
applicable SAR agreement; provided, however, that no SAR will be granted with a
term in excess of 10 years.
(e)
Exercise of SARs
.
SARs may be exercised by delivery to the
Company of a written notice of exercise signed by the proper person or by any
other form of notice (including electronic notice) acceptable to the Board,
together with any other documents required by the Board.
(f)
Limitation on Repricing
.
Unless such action is approved by the
Companys stockholders: (1) no outstanding SAR granted under the Plan may
be amended to provide an exercise price per share that is lower than the
then-current exercise price per share of such outstanding SAR (other than
adjustments pursuant to
Section 4(c)
)
and (2) the Board may not cancel any outstanding SAR (whether or not
granted under the Plan) and grant in substitution therefor new Awards under the
Plan covering the same or a different number of shares of Common Stock and
having an exercise price per share lower than the then-current exercise price
per share of the cancelled SAR.
8.
Restricted
Stock; Restricted Stock Units
(a)
General
.
The Board may grant Awards entitling
recipients to acquire shares of Common Stock (
Restricted Stock
), subject to the right of the Company to
repurchase all or part of such shares at their issue price or other stated or
formula price (or to require forfeiture of such shares if issued at no cost)
from the recipient in the event that conditions specified by the Board in the
applicable Award are not satisfied prior to the end of the applicable
restriction period or periods established by the Board for such Award. Instead
of granting Awards for Restricted Stock, the Board may grant Awards entitling
the recipient to receive shares of Common Stock or cash to be delivered at the
time such Award vests (
Restricted Stock
Units
) (Restricted Stock and Restricted Stock Units are each referred
to herein as a
Restricted Stock Award
).
(b)
Terms and Conditions for all
Restricted Stock Awards
. The Board shall determine the terms and
conditions of a Restricted Stock Award, including the conditions for vesting
and repurchase (or forfeiture) and the issue price, if any. Notwithstanding any
other provision of this Plan (other than
Section 10(i)
,
if applicable), the Board may, in its discretion, either at the time a
Restricted Stock Award is made or at any time thereafter, waive its right to
repurchase shares of Common Stock (or waive the forfeiture thereof) or remove
or modify any part or all of the restrictions applicable to the Restricted
Stock Award, provided that the Board may only exercise such rights in
extraordinary circumstances which shall include, without limitation, death or
disability of the Participant; estate planning needs of the Participant; a
merger, consolidation, sale, reorganization, recapitalization, or Change in
Control of the Company; or any other nonrecurring significant event affecting
the Company, a Participant or the Plan.
5
(c)
Additional Provisions Relating to
Restricted Stock
.
(1)
Dividends
.
Participants holding shares of Restricted Stock will be entitled to all ordinary
cash dividends paid with respect to such shares, unless otherwise provided by
the Board. Unless otherwise provided by the Board, if any dividends or
distributions are paid in shares, or consist of a dividend or distribution to
holders of Common Stock other than an ordinary cash dividend, the shares, cash
or other property will be subject to the same restrictions on transferability
and forfeitability as the shares of Restricted Stock with respect to which they
were paid. Each dividend payment will be made no later than the end of the
calendar year in which the dividends are paid to shareholders of that class of
stock or, if later, the 15
th
day of the third
month following the date the dividends are paid to shareholders of that class
of stock.
(2)
Stock Certificates
.
The Company may require that any stock certificates issued in respect of shares
of Restricted Stock shall be deposited in escrow by the Participant, together
with a stock power endorsed in blank, with the Company (or its designee). At
the expiration of the applicable restriction periods, the Company (or such
designee) shall deliver the certificates no longer subject to such restrictions
to the Participant or if the Participant has died, to the beneficiary
designated, in a manner determined by the Board, by a Participant to receive
amounts due or exercise rights of the Participant in the event of the
Participants death (the
Designated
Beneficiary
). In the absence of an effective designation by a
Participant,
Designated Beneficiary
shall mean the Participants estate.
(d)
Additional Provisions Relating to
Restricted Stock Units
.
(1)
Settlement
. Upon the
vesting of and/or lapsing of any other restrictions (i.e., settlement) with
respect to each Restricted Stock Unit, the Participant shall be entitled to
receive from the Company one share of Common Stock or an amount of cash equal
to the Fair Market Value of one share of Common Stock, as provided in the
applicable Award agreement. The Board may, in its discretion, provide that
settlement of Restricted Stock Units shall be deferred, on a mandatory basis or
at the election of the Participant.
(2)
Voting Rights
. A
Participant shall have no voting rights with respect to any Restricted Stock
Units.
(3)
Dividend Equivalents
.
To the extent provided by the Board, in its sole discretion, a grant of
Restricted Stock Units may provide Participants with the right to receive an
amount equal to any dividends or other distributions declared and paid on an
equal number of outstanding shares of Common Stock (
Dividend Equivalents
). Dividend Equivalents may be paid
currently or credited to an account for the Participants, may be settled in
cash and/or shares of Common Stock and may be subject to the same restrictions
on transfer and forfeitability as the Restricted Stock Units with respect to
which paid, as determined by the Board in its sole discretion, subject in each
case to such terms and conditions as the Board shall establish, in each case to
be set forth in the applicable Award agreement.
(e)
Deferred Delivery of Shares
.
The Board may, at the time any Restricted
Stock Award is granted, provide that, at the time Common Stock would otherwise
be delivered pursuant to the Award, the Participant shall instead receive an
instrument evidencing the right to future delivery of Common Stock at such time
or times, and on such conditions, as the Board may specify.
9.
Other Stock-Based Awards
(a)
General
. Other Awards
of shares of Common Stock, and other Awards that are valued in whole or in part
by reference to, or are otherwise based on, shares of Common Stock or other
property, may be granted hereunder to Participants (
Other Stock-Based Awards
), including without limitation
Awards entitling recipients to receive shares of Common Stock to be delivered
in the future. Such Other Stock-Based Awards shall also be available as a form
of payment in the settlement of other Awards granted under the Plan or as
payment in lieu of compensation to which a Participant is otherwise entitled. Other
Stock-Based Awards may be paid in shares of Common Stock or cash, as the Board
shall determine.
(b)
Terms and Conditions
.
Subject to the provisions of the Plan, the Board shall determine the terms and
conditions of each Other Stock-Based Award, including any conditions for
vesting and repurchase (or forfeiture) and any purchase price applicable
thereto. Notwithstanding any other provision of this Plan (other than
Section 10(i)
, if applicable), the
Board may, in its discretion, either at the time a Other Stock-Based Award is
made or at any
6
time thereafter, waive
its right to repurchase shares of Common Stock (or waive the forfeiture
thereof) or remove or modify any part or all of the restrictions applicable to
the Other Stock-Based Award, provided that the Board may only exercise such
rights in extraordinary circumstances which shall include, without limitation,
death or disability of the Participant; estate planning needs of the
Participant; a merger, consolidation, sale, reorganization, recapitalization,
or Change in Control of the Company; or any other nonrecurring significant
event affecting the Company, a Participant or the Plan.
10.
General Provisions Applicable
to Awards
(a)
Transferability of Awards
.
Awards shall not be sold, assigned,
transferred, pledged or otherwise encumbered by the person to whom they are
granted, either voluntarily or by operation of law, except by will or the laws
of descent and distribution or, other than in the case of an Incentive Stock
Option, pursuant to a qualified domestic relations order, and, during the life
of the Participant, shall be exercisable only by the Participant; provided,
however, that the Board may permit or provide in an Award for the gratuitous
transfer of the Award by the Participant to or for the benefit of any immediate
family member, family trust or other entity established for the benefit of the
Participant and/or an immediate family member thereof if, with respect to such
proposed transferee, the Company would be eligible to use a Form S-8 for
the registration of the sale of the Common Stock subject to such Award under
the Securities Act of 1933, as amended; provided, further, that the Company
shall not be required to recognize any such transfer until such time as the
Participant and such permitted transferee shall, as a condition to such
transfer, deliver to the Company a written instrument in form and substance
satisfactory to the Company confirming that such transferee shall be bound by
all of the terms and conditions of the Award. References to a Participant, to
the extent relevant in the context, shall include references to authorized
transferees.
(b)
Documentation
.
Each Award shall be evidenced in such
form (written, electronic or otherwise) as the Board shall determine. Each Award
may contain terms and conditions in addition to those set forth in the Plan.
(c)
Board Discretion
.
Except as otherwise provided by the
Plan, each Award may be made alone or in addition or in relation to any other
Award. The terms of each Award need not be identical, and the Board need not
treat Participants uniformly.
(d)
Termination of Status
.
The Board shall determine the effect on
an Award of the disability, death, termination of employment, retirement,
authorized leave of absence or other change in the employment or other status
of a Participant and the extent to which, and the period during which, the
Participant, or the Participants legal representative, conservator, guardian
or Designated Beneficiary, may exercise rights under the Award.
(e)
Reorganization Events; Change of
Control Events
.
(1)
Definitions
. A
Reorganization Event
shall mean (a) any
merger or consolidation of the Company with or into another entity as a result
of which all of the Common Stock of the Company is converted into or exchanged
for the right to receive cash, securities or other property or is cancelled, (b) any
exchange of all of the Common Stock of the Company for cash, securities or
other property pursuant to a share exchange transaction or (c) any
liquidation or dissolution of the Company. A
Change
of Control Event
shall have the meaning set forth on
Annex A
hereto.
(2)
Consequences of a Reorganization
Event on Awards
. Subject to
Section 10(e)(3)
,
in connection with a Reorganization Event, the Board shall take any one or more
of the following actions as to all or any outstanding Awards on such terms as
the Board determines: (i) provide that Awards shall be assumed, or
substantially equivalent Awards shall be substituted, by the acquiring or
succeeding corporation (or an affiliate thereof), (ii) upon written notice
to a Participant, provide that the Participants unexercised Options or other
unexercised Awards will terminate immediately prior to the consummation of such
Reorganization Event unless exercised by the Participant within a specified
period following the date of such notice, (iii) provide that outstanding
Awards shall become exercisable, realizable, or deliverable, or restrictions
applicable to an Award shall lapse, in whole or in part prior to or upon such
Reorganization Event, (iv) in the event of a Reorganization Event under
the terms of which holders of Common Stock will receive upon consummation
thereof a cash payment for each share surrendered in the Reorganization Event
(the
Acquisition Price
), make or
provide for a cash payment to a Participant equal to the
7
excess, if any, of (A) the
Acquisition Price times the number of shares of Common Stock subject to the
Participants Options or other Awards (to the extent the exercise price does
not exceed the Acquisition Price) over (B) the aggregate exercise price of
all such outstanding Options or other Awards and any applicable tax
withholding, in exchange for the termination of such Options or other Awards, (v) provide
that, in connection with a liquidation or dissolution of the Company, Awards
shall convert into the right to receive liquidation proceeds (if applicable,
net of the exercise price thereof and any applicable tax withholdings) and (vi) any
combination of the foregoing. To the extent all or any portion of an Award
becomes exercisable solely as a result of clause (ii) above, the Board may
provide that upon exercise of such Award the Participant shall receive shares
subject to a right of repurchase by the Company or its successor at the Award
exercise price; such repurchase right (A) shall lapse at the same rate as
the Award would have become exercisable under its terms and (B) shall not
apply to any shares subject to the Award that were exercisable under its terms
without regard to clause (ii) above.
For purposes of clause (i) above,
an Option shall be considered assumed if, following consummation of the
Reorganization Event, the Option confers the right to purchase, for each share
of Common Stock subject to the Option immediately prior to the consummation of
the Reorganization Event, the consideration (whether cash, securities or other
property) received as a result of the Reorganization Event by holders of Common
Stock for each share of Common Stock held immediately prior to the consummation
of the Reorganization Event (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding shares of Common Stock); provided, however, that if the
consideration received as a result of the Reorganization Event is not solely
common stock of the acquiring or succeeding corporation (or an affiliate
thereof), the Company may, with the consent of the acquiring or succeeding
corporation, provide for the consideration to be received upon the exercise of
Options to consist solely of common stock of the acquiring or succeeding
corporation (or an affiliate thereof) equivalent in value (as determined by the
Board) to the per share consideration received by holders of outstanding shares
of Common Stock as a result of the Reorganization Event.
(3)
Consequences of Change of Control
Events
.
Except to
the extent otherwise provided in the instrument evidencing an Award or in any
other agreement between a Participant and the Company, (i) upon the
occurrence of a Change of Control Event, all Options and SARs then outstanding
shall automatically become immediately exercisable in full and (ii) the
restrictions and conditions on all other Awards then outstanding shall be
deemed waived only if and to the extent specified (whether at the time of grant
or otherwise) by the Board.
(f)
Withholding.
Each Participant shall pay to the
Company, or make provision satisfactory to the Company for payment of, any
taxes required by law to be withheld in connection with Awards granted to such
Participant. The Board, in its sole discretion, may allow Participants to
satisfy such tax obligations in whole or in part by delivery of shares of
Common Stock, including shares retained from the Award creating the tax
obligation, valued at their Fair Market Value; provided, however, that, except
as otherwise provided by the Board, the total tax withholding where stock is
being used to satisfy such tax obligations cannot exceed the Companys minimum
statutory withholding obligations (based on minimum statutory withholding rates
for federal and state tax purposes, including payroll taxes, that are
applicable to such supplemental taxable income). Shares surrendered to satisfy
tax withholding requirements cannot be subject to any repurchase, forfeiture,
unfulfilled vesting or other similar requirements. The Company may, to the
extent permitted by law, deduct any such tax obligations from any payment of
any kind otherwise due to a Participant.
(g)
Amendment of Award
.
Except as otherwise provided in
Section 5(g)
with respect to
option repricing,
Section 7(f)
with
respect to SAR repricing,
Sections 8(b)
or
9(b)
with respect to the
vesting of Restricted Stock Awards and Other Stock-Based Awards,
Section 10(i)
with respect to
Performance Awards or
Section 11(d)
with
respect to actions requiring shareholder approval, the Board may amend, modify
or terminate any outstanding Award, including but not limited to, substituting
therefor another Award of the same or a different type, changing the date of
exercise or realization, and converting an Incentive Stock Option to a
Nonstatutory Stock Option and converting an option into a SAR. The Participants
consent to such action shall be required unless (i) the Board determines
that the action, taking into account any related action, would not materially
and adversely affect the Participant, (ii) the change is permitted under
Section 4(c)
or
10(e)
hereof or (iii) the Board
determines that the change is necessary to make the Award comply with Section 409A
of the Code (provided that this clause (iii) shall not be deemed to create
a duty on the Board to make such changes).
8
(h)
Conditions on Delivery of Stock
.
The Company will not be obligated to
deliver any shares of Common Stock pursuant to the Plan or to remove
restrictions from shares previously delivered under the Plan until (i) all
conditions of the Award have been met or removed to the satisfaction of the Company,
(ii) in the opinion of the Companys counsel, all other legal matters in
connection with the issuance and delivery of such shares have been satisfied,
including any applicable securities laws and any applicable stock exchange or
stock market rules and regulations, and (iii) the Participant has
executed and delivered to the Company such representations or agreements as the
Company may consider appropriate to satisfy the requirements of any applicable
laws, rules or regulations.
(i)
Performance Awards
.
(1)
Grants
. Restricted
Stock Awards and Other Stock-Based Awards under the Plan may be made subject to
the achievement of performance goals pursuant to this
Section 10(i)
(
Performance
Awards
), subject to the limits in
Section 4(b)(1)
on
shares covered by such grants. Subject to
Section 10(i)(4)
,
no Performance Awards shall vest prior to the first anniversary of the date of
grant. Performance Awards can also provide for cash payments of up to $500,000
per fiscal year per individual.
(2)
Committee
. Grants of
Performance Awards to any Covered Employee intended to qualify as
performance-based compensation
under Section 162(m) (
Performance-Based Compensation
) shall be
made only by a Committee (or subcommittee of a Committee) comprised solely of
two or more directors eligible to serve on a committee making Awards qualifying
as
performance-based compensation
under Section 162(m). In the case of such Awards granted to Covered
Employees, references to the Board or to a Committee shall be deemed to be
references to such Committee or subcommittee.
Covered Employee
shall mean any person who is, or who the
Committee, in its discretion, determines may be, a covered employee under Section 162(m)(3) of
the Code.
(3)
Performance Measures
.
For any Award that is intended to qualify as Performance-Based Compensation,
the Committee shall specify that the degree of granting, vesting and/or payout
shall be subject to the achievement of one or more objective performance
measures established by the Committee, which shall be based on the relative or
absolute attainment of specified levels of one or any combination of the
following: (a) earnings per share, (b) return on average equity or
average assets in relation to a peer group of companies designated by the
Company, (c) earnings, (d) earnings growth, (e) earnings before
interest, taxes, deduction and amortization (EBITDA), (f) operating
income, (g) operating margins, (h) revenues, (i) expenses, (j) stock
price, (k) market share, (l) chargeoffs, (m) reductions in
non-performing assets, (n) return on sales, assets, equity or investment, (o) regulatory
compliance, (p) satisfactory internal or external audits, (q) improvement
of financial ratings, (r) achievement of balance sheet or income statement
objectives, (s) net cash provided from continuing operations, (t) stock
price appreciation, (u) total shareholder return, (v) cost control, (w) strategic
initiatives, (x) net operating profit after tax, (y) pre-tax or
after-tax income, (z) cash flow, or (aa) such other objective goals
established by the Committee, and may be absolute in their terms or measured
against or in relationship to other companies comparably, similarly or
otherwise situated. The Committee may specify that such performance measures
shall be applied by excluding the impact of charges for restructurings,
discontinued operations, extraordinary items, and other unusual or
non-recurring items, and the cumulative effects of accounting changes, each as
defined by generally accepted accounting principles. Such performance measures:
(i) may vary by Participant and may be different for different Awards, (ii) may
be particular to a Participant or the department, branch, line of business,
subsidiary or other unit in which the Participant works and may cover such
period as may be specified by the Committee; and (iii) shall be set by the
Committee within the time period prescribed by, and shall otherwise comply with
the requirements of, Section 162(m).
(4)
Adjustments
.
Notwithstanding any provision of the Plan, with respect to any Performance
Award that is intended to qualify as Performance-Based Compensation, the
Committee may adjust downwards, but not upwards, the cash or number of Shares
payable pursuant to such Award, and the Committee may not waive the achievement
of the applicable performance measures except in the case of the death or
disability of the Participant or a Change in Control.
(5)
Other Restrictions
.
The Committee shall have the power to impose such other restrictions on
Performance Awards as it may deem necessary or appropriate to ensure that such
Awards satisfy all requirements for
Performance-Based
Compensation
.
9
11.
Miscellaneous
(a)
No Right To Employment or Other
Status
.
No person
shall have any claim or right to be granted an Award, and the grant of an Award
shall not be construed as giving a Participant the right to continued
employment or any other relationship with the Company. The Company expressly
reserves the right at any time to dismiss or otherwise terminate its
relationship with a Participant free from any liability or claim under the
Plan, except as expressly provided in the applicable Award.
(b)
No Rights As Stockholder
.
Subject to the provisions of the
applicable Award, no Participant or Designated Beneficiary shall have any
rights as a stockholder with respect to any shares of Common Stock to be
distributed with respect to an Award until becoming the record holder of such
shares. Notwithstanding the foregoing, in the event the Company effects a split
of the Common Stock by means of a stock dividend and the exercise price of and
the number of shares subject to an Option are adjusted as of the date of the
distribution of the dividend (rather than as of the record date for such
dividend), then an optionee who exercises an Option between the record date and
the distribution date for such stock dividend shall be entitled to receive, on
the distribution date, the stock dividend with respect to the shares of Common
Stock acquired upon such Option exercise, notwithstanding the fact that such
shares were not outstanding as of the close of business on the record date for
such stock dividend.
(c)
Effective Date and Term of Plan;
Effect on 1998 Plan
.
The
Plan shall become effective on the date the Plan is approved by the Companys
stockholders (the
Effective Date
)
and shall remain in full force and effect until terminated by the Board. No
Awards shall be granted under the Plan after the completion of 10 years from
the Effective Date, but Awards previously
granted may extend beyond that date. From and after the Effective Date, no new
awards shall be granted under the Companys 1998 Plan.
(d)
Amendment of Plan
.
The Board may amend, suspend or
terminate the Plan or any portion thereof at any time, provided that (1) to
the extent required by Section 162(m), no Award granted to a Participant
that is intended to comply with Section 162(m) after the date of such
amendment shall become exercisable, realizable or vested, as applicable to such
Award, unless and until such amendment shall have been approved by the Companys
stockholders if required by Section 162(m) (including the vote
required under Section 162(m)); (2) no amendment that would require
stockholder approval under the rules of the NYSE Amex (or such other
securities exchange that the Companys common stock is then listed) may be made
effective unless and until such stockholder approval is obtained. In addition,
if at any time the approval of the Companys stockholders is required as to any
other modification or amendment under Section 422 of the Code or any
successor provision with respect to Incentive Stock Options, the Board may not
effect such modification or amendment without such approval.
(e)
Compliance With Code Section 409A
.
No Award shall provide for deferral of compensation that does not comply with Section 409A
of the Code, unless the Board, at the time of grant, specifically provides that
the Award is not intended to comply with Section 409A of the Code. The
Company shall have no liability to a Participant, or any other party, if an
Award that is intended to be exempt from, or compliant with, Section 409A
is not so exempt or compliant or for any action taken by the Board.
(f)
Governing Law
.
The provisions of the Plan and all
Awards made hereunder shall be governed by and interpreted in accordance with
the laws of the State of Delaware, without regard to any applicable conflicts
of law.
10
ANNEX A
DEFINITION OF CHANGE OF CONTROL EVENT
For
the purpose of this Plan, a
Change of
Control
shall mean:
(a) The
acquisition by an individual, entity or group (within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended (the
Exchange Act
))(a
Person
) of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or
more of either (i) the then-outstanding shares of common stock of the
Company (the
Outstanding Company Common
Stock
) or (ii) the combined voting power of the
then-outstanding voting securities of the Company entitled to vote generally in
the election of directors (the
Outstanding
Company Voting Securities
); provided, however, that for purposes of
this subsection (a), the following acquisitions shall not constitute a Change
of Control: (i) any acquisition directly from the Company, (ii) any
acquisition by the Company, (iii) any acquisition by any employee benefit
plan (or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company, or (iv) any acquisition by any
corporation pursuant to a transaction which satisfies the criteria set forth in
clauses (i), (ii) and (iii) of subsection (c) of this
definition; or
(b) Individuals
who, as of the date hereof, constitute the Board (the
Incumbent Board
) cease for any reason to
constitute at least a majority of the Board; provided, however, that any
individual becoming a director subsequently to the date hereof whose election,
or nomination for election by the Companys stockholders, was approved by a
vote of at least a majority of the directors then comprising the Incumbent
Board shall be considered as though such individual were a member of the
Incumbent Board (except that this proviso shall not apply to any individual
whose initial assumption of office as a director occurs as a result of an
actual or threatened election contest with respect to the election or removal
of directors or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board); or
(c) Consummation
of a reorganization, merger or consolidation involving the Company or a sale or
other disposition of all or substantially all of the assets of the Company (a
Business Combination
), in each case,
unless, immediately following such Business Combination, (i) all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 50% of, respectively, the
then-outstanding shares of common stock and the combined voting power of the
then-outstanding voting securities entitled to vote generally in the election
of directors, of the corporation resulting from such Business Combination
(which as used in section (c) of this definition shall include, without
limitation, a corporation which as a result of such transaction owns the
Company or all or substantially all of the Companys assets either directly or
through one or more subsidiaries) in substantially the same proportions as
their ownership, immediately prior to such Business Combination, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be, (ii) no Person (excluding any corporation resulting from
such Business Combination or any employee benefit plan (or related trust) of
the Company or such corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 50% or more of, respectively, the
then outstanding shares of common stock of the corporation resulting from such
Business Combination, or the combined voting power of the then-outstanding
voting securities of such corporation and (iii) at least half of the
members of the board of directors of the corporation resulting from such
Business Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board, providing
for such Business Combination; or
(d) Approval
by the stockholders of the Company of a complete liquidation or dissolution of
the Company.
11
Exhibit B
CERTIFICATE OF AMENDMENT
TO
RESTATED CERTIFICATE OF INCORPORATION
OF
iPARTY CORP.
iParty
Corp., a corporation organized and existing under the laws of the State of
Delaware, hereby certifies as follows:
1. The
name of the corporation is iParty Corp.
2. This
Amendment to the Restated Certificate of Incorporation has been duly adopted in
accordance with the provisions of Section 242 of the General Corporation
Law of the State of Delaware.
3.
This Amendment to the Restated Certificate of Incorporation amends Article Fourth
of the Restated Certificate of Incorporation of the corporation, as heretofore
amended, supplemented and restated, by adding at the end of Article Fourth
a new paragraph, which shall read in its entirety as follows:
3.
Upon
the filing and effectiveness (the
Effective
Time
) of this amendment to the Corporations Certificate of
Incorporation pursuant to the Delaware General Corporation Law, each [
]*
shares of the Common Stock (the
Old Common
Stock
) issued and outstanding immediately prior to the Effective
Time shall be reclassified and combined into one validly issued, fully paid and
non-assessable share of the Corporations common stock, $.001 par value per
share (the
New Common Stock
),
without any action by the holder thereof. The Corporation shall not issue
fractions of shares of New Common Stock in connection with such
reclassification and combination. Shareholders who, immediately prior to the
Effective Time, own a number of shares of Old Common Stock which is not evenly
divisible by [
]*
shall, with respect to such fractional interest, be entitled to receive cash
from the Corporation in lieu of fractions of shares of New Common Stock from
the disposition of such fractional interest as provided below. The Corporation
shall pay in cash the fair value of such fractional interest as of the Effective
Date based on the average closing sales price of the Common Stock as reported
on NYSE Amex for the four trading days preceding the Effective Date. Each
certificate that theretofore represented shares of Old Common Stock shall
thereafter represent that number of shares of New Common Stock into which the
shares of Old Common Stock represented by such certificate shall have been
reclassified and combined; provided, that each person holding of record a stock
certificate or certificates that represented shares of Old Common Stock shall
receive, upon surrender of such certificate or certificates, a new certificate
or certificates evidencing and representing the number of shares of New Common
Stock to which such person is entitled under the foregoing reclassification and
combination.
4. This
Amendment to the Restated Certificate of Incorporation shall be effective at
5:00 p.m., Eastern Time, on [
, 2009].
IN WITNESS WHEREOF
, this Certificate of
Amendment to the Restated Certificate of Incorporation has been executed by a
duly authorized officer of the corporation this
day of ,
2009
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iParty
Corp.
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Sal Perisano
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Chief Executive
Officer
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*Stockholders are being
asked to approve the combination of any number of our pre-split common stock
between and including five and thirty into one share of our post-split common
stock. The Certificate of Amendment filed with the Secretary of State of the
State of Delaware will include the actual exchange ratio determined by us to be
in
the best interests of
iParty and its stockholders. The Board of Directors may also elect not to
effect the Reverse Stock Split, in which case this proposed amendment to our
Restated Certificate of Incorporation will be abandoned. In accordance with the
resolutions to be adopted by the stockholders, we will not implement any
amendment providing for an exchange ratio outside the range described in this
proxy statement.
iParty Corp.
THIS
PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF iPARTY CORP. FOR THE
ANNUAL
MEETING OF STOCKHOLDERS TO BE HELD ON MAY 27, 2009
The
undersigned, as a holder of shares of common stock, par value $.001 per share,
and/or shares of Series B convertible preferred stock, par value $.001 per
share, and/or shares of Series C convertible preferred stock, par value
$.001 per share, and/or shares of Series D convertible preferred stock,
par value $.001 per share, and/or shares of Series E convertible preferred
stock, par value $.001 per share, and/or shares of Series F convertible
preferred stock, par value $.001 per share (collectively, Shares), of iParty
Corp., a Delaware corporation (the Company), hereby appoints Mr. Sal V.
Perisano and Mr. David E. Robertson, and each of them individually, as
proxies for the undersigned, with full power of substitution in each of them,
to attend the Annual Meeting of Stockholders of the Company to be held at the
offices of Posternak Blankstein & Lund LLP located at Prudential
Tower, 800 Boylston St., 33rd Floor, Boston, MA 02199, on Wednesday, May 27,
2009 at 11:00 a.m., local time, and any adjournments or postponements
thereof (the Annual Meeting), to cast on behalf of the undersigned all votes
that the undersigned is entitled to cast at such meeting with respect to
Proposals Nos. 1, 2, 3, 4 and 5 set forth below and to vote and otherwise
represent the undersigned on any other matter that may properly come before the
meeting or any adjournment or postponement thereof in the discretion of the
proxy holder. The undersigned hereby acknowledges receipt of the accompanying
Proxy Statement and revokes any proxy heretofore given with respect to such
meeting.
You
may revoke this proxy at any time before it has been exercised by filing a
written revocation with the Secretary of the Company at the address of the
Company, by filing a duly executed proxy bearing a later date or by appearing
in person and voting by ballot at the Annual Meeting.
The votes entitled to be cast by the undersigned
will be cast as instructed below. If this proxy is executed but no instruction
is given, the votes entitled to be cast by the undersigned will be cast for
each of the nominees for director in Proposal 1 and for Proposals Nos. 2, 3,
4 and 5 and in the discretion of the proxy holder on any other matter that may
properly come before the meeting or any adjournment or postponement thereof.
Please mark your choice like this
:
ý
YOUR
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR PROPOSALS NOS. 1,
2, 3, 4 and 5.
Proposal No. 1
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¨
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For
each of the following nominees for director: Sal V. Perisano, Daniel I. De
Wolf, Frank W. Haydu III, Eric Schindler, Joseph S. Vassalluzzo, and Robert
W. Jevon, Jr.* and as more fully described in the accompanying Proxy
Statement.
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¨
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Withhold
authority as to all listed nominees.
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¨
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For all nominees
except
the following:
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*
To be elected only by a vote of the holders of the Series C convertible
preferred stock.
Proposal
No. 2
-
To approve the 2009 Stock Incentive plan,
as more fully described in the
accompanying Proxy Statement.
(check
one box)
¨
For
¨
Against
¨
Abstain
Proposal No. 3
To approve an amendment to the Companys Restated Certificate of
Incorporation to effect a reverse stock split, pursuant to which the existing
shares of the Companys common stock would be combined into new shares of
Company common stock at an exchange ratio ranging between one-for-five and
one-for-thirty, with the exchange ratio to be determined by the Board of
Directors,
as more fully described in the accompanying Proxy
Statement.
(check
one box)
¨
For
¨
Against
¨
Abstain
Proposal
No. 4
To approve a one-time option repricing / exchange under which eligible
employees (including named executive officers and non-employee independent directors)
would be able to elect to exchange certain outstanding stock options issued
under our Amended and Restated 1998 Incentive and Nonqualified Stock Option
Plan for a fewer number of lower priced options with the same vesting
conditions and term, as more
fully described in the accompanying Proxy Statement.
(check
one box)
¨
For
¨
Against
¨
Abstain
Proposal
No. 5
-
To ratify the selection of Ernst & Young LLP as the
independent registered public accounting firm for the Company for the fiscal
year ending December 26, 2009, as more fully described in the accompanying
Proxy Statement.
(check
one box)
¨
For
¨
Against
¨
Abstain
¨
CHECK HERE ONLY IF YOU PLAN TO ATTEND THE
ANNUAL MEETING IN PERSON
Print
and sign your name below exactly as it appears on the records of iParty Corp.
and date this card. When signing as
attorney, executor, administrator, trustee, guardian or in another
representative capacity, please give full title, as such. Joint owners should each sign. If a corporation, please sign in full
corporate name by president or authorized officer. If a partnership, please sign in partnership
name by an authorized person.
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Date:
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,
2009
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Signature
(title, if any)
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Signature,
if held jointly
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