FIVE STAR PRODUCTS, INC. STOCK OPTION AGREEMENT
Exhibit
10.2
FIVE
STAR
PRODUCTS, INC.
AGREEMENT,
dated July 17, 2007 (the “Grant Date”), between Five Star Products, Inc., a
Delaware corporation (the “Company”), with an address at 00 Xxxx 00xx Xxxxxx,
Xxxxx 0000, Xxx Xxxx, XX 00000, and Xxx Xxxxxxx (the “Grantee”), with an address
c/o 00 Xxxx 00xx Xxxxxx, Xxxxx 0000, Xxx Xxxx, XX 00000.
WHEREAS,
the Board of Directors of the Company has, on the Grant Date, pursuant to the
Five Star Products, Inc. 2007 Incentive Stock Plan, a copy of which is annexed
hereto as Exhibit A (the “Plan”; capitalized terms used but not defined herein
having the meanings ascribed thereto in the Plan), granted to the Grantee
options to purchase shares of the common stock, par value $.01 per share, of
the
Company (the “Common Stock”), as hereinafter set forth, and authorized the
execution and delivery of this Agreement;
NOW,
THEREFORE, the parties hereto agree as follows:
1. The
Grantee is hereby granted options (the “Options”) to purchase from the Company,
subject to the terms and conditions set forth in this Agreement, all or any
part
of 125,000 shares of Common Stock (the “Option Shares”) at an initial purchase
price of $ 0.78 per share; provided, however that notwithstanding any other
provision of this Agreement, the Options granted are contingent upon approval
of
the Plan by the shareholders of the Company as provided in Section 16
hereof.
2. The
Options shall be exercisable as follows and subject to the continuous employment
of the Grantee with the Company until the applicable vesting date:
(a) Unless
sooner terminated as hereinafter provided, this Option shall become vested
and
exercisable up to 33.3% of the Option Shares on the date of filing (such filing
date, the “1 Vesting Date”) of the Company’s Annual Report on Form 10-K (“Form
10-K”) with the Securities and Exchange Commission (the “SEC”) for the fiscal
year ending December 31, 2007 (“Fiscal 2007”), subject to the Company’s
achieving Adjusted EBITDA (as defined below) of at least $5,000,000 for Fiscal
2007. For purposes of this Agreement “Adjusted EBITDA” means earnings
before interest, taxes, depreciation, amortization and extraordinary items
and
Nonrecurring Items (as defined in the Plan), all determined in accordance with
generally accepted accounting principles consistently applied.
(b) Unless
sooner terminated as hereinafter provided, this Option shall become vested
and
exercisable up to 33.3% of the Option Shares on the date of filing (such filing
date, the “2nd Vesting Date”) of the Company’s Form 10-K with the SEC for the
fiscal year ending December 31, 2008 (“Fiscal 2008”), subject to the Company’s
achieving Adjusted EBITDA of at least $7,500,000 for Fiscal 2008.
(c) Unless
sooner terminated as hereinafter provided, this Option shall become vested
and
exercisable up to 33.4% of the Option Shares on the date of filing (such filing
date, the “3rd Vesting Date”) of the Company’s Form 10-K with the SEC for the
fiscal year ending
December 31, 2009 (“‘Fiscal 2009”), subject to the Company’s achieving Adjusted
EBITDA of at least $11,250,000 for Fiscal 2009.
(d) If,
on the 3rd Vesting Date, the Company’s aggregate Adjusted EBITDA for Fiscal
2007, Fiscal 2008 and Fiscal 2009 equals or exceeds $23,750,000, then any Option
Shares that did not vest on the 1st Vesting Day, 2nd Vesting Date or 3rd Vesting
Day shall become vested and exercisable on the 3rd Vesting Date.
(e) Notwithstanding
any other provision of this Agreement to the contrary, in the event that Grantee
is employed by the Company as of the end of Fiscal 2007, 2008 or 2009, Grantee
shall be entitled to the vesting of this Option for that fiscal year, as set
forth above, regardless of whether Grantee’s employment terminates prior to the
formal determination of vesting (i.e., based on Adjusted EBITDA
calculations) for such fiscal year, as set forth above.
3. The
Options shall automatically become vested and shall be immediately exercisable
in full upon the occurrence of a Change in Control of the Company or its parent,
National Patent Development Corporation (“NPDC”). For purposes of
this Agreement, a “Change in Control” of the Company shall be deemed to have
occurred if (i) National Patent Development Corporation (“NPDC”) and its
affiliates cease to own a majority of the voting stock of the Company and (ii)
within any 12-month period beginning on or after the date that is three months
after the date hereof, the persons who were directors of the Company immediately
before the beginning of such period (the “Company Incumbent Directors”) shall
cease (for any reason other than death) to constitute at least a majority of
the
Board of Directors of the Company or the board of directors of any successor
to
the Company, provided that any director who was not a director of the Company
immediately before the beginning of such period shall be deemed to be a Company
Incumbent Director if such director was elected to the Board of Directors of
the
Company by, or on the recommendation of or with the approval of, at least
two-thirds of the directors who then qualified as Company Incumbent Directors
either actually or by prior operation of this Section 3, unless such election,
recommendation or approval was the result of an actual or threatened election
contest of the type contemplated by Regulation 14a-11 promulgated under the
Exchange Act. For purposes of this Agreement, a “Change in Control”
of NPDC shall be deemed to have occurred if (i) a change in control of NPDC
of a
nature that would be required to be reported in response to Item 5.01 of Current
Report on Form 8-K pursuant to Section 13 or 15(d) of the Exchange Act, other
than a change of control resulting in control by Grantee or a group including
Grantee occurs, (ii) any “person” (as such term is used in Sections 13(d) and
14(d) of the Exchange Act), other than Grantee or a group including Grantee,
is
or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of NPDC representing 20% or more
of
the combined voting power of NPDC’s then outstanding securities, or (iii) within
any 12-month period beginning on or after the date that is three months after
the date hereof, the persons who were directors of NPDC immediately before
the
beginning of such period (the “NPDC Incumbent Directors”) shall cease (for any
reason other than death) to constitute at least a majority of the Board of
Directors of NPDC or the board of directors of any successor to NPDC, provided
that any director who was not a director of NPDC immediately before the
beginning of such period shall be deemed to be a NPDC Incumbent Director if
such
director was elected to the Board of Directors of NPDC by, or on the
recommendation of or with the approval of, at least two-thirds of the directors
who then qualified as NPDC Incumbent Directors either actually or by prior
operation of this Section 8(d), unless
such election, recommendation or approval was the result of an actual or
threatened election contest of the type contemplated by Regulation 14a-11
promulgated under the Exchange Act of or any successor
provision.
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4. All
Options shall terminate and thereafter no longer be exercisable (subject to
Section 8) on the tenth anniversary of the Grant Date (the “Expiration
Date”).
5. Option
Shares purchased pursuant to this Agreement shall be paid for in full at the
time of purchase. Payment may be made in cash, shares of Common
Stock, Options, or such other consideration as may be approved by the Committee,
or a combination thereof, provided that such consideration shall be such that
the Option Shares shall be fully paid and nonassessable. If payment
is made in whole or part by tender of (a) shares of Common Stock, such shares
shall be valued at the Fair Market Value thereof, (b) Options, the Options
tendered as payment must be exercisable at the date of such tender, shall be
deemed to have been exercised for purposes of this Agreement, and shall be
valued at an amount equal to the excess of the Fair Market Value of the Option
Shares issuable on exercise of such Options over the aggregate exercise price
of
such Options, or (c) consideration other than cash, shares of Common Stock,
or
Options, such consideration shall have such value as determined by the Committee
(whose determination shall be final). Upon receipt of written notice
of exercise of Options in the form attached hereto as Exhibit B together with
payment and delivery of any other required documentation, the Company shall,
without stock transfer tax to the Grantee or any other person entitled to
exercise such Options, deliver to the person exercising such Options a
certificate or certificates for the Option Shares so purchased. It
shall be a condition to the performance of the Company’s obligation to issue or
transfer Common Stock upon exercise of Options that the Grantee or other person
exercising such Options pay, or make provision satisfactory to the Company
for
the payment of, any taxes (other than stock transfer taxes) which the Company
is
obligated to collect with respect to the issue or transfer of Common Stock
upon
exercise, including any Federal, state, or local withholding taxes.
6. No
person shall have any rights as a stockholder with respect to any Option Shares
until the date a stock certificate is issued to such person for such Option
Shares. Except as otherwise expressly provided herein, no adjustment
shall be made for dividends or other rights for which the record date is prior
to the date such stock certificate is issued.
7. Options
are not transferable otherwise than by will or the laws of descent and
distribution and are exercisable, during the lifetime of the Grantee, only
by
the Grantee or, in the event of Grantee’s legal disability, by the Grantee’s
legal representative. The Grantee or his representative shall give
the Company notice of any transfer, specifying the name and address of the
transferee and the number and class of Options transferred.
8. a) If,
for any reason other than death or disability, Grantee’s Termination of Service
occurs prior to the Expiration Date, such Options may be exercised, to the
extent of the number of shares and with the exercise price with respect to
which
the Grantee could have exercised it on the date of such Termination of Service,
by the Grantee at any time prior to the earlier of (i) the Expiration Date
and
(ii) two months after the date of such Termination of Service.
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(b) If
Grantee becomes disabled (within the meaning of section 22(e)(3) of the Code)
prior to the Expiration Date, and the Grantee’s Termination of Service occurs as
a consequence of such disability, the Options may be exercised, to the extent
of
the number of shares and with the exercise price with respect to which the
Grantee could have exercised it on the date of such Termination of Service,
by
the Grantee at any time prior to the earlier of (i) the Expiration Date and
(ii)
six months after the date of such Termination of Service. In the
event of the Grantee’s legal disability, the Options may be exercised by the
Grantee’s legal representative.
(c) If
Grantee’s Termination of Service occurs as a result of death prior to the
Expiration Date, or if the Grantee dies following his or her Termination of
Service but prior to the expiration of the period determined under Sections
8(a)
and (b) above, the Options may be exercised, to the extent of the number of
shares and with the exercise price with respect to which the Grantee could
have
exercised them on the date of his or her death, by the Grantee’s estate,
personal representative, or beneficiary who acquired the right to exercise
the
Options by bequest or inheritance or by reason of the death of the
Grantee. Such post-death exercise may occur at any time prior to the
earlier of (i) the Expiration Date and (ii) one year after the date of the
Grantee’s death.
(d) If
the issuance of any shares of Common Stock on the exercise of any Options
pursuant to this Section 8 has not, at the time of such exercise, been
registered under the Securities Act, the Grantee or other person exercising
such
Options shall execute and deliver such documents as the Company may reasonably
require to ensure compliance with the Securities Act and other applicable
securities laws, including acknowledgement that such shares are “restricted
securities” as defined in the regulations under the Act and are acquired for
investment purposes only and not with a view to resale or
distribution.
9. The
number and kind of shares issuable on exercise of, and the exercise price of,
the Options represented hereby shall be subject to adjustment as provided in
the
Plan.
10. The
Company shall at all times reserve and keep available out of its authorized
Common Stock the full number of shares of Common Stock issuable upon exercise
of
Options.
11. b) If
at any time the Committee or the Board shall determine, in its discretion,
that
the listing, registration, or qualification of any of the Option Shares upon
any
securities exchange or under any state or federal law, or the consent or
approval of any governmental regulatory body, is necessary or desirable as
a
condition of, or in connection with, the issue or purchase of Option Shares,
the
Options may not be exercised in whole or in part unless such listing,
registration, qualification, consent, or approval shall have been effected
or
obtained free of any conditions not acceptable to the Committee or the Board,
as
applicable. Any notice of exercise of Options which would be
effective except for this Section 11 shall be deemed effective immediately
upon
satisfaction of all such conditions (even if such notice could not otherwise
then have been given).
(b) The
Company shall not be obligated to sell or issue any Option Shares in any manner
in contravention of the Securities Act, the Exchange Act, or any state
securities law. The Board may, at any time, require as a condition to
the exercise of Options that the Option Shares be acquired for investment
purposes only and that the certificate therefor contain a legend restricting
transfer.
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12. All
notices hereunder shall be in writing, and (a) if to the Company, shall be
delivered personally to the Secretary of the Company or mailed to its principal
office, addressed to the attention of the Secretary, (b) if to the Grantee,
shall be delivered personally or via courier or mailed via certified mail,
postage prepaid, return receipt requested to the Grantee at the address first
set forth above, or (c) if to any subsequent holder of Options or Option Shares,
to the address specified for such holder in the notice provided for in Section
7
or on the stock records of the Company. Such addresses may be changed
at any time by notice from one party to the other.
13. All
decisions or interpretations made by the Committee with regard to any question
arising hereunder shall be binding and conclusive on the Company and the
Grantee.
14. This
Agreement shall bind and inure to the benefit of the parties hereto and the
successors and assigns of the Company and, to the extent provided in Section
7,
the executors, administrators, legatees, heirs, guardians, legal
representatives, successors, and assigns of the Grantee.
15. This
Agreement shall be governed by and construed in accordance with the laws of
the
State of Delaware, without giving effect to rules governing the conflict of
laws.
16. Notwithstanding
any other provision of this Agreement, the Options granted by this Agreement
shall be void and of no force and effect unless the shareholders of the Company
shall within twelve months after the Grant Date approve the Plan. No
Options may be exercised until the foregoing shareholder approval is
received.
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IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day
and year first above written.
| FIVE STAR PRODUCTS, INC. | |||
|
|
By:
|
/s/ XXXX X. XXXXXXX | |
| Title : Chief Executive Officer | |||
| GRANTEE | |||
| /s/ XXX X. XXXXXXX | |||
| Xxx Xxxxxxx | |||
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EXHIBIT
A
FIVE
STAR
PRODUCTS, INC.
2007
INCENTIVE STOCK PLAN
EXHIBIT
B
EXERCISE
NOTICE
The
undersigned, pursuant to the foregoing Option Agreement (terms used herein
have
the meanings as defined in the Option Agreement), hereby elects to exercise
Options for ________shares of Common Stock (the “Shares”) at an exercise price
of $0.38 per share, and herewith (or as otherwise provided in the Option
Agreement) makes payment in full therefor pursuant to such Option
Agreement.
1. If
the sale of the Shares and the resale thereof has not, prior to the date hereof,
been registered pursuant to a registration statement filed and declared
effective under the Securities Act of 1933 (the “Act”), the undersigned hereby
agrees, represents, and warrants that:
(a) I
am acquiring the Shares for my own account (and not for the account of others)
for investment and not with a view to the distribution or resale
thereof;
(b) By
virtue of my position, I have access to the same kind of information which
would
be available in a registration statement filed under the Act;
(c) I
am a sophisticated investor;
(d) I
understand that I may not sell or otherwise dispose of such shares in the
absence of either a registration statement under the Act or an exemption from
the registration provisions of the Act; and
(e) The
certificates representing such shares may contain a legend to the effect of
(d)
above.
2. If
the sale of the Shares and the resale thereof has been registered under the
Act,
the undersigned hereby represents and warrants that I have received the
applicable prospectus and all subsequent reports incorporated therein by
reference.
| Very truly yours, | ||
|
|
||
| (type name under signature line) |
Dated: _________________________
