Exhibit 10.11
FIVE STAR PRODUCTS, INC.
STOCK OPTION AGREEMENT
AGREEMENT, dated March 1, 2007 (the "Grant Date"), between Five Star
Products, Inc., a Delaware corporation (the "Company"), with an address at 000
Xxxxxxxxxxx Xxxxxx, Xxx Xxxx, XX 00000, and Xxxxx Xxxxxxx (the "Grantee"), with
an address at 000 Xxxxxxxxxxx Xxxxxx, Xxxxx Xxxxxx, Xxx Xxxx 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 400,000 shares of Common Stock (the "Option Shares") at an initial
purchase price of $0.38 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. Subject to Section 16, 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 with respect to up to 33.3% of the Option Shares on the
date of filing (such filing date, the "1st 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 with respect to up to an additional 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 with respect to up to an additional 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 year 2007, fiscal year 2008 and fiscal year 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 the fiscal
year 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. Subject to Section 16, 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 or (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
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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. Notwithstanding the foregoing, no Change of Control shall
be deemed to occur as a result of the beneficial ownership of securities of NPDC
by Bedford Oak Advisors, LLC, Bedford Oak Partners, L.P. or Xxxxxx X. Xxxxx.
4. All Options shall terminate and thereafter no longer be exercisable (subject
to Section 8) on February 28, 2017 (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, check, attestation of
shares of Common Stock, 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 shares of Common
Stock, such shares shall be valued at the Fair Market Value thereof. 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.
(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
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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. (a) 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.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
FIVE STAR PRODUCTS, INC.
By:___________________________
Name:
Title:
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Xxxxx 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 $____ 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:
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