FLJ Partners, LLC
c/o James A. Weil
50 Holt Drive
Stony Point, NY 10980
Exhibit 99
May 5, 2006
Mr. Jerome I. Feldman Chairman of the Board
National Patent Development Corporation
Five Star Products, Inc.
777 Westchester Avenue
White Plains, NY 10604
Dear Jerry:
We are pleased to submit the following proposal to purchase all of the
issued and outstanding stock of Five Star Products, Inc. ("Five Star"). We
understand that National Patent Development Corporation ("NPD") owns 64% of the
outstanding shares of Five Star. To effectuate the purchase, we will create a
newly formed entity ("Newco"), which will enter into a merger agreement with
Five Star and a stock purchase agreement with NPD. Those agreements will provide
that Newco will commence a tender offer for all of Five Star's outstanding
shares and that NPD will, at Newco's option, either tender its shares or sell
them to Newco. Thereafter, we will consummate a merger providing any
non-tendering holders of Five Star shares with the same consideration as those
who tendered.
Our group consists of highly experienced business people with the
financial resources to consummate the contemplated transaction without a
financing contingency. The principal terms of the transaction are as follows.
1. Transaction Value. We propose a purchase price per share for all of
Five Star's fully diluted outstanding shares based upon a valuation of
$2,950,000 for the shares owned by NPD. In addition, we would cause
Five Star to repay its $2.8 million note to NPD, together with all
accrued interest, upon consummation of the merger.
2. No Financing Contingency. We are prepared to commit to pay 100% of the
purchase price without the benefit of a contingency for debt
financing.
3. Activities prior to Closing. Given our significant experience in the
paint industry and with transactions of this nature, we are highly
confident that we can conduct the necessary and customary due
diligence and to enter into definitive agreements on or before May 31,
2006. Prior to closing, we would anticipate completion of the
following activities: (i) meeting with the current management of Five
Star; (ii) having the pertinent financial data; (iii) engaging our
legal counsel to complete their confirmatory legal due diligence; (iv)
receipt of all necessary material governmental and third party
approvals required to consummate the transaction; and (v) conducting
an analysis of merchandise sourcing. Our obligation to consummate the
transaction is contingent on the satisfactory completion of the above
items, the negotiation and execution of mutually satisfactory
definitive purchase agreements and the absence of any material adverse
changes in Five Star's financial condition, operations or prospects.
4. Purchase Agreement and Closing. The parties shall work in good faith
to complete the definitive purchase agreements and related tender
offer documents and information statement no later than May 31, 2006.
The Merger Agreement shall contain such representations and warranties
from Five Star as are customary in a transaction of this nature. The
Stock Purchase Agreement will contain representations and warranties
from NPD only as to its ownership, title and authority to sell, and if
the Five Star shares owned by NPD are not purchased in the tender
offer, our obligation to purchase such shares pursuant to the Purchase
Agreement will only be subject to the accuracy of such representations
and warranties. Upon execution of the Agreements, we will deposit the
sum of $1,000,000 in escrow, which will serve as liquidated damages in
the event that we do not close in violation of any of the Agreements.
At our option, upon consummation of the merger, all agreements between
Five Star and NPD (and its affiliates) will be terminated without cost
to Five Star.
5. Necessary Approvals. As a privately held investment partnership, we do
not require any corporate or shareholder approvals or other
extraordinary conditions to consummate the transaction.
6. Fees and Expenses. Each of NPD, Five Star and FLJ Partners, LLC will
pay its own fees and expenses (including the fees and expenses of
legal counsel, investment bankers, brokers, or other representatives
or consultants) in connection with the transaction.
7. Access to Information. During the period (the "Exclusivity Period")
beginning upon the mutual execution of this letter and ending on the
earliest of (a) May 31, 2006, (b) such date on which we are neither
actively conducting due diligence with respect to Five Star nor
negotiating the definitive purchase agreements, and (c) such date on
which we indicate that we are no longer willing to consummate the
proposed transaction on the terms set forth herein, Five Star will
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afford to us and our representatives, consultants, agents, lenders and
investors full and complete access to the properties, business,
personnel (including outside accountants and lawyers), and financial,
legal, accounting, tax, and other data and information relating to
Five Star as may be reasonably requested by any of them for purposes
of evaluating the transaction contemplated hereby, subject to
reasonable confidentiality measures to be mutually agreed.
8. Exclusivity. During the Exclusivity Period, each of NPD and Five Star
agrees on behalf of itself and ------------ its officers, directors
and affiliates, that neither it nor they nor any of its or their
respective representatives, directors, officers, agents, or affiliates
will discuss or pursue a possible sale, recapitalization, or other
disposition of Five Star, any securities of Five Star (other than
pursuant to employee benefit plans), or a substantial portion of the
assets of Five Star (other than in the ordinary course of business)
with any other party or provide any information to any other party in
connection therewith. NPD represents that neither it nor any of its
affiliates will, by pursuing the transactions contemplated hereby,
violate the terms of any other agreement or obligation to which it or
any such affiliate is subject, and will immediately inform us of and
provide us with information regarding any offers or expressions of
interest for Five Star received by it during the Exclusivity Period.
9. Key Contacts. James Weil (845) 786-5000 and Gary Rones (631) 756-0120
are available to respond to any questions you might have regarding our
proposal.
10. Expiration of Offer. The proposal described in this letter will expire
at 5:00 PM EST on May 9, 2006, unless accepted in writing by NPD and
Five Star at or prior to such time. Please understand that this letter
agreement is submitted for your review and consideration. Upon your
acceptance of this letter agreement, as indicated by your signature
hereon, this letter agreement will not constitute a firm proposal, and
consequently, will not be legally binding on any party hereto, except
for sections 6, 7, 8, 10, and 11, which will be legally binding on
each of the parties hereto.
11. Confidentiality. We acknowledge that the Confidentiality Agreement
previously executed between us and Five Star remains in full force and
effect. Unless mutually agreed to in writing or required by law, we
will not make any disclosure to any third party (other than our
officers, directors, employees, agents, potential financing sources
and other representatives who have a need to know such information in
furtherance of the transactions contemplated hereby) of the status of
negotiations with respect to the transactions contemplated hereby. We
understand that NPD and Five Star intend to make public disclosure of
the transactions contemplated hereby.
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We thank you for the opportunity to present this proposal. We are
enthusiastic about this opportunity and are prepared to dedicate the
necessary resources to quickly complete the proposed transaction.
Should you have any questions please do not hesitate to give me a call.
If you are in agreement with the terms set forth above and
desire to proceed with the transaction on this basis, please sign in
the space provided below and return an executed copy to us.
Very truly yours,
FLJ PARTNERS, LLC
By:_____________________
Name: James Weil
ACCEPTED AND AGREED:
NATIONAL PATENT DEVELOPMENT CORPORATION
Signature: ___________________
Name: _______________________
Title:_________________________
Date:_________________________
FIVE STAR PRODUCTS, INC.
Signature: ___________________
Name: _______________________
Title:_________________________
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