UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): March 1, 2007
National Patent Development Corporation
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(Exact Name of Registrant as Specified in Its Charter)
Delaware
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(State or Other Jurisdiction of Incorporation)
0-50587 13-4005439
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(Commission File Number) (IRS Employer Identification No.)
777 Westchester Avenue, White Plains, NY 10604
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(Address of Principal Executive Offices) (Zip Code)
(914) 249-9700
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(Registrant's Telephone Number, Including Area Code)
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(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
|_| Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17
CFR 240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 40.13e-4(c))
Item 1.01 Entry into a Material Definitive Agreement.
On March 2, 2007, Five Star Products, Inc. ("Five Star"), a subsidiary
of National Patent Development Corporation ("NPDC"), and JL Distributors, Inc.
("JL), another subsidiary of NPDC amended the Five Star 9% promissory note (the
"Note") in the principal amount of $2.8 million that was originally issued to JL
on June 30, 2005 (i) to extend the maturity date from June 30, 2007 to June 30,
2009, (ii) to add a conversion feature such that the holder of the Note, at its
option, may convert the principal of the Note, and any accrued interest, into
shares of Five Star's common stock (the "FS Common Stock") at a fixed conversion
price of $0.40 per share, and (iii) to modify the Note to eliminate the right of
Five Star to prepay the Note prior to maturity. Five Star also has granted JL
certain demand and piggy-back registration rights with respect to the shares of
FS Common Stock issuable upon exercise of the Note pursuant to a Registration
Rights Agreement, dated as of March 2, 2007, between Five Star and JL, a copy of
which is filed as an exhibit hereto and is incorporated herein by reference.
The information in Item 5.02 regarding the Registration Rights
Agreement, dated as of March 2, 2007, between Five Star Products, Inc. and
Leslie Flegel (the "Five Star Registration Rights Agreement"), the Registration
Rights Agreement, dated as of March 2, 2007, between National Patent Development
Corporation and Leslie Flegel (the "NPDC Registration Rights Agreement"), the
Registration Rights Agreement, dated as of March 2, 2007, between Five Star
Products, Inc. and John Belknap (the "Belknap NPDC Registration Rights
Agreement") and the Purchase Agreement, dated as of March 2, 2007, between
National Patent Development Corporation and Leslie Flegel (the "NPDC
Agreement"), is incorporated herein by reference and each such agreement is
filed as an exhibit hereto and is incorporated herein by reference.
Item 3.02 Unregistered Sales of Equity Securities.
As set forth in Item 5.02 below, on March 2, 2007, NPDC sold Leslie
Flegel 200,000 shares of its common stock (the "NPDC Common Stock") at a price
of $2.40 per share. The information regarding the NPDC Agreement in Item 5.02 is
incorporated herein by reference.
Mr. Flegel is an "accredited investor" as such term is defined in Rule
501 of Regulation D promulgated under the Securities Act of 1933, as amended
(the "Act"), and the shares were sold to him in reliance on the exemption from
registration provided by Section 4(2) of the Act.
Item 5.02 Departure of Directors or Principal Officers; Election of Directors;
Appointment of Principal Officers; Compensatory Arrangements of Certain
Officers.
Election of Leslie Flegel as a Director; Agreements with Leslie Flegel
On March 1, 2007, Mr. Flegel was elected as a director of NPDC. On the
same date, Mr. Flegel was elected as a director and named Chairman of the Board
of Five Star. From March 1995 until November 2006, Mr. Flegel served as the
Chairman of the Board and Chief Executive Officer of Source Interlink Companies,
Inc. and for more than 14 years prior thereto, Mr. Flegel was the principal
owner and Chief Executive Officer of its predecessor, Display Information
Systems Company. Mr. Flegel is 69 years old. No determination has yet been made
as to which board committees, if any, Mr. Flegel will be named.
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On March 2, 2007, Mr. Flegel entered into the NPDC Agreement with NPDC.
Pursuant to the NPDC Agreement, Mr. Flegel purchased from NPDC 200,000 shares of
NPDC Common Stock at a price of $2.40 per share, or $480,000 in the aggregate.
Mr. Flegel has the right to exchange any or all of the 200,000 shares of the
NPDC Common Stock into FS Common Stock held by NPDC at the rate of six shares of
FS Common Stock for each share of NPDC Common Stock.
The NPDC Agreement also provides that if the fair market value of the
2,000,000 shares of FS Common Stock that Mr. Flegel received pursuant to his
agreement with Five Star described below is less than $280,000 on the last day
of the term of such agreement with Five Star, Mr. Flegel may require NPDC to
repurchase the shares of FS Common Stock for $280,000.
In connection with his appointment as Chairman of Five Star, Mr. Flegel
entered into a three-year agreement with Five Star ending on March 1, 2010 (the
"FS Agreement"). Under the FS Agreement, Mr. Flegel will receive an annual fee
of $100,000 and will be reimbursed (i) for all travel expenses incurred in
connection with his performance of services to Five Star and (ii) beginning in
November 2007, for up to $125,000 per year of the cost of maintaining an office.
In addition, pursuant to the FS Agreement, Mr. Flegel was issued 2,000,000
shares of FS Common Stock, all of which are fully vested and not subject to
forfeiture.
During the term of the FS Agreement, Mr. Flegel has agreed not to serve
in an operating capacity as an executive officer with any other unaffiliated
company. The FS Agreement also contains non-compete and non-solicitation
covenants.
Five Star may terminate the FS Agreement (i) upon Mr. Flegel's death or
disability, (ii) if Mr. Flegel engages in conduct that is materially monetarily
injurious to Five Star, (iii) if Mr. Flegel willfully and continually fails to
perform his duties or obligation under the FS Agreement or (iv) upon a Change of
Control (as defined in the FS Agreement) of Five Star or NPDC. If the FS
Agreement is terminated by Five Star in accordance with the foregoing, Five Star
is required to pay Mr. Flegel his fee accrued, and reimburse him for any expense
incurred only through the date the FS Agreement is terminated. The FS Agreement
is filed as an exhibit hereto and is incorporated herein by reference.
NPDC and Five Star have each granted Mr. Flegel certain demand and
piggy-back registration rights pursuant to the NPDC Registration Rights
Agreement and the Five Star Registration Rights Agreement; provided, that prior
to the expiration of the FS Agreement, Mr. Flegel only has the right to include
his FS Common Stock in a registration statement that includes shares of FS
Common Stock owned by NPDC and then only in proportion to the number of shares
of FS Common Stock being registered for the benefit of NPDC.
During the term of the FS Agreement, Mr. Flegel has agreed not to sell
or otherwise dispose of the 200,000 shares of NPDC Common Stock purchased by him
pursuant to the NPDC Agreement or any shares of FS Common Stock into which they
may have been exchanged or the 2,000,000 shares of FS Common Stock issued to him
pursuant to the FS Agreement, except as part of a registered public offering, as
set forth above.
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Transactions with John Belknap
On March 1, 2007, John C. Belknap was elected as a director of Five
Star. Mr. Belknap was also elected to serve as President and Chief Executive
Officer of Five Star. Mr. Belknap has served as a director of NPDC since October
20, 2006 and has been an employee of NPDC and unpaid consultant to Five Star
since December 1, 2006. No determination has yet been made as to which board
committees, if any, Mr. Belknap will be named.
Mr. Belknap receives a salary of $300,000 from NPDC, a portion of which
will be reimbursed to NPDC by Five Star based on the amount of time Mr. Belknap
spends working for Five Star. In addition, Mr. Belknap was granted options to
purchase an aggregate of 400,000 shares of NPDC Common Stock, 181,240 of which
are subject to shareholder approval of an amendment to the Company's 2003
Incentive Stock Plan (the "2003 Plan Amendment"), at an exercise price equal to
$2.45 per share, which was the average of the closing bid and asked prices of
NPDC Common Stock on March 1, 2007. Contingent upon Mr. Belknap's continued
employment with NPDC, the options will vest in three equal annual installments,
commencing on December 1, 2007. A copy of Mr. Belknap's option agreement is
filed as an exhibit hereto and is incorporated herein by reference.
In addition, pursuant to the Restricted Stock Agreement, dated as of
March 2, 2007, between Five Star and Mr. Belknap (the "Restricted Stock
Agreement"), Mr. Belknap was granted 1,000,000 restricted shares of FS Common
Stock. Contingent upon Mr. Belknap's continued employment with Five Star or
NPDC:
o 333,333 of the shares will vest if Five Star achieves Adjusted EBITDA
(as defined in the Restricted Stock Agreement) of $5.0 million for the
year ending December 31, 2007;
o 333,333 of the shares will vest if Five Star achieves Adjusted EBITDA
of $7.5 million for the year ending December 31, 2008;
o 333,334 of the shares will vest if Five Star achieves Adjusted EBITDA
of $11.25 million for the year ending December 31, 2009; and
o to the extent that Adjusted EBITDA equals or exceeds $23.75 million for
the three year period ending December 31, 2009, any previously unvested
shares will vest.
Upon the occurrence of a change in control of Five Star (as defined in
the Restricted Stock Agreement), all unvested shares also will become fully
vested. The Restricted Stock Agreement is filed as an exhibit hereto and is
incorporated herein by reference.
Five Star has granted Mr. Belknap certain demand and piggy-back
registration rights beginning March 2, 2010 pursuant to the Belknap Five Star
Registration Rights Agreement
Prior to joining NPDC and Five Star, Mr. Belknap was engaged in certain
entrepreneurial activities and served as an independent consultant and financial
advisor since 2000. From 1997 to 1999, Mr. Belknap was Executive Vice President
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and Chief Financial Officer of Richfood Holdings, Inc. a Fortune 500 integrated
food wholesaler and retailer. From 1995 to 1997, he was Chief Financial Officer
for OfficeMax, Inc., a Fortune 500 retailer, and during the period from 1974 to
1995 he was Chief Financial Officer for several other major retailers. Mr.
Belknap has been the Non-Executive Chairman of the Board of eMerge Interactive,
Inc. and Chairman of its Audit Committee since 2003. Mr. Belknap is 60 years
old.
Succession Planning
On March 5, 2007, NPDC issued a press release announcing that on March
1, 2007, the NPDC Board of Directors determined that effective upon the
expiration of the employment agreement between NPDC and Jerome Feldman, the
Chairman of the Board and Chief Executive Officer of NPDC, or upon his earlier
resignation, Harvey P. Eisen, who currently serves as a director of NPDC, will
serve as Chairman of the Board and Chief Executive Officer of NPDC, and that
effective upon the commencement of his service as Chairman of the Board and
Chief Executive Officer of NPDC, Mr. Eisen will receive an annual salary of
$100,000. Mr. Feldman's employment agreement will expire on May 31, 2007 unless
earlier terminated by mutual agreement of the parties. A copy of the press
release is filed as an exhibit hereto.
On March 1, 2007, the NPDC Board of Directors granted to Mr. Eisen
options to purchase an aggregate of 2,500,000 shares of NPDC Common Stock,
2,250,000 of which are subject to shareholder approval of the 2003 Plan
Amendment, at an exercise price equal to $2.45 per share, which was the average
of the closing bid and asked prices of NPDC Common Stock on March 1, 2007. The
options are to vest in three equal annual installments, commencing on March 1,
2008. A copy of Mr. Eisen's option agreement is filed as an exhibit hereto and
is incorporated herein by reference.
Mr. Eisen, age 63, has been a Director of the Company since 2004. He
has been Chairman and Managing Member of Bedford Oak Management, LLC since 1998.
Prior thereto, Mr. Eisen served as Senior Vice President of Travelers, Inc. and
of Primerica prior to its merger with Travelers in 1993. Mr. Eisen has over
thirty years of asset management experience, is often consulted by the national
media for his views on all phases of the investment marketplace, and is
frequently quoted in The Wall Street Journal, The New York Times, PensionWorld,
U.S. News & World Report, Financial World and Business Week, among others. Mr.
Eisen also appears regularly on such television programs as Wall Street Week,
CNN, and CNBC. Mr. Eisen is a trustee of the University of Missouri Business
School where he established the first accredited course on the Warren Buffet
Principles of Investing. Mr. Eisen has also been a Director of GP Strategies
Corporation since 2002. Mr. Eisen is also a trustee of Rippowam Cisqua School in
Bedford, New York and the Northern Westchester Hospital Center.
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Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
10.1 Amended and Restated Convertible Promissory Note of Five Star
Products, Inc.
10.2 Registration Rights Agreement, dated as of March 2, 2007, between
Five Star Products, Inc. and JL Distributors, Inc.
10.3 Agreement, dated as of March 2, 2007, between Five Star Products,
Inc. and Leslie Flegel
10.4 Registration Rights Agreement, dated as of March 2, 2007, between
Five Star Products, Inc. and Leslie Flegel
10.5 Purchase Agreement, dated as of March 2, 2007, between National
Patent Development Corporation and Leslie Flegel
10.6 Registration Rights Agreement, dated as of March 2, 2007, between
National Patent Development Corporation. and Leslie Flegel
10.7 Restricted Stock Agreement, dated as of March 2, 2007, between
Five Star Products, Inc. and John Belknap
10.8 Registration Rights Agreement, dated as of March 2, 2007, between
Five Star Products, Inc. and John Belknap
10.9 Stock Option Agreement, dated March 1, 2007, between National
Patent Development Corporation and Harvey Eisen
10.10 Stock Option Agreement, dated March 1, 2007, between National
Patent Development Corporation and John Belknap
10.11 Stock Option Agreement, dated March 1, 2007, between National
Patent Development Corporation and Talton Embry
10.12 Stock Option Agreement, dated March 1, 2007, between National
Patent Development Corporation and Scott Greenberg
10.13 Stock Option Agreement, dated March 1, 2007, between National
Patent Development Corporation and Lawrence Schafran
99 Press Release of National Patent Development Corporation, dated
March 5, 2007
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NATIONAL PATENT DEVELOPMENT CORPORATION
Date: March 7, 2007 Jerome I. Feldman
Chief Executive Officer
EXHIBIT INDEX
10.1 Amended and Restated Convertible Promissory Note of Five Star
Products, Inc.
10.2 Registration Rights Agreement, dated as of March 2, 2007, between
Five Star Products, Inc. and JL Distributors, Inc.
10.3 Agreement, dated as of March 2, 2007, between Five Star Products,
Inc. and Leslie Flegel
10.4 Registration Rights Agreement, dated as of March 2, 2007, between
Five Star Products, Inc. and Leslie Flegel
10.5 Purchase Agreement, dated as of March 2, 2007, between National
Patent Development Corporation and Leslie Flegel
10.6 Registration Rights Agreement, dated as of March 2, 2007, between
National Patent Development Corporation. and Leslie Flegel
10.7 Restricted Stock Agreement, dated as of March 2, 2007, between
Five Star Products, Inc. and John Belknap
10.8 Registration Rights Agreement, dated as of March 2, 2007, between
Five Star Products, Inc. and John Belknap
10.9 Stock Option Agreement, dated March 1, 2007, between National
Patent Development Corporation and Harvey Eisen
10.10 Stock Option Agreement, dated March 1, 2007, between National
Patent Development Corporation and John Belknap
10.11 Stock Option Agreement, dated March 1, 2007, between National
Patent Development Corporation and Talton Embry
10.12 Stock Option Agreement, dated March 1, 2007, between National
Patent Development Corporation and Scott Greenberg
10.13 Stock Option Agreement, dated March 1, 2007, between National
Patent Development Corporation and Lawrence Schafran
99 Press Release of National Patent Development Corporation, dated
March 5, 2007