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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K/A
Amendment No. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: October 2, 1997
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The Fortress Group, Inc.
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(Exact Name of Registrant as Specified in Charter)
Delaware 0-28024 54-1774977
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(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
1921 Gallows Road, Suite 730, Vienna, Virginia 22182
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone No., Including Area Code: (703) 442-4545
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Item 5 - Other Events
The Fortress Group, Inc., a Delaware corporation (the "Company"), and
Prometheus Homebuilders LLC ("Prometheus"), an affiliate of Lazard Freres Real
Estate Investors LLC, have entered into an Amended and Restated Stock Purchase
Agreement, dated as of September 30, 1997 (the "Amended Agreement"), which
amends and restates the Stock Purchase Agreement, dated as of August 14, 1997,
previously entered into by the Company and Prometheus.
Under the Amended Agreement, Prometheus will purchase $35,000,000 of the
Company's newly issued Class AA Convertible Preferred Stock, $0.01 par value
(the "Class AA Stock"). The Class AA Stock will be convertible, in whole or in
part, at Prometheus' discretion into the Company's Common Stock ("Common Stock")
at $6.00 per share at any time after the First Closing (as defined below). The
Company will be able to require conversion of the Class AA Stock when the
average closing price of the Common Stock for the 90 days preceding conversion
is equal to or exceeds $12.00 per share. The conversion price of the Class AA
Stock will decrease if, between the fourth and sixth anniversaries of the First
Closing, the Common Stock trades at less than $12.01 per share. The Class AA
Stock will pay a 6% per annum preferred dividend, cumulative and compounded
quarterly, however, until the Second Closing (as defined below) the dividend
rate will be 12%.
Under the Amended Agreement, Prometheus will also purchase $40,000,000
of the Company's newly issued Class ABI Convertible Redeemable Preferred Stock,
par value $0.01 per share, and Class ABII Convertible Redeemable Preferred
Stock, par value $0.01 per share (together, the "Class AB Stock"). The two
classes of Class AB Stock are identical except as described below with respect
to voting rights. The Class AB Stock will be convertible, in whole or in part,
at Prometheus' discretion in Common Stock at a price equal to 95% of the average
of the closing prices of the Common Stock for the thirty days commencing 45
trading days preceding conversion. The conversion right will commence on either
the fourth anniversary of the First Closing or of the Second Closing, as
determined by the parties before the Second Closing (the "Issue Date"). The
Company will be able to require conversion of the Class AB Stock on or after the
fifth anniversary of the Issue Date. In addition, the Company will be able to
require redemption of the Class AB Stock in whole but not in part on or after
the fifth anniversary of the Issue Date. The Class AB Stock will pay a 12% per
annum preferred dividend, cumulative and compounded quarterly.
The Amended Agreement provides that the Company, at its option and
subject to compliance with the Company's Senior Note Indenture, may issue notes
maturing December 31, 2004 and otherwise having rights substantially the same as
the Class ABI Convertible Redeemable Preferred Stock in lieu of some or all of
the Class AB Stock (the "Notes"). In addition, as an alternative, the Company
and Prometheus have agreed to explore the issuance of the Notes by a subsidiary
of the Company, but there can be no assurance that the Company and Prometheus
will reach agreement with respect to such alternative.
Prometheus will also receive 1,000,000 warrants ("Warrants") to
purchase Common Stock. The Warrants will be exercisable between the second and
seventh anniversaries of the First Closing at an exercise price of $7.00 per
share of Common Stock. The number of Warrants may increase and the exercise
price may decrease if, between the fourth and sixth anniversaries of the date of
the First Closing, the Common Stock trades at less than $20.01 per share and
$12.01 per share, respectively.
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On September 30, 1997, pursuant to the Amended Agreement, the Company
and Prometheus closed in escrow on the sale of $11,700,000 of Class AA Stock and
375,000 Warrants (the "First Closing") for $11,700,000. The escrow conditions
were satisfied and the escrow was released on October 2, 1997. Until the Second
Closing, the Class AA Stock will pay a 12% per annum preferred dividend,
cumulative and compounded quarterly, and will not be convertible by the Company.
Prometheus will purchase an additional $23,300,000 of Class AA Stock and
Class AB Stock (or Notes), in proportionate amounts, and 625,000 Warrants no
later than December 30, 1997 (the "Second Closing"), subject to certain
customary closing conditions, including shareholder approval. If the Company
fails to complete the Second Closing by January 31, 1998, other than as a result
of a default by Prometheus under the Amended Agreement, the Company will be
obligated to pay Prometheus a termination fee of $4,000,000 and the exercise
price of the outstanding Warrants will immediately be adjusted to one cent
($0.01) per share. The remaining investment, for an aggregate investment of
$75,000,000, will close no later than December 31, 1998, subject to similar
closing conditions. In any event, the Company will pay Prometheus' expenses
incurred in connection with the transactions contemplated by the Amended
Agreement. Prometheus, or its subsequent transferees, will have certain
registration rights with respect to the Class AA Stock, the Class AB Stock, the
Notes (if issued) and the Common Stock underlying the Class AA Stock, the Class
AB Stock, the Notes (if issued) and the Warrants.
The Company expects that Prometheus will also purchase approximately
900,000 shares of Common Stock from the Company's original founders by December
30, 1997. Prometheus and the Company may also agree to an additional investment
of up to $25,000,000 after December 31, 1998.
Holders of the Class AA Stock and the Class ABI Convertible Redeemable
Preferred Stock will vote on an as-converted basis with the Common Stock as a
single class on all matters on which the Common Stock is entitled to vote,
including the general election of directors. Voting rights of the Class AA Stock
and Class ABI Stock with respect to the general election of directors, on an
aggregate basis following completion of Prometheus' full investment, will not
exceed an aggregate total of 45% of the total voting stock outstanding at that
time. Holders of the Class ABII Stock will not vote on the general election of
directors unless the trading price of the Common Stock falls below $3.00 per
share and such holders provide notice to the Company of their intention so to
vote. The voting power of the Class AB Stock will be calculated as if it were
convertible into Common Stock at $5.25 per share.
Holders of Class AA Stock and Class AB Stock, voting together as a
class according to their proportionate liquidation values, will also be entitled
to elect three of the 15 members of the Company's Board of Directors and will be
entitled to designate two of the directors to be appointed to serve on the five
member Executive Committee of the Board of Directors. The Executive Committee
will have substantial authority to control the operations of the Company and to
act upon its decisions, but the Board of Directors will be able to override any
such action by a supermajority vote consisting of 13 of the 15 members of the
Board of Directors. The Company and Prometheus contemplate that the three
directors and two members of the executive committee will first be appointed
concurrent with stockholder approval of the transactions contemplated by the
Amended
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Agreement, though Prometheus reserves the right to elect and designate such
directors at any time after the First Closing (the "Preferred Directors").
Following the Second Closing, holders of Class AA Stock and Class AB
Stock will be entitled to appoint a majority of the Board of Directors in the
event that, on any date that is 60 days after the end of a fiscal quarter, (i)
the Common Stock is trading at or less than $4.375 per share, as adjusted, and
(ii) the percentage change in the Company's earning before interest expense,
income taxes and extraordinary or non-recurring items ("EBT") per share for the
most recent two fiscal quarters as measured against the same two fiscal quarters
of the prior year is less than the percentage change in the EBT per share for a
comparable group of companies for the two most recent fiscal quarters as
measured against the same two fiscal quarters of the prior year for such
companies.
Holders of the Class AA Stock and the Class AB Stock will also have
approval rights with respect to certain material actions proposed to be taken by
the Company. In addition, in connection with the First Closing, the Company,
Prometheus and certain holders of Common Stock have entered into a Stockholders
Agreement which requires, once the Preferred Directors are elected and
designated, that certain significant actions proposed to be taken by the Company
or any of its subsidiaries be submitted to a vote of the Board of Directors or
the Executive Committee. An affirmative vote of 81% of the Board of Directors or
the Executive Committee, as appropriate, will be required in order for the
Company or its subsidiaries to take such actions. It is also contemplated that
these provisions will be incorporated in the Company's certificate of
incorporation and bylaws. Certain principal shareholders of the Company have
agreed, subject to certain conditions, to certain restrictions on their ability
to dispose of Common Stock and have agreed to grant Prometheus certain rights to
participate proportionately in any sale of such Common Stock not otherwise
excepted from such restrictions. Prometheus has also been granted certain
preemptive rights with respect to future issuances of capital stock by the
Company.
Certain principal stockholders of the Company, holding a majority of the
Company's outstanding Common Stock, have agreed to vote in favor of the
transactions contemplated by the Amended Agreement when submitted to a special
meeting of stockholders expected to be held during the fourth quarter of 1997
(the "Stockholders Meeting"). Prometheus has agreed to abstain from voting at
the Stockholders Meeting on the authorization of the issuance of Class AA Stock,
Class AB Stock, Notes (if issued) and Warrants.
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SIGNATURE
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 thereunto duly authorized.
The Fortress Group, Inc.
Date: October 6, 1997 By: /s/ James J. Martell, Jr.
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James J. Martell, Jr.
President and
Chief Executive Officer
