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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: August 18, 1997
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 a Stock Purchase Agreement, dated as of
August 14, 1997 (the "Agreement"), pursuant to which the Company has agreed to
sell, and Prometheus has agreed to buy, $75,000,000 of the Company's preferred
stock.
Under the 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 at $6.00 per share at any time after issuance.
The Company will be able to require conversion of the Class AA Stock when the
average closing price of the Company's common stock, par value $0.01 per share
(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 date of first
issuance, 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.
Under the 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 on or after the fourth anniversary of the date of first
issuance 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 Company will be able to require conversion of the Class AB Stock
on or after the fifth anniversary of the date of first issuance. 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 date of first issuance.
The Class AB Stock will pay a 12% per annum preferred dividend, cumulative and
compounded quarterly.
In connection with the Class AB Stock, 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 date of first
issuance 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 first issuance, the Common Stock trades
at less than $20.01 per share and $12.01 per share, respectively.
Pursuant to the Agreement and subject to certain conditions, including
government approval, Prometheus will purchase between approximately $12,000,000
and $15,000,000 of Class AB Stock no later than September 30, 1997 and will also
receive 375,000 Warrants (the "First Closing").
Prometheus will purchase an additional $20,000,000 to $23,000,000 of
Class AA Stock and Class AB Stock, in proportionate amounts, and 625,000
Warrants no later than December 30, 1997 (the "Second Closing"), subject to
certain 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 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). The
remaining investment, for an aggregate investment of $75,000,000, will close no
later than December 31, 1998, subject to the same closing conditions. In any
event, the Company will pay Prometheus' expenses incurred in connection with the
transactions contemplated by the Agreement. Prometheus, or its subsequent
transferees, will have certain registration rights with respect to the Class AA
Stock,
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the Class AB Stock and the Common Stock underlying the Class AA Stock, the Class
AB Stock 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 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 election of directors.
Voting rights of the Class AA Stock and Class AB Stock, on an aggregate basis
following completion of Prometheus' full investment, will be fixed at an
aggregate total of 45% of the total voting stock outstanding at that time, as
calculated on a date one to three days prior to Prometheus' initial investment.
Holders of the Class ABII Stock will not vote on the 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.
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 representatives 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. 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 $5.00 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, a Stockholders Agreement by and among the Company,
Prometheus and certain holders of Common Stock will require that certain
significant actions proposed to be taken by the Company or its subsidiary 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. 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 an aggregate of
approximately 63% of the Company's outstanding Common Stock, have agreed to vote
in favor of the transactions contemplated by the Stock Purchase Agreement when
submitted to a special meeting of stockholders expected to be held during the
fourth quarter of 1997.
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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: August 18, 1997 By: /s/ James J. Martell, Jr.
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James J. Martell, Jr.
President and Chief Executive Officer
