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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:
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March 16, 1998
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.)
1650 Tysons Boulevard, Suite 600, McLean, Virginia 22102
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone No., Including Area Code:
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(703) 442-4545
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Item 2 - Acquisition or Disposition of Assets
On March 6, 1998, The Fortress Group, Inc., a Delaware corporation (the
"Company"), consummated the Whittaker Acquisition on the terms previously
reported in the Company=s definitive proxy statement on Schedule 14A filed with
the Securities and Exchange Commission on February 19, 1998 (the "Proxy
Statement"). Capitalized terms used herein and not defined herein are used
herein as defined in the Proxy Statement.
Item 5 - Other Events
On March 6, 1998, stockholders of the Company approved the transactions
contemplated by the Second Amended and Restated Stock Purchase Agreement, dated
as of February 19, 1998 (the "Amended Agreement"), by and between the Company
and Prometheus Homebuilders LLC ("Prometheus"), an affiliate of Lazard Freres
Real Estate Investors LLC. The Company and Prometheus consummated the Second
Closing, as defined in the Amended Agreement, on March 6, 1998 on the terms
previously reported in the Proxy Statement.
Item 7 - Financial Statements, Pro Forma Financial Information and Exhibits
(a), (b) The financial statements and pro forma financial information
required to be filed with this Current Report on Form 8-K in connection with the
Whittaker Acquisition have been previously filed as part of the Proxy Statement.
(c) Exhibits
2.1 Amended and Restated Purchase Agreement among the
Company, Whittaker Construction, Incorporated, RRKTG
Lumber, Inc., Lewis and Clark Title Company and the
persons named therein.
3.1 Certificate of Amendment of Certificate of
Incorporation of the Company, effective March 6,
1998.
3.2 Amendments to the Company=s By-Laws, effective March
6, 1998.
4.5 Certificate of Amendment of Certificate of
Designations, Preferences and Relative,
Participating, Optional and Other Special Rights of
Preferred Stock and Qualifications, Limitations and
Restrictions Thereof of Class AA Convertible
Preferred Stock of the Company.
4.6 Amended and Restated Warrant Agreement dated as of
March 6, 1998 by and between the Company and
Prometheus Homebuilders LLC.
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4.7 Amended and Restated Stockholders Agreement, dated as
of March 6, 1998, by and among the Company and the
Stockholders named therein.
4.8 Amended and Restated Registration Rights Agreement
dated as of March 6, 1998 by and between the Company
and Prometheus Homebuilders LLC.
10 Second Amended and Restated Stock Purchase Agreement
dated as of February 19, 1998 by and between the
Company and Prometheus Homebuilders LLC.
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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: March 16, 1998 By: /s/ James J. Martell, Jr.
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James J. Martell, Jr.
President and
Chief Executive Officer
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INDEX TO EXHIBITS
Exhibit
Number Description
2.1 Amended and Restated Purchase Agreement among the
Company, Whittaker Construction, Incorporated, RRKTG
Lumber, Inc., Lewis and Clark Title Company and the
persons named therein.
3.1 Certificate of Amendment of Certificate of
Incorporation of the Company, effective March 6,
1998.
3.2 Amendments to the Company=s By-Laws, effective March
6, 1998.
4.5 Certificate of Amendment of Certificate of
Designations, Preferences and Relative,
Participating, Optional and Other Special Rights of
Preferred Stock and Qualifications, Limitations and
Restrictions Thereof of Class AA Convertible
Preferred Stock of the Company.
4.6 Amended and Restated Warrant Agreement dated as of
March 6, 1998 by and between the Company and
Prometheus Homebuilders LLC.
4.7 Amended and Restated Stockholders Agreement, dated as
of March 6, 1998, by and among the Company and the
Stockholders named therein.
4.8 Amended and Restated Registration Rights Agreement
dated as of March 6, 1998 by and between the Company
and Prometheus Homebuilders LLC.
10 Second Amended and Restated Stock Purchase Agreement
dated as of February 19, 1998 by and between the
Company and Prometheus Homebuilders LLC.
Exhibit 2.1
AMEMDED AND RESTATED
PURCHASE AGREEMENT
AMONG
THE FORTRESS GROUP, INC.
WHITTAKER CONSTRUCTION, INCORPORATED
RRKTG LUMBER, INC.
LEWIS AND CLARK TITLE COMPANY
AND
PERSONS NAMED HEREIN
DATED: December 31, 1997
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Purchase Agreement
Amended and Restated Purchase Agreement is made and entered effective the
31st day of December, 1997 among The Fortress Group, Inc., a Delaware
corporation ("Fortress" and the "Purchaser"), Whittaker Construction,
Incorporated, a Missouri corporation ("Whittaker Construction"), RRKTG Lumber,
Inc., a Missouri corporation ("RKG"), Lewis and Clark Title Company, a Missouri
corporation ("L&C" and together with Whittaker Construction and RKG, the
"Acquired Companies"), Robert N. Whittaker, Sr., Shirley J. Whittaker, Gregory
G. Whittaker, Robert N. Whittaker, Jr., Timothy H. Whittaker, and Kelly K.
Whittaker, each Missouri residents (collectively, the "Principals" and the
"Sellers") and Robert N. Whittaker, Sr., Trustee under Voting Trust Agreements
among Whittaker Construction, Incorporated and Shirley J. Whittaker, Gregory G.
Whittaker, Robert N. Whittaker, Jr., Timothy H. Whittaker, and Kelly K.
Whittaker (the "Beneficial Owners") and among RKG and the Beneficial Owners (the
"Purchase Agreement").
WHEREAS, the Acquired Companies are engaged in the business of
constructing, selling, financing, and insuring the title to residential
single-family homes and operating a lumber company in St. Charles County,
Missouri (the "Business"),
WHEREAS, the Principals desire to sell, and the Purchaser desires to
purchase, all of the issued and outstanding shares of capital stock (the
"Shares") of the Acquired Companies for the consideration and on the terms set
forth in this Agreement,
NOW, THEREFORE, in consideration of the mutual covenants of the parties set
forth in this Agreement and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
SALE OF SHARES AND ASSETS
1.1 Shares. Upon the terms and subject to the conditions set forth herein
and in reliance on the respective representations and warranties of the parties,
the Principals will sell and transfer all of the issued and outstanding Shares
to Purchaser, and Purchaser will purchase the Shares from the Principals on the
Closing Date and at the time and place of Closing referred to below, for the
consideration and in accordance with the provisions of Section 2.1 hereof.
1.2 Consents. Promptly after the date hereof and except as otherwise
provided herein, the Principals shall use reasonable efforts to obtain all
approvals, consents, notices, and waivers required to transfer the shares to the
Purchaser (collectively, the "Consents"), in form and substance satisfactory to
the Purchaser. Schedule 4.5-1 hereto describes each Consent.
1.3 Transfer to the Purchaser Subsidiaries. At the election of the
Purchaser, at Closing the Principals shall transfer the Shares to such direct or
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indirect subsidiaries of the Purchaser as Purchaser shall designate in writing
to Sellers before the Closing date (the "Purchaser Subsidiaries"). Purchaser is
considering having the Shares of Whittaker Construction, RKG, and L&C
transferred to three separate Purchaser Subsidiaries. In such case the
agreements, covenants, indemnifications, and representations and warranties of
the Sellers set forth herein shall also be for the benefit of the Purchaser
Subsidiaries. If Purchaser elects to have title transferred at Closing to
Purchaser Subsidiaries, Fortress shall remain subject to and bound by the
duties, covenants, indemnifications, liabilities, representations, and
warranties of Purchaser set forth herein.
ARTICLE II
CONSIDERATION AND MANNER OF PAYMENT
2.1 Purchase Price. The purchase price (the "Purchase Price") for the
Shares and the terms of payment will be as follows:
(a) Cash. Subject to a post-closing adjustment pursuant to
Section 2.2, below, Purchaser shall pay to Principals $12,750,000 cash
as follows:
(i) Earnest Money.
(A) 1st Deposit. By 12:00 midnight January
5, 1998 Purchaser shall wire transfer $500,000 in
immediately available funds to an account or accounts
designated by Principals (the "Earnest Money
Deposit"). It shall be nonrefundable and shall
constitute liquidated damages in the event the
Purchaser fails to close for any reason other than a
material breach by the Sellers of their duties under
the Agreement. At Closing the Earnest Money Deposit
shall be credited against the $12,750,000 cash
purchase price at Closing. In the event Purchaser
fails to deliver the Earnest Money Deposit by 12:00
midnight January 5, 1998, this Agreement will
terminate. All obligations of the parties hereunder
shall end, and each party will be relieved on any and
all claims from and duties to the other party growing
out of this Agreement except the confidentiality
provisions contained in Section 8.3(d). Each party
will bear its own expenses and respective fees and
costs.
(B) 2d Deposit. Not later than 5:00 p.m.,
Central Standard Time, February 27, 1998 Purchaser
shall wire transfer $500,000 in immediately available
funds to an account or accounts designated by
Principals (the "2d Earnest Money Deposit"). It shall
be nonrefundable, and $300,000 shall be credited
against the $12,750,000 cash purchase price at
Closing, with $200,000 of it being an extension
payment to extend the Closing Date to March 6, 1998.
Once the 2d Earnest Money Deposit is deposited, the
two deposits, totaling $1,000,000, shall constitute
liquidated damages in the event the Purchaser fails
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to close for any reason other than a material breach
by the Sellers of their duties under the Agreement.
In the event Purchaser fails to deliver the 2d
Earnest Money Deposit by 5:00 p.m. Central Standard
Time, February 27, 1998, this Agreement will
terminate. All obligations of the parties hereunder
shall end, and each party will be relieved on any and
all claims from and duties to the other party growing
out of this Agreement except the confidentiality
provisions contained in Section 8.3(d). Each party
will bear its own expenses and respective fees and
costs
(ii) Closing Date Cash. At Closing Purchaser shall
wire transfer $10,750,000 in immediately available funds to an
account or accounts designated by Principals and $1,000,000 to
U. S. Title & Guaranty Company of St. Charles, Inc., Escrow
Agent pursuant to the Escrow Agreement attached hereto as
Exhibit H.
(b) Pre-Closing Distributions. As more fully described in
Section 6.2(i), below, and subject to the limitations therein, it is
contemplated by the parties that Principals will cause the Acquired
Companies to make Pre-Closing Distributions of the estimated combined
net worth of the Acquired Companies as of the Closing and will repay
personal loans to the Principals. These Pre-Closing Distributions were
part of the Purchase Price negotiations.
2. 2. Adjustments to the Purchase Price.
(a) Closing Combined Balance Sheet. (1) Within forty-five (45)
days of Closing, the Principals who are senior executives of Whittaker
Construction, post-closing, shall prepare under the supervision of
Fortress an unaudited combined balance sheet for the Acquired Companies
as of the close of business on the date of the Closing. Purchaser's
public auditor (the "Auditor") shall then, within sixty (60) days of
receipt of such balance sheet, audit such closing combined balance
sheet of the Acquired Companies (as it may be adjusted pursuant to
subsection 2.2(c) below, the "Closing Combined Balance Sheet"), which
Closing Combined Balance Sheet shall set forth the financial condition,
assets, and liabilities of the Acquired Companies as of the close of
business on the date of the Closing, but shall exclude any value
associated with tap fee rebates arising from the Village of Dardene
development, which are to be assigned to Principals as of the Closing.
The Closing Combined Balance Sheet shall be prepared in accordance with
generally accepted accounting principles ("GAAP"); provided, however,
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no adjustment will be recognized for purposes of this Section 2.2 based
upon a change in accounting treatment or policy with respect to an item
that is in accordance with GAAP. The Closing Combined Balance Sheet
shall include footnotes and shall include all adjustments, which would
be made if the date of the Closing were the end of a fiscal period. The
Auditor shall deliver a copy of the audit to the Principals along with
a copy of the combined audited financials of the Acquired Companies for
the period ended December 31, 1997 prepared by the Auditor on behalf of
Purchaser in connection with its public disclosure of the proposed
transaction (the "Audited 1997 Financials"). The fee charged by the
Auditor for the audit shall be Fortress' expense. In addition, an
auditor selected by the Principals ("Principals' Auditor") shall
determine the increase in State and Federal Taxes payable by the
Principals caused by Purchaser's election of Section 338(a) treatment
for the purchase of the shares of Whittaker Construction (the "Section
338 Tax Increase") and deliver its determination (the "Tax
Determination") to the parties at the time the Auditor delivers the
Closing Combined Balance Sheet. The fee charged by Principals' Auditor
for the Tax Determination shall be Fortress' expense.
(b) If the Principals dispute any of the calculations or
conclusions of the Auditor with respect to either the Closing Combined
Balance Sheet or the Audited 1997 Financials, they shall notify
Purchaser in writing thereof ("Sellers' Notice") within thirty (30)
days after delivery of the audit documents to them, which notice shall
set forth in reasonable detail the procedures and the amount(s) in
dispute. If they do not so notify Purchaser within such period, the
Closing Combined Balance Sheet shall become final and binding upon all
parties at the end of such period. If the Purchaser disputes any of the
calculations or conclusions of the Principals' Auditor, it shall notify
the Principals in writing thereof ("Purchaser's Notice") within thirty
(30) days after delivery of the Tax Determination to them, which notice
shall set forth in reasonable detail the amount in dispute. If it does
not so notify Principals within such period, the Tax Determination
shall become final and binding upon all parties at the end of such
period.
(c) If the Principals do so notify Purchaser or the Purchaser
does so notify the Principals, as the case may be, the Principals and
Purchaser shall attempt in good faith to resolve such dispute(s). If
Purchaser and the Principals are unable to resolve any disputed item
within ten (10) days after receipt of the respective Notice, such
disputed item(s) shall be submitted to one of the five largest
nationally recognized accounting firms or any of their successors
(other than the Auditor or the Principals' Auditor or their successors)
chosen by lot which shall be instructed to arbitrate such disputed
item(s) and determine the Net Worth of the Acquired Companies (as
defined below) or the Section 338 Tax Increase, or both, within thirty
(30) days, in a manner consistent with the provisions of Sections
2.2(a) and (c). The dispute may include issues relating to the 1997
Financials which have a bearing on the Closing Combined Balance Sheet.
The resolution of disputes by the accounting firm so selected shall be
set forth in writing and shall be conclusive and binding upon and
non-appealable by the parties, and the Closing Combined Balance Sheet
and, if subject to the dispute resolution, the Section 338 Tax Increase
determination shall become final and binding upon the date of such
resolution. The costs of such resolution by such accounting firm shall
be borne equally by the two sets of parties. The term "Net Worth" means
the excess of the total combined assets of the Acquired Companies over
their total combined liabilities, determined in accordance with GAAP,
but excluding the aforementioned tap fee rebates; provided, however, no
adjustment will be recognized for purposes of this Section 2.2 based
upon a change in accounting treatment or policy with respect to an item
that is in accordance with GAAP.
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(d) Adjustment. (i) Upon its determination, the
amount of Net Worth (after giving effect to the Pre-Closing
Distributions), if any, will be distributed to the Principals
in cash by Purchaser within 10 business days from the date the
amount is determined; and
(ii) The amount of Net Worth will be added to the
Pre-Closing Distributions to determine the "Cash Adjustment
Amount". To the extent that the Cash Adjustment Amount is less
than $13,000,000, the difference will be paid to the
Principals in cash by Purchaser within 10 business days from
the date the amount is determined. In addition, an adjustment
will be made for the difference between the Section 338 Tax
Increase and $750,000. If the Section 338 Tax Increase is less
than $750,000, the difference will be paid by the Principals
to Purchaser within 10 business days from the date the amount
is determined. If the Section 338 Tax Increase is more than
$750,000, the difference will be paid by the Purchaser to
Principals within 10 business days from the date the amount is
determined.
2.3 Tax Reporting and Allocations. Subject to Purchaser's payment to the
Principals of the Section 338 Tax Increase pursuant to Sections 2.1 and 2.2,
above, Purchaser and Principals agree to treat the transaction for tax purposes
as if the Acquired Companies sold all of their assets in a single transaction
and to make elections under Sections 338(a) and (h)(10) of the Code. Schedule
2.6 constitutes the parties' agreement concerning allocation among the assets of
the consideration to be paid to the Principals.
ARTICLE III
CLOSING
3.1 Time and Place of Closing. The purchase and sale provided for in this
Agreement will take place at the offices of Whittaker Construction,
Incorporated, 355A Mid Rivers Mall Drive, St. Peters, MO 63376, or at such other
place as the parties may agree upon, at 10:00 a.m. (local time) on March 6, 1998
(the "Closing", sometimes referred to as the "Closing Date") or such sooner date
as Fortress may elect by giving at least three business days notice to Sellers,
with a Closing Effective Date of 12:01 A.M. March 1, 1998.
3.2 Deliveries. At Closing, the Principals, Acquired Companies and
Purchaser will respectively deliver the closing documents as set forth in the
Deliveries Check List attached as Exhibit A hereto and hereby incorporated by
reference (the "Deliveries Check List").
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ACQUIRED COMPANIES,
AND PRINCIPALS
The Acquired Companies, Robert N. Whittaker, Sr., Shirley J. Whittaker,
Gregory G. Whittaker, Robert N. Whittaker, Jr., Timothy H. Whittaker, and Kelly
K. Whittaker each jointly and severally represent and warrant that all of the
following representations and warranties in this Article IV are true and correct
at the date of this Agreement, shall be true at the time of Closing, and
Principals further represent that such representations and warranties as made at
the time of Closing shall survive the Closing for the period of three years
following the Closing Date.
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4.1 Corporate Power and Authority; Effect of Agreement. The Acquired
Companies are corporations duly organized, validly existing, and in good
standing under the laws of the State of Missouri and have all requisite power
and authority to carry on their operations as they are now being conducted, to
own or use the properties and assets they purport to own or use and to perform
all of their obligations under the Material Contracts. They have all requisite
corporate power and authority to consummate the transactions contemplated hereby
and thereby, and to perform their respective obligations hereunder. The
execution and delivery of this Agreement by the Acquired Companies and
performance by them of their obligations under this Agreement and the
consummation by them of the transaction contemplated hereby have been duly
authorized by all necessary action on the part of each, in accordance with
applicable law and Articles of Incorporation and By-laws. This Agreement has
been duly and validly executed and delivered by the Acquired Companies and
constitutes the valid and binding obligations of each, enforceable in accordance
with their respective terms, except to the extent that such enforceability may
be limited by bankruptcy, insolvency, reorganization, moratorium, or other
similar laws of general applicability relating to or affecting creditors' rights
generally, or the application of equitable principles.
4.2 Minute Books of Each Acquired Company. The minute books of the Acquired
Companies contain true and correct copies of (i) the minutes of each meeting of
and (ii) all written consents of the board of directors and stockholders of each
Acquired Company.
4.3 Capitalization. The entire authorized and issued capital stock of each
Acquired Company is listed on Schedule 4.3, and is issued only to the holders
reflected on such Schedule. No legend or other reference to any purported
Encumbrance appears upon any certificate representing the Shares of the Acquired
Companies. All of the outstanding equity securities and interests of the
Acquired Companies have been duly authorized and validly issued and are fully
paid and nonassessable. Except for the Voting Trust Agreements, there are no
voting agreements, voting trusts or other agreements (including cumulative
voting rights), commitments or understandings with respect to any of the stock
reflected on Schedule 4.3. The Voting Trust Agreements will be terminated prior
to Closing.
4.4 Articles of Incorporation, Bylaws, Officers and Directors. True and
complete copies of the Articles of Incorporation, and all amendments thereof to
date, and Bylaws of the Acquired Companies, have been delivered to Purchaser.
Schedule 4.4 is a true and complete list of all of the officers and directors of
each Acquired Company.
4.5 Authority; No Conflict. Except to the extent consents are required from
third parties or Governmental Authorities (the "Consents"), the execution,
delivery or performance of this Agreement and the consummation of the
transactions contemplated hereby will not:
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(i) Violate or conflict with or result in a breach of
any provision of any Law, order, permit, judgment, injunction,
decree or other decision of any court or other tribunal or any
Governmental Authority binding on the Acquired Companies, or
any of their respective Affiliates, or conflict with or result
in the breach of any of the terms, conditions or provisions
thereof.
(ii) Constitute a default under the respective
Articles of Incorporation or the By-laws of the Acquired
Companies or of any material contract, agreement, commitment,
indenture, mortgage, note, bond, license or other instrument
or obligation to which an Acquired Company is a party.
(iii) Constitute an event that would permit any
person to terminate any Material Contract or accelerate the
maturity of any material indebtedness or other material
obligation.
(iv) Result in the creation or imposition of any
material Encumbrance upon the assets of the Acquired
Companies.
(v) Require any authorization, consent, approval,
exemption or other action by or notice to any court or
Governmental Authority.
Under a heading "Consents", Schedules 4.5-1 and 4.5-2 describes each Consent. As
used in this Agreement, "Governmental Authority" shall mean the United States or
any state, local or foreign government, or any subdivision, agency or authority
of any thereof.
4.6 Financial Statements. (a) Except as set forth in Schedule 4.6, each
Acquired Company has delivered to Fortress as part of Schedule 4.6 copies of the
following financial statements (the "Financial Statements"):
(i) Unaudited Financial Statements for the years ended
December 31, 1994, 1995, and 1996.
(ii) Unaudited Financial Statements for the month ended
October 31, 1997.
(iii) Unaudited Financial Statements for the three months
ended March 31, 1996 and 1997, the three months ended June 30, 1996 and
1997, the three months ended September 30, 1996 and 1997.
(iv) Unaudited Financial Statements for the six months ended
June 30, 1996.
(v) Unaudited Financial Statements for the nine months ended
September 30, 1996 and 1997.
Each Financial Statement is accurate and complete in all material respects,
is consistent with the books and records of the respective Acquired Company
(which, in turn, are accurate and complete in all material respects) and fairly
presents the Acquired Company's financial condition, assets and liabilities, as
of the respective dates, and the results of operations for the periods related
thereto.
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(b) Except as reflected on Schedule 4.6, as of the date hereof and as of
the Closing, no Acquired Company has any material debts, liabilities or
obligations of any nature (whether accrued, absolute, contingent, direct,
indirect, perfected, inchoate, unliquidated or otherwise), except
(i) to the extent clearly and substantially reflected
and accrued for or fully reserved against in the Financial
Statements,
(ii) for liabilities specifically delineated as to
nature and amount on the Schedules to this Agreement or
liabilities not assumed pursuant to Section 2.8,
(iii) for liabilities and obligations which have
arisen after October 31, 1997 in the Ordinary Course of
Business (none of which is a liability resulting from an
undisclosed breach of contract, material breach of warranty,
tort, infringement claim, or law suit, not otherwise disclosed
in Schedule 4.14).
4.7 Taxes.
(a) Definitions.
(i) The term "Tax" shall mean any federal, state,
local or foreign income, gross receipts, franchise, estimated,
alternative minimum, add-on minimum, sales, use, transfer,
registration, value added, excise, natural resources,
severance, stamp, occupation, premium, windfall profit,
environmental, customs, duties, real property, personal
property, capital stock, social security, unemployment,
disability, payroll, license, employee or other withholding,
or other tax of any kind whatsoever, including any interest,
penalties or additions to tax or additional amounts in respect
to the foregoing.
(ii) The term "Tax Return(s)" shall mean returns,
declarations, reports, claims for refund, information returns
or other documents (including any related or supporting
schedules, statements or information) filed or required to be
filed in connection with the determination, assessment or
collection of any Taxes of each Acquired Company or the
administration of any laws, regulations or administrative
requirements relating to any Taxes.
(b) Tax Returns and Audits. Except as set forth in Schedule 4.7, each
Acquired Company has timely filed all Tax Returns for all periods ended on or
before the date of Closing and paid all Taxes shown to have become due pursuant
to such Tax Returns.
(c) The charges, accruals, and reserves with respect to Taxes on the books
of the Acquired Companies are or, by the Closing, will be, in the judgment of
the Acquired Companies' Chief Financial Officer, adequate (determined in
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accordance with GAAP). There exists no proposed tax assessment relating to the
Acquired Companies other than real property taxes and other taxes incurred in
the ordinary course of business. No consent to the application of Section
341(f)(2) of the Code has been filed with respect to any property or assets
held, acquired, or to be acquired by the Acquired Companies. All Taxes that the
Acquired Companies are or were required by Law to withhold or collect have been
duly withheld or collected and, to the extent required, have been paid to the
proper Governmental Authority or other Person.
(d) All Tax Returns filed by (or that include on a consolidated basis) the
Acquired Companies are true, correct, and complete in all material respects.
There is no tax sharing agreement that will require any payment by the Acquired
Companies after the date of this Agreement.
4.8 Material Contracts. Except as listed or described on Schedule 4.8 or
any other Schedule (the "Material Contracts"), as of or on the date hereof the
Acquired Companies are not party to any Applicable Contract that is of a type
described below:
(a) any collective bargaining arrangement with any labor union
or any such agreements currently in negotiation or proposed;
(b) any contract for capital expenditures or the acquisition
or construction of fixed assets for or in respect to real property
other than in the Ordinary Course of Business in excess of $50,000;
(c) any contract with a term in excess of one year for the
purchase, maintenance, acquisition, sale or furnishing of materials,
supplies, merchandise, machinery, equipment, parts or other property or
services (except that the Acquired Companies need not list any such
contract made in the Ordinary Course of Business which requires
aggregate future payments of less than $250,000, and in lieu of
providing each individual contract, the Acquired Companies has provided
to Fortress its standard subcontractor form and a list of each
subcontractor).
(d) any contract relating to the borrowing of money, or the
guaranty of another person's borrowing of money, including, without
limitation, all notes, mortgages, indentures and other obligations,
agreements and other instruments for or relating to any lending or
borrowing, including assumed indebtedness;
(e) any contract granting any person an Encumbrance on any of
the assets of the Acquired Companies, in whole or in part, other than
an Encumbrance arising in the Ordinary Course of Business as a result
of the Acquired Companies entering into an agreement to sell a home to
a potential buyer;
(f) any contract for the cleanup, abatement or other actions
in connection with Hazardous Materials (as defined in Section 4.18),
the remediation of any existing environmental liabilities or relating
to the performance of any environmental audit or study, other than
those arising in the Ordinary Course of Business;
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(g) any contract granting to any person a first-refusal,
first-offer or similar preferential right to purchase or acquire any
material asset of the operations of the Acquired Companies, other than
in the Ordinary Course of Business;
(h) any contract under which an Acquired Company is -
(i) a lessee or sublessee of any machinery,
equipment, vehicle or other tangible personal property or real
property, or
(ii) a lessor of any real property or tangible
personal property owned by an Acquired Company,
in either case having an original value in excess of $50,000;
(i) any contract providing for the indemnification of any
officer, director, employee or other person where such indemnification
may exceed the sum of $50,000;
(j) any joint venture or partnership contract.
The Acquired Companies have made available to Fortress a true and complete
copy of each written Material Contract, including all amendments or other
modifications thereto. Except as set forth on Schedule 4.8, each Material
Contract is a valid and binding obligation of the respective Acquired Company
enforceable in accordance with its terms, and is in full force and effect,
subject to bankruptcy, reorganization, receivership and other laws affecting
creditors' rights generally and the application of equitable principles. Except
as set forth on Schedule 4.8, the respective Acquired Company has performed all
obligations required to be performed by it under each Material Contract and it
is not, nor, to the Knowledge of the Acquired Companies, is any other party to
any Material Contract (with or without the lapse of time or the giving of
notice, or both) in breach or default in any material respect thereunder; and
there exists no condition which, to the Knowledge of the Acquired Companies,
would constitute a breach or default thereunder. The Acquired Companies have not
been notified that any party to a Material Contract intends to cancel,
terminate, not renew, or exercise an option under any Material Contract, whether
in connection with the transactions contemplated hereby or otherwise.
4.9 Home Contracts. Schedule 4.9 will list as of the Closing date all
Contracts the Acquired Companies are a party to or entered into on behalf
thereof pursuant to which they are obligated to construct a residence in
connection with the Business.
4.10 Permits. To the Knowledge of Sellers, each Acquired Company possesses
all approvals, authorizations, certificates, consents, franchises, licenses,
permits, rights, variances, and waivers necessary for the lawful conduct of its
Business, the absence of which would materially adversely affect the operations
of the Acquired Companies (collectively, the "Permits"). To the Knowledge of
Sellers, each of the Permits is listed on Schedule 4.10 hereto. To the Knowledge
of Sellers, all Permits are in full force and effect, no violations have
occurred with respect thereto, and no basis exists for any limitation,
revocation, or withdrawal thereof or any denial of any extension or renewal with
respect thereto.
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4.11 Properties. Schedule 4.11.1 hereto contains a complete and accurate
list and legal description of all real property, leaseholds, or other interests
in real property owned or held by the Acquired Companies. Schedule 4.11-1 shall
be organized into five categories: Developed Real Property, Undeveloped Real
Property, Leased Real Property, Land Contracts, and Option Property. Solely for
purposes of categorizing the property being developed as either Developed Real
Property or Undeveloped Real Property, Developed Real Property shall mean the
property that meets the definition of "Substantially Complete" as defined in
Article X. Under the heading "Developed Real Property" Schedule 4.11-1 shall
also disclose the estimated cost basis of each lot and the current list price of
each (x) display house, (y) `spec' house, and (z) pre-sold house. The Acquired
Companies will deliver or make available to Fortress copies of deeds and other
instruments (as recorded) by which the Acquired Companies acquired such real
property interests and copies of all title insurance policies, opinions,
abstracts, and surveys in the possession of Sellers and relating to such
property or interests. For purposes of this Agreement, the Developed Real
Property and Undeveloped Real Property shall be collectively referred to as the
"Property".
(a) Access. The Developed Real Property has all necessary
access to and from public highways, streets, and roads, and no pending
or, to the best Knowledge of the Sellers, threatened proceeding or
other fact or condition exists that could limit or result in the
termination of such access. The Developed Real Property is connected to
and serviced by electric, gas, sewage, telephone, and water facilities,
which facilities are in compliance, in all material respects, with all
applicable Laws and installation and connection charges with respect
thereto have been paid as required by the applicable utility provider.
With respect to any Developed Real Property acquired or created by the
Acquired Companies after the date hereof but before Closing, such
Developed Real Property will satisfy all of the representations and
warranties set forth herein concerning the Developed Real Property.
With respect to the Undeveloped Real Property, there is no fact or
condition that would preclude (a) the Undeveloped Real Property from
having access to and from public highways, streets, or roads and (b)
the Undeveloped Real Property from being connected to and serviced by
electric, gas, sewage, telephone, and water facilities. With respect to
any Undeveloped Real Property acquired by the Acquired Companies after
the date hereof but before Closing, such Undeveloped Real Property will
satisfy all of the representations and warranties set forth herein
concerning the Undeveloped Real Property as of the Closing.
(b) Good and Marketable Title. To the Knowledge of the
Principals and the Acquired Companies, the Acquired Companies have good
and marketable title in fee simple to their respective Developed Real
Property and Undeveloped Real Property; and the Developed Real Property
and Undeveloped Real Property are free and clear of all Encumbrances
other than those of record and are not subject to rights of way, use
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restrictions, exceptions, variances, reservations, or limitations of
any nature except (i) mortgages or security interests shown on the
Acquired Companies' October 31, 1997 Balance Sheet as securing
specified liabilities or obligations, with respect to which no material
default (or event that, with notice or lapse of time or both, would
constitute a default) exists, (ii) mortgages or security interests
incurred in connection with the purchase of property or assets after
October 31, 1997, with respect to which no material default (or event
that, with notice or lapse of time or both, would constitute a default)
exists, (iii) liens for current taxes not yet due, and (iv) minor
imperfections of title, if any, none of which is substantial in amount,
materially detracts from the value or impairs the use of the property
subject thereto, or impairs the operations of the Acquired Companies,
and (v) zoning laws, annexation agreements and other land use
restrictions that do not prevent the present or anticipated use of the
property subject thereto; (vi) escrow agreements and recoupment
agreements relating to the development of the Property, (vii)
regulations and requirements imposed as part of the approval of the
development of the Property by State, local and federal governments.
(c) No Breach or Default. With respect to any agreements,
arrangements, contracts, covenants, conditions, deeds, deeds of trust,
rights-of-way, easements, mortgages, restrictions, surveys, title
insurance policies, and other documents granting to the Acquired
Companies an interest in or otherwise affecting their property, no
breach or event has occurred that with the giving of notice, the lapse
of time, or both, would constitute a breach or event of default by an
Acquired Company, or, to the best Knowledge of the Acquired Companies,
any other Person.
(d) No Condemnation. No condemnation, eminent domain, or
similar proceeding exists, is pending or, to the best Knowledge of the
Acquired Companies, is threatened with respect to, or that could
affect, any Developed or Undeveloped Property, Leased Real Property, or
property held pursuant to a Land Contract.
(e) Compliance with Laws. To the Knowledge of the Acquired
Companies and Principals, the buildings and improvements on the
Developed Real Property and the Leased Real Property and the
subdivisions and improvements of the Developed Real Property do not
violate (i) any applicable Law, including any building, set-back, or
zoning law, ordinance, regulation, or statute, or other governmental
restriction in the nature thereof, or (ii) any restrictive covenant
affecting any such property.
(f) Parties in Possession. To the Knowledge of the Acquired
Companies and Principals, there are no parties in possession of any
portion of the Property owned by or occupied by such Acquired Company,
respectively, as lessees, tenants at sufferance, or trespassers.
(g) Assessments. Except as set forth on Schedule 4.11(g) or
accrued or reported in the Closing Combined Balance Sheet, no
developer-related charges or assessments for public improvements or
otherwise made against the Developed Real Property or any lots included
therein are currently due and unpaid, including without limitation
those for construction of sewer lines, water lines, storm drainage
systems, electric lines, natural gas lines, streets (including
perimeter streets), roads and curbs.
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(h) Moratoria. There is no moratorium applicable to any of the
Developed or Undeveloped Real Property on (i) the issuance of building
permits for the construction of houses, or certificates of occupancy
therefor, or (ii) the purchase of sewer or water taps.
(i) Construction Conditions. To the Knowledge of Whittaker
Construction each Lot included in the listing of Developed Real
Property is stable and otherwise suitable for the construction of a
residential structure by customary means and without extraordinary site
preparation measures. Sellers make no representation as to the presence
of rocks in or at building sites and disclaim Knowledge of the rock
conditions.
(j) Environmental Matters. To the Knowledge of the Acquired
Companies and Principals, except as disclosed in Schedule 4.11(j), the
Developed and Undeveloped Real Property does not contain wetlands or a
level of radon above action levels of the U.S. Environmental Protection
Agency and is not located within a "critical", "preservation",
"conservation" or similar type of area. To the Knowledge of the
Acquired Companies and Principals no portion of the Developed or
Undeveloped Real Property is situated within a "noise cone" such that
the Federal Housing Administration will not approve mortgages due to
the noise level classification of such Developed or Undeveloped Real
Property.
(k) Certain Prior Uses. Other than isolated cemetery plots
that Whittaker Construction has left undisturbed, none of the Developed
or Undeveloped Real Property has been used as a gravesite or sanitary
land fill.
(l) Claims. Except as otherwise disclosed to Purchaser in this
Agreement, no legal proceeding is pending or, to the best Knowledge of
the Acquired Companies, threatened which involves any of the Property
or against an Acquired Company with respect to any of the Property;
except for allegations associated with High Grove, Emerald Place, the
Summit and the Presidio, none of the site-preparation and construction
work performed on the Developed or Undeveloped Real Property has
concentrated or diverted surface water or percolating water improperly
onto or from the Property.
(m) No Foreign Sellers. No Seller is a "Foreign Person"
within the meaning of Sections 1445 and 7701 of the Code.
Schedule 4.11-3 is a true and complete list of each of the trucks,
automobiles, machinery, equipment, furniture, supplies, tools, and other
tangible personal property, and assets owned by, in the possession of, or used
by the Acquired Companies in connection with the Business with a value in excess
of $2,500 located on the real property or reflected on the October 31, 1997
Balance Sheet (except property sold or otherwise disposed of in the ordinary
course of Business consistent with past custom and practices). The Acquired
Companies have good and marketable title to, or a valid leasehold interest in
(as indicated on such Schedule), each item listed on Schedule 4.11-3.
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4.12 Trademarks Service Marks, Trade Names, and Copyrights. To the
Knowledge of Sellers and the Acquired Companies -
a) all trademarks, service marks, trade names, and copyrights (including
computer software and data) ("Trade Marks") used by the Acquired Companies in
the conduct of the Business is described and set forth with particularity in
Schedule 4.12, along with information as to the ownership thereof;
b) all such trademarks, service marks, trade names, and copyrights are
owned by the Acquired Companies, except for such as are licensed under licenses
referred to in Schedule 4.12;
c) all such trademarks, service marks, trade names, and copyrights are
valid and in good standing, free and clear of any Encumbrances other than in the
Ordinary Course of Business and are not being overtly challenged in any way;
d) the Acquired Companies have not infringed on nor are they now infringing
on any trade mark, service mark, trade name, or copyright of or belonging to
another person; and
e) there is no claim pending or overtly threatened against the Acquired
Companies with respect to alleged infringement of any trademark, service mark,
trade name, or copyright owned by any person nor does the operation or any
aspect to the Business in the manner in which it has heretofore been operated or
is presently operated give rise to any such infringement.
4.13 Patents and Other Intellectual Property. To the Knowledge of Sellers
and the Acquired Companies -
(a) all patents and other intellectual property ("Intellectual Properties")
including all inventions, designs, models, processes, and applications for
patents owned or used by the Acquired Companies or in which or to which they has
any rights, licenses or immunities are described and set forth with
particularity in Schedule 4.13, along with information as to the ownership
thereof or licenses, rights or immunities therein and registrations thereof;
(b) the Acquired Companies have not infringed on, misappropriated, or
otherwise conflicted with and are not now infringing on, misappropriating or
otherwise conflicting with any patent or other intellectual property right
belonging to any person;
(c) the Acquired Companies are not party to any license agreement or
arrangement, whether as licensee, licensor or otherwise, with respect to any
patent, application for patent, invention, design, model, process, trade secret
or formula not set forth in Schedule 4.13; and
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(d) the Acquired Companies have the right and authority to use all patents,
applications for patents, inventions, trade secrets, processes, models, designs,
formulas and other intellectual property rights as are necessary to enable them
to conduct and to continue to conduct all phases of the Business in the manner
presently conducted and such use does not and will not conflict with, infringe
on or misappropriate any patent or other rights of any person.
4.14 Litigation. Except as set forth in Schedule 4.14 (which shall disclose
the parties to, nature of, and relief sought for each matter to be disclosed on
Schedule 4.14) or other Schedule to this Agreement:
(a) There is no suit, action, proceeding, investigation, claim
or order pending or, to the Knowledge of the Sellers, overtly
threatened against the Acquired Companies with respect to the Business
or proposed business activities or to which the Acquired Companies are
otherwise a party, or which individually or in the aggregate could have
a materially adverse effect on either the Acquired Companies, their
assets, or the Business, before any court or before any Governmental
Authority (collectively, "Claims"); nor, to the Sellers' Knowledge, is
there any basis for any such Claims.
(b) The Acquired Companies are not subject to any judgment,
order, or decree of any court or Governmental Authority. The Acquired
Companies have not received any opinion or memorandum from legal
counsel to the effect that they are exposed, from a legal standpoint,
to any liability or disadvantage which may be material to the Business.
Except as disclosed in Schedule 4.14, the Acquired Companies are not
engaged in any legal action to recover money due them or for damages
sustained by them.
(c) To the Knowledge of Sellers and the Acquired Companies,
the Acquired Companies have given all required notice of such Claims to
the appropriate insurance carrier(s) and/or all such Claims have in the
judgment of the Acquired Companies' Chief Financial Officer, been fully
reserved for on the financial statements of the Acquired Companies,
taking into account preliminary GAAP adjustments, as delivered to
Fortress pursuant to the terms of this Agreement. Schedule 4.14 lists
the insurer for each Claim covered by insurance or designates each
Claim, or portion of each Claim, as uninsured and the individual and
aggregate policy limits for the insurance covering each insured Claim
and the applicable policy deductibles for each insured Claim.
(d) Schedule 4.14 sets forth all closed litigation matters
(other than workers compensation claims) to which the Acquired
Companies were a party during the three years preceding the Closing
that involved a judgment in excess of $100,000, the date such
litigation was commenced and concluded, and the nature of the
resolution thereof (including amounts paid in settlement or judgment).
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4.15 Compliance with Applicable Laws. To the Knowledge of Sellers and the
Acquired Companies, except as set forth on Schedule 4.15, the Acquired Companies
have complied in all material respects with all laws, rules, regulations, writs,
injunctions, decrees, and orders applicable to it or to the operation of the
Business (collectively, "Laws") and have not received any notice of any alleged
claim or threatened claim, violation of, liability or potential responsibility
under, any such Law which has not heretofore been cured and for which there is
no remaining liability other than those not having a material adverse effect on
the Business taken as a whole.
4.16 Employee Benefits.
(a) As used in this Section 4.16, the following terms have the meanings set
forth below:
"Company Other Benefit Obligation" means an Other Benefit Obligation owed,
adopted, or followed by the Acquired Companies or an ERISA Affiliate of the
Acquired Companies.
"Company Plan" means all Plans of which the Acquired Companies or an ERISA
Affiliate of the Acquired Companies is or was a Plan Sponsor, or to which the
Acquired Companies or an ERISA Affiliate of the Acquired Companies otherwise
contributes or has contributed, or in which the Acquired Companies or an ERISA
Affiliate of the Acquired Companies otherwise participates or has participated.
All references to Plans are to Company Plans unless the context requires
otherwise.
"Company VEBA" means a VEBA whose members include employees of the Acquired
Companies or any ERISA Affiliate of the Acquired Companies.
"ERISA Affiliate" means, with respect to the Acquired Companies, any other
person that, together with the Company, would be treated as a single employer
under IRC ss. 414.
"Multi-Employer Plan" has the meaning given in ERISA ss. 3(37)(A).
"Other Benefit Obligations" means all obligations, arrangements, or
customary practices, whether or not legally enforceable, to provide benefits,
other than salary, as compensation for services rendered, to present or former
directors, employees, or agents, other than obligations, arrangements, and
practices that are Plans. Other Benefit Obligations include consulting
agreements under which the compensation paid does not depend upon the amount of
service rendered sabbatical policies, severance payment policies, and fringe
benefits within the meaning of IRC ss. 132.
"PBGC" means the Pension Benefit Guaranty Corporation or any successor
thereto.
"Pension Plan" has the meaning given in ERISA ss. 3(2)(A).
"Plan" has the meaning given in ERISA ss. 3(3).
"Plan Sponsor" has the meaning given in ERISA ss. 3(16)(B).
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"Qualified Plan" means any Plan that meets or purports to meet the
requirements or IRC ss.401(a).
"Title IV Plans" means all Pension Plans that are subject to Title IV of
ERISA, 29 U.S.C. 1301 et seq., other than Multi-Employer Plans.
"VEBA" means a voluntary employees' beneficiary association under IRC ss.
501 (c)(9).
"Welfare Plan" has the meaning given in ERISA ss. 3(l).
(b)(i) Schedule 4.16-1 contains a complete and accurate list of all Company
Plans, Company Other Benefit Obligations, and Company VEBAS, and identifies as
such all Company Plans that are (A) defined benefit Pension Plans, (B) Qualified
Plans, (C) Title IV Plans, or (D) Multi-Employer Plans.
(ii) Schedule 4.16-2 contains a complete and accurate list of
(A) all ERISA Affiliates of the Acquired Companies, and (B) all Plans
of which any such ERISA Affiliate is or was a Plan Sponsor, in which
any such ERISA Affiliate participates or has participated, or to which
any such ERISA Affiliate contributes or has contributed.
(iii) Schedule 4.16-3 identifies that for each Multi-Employer
Plan there may be potential withdrawal liability for the Acquired
Companies and the Acquired Companies' other ERISA Affiliates.
(iv) Schedule 4.16-4 sets forth a calculation of the liability
of the Acquired Companies for post-retirement benefits other than
pensions, made in accordance with Financial Accounting Statement 106 of
the Financial Accounting Standards Board, regardless of whether any
Acquired Companies is required by this Statement to disclose such
information.
(v) Schedule 4.16-5 sets forth the financial cost of all
obligations owed under any Company Plan or Company Other Benefit
Obligation that is not subject to the disclosure and reporting
requirements of ERISA.
(c) Sellers have made available to Purchaser, or will make available to
Purchaser within ten days of the date of this Agreement all of the following
documents relating to Company Plans which are not Multi-Employer Plans. With
respect to the Multi-Employer Plans, Sellers have made available or will make
available to Purchaser only such documents as Sellers have in their possession:
(i) all documents that set forth the terms of each Company
Plan, Company Other Benefit Obligation, or Company VEBA and of any
related trust, including (A) all plan descriptions and summary plan
descriptions of Company Plans for which Sellers or the Acquired
Companies are required to prepare, file, and distribute plan
descriptions and summary plan descriptions, and (B) all summaries and
descriptions furnished to participants and beneficiaries regarding
Company Plans, Company Other Benefit Obligations, and Company VEBAs for
which a plan description or summary plan description is not required;
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(ii) all personnel, payroll, and employment manuals and
policies;
(iii) all collective bargaining agreements pursuant to which
contributions have been made or obligations incurred (including both
pension and welfare benefits) by the Acquired Companies and the ERISA
Affiliates of the Acquired Companies, and all collective bargaining
agreements pursuant to which contributions are being made or
obligations are owed by such entities;
(iv) a written description of any Company Plan or Company
Other Benefit Obligation that is not otherwise in writing;
(v) all registration statements filed with respect to any
Company Plan;
(vi) all insurance policies purchased by or to provide
benefits under any Company Plan,
(vii) all contracts with third party administrators,
actuaries, investment managers, consultants, and other independent
contractors that relate to any Company Plan, Company Other Benefit
Obligation, or Company VEBA;
(viii) all reports submitted within the four years preceding
the date of this Agreement by third party administrators, actuaries,
investment managers, consultants, or other independent contractors with
respect to any Company Plan, Company Other Benefit Obligation, or
Company VEBA;
(ix) all notifications to employees of their rights under
ERISA ss. 601 et seq. and IRC ss. 498OB;
(x) the Form 5500 filed in each of the most recent three plan
years with respect to each Company Plan, including all schedules
thereto;
(xi) all notices that were given by any Acquired Companies or
any ERISA Affiliate of an Acquired Companies or any Company Plan to the
IRS, the PBGC, or any participant or beneficiary, pursuant to statute,
within the four years preceding the date of this Agreement, including
notices that are expressly mentioned elsewhere in this Section 4.16;
(xii) all notices that were given by the IRS, the PBGC, or the
Department of Labor to any Acquired Companies, any ERISA Affiliate of
the Acquired Companies, or any Company Plan within the four years
preceding the date of this Agreement;
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(xiii) with respect to Qualified Plans and VEBAS, the most
recent determination letter for each Plan of the Acquired Companies
that is a Qualified Plan; and
(xiv) with respect to Title IV Plans, the Form PBGC-1 filed
for each of the three most recent plan years.
(d) Except as set forth in Schedule 4.16-6:
(i) The Acquired Companies have performed all of its
obligations under all Company Plans, Company Other Benefit Obligations,
and Company VEBAS. The Acquired Companies have made appropriate entries
in their financial records and statements for all obligations and
liabilities under such Plans, VEBAS, and Obligations that have accrued
but are not due.
(ii) To the Knowledge of the Principals and the Acquired
Companies, no statement, either written or oral, has been made by the
Acquired Companies to any Person with regard to any Plan or Other
Benefit Obligation that was not in accordance with the Plan or Other
Benefit Obligation and that could have an adverse economic consequence
to the Acquired Companies or to Purchaser.
(iii) The Acquired Companies, with respect to all Company
Plans, Company Other Benefits Obligations, and Company VEBAS, are, and
each Company Plan, Company Other Benefit Obligation, and Company VEBA
is, in material compliance with ERISA, the IRC, and other applicable
Laws including the provisions of such Laws expressly mentioned in this
Section 4.16, and with any applicable collective bargaining agreement.
(A) No transaction prohibited by ERISA ss. 406 and no
"prohibited transaction" under IRC ss. 4975(c) have occurred
with respect to any Company Plan.
(B) No Seller or Acquired Companies has any liability
to the IRS with respect to any Plan, including any liability
imposed by Chapter 43 of the IRC.
(C) No Seller or Acquired Company has any liability
to the PBGC with respect to any Plan or has any liability
under ERISA ss. 502 or ss. 4071.
(D) All filings required by ERISA and the IRC as to
each Plan have been timely filed, and all notices and
disclosures to participants required by either ERISA or the
IRC have been timely provided.
(E) All contributions and payments made or accrued
with respect to all Company Plans, Company Other Benefit
Obligations, and Company VEBAs are deductible under IRC ss.
162 or ss. 404. No amount, or any asset of any Company Plan or
Company VEBA. is subject to tax as unrelated business taxable
income.
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(iv) Each Company Plan can be terminated within thirty days
without payment of any additional contribution or amount, other than
accrued contributions.
(v) Since October 31, 1997 there has been no establishment or
amendment of any Company Plan, Company VEBA, or Company Other Benefit
Obligation.
(vi) No event has occurred or circumstance exists that could
result in a material increase in premium costs of Company Plans and
Company Other Benefit Obligations that are insured, or a material
increase in benefit costs of such Plans and Obligations that are self-
insured.
(vii) Other than claims for benefits submitted by participants
or beneficiaries, no claim against, or legal proceeding involving, any
Company Plan, Company Other Benefit Obligation, or Company VEBA is
pending or, to Sellers' Knowledge, is Threatened.
(viii) No Company Plan is a stock bonus, pension, or
profit-sharing plan within the meaning of IRC ss. 401(a).
(ix) Each Qualified Plan of each Acquired Companies is
qualified in form and operation under IRC ss. 401(a); each trust for
each such Plan is exempt from federal income tax under IRC ss. 501 (a).
Each Company VEBA is exempt from federal income tax. No event has
occurred or circumstance exists that will or could give rise to
disqualification or loss of tax-exempt status of any such Plan or
trust.
(x) Each Acquired Company and each ERISA Affiliate of the
Acquired Companies has met the minimum funding standard, and has made
all contributions required, under ERISA ss. 302 and IRC ss. 402.
(xi) No Company Plan is subject to Title IV of ERISA.
(xii) The Acquired Companies have paid all amounts due to the
PBGC pursuant to ERISA ss. 4007.
(xiii) No Acquired Company or any ERISA Affiliate of the
Acquired Companies has ceased operations at any facility or has
withdrawn from any Title IV Plan in a manner that would subject to any
entity or Sellers to liability under ERISA ss. 4062(e), ss. 4063, or
ss. 4064.
(xiv) Neither the Acquired Companies nor any ERISA Affiliate
of the Acquired Companies has filed a notice of intent to terminate any
Plan or has adopted any amendment to treat a Plan as terminated. The
PBGC has not instituted proceedings to treat any Company Plan as
terminated. No event has occurred or circumstance exists that may
constitute grounds under ERISA ss. 4042 for the termination of, or the
appointment of a trustee to administer, any Company Plan.
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(xv) No amendment has been made, or is reasonably expected to
be made, to any Plan that has required or could require the provision
of security under ERISA ss. 307 or IRC ss. 401(a)(29).
(xvi) No accumulated funding deficiency, whether or not
waived, exists with respect to any Company Plan; no event has occurred
or circumstance exists that may result in an accumulated funding
deficiency as of the last day of the current plan year of any such
Plan.
(xvii) The actuarial report for each defined benefit Pension
Plan of each Acquired Company and each ERISA Affiliate of each Acquired
Companies fairly presents the financial condition and the results of
operations of each such Plan in accordance with GAAP.
(xviii) Since the last valuation date for each Pension Plan of
each Acquired Company and each ERISA Affiliate of the Acquired
Companies, no event has occurred or circumstance exists that would
increase the amount of benefits under any such Plan or that would cause
the excess of Plan assets over benefit liabilities (as defined in ERISA
ss. 4001) to decrease, or the amount by which benefit liabilities
exceed assets to increase.
(xiv) No reportable event (as defined in ERISAss.4043
and in regulations issued thereunder) has occurred.
(xx) No Seller or any Acquired Company has Knowledge of any
facts or circumstances that may give rise to any liability of any
Seller, any Acquired Companies, or Purchaser to the PBGC under Title IV
of ERISA.
(xxi) No Acquired Company or any ERISA Affiliate of the
Acquired Companies has ever established, maintained, or contributed to
or otherwise participated in, or had an obligation to maintain,
contribute to, or otherwise participate in, any Multi-Employer Plan.
(xxii) No Acquired Company or any ERISA Affiliate of the
Acquired Companies has withdrawn from any Multi-Employer Plan with
respect to which there is any outstanding liability as of the date of
this Agreement. No event has occurred or circumstance exists that
presents a risk of the occurrence of any withdrawal from any
Multi-Employer Plan that could result in any liability of either any
Acquired Companies or Purchaser to a Multi-Employer Plan.
(xxiii) Neither the Acquired Companies nor any ERISA Affiliate
of the Acquired Companies have received notice from any Multi-Employer
Plan that it is in reorganization or is insolvent, that increased
contributions may be required to avoid a reduction in plan benefits or
the imposition of any excise tax, or that such Plan intends to
terminate or has terminated.
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(xxiv) Neither the Acquired Company nor any ERISA Affiliate
has received any notice from any Multi-Employer Plan to which the
Acquired Companies or any ERISA Affiliate of the Acquired Companies
contribute or has contributed that such Plan is a party to any pending
merger or asset or liability transfer or is subject to any proceeding
brought by the PBGC.
(xxv) Except to the extent required under ERISA ss. 601 et
seq. and IRC ss. 4980B, no Acquired Company provides health or welfare
benefits for any retired or former employee or is obligated to provide
health or welfare benefits to any active employee following such
employee's retirement or other termination of service.
(xxvi) The Acquired Companies have the right to modify and
terminate benefits to retirees (other than pensions) with respect to
both retired and active employees.
(xxvii) Sellers and the Acquired Companies have complied with
the provisions of ERISA ss. 601 et seq. and IRC ss. 4980B.
(xxviii) No payment that is owed or may become due to any
director, officer, employee, or agent of the Acquired Companies will be
non-deductible to the Acquired Companies or subject to tax under IRC
ss. 28OG or ss. 4999; nor will the Acquired Companies be required to
"gross up" or otherwise compensate any such person because of the
imposition of any excise tax on a payment to such person.
(xxiv) The consummation of the Contemplated Transactions will
not result in the payment, vesting, or acceleration of any benefit.
4.17 Insurance Policies.
(a) The Acquired Companies have made available to Fortress:
(i) true and complete copies of all policies of
insurance to which the Acquired Companies are a party or any
director of an Acquired Company is or has been covered at any
time within two years preceding the date of this Agreement;
(ii) true and complete copies of all pending
applications for policies of insurance; and
(iii) any statement by the auditor of the Acquired
Companies' financial statements with regard to the adequacy of
such entity's coverage or of the reserves for claims.
(b) Schedule 4.17(b) sets forth, by year, for the current policy year and
each of the preceding two policy years:
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(i) a summary of the loss experience under each policy;
(ii) a statement describing each claim under an insurance
policy for an amount in excess of $50,000, which sets forth:
(A) the name of the claimant;
(B) a description of the policy by insurer, type of
insurance, and period of coverage; and
(C) the amount and a brief description of the claim;
and
(iii) a statement describing the loss experience for all
claims that were self-insured, including the number and aggregate cost
of such claims.
4.18 Environment.
(a) Except as set forth in Schedule 4.18,
(i) to its Knowledge, each Acquired Company is and at all
times has been in material compliance with, and has not been and is not
in material violation of or materially liable under, all Environmental
Requirements, and
(ii) each Acquired Company possesses all required permits,
licenses and certificates, and have filed all notices or application
required thereby.
As used herein, "Environmental Requirements" shall mean all applicable
federal, state and local laws, rules, regulations, ordinances and requirements
relating to pollution and protection of the environment, all as amended or
hereafter amended.
(b) Except as disclosed in Schedule 4.18,
(i) No Acquired Company has been subject to or received any
notice of any private, administrative or judicial action or notice of
any intended private, administrative, or judicial action relating to
the presence or alleged presence of Hazardous Materials in, under, or
upon any real estate currently or formerly owned, leased or used by (A)
the Acquired Company, or (B) any other person that has at any time
disposed of Hazardous Materials on behalf of an Acquired Company; and
(ii) to its respective Knowledge, no Acquired Company has any
basis for any such notice or action; and,
(iii) there are no pending or, to the Knowledge of Sellers,
threatened actions or proceedings (or notice of potential actions or
proceedings) from any Governmental Authority or any other entity
regarding any matter relating to health or protection of the
environment.
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"Hazardous Materials" for purposes of this Agreement shall include, without
limitation: (A) hazardous materials, hazardous substances, extremely hazardous
substances or hazardous wastes, as those terms are defined by the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. ss.9601 et
seq. ("CERCLA"), the Resource Conservation and Recovery Act, 42 U.S.C. ss.6901
et seq. ("RCRA"), and any other Environmental Requirements; (B) petroleum,
including, without limitation, crude oil or any fraction thereof which is liquid
at standard conditions of temperature and pressure (60 degrees Fahrenheit and
14.7 pounds per square inch absolute); (C) any radioactive material, including,
without limitation, any source, special nuclear, or by-product material as
defined in 42 U.S.C. ss.2011 et seq.; and (D) asbestos in any form or condition.
(c) To the Knowledge of the Sellers and the Acquired Companies, there are
and have been no past or present events, conditions, circumstances, activities,
practices, incidents, or actions which could reasonably be expected to interfere
with or prevent continued compliance with any Environmental Requirements, give
rise to any legal obligation or liability, or otherwise form the basis of any
claim, action, suit, proceeding, hearing or investigation against or involving
the Acquired Companies or any real estate presently or previously owned or used
by the Acquired Companies under any of the Environmental Requirements or related
common law theories, except as identified in Schedule 4.18.
(d) To Sellers' Knowledge, Schedule 4.18 sets forth the name and principal
place of business of every off-site waste disposal organization, and each of the
haulers, transporters or cartage organization engaged now or in the preceding
three years by the Business to dispose of Hazardous Materials to any such
off-site waste disposal location on behalf of the Acquired Companies.
4.19 Compensation: Employment Agreements. The Acquired Companies have
delivered to Fortress an accurate schedule (Schedule 4.19) showing (i) all
current officers, directors and key employees of the Acquired Companies in the
Business, and the rate of compensation (and the portions thereof attributable to
salary, bonus and other compensation, respectively) of each of such persons as
of December 31, 1996 and the date hereof and (ii) separately listing all
employment agreements with such officers, directors and key employees. The
Acquired Companies have provided to Fortress true, complete and correct copies
of any employment agreements for persons listed on Schedule 4.19.
4.20 Labor Matters. To its Knowledge, except as set forth in Schedule 4.20,
within the last three years the Acquired Companies have not experienced any
strike, picketing, boycott, work stoppage or slowdown, other labor dispute,
union organizational activity, allegation, charge or complaint of unfair labor
practice or employment discrimination. To Sellers' Knowledge no allegation,
charge or complaint of unfair labor practice or employment discrimination is
threatened, and to Sellers' Knowledge there is no basis for any such allegation,
charge, or complaint. The Acquired Companies have complied in all material
respects with all applicable laws relating to the employment of labor, including
provisions thereof relating to wages, hours, equal opportunity, collective
bargaining, and the payment of social security and other taxes. The Acquired
Companies are not liable for any arrears of wages or any taxes or penalties for
failure to comply with any such laws, ordinances or regulations.
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4.21 Representation as to Ownership of Shares. The Principals represent and
warrant to Purchaser that the following statements are, as of the date hereof
(giving effect to the termination of the Voting Trusts) and will be as of the
Closing date, true and correct:
(a) Ownership of Shares and Interests. Except as set forth in
Schedule 4.21(a) hereof, each Principal owns of record and beneficially
the number of Shares of the Acquired Companies indicated opposite
Seller's name in Schedule 4.21(a) hereto, with full right and authority
to sell such Shares hereunder, and upon delivery of such Shares
hereunder, the Purchaser will receive good title thereto, free and
clear of all liens, mortgages, pledges or security interests or the
rights of any third person and not subject to any agreements or
understandings among any persons with respect to the voting or transfer
of such Shares, other than those arising under agreements to which the
Purchaser is a party.
(b) Execution, Delivery and Enforceability of Agreement;
Violation. This Agreement has been duly executed and delivered by or on
behalf of Principals and at the Closing any other documents required
hereunder to be executed and delivered by or on behalf of Principals
will have been duly executed and delivered. This Agreement constitutes
the legal, valid and binding obligation of Principals, enforceable
against each Principal in accordance with its terms, except as
enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other laws
affecting creditors' rights generally and the application of equitable
principles. Any other agreements required hereto to be executed and
delivered by the Principals at Closing will constitute the legal, valid
and binding agreements of the Principals executing the same,
enforceable against such Principal in accordance with their respective
terms, except as may be limited by applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other laws
affecting creditors' rights generally and the application of equitable
principles. Neither the execution of this Agreement nor the
consummation of the transactions provided for herein by the Principals
will violate or constitute a default under, or permit the acceleration
or maturity of, except to the extent waived, the Acquired Companies'
organizational documents or any indentures, mortgages, promissory
notes, contracts or agreements to which Principals are a party or by
which such Principals' properties are bound.
(c) Residence and Domicile; Bankruptcy. The Principals are
residents of, and domiciled in, the state of Missouri. No bankruptcy,
insolvency, or receivership proceedings have been instituted or are
pending against Principals, and Principals are able to satisfy his
respective liabilities as they become due.
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4.22 Misrepresentation. None of the representations and warranties set
forth in this Agreement or in any of the certificates, schedules, exhibits,
lists, documents, exhibits, or other instruments delivered, or to be delivered,
by the Sellers as contemplated by any provision hereof, contains any untrue
statement of a material fact or omits to state a material fact necessary to make
the statements contained herein or therein not misleading.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF FORTRESS
Fortress represents and warrants that the representations and warranties
set forth below are true and correct as of the date of this Agreement and shall
be true and correct at the time of Closing and that such representations and
warranties as made at the time of Closing shall survive the Closing.
5.1 Organization. Fortress is and at Closing each Purchaser Subsidiary will
be duly organized, validly existing, and in good standing under the laws of the
state of Delaware.
5.2 Authorization. Fortress and at Closing each Purchaser Subsidiary has
full power, right and authority to execute and deliver this Agreement and to
perform their respective obligations hereunder and thereunder. The execution and
delivery of this Agreement by Fortress and the performance of the obligations
under this Agreement have been duly and properly authorized by all requisite
corporate action in accordance with applicable law and with the Certificate of
Incorporation and by-laws of each. This Agreement is valid and binding upon
Fortress in accordance with their respective terms, subject to bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
of general applicability relating to or affecting creditors' rights generally.
5.3 Transaction Not a Breach. Neither the execution and delivery of this
Agreement, nor its performance will violate, conflict with, or result in a
breach of any provision of any Law, rule, regulation, order, permit, judgment,
injunction, decree or other decision of any court or other tribunal or any
Governmental Authority binding on or conflict with or result in the breach of
any of the terms, conditions or provisions of the Certificate of Incorporation
or the By-laws of Fortress or any Purchaser Subsidiary or of any contract,
agreement, mortgage or other instrument or obligation of any nature to which
either is a party or by which either is bound.
5.4 Misrepresentation. None of the representations and warranties set forth
in this Agreement or in any of the certificates, schedules, exhibits, lists,
documents, exhibits, or other instruments delivered, or to be delivered, to the
Sellers as contemplated by any provision hereof, contains any untrue statement
of a material fact or omits to state a material fact necessary to make the
statements contained herein or therein not misleading.
5.5 Economic Risk: Sophistication. Fortress is able to bear the economic
risk of an investment in the Acquired Companies' capital stock exchanged
pursuant to this Agreement and can afford to sustain a total loss of such
investment and has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of the proposed
investment in the Acquired Companies' common stock. Fortress or its purchaser
representative has had an adequate opportunity to ask questions and receive
answers from the officers of the Acquired Companies concerning any and all
matters relating to the background and experience of the current and proposed
officers and directors of the Acquired Companies, the business, operations and
financial condition of it. Fortress or its purchaser representative has asked
any and all questions in the nature described in the preceding sentence and all
questions have been answered to its satisfaction. Fortress represents that after
taking into consideration the information and advice provided herein it has the
requisite knowledge and experience in financial and business matters to be
capable of evaluating the merits and risks of this investment and is an
"accredited investor" as defined in Regulation D of the Securities Act of 1933,
as amended (the "Securities Act").
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ARTICLE VI
COVENANTS PRIOR TO CLOSING
6.1 Access and Cooperation; Due Diligence. Between the date of this
Agreement and the Closing, Sellers will afford to the officers and authorized
representatives of Fortress reasonable access to all of the Acquired Companies'
sites, properties, books and records during normal business hours and with prior
notice and will furnish Fortress with such additional financial and operating
data and other information as to the business and properties of each Acquired
Company as Fortress may from time to time reasonably request. Sellers will
cooperate with Fortress, its representatives, engineers, auditors and counsel in
the preparation of any documents or other material which may be required in
connection with any documents or materials required by this Agreement. Fortress
and Sellers will treat with strict confidence all information obtained in
connection with the negotiation and performance of this Agreement. In the event
this transaction does not close, at Sellers' request Fortress will provide them
with copies of all analyses and information provided to Fortress that Fortress
made of the Acquired Companies and the Business, conditioned upon receipt of a
full and total release by all Sellers from liability for or related to any and
all statements, conclusions, assessments, opinions, or projections made by
Fortress in the analyses.
6.2 Business Conduct. From the date hereof through the date of Closing,
except as otherwise provided for in, or contemplated by, this Agreement, the
Acquired Companies covenant and agree that:
(a) Each Acquired Company will operate the Business in the
Ordinary Course in substantially the same manner as it is presently
operated.
(b) Except in the Ordinary Course of Business or as required
by Law or contractual obligations or other understandings or
arrangements existing on the date hereof, the Acquired Companies will
not (i) increase in any manner the base compensation of, or enter into
any new bonus or incentive agreement or arrangement with any of the
employees at the Business; (ii) pay or agree to pay any additional
pension, retirement allowance or other employee benefit to any such
employee, whether past or present, (iii) enter into any new employment,
severance, consulting, or other compensation agreement with any
existing employee of the Business, or (iv) engage in any Affiliate
Transaction, except in the Ordinary Course of Business. Purchaser
acknowledges that the Acquired Companies historically have given pay
increases to its employees and that the granting of pay increases
between the date of this Agreement and Closing, consistent with past
practices and the financial projections submitted to Purchaser as part
of the negotiations of this transaction, will not constitute a breach
of this Section 6.2(b).
(c) Subject to the terms and conditions of this Agreement, the
Acquired Companies will use their reasonable efforts to keep available
the services of its present employees of the Business, and preserve the
goodwill, reputation and present relationships of the Business with its
suppliers, customers, and others having business relations with the
Business.
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(d) The Acquired Companies will (i) use their reasonable
efforts to maintain and keep in full force existing insurance, (ii)
maintain the Acquired Companies' records in the Ordinary Course of
Business, and (iii) perform and comply in all material respects with
their respective obligations under all Material Contracts.
(e) Except in the Ordinary Course of Business or as otherwise
provided for in, or contemplated by this Agreement, no Acquired Company
will (i) sell, lease, transfer or otherwise dispose of any of the
Assets of the Business, (ii) enter into any joint venture, partnership
or other similar arrangement or form any other new arrangement for the
operation of the assets of the Business, or (iii) accelerate or delay
the sale or construction of any inventory in a manner inconsistent with
past practices.
(f) The parties will use their reasonable efforts between the
date hereof and the Closing to secure fulfillment of all of the
conditions precedent to each party's respective obligations hereunder.
(g) No party to this Agreement shall undertake any action or
fail to take any action that will result in a breach of the
representations and warranties set forth in Articles IV hereof as made
again as of the Closing.
(h) Each Acquired Company will comply with all material Laws.
(i) It is acknowledged and contemplated by the parties that
after the signing of this Agreement and up to the Closing Date the
Acquired Companies will (x) Make or declare dividends or other
distributions with respect to the stock of the Acquired Companies to
their shareholders in an amount approximately equal to the combined net
worth of the Acquired Companies based upon their balance sheets as of
December 31, 1997, with preliminary GAAP adjustments, (y) will Issue
notes to each of the Principals to pay off personal loans, including
accrued interest, made to the Acquired Companies by the Principals, and
(z) will make or declare a dividend just prior to Closing of the
estimated increase of Net Worth in the Company as a result of income
realized for the period of time between December 31, 1997 and the
Closing date (the "Pre-Closing Distributions"). Schedule 6.2(i) lists
assets that will be sold to Robert N. Whittaker, Sr., or one or more of
the Principals and the price for which these assets will be
transferred. Fortress covenants that at the Closing, it will fund to
Whittaker Construction, Incorporated any Cash ShortFall, as defined
herein. For purposes of this Section 6.2(i), "Cash Short-Fall" shall be
the difference between a and b where "a" is the sum of (y) the Acquired
Companies' combined net worth as of December 31, 1997 (after
subtracting in-kind distributions) and (z) the outstanding loan
balances (including accrued interest) on the Acquired Companies' books
personally owing to the Principals and "b" is the Acquired Companies'
Available Cash. For purposes of this Section 6.2(i), "Available Cash"
shall mean the Acquired Companies' total cash on hand less a reasonable
amount reserved for working capital which shall not be less than
$2,000,000, not including funds set aside as earnest money but shall
include workers compensation money market funds. As of Closing or
immediately following Closing Fortress shall invest sufficient capital
in the Acquired Companies in the form of equity to enable the Acquired
Companies to meet minimum net worth requirements and leverage ratios
of, for, or on obligations to which the Acquired Companies are indebted
as well as additional funds for working capital on an as needed basis.
It is understood that such capital shall not be taken into account in
determining the Net Worth of the Acquired Companies for purposes of
Section 2.2.
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6.3 Non-Negotiation. In consideration of the substantial expenditure of
time, effort and expense undertaken by Fortress in connection with its due
diligence review and the preparation and execution of this Agreement, the
Sellers agree that neither they nor their representatives, agents or employees
will, after the execution of this Agreement until the earlier of (i) the
termination of this Agreement, (ii) the Closing, or (iii) March 6, 1998,
directly or indirectly, solicit, encourage, negotiate or discuss with any third
party (including by way of furnishing any information concerning the Acquired
Companies) any acquisition proposal relating to or affecting the Acquired
Companies, or any direct or indirect interests in the Acquired Companies ,
whether by purchase of assets or stock, purchase of interest, merger or other
transaction ("Acquisition Transaction"), and that Sellers will promptly advise
Fortress of the terms of any communications Principals or the Acquired Companies
may receive or become aware of relating to any bid for all or any part of the
Assets of the Business.
6.4 Schedules. Notwithstanding language that implies otherwise, as of the
execution of this Agreement, most Schedules referred to in this Agreement have
not been delivered to the other party and have not yet been attached to the
Agreement. The Schedules will be provided within a reasonable time from the date
hereof and in all events prior to Closing. Each party hereto agrees that with
respect to the material representations and material warranties of such party
contained in this Agreement, such party shall have the continuing obligation
until the Closing timely to supplement or amend promptly all the schedules to
this Agreement (the "Schedules"), to correct any matter which would constitute a
material breach of any such party's representations and warranties herein, or to
reflect any change in the information disclosed therein. For all purposes of
this Agreement, including without limitation for purposes of determining whether
the conditions set forth in Sections 7.1 and 7.2 have been fulfilled, the
Schedules hereto shall be deemed to be the Schedules as amended or supplemented
pursuant to this Section 6.4.
6.5 Wire Instructions. Sellers shall provide in writing at least one (1)
business day prior to the Closing the wire instructions for wiring cash pursuant
to Section 2.1 to the account or accounts of the bank specified by Sellers.
6.6 Fortress' Covenants. Fortress will use its best efforts between the
date hereof and the Closing to secure fulfillment of all of the conditions
precedent to each party's respective obligations hereunder. It will not
undertake any action or fail to take any action that will result in a breach of
the representations and warranties set forth in Articles V hereof as made again
as of the Closing.
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ARTICLE VII
CONDITIONS PRECEDENT TO THE CLOSING
7.1 Conditions Precedent to Obligations of Purchaser. The obligations of
Purchaser under this Agreement to consummate the transactions contemplated
hereby will be subject to the satisfaction, at or prior to the Closing, of all
of the following conditions, any one or more of which may be waived at the
option of Fortress:
(a) No Breach of Covenants; True and Correct Representations
and Warranties. There shall have been no material breach by Sellers in
the performance of any of their covenants herein to be performed by
them in whole or in part prior to Closing, and the representations and
warranties of Sellers contained in this Agreement shall be true and
correct in all material respects as of the Closing, except for
representations or warranties that are made by their terms as of a
specified date, which shall be true and correct in all material
respects as of the specified date. Purchaser shall receive at the
Closing a certificate dated and validly executed on behalf of each
Company by an executive officer certifying, substantially in the form
of Exhibit B attached hereto, the fulfillment of the foregoing
conditions, and restating and reconfirming as of the Closing all of the
representations and warranties of the Acquired Companies contained in
this Agreement.
(b) Delivery of Documents. Purchaser shall have received all
documents and other items to be delivered under section (a) of the
Deliveries checklist (Exhibit A).
(c) No Legal Obstruction. The Consents required for Purchaser
to conduct the Business in the Ordinary Course after the Closing shall
have been given or obtained, as the case may be. No suit, action or
proceeding by any person or Governmental Authority shall be pending or
threatened in writing, which if determined adverse to the Acquired
Companies' interest, could have a material adverse effect upon (i) the
Acquired Companies or the Business, (ii) Purchaser, or (iii) the
benefits to Purchaser of the transactions contemplated hereby. No
injunction, restraining order or order of any nature shall have been
issued by or be pending before any court of competent jurisdiction or
any Governmental Authority challenging the validity or legality of the
transactions contemplated hereby or restraining or prohibiting the
consummation of such transactions or compelling Purchaser to dispose of
or discontinue or materially restrict the operations of a significant
portion of the Business or of the Business conducted by Purchaser as a
result of the consummation of the transactions contemplated hereby.
(d) Office Lease. Robert Whittaker, Sr.has executed
a written lease with Whittaker Construction for its offices as
set forth in Exhibit C.
(e) Employment Agreement. Employment Agreements have been
executed with Gregory Whittaker and Thomas M. Schmittgens, attached
hereto as Exhibit D-1 and D-2.
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(f) Consulting Agreement. A Consulting Agreement has been
executed with Robert N. Whittaker, Sr., attached hereto as Exhibit E.
(g) Gregory Whittaker and Robert H. Whittaker, Sr. have
entered into a Right of First Refusal as set forth in Exhibits F-1 and
F-2.
(h) The joint ventures of Whitmoor and Bluffs have agreed in
writing to provide to the management of the Acquired Companies club
memberships, greens fees and cart privileges, and preferred tee times
on terms satisfactory to Fortress.
(i) At Closing Brad Goss acquires 5,000 shares of newly
authorized preferred stock of Fortress, $100.00 per share liquidation
value, having terms substantially conforming to the terms summarized in
Exhibit I and he has executed a promissory notes containing terms and
conditions summarized in Exhibit J.
7.2 Conditions Precedent to Obligations of Principals. The obligations of
the Sellers under this Agreement to consummate the transactions contemplated
hereby will be subject to the satisfaction, at or prior to the Closing, of all
the following conditions, any one or more of which may be waived at the option
of the Sellers:
(a) Earnest Money Timely Deposited. Purchaser has deposited a
total of $1,000,000 earnest money pursuant to Section 2.1(a)(i),
$500,000 by January 5, 1998 and an additional $500,000 by 5:00 p.m.,
February 27, 1998.
(b) No Breach of Covenants; True and Correct Representations
and Warranties. There shall have been no material breach by Fortress in
the performance of any of the covenants herein to be performed by them
in whole or in part prior to the Closing, and the representations and
warranties of Fortress contained in this Agreement shall be true and
correct in all material respects as of the Closing, except for
representations or warranties that are made by their terms as of a
specified date, which shall be true and correct in all material
respects as of the specified date. The Sellers shall receive at Closing
a certificate dated as of the Closing and executed by an executive
officer on behalf of Fortress certifying, substantially in the form of
Exhibit B attached hereto, the fulfillment of the foregoing conditions,
and restating and reconfirming as of Closing all of the representations
and warranties of Fortress contained in this Agreement.
(c) Delivery of Documents. The Sellers shall have received all
documents and other items to be delivered by Purchaser under Section
(b) of the Deliveries Check List (Exhibit A).
(d) No Legal Obstruction. The conditions of Section 7.1(c)
have been met.
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(e) Release of Personal Guarantees. Working with Sellers,
Fortress will have secured Releases from all obligations personally
guaranteed by Robert N. Whittaker, Sr., Gregory G. Whittaker, Robert N.
Whittaker, Jr., Timothy H. Whittaker, Kelly Whittaker, and their
respective spouses or any of them ("Guaranteed Obligations") identified
on Schedule 7.2(d) as personally guaranteed. "Releases" shall mean an
absolute, unconditional and complete release of Robert N. Whittaker,
Sr., Gregory G. Whittaker, Robert N. Whittaker, Jr., Timothy H.
Whittaker, Kelly Whittaker, and their respective spouses from any
liability, obligation or lien and obligation to supply or pledge
collateral related to the Guaranteed Obligations.
(f) Employment Agreement. Exhibits D-1 and D-2 have been
executed.
(g) Consulting Agreement. Exhibit E has been executed.
(h) Gregory Whittaker and Robert N. Whittaker, Sr. have
entered into a Right of First Refusal as set forth in Exhibits F-1 and
F-2.
(i) Fortress has loaned $500,000 to Brad Goss for the purpose
of providing the cash for him to acquire 5,000 shares of preferred
stock of Fortress with terms summarized in Exhibit I.
ARTICLE VIII
OTHER AGREEMENTS
8.1 Post Closing Covenants Relating to Loyalty, Non-Solicitation, Covenant
Not to Compete, Covenant not to Discuss, and Confidentiality.
(a) Each Principal hereby agrees that from the date of Closing through
December 31, 2001 (the "Restrictive Period"), he or she shall not without the
approval of Fortress, for any reason whatsoever, directly or indirectly, for
himself or herself or on behalf of or in conjunction with any other person,
persons, company, partnership, corporation or business of whatever nature
engage, as an officer, director, shareholder, owner, partner, joint venturer, or
in a managerial capacity, whether as an Principal, independent contractor,
consultant or advisor, or as a sales representative, in any business which
constructs or sells single-family residential homes, townhouses, villas, or
condominium units or single-family residential homes or units adjacent to, part
of, or contiguous to golf courses in St. Charles County, Missouri and in those
counties identified in Section 1 of Exhibit G ("Territory").
Notwithstanding the above, the foregoing covenant (i) shall have no
application whatsoever with respect to the real estate described in Section 2 of
Exhibit G and (ii) shall not be deemed to prohibit a Principal from acquiring as
an investment not more than one (1%) percent of the capital stock of a competing
business whose stock is traded on a national securities exchange or over the
counter so long as the Principal does not consult with or is not employed by
such competitor.
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(b) The provisions of subsection 8.1(a) notwithstanding, neither this
Agreement nor any of the provisions and recitals contained therein shall
prohibit a Principal or his Affiliates from engaging, as an officer, director,
shareholder, owner, partner, joint venturer, or in a managerial capacity,
whether as an employee, independent contractor, consultant or advisor, or as a
sales representative, in any business which develops real estate for commercial
or industrial uses, including golf courses. It is understood between the parties
that the acquisition of raw, unimproved land and its improvement up to, but not
including the construction of a residential structure, is not prohibited under
this Section 8.
(c) The provisions of subsection 8.1(a) notwithstanding, Gregory Whittaker
may personally supervise and have Whittaker Construction build one home designed
and intended for use as his personal residence, provided the sales price to
Gregory Whittaker is at least equal to Whittaker Construction's cost of goods
sold for the house and lot, plus 10%.
(d) Other than in the performance of his duties as an employee or
consultant, as the case may be, of the Acquired Companies, during the
Restrictive Period, each Principal shall not, directly or indirectly, as seller,
agent, consultant, stockholder, director, co-partner or in any other individual
or representative capacity solicit or encourage any present or future customer,
supplier or other third party to terminate or otherwise alter his, her or its
relationship with the Acquired Companies with respect to the Business engaged in
by the Acquired Companies.
(e) Other than in the performance of his duties as an employee for the
Acquired Companies during the Restrictive Period and thereafter, each Principal
shall keep secret and retain in strictest confidence, and shall not, without the
prior written consent of Fortress, furnish, make available or disclose to any
third party or use for the benefit of himself or any third party, any
Confidential Information. As used in this Agreement, "Confidential Information"
shall mean any information relating to the business or affairs of Fortress, the
Acquired Companies and their respective subsidiaries, including, but not limited
to, information relating to financial statements, suppliers, construction,
manufacturing and servicing methods, equipment, programs, strategies and
information, analyses, profit margins, or other proprietary information used by
Fortress or any other subsidiary thereof in connection with the Business;
provided, however, that Confidential Information shall not include any
information which is in the public domain or becomes known in the industry
through no wrongful act on the part of the Principal. Each Principal
acknowledges that the Confidential Information is vital, sensitive, confidential
and proprietary to Fortress, the Acquired Companies and their respective
subsidiaries.
(f) If any court of competent jurisdiction shall at any time deem the term
of this Section 8.1 or any particular Restrictive Covenant (as defined) too
lengthy or the territory too extensive, the other provisions of this Section 8.1
shall nevertheless stand, the Restrictive Period herein shall be deemed to be
the longest period permissible by law under the circumstances and the territory
herein shall be deemed to comprise the largest territory permissible by law
under the circumstances. The court in each case shall reduce the time period
and/or territory to permissible duration or size.
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(g) Each Principal acknowledges and agrees that the covenants set forth in
this Section 8.1 (collectively, the "Restrictive Covenants") are reasonable and
necessary for the protection of Fortress' business interests, that irreparable
injury will result to it if a Principal breaches any of the terms of said
Restrictive Covenants, and that in the event a Principal breaches or threatens
to breach any such Restrictive Covenants, Fortress will have no adequate remedy
at law. Principals accordingly agree that in the event a Principal breaches or
threatens to breach any of the Restrictive Covenants, Fortress shall be entitled
to immediate temporary injunctive and other equitable relief, without bond and
without the necessity of showing actual monetary damages, subject to hearing as
soon thereafter as possible. Nothing contained herein shall be construed as
prohibiting Fortress or a Purchaser Subsidiary from pursuing any other remedies
available to them for such breach or the threat of such a breach by a Principal,
including the recovery of any damages which it is able to prove.
(h) Covenant Not To Solicit Corporate Employees, Agents or Representatives.
During the Restrictive Period Principals shall not, directly or indirectly,
alone or in concert with others, on their own behalf or on behalf of others seek
to induce, solicit or attempt to solicit any of Fortress' employees, agents,
independent contractors or other personnel of Fortress or its affiliates, to
terminate his, her or their relationship with Fortress, or to violate any
employment agreement, or recruit or attempt to recruit such persons to accept
employment or contract with any company that competes with Fortress or another
business that would have the effect of terminating his, his or their
relationship with Fortress. For the purpose of this covenant "Fortress" shall
mean The Fortress Group, Inc., a Delaware corporation and all of its
subsidiaries and other owned entities, including the Acquired Companies.
(j) Covenant Not to Discuss and/or Comment. Each party recognizes and
acknowledges that the success of Fortress' business is largely dependent upon
and attributable to the goodwill that it has established with its customers,
business relations and contractors over a period of years and at great expense.
Therefore, each party agrees that he, she, or it will not, during the term of
this Agreement or at any time thereafter disparage The Principals, the Fortress
Group, Inc., the Acquired Companies, or any of their directors, officers,
shareholders, agents, employees, methods and techniques of doing business, their
business practices or their character, their financial information, financial
condition and/or their capabilities. For the purpose of this covenant "Fortress"
shall mean The Fortress Group, Inc., a Delaware corporation and all of its
subsidiaries and other owned entities, including the Acquired Companies.
(k) Disclosure and reasonableness of covenants.
(i) Principals expressly agree, if Fortress so
requests, to inform any and all potential employers,
principals, entities, contractors, co-shareholders or partners
of the existence of these restrictions. Principals further
consent to Fortress providing written notice to any third
parties, of the existence of a Principal's post-closing
obligations and that Fortress will enforce those obligations
and seek legal redress against any other party who assists a
Principal in interfering with the obligations owed to Fortress
by the Principal under any of these covenants contained in
this Section 8.1. Principals further agree that the covenants
as agreed to herein shall not be argued by them to a court of
law or to an arbitration panel as being overly broad in their
territorial, time and/or competitive related restrictions.
Once again, Principals acknowledges that Fortress' business in
material purchases, design, marketing, sale and repair of its
products has certain unique aspects associated with it.
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(ii) Principals acknowledges that Fortress desires to
know, and by this Agreement is entitled to know, of all events
or circumstances that may potentially create a conflict of
interest during the Restrictive Period between a Principal and
his or her duties to Fortress provided for herein. If
requested in writing by Fortress, the Principal shall provide
it written notification of the following:
a. any part-time or full time employment
with any other entity other than Fortress of its
Affiliates;
b. any ownership interest in any entity or
business which:
1. is in competition with any
business of the Fortress or its
Affiliates;
2. is a customer of Fortress or its
Affiliates;
3. is a customer of any competitor
of Fortress or its Affiliates;
4. receives any services or
goods from the Fortress or its
Affiliates; or
5. receives any services or goods
from any competitor of Fortress or
its Affiliates.
c. Any filing, declaration or determination
of personal bankruptcy or insolvency, or any other
significant or material event which may materially
impose a Principal's ability to meet debt obligations
as they come due.
8.2 Covenants with respect to Qualified Plans. Purchaser covenants that
within 180 days from the Closing Date it will cause Whittaker Construction
Profit Sharing Plan (the "Profit Sharing Plan") to be terminated in accordance
with the requirements of the Plan and ERISA. Purchaser further covenants that it
will maintain the Whittaker Construction Money Purchase Pensions Plan for a
period of at least four years from the Closing Date under current contribution
levels without any modification thereto. Purchaser acknowledges that Seller may
terminate the Profit Sharing Plan prior to Closing and it is stipulated that the
termination and processes associated with it will not be a violation of any of
the Sellers' covenants contained in Section 4.16, above.
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8.3 Defense of Litigation.
(a) Principals covenant to pay on a timely basis the litigation costs
associated with the defense of the suit identified in Section 9.1(b).
(b) Purchaser covenants that it will facilitate and permit the General
Counsel of Whittaker Construction, Brad Goss, to be involved in the defense of
the litigation described in Section 9.1(b).
8.4. Real Estate Broker's License. Purchaser covenants that within six
months from the Closing Date it will cause Whittaker Construction to take all
necessary steps to insure that one of its senior executives secures a real
estate broker's license in the State of Missouri under which Whittaker
Construction's licensed sales persons may sell its homes, and further that it
will immediately upon Closing initiate the process to accomplish the change.
Robert N. Whittaker, Sr. covenants that he will maintain his real estate
broker's license until such time an executive of Whittaker Construction secures
a broker's license but not beyond a year from the Closing Date and, further, he
warrants that Whittaker Construction's licensed sales persons may sell the
company's homes under his broker's license during this interim period.
ARTICLE IX
INDEMNIFICATION
9.1 Indemnification by Sellers. From and after the Closing, the Principals
jointly and severally agree to indemnify, defend and save the Acquired
Companies, Fortress, and its officers, directors, employees, and agents (each, a
"Purchaser Indemnified Party"), forever harmless from and against, and to
promptly pay to a Purchaser Indemnified Party or reimburse a Purchaser
Indemnified Party for, any and all liabilities (whether contingent, fixed or
unfixed, liquidated or unliquidated, or otherwise), obligations, deficiencies,
demands, claims, suits, actions, or causes of action, assessments, losses,
costs, expenses, filing fees, interest, fines, penalties, actual or punitive
damages or costs or expenses of any and all investigations, proceedings
(including appeals, arbitration and mediation), judgments, environmental
analyses, remediations, settlements and compromises (including reasonable fees
and expenses of attorneys, accountants and other experts) (individually and
collectively, the "Losses") sustained or incurred by any Purchaser Indemnified
Party relating to, resulting from, arising out of or otherwise by virtue of any
of the following:
(a) any misrepresentation or breach of a representation or
warranty made herein by a Principal, or non-compliance with or breach
by a Seller of any of the covenants or agreements contained in this
Agreement or other agreements to be performed by Principals;
(b) Any Loss identified and described in Section 1 of
Exhibit H attached hereto, the Escrow Agreement; and
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(c) the greater of (x) 1/2 of the fee of Michael Kahn &
Associates ("Kahn's Fee") or (y) Kahn's Fee minus $175,000.
9.2 Indemnification by Purchaser. From and after the Closing, Fortress and
any assignee agrees to indemnify, defend and save the Acquired Companies, their
officers, directors, employees and agents, and the Principals and their
respective spouses (each, an "Acquired Companies Indemnified Party") forever
harmless from and against, and to promptly pay to an Acquired Companies
Indemnified Party or reimburse an Acquired Companies Indemnified Party for, any
and all Losses sustained or incurred by any Acquired Companies Indemnified Party
relating to, resulting from, arising out of or otherwise by virtue of any of the
following:
(a) any misrepresentation or breach of a representation
or warranty made herein by Purchaser or any assignee;
(b) non-compliance with or breach by Fortress or any assignee
of any of the covenants or agreements contained in this Agreement;
(c) an assessment by either the Internal Revenue Service or
the State of Missouri to the extent it reflects a determination that
the Section 338 Tax Increase is in excess of the determination made
pursuant Section 2.2, above; and
(d) 1/2 of Kahn's Fee or $175,000, whichever is less;.
(e) other than with respect to the litigation described in
Section 9.1(b), all liabilities and obligations of the Acquired
Companies.
9.3 Indemnification Procedure --Third Party Claims. In the event that
subsequent to the Closing any person or entity entitled to indemnification under
this Agreement (an "Indemnified Party") receives notice of the assertion of any
claim or of the commencement of any action or proceeding by an entity who is not
a party to this Agreement or an Affiliate of such a party (including, but not
limited to any domestic or foreign court, government, or Governmental Authority
or instrumentality, federal state or local) (a "Third Party Claim") against such
Indemnified Party, against which a party to this Agreement is required to
provide indemnification under this Agreement (an "Indemnifying Party"), the
Indemnified Party shall give written notice together with a statement of any
available information regarding such claim to the Indemnifying Party within
sixty (60) days after learning of such claim (or within such shorter time as may
be necessary to give the Indemnifying Party a reasonable opportunity to respond
to such claim. The Indemnifying Party shall have the right, upon written notice
to the Indemnified Party (the "Defense Notice") within thirty (30) days after
receipt from the Indemnified Party of notice of such claim, which notice by the
Indemnifying Party shall specify the counsel it will appoint to defend such
claim ("Defense Counsel"), to conduct at its expense the defense against such
claim in its own name, or if necessary in the name of the Indemnified Party;
provided, however, that the Indemnified Party shall have the right to approve
the Defense Counsel, which approval shall not be unreasonably withheld, and in
the event the Indemnifying Party shall propose an alternate Defense Counsel,
which shall be subject again to the Indemnified Party's approval.
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(a) In the event that the Indemnifying Party shall fail to
give such notice, it shall be deemed to have elected not to conduct the
defense of the subject claim, and in such event the Indemnified Party
shall have the right to conduct such defense in good faith and to
compromise and settle the claim without prior consent of the
Indemnifying Party and the Indemnifying Party will be liable for all
costs, expense, settlement amounts or other Losses paid or incurred in
connection therewith.
(b) In the event that the Indemnifying Party does elect to
conduct the defense of the subject claim, the Indemnified Party will
cooperate with and make available to the Indemnifying Party such
assistance and materials as may be reasonably requested by it, all at
the expense of the Indemnifying Party, and the Indemnified Party shall
have the right at its expense to participate in the defense assisted by
counsel of its own choosing, provided that the Indemnified Party shall
have the right to compromise and settle the claim only with the prior
written consent of the Indemnifying Party, which consent shall not be
unreasonably withheld or delayed. Without the prior written consent of
the Indemnified Party, the Indemnifying Party will not enter into any
settlement of any Third Party Claim or cease to defend against such
claim, if pursuant to or as a result of such settlement or cessation,
(i) injunctive or other equitable relief would be imposed against the
Indemnified Party, or (ii) such settlement or cessation would lead to
liability or create any financial or other obligation on the part of
the Indemnified Party for which the Indemnified Party is not entitled
to indemnification hereunder. The Indemnifying Party shall not be
entitled to control, and the Indemnified Party shall be entitled to
have sole control over, the defense or settlement of any claim to the
extent that claim seeks an order, injunction or other equitable relief
against the Indemnified Party which, if successful, could materially
interfere with the business, operations, assets, condition (financial
or otherwise) or prospects of the Indemnified Party (and the cost of
such defense shall constitute an Loss for which the Indemnified Party
is entitled to indemnification hereunder). If a firm decision is made
to settle a Third Party Claim, which offer the Indemnifying Party is
permitted to settle under this Section 9.3 and the Indemnifying Party
desires to accept and agree to such offer, the Indemnifying Party will
give written notice to the Indemnified Party to that effect. If the
Indemnified Party fails to consent to such firm offer within 30
calendar days after its receipt of such notice, the Indemnified Party
may continue to contest or defend such third Party Claim and, in such
event, the maximum liability of the Indemnifying Party as to such Third
Party Claim will not exceed the amount of such settlement offer, plus
costs and expenses paid or incurred by the Indemnified Party through
the end of such 30 day period.
(c) Any judgment entered or settlement agreed upon in the
manner provided herein shall be binding upon the Indemnifying Party,
and shall conclusively be deemed to be an obligation with respect to
which the Indemnified Party is entitled to prompt indemnification
hereunder.
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9.4 Indemnification Procedure -- Other Claims. A claim for indemnification
for any matter not involving a Third-Party Claim may be asserted by giving the
Indemnifying Party reasonably prompt written notice thereof, and the
Indemnifying Party will have a period of 30 calendar days within which to
satisfy such Direct Claim. If the Indemnifying Party does not so respond within
such 30 calendar day period, the Indemnifying Party will be deemed to have
rejected such claim, in which event the Indemnitee will be free to pursue such
remedies as may be available to the Indemnitee under this Article IX. It is
recognized by the parties and it is hereby agreed that the law suit identified
in Section 9.1(b) is a Third Party Claim for which the Acquired Companies and
Fortress effective the Closing Date shall be entitled to indemnification
pursuant to Section 9.3 and no formal notice will be required to invoke the duty
to indemnify.
9.5 Failure to Give Timely Notice. A failure by an Indemnified Party to
give timely, complete or accurate notice as provided in Sections 9.3 and 9.4
will not affect the rights or obligations of any party hereunder except and only
to the extent that, as a result of such failure, any party entitled to receive
such notice was deprived of its right to recover any payment under its
applicable insurance coverage or was otherwise directly and materially damaged
as a result of such failure to give timely notice.
9.6 Reduction of Loss. To the extent any Loss of an Indemnified Party is
reduced by receipt of payment (i) under insurance policies which are not subject
to retroactive adjustment or other reimbursement to the insurer in respect of
such payment, or (ii) from third parties not Affiliated with the Indemnified
Party, such payments (net of the expenses of the recovery thereof) (such net
payment being referred to herein as a "Reimbursement") shall be credited against
such Loss; provided, however, (x) the pendency of such payments shall not delay
or reduce the obligation of the Indemnifying Party to make payment to the
Indemnified Party in respect of such Loss, and (y) the Indemnified Party shall
have no obligation, hereunder or otherwise, to pursue payment under or from any
insurer or third party in respect of such loss. If any Reimbursement is obtained
subsequent to payment by an Indemnifying Party in respect of a Loss, such
Reimbursement shall be promptly paid over to the Indemnifying Party.
9.7 Limitation of Indemnification. Notwithstanding anything in this
Agreement to the contrary:
(a) Limitation of Years. A party's duty to indemnify under
this Article IX shall cease thirty-six (36) months from the date of
Closing, and, moreover, --
(i) Principals will have no liability for
indemnification with respect to any representation, warranty,
or Loss unless on or before thirty-six (36) months from the
Date of Closing Purchaser notify Principals in writing of a
claim specifying the factual basis of that claim in reasonable
detail; and
(ii) Fortress will have no liability for
indemnification with respect to any representation or warranty
unless on or before thirty-six (36) months from the Date of
Closing any Principal notifies Fortress in writing of a claim
specifying the factual basis of that claim in reasonable
detail.
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The duty to indemnify pursuant to Section 9.1(b) shall continue until there
is a final and complete resolution of the matters giving rise to the causes of
action.
(b) Threshold. In all cases except a duty arising under
Section 9.1(b), a party's duty to indemnify under this Article IX shall
not arise until the total of all Losses sustained or incurred by an
Indemnified Party exceed $50,000 and then only for the amount by which
such Losses exceed $50,000. With respect to Section 9.1(b), the duty to
indemnify shall not be limited by any minimum threshold amount.
(c) Dollar Limitation for Breach. The total Losses for which
Sellers, in the aggregate, shall provide indemnification under this
Article IX and any other provision of this Agreement shall be
$2,700,000, inclusive of the $1,000,000 deposited in escrow pursuant to
Section 9.10.
(d) Consequential or Special Damages. Except for a Loss
arising under Section 9.1(b) with respect to punitive damages, no
Indemnifying Party shall have any liability to an Indemnified Party for
any incidental, special, consequential, punitive, or statutorily
trebled damages.
(e) Exclusive Remedy. Except for its right to enforce the
covenants contained in Section 8.1, enforceable through injunctive or
other equitable relief under Section 8.1(f), which Fortress does not
waive, the indemnification obligations of Sellers under this Article IX
are the sole and exclusive remedy of Fortress, and Fortress waives any
other remedies, whether available at law or in equity.
9.8 Subrogation. The Indemnifying Party shall be subrogated to the
Indemnified Party's rights of recovery to the extent of any Loss satisfied by
the Indemnifying Party. The Indemnified Party shall execute and deliver such
instruments and papers as are necessary to assign such rights and assist in the
exercise thereof, including access to books and records of the Acquired
Companies.
9.9 Arbitration. Excluding the right of the Purchaser or Principals to seek
injunctive relief, all claims (pursuant to Federal or state statutes or by
common law), controversies, differences or disputes between the Purchaser and
Principals arising out of or relating to this Agreement or related or referenced
exhibits or the alleged breach thereof including, but not limited to,
indemnification claims under Article 9.3 and/or 9.4 and the Escrow Agreement
relating thereto (Exhibit H) (but excluding audit disputes under Article 2.2(c))
shall be settled by arbitration in accordance with the rules then in effect of
the American Arbitration Association at the time of the dispute. After an award
is rendered by the arbitrator(s), a judgment may be entered in any court of
competent Jurisdiction. The arbitration shall occur in the greater St. Louis,
Missouri area to the exclusion of all other locations. The arbitrators can only
award actual and not punitive, trebled or exemplary damages and cannot add to or
subtract from the terms of this Agreement. The parties agree that the
arbitrators may include provisions for the payment of costs and expenses,
including reasonable attorneys' fees as part of any ruling or award made
thereunder. The parties acknowledge that arbitration shall be the sole, final,
binding and exclusive remedy of the parties with respect to any such matter for
which arbitration is undertaken hereunder. In preparation for the arbitration
process described herein, the parties shall be given at least 120 days for
discovery and each party may utilize all methods of discovery authorized by the
procedural rules and statutes of the State of Missouri for civil litigation and
may enforce the right to obtain such discovery in the manner provided by such
rules and statutes.
9.10 Security for Indemnification. As security for their duties pursuant to
Section 9.1(b), Principals agree that $1,000,000 of the cash purchase price
shall be deposited in escrow with an escrow agent pursuant to the terms of
Exhibit H attached hereto and made a part hereof. This sum is not in addition to
but part of the $2,700,000 limitation described in Section 9.7(c).
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ARTICLE X
DEFINITIONS
For purposes of this Agreement, the following terms have the meanings
referred to in this Article 10:
"Acquired Companies" - as defined on page 2.
"Acquired Companies Indemnified Party" - as defined in Section 9.2
"Acquisition Transaction" - as defined in Section 6.3.
"Affiliate" - With respect to a Person, any other Person that directly or
indirectly controls, is controlled by, or is under common control with, such
Person.
"Affiliate Transaction" - a transaction between an Acquired Company and any
other Person or entity that directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control with, an
Acquired Company.
"Applicable Contract" - any Contract (a) under which a Company has or may
acquire any rights, (b) under which a Company has or may become subject to any
obligation or liability, or (c) by which a Company or any of the Assets used by
it is or may become bound.
"Auditor" - as defined in Section 2.2(a).
"Available Cash" - as defined in Section 6.2(i).
"Beneficial Owners" - as defined on page 2.
"Board" - as defined in Section 7.1(j).
"Business" - as defined on page 2.
"Cash Adjustment Amount" - as defined in Section 2.2(d).
"Cash Short-Fall" - as defined in Section 6.2(i).
"CERCLA" - as defined in Section 4.18(b).
"Claims" - as defined in Section 4.14(a).
"Closing" - as defined in Section 3.1.
"Closing Date" - as defined in Section 3.1.
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"Closing Combined Balance Sheet" - as defined in Section 2.2(a).
"Closing Effective Date" - as defined in Section 3.1.
"Code" - 1986 Internal Revenue Code, as amended, and regulations issued by the
Internal Revenue Service pursuant to the Internal Revenue Code of 1986, as
amended.
"Company" and "Acquired Companies" as defined in Section 4.1.
"Company Other Benefit Obligation" - as defined in Section 4.16.
"Company Plan" - as defined in Section 4.16.
"Company VEBA" - as defined in Section 4.16.
"Confidential Information" - as defined in Section 8.1(d).
"Consents" - as defined in Sections 1.3 and 4.5.
"Contract" - any agreement, contract, obligation, promise, or undertaking
(whether written or oral and whether express or implied) that is legally
binding.
"Defense Counsel" - as defined in Section 9.3.
"Defense Notice" - as defined in Section 9.3.
"Deliveries Check List" - Schedule A.
"Developed Real Property"- as described in Section 4.11.
"Encumbrance" - any charge, claim, equity, judgment, lease, liability, lien,
mortgage, pledge, restriction, security interest, Tax lien, or encumbrance of
any kind.
"Environmental Requirements" - as defined in Section 4.18.
"ERISA Affiliate"- as defined in Section 4.16.
"Financial Statements" - as defined in Section 4.6.
"Earnest Money Deposit" - as defined in Section 2.1(a)(i).
"Foreign Person" - as defined in Section 4.11(m).
"Fortress" - The Fortress Group, Inc.
"GAAP" - as defined in Section 2.2(a).
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"Government Authority" - the United States or any state, local, or foreign
government, or any subdivision, agency, or authority of any thereof.
"Governmental Consents" - as defined in Section 4.5.
"Guaranteed Obligations" - as defined in Section 7.2(d).
"Hazardous Materials" -- as defined in Section 4.18.
"Intellectual Properties" - as defined in Section 4.13.
"Indemnified Party" - as defined in Section 9.3.
"Indemnifying Party" - as defined in Section 9.3
"Kahn" - as defined in Section 12.18.
"Kahn's Fee" - as defined in Section 9.1(c).
"Knowledge" -- an individual will be deemed to have "Knowledge" of a particular
fact if:
(a) Such individual is actually aware of such fact or
other matter; or
(b) a prudent individual could be expected to discover or
otherwise become aware of such fact or other matter in the course of
conducting a reasonably comprehensive investigation concerning the
existence of such fact or other matter, provided the individual had
Reasonable Grounds for believing there to be such circumstances where
an investigation should be conducted. For purposes of this definition,
"Reasonable Grounds" are those consistent with normal business
practices.
A Person (other than an individual) will be deemed to have "Knowledge" of a
particular fact or other matter if any individual who is serving, or who has at
any time served, as a director, officer, partner, executor, or trustee of such
Person (or in any similar capacity) has, or any time had, Knowledge of such fact
or other matter.
"Land Contracts" - as listed in Section 4.11.
"Laws" - as defined in Section 4.15.
"Leased Property" - as defined in Section 4.11.
"Legal Requirement" -- any federal, state, local, municipal, foreign, or other
administrative order, constitution, law, ordinance, principle of common law,
regulation, statute, or treaty.
"Losses" - as defined in Section 9.1.
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"L & C" - Lewis and Clark Title Company.
"Material Contracts" - as defined in Section 4.8.
"Multi-Employer Plan"- as defined in Section 4.16.
"Net Worth" - "- as defined in Section 2.2(c).
"Option Property" - as listed in Section 4.11.
"Ordinary Course of Business" -an action taken by a Person will be deemed to
have been taken in the "Ordinary Course of Business" only if-
a) such action is consistent with the past practices of such
Person and is taken in the ordinary course of the normal day-to-day
operations of such Person;
(b) such action is similar in nature and magnitude to actions
customarily taken in the ordinary course of the normal day-to-day
operations of other Persons that are in the same line of business as
such Person.
"Other Benefit Obligations" - as defined in Section 4.16
"Owned Property" - as defined in Section 4.11.
"PBGC" - as defined in Section 4.16.
"Pension Plan" - as defined in Section 4.16
"Permits" - as defined in Section 4.10.
"Person" -- any individual, corporation (including non-profit corporation),
general or limited partnership, limited liability company, joint venture,
estate, trust, association, organization, labor union, or other entity of
Governmental Body.
"Plan" - as defined in Section 4.19.
"Plan Sponsor" - as defined in Section 4.19
"Pre-Closing Distributions" - as defined in Section 6.2(i).
"Principals" - as defined on page 2.
"Principals' Auditor" - as defined in Section 2.2(a).
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"Purchase Price" - as defined in Section 2.1
"Purchaser" - The Fortress Group, Inc.
"Purchaser Indemnified Party" - as defined in Section 9.1.
"Purchaser Subsidiary" - as defined in Section 1.3.
"Purchaser's Notice" - as defined in Section 2.2(b).
"Qualified Plan" - as defined in Section 4.16.
"RCRA" - as defined in Section 4.18(b).
"Real Estate" - as defined in Section 4.11
"Reimbursement" - as defined in Section 9.6.
"Related Person"--with respect to a particular individual:
(a) each other member of such individual's Family;
(b) any Person that is directly or indirectly controlled by such
individual or one or more members of such individual's Family;
(c) any Person in which such individual or members of such
individual's Family hold (individually or in the aggregate) a Material Interest;
and
(d) any Person with respect to which such individual or one or more
members of such individual's Family serves as a director, officer, partner,
executor, or trustee (or in a similar capacity).
With respect to a specified Person other than an individual:
(a) any Person that directly or indirectly controls, is directly or
indirectly controlled by, or is directly or indirectly under common control
with such specified Person;
(b) any Person that holds a Material Interest in such specified
Person;
(c) each Person that serves as a director, officer, partner,
executor, or trustee of such specified Person (or in a similar capacity);
(d) any Person in whom such specified Person holds a Material
Interest;
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<PAGE>
(e) any Person with respect to which such specified Person serves
as a general partner or a trustee (or in a similar capacity); and
(f) any Related Person of any individual described in clause (b)
or (c).
For purposes of this definition, (a) the "Family" of an
individual includes (i) the individual (ii) the individual's spouse and
former spouses, (iii) any other natural person who is related to the
individual or the individual's spouse within the second degree, and (iv) any
other natural person who resides with such individual, and (b) "Material
Interest' means direct or indirect beneficial ownership (as defined in Rule
13d-3 under the Securities Exchange Act of 1934) of voting securities or
other voting interests representing at least 10% of the outstanding voting
power of a Person or equity securities or other equity interests
representing at least 10% of the outstanding equity securities or equity
interests in a Person.
"Releases" - as defined in Section 7.2(d).
"Restrictive Covenant" - as defined in Section 8.1(f).
"Restrictive Period" - as defined in Section 8.1(a).
"RKG" - RRKTG Lumber, Inc.
"Schedules" - as defined in Section 6.4.
"Section 338 Tax Increase" - as defined in Section 2.2
"Securities Act" - as defined in Section 5.5.
"Sellers" - as defined on page 2.
"Sellers' Notice" - as defined in Section 2.2(b).
"Selling Indemnified Party" - as defined in Section 9.2.
"Shares" - as defined on page 2.
"Substantially Complete" - That each and all of the requirements listed in this
definition have been met with respect to the Developed Real Property and each
lot contained therein ("Lot" or "Lots"):
(a) Final subdivision plats have been approved by all
applicable governmental authorities and recorded in the official
records of the County, municipality or applicable governmental
authority;
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<PAGE>
(b) Letters have been issued by the appropriate governmental
authority which evidence that such authority has released at least 90%
of the funds escrowed for installation of streets, water lines,
sanitary sewer, and storm sewers for the Lots;
(c) The appropriate governmental authority has certified that
operable water and sewer taps are available to each of the Lots; and
(d) The appropriate governmental authority has certified that
building permits are obtainable for the construction of single-family
houses on the Lots.
"Tax" - as defined in Section 4.7(a).
"Tax Determination"- as defined in Section 2.2(a).
"Tax Return" - as defined in Section 4.7(a).
"Territory" - as defined in Section 8.1(a).
"Third Party Claim" - as defined in Section 9.3.
"Title IV Plans" as defined in Section 4.16.
"Trade Marks" - as defined in Section 4.12.
"Undeveloped Real Property" - as defined in Section 4.11.
"VEBA" - as defined in Section 4.16.
"Voting Trust Agreements" - as defined on page 2.
"Welfare Plan" - as defined in Section 4.16.
"Whittaker Construction" - as defined on page 2.
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<PAGE>
ARTICLE XI
MISCELLANEOUS
11.1 Notices, Consents, Etc. Any notices, consents or other communication
required to be sent or given hereunder by any of the parties shall in every case
be in writing and shall be deemed properly served if (i) delivered personally,
(ii) sent by registered or certified mail, in all such cases with first class
postage prepaid, return receipt requested, or (iii) delivered by a recognized
overnight courier service, to the parties at the addresses as set forth below or
at such other addresses as may be furnished in writing.
(a) If to Sellers:
Whittaker Construction, Incorporated
355A Mid Rivers Mall Drive
St. Peters, MO 63376
Attention: Mr. Robert N. Whittaker, Sr.
Robert and Shirley Whittaker
#6 Upper Whitmoor Drive
St. Charles, MO 63304
Robert N. Whittaker, Jr.
773 Hillenkamp
St. Charles, MO 63304
Kelly K. Whittaker
1015 Whitmoor Drive
St. Charles, MO 63304
Timothy H. Whittaker
729 Hillenkamp Drive
St. Charles, MO 63304
Gregory G. Whittaker
221 Pitman Hill Road
St. Charles, MO 63304
(b) If to Purchaser:
THE FORTRESS GROUP, INC.
1650 Tysons Boulevard, Suite 600
McLean, VA 22102
Attention: James J. Martell, Jr.
Date of service of such notice shall be (x) the date such notice is personally
delivered, (y) three (3) days after the date of mailing if sent by certified or
registered mail, or (z) one (1) day after date of delivery to the overnight
courier if sent by overnight courier.
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11.2 Severability. The unenforceability or invalidity of any provision of
this Agreement shall not affect the enforceability or validity of any other
provision.
11.3 Documents. Each party will execute all documents and take such other
actions as the other party may reasonably request in order to consummate the
transactions provided for herein and to accomplish the purposes of this
Agreement.
11.4 Counterparts. This Agreement may be executed simultaneously in one or
more counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
11.5 Expenses. Except as otherwise specifically provided herein, each of
the parties shall pay all costs and expenses incurred or to be incurred by it in
negotiating and preparing this Agreement and in closing an carrying out the
transactions contemplated by this Agreement. Sellers shall not pay or obligate
Purchaser to pay any of such costs and expenses from the Assets.
11.6 Cooperation by the Parties. In addition to the covenants of Sellers
contained in Article VI herein, the parties to this Agreement will use their
reasonable efforts, and will cooperate with each other of them, to secure all
necessary consents, approvals, authorizations, exemptions and waivers from third
parties as shall be required in order to enable each of them to effect the
transactions contemplated hereby, and will otherwise use their best efforts to
cause the consummation of such transactions in accordance with the terms and
conditions hereof.
11.7 Further Assurances. At any time or from time to time up to one year
after the Closing, each of the parties hereto shall, at the request of the other
of the parties hereto and at such other parties' expense, execute and deliver
any further instruments or documents and take all such further actions are
reasonably requested of it in order to consummate and make effective the sale of
the Assets pursuant to this Agreement.
11.8 Governing Law. This Agreement shall be construed and governs in
accordance with the laws of the State of Missouri, without giving effect to
conflicts and choice of law principles.
11.9 Headings. The subject headings of Articles and Sections of this
Agreement are included for purposes of convenience only and shall not affect the
construction or interpretation of any of its provisions.
11.10 Assignment. This Agreement will be binding upon and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns, but will not be assignable or delegable by any party without the prior
written consent of the other parties; provided, however, that nothing in the
Agreement is intended to limit Purchaser's ability to assign its rights or
delegate its responsibilities, liabilities and obligations under this Agreement
to any person at any time whether prior to or following the Closing without
consent, but no such assignment shall relieve Fortress of any of its
obligations, duties or liabilities hereunder.
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11.11 Entire Agreement. This Agreement and all the Schedules and Exhibits
attached to the Agreement (which shall be deemed incorporated in the Agreement
and made a part hereof) set forth the entire understanding of the parties and
supersedes all prior or contemporaneous agreements or negotiations (whether in
writing or oral). and may be modified only by instruments signed by both of the
parties hereto. Oral modifications are absolutely prohibited.
11.12 Third Parties. Nothing herein expressed or implied is intended or
shall be construed to confer upon or give to any person or entity, other than
the parties to this Agreement, any rights or remedies under or by reason of this
Agreement.
11.13 Interpretative Matters. Unless the context otherwise requires, (i)
all references to Articles, Sections, Schedules or Exhibits in this Agreement,
(ii) each accounting term not otherwise defined in this Agreement has the
meaning assigned to it in accordance with GAAP, and (iii) words in the singular
or plural include the singular and plural and pronouns stated in either the
masculine, feminine or neuter gender shall include the masculine, feminine and
neuter.
11.14 Termination. Upon notice to the other parties hereto, the Purchaser
or the Sellers may terminate this Agreement prior to the Closing under the
circumstances set forth below:
(a) Outside Closing Date. The Purchaser or the Sellers may terminate this
Agreement if the Closing has not occurred on or before March 6, 1998.
(b) Failure to deliver Earnest Money Deposits. This Agreement will
automatically terminate at 12:001 a.m., January 6, 1998 if Purchaser fails to
deliver the Earnest Money Deposit in a timely fashion as provided in Section
2.1(a)(i)(A), and it will also automatically terminate at 5:01 p.m. Central
Standard Time, February 27, 1998 if Purchaser fails to deliver the 2d Earnest
Money Deposit in a timely fashion as provided in Section 2.1(a)(i)(B).
(c) Prior to Closing. This Agreement may be terminated at any time prior to
Closing:
(i) at any time prior to the Closing by the mutual
written consent of Purchaser and the Sellers;
(ii) at any time prior to the Closing by either the Sellers or
Purchaser in writing, without liability to the terminating party on
account of such termination (provided the terminating party is not
otherwise in default or in breach of this Agreement), if Purchaser or
the Sellers, respectively, shall (i) fail to perform in any material
respect its agreements contained herein required to be performed prior
to the Closing, or (ii) materially breach any of its representations,
warranties or covenants contained herein; and
(b) Effect of Termination. In the event of termination of this Agreement
pursuant to Subsections 11.14(a), (b) or (c)(i), then all obligations of the
parties hereunder shall terminate and each party will be relieved on any and all
claims from the other party growing out of this Agreement except the
confidentiality provisions contained in Section 8.3(d), and each party will bear
its own expenses and respective fees and costs.
11.15 Public Announcement. Any public announcement or similar publicity
with respect to this Agreement will be issued, if at all, at such time and in
such manner as Fortress determines; provided, however, Fortress will provide an
advance copy of the public announcement to Sellers and reasonably consider
Sellers' proposed additions or changes to the announcement. Unless reasonably
necessary to consummate this transaction or consented to by Fortress in advance
or required by law, prior to Closing Sellers shall, and shall cause it
directors, officers, employees, agents, and advisors to, keep this Agreement
strictly confidential and may not make any disclosure of this Agreement to any
Person. Sellers and Fortress will consult with each other concerning the means
by which the employees, customers, suppliers and other interested parties of the
Acquired Companies will be informed of the transaction and Fortress will have
the right to be present at any such communication. In any pubic announcement for
distribution in the greater St. Louis, Missouri area, no reference will be made
to the price paid, and if in other public announcements the price paid is
included, it shall include the debt on the books of the Acquired Companies,
reflecting the enterprise value, not just the cash paid.
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<PAGE>
11.16 Waiver. The rights and remedies of the parties to this Agreement are
cumulative and not alternative. Neither the failure nor any delay by any party
in exercising a right, power, or privilege under this Agreement or the documents
referred to in this Agreement will operate as a waiver of the right, power, or
privilege, and no single or partial exercise of a right, power, or privilege
will preclude any other or further exercise of any other right, power, or
privilege. To the maximum extent permitted by applicable law, (a) no claim or
right arising out of this Agreement or the documents referred to in it can be
discharged by one party, in whole or in part, by a waiver or renunciation of the
claim or right unless in writing signed by the other party; (b) no waiver that
may be given by a party will be applicable except in the specific instance for
which it is given.
11.17 Jointly Negotiated. The provisions of this Agreement have been
jointly negotiated by all of the parties to the Agreement, and as such, it is
agreed that no provision shall be more strictly construed against a party
regardless of which party drafted the provision.
11.18 Brokers. Each party represents and warrants that it employed no
broker or agent in connection with this transaction except for Michael P. Kahn &
Associates, LLC ("Kahn"), and except as modified by this Agreement agrees to
indemnify the other parties hereto against all loss, cost, damages or expenses
arising out of claims for fees or commissions of brokers employed or alleged to
have been employed by such indemnifying party. Notwithstanding to the contrary
implied by Sections 9.1(c), any commission payable to Kahn covering the
adjustment to the Purchase Price for the Section 338 Tax Increase, described in
Section 2.2, above, shall be borne by Purchaser and not the Sellers.
52
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amended and Restated
Purchase Agreement on February 27, 1998.
The Fortress Group, Inc.
By: ________________________________
James J. Martell, Jr., President
[ATTEST]
By: ___________________________________
Hildy Zampella, Assistant Secretary
Whittaker Construction, Incorporated RRKTG Lumber, Inc.
By: ______________________________ By: _________________
Robert N. Whittaker, Sr.
Lewis and Clark Title Company
_____________________________
By: _________________________ _____________________
Robert N. Whittaker, Sr. Shirley J. Whittaker
_____________________________ ______________________
Gregory G. Whittaker Robert N. Whittaker, Jr.
_____________________________ ________________________
Timothy H. Whittaker Kelly K. Whittaker
_________________________________
Robert N. Whittaker, Sr., Trustee
Of Voting Trust Agreements between
SP Whittaker Construction, Incorporated and RKG
And Shirley J. Whittaker, Gregory G. Whittaker,
Robert N. Whittaker, Jr., Timothy Whittaker and
Kelly K. Whittaker
Exhibit 3.1
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
THE FORTRESS GROUP, INC.
THE FORTRESS GROUP, INC., a corporation duly organized and existing under
the General Corporation Law of the State of Delaware (the "Corporation"), does
hereby certify that:
1. The Certificate of Incorporation of the Corporation is hereby amended by
adding a new Article, Article ELEVENTH, which reads in its entirety as follows:
ELEVENTH: (A) In addition to any other vote required by
applicable law and notwithstanding the fact that a lesser or
no vote of the Board of Directors of the Corporation or the
Executive Committee of the Board of Directors of the
Corporation is required under applicable law and
notwithstanding Article SIXTH hereof, the Corporation shall
not, and shall not permit any of its subsidiaries to, without
either (A) the affirmative vote of over eighty-one percent
(81%) of the members of the entire Board of Directors of the
Corporation or (B) the affirmative vote of over eighty-one
percent (81%) of the members of the entire Executive
Committee:
(i) purchase, sell, license, assign, transfer, convey or
otherwise acquire or dispose of any assets, securities,
or businesses, unless such transaction is provided for
in the annual budget or is in the ordinary course of
business and does not involve the acquisition or
disposition of homebuilding operations or any
homebuilding company or entity.
(ii) split (including any reverse split), combine or
reclassify any shares of its capital stock; adopt
resolutions authorizing a liquidation, dissolution,
merger, consolidation, restructuring, recapitalization,
or other reorganization of the capital structure of the
Corporation or any of its subsidiaries; or make any
other material changes in its capital structure;
<PAGE>
(iii) enter into any new line of business other than the
business engaged in by the Corporation and its
subsidiaries on the date hereof, cease to be
engaged in any material line of business engaged in
by the Corporation and its subsidiaries on the date
hereof or materially change the nature of the
business engaged in by any of them on the date
hereof;
(iv) file any petition seeking relief, or consent to the
institution of any proceeding against itself seeking to
adjudicate it a bankrupt or insolvent, under any law
relating to bankruptcy, insolvency or reorganization or
relief of debtors;
(v) amend or otherwise alter the Corporation's or any
subsidiary's certificate of incorporation or adopt,
alter, amend or repeal any bylaw of the Corporation
(other than the adoption, alteration, amendment or
repeal of any bylaw of the Corporation by the
stockholders of the Corporation) or any subsidiary
of the Corporation;
(vi) declare or pay any dividend or make any other
distribution with respect to its capital stock, other
than dividends paid by any subsidiary to the
Corporation or another subsidiary in the ordinary
and usual course of business or to the holders of
the Investor Preferred Stock (as hereinafter defined)
or in respect of other outstanding preferred stock
of the Corporation on the date hereof;
(vii) issue or sell (whether through the issuance or
granting of options, warrants, commitments,
subscriptions, rights to purchase, or otherwise) any of
its capital stock (other than upon conversion of the
Investor Preferred Stock or other outstanding
convertible securities of the Corporation, or upon
exercise of outstanding warrants or stock options to
purchase the Corporation's common stock) or deliver
other securities other than as contemplated in that
certain Amended and Restated Stockholders Agreement
(the "Stockholders Agreement") dated as of
September 30, 1997 between Prometheus Homebuilders LLC
(the "Purchaser"), the Corporation and certain
stockholders named therein, or purchase or otherwise
acquire any of its capital stock, employee or director
stock options or debt securities; or
(viii) agree to do any of the foregoing.
<PAGE>
(B) Notwithstanding any provision of law which might
otherwise permit a lesser vote or no vote, but in addition to
any affirmative vote of the holders of any particular class
or series of the stock required by law or this Certificate of
Incorporation, the affirmative vote of the holders of at
least a majority in voting power of the then outstanding
shares of Class AA Convertible Preferred Stock of the
Corporation, Class ABI Convertible Preferred Stock of the
Corporation and Class ABII Convertible Redeemable Preferred
Stock of the Corporation (collectively, the "Investor
Preferred Stock"), voting together as a single class, shall
be required in order for the stockholders of the Corporation
to adopt, alter, amend or repeal any bylaw of the
Corporation.
(C) Notwithstanding anything in this Article ELEVENTH to
the contrary, the terms and provisions of Sections (A) and
(B) of this Article ELEVENTH shall only be in effect until
such time as the Purchaser provides written notice to the
Secretary of the Corporation that it elects to have said
Sections (A) and (B) of this Article ELEVENTH to be of no
further force and effect pursuant to Section 3.2(d) of the
Stockholders Agreement, at which time Sections (A) and (B) of
this Article ELEVENTH shall be of no further force and
effect.
2. The Certificate of Incorporation of the Corporation is hereby amended by
amending and restating the first paragraph of Article FOURTH thereof to read as
follows:
The total number of shares of capital stock of all classes
which the Corporation shall have authority to issue is
100,000,000 shares of stock divided into two classes:
1,000,000 shares of Preferred Stock having a par value of
$.01 per share and 99,000,000 shares of Common Stock having a
par value of $.01 per share.
3. The foregoing amendments were duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, THE FORTRESS GROUP, INC. has caused this Certificate to
be executed by its duly authorized officer on this 6th day of March, 1998.
THE FORTRESS GROUP, INC.
By: /s/
--------------------------
Name: James J. Martell, Jr.
Office: President
Exhibit 3.2
Amendments to the Corporation's By-Laws
Effective March 6, 1998
1. Section 2.2 is hereby amended and restated in its entirety so
that, as amended and restated, it reads as follows:
"SECTION 2.2 Special Meetings. A special meeting of the
stockholders may be called by the President of the
Corporation, the Board of Directors, by such other officers or
persons as the Board of Directors may designate, or as
otherwise provided in the Certificate of Incorporation. A
special meeting of holders of the Corporation's issued and
outstanding Class AA Convertible Preferred Stock (the
"Investor Preferred Stock") may be called in the manner set
forth in the Certificate of Incorporation, as the same may be
amended or restated from time to time, including by filing of
certificates of designations for preferred stock of the
Corporation (references herein to the Certificate of
Incorporation shall include such amendments and
restatements)."
2. Section 2.5 is hereby amended and restated in its entirety so
that, as amended and restated, it reads as follows:
"SECTION 2.5. Quorum and Adjourned Meetings. Unless otherwise
provided by law or the Certificate of Incorporation, a
majority in voting power of the outstanding shares of capital
stock of the Corporation entitled to vote, present in person
or represented by proxy, shall constitute a quorum at a
meeting of stockholders, and a majority in voting power of
shares of Investor Preferred Stock entitled to vote, present
in person or represented by proxy, shall constitute a quorum
at a meeting of holders of Investor Preferred Stock. If less
than a majority in voting power of the shares entitled to vote
at a meeting of stockholders or at a meeting of holders of
Investor Preferred Stock, as appropriate, is present in person
or represented by proxy at such meeting, a majority in voting
power of the shares so represented may adjourn the meeting
from time to time without further notice. At any adjourned
meeting at which a quorum is present, any business may be
transacted which might have been transacted at the original
meeting. The stockholders or the holders of Investor Preferred
Stock, as appropriate, present at a meeting may continue to
transact business until adjournment, notwithstanding the
withdrawal of such number of stockholders or holders of
Investor Preferred Stock, as appropriate, as may leave less
than a quorum."
3. Section 2.8 is hereby amended and restated in its entirety so
that, as amended and restated, it reads as follows:
"SECTION 2.8. Voting. Except as otherwise provided by the
Certificate of Incorporation, each stockholder shall be
entitled to one vote for each share of capital stock held by
each stockholder. In all matters other than the election of
<PAGE>
directors, except as otherwise provided by the Certificate of
Incorporation, the affirmative vote of the majority of shares
present in person or represented by proxy at a meeting of
stockholders and entitled to vote on the subject matter shall
be the act of the stockholders. Except as otherwise provided
by the Certificate of Incorporation or Article III of these
By-laws, directors shall be elected by a plurality of the
votes of the shares present in person or represented by proxy
at such meeting entitled to vote on the election of
directors."
4. Section 3.1 is hereby amended and restated in its entirety so
that, as amended and restated, it reads as follows:
"SECTION 3.1. Number. Subject to Section 3.11, the number of
directors which shall constitute the whole Board shall be
fixed from time to time by vote of a majority of the whole
Board; provided, however, that the number of directors so
fixed shall not be less than three (3). The number of
directors shall be fixed at fifteen (15) until otherwise fixed
by a majority of the whole Board in accordance with the
preceding sentence. Subject to Section 3.11 of these By-laws,
any increases in the size of the Board over fifteen (15)
directors shall result in an increase in the number of
Preferred Stock Directors (defined below) (rounded up to the
next whole number) such that Preferred Stock Directors
represent at least 20 percent (20%) of the votes exercisable
by the whole Board."
5. Section 3.2 is hereby amended and restated in its entirety so
that, as amended and restated, it reads as follows:
"SECTION 3.2. Election of Directors. Directors shall be
elected at the annual meeting of stockholders and at special
meetings of stockholders called for such purpose. Subject to
Sections 3.1 and 3.11 of these By-laws, three directors (the
"Preferred Stock Directors") and the Additional Preferred
Stock Directors (defined below), if any, shall be elected
exclusively by the holders of Investor Preferred Stock
according to the provisions of the Certificate of
Incorporation."
6. Section 3.5 is hereby amended by adopting the following
paragraph and inserting such paragraph after, and in addition
to and not in substitution for, the text currently
constituting Section 3.5:
"Eighty-one percent (81%) of the whole Board shall
constitute a quorum for the transaction of business of the
Corporation. If less than eighty-one percent (81%) of the
whole Board is present at any meeting of the Board, a majority
of the directors present may adjourn the meeting from time to
time without further notice."
7. Section 3.6 is hereby amended and restated in its entirety so
that, as amended and restated, it reads as follows:
<PAGE>
"SECTION 3.6. Voting. The vote of the majority of the
directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors, unless the
Delaware General Corporation Law, the Certificate of
Incorporation or Section 5.3 of these By-laws requires a vote
of a greater number."
8. Section 3.7 is hereby amended and restated in its entirety so
that, as amended and restated, it reads as follows:
"SECTION 3.7. Vacancies. Vacancies in the Board may be filled
by a majority vote of the Board or by an election either at an
annual meeting or at a special meeting of the stockholders
called for that purpose; provided, however, that in the event
of vacancies or newly created directorships among the
Preferred Stock Directors or the Additional Preferred Stock
Directors, any such vacancy or newly created directorship may
be filled by a majority of the directors then in office
exclusively elected by the holders of the Investor Preferred
Stock or by an election either at an annual meeting or at a
special meeting of the holders of Investor Preferred Stock
entitled to vote at an election of Preferred Stock Directors
called for that purpose. Directors elected pursuant to this
Section 3.7 shall serve in such capacity, with all rights,
powers, duties and obligations of directors under these
By-laws, until their successors are elected and qualified in
accordance with these By-laws. Any director elected by the
stockholders, the holders of Investor Preferred Stock or the
Board to fill a vacancy or newly created directorship shall
hold office for the balance of the term for which he or she
was elected."
9. Section 3.8 is hereby amended and restated in its entirety so
that, as amended and restated, it reads as follows:
"SECTION 3.8. Removal of Directors. Other than Preferred Stock
Directors and Additional Preferred Stock Directors, a director
or the entire Board of Directors may be removed, with or
without cause, by the holders of a majority in voting power of
the outstanding shares then entitled to vote at an election of
directors.
Any Preferred Stock Director or Additional Preferred
Stock Director, as appropriate, may be removed with or without
cause upon the affirmative vote of the holders of a majority
in voting power of the outstanding shares of Investor
Preferred Stock then entitled to vote at an election of
directors."
10. Section 3.11 is hereby adopted and shall immediately follow
Section 3.10 in the Corporation's By-laws. Section 3.11 shall
read as follows:
"SECTION 3.11. Election of Directors Following Adverse Event.
In the event of an Adverse Event as defined in the Certificate
of Incorporation (an "Adverse Event") and notwithstanding
Section 3.1 of these By-laws, the number of directors on the
Board shall immediately and automatically be increased to such
<PAGE>
number as will enable the appointment or election of such
additional number of persons to serve as directors (the
"Additional Preferred Stock Directors") such that Preferred
Stock Directors and Additional Preferred Stock Directors,
taken together, constitute a majority of the Board of
Directors. Subject to Section 3.7 of these By-laws, Additional
Preferred Stock Directors shall be elected exclusively by the
holders of Investor Preferred Stock then entitled to vote at
an election of Preferred Stock Directors at the annual meeting
and at special meetings of the holders of Investor Preferred
Stock called for such purpose according to the provisions of
the Certificate of Incorporation and these By-laws. Subject to
Section 3.8 of these By-laws, Additional Preferred Stock
Directors shall be entitled to serve on the Board until the
second consecutive Test Date, as defined in the Certificate of
Incorporation, at which neither component of an Adverse Event
exists, and at such time, any Additional Preferred Stock
Directors on the Board shall immediately and automatically be
deemed to have tendered their resignations to the Board."
11. Article V is hereby amended and restated in its entirety so
that, as amended and restated, it reads as follows:
"SECTION 5.1. General Provisions. The Board of Directors may
create one or more Committees, and any such Committee, to the
extent provided in the resolution of the Board establishing
such Committee and permitted by the Certificate of
Incorporation and applicable law, shall have and may exercise
all the powers and authority of the Board in the management of
the business and affairs of the Corporation, and may authorize
the seal of the Corporation to be affixed to all papers which
may require it, except that no Committee shall have the power
nor the authority to take action with respect to any matter
that it is prohibited from taking action upon under the
Corporation's Certificate of Incorporation, these Bylaws or
under Section 141(c)(2) of the General Corporation Law of the
State of Delaware (the "DGCL").
Each Committee shall consist of at least three
Directors, of which Preferred Stock Directors shall constitute
a number proportionate to the number of Preferred Stock
Directors on the Board. Notwithstanding the foregoing, in the
event of an Adverse Event, the number of directors serving on
each Committee established hereunder or by resolution of the
Board shall immediately and automatically increase to such
number as will enable Preferred Stock Directors and Additional
Preferred Stock Directors, taken together, to constitute a
majority of such Committee, and Preferred Stock Directors or
Additional Preferred Stock Directors shall be appointed by the
Board to fill such vacancies. Preferred Stock Directors and
Additional Preferred Stock Directors, taken together, shall
constitute a majority of each Committee of the Board following
an Adverse Event until the second consecutive Test Date upon
which neither component of an Adverse Event exists, according
to the provisions of the Certificate of Incorporation.
<PAGE>
The Board may designate one or more directors as
alternate members of any Committee, who may replace any absent
or disqualified member at any meeting of such Committee. In
the absence or disqualification of a member at any meeting of
a Committee, the member or members thereof present at any
meeting and not disqualified from voting, whether or not such
member or members constitute a quorum, may unanimously appoint
another member of the Board to act at the meeting in the place
of any such absent or disqualified member; provided that the
proportion of Preferred Stock Directors and Additional
Preferred Stock Directors, taken together, on such Committee
at such meeting is not less than the proportion of Preferred
Stock Directors and Additional Preferred Stock Directors,
taken together, on the whole Board.
SECTION 5.2. Executive Committee. The Board shall have an
Executive Committee composed of five Directors, of which two
Directors shall be Preferred Stock Directors as set forth in
the Certificate of Incorporation. The Executive Committee
shall have and may exercise all the powers and authority of
the Board in the management of the Corporation's business and
affairs, including the matters set forth in Section 5.3 of
these By-laws, and including the power and authority to
authorize the Corporation's seal to be affixed to all papers
to which the Executive Committee deems such seal to be
necessary or desirable, to declare dividends, to authorize the
issuance of stock and to adopt a certificate of ownership and
merger pursuant to Section 253 of the DGCL, except that the
Executive Committee shall have neither the power nor the
authority to take action with respect to any matter that it is
prohibited from taking action upon under the Certificate of
Incorporation, these By-laws or under Section 141(c) (2) of
the DGCL. Eighty-one percent (81%) of the total number of
directors constituting the Executive Committee as fixed by
these By-laws or by resolution of the Board adopted pursuant
thereto shall constitute a quorum for the transaction of
business of the Corporation by the Executive Committee.
The Executive Committee shall have neither the power nor
authority to:
(i) amend the Certificate of Incorporation (except that the
Executive Committee may, to the extent authorized in a
resolution or resolutions of the Board providing for the
issuance of shares of the Corporation's stock, fix the
designations and any of the preferences or rights of such
shares relating to dividends, redemption, dissolution, any
distribution of the Corporation's assets or the conversion
into, or the exchange of such shares for, shares of any other
class or classes or any other series of stock or authorize the
increase or decrease of the shares of any series);
(ii) adopt an agreement of merger or consolidation (other than
a certificate of ownership and merger with respect to a merger
of the Corporation and one or more of its subsidiaries
pursuant to Section 253 of the DGCL or as otherwise permitted
under the DGCL);
<PAGE>
(iii) recommend to the Corporation's stockholders the sale,
lease or exchange of all or substantially all of the
Corporation's property and assets;
(iv) recommend to the Corporation's stockholders a dissolution
of the Corporation or a revocation of a dissolution; or
(v) amend the Corporation's By-laws.
SECTION 5.3. Conduct of Corporation Business. In addition to
any other vote required by applicable law and notwithstanding
the fact that a vote of the Board or the Executive Committee
may not be required under applicable law, the Corporation
shall not, and shall not permit any of its subsidiaries,
without either (A) the affirmative vote of over eighty-one
percent (81%) of the directors or (B) the affirmative vote of
over eighty-one percent (81%) of the members of the Executive
Committee, to:
(i) purchase, sell, license, assign, transfer, convey
or otherwise acquire or dispose of any assets,
securities, or businesses, unless such transaction is
provided for in the annual budget or is in the
ordinary course of business and does not involve (i)
the acquisition or disposition of homebuilding
operations or any homebuilding company or entity or
(ii) land acquisitions with a value in excess of
$100,000 for any transaction or group of related
transactions or with an aggregate value in excess of
$5,000,000 in any twelve (12) month period;
(ii) directly or indirectly incur, refinance, repay,
prepay, create, assume, guarantee or otherwise become
liable with respect to any liabilities with an
aggregate face amount in excess of $1,000,000 in the
aggregate, other than in accordance with existing
credit facilities and renewals thereof on
substantially the same terms;
(iii) enter into any transaction, or materially amend any
transaction in effect, with any affiliate of the
Corporation (other than between the Corporation and
its subsidiaries or between its subsidiaries);
(iv) split (including any reverse split), combine or
reclassify any shares of its capital stock; adopt
resolutions authorizing a liquidation, dissolution,
merger, consolidation, restructuring,
recapitalization, or other reorganization of the
capital structure of the Corporation or any of its
subsidiaries; or make any other material changes in
its capital structure;
(v) engage in any new development or redevelopment of any
real property for an amount in excess of $100,000,
whether in a single transaction or a series of
related transactions; provided, that the Board may
delegate such authority to a Committee of the Board,
including but not limited to an
<PAGE>
acquisitions committee, if such be established on
guidelines approved by the Executive Committee;
(vi) incur any capital expenditure for an amount, outside
of the approved annual budget, in excess of $50,000
per occurrence or $500,000 in the aggregate, whether
in a single transaction or a series of related
transactions or waive, release, grant or transfer any
rights of value in respect thereof or enter into any
agreement or arrangement that could adversely affect
the marketability of any real estate of the
Corporation or any of its subsidiaries;
(vii) enter into any employment agreement with any employee
involving payments in excess of $100,000 per annum or
with any director or executive officer of the
Corporation or any of its subsidiaries or enter into
or materially change any benefit arrangement between
the Corporation and its employees or consultants;
(viii) enter into any new line of business other than the
business engaged in by the Corporation and its
subsidiaries on the date hereof, cease to be engaged
in any material line of business engaged in by the
Corporation and its subsidiaries on the date hereof
or materially change the nature of the business
engaged in by any of them on the date hereof;
(ix) approve the annual operating budget of the
Corporation for any year after 1997;
(x) amend or take actions materially inconsistent with
the approved annual operating budget for 1997 or any
subsequent year;
(xi) make any general assignment for the benefit of
creditors;
(xii) file any petition seeking relief, or consent to the
institution of any proceeding against itself seeking
to adjudicate it a bankrupt or insolvent, under any
law relating to bankruptcy, insolvency or
reorganization or relief of debtors;
(xiii) institute, voluntarily dismiss, terminate or settle
any litigation or arbitration against any person or
entity (A) involving payments for damages and
penalties in excess of $50,000 or (B) otherwise
material to the Corporation and its subsidiaries
taken as a whole;
(xiv) engage, retain, pay or agree to pay the fees or
expenses of any third party consultants or advisors
(other than advisors retained in the ordinary course
of business), to the extent that such fees and
expenses exceed one hundred thousand dollars
($100,000) in the aggregate;
<PAGE>
(xv) appoint, ratify or replace the independent
accountants, change any accounting policy or practice
other than as mandated by generally accepted
accounting principles then in effect; or change any
significant tax methods, practices, procedures or
policies;
(xvi) enter into or amend any joint venture, partnership or
profit sharing agreement or arrangement;
(xvii) amend the Corporation's or any subsidiary's
certificate of incorporation or bylaws;
(xviii) declare or pay any dividend or make any other
distribution with respect to its capital stock, other
than dividends paid by any subsidiary to the
Corporation or another subsidiary in the ordinary and
usual course of business or to the holders of the
Investor Preferred Stock or other preferred stock of
the Corporation as required pursuant to the terms of
the Investor Preferred Stock, the Investor Preferred
Stock Certificates of Designations or otherwise;
(xix) issue or sell (whether through the issuance or
granting of options, warrants, commitments,
subscriptions, rights to purchase, or otherwise) any
of its capital stock (other than upon conversion of
the Investor Preferred Stock or other outstanding
convertible securities of the Corporation, or upon
exercise of outstanding warrants or stock options to
purchase the Corporation's common stock) or deliver
other securities other than as contemplated in that
certain Stockholders Agreement, as amended from time
to time (the "Stockholders Agreement"), dated as of
September 30, 1997 between the Corporation,
Prometheus Homebuilders LLC and certain stockholders
named therein, or purchase or otherwise acquire any
of its capital stock, employee or director stock
options or debt securities; or
(xx) agree to do any of the foregoing.
Notwithstanding the foregoing, the provisions of this Section
5.3 shall be effective from the date of adoption of this
By-law until such time, if any, as the Purchaser (as defined
in the Stockholders Agreement) makes an election to terminate
the provisions of this Section 5.3 pursuant to the terms of
Section 3.2(d) of the Stockholders Agreement. After such
election has been duly made, the provisions of this Section
5.3 shall be of no further force and effect.
Exhibit 4.5
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RELATIVE, PARTICIPATING, OPTIONAL AND
OTHER SPECIAL RIGHTS OF PREFERRED
STOCK AND QUALIFICATIONS, LIMITATIONS
AND RESTRICTIONS THEREOF
OF
CLASS AA CONVERTIBLE
PREFERRED STOCK
OF
THE FORTRESS GROUP, INC.
-------------------------
Pursuant to Section 242 of the
General Corporation Law of the State of Delaware
-------------------------
The Fortress Group, Inc., a Delaware corporation (the "Corporation"),
hereby certifies that the following amendment to the Certificate of
Designations, Preferences and Relative, Participating, Optional and Other
Special Rights of Preferred Stock and Qualifications, Limitations and
Restrictions Thereof of Class AA Convertible Preferred Stock, effective
September 30, 1997, has been duly adopted pursuant to the authority contained in
Article Fourth of the Corporation's Certificate of Incorporation (the
"Certificate of Incorporation") and in accordance with the provisions of Section
242 of the General Corporation Law of the State of Delaware:
RESOLVED, that there is hereby established a series of authorized preferred
stock having a par value of $0.01 per share, which series shall be designated as
"Class AA Convertible Preferred Stock" (the "Class AA Preferred Stock"), shall
consist of 53,333 shares and shall have the following voting powers, preferences
and relative, participating, optional and other special rights, and
qualifications, limitations and restrictions thereof as follows:
<PAGE>
1. Certain Definitions; Number of Shares and Designation.
(a) Definitions. Unless the context otherwise requires, the terms defined
in this paragraph 1 shall have, for all purposes of this resolution, the
meanings herein specified (with terms defined in the singular having comparable
meanings when used in the plural).
Additional Preferred Stock Directors. The term "Additional Preferred Stock
Directors" shall have the meaning set forth in subparagraph 5(d).
Adjustment Period. The term "Adjustment Period" shall have the meaning set
forth in subparagraph 4(a)(i).
Adjustment Price. The term "Adjustment Price" shall mean, on any date of
determination, the average of the closing prices of the Common Stock over the 60
day period prior to such date.
Adverse Event. The term "Adverse Event" shall have the meaning set forth in
subparagraph 5(d)
Average Trading Price. The term "Average Trading Price" shall have the
meaning set forth in subparagraph 5(d).
Board of Directors. The term "Board of Directors" shall mean the Board of
Directors of the Corporation.
Business Day. The term "Business Day" shall mean a day other than a
Saturday or Sunday or a bank holiday in New York.
Class AA Preferred Stock. The term "Class AA Preferred Stock" shall have
the meaning set forth in subparagraph 1(b).
Class ABI Preferred Stock. The term "Class ABI Preferred Stock" shall mean
the shares of Class ABI Convertible Redeemable Preferred Stock, $0.01 par value
per share, of the Corporation.
Class ABII Preferred Stock. The term "Class ABII Preferred Stock" shall
mean the shares of Class ABII Convertible Redeemable Preferred Stock, $0.01 par
value per share, of the Corporation.
Commission. The term "Commission" shall mean the United States Securities
and Exchange Commission.
Common Equity. The term "Common Equity" shall mean all shares now or
hereafter authorized of any class of common stock of the Corporation, including
the Common Stock, and any other stock of the Corporation, howsoever designated,
authorized after the Initial Issue Date, which has the right (subject always to
prior rights of any class or series of preferred stock) to participate in the
distribution of the assets and earnings of the Corporation without limit as to
per share amount.
Common Stock. The term "Common Stock" shall mean the common stock, par
value $0.01 per share, of the Corporation.
<PAGE>
Comparable Group. The term "Comparable Group" shall mean Pulte Corporation,
The Ryland Group, Inc., U.S. Home Corporation, NVR Inc., Hovnanian Enterprises,
Inc., Toll Brothers, Inc., Washington Homes, Inc., Zaring National Corporation,
M/I Schottenstein Homes, Inc., Continental Homes Holding Corp., Engle Homes,
Inc., Crossman Communities, Beazer Homes USA, Inc. and D.R. Horton, Inc.
Conversion Date. The term "Conversion Date" shall mean the Optional
Conversion Date and the Mandatory Conversion Date, as applicable.
Conversion Price. The term "Conversion Price" shall mean the Mandatory
Conversion Price or the Optional Conversion Price(s) (as the context requires)
and Conversion Prices shall mean the Mandatory Conversion Price and the Optional
Conversion Price(s).
Corporation Conversion Period. The term "Corporation Conversion Period"
shall mean any date after the date, if any, of the Second Closing when the
Average Trading Price is equal to or exceeds $12.00 provided that, should the
Corporation issue any stock or do any of the other acts or things specified in
subparagraphs 4(f) through (j) hereof, the Corporation shall each time
successively adjust the $12.00 Average Trading Price in a like manner to the
adjustments specified in paragraph 4 hereof, following the procedures and using
the assumptions set forth in such paragraph and shall notify the holder of the
Class AA Preferred Stock of any such adjustment in the manner specified in
paragraph 4 and such adjusted number shall appear in lieu of the $12.00 Average
Trading Price giving rise to a Corporate Conversion Period.
Current Market Price. The term "Current Market Price" means, for a share of
Common Stock on any date, the average of Quoted Prices for the thirty (30)
consecutive Trading Days commencing forty-five (45) Trading Days before the date
in question.
Director. The term "Director" means a member of the Board of Directors.
Dividend Payment Date. The term "Dividend Payment Date" shall have the
meaning set forth in subparagraph 2(b).
Dividend Period. The term "Dividend Period" shall mean the period from, and
including, the Initial Issue Date to, but not including, the first Dividend
Payment Date and thereafter, each quarterly period from, and including, the
Dividend Payment Date to, but not including the next Dividend Payment Date.
Dividend Rate. The term "Dividend Rate" shall mean twelve percent (12%) per
annum until such time, if any, as the Second Closing shall occur. If such Second
Closing shall occur, from and after the Second Closing the term Dividend Rate
shall mean six percent (6%) per annum.
EBT. The term "EBT" shall mean earnings before interest expense, income
taxes and extraordinary or non-recurring items, all calculated in accordance
with generally accepted accounting principles.
<PAGE>
Executive Committee. The term "Executive Committee" shall mean the five-
member executive committee of the Board of Directors to which substantial
operational matters regarding the Corporation shall be delegated.
Initial Issue Date. The term "Initial Issue Date" shall mean the date that
shares of Class AA Preferred Stock are first issued by the Corporation.
Investor. The term "Investor" shall mean, at any time, Prometheus
Homebuilders LLC and any of its affiliates, including, but not limited to,
Lazard Frres Real Estate Investors, LLC and its affiliates.
Junior Stock. The term "Junior Stock" shall mean, for purposes of paragraph
2 below, Common Equity and any class or series of stock of the Corporation
authorized after the Initial Issue Date which is not entitled to receive any
dividends in any Dividend Period unless all dividends required to have been paid
or declared and set apart for payment on the Class AA Preferred Stock and any
Parity Stock shall have been so paid or declared and set apart for payment, and
for purposes of paragraph 3 below, shall mean Common Equity and any class or
series of stock of the Corporation authorized after the Initial Issue Date which
is not entitled to receive any assets upon liquidation, dissolution or winding
up of the affairs of the Corporation until the Class AA Preferred Stock and any
Parity Stock shall have received the entire amount to which such stock is
entitled upon such liquidation, dissolution or winding up.
Liquidation Preference. The term "Liquidation Preference" shall mean
$1000.00 per share.
Mandatory Conversion Date. The term "Mandatory Conversion Date" shall mean
the Business Day after the date, if any, of the Second Closing specified in a
notice to holders of Class AA Preferred Stock given by the Corporation in
accordance with the provisions of subparagraph 4(b)(ii), upon which the
Corporation shall convert all outstanding shares of Class AA Preferred Stock
into Common Stock as set forth in such subparagraph.
Mandatory Conversion Price. The term "Mandatory Conversion Price" shall
initially mean $6.00 per share subject thereafter to further adjustment pursuant
to paragraph 4.
Market Capitalization. The term "Market Capitalization" shall mean the
market value of the Corporations outstanding Common Stock as measured by the
thirty (30) Trading Days preceding any measurement date.
Non-Preferred Stock Director. The term "Non-Preferred Stock Director" means
a Director other than a Preferred Stock Director.
Officers' Certificate. The term "Officers' Certificate" means a certificate
signed on behalf of the Corporation by two officers of the Corporation, one of
whom must be the principal executive officer, the principal financial officer or
the principal accounting officer of the Corporation.
<PAGE>
Optional Conversion Date. The term "Optional Conversion Date" shall have
the meaning set forth in subparagraph 4(b)(i) below.
Optional Conversion Price. The term "Optional Conversion Price", in respect
of any share of Class AA Preferred Stock, shall initially mean $6.00 unless
adjusted at the option of the holder thereof during the Adjustment Period, as
adjusted pursuant to paragraph 4.
Parity Stock. The term "Parity Stock" shall mean, for purposes of paragraph
2 below, (i) the Series A Preferred Stock, (ii) the Series B Preferred Stock,
(iii) the Series C Preferred Stock, (iv) the Series D Preferred Stock, (v) the
Class ABI Preferred Stock, (vi) the Class ABII Preferred Stock, and (vii) any
class or series of stock of the Corporation authorized after the Initial Issue
Date which is entitled to receive payment of dividends on a parity with the
Class AA Preferred Stock, and for purposes of paragraph 3 below, shall mean (i)
the Series A Preferred Stock, (ii) the Series B Preferred Stock, (iii) the
Series C Convertible Preferred Stock, (iv) the Series D Preferred Stock, (v) the
Class ABI Preferred Stock, (vi) the Class ABII Preferred Stock and (vii) any
class or series of stock of the Corporation authorized after the Initial Issue
Date which is entitled to receive assets upon liquidation, dissolution or
winding up of the affairs of the Corporation on a parity with the Class AA
Preferred Stock.
Preferred Stock. The term "Preferred Stock" shall mean the Class AA
Preferred Stock, the Class ABI Preferred Stock and the Class ABII Preferred
Stock.
Preferred Stock Director. The term "Preferred Stock Director" has the
meaning set forth in subparagraph 5(d).
Quoted Price. The term "Quoted Price", with respect to the Common Stock,
shall mean the last reported sales price for Common Stock as reported by the
National Association of Securities Dealers, Inc. Automatic Quotations System,
National Market System, or, if the applicable security is listed or admitted for
trading on a securities exchange, the last reported sales price of the
applicable security on the principal exchange on which the applicable security
is listed or admitted for trading (which shall be for consolidated trading if
applicable to such exchange), or if neither so reported or listed or admitted
for trading, the last reported bid price of the applicable security in the
over-the-counter market. In the event that the Quoted Price cannot be determined
as aforesaid, the Board of Directors shall determine the Quoted Price on the
basis of such quotations as it in good faith considers appropriate. Such
determination may be challenged in good faith by a majority of holders of shares
of Class AA Preferred Stock, and any dispute shall be resolved at the
Corporations cost, by an investment banking firm of recognized national standing
selected by the Corporation and reasonably acceptable to such holders of Class
AA Preferred Stock and shall be made in good faith and be conclusive absent
manifest error; provided, however, if the Quoted Price as determined by the
Board of Directors is more than 110% of the price determined by the investment
banking firm, then the costs incurred by such investment banking firm shall be
borne by the holders of Class AA Preferred Stock who challenged such price.
Record Date. The term "Record Date" shall mean the date designated by the
Board of Directors at the time a dividend is declared; provided, however, that
such Record Date shall not be more than thirty (30) days nor less than ten (10)
days prior to the respective Dividend Payment Date or such other date designated
by the Board of Directors for the payment of dividends.
<PAGE>
Second Closing. The term "Second Closing" shall have the meaning given to
it in the Stock Purchase Agreement.
Series A Preferred Stock. The term "Series A Preferred Stock" shall mean
the Series A 11% Cumulative Convertible Preferred Stock, $0.01 par value per
share, of the Corporation.
Series B Preferred Stock. The term "Series B Preferred Stock" shall mean
the Series B Convertible Preferred Stock, $0.01 par value per share, of the
Corporation.
Series C Preferred Stock. The term "Series C Preferred Stock" shall mean
the Series C Convertible Preferred Stock, $0.01 par value per share, of the
Corporation.
Series D Preferred Stock. The term "Series D Preferred Stock" shall mean
the Series D 6% Convertible Redeemable Preferred Stock, $0.01 par value per
share, of the Corporation.
Stock Purchase Agreement. The term "Stock Purchase Agreement" shall mean
that certain Amended and Restated Stock Purchase Agreement, dated as of
September 30, 1997, by and between the Corporation and Prometheus Homebuilders
LLC, as amended.
Termination Event. The term "Termination Event" shall have the meaning set
forth in subparagraph 6(a) below.
Test Date. The term "Test Date" shall have the meaning set forth in
subparagraph 5(d).
Trading Day. The term "Trading Day" with respect to any security shall mean
any day on which any market in which the applicable security is then traded and
in which a Quoted Price may be ascertained is open for business.
(b) Number of Shares and Designation. 46,670 shares of the preferred stock,
$0.01 par value per share, of the Corporation are hereby constituted as a series
of the preferred stock designated as "Class AA Convertible Preferred Stock" (the
"Class AA Preferred Stock").
2. Dividends.
(a) The record holders of Class AA Preferred Stock shall be entitled to
receive dividends, when and as declared by the Board of Directors, out of funds
legally available for payment of dividends. Subject to the distributions
referred to in the final sentence of subparagraph 4(m) hereof, such dividends
shall be payable by the Corporation in cash in an amount equal to the Dividend
Rate multiplied by the Liquidation Preference.
<PAGE>
(b) Dividends on shares of Class AA Preferred Stock shall accrue and be
cumulative from the date of issuance of such shares. Dividends shall be payable
quarterly in arrears when and as declared by the Board of Directors on March 31,
June 30, September 30 and December 31 of each year (a "Dividend Payment Date"),
commencing on December 31, 1997. If any Dividend Payment Date occurs on a day
that is not a Business Day, any accrued dividends otherwise payable on such
Dividend Payment Date shall be paid on the next succeeding Business Day. The
amount of dividends payable on Class AA Preferred Stock for each full Dividend
Period shall be computed by dividing by four (4) the annual rate per share set
forth in subparagraph 2(a) above, provided, however, that if during a Dividend
Period the Dividend Rate shall change, the dividends payable on Class AA
Preferred Stock for that Dividend Period shall be computed on the basis of
Dividend Rates in effect for the actual number of days elapsed in such Dividend
Period at each Dividend Rate. Dividends shall be paid to the holders of record
of the Class AA Preferred Stock as their names shall appear on the share
register of the Corporation on the Record Date for such dividend. Dividends
payable in any Dividend Period which is less than a full Dividend Period in
length will be computed on the basis of a ninety (90) day quarterly period and
actual days elapsed in such Dividend Period. Dividends on account of arrears for
any past Dividend Periods may be declared and paid at any time to holders of
record on the Record Date therefor. For any Dividend Period in which dividends
are not paid in full on the Dividend Payment Date first succeeding the end of
such Dividend Period, then on such Dividend Payment Date such accrued and unpaid
dividends shall be added (solely for the purpose of calculating dividends
payable on the Class AA Preferred Stock) to the Liquidation Preference of the
Class AA Preferred Stock effective at the beginning of the Dividend Period
succeeding the Dividend Period as to which such dividends were not paid and
shall thereafter accrue additional dividends in respect thereof at the Dividend
Rate until such accrued and unpaid dividends have been paid in full.
(c) So long as any shares of Class AA Preferred Stock shall be outstanding,
the Corporation shall not declare, pay or set apart for payment on any Junior
Stock any dividends whatsoever, whether in cash, property or otherwise (other
than dividends payable in shares of the class or series upon which such
dividends are declared or paid, or payable in shares of Common Stock with
respect to Junior Stock other than Common Stock, together with cash in lieu of
fractional shares), nor shall the Corporation make any distribution on any
Junior Stock, nor shall any Junior Stock be purchased, redeemed or otherwise
acquired by the Corporation or any of its subsidiaries of which it owns not less
than a majority of the outstanding voting power, nor shall any monies be paid or
made available for a sinking fund for the purchase or redemption of any Junior
Stock, unless all dividends to which the holders of Class AA Preferred Stock
shall have been entitled for all previous Dividend Periods shall have been paid
or declared and a sum of money sufficient for the payment thereof has been set
apart.
(d) The Corporation shall be obligated to declare and pay dividends in an
amount equal to the Dividend Rate on each Dividend Payment Date to the extent
that funds are legally available for declaration of such dividends. In the event
that full dividends are not paid or made available to the holders of all
outstanding shares of Class AA Preferred Stock and of any Parity Stock with
respect to any Dividend Period and funds available for payment of dividends
<PAGE>
shall be insufficient to permit payment in full to holders of all such stock of
the full preferential amounts to which they are then entitled, then the entire
amount legally available for payment of dividends shall be distributed each
Dividend Period ratably among all such holders of Class AA Preferred Stock and
of any Parity Stock in proportion to the full amount to which they would
otherwise be respectively entitled. The dividends payable in respect of the
Class AA Preferred Stock shall be a mandatory obligation of the Corporation,
subject only to the limitations set forth in Section 170 of the Delaware General
Corporation Law with respect to funds legally permitted to be used for the
payment of dividends (the "Legal Funds Requirement"). In stating that the
dividends payable in respect of the Class AA Preferred Stock are a mandatory
obligation, it is the explicit intent of the Corporation to eliminate any and
all discretion of the Board of Directors with respect to the declaration and
payment of such dividends and to require the Board of Directors to declare and
pay such dividends as and when provided herein, subject only to compliance with
the Legal Funds Requirement.
3. Distributions Upon Liquidation, Dissolution or Winding Up.
(a) In the event of any voluntary or involuntary liquidation, dissolution
or other winding up of the affairs of the Corporation before any payment or
distribution shall be made to the holders of Junior Stock, the holders of Class
AA Preferred Stock shall be entitled to be paid out of the assets of the
Corporation in cash or property at its fair market value as determined by the
Board of Directors the Liquidation Preference per share plus an amount equal to
all dividends accrued and unpaid thereon to the date of such liquidation,
dissolution or such other winding up. Except as provided in this paragraph,
holders of Class AA Preferred Stock shall not be entitled to any distribution in
the event of liquidation, dissolution or winding up of the affairs of the
Corporation.
(b) If, upon any such liquidation, dissolution or other winding up of the
affairs of the Corporation the assets of the Corporation shall be insufficient
to permit the payment in full of the Liquidation Preference per share plus an
amount equal to all dividends accrued and unpaid on the Class AA Preferred Stock
and the full liquidating payments on all Parity Stock, then the assets of the
Corporation shall be ratably distributed among the holders of Class AA Preferred
Stock and of any Parity Stock in proportion to the full amounts to which they
would otherwise be respectively entitled if all amounts thereon were paid in
full. Neither the consolidation or merger of the Corporation into or with
another entity or entities, nor the sale, lease, transfer or conveyance of all
or substantially all of the assets of the Corporation to another corporation or
any other entity shall be deemed a liquidation, dissolution or winding up of the
affairs of the Corporation within the meaning of this paragraph 3.
4. Conversion Rights.
(a) (i) At any time after the Initial Issue Date a holder of shares of
Class AA Preferred Stock may convert such shares into Common Stock at the then
prevailing Optional Conversion Price. On or after September 30, 2001, and on or
before September 30, 2003 (the "Adjustment Period"), a holder of shares of Class
AA Preferred Stock may elect to adjust up to five (5) times per year the
Optional Conversion Price for the Class AA Preferred Stock held by such holder,
by reference to the then prevailing Adjustment Price as follows:
<PAGE>
Adjustment Price(s) Optional Conversion Price(s)
------------------ ----------------------------
$10.01-12.00 $5.50
5.00-10.00 5.25
4.01-4.99 3.00
2.01-4.00 2.00
0.00-2.00 1.00
If and whenever the Corporation makes any adjustment to the Conversion
Prices pursuant to subparagraphs 4(f) through 4(j) hereof, the Corporation shall
make a like adjustment to the Adjustment Prices set forth above calculated in
the same manner and in accordance with the conventions, terms and principles set
out in this paragraph 4.
(ii) At any time during a Corporation Conversion Period, the Corporation,
at its option, may convert all, but not less than all of the shares of Class AA
Preferred Stock outstanding at such time into Common Stock at the then
prevailing Mandatory Conversion Price; provided that, on the Mandatory
Conversion Date, the Corporation shall have paid all accrued dividends on all
shares of Class AA Preferred Stock then outstanding, up to and including the
most recent Dividend Payment Date.
For the purposes of conversion, each share of Class AA Preferred Stock
shall be valued at the Liquidation Preference plus all accrued but unpaid
dividends thereon through the relevant Conversion Date, which shall be divided
by the Optional Conversion Price or Mandatory Conversion Price (as applicable)
in effect on the Conversion Date to determine the number of shares issuable upon
conversion. Immediately following such conversion, the rights of the holders of
converted Class AA Preferred Stock shall cease (in respect of such converted
stock) and the persons entitled to receive the Common Stock upon the conversion
of Class AA Preferred Stock shall be treated for all purposes as having become
the owners of such Common Stock.
(b) (i) To convert Class AA Preferred Stock pursuant to subparagraph
4(a)(i), a holder must (i) surrender the certificate or certificates evidencing
the shares of Class AA Preferred Stock to be converted, duly endorsed in a form
satisfactory to the Corporation, at the office of the Corporation or transfer
agent for the Class AA Preferred Stock, (ii) notify the Corporation at such
office that he elects to convert Class AA Preferred Stock, and the number of
shares he wishes to convert, (iii) state in writing the name or names in which
he wishes the certificate or certificates for shares of Common Stock to be
issued, and (iv) pay any transfer or similar tax if required (provided, however,
that no such payment shall be required if the Common Stock issuable upon
conversion is to be issued in the name of the converting holder of Class AA
Preferred Stock). In the case of lost or destroyed certificates evidencing
ownership of shares of Class AA Preferred Stock to be surrendered for
conversion, the holder shall submit proof of loss or destruction, and such
indemnity as shall be reasonably required by the Corporation. In the event that
a holder fails to notify the Corporation of the number of shares of Class AA
Preferred Stock which he wishes to convert, he shall be deemed to have elected
to convert all shares represented by the certificate or certificates surrendered
for conversion. The date on which the holder satisfies all those requirements is
the "Optional Conversion Date". As soon as practical and in any event within
five (5) Business Days of the Optional Conversation Date, the Corporation shall
<PAGE>
deliver through the transfer agent a certificate for the number of full shares
of Common Stock issuable upon the conversion, a check for any fractional share
and a new certificate representing the unconverted portion, if any, of the
shares of Class AA Preferred Stock represented by the certificate or
certificates surrendered for conversion. The person in whose name the Common
Stock certificate is registered shall be treated as the stockholder of record on
and after the Optional Conversion Date. All shares of Common Stock issuable upon
conversion of the Class AA Preferred Stock shall be fully paid and nonassessable
and shall rank pari passu with the other shares of Common Stock outstanding from
time to time. In the case of Class AA Preferred Stock that has been converted
after any Record Date but before the next succeeding Dividend Payment Date,
dividends that are payable on such Dividend Payment Date shall be payable on
such Dividend Payment Date notwithstanding such conversion, and such dividends
shall be paid to the holder of such Class AA Preferred Stock on such Record Date
(and shall not constitute "accrued and unpaid dividends" for purposes of
subparagraph 4(a)). Holders of Common Stock issued upon conversion shall not be
entitled to receive any dividend payable to holders of Common Stock as of any
record time before the close of business on the Optional Conversion Date. If a
holder of Class AA Preferred Stock converts more than one share at a time the
number of full shares of Common Stock issuable upon conversion shall be based on
the total value of all shares of Class AA Preferred Stock converted. If during
the Adjustment Period it is possible for a holder of Class AA Preferred Stock to
adjust the Optional Conversion Price and such holder elects to do so, he must
inform the Corporation in writing of such election. The Corporation will then be
obligated to notify such electing holder and all other holders of Class AA
Preferred Stock in writing within three (3) Business Days of receipt of the
election by the holder of the new Optional Conversion Price for such holders
Class AA Preferred Stock. Such new Optional Conversion Price shall remain the
Optional Conversion Price for such Class AA Preferred Stock until such time, if
any, as the then holder elects to re-adjust the Optional Conversion Price of the
Class AA Preferred Stock then held by such holder. If any other holder of Class
AA Preferred Stock, upon receipt of a notice from the Corporation, wishes to
adjust the Optional Conversion Price in respect of the Class AA Preferred Stock
held by him, he may do so by notifying the Corporation accordingly in writing
within fifteen (15) Business Days of the receipt of notice from the Corporation.
Upon such notification in writing, the Optional Conversion Price of his shares
of Class AA Preferred Stock shall be adjusted by the Corporation with effect
from the date of his receipt of notification from the Corporation.
(ii) To convert Class AA Preferred Stock pursuant to subparagraph 4(a)(ii),
notice of any conversion shall be sent by or on behalf of the Corporation not
more than sixty (60) days nor less than thirty (30) days prior to the Mandatory
Conversion Date, by first class mail, postage prepaid, to all holders of record
of the Class AA Preferred Stock at their respective last addresses as they shall
appear on the books of the Corporation; provided, however, that no failure to
give such notice or any defect therein or in the mailing thereof shall affect
the validity of the proceedings for the conversion of any shares of Class AA
Preferred Stock except as to the holder to whom the Corporation has failed to
give notice or except as to the holder to whom notice was defective. In addition
to any information required by law or by the applicable rules of any exchange
upon which Class AA Preferred Stock may be listed or admitted to trading, such
notice shall state: (i) the Mandatory Conversion Date; (ii) the Mandatory
Conversion Price; (iii) the number of shares of Class AA Preferred Stock to be
converted being all the Class AA Preferred Stock held of record by all holders;
(iv) the place or places where certificates for such shares are to be
surrendered for receipt of such Common Stock issuable upon such Mandatory
Conversion; and (v) that dividends on the shares to be converted will cease to
accrue on the Mandatory Conversion Date. Upon the mailing of any such notices of
conversion, the Corporation shall become obligated to convert on the Mandatory
Conversion Date all of the Class AA Preferred Stock.
<PAGE>
The person in whose name the Common Stock certificate is registered shall
be treated as the stockholder of record on and after the Mandatory Conversion
Date. All shares of Common Stock issuable upon conversion of the Class AA
Preferred Stock shall be fully paid and nonassessable and shall rank pari passu
with the other shares of Common Stock outstanding from time to time. In the case
of Class AA Preferred Stock that has been converted after any Record Date but
before the next succeeding Dividend Payment Date, dividends that are payable on
such Dividend Payment Date shall be payable on such Dividend Payment Date
notwithstanding such conversion, and such dividends shall be paid to the holder
of such Class AA Preferred Stock on such Record Date (and shall not constitute
"accrued and unpaid dividends" for purposes of subparagraph 4(a)). Holders of
Common Stock issued upon conversion shall not be entitled to receive any
dividend payable to holders of Common Stock as of any record time before the
close of business on the Mandatory Conversion Date. If a holder of Class AA
Preferred Stock converts more than one share at a time the number of full shares
of Common Stock issuable upon conversion shall be based on the total value of
all shares of Class AA Preferred Stock converted.
(c) The Corporation will not issue a fractional share of Common Stock upon
conversion of Class AA Preferred Stock. Instead the Corporation will deliver its
check for the current market value of the fractional share. The current market
value of a fraction of a share is determined as follows: Multiply the closing
market price of a full share by the fraction. Round the result to the nearest
cent. The closing market price of a share of Common Stock is the Quoted Price of
the Common Stock on the last Trading Day prior to the Conversion Date.
(d) If a holder converts shares of Class AA Preferred Stock, the
Corporation shall pay any documentary, stamp or similar issue or transfer tax
due on the issue of shares of Common Stock upon the conversion. However, the
holder shall pay any such tax which is due because the shares are issued in a
name other than the holder's name.
(e) The Corporation has reserved and shall continue to reserve out of its
authorized but unissued Common Stock or its Common Stock held in treasury enough
shares of Common Stock to permit the conversion of the Class AA Preferred Stock
in full as determined in good faith by the Board of Directors from time to time.
All shares of Common Stock which may be issued upon conversion of Class AA
Preferred Stock shall be fully paid and nonassessable. The Corporation will
endeavor to comply with all securities laws regulating the offer and delivery of
shares of Common Stock upon conversion of Class AA Preferred Stock and will
endeavor to list such shares on each national securities exchange on which the
Common Stock is listed.
<PAGE>
(f) If the Corporation:
(i) pays a dividend or makes a distribution on its Common Stock in shares
of its Common Stock;
(ii) subdivides its outstanding shares of Common Stock into a greater
number of shares;
(iii) combines its outstanding shares of Common Stock into a smaller number
of shares; or
(iv) issues by reclassification of its Common Stock any shares of its
capital stock;
then the Conversion Prices in effect immediately prior to such action shall be
adjusted so that each holder of Class AA Preferred Stock thereafter converted
may receive the number of shares of capital stock of the Corporation which he
would have owned immediately following such action if he had converted Class AA
Preferred Stock immediately prior to such action. The adjustment shall become
effective immediately after the record date in the case of dividend or
distribution and immediately after the effective date of a subdivision,
combination or reclassification. Such adjustment shall be made successively
whenever any event listed above shall occur. If, after an adjustment referred to
in clauses (i) through (iv) above, a holder of Class AA Preferred Stock upon
conversion of it may receive shares of two or more classes of capital stock of
the Corporation, the Corporation shall determine the allocation of the adjusted
Conversion Prices between the classes of capital stock. After such allocation,
the Conversion Prices of each class of capital stock shall thereafter be subject
to adjustment on terms comparable to those applicable to Common Stock in this
subparagraph (f).
(g) If the Corporation distributes any rights or warrants to all holders of
its Common Stock entitling them to purchase shares of Common Stock at a price
per share less than the current market price per share on the record date
mentioned below, each of the Conversion Prices shall be adjusted in accordance
with the formula:
NxP
___
C' = C x O + M
_____
O + N
where:
C' = the adjusted Conversion Price.
C = the then current Conversion Price.
O = the number of shares of Common Stock outstanding
on the record
<PAGE>
N = the number of additional shares of Common Stock
offered.
P = the offering price per share of the additional
shares of Common Stock.
M = the Current Market Price per share of Common
Stock on the record date.
The adjustment shall be made successively whenever any such rights or
warrants are issued and shall become effective immediately after the record date
for the determination of stockholders entitled to receive the rights or
warrants. If at the end of the period during which such warrants or rights are
exercisable, not all warrants or rights shall have been exercised, the
Conversion Prices shall be immediately readjusted to what it would have been if
"N" in the above formula had been the number of shares actually issued.
(h) If the Corporation distributes to all holders of shares of its Common
Stock (i) any shares of any class of capital stock of the Corporation other than
its Common Stock, (ii) any evidence of indebtedness or other securities of the
Corporation or any subsidiary of the Corporation, (iii) any other assets of the
Corporation or any subsidiary of the Corporation (other than cash), (iv)
distributions in cash in excess of three percent (3%) of the net earnings before
extraordinary items of the Corporation for the previous fiscal year or (v) any
rights, options or warrants to acquire any of the foregoing (other than rights,
options or warrants referred to in subparagraph 4(g) above), each of the
Conversion Prices shall be adjusted in accordance with the formula:
C' = C x M - F
_____
M
where:
C' = the adjusted Conversion Price.
C = the then current Conversion Price.
M = the Current Market Price per share of Common
Stock on the record date mentioned below.
F = the fair market value on the record date of the
capital stock, securities, indebtedness, assets,
rights, options or warrants applicable to one
share of Common Stock or if the adjustment
pursuant to this subparagraph 4(h) is being
made in respect of a cash dividend, the total
amount of cash to be distributed at such time to
holders of Common Stock. The Board of Directors
shall determine the fair market value.
<PAGE>
The adjustment shall be made successively whenever any such distribution is
made and shall become effective immediately after the record date for the
determination of stockholders entitled to receive the distribution.
(i) If the Corporation issues shares of Common Stock for a consideration
per share less than the Current Market Price per share on the date the
Corporation fixes the offering price of such additional shares, each of the
Conversion Prices shall be adjusted in accordance with the formula:
P
_
C' = C x O + M
_____
A
where:
C' = the adjusted Conversion Price.
C = the then current Conversion Price.
O = the number of shares outstanding immediately
prior to the issuance of such additional shares.
P = the aggregate consideration received for the
issuance of such additional shares.
M = the Current Market Price per share on the date
of issuance of such additional shares.
A = the number of shares outstanding immediately
after the issuance of such additional shaes.
The adjustment shall be made successively whenever any such issuance is
made, and shall become effective immediately after such issuance. This
subparagraph 4(i) does not apply to (i) any transaction or issuance described in
subparagraph 4(g) or 4(h) above or subparagraph 4(j) below, (ii) the conversion
of Class AA Preferred Stock, Class AB Preferred Stock, Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock
or the exercise of warrants to purchase Common Stock issued to the initial
holder of the Class AA Preferred Stock on the Initial Issue Date or thereafter,
or the exercise of warrants to purchase Common Stock pursuant to the
Supplemental Warrant Agreement, as defined in the Stock Purchase Agreement, or
the conversion, exchange or exercise of other securities convertible into or
exchangeable or exercisable for Common Stock whose issuance was subject to an
adjustment pursuant to subparagraph 4(g) or 4(h) above or subparagraph 4(j)
below, (iii) Common Stock issued to the Corporations employees under bona fide
<PAGE>
employee benefit plans adopted by the Board of Directors and approved by the
holders of Common Stock when required by law, if such Common Stock would
otherwise by covered by this subparagraph 4(i) (but only to the extent that the
aggregate number of shares excluded hereby (together with the aggregate number
of shares issuable upon conversion, exchange or exercise of the securities
excluded by clause (iii) of subparagraph 4(j) below) and issued after the
Initial Issue Date shall not exceed 5% of the Common Stock outstanding at the
time of any such issuance), (iv) Common Stock issued to acquire, or in the
acquisition of, all or any portion of a business, in an arm's-length transaction
between the Corporation and an unaffiliated third party, whether such
acquisition shall be effected by purchase of assets, exchange of securities,
merger, consolidation or otherwise, or (v) Common Stock issued in a bona fide
public offering pursuant to a firm commitment underwriting.
(j) If the Corporation issues any options, warrants (other than warrants to
purchase Common Stock issued to the initial holder of Class AA Preferred Stock
on the Initial Issue Date or thereafter or pursuant to the Supplemental Warrant
Agreement) or other securities convertible into or exchangeable or exercisable
for Common Stock (other than Class AA Preferred Stock, Class AB Preferred Stock,
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or
Series D Preferred Stock or securities issued in transactions described in
subparagraph 4(g) or 4(h) above) and for a consideration per share of Common
Stock initially deliverable upon conversion, exchange or exercise of such
securities less than the Current Market Price per share on the date of issuance
of such options, warrants or other securities, each of the Conversion Prices
shall be adjusted in accordance with the formula:
P
_
C' = C x O + M
_____
O + D
where:
C' = the adjusted Conversion Price.
C = the then current Conversion Price.
O = the number of shares outstanding immediately
prior to the issuance of such securities.
P = the aggregate consideration received for the
issuance of such securities.
M = the Current Market Price per share on the date
of issuance of such securities.
D = the maximum number of shares deliverable upon
conversion or in exchange for or upon exercise
of such securities at the initial conversion,
exchange or exercise rate.
<PAGE>
The adjustment shall be made successively whenever any such issuance is
made, and shall become effective immediately after such issuance. If all of the
Common Stock deliverable upon conversion, exchange or exercise of such
securities has not been issued when such securities are no longer outstanding,
then each of the Conversion Prices shall promptly be readjusted to the
Conversion Prices which would then be in effect had the adjustment upon the
issuance of such securities been made on the basis of the actual number of
shares of Common Stock issued upon conversion, exchange or exercise of such
securities. This subparagraph 4(j) does not apply to (i) the issuance of any
such securities to acquire, or in the acquisition of, all or any portion of a
business, in an arms-length transaction between the Corporation and an
unaffiliated third party, whether such acquisition shall be effected by purchase
of assets, exchange of securities, merger, consolidation or otherwise, (ii) the
issuance of any such securities in a bona fide public offering pursuant to a
firm commitment underwriting, or (iii) the issuance of any such securities to
the Corporations employees under bona fide employee benefit plans adopted by the
Board of Directors and approved by the holders of Common Stock when required by
law, if such securities would otherwise by covered by this subparagraph 4(j)
(but only to the extent that the aggregate number of shares issuable upon the
conversion, exchange or exercise of the aggregate number of securities excluded
hereby (together with the aggregate number of shares excluded by clause (iii) of
subparagraph 4(i) above) and issued after the Initial Issue Date shall not
exceed 5% of the Common Stock outstanding at the time of any such issuance).
(k) For purposes of any computation respecting consideration received
pursuant to subparagraphs 4(i) and 4(j) above, the following shall apply:
(i) in case of the issuance of shares of Common Stock for cash, the
consideration shall be the amount of such cash, provided that in no case shall
any deduction be made for any commissions, discounts or other expenses incurred
by the Corporation for any underwriting of the issue or otherwise in connection
therewith;
(ii) in the case of the issuance of shares of Common Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair market value thereof as determined by the
Board of Directors (irrespective of the accounting treatment thereof); and
(iii) in the case of the issuance of options, warrants or other securities
convertible into or exchangeable or exercisable for shares, the aggregate
consideration received therefor shall be deemed to be the consideration received
by the Corporation for the issuance of such options, warrants or other
securities plus the additional minimum consideration, if any, to be received by
the Corporation upon the conversion or exchange or exercise thereof (the
consideration in each case to be determined in the same manner as provided in
clauses (i) and (ii) of this subparagraph 4(k)).
(l) No adjustment in any Conversion Price need be made unless the
adjustment would require an increase or decrease of at least 1% in that
Conversion Price. Any adjustments that are not made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under this
paragraph 4 shall be made to the nearest cent or to the nearest 1/100th of a
share, as the case may be.
<PAGE>
(m) No adjustment in the Conversion Prices need be made under this
paragraph 4 for (i) rights to purchase Common Stock pursuant to a Corporation
plan for reinvestment of dividends or interest, or (ii) any change in the par
value or no par value of the Common Stock, and in no event shall any adjustment
made under this paragraph 4 reduce the Conversion Prices below the par value of
the Common Stock ($0.01). If an adjustment is made to the Conversion Price upon
the establishment of a record date for a distribution subject to subparagraphs
4(g) or 4(h) above and if such distribution is subsequently canceled, the
Conversion Prices then in effect shall be readjusted, effective as of the date
when the Board of Directors determines to cancel such distribution, to the
Conversion Prices which would have been in effect if such record date had not
been fixed. No adjustment in the Conversion Prices need be made under
subparagraphs 4(g) and 4(h) above if the Corporation issues or distributes to
each holder of Class AA Preferred Stock the shares of Common Stock, evidences of
indebtedness, assets, rights, options or warrants referred to in those
subparagraphs which each holder would have been entitled to receive had Class AA
Preferred Stock been converted into Common Stock prior to the happening of such
event or the record date with respect thereto.
(n) Whenever the Conversion Prices are adjusted, the Corporation shall
promptly mail to holders of Class AA Preferred Stock, first class, postage
prepaid, a notice of the adjustment. The Corporation shall file with the
transfer agent, if any, for Class AA Preferred Stock a certificate from the
Corporations independent public accountants briefly stating the facts requiring
the adjustment and the manner of computing it. Subject to subparagraph 4(s)
below, the certificate shall be conclusive evidence that the adjustment is
correct.
(o) The Corporation from time to time may reduce the Conversion Prices by
any amount for any period of time if the period is at least twenty (20) Business
Days and if the reduction is irrevocable during the period, but in no event may
the Conversion Prices be less than the par value of a share of Common Stock.
Whenever the Conversion Prices are reduced, the Corporation shall mail to
holders of Class AA Preferred Stock a notice of the reduction. The Corporation
shall mail, first class, postage prepaid, the notice at least 15 days before the
date the reduced conversion price takes effect. The notice shall state the
reduced conversion prices and the period they will be in effect. A reduction of
the Conversion Prices does not change or adjust the Conversion Prices otherwise
in effect for purposes of subparagraphs 4(f), 4(g), 4(h), 4(i) and 4(j) above.
(p) If:
(i) the Corporation takes any action which would require an adjustment in
the Conversion Prices pursuant to subparagraph 4(g) or 4(h) above, or clause
(iv) of subparagraph 4(f) above;
(ii) the Corporation consolidates or merges with, or transfers all or
substantially all of its assets to, another entity, and stockholders of the
Corporation must approve the transaction; or
<PAGE>
(iii) there is a dissolution or liquidation of the Corporation;
a holder of Class AA Preferred Stock may want to convert such stock into shares
of Common Stock prior to the record date for or the effective date of the
transaction so that he may receive the rights, warrants, securities or assets
which a holder of shares of Common Stock on that date may receive. Therefore,
the Corporation shall mail to such holders, first class, postage prepaid, a
notice stating the proposed record or effective date, as the case may be. The
Corporation shall mail the notice at least ten (10) days before such date.
Failure to mail the notice or any defect in it shall not affect the validity of
any transaction referred to in clause (i), (ii) or (iii) of this subparagraph
4(p).
(q) If the Corporation is party to a merger which reclassifies or changes
its Common Stock, upon consummation of such transaction Class AA Preferred Stock
shall automatically become convertible into the kind and amount of securities,
cash or other assets which the holder of Class AA Preferred Stock would have
owned immediately after the consolidation, merger, transfer or lease if such
holder had converted Class AA Preferred Stock immediately before the effective
date of the transaction. Appropriate adjustment (as determined by the Board of
Directors) shall be made in the application of the provisions herein set forth
with respect to the rights and interests thereafter of the holders of Class AA
Preferred Stock, to the end that the provisions set forth herein (including
provisions with respect to changes in and other adjustment of the Conversion
Prices) shall thereafter be applicable, as nearly as reasonably may be, in
relation to any shares of stock or other securities or property thereafter
deliverable upon the conversion of Class AA Preferred Stock. If this
subparagraph 4(q) applies, subparagraph 4(f) does not apply.
(r) In any case in which this paragraph 4 shall require that an adjustment
as a result of any event become effective from and after a record date, the
Corporation may elect to defer until after the occurrence of such event (i) the
issuance to the holder of any shares of Class AA Preferred Stock converted after
such record date and before the occurrence of such event of the additional
shares of Common Stock issuable upon such conversion over and above the shares
issuable on the basis of the Conversion Prices in effect immediately prior to
adjustment and (ii) a check for any remaining fractional shares of Common Stock
as provided in subparagraph 4(c) above.
(s) Except as provided in the immediately following sentence, any
determination that the Corporation or its Board of Directors must make pursuant
to this paragraph 4 shall be conclusive. Whenever the Corporation or its Board
of Directors shall be required to make a determination under this paragraph 4,
such determination shall be made in good faith and may be challenged in good
faith by a majority of the holders of Class AA Preferred Stock, and any dispute
shall be resolved, at the Corporations expense, by an investment banking firm of
recognized national standing selected by the Corporation and acceptable to such
holders of Class AA Preferred Stock; provided, however, if the Conversion Prices
or Adjustment Prices as determined by the Board of Directors are more than 110%
of the price determined by such investment banking firm, then the costs incurred
by such investment banking firm shall be borne by the holders of Class AA
Preferred Stock who challenged such price.
<PAGE>
(t) All shares of Class AA Preferred Stock converted pursuant to this
paragraph 4 shall be retired and shall be restored to the status of authorized
and unissued shares of preferred stock, without designation as to series and may
(subject to any restriction imposed on the Corporation by its Certificate of
Incorporation, any certificate of designations of Preferred Stock, its bylaws or
the Stock Purchase Agreement or any documents entered into pursuant thereto)
thereafter be reissued as shares of any series of preferred stock other than
Class AA Preferred Stock.
5. Voting Rights.
(a) The holders of record of shares of Class AA Preferred Stock shall not
be entitled to any voting rights except as hereinafter provided in this
paragraph 5 or as otherwise provided by law.
(b) So long as any shares of the Class AA Preferred Stock remain
outstanding, each share of Class AA Preferred Stock shall entitle the holder
thereof to vote on all matters voted on by holders of Common Stock, voting
together with the Common Stock as a single class (together with all other
classes and series of stock of the Corporation that are entitled to vote as a
single class with the Common Stock) at all meetings of the stockholders of the
Corporation. In any vote with respect to which the Class AA Preferred Stock
shall vote with the holders of Common Stock as a single class together with all
other classes and series of stock of the Corporation that are entitled to vote
as a single class with the Common Stock, each share of Class AA Preferred Stock
shall entitle the holder thereof to cast the number of votes equal to the number
of votes which could be cast in such vote by a holder of the number of shares of
Common Stock into which such share of Class AA Preferred Stock is convertible
based on the Mandatory Conversion Price of the Class AA Preferred Stock. Such
voting right of the holders of the Class AA Preferred Stock may be exercised at
any annual meeting of stockholders, any special meeting of stockholders, or by
written consent of the minimum number of shares required to take such action
pursuant to Section 228 of the Delaware General Corporation Law.
(c) On any matter on which the holders of Class AA Preferred Stock are
entitled by law or under the Certificate of Incorporation to vote separately as
a class, each such holder shall be entitled to one vote for each share held, and
such matter shall be determined by a majority of the votes cast unless Delaware
law or this Certificate of Designations requires approval by a higher
percentage.
(d) Until a Termination Event, the number of Directors comprising the Board
of Directors shall be equal to fifteen (15) and the holders of Preferred Stock,
voting separately as a single class, shall have the exclusive right to elect
three (3) Directors (each such Director, a Preferred Stock Director) at any
special meeting of stockholders called for such purpose, at each annual meeting
of stockholders and in any written consent of stockholders pursuant to Section
228 of the Delaware General Corporation Law. Any increases in the size of the
Board of Directors will require a proportional increase in the number of
Preferred Stock Directors (rounded up to the next whole number) such that the
Preferred Stock Directors represent not less than twenty percent (20%) of the
votes of the Board of Directors. A proportionate number (rounded up to the next
whole number, but not less than one) of Preferred Stock Directors shall serve on
<PAGE>
each committee of the Board of Directors (provided that with respect to the
Executive Committee, the Executive Committee shall consist of five members of
which two members shall be Preferred Stock Directors), and at least one
Preferred Stock Director shall serve on the board or other governing body of
each of the Corporations subsidiaries and affiliates, other than operational
home building companies. In the event (an "Adverse Event") that on any date
following the Second Closing that is 60 days after the end of a fiscal quarter
of the Corporation (a "Test Date") both (i) the Average Trading Price of the
Common Stock is below $4.375 per share (adjusted in the same manner as the
Mandatory Conversion Price to take account of any of the occurrences that would
require an adjustment pursuant to subparagraphs 4(f) through 4(j) hereof) and
(ii) (x) the percentage change in the EBT per share of the Corporation (of the
common stock issued and outstanding) for the most recent two fiscal quarters as
measured against the same two fiscal quarters from the prior fiscal year is less
than (y) the percentage change in the EBT per share (of the common stock issued
and outstanding) of the Comparable Group for the same period as compared against
the EBT per share (calculated on the same basis) of the Comparable Group during
the same period in the prior fiscal year then the holders of Preferred Stock,
voting separately as a single class, shall be entitled to elect Preferred Stock
Directors sufficient to cause the Preferred Stock Directors to constitute a
majority of the Board of Directors and all committees of the Board of Directors,
including the Executive Committee ("Additional Preferred Stock Directors"). The
size of the Board of Directors and all committees shall be automatically
increased in order to effect any such additional Directors. The right of the
holders of Preferred Stock to elect Additional Preferred Stock Directors shall
continue until such time as neither (i) nor (ii) above is true for two
consecutive Test Dates. The "Average Trading Price" shall mean, on any date of
determination, the average of the closing prices of the Common Stock over the 90
day period prior to such date.
(e) The Preferred Stock Directors elected as provided herein shall serve
until the next annual meeting or until their respective successors shall be
elected and shall qualify. Upon the termination of the right of the holders of
Preferred Stock to elect Additional Preferred Stock Directors as set forth in
subparagraph 5(d) above, any Additional Preferred Stock Directors shall resign.
Any Preferred Stock Director may be removed with or without cause by, and shall
not be removed other than by, the vote of the holders of a majority of the
outstanding shares of Preferred Stock, voting separately as a single class, at a
meeting called for such purpose or by written consent in accordance with Section
228 of the Delaware General Corporate Law. If the office of any Preferred Stock
Director becomes vacant by reason of death, resignation, retirement,
disqualification or removal from office or otherwise, the remaining Preferred
Stock Directors, by majority vote, may elect a successor, or, alternatively, the
holders of a majority of the outstanding shares of Preferred Stock, voting
separately as a single class, at a meeting called for such purpose or by written
consent in accordance with Section 228 of the Delaware General Corporation Law
may elect a successor. Any such successor shall hold office for the unexpired
term in respect of which such vacancy occurred. Upon the occurrence of a
Termination Event, the Preferred Stock Directors then serving on the Board of
Directors may continue to hold their office for the remainder of their term.
<PAGE>
(f) At any time when the right to elect Preferred Stock Directors or
Additional Preferred Stock Directors provided in subparagraph 5(d) shall have
vested in the holders of Class AA Preferred Stock and if such right shall not
already have been initially exercised, a proper officer of the Corporation
shall, upon the written request of any holder of record of Class AA Preferred
Stock then outstanding, addressed to the Secretary of the Corporation, call a
special meeting of holders of Preferred Stock. Such meeting shall be held at the
earliest practicable date upon the notice required for annual meetings of
stockholders at the place for holding annual meetings of stockholders of the
Corporation or, if none, at a place designated by the Secretary of the
Corporation. If such meeting shall not be called by the proper officers of the
Corporation within thirty (30) days after the personal service of such written
request upon the Secretary of the Corporation, or within thirty (30) days after
mailing the same within the United States, by registered mail, addressed to the
Secretary of the Corporation at its principal office (such mailing to be
evidenced by the registry receipt issued by the postal authorities), then the
holders of record of ten percent (10%) of the shares of Class AA Preferred Stock
then outstanding may designate in writing a holder of Class AA Preferred Stock
to call such meeting at the expense of the Corporation, and such meeting may be
called by such person so designated upon the notice required for annual meetings
of stockholders and shall be held at the place for holding annual meetings of
the Corporation or, if none, at a place designated by such holder. Any holder of
Class AA Preferred Stock that would be entitled to vote at such meeting shall
have access to the stock books of the Corporation for the purpose of causing a
meeting of the holders of Preferred Stock to be called pursuant to the
provisions of this paragraph and to contact the holders of Preferred Stock with
respect to matters relating to such meeting. Notwithstanding the provisions of
this paragraph, however, no such special meeting shall be called if any such
request is received less than 90 days before the date fixed for the next ensuing
annual or special meeting of stockholders.
(g) If at any time when the holders of Class AA Preferred Stock are
entitled to elect directors pursuant to the foregoing provisions of this
paragraph 6, and the holders of Class ABI Preferred Stock and Class ABII
Preferred Stock are entitled to elect directors by reason of any provision of
the Certificate of Incorporation, as in effect at the time, or the respective
Certificate of Designation for such Classes, and if the terms of the Class ABI
Preferred Stock and Class ABII Preferred Stock so permit, the voting rights of
the Preferred Stock then entitled to vote shall be combined (with each series
having a number of votes proportional to the aggregate liquidation preference of
its outstanding shares). In such case, the holders of Preferred Stock, voting as
a class, shall elect such directors.
(h) In addition to any vote or consent of shareholders required by law or
the Certificate of Incorporation, the consent of the holders of at least
sixty-six and two-thirds percent (66-2/3%) of the shares of Class AA Preferred
Stock at the time outstanding, given in person or by proxy, either in writing
without a meeting or by vote at any meeting called for the purpose, shall be
necessary for effecting or validating:
(i) Any amendment, alteration or repeal of any of the provisions of the
Certificate of Incorporation, or of the by-laws of the Corporation, which
affects adversely the voting powers, preferences and relative, participating,
optional and other special rights of the holders of shares of Class AA Preferred
Stock; provided, however, that the amendment of the provisions of the
Certificate of Incorporation so as to authorize or create, or to increase the
authorized amount of any class of any security convertible into any shares
ranking junior to the Class AA Preferred Stock in the distribution of assets on
any liquidation, dissolution, or winding up of the Corporation or in the payment
of dividends, shall not be deemed to affect adversely the voting powers,
preferences and relative, participating, optional and other special rights of
the holders of shares of Class AA Preferred Stock;
<PAGE>
(ii) Any authorization or creation of, or increase in the authorized amount
of, any shares of any class or any security convertible into shares of any class
ranking senior to or on parity with shares of Class AA Preferred Stock (other
than the Class AB Preferred Stock) in the distribution of assets on any
liquidation, dissolution, or winding up of the Corporation or in the payment of
dividends or otherwise;
(iii) Any increase or decrease (other than by conversion) in the total
number of authorized shares of Class AA Preferred Stock;
(iv) Any sale, lease, assignment, transfer or other conveyance of all or
substantially all of the assets of the Corporation or any of its material
subsidiaries of which it owns fifty percent (50%) or more of the voting power
thereof, or any consolidation or merger involving the Corporation or any of such
subsidiaries (except mergers between the Corporation and any of its subsidiaries
or mergers among any of the Corporations subsidiaries), or any reclassification
or other change of any stock, or any dissolution, liquidation, or winding up of
the Corporation or, unless the obligations of the Corporation under an agreement
are expressly conditioned upon the requisite approval of the holders of
sixty-six and two-thirds percent (66-2/3%) of the Class AA Preferred Stock then
outstanding as provided for herein, make any agreement or become obligated to do
so;
(v) Any purchase, redemption or other acquisition for value (or payment
into or setting aside as a sinking fund for such purpose) of any shares of
Common Stock or other capital stock of the Corporation; or
(vi) Any declaration or payment of any dividends on or declaration or
making of any other distribution, direct or indirect, on account of the Common
Stock or setting apart any sum for any such purpose unless all accrued unpaid
dividends on Class AA Preferred Stock have been paid in cash.
6. Financial Statements.
(a) Until (i) the aggregate amount of Preferred Stock outstanding is less
than twenty percent (20%) of the maximum amount of the Preferred Stock issued to
date or (ii) the aggregate remaining investment or commitment to invest in the
Corporation by Investor (or any single transferee of Investor or related group
of transferees) is less than the greater of $10,000,000 or ten percent (10%) of
the Market Capitalization (a "Termination Event") (provided that a Termination
Event shall not occur prior to all closings being consummated under the Stock
Purchase Agreement), with the value of such investment to be based on the sum of
(x) the greater of the Liquidation Preference of the Preferred Stock and the
value of the Common Stock underlying such Preferred Stock (as measured by the
Conversion Price) then held by it, (y) the value of the Common Stock then held
by it and (z) the value of the warrants then held by it whether or not required
by the rules and regulations of the Commission, the Corporation shall furnish to
the holders of Class AA Preferred Stock (i) all quarterly and annual financial
information required to be filed with the Commission on Forms 10-Q and 10-K and,
with respect to the annual information only, a report thereon by the
Corporations certified independent accountants, (ii) all current reports
required to be filed with the Commission on Form 8-K.
<PAGE>
(b) The Corporation shall, so long as a Termination Event has not occurred,
deliver to the holders of Class AA Preferred Stock, forthwith upon any executive
officer of the Corporation becoming aware of any breach under this Certificate
of Designations, an Officers Certificate specifying such breach and what action
the Corporation is taking or proposes to take with respect thereto.
7. Ranking.
With regard to rights to receive dividends, and distributions upon
liquidation, dissolution or winding up of the Corporation, the Class AA
Preferred Stock shall rank pari passu with any Parity Stock and senior to the
Common Stock and any other equity securities or other securities into which any
convertible indebtedness is convertible which are issued by the Corporation
after the date of this Certificate of Designation. The Class AA Preferred Stock
shall not be subject to the creation of capital stock senior with regards to the
right to receive dividends, and distribution upon liquidation, dissolution or
winding up of the Corporation.
8. Modification and Waiver.
The terms of this Certificate of Designation may be amended and the rights
hereunder may be waived with the consent of holders of at least sixty-six and
two-thirds percent (66-2/3%) of the shares of the Class AA Preferred Stock then
outstanding.
9. Exclusion of Other Rights.
Except as may otherwise be required by law, the shares of Class AA
Preferred Stock shall not have any voting powers, preferences and relative,
participating, optional or other special rights, other than those specifically
set forth in this resolution (as such resolution may be amended from time to
time) and in the Certificate of Incorporation.
10. Headings of Subdivisions.
The headings of the various subdivisions hereof are for convenience of
reference only and shall not affect the interpretation of any of the provisions
hereof.
11. Severability of Provisions.
If any voting powers, preferences and relative, participating, optional and
other special rights of the Class AA Preferred Stock and qualifications,
limitations and restrictions thereof set forth in this resolution (as such
resolution may be amended from time to time) is invalid, unlawful or incapable
of being enforced by reason of any rule of law or public policy, all other
voting powers, preferences and relative, participating, optional and other
<PAGE>
special rights of Class AA Preferred Stock and qualifications, limitations and
restrictions thereof set forth in this resolution (as so amended) which can be
given effect without the invalid, unlawful or unenforceable voting powers,
preferences and relative, participating, optional and other special rights of
Class AA Preferred Stock and qualifications, limitations and restrictions
thereof shall, nevertheless, remain in full force and effect, and no voting
powers, preferences and relative, participating, optional or other special
rights of Class AA Preferred Stock and qualifications, limitations and
restrictions thereof herein set forth shall be deemed dependent upon any other
such voting powers, preferences and relative, participating, optional or other
special rights of Class AA Preferred Stock and qualifications, limitations and
restrictions thereof unless so expressed herein.
12. Record Holders.
The Corporation and the transfer agent for the Class AA Preferred Stock may
deem and treat the record holder of any shares of Preferred Stock as the true
and lawful owner thereof for all purposes, and neither the Corporation nor the
transfer agent shall be affected by any notice to the contrary.
13. Notice.
Except as may otherwise be provided for herein, all notices referred to
herein shall be in writing, and all notices hereunder shall be deemed to have
been given upon the earlier of receipt of such notice or three (3) Business Days
after the mailing of such notice if sent by registered mail (unless first-class
mail shall be specifically permitted for such notice under the terms of this
Certificate) with postage prepaid, addressed: if to the Corporation, to its
offices at 1921 Gallows Road, Suite 730, Vienna Virginia 22182 Attention:
Secretary or to an agent of the Corporation designated as permitted by this
Certificate, or, if to any holder of the Class AA Preferred Stock, to such
holder at the address of such holder of the Class AA Preferred Stock as listed
in the stock record books of the Corporation (which may include the records of
any transfer agent for the Class AA Preferred Stock); or to such other address
as the Corporation or holder, as the case may be, shall have designated by
notice similarly given.
[Signature Page Follows]
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be duly
executed by James J. Marshall, Jr., its President, and attested by Jamie
Pirrello, its Secretary, this 5th day of March, 1998.
THE FORTRESS GROUP, INC.
By: /s/
-----------------------------
Name: James J. Marshall, Jr.
Title: President
ATTEST:
By: /s/
-------------------------
Name: Jamie M. Pirrello
Title: Secretary
Exhibit 4.6
AMENDED AND RESTATED
WARRANT AGREEMENT
by and between
THE FORTRESS GROUP, INC.
and
PROMETHEUS HOMEBUILDERS LLC
Dated as of March 6, 1998
<PAGE>
AMENDED AND RESTATED WARRANT AGREEMENT, dated as of March 6, 1998, between
The Fortress Group, Inc., a Delaware corporation (the "Company") and Prometheus
Homebuilders LLC (the "Warrant Holder").
WHEREAS, the Company and the Warrant Holder have entered into that certain
Warrant Agreement dated as of September 30, 1997 (the "Original Warrant
Agreement").
WHEREAS, the Company has issued warrants (the "Initial Warrants") to
purchase 325,000 shares of Common Stock, $0.01 per share of the Company (the
"Common Stock") to the Warrant Holder on the terms of the Original Warrant
Agreement.
WHEREAS, the Company and the Warrant Holder have entered into that certain
Second Amended and Restated Stock Purchase Agreement dated as of February 19,
1998 (the "Stock Purchase Agreement").
WHEREAS, it is a condition to the Second Closing (as defined in the Stock
Purchase Agreement) that the parties amend and restate the Original Warrant
Agreement as set forth herein.
WHEREAS, pursuant to the Stock Purchase Agreement, the Company proposes, in
part, to issue to the Warrant Holder, or its assignees, additional warrants
(together with the Initial Warrants, the "Warrants"), to purchase up to an
aggregate of 675,000 shares of Common Stock, subject to adjustment as set forth
herein. The Common Stock issuable on exercise of the Warrants is referred to
herein as the "Warrant Shares". Certain capitalized terms used herein and not
elsewhere defined are defined in the Stock Purchase Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, the parties hereto agree as follows:
SECTION 1. Warrant Certificates. The certificates evidencing the Warrants
(the "Warrant Certificates") to be delivered pursuant to this Warrant Agreement
shall be in registered form only and shall be substantially in the form set
forth in Exhibit A attached hereto.
SECTION 2. Execution of Warrant Certificates. Warrant Certificates shall be
signed on behalf of the Company by its Chairman of the Board or its President or
a Vice President and by its Secretary or an Assistant Secretary under its
corporate seal. Each such signature upon the Warrant Certificates may be in the
form of a facsimile signature of the present or any future Chairman of the
Board, President, Vice President, Secretary or Assistant Secretary and may be
imprinted or otherwise reproduced on the Warrant Certificates and for that
purpose the Company may adopt and use the facsimile signature of any person who
shall have been Chairman of the Board, President, Vice President, Secretary or
Assistant Secretary, notwithstanding the fact that at the time the Warrant
Certificates shall be delivered or disposed of he shall have ceased to hold such
office. The seal of the Company may be in the form of a facsimile thereof and
may be impressed, affixed, imprinted or otherwise reproduced on the Warrant
Certificates.
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<PAGE>
In case any officer of the Company who shall have signed any of the Warrant
Certificates shall cease to be such officer before the Warrant Certificates so
signed shall have been disposed of by the Company, such Warrant Certificates
nevertheless may be delivered or disposed of as though such person had not
ceased to be such officer of the Company; and any Warrant Certificate may be
signed on behalf of the Company by any person who, at the actual date of the
execution of such Warrant Certificate, shall be a proper officer of the Company
to sign such Warrant Certificate, although at the date of the execution of this
Warrant Agreement any such person was not such officer.
SECTION 3. Registration. The Company shall number and register the Warrant
Certificates in a register as they are issued. The Company may deem and treat
the registered holder(s) of the Warrant Certificates as the absolute owner(s)
thereof (notwithstanding any notation of ownership or other writing thereon made
by anyone) for all purposes, and shall not be affected by any notice to the
contrary.
SECTION 4. Registration of Transfers and Exchanges. The Company shall from
time to time register the transfer of any outstanding Warrant Certificates in a
Warrant register to be maintained by the Company upon surrender thereof
accompanied by a written instrument or instruments of transfer in form
satisfactory to the Company, duly executed by the registered holder or holders
thereof or by the duly appointed legal representative thereof or by a duly
authorized attorney. Upon any such registration of transfer, a new Warrant
Certificate shall be issued to the transferee(s) and the surrendered Warrant
Certificate shall be canceled and disposed of by the Company.
SECTION 5. Warrants; Exercise of Warrants. Subject to the terms of this
Agreement, each Warrant holder shall have the right, which may be exercised
during the period commencing on September 30, 1999, until 11:59 p.m., New York
City time, September 30, 2004 (the "Exercise Period"), to receive from the
Company the number of fully paid and nonassessable Warrant Shares which the
holder may at the time be entitled to receive on exercise of such Warrants and
payment of the Exercise Price (as defined below) then in effect for such Warrant
Shares. In the alternative, each Warrant holder may exercise his right to
receive Warrant Shares on a net basis, such that, without the exchange of any
funds, the Warrant holder receives that number of Warrant Shares otherwise
issuable (or payable) upon exercise of his Warrants less that number of Warrant
Shares having an aggregate fair market value (as defined below) at the time of
exercise equal to the aggregate Exercise Price that would otherwise have been
paid by the holder of the Warrant Shares. For purposes of the foregoing
sentence, "fair market value" of the Warrant Shares will be determined in good
faith by a majority of the Non-Preferred Stock Directors of the Company, as of
the date of any such exercise. Such determination of the Non-Preferred Stock
Directors may be challenged in good faith by holders of a majority of the
Warrants, and any dispute shall be resolved at the Company's cost, by an
investment banking firm of recognized national standing selected by the Company
and acceptable to such Warrant holders and shall be made in good faith and be
conclusive absent manifest error; provided, however, that in the event that the
determination by the majority of the Non-Preferred Stock Directors is more than
110% of the price determined by the investment banking firm, then the costs
incurred by such investment banking firm shall be borne by the Warrant holders
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<PAGE>
who challenged such price. Each Warrant not exercised on or before 11:59 p.m.,
New York City time, on September 30, 2004 shall become void and all rights
thereunder and all rights in respect thereof under this Agreement shall cease as
of such time. No adjustments as to dividends will be made upon exercise of the
Warrants.
For purposes hereof, "Non-Preferred Stock Directors" means directors of the
Company excluding any director elected to the Board of Directors by the holders
of the Preferred Stock voting as a separate class.
On or after September 30, 2001, and on or before September 30, 2003 (the
"Adjustment Period"), a holder of Warrants may elect to adjust up to five (5)
times per year (i) the Exercise Price of each Warrant and (ii) the number of
shares of Common Stock into which each Warrant held by such holder shall convert
upon exercise of the Warrants ("Additional Shares"), by reference to the Average
of the Quoted Price of the Common Stock for the 60 days preceding such
adjustment (the "Adjustment Price"). Upon such election the Company will deliver
a new Warrant Certificate to reflect the revised Exercise Price and number of
shares into which such Warrant is convertible. Notwithstanding this, any such
adjustments to the Exercise Prices and Adjustment Prices shall take effect
immediately upon any Warrant holder electing any such adjustments.
Additional Shares
Adjustment Price ($) Exercise Price ($) Per Warrant
-------------------- ------------------ -----------
20.01 or greater 7.00 0.00
17.51 - 20.00 7.00 0.33
15.01 - 17.50 7.00 0.667
12.01 - 15.00 7.00 1.00
10.01 - 12.00 6.50 1.25
8.01 - 10.00 6.00 1.50
6.01 - 8.00 5.00 1.75
4.01 - 6.00 4.00 2.00
2.01 - 4.00 3.00 2.25
0.00 - 2.00 2.00 2.50
For purposes of illustration, if the Common Stock price is $9.00 per share,
the total number of Warrant Shares will be 2,500,000.
If any adjustment to the Exercise Price is made pursuant to Section 10
hereof, the Adjustment Prices shall be adjusted in like manner as set forth in
Section 10 hereof. The Exercise Prices set forth above are subject to the
adjustments set forth in Section 10 hereto. If during the Adjustment Period it
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<PAGE>
is possible for a holder of Warrants to adjust the Exercise Price and such
holder elects to do so, he must inform the Company in writing of such election.
The Company will then be obligated to notify such electing holder and all other
holders of Warrants in writing within three (3) Business Days of receipt of the
election by the holder of the new Exercise Price for such holder's Warrants
and/or the number of Additional Shares to which such holder is entitled. Such
new Exercise Price and such entitlement to Additional Shares shall remain the
Exercise Price and such entitlement to Additional Shares for such Warrants until
such time, if any, as the then holder elects to re-adjust the Exercise Price and
such entitlement to Additional Shares of the Warrants then held by such holder.
If any other holder of Warrants, upon receipt of a notice from the Company,
wishes to adjust the Exercise Price in respect of the Warrants held by him, he
may do so by notifying the Company accordingly in writing within fifteen (15)
Business Days of the receipt of notice from the Company. Upon such notification
in writing, the Exercise Price of Warrants and the number of Additional Shares
for which such Warrants may be exercised shall be adjusted by the Company with
effect from the date of his receipt of notification from the Company
Notwithstanding any provision in this Agreement to the contrary, in the
event that the Stock Purchase Agreement is terminated (other than as a result of
a default by the Purchaser of its obligations under the Stock Purchase
Agreement), the Exercise Price of each Warrant shall immediately be adjusted to
one cent ($0.01).
A Warrant may be exercised upon surrender to the Company at its office
designated for such purpose (the address of which is set forth in Section 14
hereof) of the certificate or certificates evidencing the Warrants to be
exercised with the form of election to purchase on the reverse thereof duly
filled in and signed, which signature shall be guaranteed by a bank or trust
company having an office or correspondent in the United States or a broker or
dealer which is a member of a registered securities exchange or the National
Association of Securities Dealers, Inc. (the "NASD"), and upon payment to the
Company of the exercise price (the "Exercise Price") which is set forth in the
form of Warrant Certificate attached hereto as Exhibit A as adjusted as herein
provided, for the number of Warrant Shares in respect of which such Warrants are
then exercised. Payment of the aggregate Exercise Price shall be made, at the
option of the Warrant holder (i) in cash or by certified or official bank check
payable to the order of the Company, (ii) through the surrender of debt or
preferred equity securities of the Company having a principal amount or
liquidation preference, as the case may be, equal to the aggregate Exercise
Price to be paid (the Company will pay the accrued interest or dividends on such
surrendered debt or preferred equity securities in cash at the time of surrender
notwithstanding the stated terms thereof), or (iii) in the manner provided in
the first paragraph of this Section 5.
Subject to the provisions of Section 6 hereof, upon such surrender of
Warrants and payment of the Exercise Price, the Company shall issue and cause to
be delivered with all reasonable dispatch to or upon the written order of the
holder and in such name or names as the Warrant holder may designate, a
certificate or certificates for the number of full Warrant Shares issuable upon
the exercise of such Warrants together with cash as provided in Section 11;
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<PAGE>
provided, however, that if any consolidation, merger or lease or sale of assets
is proposed to be effected by the Company as described in Section 10(m) hereof,
or a tender offer or an exchange offer for shares of Common Stock of the Company
shall be made, upon such surrender of Warrants and payment of the Exercise Price
as aforesaid, the Company shall, as soon as possible, but in any event not later
than two business days thereafter, issue and cause to be delivered the full
number of Warrant Shares issuable upon the exercise of such Warrants in the
manner described in this sentence together with cash as provided in Section 11.
Such certificate or certificates shall be deemed to have been issued and any
person so designated to be named therein shall be deemed to have become a holder
of record of such Warrant Shares as of the date of the surrender of such
Warrants and payment of the Exercise Price.
The Warrants shall be exercisable, at the election of the holders thereof,
either in full or from time to time in part and, in the event that a certificate
evidencing Warrants is exercised in respect of fewer than all of the Warrant
Shares issuable on such exercise at any time prior to the date of expiration of
the Warrants, a new certificate evidencing the remaining Warrant or Warrants
will be issued and delivered by the Company and at its expense pursuant to the
provisions of this Section and of Section 2 hereof.
All Warrant Certificates surrendered upon exercise of Warrants shall be
canceled and disposed of by the Company. The Company shall keep copies of this
Agreement and any notices given or received hereunder available for inspection
by the holders during normal business hours at its office.
SECTION 6. Payment of Taxes. The Company will pay all documentary stamp
taxes attributable to the initial issuance of Warrant Shares upon the exercise
of Warrants; provided, however, that the Company shall not be required to pay
any tax or taxes which may be payable in respect of any transfer involved in the
issue of any Warrant Certificates or any certificates for Warrant Shares in a
name other than that of the registered holder of a Warrant Certificate
surrendered upon the exercise of a Warrant, and the Company shall not be
required to issue or deliver such Warrant Certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid.
SECTION 7. Mutilated or Missing Warrant Certificates. In case any of the
Warrant Certificates shall be mutilated, lost, stolen or destroyed, the Company
may in its discretion issue, in exchange and substitution for and upon
cancellation of the mutilated Warrant Certificate, or in lieu of and
substitution for the Warrant Certificate lost, stolen or destroyed, a new
Warrant Certificate of like tenor and representing an equivalent number of
Warrants, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction of such Warrant Certificate and
indemnity, if requested, also reasonably satisfactory to it. Applicants for such
substitute Warrant Certificates shall also comply with such other reasonable
regulations and pay such other reasonable charges as the Company may prescribe.
SECTION 8. Reservation of Warrant Shares. The Company will at all times
reserve and keep available, free from preemptive rights, out of the aggregate of
its authorized but unissued Common Stock or its authorized and issued Common
Stock held in its treasury, for the purpose of enabling it to satisfy any
obligation to issue Warrant Shares upon exercise of Warrants, the maximum number
of shares of Common Stock which may be deliverable upon the exercise of all
outstanding Warrants as determined in good faith by the Board of Directors from
time to time based on the Exercise Price in effect at such time.
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<PAGE>
The Company or, if appointed, the transfer agent for the Common Stock (the
"Transfer Agent") and every subsequent transfer agent for any shares of the
Company's capital stock issuable upon the exercise of any of the rights of
purchase aforesaid will be irrevocably authorized and directed at all times to
reserve such number of authorized shares as shall be required for such purpose.
The Company will keep a copy of this Agreement on file with the Transfer Agent
and with every subsequent transfer agent for any shares of the Company's capital
stock issuable upon the exercise of the rights of purchase represented by the
Warrants. The Company will furnish such Transfer Agent a copy of all notices of
adjustments and certificates related thereto, transmitted to each holder
pursuant to Section 13 hereof.
The Company covenants that all Warrant Shares which may be issued upon
exercise of Warrants will, upon issue, be fully paid, nonassessable, free of
preemptive rights and free from all taxes, liens, charges and security interests
with respect to the issue thereof.
SECTION 9. Stock Exchange Listings. The Company will from time to time take
all action, at its expense, which may be necessary so that the Warrant Shares,
immediately upon their issuance upon the exercise of Warrants, will be listed
and maintained on the principal securities exchanges and markets within the
United States of America, if any, on which other shares of Common Stock are then
listed and register under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), all shares of Common Stock from time to time issuable upon
exercise if and at the time that any existing shares of the Company's capital
stock are so registered.
SECTION 10. Adjustment of Exercise Price and Number of Warrant Shares
Issuable. The Exercise Price and the number of Warrant Shares issuable upon the
exercise of each Warrant are subject to adjustment from time to time upon the
occurrence of the events enumerated in this Section 10. For purposes of this
Section 10, "Common Stock" means shares now or hereafter authorized of any class
of common stock of the Company, including the Common Stock, and any other stock
of the Company, howsoever designated, authorized after this date hereof, has the
right (subject always to prior rights of any class or series of preferred stock)
to participate in any distribution of the assets and earnings of the Company
without limit as to per share amount.
(a) If the Company:
(i) pays a dividend or makes a distribution on its Common Stock in
shares of its Common Stock;
(ii) subdivides its outstanding shares of Common Stock into a greater
number of shares;
(iii) combines its outstanding shares of Common Stock into a smaller
number of shares; or
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<PAGE>
(iv) issues by reclassification of its Common Stock any shares of its
capital stock;
then the Exercise Price in effect immediately prior to such action shall be
adjusted so that each holder of a Warrant thereafter converted may receive the
number of shares of capital stock of the Company which he would have owned
immediately following such action if he had exercised such Warrant immediately
prior to such action. The adjustment shall become effective immediately after
the record date in the case of a dividend or distribution and immediately after
the effective date of a subdivision, combination or reclassification. Such
adjustment shall be made successively whenever any event listed above shall
occur. If, after an adjustment referred to in clauses (i) through (iv) above, a
holder of a Warrant upon exercise of it may receive shares of two or more
classes of capital stock of the Company, the Company shall determine the
allocation of the adjusted Exercise Prices between the classes of capital stock.
After such allocation, the Exercise Price of each class of capital stock shall
thereafter be subject to adjustment on terms comparable to those applicable to
Common Stock in this Section 10(a).
(b) If the Company distributes any rights or warrants to all holders of its
Common Stock entitling them to purchase shares of Common Stock at a price per
share less than the current market price per share on the record date mentioned
below, the Exercise Price shall be adjusted in accordance with the formula:
NxP
---
C'= C x O + M
------
O + N
where:
C' = the adjusted Exercise Price.
C = the then current Exercise Price.
O = the number of shares of Common Stock outstanding on the
record date.
N = the number of additional shares of Common Stock offered.
P = the offering price per share of the additional shares of
Common Stock.
M = the Current Market Price per share of Common Stock on the
record date.
The adjustment shall be made successively whenever any such rights or
warrants are issued and shall become effective immediately after the record date
for the determination of stockholders entitled to receive the rights or
warrants. If at the end of the period during which such rights or warrants are
7
<PAGE>
exercisable, not all rights or warrants shall have been exercised, the Exercise
Price shall be immediately readjusted to what it would have been if "N" in the
above formula had been the number of shares actually issued.
(c) If the Company distributes to all holders of shares of its Common Stock
(i) any shares of any class of capital stock of the Company other than its
Common Stock, (ii) any evidence of indebtedness or other securities of the
Company or any subsidiary of the Company, (iii) any other assets of the Company
or any subsidiary of the Company (other than cash), (iv) distributions in cash
in excess of three percent (3%) of net earnings before extraordinary items of
the Company for the previous fiscal year or (v) any rights, options or warrants
to acquire any of the foregoing (other than rights, options or warrants referred
to in Section 10(b) above), the Exercise Price shall be adjusted in accordance
with the formula:
C'= C x M - F
-----
M
where:
C' = the adjusted Exercise Price.
C = the then current Exercise Price.
M = the Current Market Price per share of Common Stock on the
record date mentioned below.
F = the fair market value on the record date of the capital
stock, securities, indebtedness, assets, rights, options or
warrants applicable to one share of Common Stock or if the
adjustment pursuant to this Section 10(c) being made in
respect of a cash dividend, the total amount of cash to be
distributed at such time to holders of Common Stock. The
Board of Directors of the Company shall determine the fair
market value.
The adjustment shall be made successively whenever any such distribution is
made and shall become effective immediately after the record date for the
determination of stockholders entitled to receive the distribution.
(d) If the Company issues shares of Common Stock for a consideration per
share less than the Current Market Price per share on the date the Company fixes
the offering price of such additional shares, the Exercise Price shall be
adjusted in accordance with the formula:
P
-
C'= C x O + M
-----
A
8
<PAGE>
where:
C' = the adjusted Exercise Price.
C = the then current Exercise Price.
O = the number of shares outstanding immediately prior to the
issuance of such additional shares.
P = the aggregate consideration received for the issuance of
such additional shares.
M = the Current Market Price per share on the date of issuance
of such additional shares.
A = the number of shares outstanding immediately after the
issuance of such additional shares.
The adjustment shall be made successively whenever any such issuance is
made, and shall become effective immediately after such issuance. This Section
10(d) does not apply to (i) any transaction or issuance described in Section
10(b) or Section 10(c) above or Section 10(e) below, (ii) the conversion of
Class AA Preferred Stock, Class AB Preferred Stock, Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock
or the conversion, exchange or exercise of other securities convertible into or
exchangeable or exercisable for Common Stock whose issuance was subject to an
adjustment pursuant to Section 10(b) or Section 10(c) above or Section 10(e)
below, (iii) Common Stock issued to the Company's employees under bona fide
employee benefit plans adopted by the Board of Directors of the Company and
approved by the holders of Common Stock when required by law, if such Common
Stock would otherwise be covered by this Section 10(d) (but only to the extent
that the aggregate number of shares excluded hereby (together with the aggregate
number of shares issuable upon conversion, exchange or exercise of the
securities excluded by clause (iii) of Section 10(e) below) and issued after the
Initial Issue Date shall not exceed 5% of the Common Stock outstanding at the
time of any such issuance), (iv) Common Stock issued to acquire, or in the
acquisition of, all or any portion of a business, in an arm's-length transaction
between the Company and an unaffiliated third party, whether such acquisition
shall be effected by purchase of assets, exchange of securities, merger,
consolidation or otherwise, or (v) Common Stock issued in a bona fide public
offering pursuant to a firm commitment underwriting.
(e) If the Company issues any options, warrants or other securities
convertible into or exchangeable or exercisable for Common Stock (other than
Class AA Preferred Stock, Class AB Preferred Stock, Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock
9
<PAGE>
or securities issued in transactions described in Section 10(b) or Section 10(c)
above) and for a consideration per share of Common Stock initially deliverable
upon conversion, exchange or exercise of such securities less than the Current
Market Price per share on the date of issuance of such options, warrants or
other securities, the Exercise Price shall be adjusted in accordance with the
formula:
P
-
C'= C x O + M
-----
O + D
where:
C' = the adjusted Exercise Price.
C = the then current Exercise Price.
O = the number of shares outstanding immediately prior to the
issuance of such securities.
P = the aggregate consideration received for the issuance of
such securities.
M = the Current Market Price per share on the date of issuance
of such securities.
D = the maximum number of shares deliverable upon conversion or
in exchange for or upon exercise of such securities at the
initial conversion, exchange or exercise rate.
The adjustment shall be made successively whenever any such issuance is
made, and shall become effective immediately after such issuance. If all of the
Common Stock deliverable upon conversion, exchange or exercise of such
securities has not been issued when such securities are no longer outstanding,
then the Exercise Price shall promptly be readjusted to the Exercise Price which
would then be in effect had the adjustment upon the issuance of such securities
been made on the basis of the actual number of shares of Common Stock issued
upon conversion, exchange or exercise of such securities. This Section 10(e)
does not apply to (i) the issuance of any such securities to acquire, or in the
acquisition of, all or any portion of a business, in an arm's-length transaction
between the Company and an unaffiliated third party, whether such acquisition
shall be effected by purchase of assets, exchange of securities, merger,
consolidation or otherwise, (ii) the issuance of any such securities in a bona
fide public offering pursuant to a firm commitment underwriting, or (iii) the
issuance of any such securities to the Company's employees under bona fide
employee benefit plans adopted by the Board of Directors of the Company and
approved by the holders of Common Stock when required by law, if such securities
10
<PAGE>
would otherwise by covered by this Section 10(e) (but only to the extent that
the aggregate number of shares issuable upon the conversion, exchange or
exercise of the aggregate number of securities excluded hereby (together with
the aggregate number of shares excluded by clause (iii) of Section 10(d) above)
and issued after the Initial Issue Date shall not exceed 5% of the Common Stock
outstanding at the time of any such issuance).
The reduction shall become effective immediately prior to the opening of
business on the day following the Expiration Time.
(f) Current Market Price.
In Sections 10(b)-(e) the current market price per share of Common Stock on
any date is the average of the Quoted Prices of the Common Stock for 30
consecutive Trading Days commencing 45 trading days before the date in question
(the "Current Market Price"). "Trading Day" means, with respect to any security,
any day on which any market in which the applicable security is then traded and
in which a Quoted Price may be ascertained is open for business. The "Quoted
Price" means, with respect to Common Stock, the last reported sales price for
Common Stock as reported by the NASD Automatic Quotations System, National
Market System, or, if the Common Stock is listed or admitted for trading on a
securities exchange, the last reported sales price of the Common Stock on the
principal exchange on which the Common Stock is listed or admitted for trading
(which shall be for consolidated trading if applicable to such exchange), or if
not so reported or listed or admitted for trading, the last reported bid price
of the applicable security in the over-the-counter market. In the event that the
Quoted Price cannot be determined as aforesaid, the Board of Directors of the
Company shall determine the Quoted Price on the basis of such quotations as it
in good faith considers appropriate. Such determination may be challenged in
good faith by a majority of holders of Warrants, and any dispute shall be
resolved at the Company's cost, by an investment banking firm of recognized
national standing selected by the Company and acceptable to such holders of
Warrants and shall be made in good faith and be conclusive absent manifest error
provided, however, if the Quoted Price as determined by the Board of Directors
of the Company is more than 110% of the price determined by the investment
banking firm, then the costs incurred by such investment banking firm shall be
borne by the Warrant holders who challenged such price.
11
<PAGE>
(g) Consideration Received.
For purposes of any computation respecting consideration received pursuant
to Sections 10(d)-(e), the following shall apply:
(i) in the case of the issuance of shares of Common Stock for cash,
the consideration shall be the amount of such cash, provided that in no
case shall any deduction be made for any commissions, discounts or other
expenses incurred by the Company for any underwriting of the issue or
otherwise in connection therewith;
(ii) in the case of the issuance of shares of Common Stock for a
consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair market value thereof as determined
in good faith by the Board of Directors, (irrespective of the accounting
treatment thereof);
(iii) in the case of the issuance of options, warrants or other
securities convertible into or exchangeable or exercisable for shares, the
aggregate consideration received therefor shall be deemed to be the
consideration received by the Company for the issuance of such securities
plus the additional minimum consideration, if any, to be received by the
Company upon the conversion, exchange or exercise thereof (the
consideration in each case to be determined in the same manner as provided
in clauses (i) and (ii) of this section)
(h) No adjustment in the Exercise Price need be made unless the adjustment
would require an increase or decrease of at least 1% in the Exercise Price. Any
adjustments that are not made shall be carried forward and taken into account in
any subsequent adjustment. All calculations under this Section shall be made to
the nearest cent or to the nearest 1/100th of a share, as the case may be.
(i) To the extent the Warrants become convertible into cash, no adjustment
need be made thereafter as to the cash. Interest will not accrue on the cash.
(j) Whenever the Exercise Price is adjusted, the Company shall provide the
notices required by Section 13 hereof.
(k) The Company from time to time may reduce the Exercise Price by any
amount for any period of time if the period is at least 20 Business Days and if
the reduction is irrevocable during the period but in no event may the Exercise
Price be less than the par value of a share of Common Stock. Whenever the
Exercise Price is reduced, the Company shall mail to Warrant holders a notice of
the reduction first class, postage prepaid. The Company shall mail the notice at
least 15 days before the date the reduced Exercise Price takes effect. The
notice shall state the reduced Exercise Price and the period it will be in
effect. A reduction of the Exercise Price does not change or adjust the Exercise
Price otherwise in effect for purposes of Sections 10(a)-(e).
12
<PAGE>
(l) If:
(i) the Company takes any action that would require an adjustment in
the Exercise Price pursuant to Sections 10(a)-(e) and if the Company does
not arrange for Warrant holders to participate pursuant to Section 10(h);
(ii) the Company takes any action that would require a supplemental
Warrant Agreement pursuant to Section 10(m); or
(iii) there is a liquidation or dissolution of the Company,
the Company shall mail to Warrant holders a notice stating the proposed record
date for a dividend or distribution or the proposed effective date of a
subdivision, combination, reclassification, consolidation, merger, transfer,
lease, liquidation or dissolution. The Company shall mail the notice at least 15
days before such date. Failure to mail the notice or any defect in it shall not
affect the validity of the transaction.
(m) If the Company consolidates or merges with or into, or transfers or
leases all or substantially all its assets to, any person, upon consummation of
such transaction the Warrants shall automatically become exercisable for the
kind and amount of securities, cash or other assets which the holder of a
Warrant would have owned immediately after the consolidation, merger, transfer
or lease if the holder had exercised the Warrant immediately before the
effective date of the transaction. Concurrently with the consummation of such
transaction, the Company formed by or surviving any such consolidation or merger
if other than the Company, or the person to which such sale or conveyance shall
have been made, shall enter into a supplemental Warrant Agreement so providing
and further providing for adjustments which shall be as nearly equivalent as may
be practical to the adjustments provided for in this Section. The successor
Company shall mail to Warrant holders a notice describing the supplemental
Warrant Agreement.
If the issuer of securities deliverable upon exercise of Warrants under the
supplemental Warrant Agreement is an affiliate of the formed, surviving,
transferee or lessee Company, that issuer shall join in the supplemental Warrant
Agreement.
If this Section 10(m) applies, Sections 10(a)-(e) do not apply.
(n) In addition, in the event that any other transaction or event occurs to
which the foregoing Exercise Price adjustment provisions are not strictly
applicable but the failure to make any adjustment would adversely affect the
rights represented by the Warrants in accordance with the essential intent and
principles of such provisions, then, in each such case, the Company shall
appoint an investment banking firm of recognized national standing, or any other
financial expert that does not (or whose directors, officers, employees,
affiliates or stockholders do not) have a direct or material indirect financial
interest in the Company or any of its subsidiaries, who has not been, and, at
the time it is called upon to give independent financial advice to the Company,
is not (and none of its directors, officer, employees, affiliates or
stockholders are) a promoter, director or officer of the Company or any of its
subsidiaries, which will give their opinion upon the adjustment, if any, on a
13
<PAGE>
basis consistent with the essential intent and principles established in the
foregoing Exercise Price adjustment provisions, necessary to preserve, without
dilution, the rights represented by the Warrants. Upon receipt of such opinion
or determination, the Company shall promptly mail a copy thereof to the Warrant
holders and will make the adjustments described therein.
(o) Except as provided in the immediately following sentence, any
determination that the Company or its Board of Directors must make pursuant to
Section 10 shall be conclusive. Whenever the Company, its Board of Directors or
the Non-Preferred Stock Directors shall be required to make a determination
under this Section 10, such determination shall be made in good faith and may be
challenged in good faith by the holders of a majority of Warrants and any
dispute shall be resolved at the Company's expense, by an investment banking
firm of recognized national standing selected by the Company and acceptable to
such Warrant holders; provided, however, that in the event the determination by
the Board of Directors of the Company is more than 110% of the price determined
by the investment banking firm, then the costs incurred by such investment
banking firm shall be borne by the Warrant holders who challenged such price.
(p) In any case in which this Section 10 shall require that an adjustment
in the Exercise Price be made effective as of a record date for a specified
event, the Company may elect to defer until the occurrence of such event (i)
issuing to the holder of any Warrant exercised after such record date the
Warrant Shares and other capital stock of the Company, if any, issuable upon
such exercise over and above the Warrant Shares and other capital stock of the
Company, if any, issuable upon such exercise on the basis of the Exercise Price
and (ii) paying to such holder any amount in cash in lieu of a fractional share
pursuant to Section 11; provided, however, that the Company shall deliver to
such holder a due bill or other appropriate instrument evidencing such holder's
right to receive such additional Warrant Shares, other capital stock and cash
upon the occurrence of the event requiring such adjustment.
(q) Upon each adjustment of the Exercise Price pursuant to this Section 10,
each Warrant outstanding prior to the making of the adjustment in the Exercise
Price shall thereafter evidence the right to receive upon payment of the
adjusted Exercise Price that number of shares of Common Stock (calculated to the
nearest hundredth) obtained from the following formula:
N' = N x (E/E')
where:
N' = the adjusted number of Warrant Shares issuable upon exercise of a Warrant
by payment of the adjusted Exercise Price.
N = the number or Warrant Shares previously issuable upon exercise of a Warrant
by payment of the Exercise Price prior to adjustment.
E' = the adjusted Exercise Price.
E = the Exercise Price prior to adjustment.
14
<PAGE>
(r) Irrespective of any adjustments in the Exercise Price or the number or
kind of shares purchasable upon the exercise of the Warrants, Warrants therefore
or thereafter issued may continue to express the same price and number and kind
of shares as are stated in the Warrants initially issuable pursuant to this
Agreement.
SECTION 11. Fractional Interests. The Company shall not be required to
issue fractional Warrant Shares on the exercise of Warrants. If more than one
Warrant shall be presented for exercise in full at the same time by the same
holder, the number of full Warrant Shares which shall be issuable upon the
exercise thereof shall be computed on the basis of the aggregate number of
Warrant Shares purchasable on exercise of the Warrants so presented. If any
fraction of a Warrant Share would, except for the provisions of this Section 11,
be issuable on the exercise of any Warrants (or specified portion thereof), the
Company shall pay an amount in cash equal to the Exercise Price on the day
immediately preceding the date the Warrant is presented for exercise, multiplied
by such fraction.
SECTION 12. Financial Statements.
(a) Whether or not required by the rules and regulations of the Securities
and Exchange Commission (the "Commission"), so long as any of the Warrants
remain outstanding, the Company shall furnish to the Warrant Holder (i) all
quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K if the Company
were required to file such Forms, including "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and, with respect to
the annual information only, a report thereon by the Company's certified
independent accountants and (ii) all current reports that would be required to
be filed with the Commission on Form 8-K if the Company were required to file
such reports. In addition, whether or not required by the rules and regulations
of the Commission, the Company shall file a copy of all such information and
reports with the Commission for public availability (unless the Commission will
not accept such a filing) and make such information available to securities
analysts and prospective investors upon request. In addition, for so long as any
Warrant remains outstanding, the Company shall furnish to the Warrant Holder and
to securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.
(b) The Company shall, so long as any of the Warrants are outstanding,
deliver to the Warrant Holder, forthwith upon any Executive Officer of the
Company becoming aware of any default under this Agreement, an Officers'
Certificate specifying such default and what action the Company is taking or
proposes to take with respect thereto.
SECTION 13. Notices to Warrant Holder. Upon any adjustment of the Exercise
Price pursuant to Section 10, the Company shall promptly thereafter (i) cause to
be filed with the Company a certificate of a firm of independent public
accountants of recognized standing selected by the Board of Directors of the
Company (who may be the regular auditors of the Company) setting forth the
Exercise Price after such adjustment and setting forth in reasonable detail the
method of calculation and the facts upon which such calculations are based and
setting forth the number of Warrant Shares (or portion thereof) issuable after
such adjustment in the Exercise Price, upon exercise of a Warrant and payment of
15
<PAGE>
the adjusted Exercise Price, which certificate shall be conclusive evidence of
the correctness of the matters set forth therein, and (ii) cause to be given to
each of the registered holders of the Warrant Certificates at his address
appearing on the Warrant register written notice of such adjustments by
first-class mail, postage prepaid. Where appropriate, such notice may be given
in advance and included as a part of the notice required to be mailed under the
other provisions of this Section 13.
In case:
(a) the Company shall authorize the issuance to all holders of shares
of Common Stock of Rights to subscribe for or purchase shares of Common
Stock or of any other subscription rights or warrants; or
(b) the Company shall authorize the distribution to all holders of
shares of Common Stock of evidences of its indebtedness or assets (other
than cash dividends or cash distributions payable out of consolidated
earnings or earned surplus or dividends payable in shares of Common Stock
or distributions referred to in Section 10(a) hereof); or
(c) of any consolidation or merger to which the Company is a party and
for which approval of any shareholders of the Company is required, or of
the conveyance or transfer of the properties and assets of the Company
substantially as an entirety, or of any reclassification or change of
Common Stock issuable upon exercise of the Warrants (other than a change in
par value, or from par value to no par value, or from no par value to par
value, or as a result of a subdivision or combination), or a tender offer
or exchange offer for shares of Common Stock; or
(d) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company; or
(e) the Company proposes to take any action (other than actions of the
character described in Section 10(a)) which would require an adjustment of
the Exercise Price pursuant to Section 10; then the Company shall cause to
be given to each of the registered holders of the Warrant Certificates at
his address appearing on the Warrant register, at least 20 days prior to
the applicable record date hereinafter specified, or promptly in the case
of events for which there is no record date, by first-class mail, postage
prepaid, a written notice stating (i) the date as of which the holders of
record of shares of Common Stock to be entitled to receive any such Rights
or distribution are to be determined, or (ii) the initial expiration date
set forth in any tender offer or exchange offer for shares of Common Stock,
or (iii) the date on which any such consolidation, merger, conveyance,
transfer, dissolution, liquidation or winding up is expected to become
effective or consummated, and the date as of which it is expected that
holders of record of shares of Common Stock shall be entitled to exchange
such shares for securities or other property, if any, deliverable upon such
reclassification, consolidation, merger, conveyance, transfer, dissolution,
liquidation or winding up. The failure to give the notice required by this
Section 13 or any defect therein shall not affect the legality or validity
of any distribution, right, option, warrant, consolidation, merger,
conveyance, transfer, dissolution, liquidation or winding up, or the vote
upon any action.
16
<PAGE>
Nothing contained in this Agreement or in any of the Warrant Certificates
shall be construed as conferring upon the holders thereof the right to vote or
to consent or to receive notice as shareholders in respect of the meetings of
shareholders or the election of Directors of the Company or any other matter, or
any rights whatsoever as shareholders of the Company.
SECTION 14. Notices to Company and Warrant Holder. Any notice or demand
authorized by this Agreement to be given or made by the registered holder of any
Warrant Certificate to or on the Company shall be sufficiently given or made
when and if deposited in the mail, first class or registered, postage prepaid,
addressed to the office of the Company expressly designated by the Company at
its office for purposes of this Agreement (until the Warrant holders are
otherwise notified in accordance with this Section by the Company), as follows:
The Fortress Group, Inc.
1650 Tysons Boulevard, Suite 600
McLean, Virginia 22102
Telephone (703) 442-4545
Facsimile: (703) 442-7730
Attention: J. Marshall Coleman
Any notice pursuant to this Agreement to be given by the Company to the
registered holder(s) of any Warrant Certificate shall be sufficiently given when
and if deposited in the mail, first-class or registered, postage prepaid,
addressed (until the Company is otherwise notified in accordance with this
Section by such holder) to such holder at the address appearing on the Warrant
register of the Company.
SECTION 15. Supplements and Amendments. The Company may from time to time
supplement or amend this Agreement without the approval of any holders of
Warrant Certificates in order to cure any ambiguity or to correct or supplement
any provision contained herein which may be defective or inconsistent with any
other provision herein, or to make any other provisions in regard to matters or
questions arising hereunder which the Company may deem necessary or desirable
and which shall not in any way adversely affect the interests of the holders of
Warrant Certificates.
SECTION 16. Successors. All the covenants and provisions of this Agreement
by or for the benefit of the Company shall bind and inure to the benefit of its
respective successors and assigns hereunder.
SECTION 17. Termination. This Agreement shall terminate at 11:59 p.m.,
Eastern Standard Time on September 30, 2004. Notwithstanding the foregoing, this
Agreement will terminate on any earlier date if all Warrants have been
exercised.
SECTION 18. Governing Law. This Agreement and each Warrant Certificate
issued hereunder shall be deemed to be a contract made under the laws of the
State of New York and for all purposes shall be construed in accordance with the
internal laws of said State.
17
<PAGE>
SECTION 19. Benefits of This Agreement. Nothing in this Agreement shall be
construed to give to any person or Company other than the Company and the
registered holders of the Warrant Certificates any legal or equitable right,
remedy or claim under this Agreement; but this Agreement shall be for the sole
and exclusive benefit of the Company and the registered holders of the Warrant
Certificates.
SECTION 20. HSR Act. Promptly (but in no event later than five days) after
receipt of notice from any Warrant Holder of its intention to exercise any
Warrants, the Company shall make all filings required to be made under the
Hart-Scott-Rodino Improvements Act of 1976 (the "HSR Act") in connection with
such exercise. The applicable waiting period, including any extension thereof,
under the HSR Act shall have expired or been terminated prior to the issuance of
any Warrant Shares upon exercise of Warrants.
SECTION 21. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
[Signature Page Follows]
18
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
THE FORTRESS GROUP, INC.
By: /s/
---------------------------------------
Name: James J. Martell, Jr.
Title: President
PROMETHEUS HOMEBUILDERS LLC
by: LF Strategic Realty Investors II L.P.,
its member
by: Lazard Freres Real Estate Investors L.L.C.,
its general partner
By: /s/
---------------------------------------
Name: Murry N. Gunty
Title: Principal
19
<PAGE>
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
EXERCISABLE ON OR BEFORE SEPTEMBER 30, 2004
No. _____ Warrants
Warrant Certificate
THE FORTRESS GROUP, INC.
This Warrant Certificate certifies that [ ] or registered assigns, is the
registered holder of Warrants expiring September 30, 2004 (the "Warrants") to
purchase Common Stock, $0.01 par value (the "Common Stock"), of The Fortress
Group, Inc., a Delaware Company (the "Company"). Each Warrant entitles the
holder upon exercise to receive from the Company on or before 11:59 p.m. on New
York City time, on September 30, 2004, one fully paid and nonassessable share of
Common Stock (a "Warrant Share") at the exercise price of $7.00 (the "Exercise
Price"), payable in lawful money of the United States of America upon surrender
of this Warrant Certificate and payment of the Exercise Price at the office of
the Company designated for such purpose, but only subject to the conditions set
forth herein and in the Warrant Agreement. The Exercise Price and number of
Warrant Shares issuable upon exercise of the Warrants are subject to adjustment
upon the occurrence of certain events set forth in the Warrant Agreement.
No Warrant may be exercised after 11:59 p.m., New York City time, on
September 30, 2004, and to the extent not exercised by such time such Warrants
shall become void.
Reference is hereby made to the further provisions of this Warrant
Certificate set forth on the reverse hereof and such further provisions shall
for all purposes have the same effect as though fully set forth at this place.
This Warrant Certificate shall not be valid unless countersigned by the
Company, as such term is used in the Warrant Agreement.
20
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
signed by its President and by its Secretary and has caused its corporate seal
to be affixed hereunto or imprinted hereon. Dated:
THE FORTRESS GROUP, INC.
By
-------------------------------
President
By
-------------------------------
Secretary
21
<PAGE>
[FORM OF WARRANT CERTIFICATE]
[REVERSE]
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants expiring September 30, 2004, entitling the holder
on exercise to receive shares of Common Stock, $0.01 par value, of the Company
(the "Common Stock"), and are issued or to be issued pursuant to a Warrant
Agreement dated as of September 30, 1997 (the "Warrant Agreement"), duly
executed and delivered by the Company, which Warrant Agreement is hereby
incorporated by reference in and made a part of this instrument and is hereby
referred to for a description of the rights, limitation of rights, obligations,
duties and immunities thereunder of the Company and the holders (the words
"holders" or "holder" meaning the registered holders or registered holder) of
the Warrants (the "Warrant Holder"). A copy of the Warrant Agreement may be
obtained by the holder hereof upon written request to the Company.
Warrants may be exercised at any time on or before September 30, 2004. The
holder of Warrants evidenced by this Warrant Certificate may exercise them by
surrendering this Warrant Certificate, with the form of election to purchase set
forth hereon properly completed and executed, together with payment of the
Exercise Price in cash at the office of the Company designated for such purpose.
In the alternative, each Warrant Holder may exercise its right, during the
Exercise Period, as defined in the Warrant Agreement, to receive Warrant Shares
on a net basis, such that, without the exchange of any funds, the Warrant Holder
receives that number of Warrant Shares otherwise issuable (or payable) upon
exercise of its Warrants less that number of Warrant Shares having an aggregate
fair market value (as defined below) at the time of exercise equal to the
aggregate Exercise Price that would otherwise have been paid by the Warrant
Holder of the Warrant Shares. For purposes of the foregoing sentence, "fair
market value" of the Warrant Shares will be determined in good faith by the
Non-Preferred Stock Directors of the Company, as defined in the Warrant
Agreement, as of the date of any such exercise. In the event that upon any
exercise of Warrants evidenced hereby the number of Warrants exercised shall be
less than the total number of Warrants evidenced hereby, there shall be issued
to the holder hereof or his assignee a new Warrant Certificate evidencing the
number of Warrants not exercised. No adjustment shall be made for any dividends
on any Common Stock issuable upon exercise of this Warrant.
The Warrant Agreement provides that upon the occurrence of certain events
the Exercise Price set forth on the face hereof and the number of shares of
Common Stock issuable upon exercise of the Warrants may, subject to certain
conditions, be adjusted. If the Exercise Price is adjusted, the Warrant
Agreement provides that the number of shares of Common Stock issuable upon the
exercise of each Warrant shall be adjusted. No fractions of a share of Common
Stock will be issued upon the exercise of any Warrant, but the Company will pay
the cash value thereof determined as provided in the Warrant Agreement.
The holders of the Warrants are entitled to certain registration rights
with respect to the Common Stock purchasable upon exercise thereof. Said
registration rights are set forth in full in a Registration Rights Agreement
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dated as of September 30, 1997, between the Company and the Warrant Holder. A
copy of the Registration Rights may be obtained by the holder hereof upon
written request to the Company.
Warrant Certificates, when surrendered at the office of the Company by the
registered holder thereof in person or by legal representative or attorney duly
authorized in writing, may be exchanged, in the manner and subject to the
limitations provided in the Warrant Agreement, but without payment of any
service charge, for another Warrant Certificate or Warrant Certificates of like
tenor evidencing in the aggregate a like number of Warrants.
Upon due presentation for registration of transfer of this Warrant
Certificate at the office of the Company a new Warrant Certificate or Warrant
Certificates of like tenor and evidencing in the aggregate a like number of
Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided in the Warrant Agreement,
without charge except for any tax or other governmental charge imposed in
connection therewith.
The Company may deem and treat the registered holder(s) thereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, of any distribution to the holder(s) hereof, and for all other
purposes, and the Company shall not be affected by any notice to the contrary.
Neither the Warrants nor this Warrant Certificate entitles any holder hereof to
any rights of a stockholder of the Company.
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[FORM OF ELECTION TO PURCHASE]
(TO BE EXECUTED UPON EXERCISE OF WARRANT)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to receive __________ shares of Common
Stock and herewith tenders payment for such shares to the order of The Fortress
Group, Inc. in the amount of $______ or by delivery of ___ Warrants or in
accordance with the terms hereof. The undersigned requests that a certificate
for such shares be registered in the name of ________________, whose address is
_______________________________ and that such shares be delivered to
________________ whose address is ___________ ______________________. If said
number of shares is less than all of the shares of Common Stock purchasable
hereunder after giving effect to any delivery of Warrants in payment of the
Exercise Price, the undersigned requests that a new Warrant Certificate
representing the remaining balance of such shares be registered in the name of
______________, whose address is _________________________, and that such
Warrant Certificate be delivered to _________________, whose address is
__________________.
Signature:
Date:
Signature Guaranteed:
Exhibit 4.7
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
by and among
THE FORTRESS GROUP, INC.,
PROMETHEUS HOMEBUILDERS LLC
and
THE STOCKHOLDERS NAMED HEREIN
dated as of
March 6, 1998
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I. DEFINITIONS.......................................................ii
Section 1.1. Defined Terms................................................ii
ARTICLE II. BOARD............................................................vi
Section 2.1. Members of the Board.........................................vi
ARTICLE III. COVENANTS......................................................vii
Section 3.1. Operating Statements; Public Company Status.................vii
Section 3.2. Conduct of Business........................................viii
ARTICLE IV. PARTICIPATION RIGHTS.............................................xi
Section 4.1...............................................................xi
ARTICLE V. TAG-ALONG RIGHTS.................................................xiv
Section 5.1. Tag-Along Rights............................................xiv
ARTICLE VI. MISCELLANEOUS...................................................xvi
Section 6.1. Counterparts...............................................xvi
Section 6.2. Governing Law..............................................xvi
Section 6.3. Expenses................................................. .xvi
Section 6.4. Notices....................................................xvi
Section 6.5. Successors and Assigns...................................xviii
Section 6.6. Headings.................................................xviii
Section 6.7. Amendments and Waivers...................................xviii
Section 6.8. Interpretation, Absence of Presumption...................xviii
Section 6.9. Severability...............................................xix
Section 6.10. Further Assurances.........................................xix
Section 6.11. Specific Performance.......................................xix
Section 6.12. Confidentiality............................................xix
2
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THIS AMENDED AND RESTATED STOCKHOLDERS AGREEMENT (the "Agreement"), dated
as of March 6, 1998, is made by and among Prometheus Homebuilders LLC (the
"Purchaser"), The Fortress Group, Inc., a Delaware corporation (the "Company")
and the stockholders named herein (the "Stockholders"). Capitalized terms not
otherwise defined herein have the meaning ascribed to them in the Stock Purchase
Agreement (as hereinafter defined).
RECITAL
WHEREAS, on September 30, 1997, the Purchaser, the Company and the
Stockholders entered into that certain stockholders agreement (the "Original
Stockholders Agreement").
WHEREAS, the Company, and the Purchaser have entered into that certain
Second Amended and Restated Stock Purchase Agreement, dated as of February 19,
1998 (the "Stock Purchase Agreement"), pursuant to which the Company has agreed
to sell, and the Purchaser has agreed to purchase (i) up to an aggregate of
40,000 shares of the Class AA Convertible Preferred Stock of the Company, $0.01
par value per share, (ii) up to an aggregate of 35,000 shares of Convertible
Redeemable Preferred Stock of the Company $0.01 par value per share divided into
Class ABI Convertible Redeemable Preferred Stock and Class ABII Convertible
Redeemable Preferred Stock, together with up to an aggregate of, initially,
1,000,000 Warrants, and up to, initially, 5,714,286 Supplemental Warrants upon
the terms and subject to the conditions set forth therein;
WHEREAS, it is a condition to the transactions contemplated by the Stock
Purchase Agreement and the parties believe it to be in their best interests that
they amend and restate the Original Stockholders Agreement as set forth herein
and provide for certain rights and restrictions with respect to the investment
by the Purchaser in the Company and the corporate governance of the Company; and
WHEREAS, the Company and the Purchaser believe that the combination in a
strategic partnership of the leadership, expertise and experience in the
operations of the Company and the investment and capital markets expertise and
access to capital of the Purchaser and its Affiliates will significantly enhance
the Company's ability to pursue its growth and operating strategies.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the covenants and
agreements contained herein and for good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, and intending to be legally
bound hereby, the parties hereto hereby agree as follows:
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ARTICLE I.
DEFINITIONS
Section 1.1. Defined Terms. As used in this Agreement, the following terms
shall have the following respective meanings:
"Additional Preferred Stock Directors" shall have the meaning set
forth in Section 2.1(a).
"Adverse Event" shall have the meaning set forth in Section 2.1(a).
"Affiliate" shall mean any entity controlling, controlled by or under
common control with the Company. For the purposes of this definition,
"control" shall have the meaning presently specified for that word in Rule
405 promulgated by the Commission under the Securities Act.
"Agreement" shall have the meaning set forth in the first paragraph
hereof.
"Average Trading Price" shall have the meaning set forth in Section
2.1(a).
"Beneficially Own" shall mean, with respect to any security, having
direct or indirect (including through any Subsidiary or Affiliate)
"beneficial ownership" of such security, as determined pursuant to Rule
13d-3 under the Exchange Act, including pursuant to any agreement,
arrangement or understanding, whether or not in writing; provided, however,
that all of the shares of the Preferred Stock and the Warrants which the
Purchaser has agreed to purchase under the Stock Purchase Agreement but
which have not yet been purchased shall be deemed to be Beneficially Owned
by the Purchaser until the Termination Event, if any, and provided,
further, that for the purposes of Section 5.1 the Purchaser shall be deemed
to own that number of shares of Common Stock that it actually Beneficially
Owns at any given date plus the number of shares of Common Stock into which
the Preferred Stock is convertible, based on the Conversion Price (as
defined in the Preferred Stock Certificates of Designations) of such
Preferred Stock in effect on the relevant date.
"Board" shall mean the board of directors of the Company.
"Business Day" shall mean any day other than a Saturday, a Sunday or a
bank holiday in New York, New York.
"Class AA Preferred Stock" shall mean the Class AA Convertible
Preferred Stock of the Company, $0.01 par value per share.
"Class AB Preferred Stock" shall mean the Class ABI Preferred Stock
and the Class ABII Preferred Stock.
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"Class ABI Preferred Stock" shall mean the Class ABI Convertible
Redeemable Preferred Stock of the Company, $0.01 par value per share.
"Class ABII Preferred Stock" shall mean the Class ABII Convertible
Redeemable Preferred Stock of the Company, $0.01 par value per share.
"Common Stock" shall mean the common stock, par value $0.01 per share,
of the Company.
"Company" shall have the meaning set forth in the first paragraph
hereof.
"Comparable Group" shall mean Pulte Corporation, The Ryland Group,
Inc., U.S. Home Corporation, NVR Inc., Hovnanian Enterprises, Inc., Toll
Brothers, Inc., Washington Homes, Inc., Zaring National Corporation, M/I
Schottenstein Homes, Inc., Continental Homes Holding Corp., Engle Homes,
Inc., Crossman Communities, Beazer Homes USA, Inc. and D.R. Horton, Inc.
"Conversion Event" shall have the meaning set forth in Section 2.1(d).
"Director" shall mean a member of the Board.
"EBT" shall mean earnings of the Company before interest, expenses,
income, taxes, and extraordinary or non-recurring items, all calculated in
accordance with generally accepted accounting principles.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Executive Committee" shall mean the five-member executive committee
of the Board which shall have the powers set forth in Section 3.2(b).
"Executive Equity Plan" shall have the meaning set forth in Section
3.2(e).
"Executive Shareholders" shall mean J. Marshall Coleman and James J.
Martell, Jr..
"Exercise Notice" shall have the meaning set forth in Section 4.1(b).
"Governmental Entity" shall mean any court or tribunal in any
jurisdiction (domestic or foreign) or any public, governmental, or
regulatory body, agency, department, commission, board, bureau, or other
authority or instrumentality (domestic or foreign).
"Homebuilder Shareholders" shall mean all the Stockholders other than
the Executive Shareholders.
"Liquidation Preference" shall mean $1000.00 per share.
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"Market Capitalization" shall mean the market value of the Company's
outstanding Common Stock as measured by the thirty (30) Trading Days (as
defined in the Stock Purchase Agreement) preceding any measurement date.
"Participation Notice" shall have the meaning set forth in Section
4.1(b).
"Person" shall mean any individual, corporation, partnership, limited
liability company, joint venture, trust, unincorporated organization, other
form of business or legal entity or Governmental Entity.
"Preferred Stock" shall mean the Class AA Preferred Stock and the
Class AB Preferred Stock.
"Preferred Stock Certificate of Designations" shall mean the
Certificate of Designations of the Class AA Preferred Stock, the
Certificate of Designations of the Class ABI Preferred Stock and the
Certificate of Designations of the Class ABII Preferred Stock.
"Preferred Stock Director" shall have the meaning set forth in Section
2.1(a).
"Purchaser" shall have the meaning set forth in the first paragraph
hereof.
"Purchaser Nominees" shall mean the designees to the Board by
Purchaser (or its assignee), with the number, committee representation and
subsidiary and affiliate representation of such Purchaser Nominees being
equal to the number of Preferred Stock Directors (as if such Preferred
Stock remained outstanding) that would be entitled to sit on the Board or
on the board of any subsidiary or affiliate of the Company and any
committee of the Board pursuant to Section 2.1(a).
"Quoted Price" The term "Quoted Price," with respect to the Common
Stock, shall mean the last reported sales price for Common Stock as
reported by the National Association of Securities Dealers, Inc. Automatic
Quotations System, National Market System, or, if the applicable security
is listed or admitted for trading on a securities exchange, the last
reported sales price of the applicable security on the principal exchange
on which the applicable security is listed or admitted for trading (which
shall be for consolidated trading if applicable to such exchange), or if
neither so reported or listed or admitted for trading, the last reported
bid price of the applicable security in the over-the-counter market. In the
event that the Quoted Price cannot be determined as aforesaid, the Board
shall determine the Quoted Price on the basis of such quotations as it in
good faith considers appropriate. Such determination may be challenged in
good faith by a majority of holders of shares of Preferred Stock, and any
dispute shall be resolved at the Company's cost, by an investment banking
firm of recognized national standing selected by the Company and acceptable
to such holders of Preferred Stock and shall be made in good faith and be
conclusive absent manifest error.
"Securities Act" shall mean the Securities Act of 1933, as amended.
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"Securities Filings" shall have the meaning set forth in Section
3.1(a)(iii).
"Selling Shareholder" shall mean the Executive Shareholders and the
Homebuilder Shareholders.
"Stockholders" shall have the meaning set forth in the first paragraph
hereof.
"Stock Purchase Agreement" shall have the meaning set forth in the
second paragraph hereof.
"Supplemental Warrants" shall mean warrants to purchase Common Stock
issued pursuant to that certain Supplemental Warrant Agreement to be
entered into pursuant to the Stock Purchase Agreement between the Company
and the Purchaser as the same may be amended from time to time.
"Tag-Along Notice" shall have the meaning set forth in Section 5.1(a).
"Tag-Along Rights" shall have the meaning set forth in Section 5.1(a).
"Termination Event" shall mean on and after all Closings under the
Stock Purchase Agreement have occurred, the date on which the aggregate
remaining investment or commitment to invest in the Company by Purchaser
(or any transferee or assignee of the Purchaser or group of transferees or
assignees) is less than the greater of $10,000,000 or ten percent (10%) of
the Market Capitalization, with the value of such investment to be based on
the sum of (x) the greater of the Liquidation Preference of the Preferred
Stock and the value of the Common Stock underlying such Preferred Stock (as
measured by the Conversion Price) then held by it, (y) the value of the
Common Stock then held by it, and (z) the value of the Warrants then held
by it.
"Test Date" shall have the meaning set forth in Section 2.1(a).
"Third Party" shall have the meaning set forth in Section 5.1(a).
"Third Party Terms" shall have the meaning set forth in Section
5.1(a).
"Transfer" shall mean sell, transfer, assign, pledge, hypothecate or
in any way alienate.
"Warrants" shall mean warrants to purchase Common Stock issued
pursuant to that certain amended and restated Warrant Agreement dated as of
the date hereof between the Company and the Purchaser as the same may be
amended from time to time.
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ARTICLE II.
BOARD
Section 2.1. Members of the Board. (a) Until a Termination Event, the
Company and the Stockholders shall take all action necessary to cause: (i) the
number of Directors comprising the Board to be equal to fifteen (15) (subject to
increase in the case of an Adverse Event, as provided below), (ii) the holders
of Preferred Stock, voting separately as a single class, as set forth in the
Preferred Stock Certificates of Designations, to have the exclusive right to
elect a minimum of three (3) Directors (each such Director, a "Preferred Stock
Director"), (iii) any increases in the size of the Board to result in an
increase in the number of Preferred Stock Directors (rounded up to the next
whole number) such that Preferred Stock Directors represent at least 20 percent
(20%) of the votes exercisable by the Board, and (iv) at least a proportionate
number (rounded up to the next whole number) of Preferred Stock Directors to
serve on each committee of the Board (provided that with respect to the
Executive Committee, the Executive Committee shall consist of five members, of
which two members shall be Preferred Stock Directors), and at least one
Preferred Stock Director to serve on the board or other governing body of each
of the Company's subsidiaries and affiliates, other than operational home
building companies. In the event (an "Adverse Event") that on any date following
the Second Closing that is 60 days after the end of a fiscal quarter of the
Company (a "Test Date") both (i) the Average Trading Price of the Common Stock
is below $4.375 per share (provided that such amount shall be adjusted for
reverse stock splits, recapitalizations and other similar events) and (ii) (x)
the percentage change in the EBT per share of the Company (of the Common Stock
issued and outstanding) for the most recent two fiscal quarters as measured
against the same two fiscal quarters from the prior fiscal year is less than (y)
the percentage change in the EBT per share (of the Common Stock issued and
outstanding) of the Comparable Group for the same period as compared against the
EBT per share (calculated on the same basis) of the Comparable Group during the
same period in the prior fiscal year then the Company and the Stockholders shall
take all action necessary to cause: (i) the holders of Preferred Stock voting
separately as a single class, to elect Preferred Stock Directors sufficient to
cause the Preferred Stock Directors to constitute a majority of the Board and
all committees of the Board, including the Executive Committee ("Additional
Preferred Stock Directors") and (ii) the size of the Board and all committees to
be automatically increased in order to effect any such additional Directors. The
right of the holders of Class AA Preferred Stock and Class ABI Preferred Stock
to elect Additional Preferred Stock Directors shall continue until such time as
neither (i) nor (ii) above is true for two consecutive Test Dates. The "Average
Trading Price" shall mean, on any date of determination, the average of the
closing prices of the Common Stock over the 90 day period prior to such date.
(b) In the event that all the shares of the Preferred Stock shall have been
converted into Common Stock prior to the occurrence of a Termination Event (a
"Conversion Event"), the Company will support the nomination of and the election
of Purchaser Nominees, and each Stockholder shall vote all of its shares to
elect such Purchaser Nominees, such that Purchaser shall have the same right to
elect Directors as set forth in paragraph (a) above, including rights to appoint
Directors to committees and subsidiaries as set forth in paragraph (a) above, as
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if Purchaser still owned all of the Preferred Stock, and the Company and the
Stockholders will exercise all authority under applicable law to cause such
Purchaser Nominees to be elected to the Board. Without limiting the generality
of the foregoing, with respect to each meeting of stockholders of the Company at
which Directors are to be elected, the Company shall use its best efforts to
solicit from the stockholders of the Company (other than the Purchaser) eligible
to vote in the election of Directors provided in favor of each Purchaser
Nominee.
(c) If a Director has been designated by Purchaser and Purchaser requests
that such Director be removed (with or without cause) then such Director shall
be removed with or without cause, and each Stockholder hereby agrees to vote all
shares of Common Stock owned or held of record to effect such removal.
(d) Nothing in this Agreement shall prevent Purchaser or any of its
transferees or assignees from voting securities owned by them in their sole and
absolute discretion, including voting securities to elect additional directors
to the Board in excess of the Directors which Purchaser is entitled to elect
pursuant to the terms of this Agreement.
ARTICLE III.
COVENANTS
Section 3.1. Operating Statements; Public Company Status.
(a) From and after the date of this Agreement until the Termination Event,
if any, the Company will:
(i) deliver to the Purchaser, as soon as practicable after the end of
each month or other reporting period, operating and financial statements
and management reports (x) of the Company, and (y) of each Subsidiary not
consolidated with the Company, each as, at and for the end of such month or
other reporting period, and such other statements or reports as are
reasonably requested by Purchaser, all in such form as shall reasonably be
required by Purchaser;
(ii) deliver to Purchaser copies of all other information distributed
by the Company to the Board;
(iii) deliver to the Purchaser, as promptly as practicable following
filing, a copy of each report, schedule or other document filed by the
Company pursuant to the requirements of any federal or state securities
laws (collectively, the "Securities Filings"); and
(iv) continue to comply in all material respects with the reporting
requirements of Section 13 or 15(d) of the Exchange Act.
(b) Until a Termination Event, the Company will afford the Purchaser a
reasonable opportunity to review any Securities Filing, any other filing with a
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Governmental Entity and any press release or similar public announcement to be
issued, released or made by the Company or any of its Affiliates (including,
without limitation, any oral announcement) which refers to, describes or
mentions the Purchaser or any of its Affiliates at least three (3) Business Days
prior to the time that such filing is filed with or sent to the applicable
Governmental Entity or such release or announcement is disseminated.
Section 3.2. Conduct of Business. (a) From and after the Bylaws Amendments
(as defined in the Stock Purchase Agreement) shall have become effective,
notwithstanding the fact that a vote of the Board or the Executive Committee may
not be required under applicable law, the Company shall not, and shall not
permit any of its subsidiaries without either (A) the affirmative vote of over
eighty-one percent (81%) of the entire Directors ("Supermajority Director
Approval") or (B) the affirmative vote of over eighty-one percent (81%) of the
members of the entire Executive Committee ("Supermajority Executive Committee
Approval") to:
(i) purchase, sell, license, assign, transfer, convey or otherwise
acquire or dispose of any assets, securities, or businesses, unless such
transaction is provided for in the annual budget or is in the ordinary
course of business and does not involve (i) the acquisition or disposition
of homebuilding operations or any homebuilding company or entity or (ii)
land acquisitions with a value in excess of $100,000 for any transaction or
group of related transactions or with an aggregate value in excess of
$5,000,000 in any twelve (12) month period;
(ii) directly or indirectly incur, refinance, repay, prepay, create,
assume, guarantee or otherwise become liable with respect to any
liabilities with an aggregate face amount in excess of $1,000,000 in the
aggregate, other than in accordance with existing credit facilities and
renewals thereof on substantially the same terms;
(iii) enter into any transaction after the date hereof or materially
amend any transaction in effect on the date hereof, with any Affiliate of
the Company (other than between the Company and its Subsidiaries or between
its Subsidiaries);
(iv) split (including any reverse split), combine, or reclassify any
shares of its capital stock; adopt resolutions authorizing a liquidation,
dissolution, merger, consolidation, restructuring, recapitalization, or
other reorganization of the capital structure of the Company or any of its
subsidiaries; or make any other material changes in its capital structure;
(v) engage in any new development or redevelopment of any real
property for an amount in excess of $100,000, whether in a single
transaction or a series of related transactions (provided that it is
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contemplated that such authority will be delegated to the Company's
acquisitions committee on guidelines approved by the Executive Committee);
(vi) incur any capital expenditure for an amount, outside of the
approved annual budget, in excess of $50,000 per occurrence or $500,000 in
the aggregate, whether in a single transaction or a series of related
transactions or waive, release, grant or transfer any rights of value in
respect thereof or enter into any agreement or arrangement that could
adversely affect the marketability of any real estate of the Company or any
of its subsidiaries;
(vii) enter into any employment agreement with any employee involving
payments in excess of $100,000 per annum or with any director or executive
officer of the Company or any of its Subsidiaries or enter into or
materially change any Benefit Arrangement;
(viii) enter into any new line of business other than the business
engaged in by the Company and its Subsidiaries on the date hereof, cease to
be engaged in any material line of business engaged in by the Company and
its Subsidiaries on the date hereof or materially change the nature of the
business engaged in by any of them on the date hereof;
(ix) approve the annual operating budget of the Company for any year
after 1997;
(x) amend or take actions materially inconsistent with the approved
annual operating budget for 1997 or any subsequent year;
(xi) make any general assignment for the benefit of creditors;
(xii) file any petition seeking relief, or consent to the institution
of any proceeding against itself seeking to adjudicate it a bankrupt or
insolvent, under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors;
(xiii) institute, voluntarily dismiss, terminate or settle any
litigation or arbitration against any Person (A) involving payments for
damages and penalties in excess of $50,000 or (B) otherwise material to the
Company and its subsidiaries taken as a whole;
(xiv) engage, retain, pay or agree to pay the fees or expenses of any
third party consultants or advisors (other than advisors retained in the
ordinary course of business), to the extent that such fees and expenses
exceed one hundred thousand dollars ($100,000) in the aggregate;
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(xv) appoint, ratify or replace the independent accountants, change
any accounting policy or practice other than as mandated by generally
accepted accounting principles then in effect; or change any significant
tax methods, practices, procedures or policies;
(xvi) enter into or amend any joint venture, partnership or profit
sharing agreement or arrangement;
(xvii) amend to the Company's or any Subsidiary's certificate of
incorporation or bylaws; or
(xviii) declare or pay any dividend or make any other distribution
with respect to its capital stock, other than dividends paid by any
subsidiary to the Company or another subsidiary in the ordinary and usual
course of business or to the holders of the Preferred Stock and the
Existing Preferred Stock as required pursuant to the terms of the Preferred
Stock and the Preferred Stock Certificates of Designations;
(xix) issue, sell, (whether through the issuance or granting of
options, warrants, commitments, subscriptions, rights to purchase, or
otherwise) any of its capital stock (other than upon conversion of the
Preferred Stock or the Existing Preferred Stock or upon exercise of the
Warrants or the Supplemental Warrants) or deliver or other securities other
than as contemplated herein or pursuant to stock options issued and
outstanding as of the date hereof or purchase or otherwise acquire any of
its capital stock, employee or director stock options or debt securities;
or
(xx) agree to do any of the foregoing.
(b) From and after the Bylaws Amendments shall have become effective the
Board will promptly establish an Executive Committee, which shall be delegated
the authority to the maximum extent permitted by law to approve any matter
permissible under law for authorization by an Executive Committee, including the
matters set forth in Section 3.2(a).
(c) The bylaws of the Company shall provide that the number of directors
required to constitute a Supermajority Director Approval and a Supermajority
Executive Committee Approval shall constitute a quorum for the Board and
Executive Committee, respectively, and the Company and the Stockholders shall
take all action necessary to amend its Certificate of Incorporation, and bylaws
(and the bylaws, certificates of incorporation of its subsidiaries) to give
effect to terms and conditions of this Agreement, the forms of such amendments
to be reasonably satisfactory to Purchaser.
(d) Prior to a Termination Event, Purchaser may elect to terminate all or a
portion of the voting provisions of this Agreement, such that except as
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otherwise required by law, actions requiring Supermajority Director Approval or
Supermajority Executive Committee Approval will require only majority approval,
and the Company and each Stockholder agree to take all such action as may be
necessary to give effect to such termination, including amending this Agreement
and the bylaws and certificates of incorporation of the Company and its
subsidiaries. Upon the occurrence of a Termination Event, Purchaser shall
deliver a notice to the Company electing to have Sections (A) and (B) of Article
II of the Certificate of Incorporation of the Company to be of no further force
and effect in accordance with Section (C) thereof.
(e) Purchaser agrees to vote the 11,700 shares of Class AA Preferred Stock
it acquired at the First Closing under the Stock Purchase Agreement, in favor of
the Company's proposal to authorize an increase in the shares of Common Stock
available for grant under the 1996 Stock Incentive Plan as amended, from
1,125,000 shares to 1,550,000 shares.
(f) Each of the Stockholders agree to take all such action as may be
necessary to effect a Certificate Amendment to increase the number of authorized
shares of Common Stock if required to satisfy the conversion/exercise rights of
the Securities purchased by Purchaser under the Stock Purchase Agreement.
(g) Each of the Stockholders hereby constitutes and appoints the Purchaser,
with full power of substitution, as the proxy of the Stockholders and hereby
authorizes the Purchaser to represent and to vote all of the shares of capital
stock of the Company held by them in favor of the approval of all transactions
that are necessary to give effect to the terms of this Agreement to the same
extent and with the same effect as the Stockholder might or could do under
applicable law, rules and regulations. The proxy granted pursuant to the
immediately preceding sentence is given in consideration of the agreements and
covenants of the Company pursuant to this Agreement and as such is coupled with
an interest and shall be irrevocable unless and until a Termination Event
occurs. Each Stockholder hereby revokes any and all previous proxies granted
with respect to any of the Shares and shall not hereafter, unless and until a
Termination Event occurs, purport to grant any other proxy or power of attorney
with respect to any of the Shares, deposit any of the Shares into a voting trust
or enter into any agreement (other than this Agreement), arrangement or
understanding with any Person, directly or indirectly, to vote or grant any
proxy or give instructions with respect to the voting of any of the Shares.
ARTICLE IV.
PARTICIPATION RIGHTS
Section 4.1. (a) Right to Participate. From and after the date hereof until
a Termination Event, if any, the Purchaser shall be entitled to a participation
right to purchase or subscribe for up to that number of additional shares of
capital stock (including as "capital stock" for purposes of this Section 4.1,
any security, option, warrant, call, commitment, subscription, right to purchase
or other agreement of any character that is convertible into or exchangeable or
redeemable for shares of capital stock of the Company or any Subsidiary (and all
references in this Section 4.1 to capital stock shall, as appropriate, be deemed
to be references to any such securities), and also including additional shares
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of capital stock to be issued pursuant to the conversion, exchange or redemption
of any security, option, warrant, call, commitment, subscription, right to
purchase or other agreement of any character that is convertible into or
exchangeable or redeemable for shares of capital stock, as if the price at which
such additional shares of capital stock is issued pursuant to any such
conversion, exchange or redemption were the market price on the date of such
issuance) to be issued or sold by the Company which represents the same
proportion of the total number of shares of capital stock to be issued or sold
by the Company (including the shares of capital stock to be issued to the
Purchaser upon exercise of its participation rights hereunder; it being
understood and agreed that the Company will accordingly be required to either
increase the number of shares of capital stock to be issued or sold so that the
Purchaser may purchase additional shares to maintain its proportionate interest,
or to reduce the number of shares of capital stock to be issued or sold to
Persons other than the Purchaser) as is represented by the number of shares of
Common Stock owned by the Purchaser or for which the Purchaser may exercise the
Supplemental Warrants or into which the Purchaser has the right to convert prior
to such sale or issuance, in each case at the respective exercise rates or
conversion prices in effect at the relevant time (and including for this purpose
any shares of Common Stock and Supplemental Warrants to be acquired pursuant to
the Stock Purchase Agreement, but not yet issued), relative to the number of
shares of Common Stock outstanding prior to such sale or issuance (and including
for this purpose any shares of Common Stock and Supplemental Warrants to be
acquired pursuant to the Stock Purchase Agreement, but not yet issued);
provided, however, that the provisions of this Section 4.1 shall not apply to
(i) the conversion of the Existing Preferred Stock, the Preferred Stock or the
exercise of Warrants, or the conversion, exchange or exercise of other
securities convertible into or exchangeable or exercisable for Common Stock
whose issuance was subject to an adjustment pursuant to the Preferred Stock
Certificates of Designations and (ii) Common Stock issued to the Corporation's
employees under to the Executive Equity Plan and other bona fide employee
benefit plans adopted by the Board and approved by the holders of Common Stock
when required by law (but only to the extent that the aggregate number of shares
excluded thereby and issued after the date hereof pursuant to such other benefit
plans shall not exceed 5% of the Common Stock outstanding at the time of any
such issuance).
(b) Notice. In the event the Company proposes to issue or sell any shares
of capital stock in a transaction giving rise to the participation rights
provided for in this Section, the Company shall send a written notice (the
"Participation Notice") to the Purchaser setting forth the number of shares of
such capital stock of the Company that the Company proposes to sell or issue,
the price (before any commission or discount) at which such shares are proposed
to be issued (or, in the case of an underwritten or privately placed offering in
which the price is not known at the time the Participation Notice is given, the
method of determining such price and an estimate thereof), and all other
relevant information as to such proposed transaction as may be necessary for the
Purchaser to determine whether or not to exercise the rights granted in this
Section. At any time within 20 days after its receipt of the Participation
Notice, the Purchaser may exercise its participation rights to purchase or
subscribe for shares of such shares of capital stock, as provided for in this
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Section, by so informing the Company in writing (an "Exercise Notice"). Each
Exercise Notice shall state the percentage of the proposed sale or issuance that
the Purchaser elects to purchase.
(c) Terms of Sale. The purchase or subscription by the Purchaser or an
Affiliate thereof, as the case may be, pursuant to this Section shall be on the
same price and other terms and conditions, including the date of sale or
issuance, as are applicable to the purchasers or subscribers of the additional
shares of capital stock of the Company whose purchases or subscriptions give
rise to the participation rights (except that the price to Investor to make such
purchase or subscription shall be net of payment of any underwriting, placement
agent or similar fee associated with such purchase or subscription), which price
and other terms and conditions shall be substantially as stated in the relevant
Participation Notice (which standard shall be satisfied if the price, in the
case of a negotiated transaction, is not greater than 110% of the estimated
price set forth in the relevant Participation Notice or, in the case of an
underwritten or privately placed offering, is not greater than the greater of
(i) 110% of the estimated price set forth in the relevant Participation Notice,
and (ii) the most recent Quoted Price on or prior to the date of the pricing of
the offering); provided, however, that in the event the purchases or
subscriptions giving rise to the participation rights are effected by an
offering of securities registered under the Securities Act and in which offering
it is not legally permissible for the securities to be purchased by the
Purchaser to be included, such securities to be purchased by Investor will be
purchased in a concurrent private placement.
(d) Timing of Sale. If, with respect to any Participation Notice, the
Purchaser fails to deliver an Exercise Notice within the requisite time period,
the Company shall have sixty (60) days after the expiration of the time in which
the Exercise Notice is required to be delivered in which to sell not more than
110% of the number of shares of capital stock of the Company described in the
Participation Notice (plus, in the event such shares are to be sold in an
underwritten public offering, an additional number of shares of capital stock of
the Company, not in excess of 15% of 110% of the number of shares of capital
stock of the Company described in the Participation Notice, in respect of any
underwriters overallotment option) and not less than 90% of the number of shares
of capital stock of the Company described in the Participation Notice at a price
of not less than 90% of the estimated price set forth in the Participation
Notice. If, at the end of sixty (60) days following the expiration of the time
in which the Exercise Notice is required to be delivered, the Company has not
completed the sale or issuance of capital stock of the Company in accordance
with the terms described in the Participation Notice (or at a price which is at
least 90% of the estimated price set forth in the Participation Notice), or in
the event of any contemplated sale or issuance within such sixty (60)-day period
but outside such price parameters, the Company shall again be obligated to
comply with the provisions of this Section with respect to, and provide the
opportunity to participate in, any proposed sale or issuance of shares of
capital stock of the Company; provided, however, that notwithstanding the
foregoing, if the price at which such capital stock is to be sold in an
underwritten offering is not at least 90% of the estimated price set forth in
the Participation Notice, the Company may inform Investor of such fact and
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Investor shall be entitled to elect, by written notice delivered within three
(3) Business Days following such notice from the Company, to participate in such
offering in accordance with the provisions of this Section 4.1.
ARTICLE V.
TAG-ALONG RIGHTS
Section 5.1. Tag-Along Rights. (a) Each of the Executive Shareholders
agrees that (i) from the date hereof through the third anniversary of the date
hereof he shall not Transfer, whether in a single transaction or in a series of
linked transactions, more than ten percent (10%) per year, when aggregated with
all such other Transfers made by such shareholder in such year, of the Common
Stock Beneficially Owned by him on the date hereof and (ii) from the third
anniversary of the date hereof through the fourth anniversary of the date hereof
he shall not Transfer, whether in a single transaction or in a series of linked
transactions, more than five percent (5%), when aggregated with all such other
Transfers made by such shareholder during such period, of the Common Stock
Beneficially Owned by him on the date hereof, unless, the terms and conditions
of such Transfer shall include an offer to the Purchaser to include in the
transfer to the proposed transferee (the "Third Party"), at the Purchaser's
option and on the same price and on the same terms and conditions as apply to
the Executive Shareholder, an amount of Preferred Stock and Common Stock held by
the Purchaser determined in accordance with this Section 5.1. Each of the
Homebuilder Shareholders agrees that from and after the date hereof, he shall
not Transfer, whether in a single transaction or in a series of linked
transactions, more than fifty percent (50%), when aggregated with all such other
Transfers made by such shareholder, of the Common Stock then Beneficially Owned
by him, unless the terms and conditions of such Transfer shall include an offer
to the Purchaser to include in the transfer to the Third Party at the
Purchaser's Option and on the same price and on the same terms and conditions as
apply to the Homebuilder Shareholder, an amount of Preferred Stock and Common
Stock determined in accordance with this Section 5.1.
The Third Party shall be required to purchase from the Purchaser, if the
Purchaser desires to participate in such transaction, the number of shares of
Common Stock Beneficially Owned by the Purchaser equaling the lesser of (x) the
number derived by multiplying (i) the total number of shares of Common Stock
which the Third Party proposes to purchase by (ii) a fraction, the numerator of
which shall be the number of shares of Common Stock Beneficially Owned by the
Purchaser and the denominator of which shall be the number of shares of Common
Stock Beneficially Owned by the Purchaser and the applicable Selling Shareholder
or (y) such lesser number of shares as the Purchaser shall designate in the
Tag-Along Notice (defined below). If the Tag-Along Right results in the
Purchaser including more shares of Common Stock Beneficially Owned by him in any
Tag-Along Notice, than will, on the date of transfer by the Purchaser to the
Third Party, have been converted into Common Stock, the Purchaser and the
Company shall take such steps as are reasonably required to convert to Common
Stock any Preferred Stock and Supplemental Warrants to be purchased by the Third
Party (at the prevailing Conversion Price(s) for the Preferred Stock being sold,
and at the prevailing Exericise Rate for the Supplemental Warrants being sold,
xiv
<PAGE>
by the Purchaser) which the Purchaser desires to transfer immediately prior to
such transfer and contingent upon such transfer occurring, it being the parties'
intention that only Common Stock will be transferred to the Third Party pursuant
to this Section 5.1.
The Selling Shareholder shall notify the Company and the Purchaser of any
proposed Transfer to which the provisions of this Section 5.1 apply. Each such
notice shall set forth: (i) the name of the Third Party and the number of shares
of Common Stock proposed to be transferred, (ii) the address of the Third Party,
(iii) the proposed amount and form of consideration and terms and conditions of
payment offered by the Third Party, and any other material terms pertaining to
the Transfer (the "Third Party Terms") and (iv) that the Third Party has been
informed of the "Tag-Along Rights" provided for in this Section 5.1 and has
agreed to purchase shares of Common Stock in accordance with the terms hereof.
The Tag-Along Rights set forth above in this Section 5.1 may be exercised
by the Purchaser by delivery of a written notice to the Company and the Selling
Shareholder (the "Tag-Along Notice") within thirty (30) days following receipt
of the notice specified in the preceding paragraph. The Tag-Along Notice shall
state the number of shares of Common Stock that the Purchaser wishes to include
in such transfer to the Third Party.
Upon the giving of a Tag-Along Notice, the Purchaser shall be entitled and
obligated to sell the number of shares of Common Stock set forth in the
Tag-Along Notice to the Third Party on the Third Party Terms; provided, however,
that neither the Selling Shareholder nor the Purchaser shall consummate the sale
of any shares offered by it if the Third Party does not purchase all shares
which the Selling Shareholder and the Purchaser are entitled and desire to sell
pursuant hereto. After expiration of the thirty-day period referred to above, if
the provisions of this Section have been complied with in all respects, the
Selling Shareholder shall have the right for a sixty (60)-day period to transfer
the shares of Common Stock to the Third Party on the Third Party Terms (or on
other terms no more favorable to the Selling Shareholder) without further notice
to the Purchaser, but after such sixty (60)-day period no such transfer may be
made without again giving notice to the Purchaser of the proposed transfer and
complying with the requirements of this Section 5.1.
(b) At the closing of the transfer to any Third Party (of which the Selling
Shareholder shall give the Purchaser who has elected to exercise the Tag-Along
Right provided by this Section 5.1 at least five (5) Business Days' prior
written notice), the Third Party shall remit to the Purchaser the consideration
for the total sales price of the Common Stock of the Purchaser sold pursuant
thereto, against delivery by the Purchaser of certificates for such Common
Stock, duly endorsed or with duly executed stock powers and the compliance by
such Shareholder with any other conditions to closing generally applicable to
the Selling Shareholder and all Other Shareholders selling shares in such
transaction.
(c) Notwithstanding the foregoing, the Tag-Along Rights provided by this
Section 5.1 shall terminate upon a Termination Event.
xv
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ARTICLE VI.
MISCELLANEOUS
Section 6.1. Counterparts. This Agreement maybe executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party. Copies of executed counterparts
transmitted by telecopy, telefax or other electronic transmission service shall
be considered original executed counterparts for purposes of this Section,
provided receipt of copies of such counterparts is confirmed.
Section 6.2. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE WITHOUT REFERENCE
TO THE CHOICE OF LAW PRINCIPLES THEREOF.
Section 6.3. Expenses. The Company shall pay all costs and expenses
incurred by the Company and the Purchaser in connection with the transactions
contemplated by this Agreement.
Section 6.4. Notices. Unless otherwise provided herein, any notice,
request, instruction or other document to be given hereunder by any party to the
other shall be in writing and delivered by hand-delivery, registered first-class
mail, telex, confirmed telecopy, or air courier guaranteeing overnight delivery,
as follows:
If to the Company:
The Fortress Group, Inc.
1921 Gallows Road, Suite 730
Vienna, VA 22182
Telephone: (703) 442-4545
Facsimile: (703) 442-7730
Attn: J. Marshall Coleman
with a copy to: Secretary
With an additional copy to:
Arent Fox Kintner Plotkin & Kahn
1050 Connecticut Avenue, NW
Washington, DC 20036
Telephone: (202) 857-6235
Facsimile: (202) 857-6120
Attn: Jeffrey E. Jordan
xvi
<PAGE>
If to the Purchaser:
Prometheus Homebuilders LLC
c/o Lazard Frres Real Estate Investors, LLC
Thirty Rockefeller Plaza, 63rd Floor
New York, NY 10020
Telephone: (212) 632-6060
Facsimile: (212) 632-6052
Attn: Robert P. Freeman
Murry N. Gunty
With a copy to:
Latham & Watkins
885 Third Avenue
New York, NY 10022
Telephone: (212) 906-1200
Facsimile: (212) 751-4864
Attn: R. Ronald Hopkinson
or to such other place and with such other copies as either party may designate
as to itself by written notice to the other.
xvii
<PAGE>
All such notices, requests, instructions or other documents shall be deemed
to have been duly given; at the time delivered by hand, if personally delivered;
four (4) Business Days after being deposited in the mail, postage prepaid, if
mailed; when answered back, if telexed; when receipt acknowledged by addressee,
if by telecopier transmission; and on the next Business Day if timely delivered
to an air courier guaranteeing overnight delivery.
Section 6.5. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors.
No party shall be permitted to assign any of its rights hereunder to any third
party without the prior written consent of the other parties, except that the
Purchaser may, without such consent, assign its rights hereunder, in whole or in
part, to one or more affiliates of the Purchaser or any transferee or assignee
or group of transferees or assignees of any of the Preferred Stock provided that
such person agrees to be bound by this Agreement.
Section 6.6. Headings. The Section, Article and other headings contained in
this Agreement are inserted for convenience of reference only and will not
affect the meaning or interpretation of this Agreement. All references to
Sections or Articles contained herein mean Sections or Articles of this
Agreement unless otherwise stated.
Section 6.7. Amendments and Waivers. This Agreement may not be modified or
amended except by an instrument or instruments in writing signed by the party
against whom enforcement of any such modification or amendment is sought. Any
party hereto may, only by an instrument in writing, waive compliance by another
party hereto with any term or provision hereof on the part of such other party
hereto to be performed or complied with. The waiver by any party hereto of a
breach of any term or provision hereof shall not be construed as a waiver of any
subsequent breach.
Section 6.8. Interpretation, Absence of Presumption. (a) For the purposes
hereof, (i) words in the singular shall be held to include the plural and vice
versa and words of one gender shall be held to include the other gender as the
context requires, (ii) the terms "hereof", "herein", and "herewith" and words of
similar import shall, unless otherwise stated, be construed to refer to this
Agreement as a whole (including all of the Schedules and Exhibits hereto) and
not to any particular provision of this Agreement, and Article, Section and
paragraph, references are to the Articles, Sections and paragraphs to this
Agreement unless otherwise specified, (iii) the word "including" and words of
similar import when used in this Agreement shall mean "including, without
limitation," unless the context otherwise requires or unless otherwise
specified, (iv) the word "or" shall not be exclusive, and (v) provisions shall
apply, when appropriate, to successive events and transactions.
(b) This Agreement shall be construed without regard to any presumption or
rule requiring construction or interpretation against the party drafting or
causing any instrument to be drafted.
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Section 6.9. Severability. Any provision hereof which is invalid or
unenforceable shall be ineffective to the extent of such invalidity or
unenforceability, without affecting in any way the remaining provisions hereof.
Section 6.10. Further Assurances. The Company and the Purchaser agree that,
from time to time, each of them will, and will cause their respective Affiliates
to, execute and deliver such further instruments and take such other action as
may be necessary to carry out the purposes and intents hereof.
Section 6.11. Specific Performance. The Company and the Purchaser each
acknowledge that, in view of the uniqueness of arrangements contemplated by this
Agreement, the parties hereto would not have an adequate remedy at law for money
damages in the event that this Agreement were not performed in accordance with
its terms, and therefore agree that the parties hereto shall be entitled to
specific enforcement of the terms hereof in addition to any other remedy to
which the parties hereto may be entitled at law or in equity.
Section 6.12. Confidentiality. The Purchaser and the Company agrees that
all information provided to each other or any of their respective
representatives pursuant to this Agreement shall be kept confidential, and such
parties shall not (x) disclose such information to any persons other than the
directors, officers, employees, financial advisors, legal advisors, accountants,
consultants and affiliates of such parties who reasonably need to have access to
the confidential information and who are advised of the confidential nature of
such information or (y) use such information in a manner which would be
detrimental to the Company or the Purchaser; provided, however, the foregoing
obligation of such parties shall not (a) relate to any information that (i) is
or becomes generally available other than as a result of unauthorized disclosure
by such parties or by persons to whom such parties have made such information
available, (ii) is or becomes available to such parties on a non-confidential
basis from a third party that is not, to such parties' knowledge, bound by any
other confidentiality agreement with the other party, or (b) prohibit disclosure
of any information if required by law, rule, regulation, court order or other
legal or governmental process.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
THE FORTRESS GROUP, INC.
By: /s/
-----------------------------------
Name: James J. Martell, Jr.
Title: President
PROMETHEUS HOMEBUILDERS LLC
by: LF Strategic Realty Investors II L.P.,
its member
by: Lazard Frres Real Estate Investors L.L.C.,
its general partner
By: /s/
-----------------------------------
Name: Murry N. Gunty
Title: Principal
STOCKHOLDERS
/s/
-----------------------------------
Name: J. Marshall Coleman
/s/
-----------------------------------
Name: James J. Martell, Jr.
/s/
-----------------------------------
Name: Robert Short
/s/
-----------------------------------
Name: J. Christopher Stuhmer
/s/
-----------------------------------
Name: Thomas Buffington
/s/
-----------------------------------
Name: Lawrence Witek
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<PAGE>
/s/
-----------------------------------
Name: Ted Kirkpatrick
/s/
-----------------------------------
Name: Lanold Caldwell
/s/
-----------------------------------
Name: James Giddens
/s/
-----------------------------------
Name: Patricia Donnelly
/s/
-----------------------------------
Name: Mary Ann Martell
xxi
EXHIBIT 4.8
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
by and between
THE FORTRESS GROUP, INC.
and
PROMETHEUS HOMEBUILDERS LLC
Dated as of
March 6, 1998
<PAGE>
TABLE OF CONTENTS
Page
----
1. DEFINITIONS................................................1
2. DEMAND REGISTRATIONS.......................................4
(a) Timing Of Demand Registrations.........................4
(b) Number of Demand Registrations.........................4
(c) Required Thresholds....................................4
(d) Participation..........................................4
(e) Underwriter's Cutback..................................5
(f) Managing Underwriter...................................5
(g) Black-Out Periods of Investor..........................5
3. PIGGYBACK REGISTRATIONS....................................5
(a) Participation..........................................5
(b) Underwriter's Cutback..................................6
(c) Company Control........................................6
4. HOLD-BACK AGREEMENTS.......................................6
(a) By Holders of Registrable Securities...................6
(b) By the Company and Others..............................7
5. REGISTRATION PROCEDURES....................................7
6. REGISTRATION EXPENSES.....................................11
(a) Demand Registrations..................................11
(b) Piggyback Registrations...............................11
(c) Company Expenses......................................11
7. INDEMNIFICATION...........................................11
(a) Indemnification by Company............................11
(b) Indemnification Procedures............................12
(c) Indemnification by Holder of Registrable Securities...13
(d) Contribution..........................................13
8. EXCHANGE ACT REPORTING REQUIREMENTS.......................14
9. REQUIREMENTS FOR PARTICIPATION IN UNDERWRITTEN OFFERINGS..14
10. SUSPENSION OF SALES.......................................15
11. FUTURE REGISTRATION RIGHTS AGREEMENTS.....................15
12. MISCELLANEOUS.............................................16
(a) Remedies..............................................16
(b) No Inconsistent Agreements............................16
(c) Amendments and Waivers................................16
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(d) Notices...............................................16
(e) Successors and Assigns................................17
(f) Counterparts..........................................17
(g) Table of Contents and Headings........................17
(h) Governing Law.........................................17
(i) Severability..........................................17
(j) Forms.................................................18
(k) Entire Agreement......................................18
ii
<PAGE>
This AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (this "Agreement")
is made and entered into as of March 6, 1998, by and between The Fortress Group,
Inc., a Delaware corporation (the "Company") and Prometheus Homebuilders LLC
(the "Investor").
WHEREAS, on September 30, 1997, the Company and the Investor entered into
that certain registration rights agreement (the "Original Registration Rights
Agreement")
WHEREAS, In order to induce the Investor to enter into the that certain
Second Amended and Restated Stock Purchase Agreement, dated as of March 6, 1998
hereof (the "Stock Purchase Agreement"), the Company has agreed to amend and
restate the Original Registration Rights Agreement as set forth in this
Agreement. The execution of this Agreement is a condition to the Second Closing
under the Stock Purchase Agreement.
NOW, THEREFORE The parties hereby agree as follows:
1. Definitions.
As used in this Agreement, the following capitalized terms shall have
the following meanings:
Board: The Board of Directors of the Company.
Claim: Any loss, claim, damages, liability or expense (including
the reasonable costs of investigation and legal fees and expenses).
Common Stock: The common stock, par value $0.01 per share, of the
Company.
Demand Registration: A registration pursuant to Section 2 hereof.
Equity Security: Any capital stock of the Company or any security
convertible, with or without consideration, into any such stock, or
any security carrying any warrant or right to subscribe to or purchase
any such stock, or any such warrant or right.
Exchange Act: The Securities Exchange Act of 1934, as amended.
Firm Commitment Underwritten Offering: An offering in which the
underwriters agree to purchase securities for distribution pursuant to
a registration statement under the Securities Act and in which the
obligation of the underwriters is to purchase all the securities being
offered if any are purchased.
Holder: The beneficial owner of a security. For all purposes of
this Agreement, the Company shall be entitled to treat the record
owner of a security as the beneficial owner of such security unless
the Company has been given written notice of the existence and
identity of a different beneficial owner. A Holder of Preferred Stock
shall be deemed to be the Holder of the Common Stock into which such
Preferred Stock could be converted. A Holder of a Warrant shall be
deemed to be the Holder of the Common Stock for which such Warrant
could be exercised.
<PAGE>
Indemnified Holder: Any Holder of Registrable Securities, any
officer, director, employee or agent of any such Holder and any Person
who controls any such Holder within the meaning of either Section 15
of the Securities Act or Section 20 of the Exchange Act.
Misstatement: An untrue statement of a material fact or an
omission to state a material fact required to be stated in a
Registration Statement or Prospectus or necessary to make the
statements in a Registration Statement, Prospectus or preliminary
prospectus not misleading.
Person: A natural person, partnership, corporation, business
trust, association, joint venture or other entity or a government or
agency or political subdivision thereof.
Piggyback Registration: A registration pursuant to Section 3
hereof.
Preferred Stock: The Class AA Convertible Preferred Stock and the
Class AB Convertible Redeemable Preferred Stock of the Company being
issued and sold pursuant to the Stock Purchase Agreement.
Prospectus: The prospectus included in any Registration
Statement, as supplemented by any and all prospectus supplements and
as amended by any and all post-effective amendments and including all
material incorporated by reference in such prospectus.
Registration: A Demand Registration or a Piggyback Registration.
Registration Expenses: The out-of-pocket expenses of a
Registration, including:
(1) all registration and filing fees (including fees with
respect to filings required to be made with the National
Association of Securities Dealers);
(2) fees and expenses of compliance with securities or blue
sky laws (including fees and disbursements of counsel for the
underwriters or selling holders in connection with blue sky
qualifications of the Registrable Securities and determinations
of their eligibility for investment under the laws of such
jurisdictions as the managing underwriters or holders of a
majority of the Registrable Securities being sold may designate);
(3) printing, messenger, telephone and delivery expenses;
(4) fees and disbursements of counsel for the Company and of
not more than one firm of attorneys for the sellers of the
Registrable Securities;
(5) fees and disbursements of all independent certified
public accountants of the Company incurred in connection with
such Registration (including the expenses of any special audit
and "cold comfort" letters incident to such registration);
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(6) fees and disbursements of underwriters (excluding
discounts, commissions, fees or expenses of underwriters, selling
brokers, dealer managers or similar securities industry
professionals relating to the distribution of the Registrable
Securities);
(7) premiums and other costs of securities acts liability
insurance if the Company so desires or if the underwriters or
selling holders of Registrable Securities so require; and
(8) fees and expenses of any other Persons retained by the
Company.
Registration Statement: Any registration statement under the
Securities Act on an appropriate form (which form shall be available
for the sale of the Registrable Securities in accordance with the
intended method or methods of distribution thereof and shall include
all financial statements required by the SEC to be filed therewith)
which covers Registrable Securities pursuant to the provisions of this
Agreement, including the Prospectus included in such registration
statement, amendments (including post-effective amendments) and
supplements to such registration statement, and all exhibits to and
all material incorporated by reference in such registration statement.
Registrable Securities: (a) The shares of the Preferred Stock,
whether or not owned by the Investor, (b) any debt instruments
("Debt") issued pursuant to Section 10.16 of the Stock Purchase
Agreement, whether or not owned by the Investor, (c) the shares of
Common Stock issued or issuable upon conversion of the Preferred Stock
or Debt, whether or not owned by the Investor, (d) the shares of
Common Stock issued or issuable upon exercise of any Warrants, whether
or not owned by the Investor, the 898,845 shares of Common Stock to be
acquired by Investor pursuant to that certain stock purchase agreement
dated as of February 19, 1998 by and among the Investor and certain
Stockholders of the Company, and (f) any securities issued or issuable
with respect to such Common Stock by way of a stock dividend or stock
split or in connection with a combination of shares, recapitalization,
merger, consolidation or reorganization whether or not owned by the
Investor; provided that any such share or other security shall be
deemed to be Registrable Securities only if and so long as it is a
Transfer Restricted Security.
Securities Act: The Securities Act of 1933, amended.
SEC: The Securities and Exchange Commission.
Transfer Restricted Security: A security that has not been sold
to or through a broker, dealer or underwriter in a public distribution
or other public securities transaction or sold in a transaction exempt
from the registration and prospectus delivery requirements of the
Securities Act under Rule 144 promulgated thereunder (or any successor
rule). The foregoing notwithstanding, a security shall remain a
Transfer Restricted Security until (i) all stop transfer instructions
or notations and restrictive legends with respect to such security
have been lifted or removed and (ii) the Holder of such security has
received at Company expense an opinion of counsel to the Company
(which counsel and opinion are reasonably satisfactory to such
Holder), to the effect that such shares in such Holders hands are
freely transferable in any public or private transaction without
registration under the Securities Act (or such Holder has waived
receipt of such opinion).
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Underwritten registration or underwritten offering: A
registration in which securities of the Company are sold to an
underwriter for distribution to the public.
Warrants: The warrants to purchase Common Stock issued pursuant
to that certain Amended and Restated Warrant Agreement dated of even
date herewith by and among the Company and the Investor and that
certain Supplemental Warrant Agreement to be entered into as of the
first Subsequent Closing (as defined in the Stock Purchase Agreement)
by and among the Company and the Investor.
2. Demand Registrations.
(a) Timing Of Demand Registrations.
Holders of Registrable Securities constituting at least twenty percent
(20%) of the Registrable Securities then outstanding may request at any time
that the Company file a registration statement under the Securities Act on an
appropriate form (which form shall be available for the sale of the Registrable
Securities in accordance with the intended method or methods of distribution
thereof and shall include all financial statements required by the SEC to be
filed therewith) covering the shares of Registrable Securities that are the
subject of such request.
(b) Number of Demand Registrations.
The Company shall be obligated to prepare, file and cause to become
effective pursuant to this Section 2: (i) no more than two Registration
Statements in any two-year period and (ii) no more than three Registration
Statements in total; provided, however, that a Registration Statement shall not
be counted as one of the three Demand Registrations hereunder unless it becomes
effective and is maintained effective in accordance with the requirements
specified in Section 5(a).
(c) Required Thresholds.
The Company shall not be obligated to prepare, file and cause to become
effective pursuant to this Section 2 a Registration Statement on Form S-1 unless
the proposed aggregate public offering price of the securities to be included in
such Demand Registration is at least $5 million. Nor shall the Company be
obligated to prepare, file and cause to become effective such Registration
Statement upon a demand made by less than 50% of the Holders of the Registrable
Securities then outstanding if such demand is made less than 90 days after the
effective date of the Companys most recent registration statement for shares of
Common Stock (other than a Registration Statement on Form S-4 or Form S-8 or any
successor forms thereto).
(d) Participation.
The Company shall promptly give written notice to all Holders of
Registrable Securities upon receipt of a request for a Demand Registration
pursuant to Section 2(a) above. The Company shall include in such Demand
Registration such shares of Registrable Securities for which it has received
written requests to register such shares within 30 days after such written
notice has been given.
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(e) Underwriters Cutback.
If the public offering of Registrable Securities is to be underwritten and,
in the good faith judgment of the managing underwriter, the inclusion of all the
Registrable Securities requested to be registered hereunder would interfere with
the successful marketing of a smaller number of such shares of Registrable
Securities, the number of shares of Registrable Securities to be included shall
be reduced to such smaller number with the participation in such offering to be
pro rata among the Holders of Registrable Securities requesting such
registration, based upon the number of shares of Registrable Securities owned by
such Holders.
Any shares that are thereby excluded from the offering shall be withheld
from the market by the Holders thereof for a period (not to exceed 30 days prior
to the effective date and 75 days thereafter) that the managing underwriter
reasonably determines is necessary in order to effect the underwritten public
offering.
The Company and, subject to the requirements of Section 11 hereof, other
Holders of securities of the Company may include such securities in such
Registration if, but only if, the managing underwriter concludes that such
inclusion will not interfere with the successful marketing of all the
Registrable Securities requested to be included in such registration.
(f) Managing Underwriter.
The managing underwriter or underwriters of any underwritten public
offering covered by a Demand Registration shall be selected by the Holders of a
majority of the shares of Registrable Securities to be included in such
registration.
(g) Black-Out Periods of Investor.
Notwithstanding anything herein to the contrary, (i) the Company shall have
the right, exercisable once per Demand Registration to require the Investor not
to sell under a Demand Registration or to suspend the effectiveness thereof (but
not for a period exceeding 90 days in any calendar year) if the Company
determines, in its good faith judgment, that such offering or continued
effectiveness would interfere with any material financing, acquisition,
disposition, corporate reorganization or other material transaction involving
the Company or any of its subsidiaries or public disclosure thereof would be
required prior to the time such disclosure might otherwise be required, or when
the Company is in possession of material information that it deems advisable not
to disclose in a registration statement.
3. Piggyback Registrations.
(a) Participation.
Each time the Company decides to file a registration statement under the
Securities Act (other than registrations on Forms S-4 or S-8 or any successor
form thereto, and other than a Demand Registration) covering the offer and sale
by it or any of its security holders of any of its securities for money, the
Company shall give written notice thereof to all Holders of Registrable
Securities. The Company shall include in such registration statement such shares
of Registrable Securities for which it has received written requests to register
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such shares within 30 days after such written notice has been given. If the
registration statement is to cover an underwritten offering, such Registrable
Securities shall be included in the underwriting on the same terms and
conditions as the securities otherwise being sold through the underwriters.
(b) Underwriter's Cutback.
Subject to the requirements of Section 11 hereof, if in the good faith
judgment of the managing underwriter of such offering the inclusion of all of
the shares of Registrable Securities and any other Common Stock requested to be
registered would interfere with the successful marketing of a smaller number of
such shares, then the number of shares of Registrable Securities and other
Common Stock to be included in the offering (except for shares of Registrable
Securities to be included in a Demand Registration in accordance with Section 2
hereof) shall be reduced to such smaller number with the participation in such
offering to be in the following order of priority: (1) first, the shares of
Registrable Securities requested to be included, and (2) second, any other
shares of Common Stock requested to be included. Any necessary allocation among
the Holders of shares within each of the foregoing groups shall be pro rata
among such Holders requesting such registration based upon the number of shares
of Common Stock and Registrable Securities owned by such Holders.
All shares so excluded from the underwritten public offering shall be
withheld from the market by the Holders thereof for a period (not to exceed 30
days prior to the effective date and 75 days thereafter) that the managing
underwriter reasonably determines is necessary in order to effect the
underwritten public offering.
(c) Company Control.
The Company may decline to file a Registration Statement after giving
notice to any Holder pursuant to Section 3(a) above, or withdraw a Registration
Statement after filing and after such notice, but prior to the effectiveness
thereof, provided that the Company shall promptly notify each Holder in writing
of any such action and provided further that the Company shall bear all expenses
incurred by such Holder or otherwise in connection with such withdrawn
Registration Statement.
4. Hold-Back Agreements.
(a) By Holders of Registrable Securities.
Upon the written request of the managing underwriter of any underwritten
offering of the Company's securities, a Holder of Registrable Securities shall
not sell, make any short sale of, loan, grant any option for the purchase of, or
otherwise dispose of any Registrable Securities (other than those included in
such registration) without the prior written consent of such managing
underwriter for a period (not to exceed 30 days before the effective date and 75
days thereafter) that such managing underwriter reasonably determines is
necessary in order to effect the underwritten public offering; provided that
each of the officers and directors of the Company shall have entered into
substantially similar holdback agreements with such managing underwriter
covering at least the same period.
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(b) By the Company and Others.
The Company agrees:
(i) not to effect any public or private sale or distribution of its
Equity Securities during the 30-day period prior to, and during the 75-day
period after, the effective date of each underwritten offering made
pursuant to a Demand Registration or a Piggyback Registration, if so
requested in writing by the managing underwriter (except as part of such
underwritten offering or pursuant to registrations on Forms S-4 or S-8 or
any successor forms thereto), and
(ii) not to issue any Equity Securities other than for sale in a
registered public offering unless each of the Persons to which such
securities are issued has entered a written agreement binding on its
transferees not to effect any public sale or distribution of such
securities during such period, including, without limitation, a sale
pursuant to Rule 144 under the Securities Act (except as part of such
underwritten registration, if and to the extent permitted hereunder).
5. Registration Procedures.
If and whenever the Company is required to register Registrable Securities
in a Demand Registration or a Piggyback Registration, the Company will use its
best efforts to effect such registration to permit the sale of such Registrable
Securities in accordance with the intended plan of distribution thereof, and
pursuant thereto the Company will as expeditiously as possible:
(a) prepare and file with the SEC as soon as practicable a
Registration Statement with respect to such Registrable Securities and use
its best efforts to cause such Registration Statement to become effective
and remain effective until the Registrable Securities covered by such
Registration Statement have been sold, provided that before filing a
Registration Statement or Prospectus or any amendments or supplements
thereto, the Company shall furnish to the Holders of the Registrable
Securities covered by such Registration Statement and the underwriters, if
any, draft copies of all such documents proposed to be filed, which
documents will be subject to the review of such Holders and underwriters,
and the Company shall not file any Registration Statement or amendment
thereto or any Prospectus or any supplement thereto to which the Holders of
a majority of the Registrable Securities covered by such Registration
Statement or the underwriters, if any, shall reasonably object;
(b) prepare and file with the SEC such amendments and post-effective
amendments to the Registration Statement, and such supplements to the
Prospectus, as may be requested by any Holder of Registrable Securities or
any underwriter of Registrable Securities or as may be required by the
rules, regulations or instructions applicable to the registration form used
by the Company or by the Securities Act or rules and regulations thereunder
to keep the Registration Statement effective until all Registrable
Securities covered by such Registration Statement are sold in accordance
with the intended plan of distribution set forth in such Registration
Statement or supplement to the Prospectus;
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(c) promptly notify the selling Holders of Registrable Securities and
the managing underwriter, if any, and (if requested by any such Person)
confirm such advice in writing:
(i) when the Prospectus or any supplement or post-effective
amendment has been filed, and, with respect to the Registration
Statement or any post-effective amendment, when the same has become
effective,
(ii) of any request by the SEC for amendments or supplements to
the Registration Statement or the Prospectus or for additional
information,
(iii) of the issuance by the SEC of any stop order suspending the
effectiveness of the Registration Statement or the initiation of any
proceedings for that purpose,
(iv) if at any time the representations and warranties of the
Company contemplated by clause (i) of paragraph (o) below cease to be
accurate in all material respects,
(v) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the Registrable
Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose, and
(vi) of the existence of any fact which results in the
Registration Statement, the Prospectus or any document incorporated
therein by reference containing a Misstatement;
(d) make every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of the Registration Statement at the earliest
possible time;
(e) if requested by the managing underwriter or a Holder of
Registrable Securities being sold in connection with an underwritten
offering, immediately incorporate in a supplement or post-effective
amendment such information as the managing underwriter and the Holders of a
majority of the Registrable Securities being sold agree should be included
therein relating to the sale of the Registrable Securities, including,
without limitation, information with respect to the number of shares of
Registrable Securities being sold to underwriters, the purchase price being
paid therefor by such underwriters and with respect to any other terms of
the underwritten offering of the Registrable Securities to be sold in such
offering; and make all required filings of such supplement or
post-effective amendment as soon as notified of the matters to be
incorporated in such supplement or post-effective amendment;
(f) promptly prior to the filing of any document which is to be
incorporated by reference into the Registration Statement or the Prospectus
(after initial filing of the Registration Statement) provide copies of such
document to counsel to the selling Holders of Registrable Securities and to
the managing underwriter, if any, and make the Company's representatives
available for discussion of such document and make such changes in such
document prior to the filing thereof as counsel for such selling Holders or
underwriters may reasonably request;
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(g) furnish to each selling Holder of Registrable Securities and the
managing underwriter, without charge, at least one signed copy of the
Registration Statement and any post-effective amendments thereto, including
financial statements and schedules, all documents incorporated therein by
reference and all exhibits (including those incorporated by reference);
(h) deliver to each selling Holder of Registrable Securities and the
underwriters, if any, without charge, as many copies of each Prospectus
(and each preliminary prospectus) as such Persons may reasonably request
(the Company hereby consenting to the use of each such Prospectus (or
preliminary prospectus) by each of the selling Holders of Registrable
Securities and the underwriters, if any, in connection with the offering
and sale of the Registrable Securities covered by such Prospectus (or
preliminary prospectus);
(i) prior to any public offering of Registrable Securities, register
or qualify or cooperate with the selling Holders of Registrable Securities,
the underwriters, if any, and their respective counsel in connection with
the registration or qualification of such Registrable Securities for offer
and sale under the securities or blue sky laws of such jurisdictions in the
United States as such selling Holders or underwriters may designate in
writing and do anything else necessary or advisable to enable the
disposition in such jurisdictions of the Registrable Securities covered by
the Registration Statement; provided that the Company shall not be required
to qualify generally to do business in any jurisdiction where it is not
then so qualified or to take any action which would subject it to general
service of process in any such jurisdiction where it is not then so
subject;
(j) cooperate with the selling Holders of Registrable Securities and
the managing underwriter, if any, to facilitate the timely preparation and
delivery of certificates not bearing any restrictive legends representing
the Registrable Securities to be sold and cause such Registrable Securities
to be in such denominations and registered in such names as the managing
underwriter may request at least three business days prior to any sale of
Registrable Securities to the underwriters;
(k) use its best efforts to cause the Registrable Securities covered
by the Registration Statement to be registered with or approved by such
other governmental agencies or authorities in the United States as may be
necessary to enable the seller or sellers thereof or the underwriters, if
any, to consummate the disposition of such Registrable Securities;
(l) if the Registration Statement or the Prospectus contains a
Misstatement, prepare a supplement or post-effective amendment to the
Registration Statement or the related Prospectus or any document
incorporated therein by reference or file any other required document so
that, as thereafter delivered to the purchasers of the Registrable
Securities, the Prospectus will not contain a Misstatement;
(m) use its best efforts to cause all Registrable Securities covered
by the Registration Statement to be listed on any national securities
exchange or authorized for quotation on NASDAQ or in the National Market
System, if requested by the Holders of a majority of such Registrable
Securities or the managing underwriter, if any;
(n) provide a CUSIP number for all Registrable Securities not later
than the effective date of the Registration Statement;
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(o) enter into such agreements (including an underwriting agreement)
and do anything else necessary or advisable in order to expedite or
facilitate the disposition of such Registrable Securities, and in such
connection:
(i) make such representations and warranties to the Holders of
such Registrable Securities and the underwriters, if any, in form,
substance and scope as are customarily made by issuers to underwriters
in primary underwritten offerings;
(ii) obtain opinions of counsel to the Company and updates
thereof (which counsel and opinions (in form, scope and substance)
shall be reasonably satisfactory to the managing underwriter, if any,
and the Holders of a majority of the Registrable Securities being
sold) addressed to each selling Holder and the underwriter, if any,
covering the matters customarily covered in opinions delivered to
underwriters in primary underwritten offerings and such other matters
as may be reasonably requested by such Holders or underwriters;
(iii) obtain "cold comfort" letters and updates thereof from the
Company's independent certified public accountants addressed to the
selling Holders of Registrable Securities and the underwriters, if
any, such letters to be in customary form and covering matters of the
type customarily covered in "cold comfort" letters by underwriters in
connection with primary underwritten offerings;
(iv) if an underwriting agreement is entered into, cause the same
to include the indemnification and contribution provisions and
procedures of Section 7 hereof with respect to all parties to be
indemnified pursuant to said Section (or, with respect to the
indemnification of such underwriters, such similar indemnification and
contribution provisions as such underwriters shall customarily
require); and
(v) deliver such documents and certificates as may be requested
by the Holders of a majority of the Registrable Securities being sold
and the managing underwriter, if any, to evidence compliance with
clause (i) above and with any customary conditions contained in the
underwriting agreement or other agreement entered into by the Company.
The above shall be done at each closing under such underwriting or similar
agreement or as and to the extent otherwise reasonably requested by the
Holders of a majority of the Registrable Securities being sold;
(p) make available for inspection by representatives of the Holders of
a majority of the Registrable Securities being sold, any underwriter
participating in any disposition pursuant to such Registration Statement,
and any attorney or accountant retained by the sellers or any such
underwriter, all financial and other records and pertinent corporate
documents and properties of the Company, and cause the Company's officers,
directors and employees to supply all information reasonably requested by
any such representative, underwriter, attorney or accountant in connection
with the Registration; provided that any records, information or documents
that are designated by the Company in writing as confidential shall be kept
confidential by such Persons unless disclosure of such records, information
or documents is required by court or administrative order; and
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(q) otherwise use its best efforts to comply with all applicable rules
and regulations of the SEC, and make generally available to its security
holders earnings statements satisfying the provisions of Section 11(a) of
the Securities Act, no later than 45 days after the end of any 12-month
period (or 90 days, if such period is a fiscal year) (x) commencing at the
end of any fiscal quarter in which Registrable Securities are sold to
underwriters in an underwritten offering, or, if not sold to underwriters
in such an offering, (y) beginning with the first month of the Companys
first fiscal quarter commencing after the effective date of the
Registration Statement, which statements shall cover said 12-month periods.
6. Registration Expenses.
(a) Demand Registrations.
The Company shall bear all Registration Expenses incurred in connection
with the first two of the three Demand Registrations and of any Registrations
which do not become or are not maintained effective in accordance with the
requirements specified in Section 5(a) other than any Registration terminated
prior to effectiveness at the request of, or solely as a result of the actions
of holders whose Registrable Securities are included in such registration. The
Registration Expenses of the third Demand Registration incurred by the Investor
or any other holder whose Registrable Securities are included in such Demand
Registration shall be split proportionally between the Investor, any such holder
and the Company.
(b) Piggyback Registrations.
The Company shall bear all Registration Expenses incurred in connection
with all Piggyback Registrations.
(c) Company Expenses.
The Company also will, in any event, pay its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of any annual audit, the
fees and expenses incurred in connection with any listing of the securities to
be registered on a securities exchange, and the fees and expenses of any Person,
including special experts, retained by the Company.
7. Indemnification.
(a) Indemnification by Company.
The Company agrees to indemnify and hold harmless each Indemnified Holder
from and against all Claims arising out of or based upon any Misstatement or
alleged Misstatement, except insofar as such Misstatement or alleged
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Misstatement was based upon information furnished in writing to the Company by
such Indemnified Holder expressly for use in the document containing such
Misstatement or alleged Misstatement. This indemnity shall not be exclusive and
shall be in addition to any liability which the Company may otherwise have. The
foregoing notwithstanding, the Company shall not be liable to the extent that
any such Claim arises out of or is based upon a Misstatement or alleged
Misstatement made in any preliminary prospectus if (i) such Indemnified Holder
failed to send or deliver a copy of the Prospectus with or prior to the delivery
of written confirmation of the sale of Registrable Securities giving rise to
such Claim and (ii) the Prospectus would have corrected such untrue statement or
omission.
In addition, the Company shall not be liable to the extent that any such
Claim arises out of or is based upon a Misstatement or alleged Misstatement in a
Prospectus, (x) if such Misstatement or alleged Misstatement is corrected in an
amendment or supplement to such Prospectus and (y) having previously been
furnished by or on behalf of the Company with copies of the Prospectus as so
amended or supplemented, such Indemnified Holder thereafter fails to deliver
such Prospectus as so amended or supplemented prior to or concurrently with the
sale to the person who purchased a Registrable Security from such Indemnified
Holder and who is asserting such Claim.
The Company shall also indemnify underwriters, selling brokers, dealer
managers and similar securities industry professionals participating in a
distribution covered by a Registration Statement, their officers and directors
and each Person who controls such Persons (within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act) to the same extent as
provided above with respect to the indemnification of the Indemnified Holders of
Registrable Securities.
(b) Indemnification Procedures.
If any action or proceeding (including any governmental investigation or
inquiry) shall be brought or asserted against an Indemnified Holder in respect
of which indemnity may be sought from the Company, such Indemnified Holder shall
promptly notify the Company in writing, and the Company shall assume the defense
thereof, including the employment of counsel reasonably satisfactory to such
Indemnified Holder and the payment of all expenses.
Such Indemnified Holder shall have the right to employ separate counsel in
any such action and to participate in the defense thereof, but the fees and
expenses of such separate counsel shall be the expense of such Indemnified
Holder unless (i) the Company has agreed to pay such fees and expenses, (ii) the
Company shall have failed to assume the defense of such action or proceeding or
has failed to employ counsel satisfactory to such Indemnified Holder in any such
action or proceeding or (iii) the named parties to any such action or proceeding
(including any impleaded parties) include both such Indemnified Holder and the
Company, and such Indemnified Holder shall have been advised by counsel that
there may be one or more legal defenses available to such Indemnified Holder
that are different from or additional to those available to the Company.
If such Indemnified Holder notifies the Company in writing that it elects
to employ separate counsel at the expense of the Company as permitted by the
provisions of the preceding paragraph, the Company shall not have the right to
assume the defense of such action or proceeding on behalf of such Indemnified
Holder. The foregoing notwithstanding, the Company shall not be liable for the
reasonable fees and expenses of more than one separate firm of attorneys at any
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time for such Indemnified Holder and any other Indemnified Holders (which firm
shall be designated in writing by such Indemnified Holders) in connection with
any one such action or proceeding or separate but substantially similar or
related actions or proceedings in the same jurisdiction arising out of the same
general allegations or circumstances.
The Company shall not be liable for any settlement of any such action or
proceeding effected without its written consent, but if settled with its written
consent, or if there be a final judgment for the plaintiff in any such action or
proceeding, the Company agrees to indemnify and hold harmless such Indemnified
Holders from and against any loss or liability by reason of such settlement or
judgment.
(c) Indemnification by Holder of Registrable Securities.
Each Holder of Registrable Securities agrees to indemnify and hold harmless
the Company, its directors and officers and each Person, if any, who controls
the Company within the meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act to the same extent as the foregoing indemnity
from the Company to such Holder, but only with respect to information relating
to such Holder furnished in writing by such Holder expressly for use in any
Registration Statement, Prospectus or preliminary prospectus. In no event,
however, shall the liability hereunder of any selling Holder of Registrable
Securities be greater than the dollar amount of the proceeds received by such
Holder upon the sale of the Registrable Securities giving rise to such
indemnification obligation.
In case any action or proceeding shall be brought against the Company or
its directors or officers or any such controlling person, in respect of which
indemnity may be sought against a Holder of Registrable Securities, such Holder
shall have the rights and duties given the Company and the Company or its
directors or officers or such controlling person shall have the rights and
duties given to each Holder by Sections 7(a) and 7(b) above.
The Company shall be entitled to receive indemnities from underwriters,
selling brokers, dealer managers and similar securities industry professionals
participating in the distribution, to the same extent as provided above with
respect to information so furnished in writing by such Persons specifically for
inclusion in any Prospectus or Registration Statement.
(d) Contribution.
If the indemnification provided for in this Section 7 is unavailable to an
indemnified party under Section 7(a) or Section 7(c) above (other than by reason
of exceptions provided in those Sections) in respect of any Claims referred to
in such Sections, then each applicable indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such Claims in such proportion
as is appropriate to reflect the relative fault of the Company on the one hand
and of the Indemnified Holder on the other in connection with the statements or
omissions which resulted in such Claims as well as any other relevant equitable
considerations. The amount paid or payable by a party as a result of the Claims
referred to above shall be deemed to include, subject to the limitations set
forth in Section 7(b), any legal or other fees or expenses reasonably incurred
by such party in connection with investigating or defending any action or claim.
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The relative fault of the Company on the one hand and of the Indemnified
Holder on the other shall be determined by reference to, among other things,
whether the Misstatement or alleged Misstatement relates to information supplied
by the Company or by the Indemnified Holder and the parties relative intent,
knowledge, access to information and opportunity to correct or prevent such
Misstatement or alleged Misstatement.
The Company and each Holder of Registrable Securities agree that it would
not be just and equitable if contribution pursuant to this Section 7(d) were
determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to above.
Notwithstanding the provisions of this Section 7(d), an Indemnified Holder
shall not be required to contribute any amount in excess of the amount by which
(i) the total price at which the securities that were sold by such Indemnified
Holder and distributed to the public were offered to the public exceeds (ii) the
amount of any damages which such Indemnified Holder has otherwise been required
to pay by reason of such Misstatement.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
8. Exchange Act Reporting Requirements.
From and after the date hereof, the Company shall (whether or not it shall
then be required to do so) timely file such information, documents and reports
as the Commission may require or prescribe under Section 13 or 15(d) (whichever
is applicable) of the Exchange Act. In addition, the Company shall take such
other measures and file such other information, documents and reports, as shall
hereafter be required by the Commission as a condition to the availability of
Rule 144 under the Securities Act (or any successor provision) and the use of
Form S-3.
From and after the date hereof, the Company shall forthwith upon request
furnish any Holder of Registrable Securities (i) a written statement by the
Company that it has complied with such reporting requirements, (ii) a copy of
the most recent annual or quarterly report of the Company, and (iii) such other
reports and documents filed by the Company with the Commission as such Holder
may reasonably request in availing itself of an exemption for the sale of
Registrable Securities without registration under the Securities Act.
The purpose of the foregoing requirements are (x) to enable any such Holder
to comply with the current public information requirements contained in
paragraph (c) of Rule 144 under the Securities Act (or any successor provision)
and (y) to qualify the Company for the use of registration statements on Form
S-3.
9. Requirements for Participation in Underwritten Offerings.
No Person may participate in any underwritten offering pursuant to a
Registration hereunder unless such Person (a) agrees to sell such Person's
securities on the basis provided in any underwriting arrangements approved by
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the Persons entitled hereunder to approve such arrangements and (b) completes
and executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents required under the terms of such underwriting
arrangements.
10. Suspension of Sales.
Upon receipt of written notice from the Company that a Registration
Statement or Prospectus contains a Misstatement, each Holder of Registrable
Securities shall forthwith discontinue disposition of Registrable Securities
until such Holder has received copies of the supplemented or amended Prospectus
required by Section 5(1) hereof, or until such Holder is advised in writing by
the Company that the use of the Prospectus may be resumed, and, if so directed
by the Company, such Holder shall deliver to the Company (at the Company's
expense) all copies, other than permanent file copies then in such Holders
possession, of the Prospectus covering such Registrable Securities current at
the time of receipt of such notice.
11. Future Registration Rights Agreements.
Except for an underwriting agreement between the Company and one or more
professional underwriters of securities, the Company shall not agree after the
date hereof to register any Equity Securities under the Securities Act unless
such agreement specifically provides that:
(a) the Holder of such Equity Securities may not participate in any
Demand Registration without the consent of the Holders of a majority of the
shares of the Registrable Securities included in such registration unless:
(i) the offering of the Registrable Securities is to be a Firm
Commitment Underwritten Offering and the managing underwriter
concludes that the public offering or sale of such Equity Securities
would not interfere with the successful marketing of all Registrable
Securities requested to be sold and
(ii) the Holders of Registrable Securities shall have the right
to participate, to the extent they may request, in any registration
statement initiated under a demand registration right exercised by the
Holder of such Equity Securities, except that if the managing
underwriter of a public offering made pursuant to such a demand
registration limits the number of shares of Common Stock to be sold,
the participation of the Holders of the Registrable Securities and the
Holders of all other Common Stock (other than the Equity Securities
held by such Holder of Equity Securities) shall be determined as set
forth in Section 3 hereof.
(b) the Holder of such Equity Securities may not participate in any
Piggyback Registration if the sale of Registrable Securities is to be
underwritten unless, if the managing underwriter limits the total number of
shares to be sold, the Holders of such Equity Securities and the Holders of
Registrable Securities are entitled to participate in such underwritten
distribution based on the order of priority set forth in Section 3 hereof,
and
(c) all Equity Securities excluded from any Registration as a result
of the foregoing limitations may not be publicly offered or sold for a
15
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period (not to exceed at least 30 days prior to the effective date and 75
days thereafter) that the managing underwriter reasonably determines is
necessary in order to effect the underwritten public offering of
Registrable Securities registered pursuant to this Agreement.
12. Miscellaneous.
(a) Remedies.
Each Holder of Registrable Securities, in addition to being entitled to
exercise all rights provided herein, in the Stock Purchase Agreement and granted
by law, including recovery of damages, shall be entitled to specific performance
of its rights under this Agreement. The Company agrees that monetary damages
would not be adequate compensation for any loss incurred by reason of a breach
by it of the provisions of this Agreement and hereby agrees to waive the defense
in any action for specific performance that a remedy at law would be adequate.
(b) No Inconsistent Agreements.
The Company shall not on or after the date of this Agreement enter into any
agreement with respect to its securities that is inconsistent with the rights
granted to the Holders of Registrable Securities in this Agreement or otherwise
conflicts with the provisions hereof.
Other than as disclosed on Schedule I attached hereto, the Company has not
previously entered into any agreement with respect to its securities granting
any registration rights to any Person. The rights granted to the Holders of
Registrable Securities hereunder do not in any way conflict with and are not
inconsistent with the rights granted to the holders of the Company's securities
under any such agreements, except as noted on Schedule I.
(c) Amendments and Waivers.
The provisions of this Agreement, including the provisions of this
sentence, may not be amended, modified or supplemented, and waivers or consents
to departures from the provisions hereof may not be given unless the Company has
obtained the written consent of the Holders of at least a majority of the
outstanding shares of Registrable Securities. The foregoing notwithstanding, a
waiver or consent to departure from the provisions hereof that relates
exclusively to the rights of Holders of shares of Registrable Securities whose
shares are being sold pursuant to a Registration Statement and that does not
directly or indirectly affect the rights of other Holders of shares of
Registrable Securities may be given by the Holders of a majority of the shares
of Registrable Securities being sold.
(d) Notices.
All notices and other communications provided for or permitted hereunder
shall be made in writing by hand-delivery, registered first-class mail, telex,
telecopier, or air courier guaranteeing overnight delivery:
(i) if to a Holder of Registrable Securities, at the most current
address given by such Holder to the Company in accordance with the
provisions hereof, which address initially is, with respect to the
16
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Investor, the address set forth on the Investor's signature page of the
Stock Purchase Agreement, with a copy to Latham & Watkins, 885 Third
Avenue, Suite 1000, New York, New York 10022, Attention: R. Ronald
Hopkinson, Esq.; and
(ii) if to the Company, initially at its address set forth in the
Stock Purchase Agreement and thereafter at such other address, notice of
which is given in accordance with the provisions hereof, with a copy to
Arent Fox Kintner Plotkin & Kahn, 1050 Connecticut Avenue, N.W.,
Washington, D.C. 20036, Attention: Jeffrey E. Jordan, Esq.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt acknowledged, if telecopied; and on the
next business day, if timely delivered to an air courier guaranteeing overnight
delivery. The Company shall promptly provide a list of the most current
addresses of the Holders of Registrable Securities given to it in accordance
with the provisions hereof to any such Holder for the purpose of enabling such
Holder to communicate with other Holders in connection with this Agreement.
(e) Successors and Assigns.
This Agreement shall inure to the benefit of and be binding upon the
successors and assigns of each of the parties.
(f) Counterparts.
This Agreement may be executed in one or more of counterparts, each of
which shall be deemed an original, but all of which taken together shall
constitute one and the same agreement.
(g) Table of Contents and Headings.
The table of contents and headings in this Agreement are inserted for
convenience of reference only and are not intended to be a part of or to affect
the meaning or interpretation of this Agreement.
(h) Governing Law.
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York.
(i) Severability.
In the event that any one or more of the provisions contained herein, or
the application thereof in any circumstance, is held invalid, illegal or
unenforceable, the validity, legality and enforceability of any such provision
in every other respect and of the remaining provisions contained herein shall
not be affected or impaired thereby.
17
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(j) Forms.
All references in this Agreement to particular forms of registration
statements are intended to include all successor forms which are intended to
replace, or to apply to similar transactions as, the forms herein referenced.
(k) Entire Agreement.
This Agreement and the Stock Purchase Agreement are intended by the parties
as the final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein or therein with respect to the registration rights granted by the Company
with respect to the securities sold pursuant to the Stock Purchase Agreement.
This Agreement and the Stock Purchase Agreement supersede all prior agreements
and understandings between the parties with respect to such subject matter.
[Signature Page Follows]
18
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
THE FORTRESS GROUP, INC.
By: /s/
-------------------------------
Name: James J. Martell, Jr.
-------------------------------
Title: President
-------------------------------
PROMETHEUS HOMEBUILDERS LLC
by: LF Strategic Realty Investors II L.P.,
its member
by: Lazard Frres Real Estate Investors L.L.C.,
its general partner
By: /s/
-------------------------------
Name: Murry N. Gunty
-------------------------------
Title: Principal
-------------------------------
-------------------------------
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SCHEDULE 1
TO REGISTRATION RIGHTS AGREEMENT
1. Agreement and Plan of Reorganization dated as of March 11, 1996, as amended,
by an among the Company, Buffington Acquisition, Inc., Buffington Holdings, Inc.
and the Stockholders named therein.
2. Amended and Restated Agreement and Plan of Reorganization dated as of March
11, 1996, as amended, by and among the Company, Christopher Acquisition, Inc.,
Christopher Homes, Custom Homes Division, Inc. and the Stockholders named
therein.
3. Amended and Restated Agreement and Plan of Reorganization dated as of March
11, 1996, as amended, by and among the Company, Genesee Acquisition, Inc., The
Genesee Company, The Genesee Company/ Castle Pines, Ltd., The Genesee Company of
Michigan, Ltd., Genesee Development Company and the Stockholders named therein.
4. Amended and Restated Agreement and Plan of Reorganization dated as March 11,
1996, as amended, by and among the Company, Sunstar Acquisition, Inc., Solaris
Development Corporation and the Stockholders named therein.
5. Asset Purchase Agreement dated August 31, 1996 by and among the Company,
Fortress Acquisition, Inc., Landmark Homes, Inc., B. Rex Stephens, and Bobby W.
Harrelson.
6. Asset Purchase Agreement dated February 28, 1997 by and among the Company,
Fortress-Florida, Inc., DW Hutson Construction, Inc. and David Hutson.
7. Purchase Agreement dated as of August 18, 1997 by and among the Company,
Fortress Galloway, Inc., Don Galloway Homes, Inc., Don Galloway Land, LLC,
Galloway Limited Partnership, Thornblade, LLC and Don A. Galloway.
Certain provision in agreements 1 through 4 above pertaining to priority on
registration and Section 3(b) of this Agreement are inconsistent in certain
respects. The Company agrees that it shall use its best efforts to obtain, prior
to the Second Closing under the Stock Purchase Agreement, the consent of the
parties to such agreements to modification of such provisions reasonably
sufficient to make such provision consistent with Section 3(b).
Exhibit 10
SECOND AMENDED AND RESTATED STOCK PURCHASE AGREEMENT
by and between
THE FORTRESS GROUP, INC.
and
PROMETHEUS HOMEBUILDERS LLC
Dated as of February 19, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I. DEFINITIONS...........................................................................................2
Section 1.1. Defined Terms..............................................................................2
ARTICLE II. PURCHASE AND SALE OF SECURITIES.....................................................................13
Section 2.1. Purchase and Sale of Securities...........................................................13
Section 2.2. Consideration.............................................................................13
Section 2.3. Right to Assign...........................................................................13
ARTICLE III. CLOSING............................................................................................14
Section 3.1. Location of Closings......................................................................14
Section 3.2. First and Second Closings.................................................................14
Section 3.3. Subsequent Purchases and Sales............................................................14
Section 3.4. Deliveries by the Company at Closing......................................................15
Section 3.5. Deliveries by the Purchaser at Closing....................................................15
Section 3.6. Certificates; Opinions....................................................................15
Section 3.7. Ancillary Agreements......................................................................15
Section 3.8. Form of Documents and Instruments.........................................................16
Section 3.9. Further Purchases.........................................................................16
Section 3.10. Redelivery and Cancellation of Warrants...................................................16
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.......................................................16
Section 4.1. Organization of the Company...............................................................16
Section 4.2. Capitalization of the Company.............................................................17
Section 4.3. Authorization of Issuance.................................................................18
Section 4.4. Authorization.............................................................................18
Section 4.5. Noncontravention..........................................................................18
Section 4.6. Consents and Approvals....................................................................19
Section 4.7. Subsidiaries..............................................................................19
Section 4.8. Employee Benefit Plans and Other Agreements...............................................20
Section 4.9. SEC Filings...............................................................................25
Section 4.10. Absence of Undisclosed Liabilities; Guarantees............................................25
Section 4.11. Absence of Certain Changes................................................................26
Section 4.12. Compliance With Laws......................................................................26
Section 4.13. Litigation................................................................................27
Section 4.14. True and Complete Disclosure..............................................................27
Section 4.15. Taxes.....................................................................................27
Section 4.16. Properties................................................................................29
Section 4.17. Environmental Matters.....................................................................31
Section 4.18. Insurance.................................................................................33
Section 4.19. Condition of Tangible Assets..............................................................33
Section 4.20. Contracts and Commitments.................................................................33
</TABLE>
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<TABLE>
<S> <C>
Section 4.21. Books and Records.........................................................................34
Section 4.22. Labor Matters.............................................................................34
Section 4.23. Payments..................................................................................34
Section 4.24. Information...............................................................................34
Section 4.25. Board Recommendations.....................................................................35
Section 4.26. Intellectual Property.....................................................................35
Section 4.27. Securities Offerings......................................................................35
Section 4.28. No Agreements to Sell the Assets or the Company...........................................36
Section 4.29. No Brokers................................................................................36
Section 4.30. Transactions with Certain Persons.........................................................36
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF PURCHASER..........................................................36
Section 5.1. Organization of the Purchaser.............................................................36
Section 5.2. Authorization.............................................................................37
Section 5.3. Noncontravention..........................................................................37
Section 5.4. Consents and Appeals......................................................................37
Section 5.5. Purchase for Investment...................................................................38
Section 5.6. Disclosure Documents......................................................................38
Section 5.7. No Brokers................................................................................38
ARTICLE VI. ACTIONS BY THE COMPANY AND THE PURCHASER PRIOR TO THE SECOND CLOSING................................39
Section 6.1. Meeting of Stockholders; Proxy Statement; Certificate Amendments..........................39
Section 6.2. Stock Exchange Approval...................................................................40
Section 6.3. Continuing Operations.....................................................................40
Section 6.4. Press Releases............................................................................42
Section 6.5. Additional Financial Statements...........................................................42
Section 6.6. Investigations and Access.................................................................42
Section 6.7. Notification of Certain Matters...........................................................43
Section 6.8. No Solicitation...........................................................................43
Section 6.9. Further Assurances........................................................................44
Section 6.10. HSR Act Notification......................................................................44
Section 6.11. Employee Matters..........................................................................45
Section 6.12. Action by the Company.....................................................................45
Section 6.13. Liability Insurance.......................................................................45
Section 6.14. Confidentiality...........................................................................45
Section 6.15. Action following Stockholder Approval.....................................................46
ARTICLE VII. CONDITIONS TO ALL CLOSINGS.........................................................................46
Section 7.1. Conditions to Each Party's Obligations....................................................46
Section 7.2. Conditions to the Company's Obligations...................................................46
Section 7.3. Conditions to the Purchaser's Obligations.................................................47
ARTICLE VIII. SECOND AND SUBSEQUENT CLOSINGS....................................................................48
Section 8.1. Conditions to Each Party's Obligations at the Second Closing..............................48
</TABLE>
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<TABLE>
<S> <C>
Section 8.2. Conditions to the Purchaser's Obligations at the Second and Subsequent Closings..........48
ARTICLE IX. INDEMNIFICATION.....................................................................................49
Section 9.1. Survival of Representations, Etc.........................................................49
Section 9.2. Indemnification by the Company...........................................................49
Section 9.3. Indemnification by the Purchaser.........................................................49
Section 9.4. Losses...................................................................................50
Section 9.5. Defense of Claims........................................................................50
Section 9.6. Tax Treatment of Indemnity...............................................................51
ARTICLE X. MISCELLANEOUS........................................................................................51
Section 10.1. Termination..............................................................................51
Section 10.2. In the Event of Termination:.............................................................53
Section 10.3. Fees and Expenses........................................................................53
Section 10.4. Injunctive Relief........................................................................53
Section 10.5. Independent Determination................................................................53
Section 10.6. Brokers, etc.............................................................................54
Section 10.7. Assignment...............................................................................54
Section 10.8. Notices..................................................................................54
Section 10.9. Choice of Law............................................................................55
Section 10.10. Entire Agreement; Amendments and Waivers.................................................55
Section 10.11. Counterparts.............................................................................56
Section 10.12. Invalidity...............................................................................56
Section 10.13. Headings.................................................................................56
Section 10.14. Limitation of Liability..................................................................56
Section 10.15. Abstention from Voting...................................................................56
Section 10.16. Mutual Agreement.........................................................................56
Section 10.17. Apportionment of Stock Between Class ABI Preferred Stock and
Class ABII Preferred Stock ............................................................56
Section 10.18. Merger of Company........................................................................56
</TABLE>
<PAGE>
SCHEDULES
Schedule 4.2
Schedule 4.5
Schedule 4.6
Schedule 4.7
Schedule 4.8
Schedule 4.9
Schedule 4.10
Schedule 4.11
Schedule 4.12
Schedule 4.13
Schedule 4.15
Schedule 4.16(a)
Schedule 4.16(b)
Schedule 4.16(c)
Schedule 4.16(d)
Schedule 4.16(e)
Schedule 4.16(f)
Schedule 4.16(j)
Schedule 4.16(k)
Schedule 4.16(s)
Schedule 4.17
Schedule 4.18
Schedule 4.20
Schedule 4.26
Schedule 4.27
Schedule 6.3
Schedule 6.3(e)
Schedule 6.3(i)
EXHIBITS
Exhibit A Form of Class ABI Certificate of Designations
Exhibit B Form of Class ABII Certificate of Designations
Exhibit C Form of Amended and Restated Registration Rights
Agreement
Exhibit D Form of Amended and Restated Warrant Agreement
Exhibit E Form of Amended and Restated Stockholders Agreement
Exhibit F Form of Bylaws Amendments
Exhibit G Form of Certificate Amendments
Exhibit H Form of Bylaws Amendments-Subsidiaries
Exhibit I Form of Supplemental Warrant Agreement
<PAGE>
DOCUMENT INDEX
Document Tab
Amended and Restated Stock Purchase Agreement------------------------------- 1
Form of Class ABI Certificate of Designations--------------------------------A
Form of Class ABII Certificate of Designations-------------------------------B
Form of Amended and Restated Registration Rights Agreement-------------------C
Form of Amended and Restated Warrant Agreement-------------------------------D
Form of Amended and Restated Stockholders Agreement--------------------------E
Form of Bylaws Amendments----------------------------------------------------F
Form of Certificate Amendments-----------------------------------------------G
Form of Bylaws Amendments-Subsidiaries---------------------------------------H
Form of Supplemental Warrant Agreement---------------------------------------I
<PAGE>
This SECOND AMENDED AND RESTATED STOCK PURCHASE AGREEMENT, dated as of
February 19, 1998, is made by and between (i) The Fortress Group, Inc., a
Delaware corporation (the "Company") and (ii) Prometheus Homebuilders LLC (the
"Purchaser").
RECITALS
WHEREAS, the Company and the Purchaser entered into that certain stock
purchase agreement, dated as of August 14, 1997 (the "First Agreement").
WHEREAS, the Company and the Purchaser entered into that certain Amended
and Restated Stock Purchase Agreement, dated as of September 30, 1997 (the
"Second Agreement"), amending and restating the First Agreement.
WHEREAS, the Company and the Purchaser desire to amend and restate in its
entirety the Second Agreement as set forth herein.
WHEREAS, the Second Agreement, as amended and restated as set forth herein
shall be referred to as the "Agreement".
WHEREAS, Prometheus Homebuilders Funding Corp. has assigned all its
interest in the Purchaser to Lazard Freres Strategic Realty Investors II L.P.
WHEREAS, the Company has sold and desires to issue and sell to the
Purchaser, and the Purchaser desires to purchase from the Company, (i) an
aggregate of 40,000 shares of its newly issued Class AA Convertible Preferred
Stock, $0.01 par value per share, having the rights, designations and
preferences set forth in the Class AA Certificate of Designations and (ii) an
aggregate of 35,000 shares of its newly issued Class AB Preferred Stock
apportioned between Class ABI Convertible Redeemable Preferred Stock, $0.01 par
value per share, having the rights, designations and preferences set forth in
the Class ABI Certificate of Designations and Class ABII Convertible Redeemable
Preferred Stock, $0.01 par value per share, having the rights, designations and
preferences set forth in the Class ABII Certificate of Designations, together
with an aggregate of 1,000,000 warrants (the "Warrants") to purchase initially
one share of Common Stock at an initial exercise price of $7.00 per share as
further described in the Warrant Agreement together with an aggregate of up to
5,714,286 warrants (the "Supplemental Warrants") to purchase initially one share
of Common Stock at an exercise price of $0.01 per share as further described in
the Supplemental Warrant Agreement.
<PAGE>
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and premises
contained herein and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.1. Defined Terms. As used herein, the terms below shall have the
following meanings:
"Affiliate" shall mean any entity controlling, controlled by or under
common control with the Company. For the purposes of this definition,
"control" shall have the meaning presently specified for that word in Rule
405 promulgated by the Commission under the Securities Act.
"Agreement" shall mean this Stock Purchase Agreement as amended and
restated, together with all schedules and exhibits referenced herein.
"Alternative Transaction" shall have the meaning set forth in Section
6.8.
"Ancillary Agreements" means the Warrant Agreement, the Supplemental
Warrant Agreement, the Stockholders Agreement and the Registration Rights
Agreement.
"Applicable Law" means any statute, law, rule, or regulation or any
judgment, order, writ, injunction or decree of any Governmental Entity to
which a specified person or property is subject.
"Benefit Arrangement" means any employment, consulting, severance or
other similar contract, arrangement or policy and each plan, arrangement
(written or oral), program, agreement or commitment providing for insurance
coverage (including without limitation any self-insured arrangements),
workers' compensation, disability benefits, supplemental unemployment
benefits, vacation benefits, retirement benefits, life, health or accident
benefits (including without limitation any "voluntary employees'
beneficiary association" as defined in Section 501(c)(9) of the Code
providing for the same or other benefits) or for deferred compensation,
profit-sharing bonuses, stock options, stock appreciation rights, stock
purchases or other forms of incentive compensation or post-retirement
insurance, compensation or benefits which (A) is not a Welfare Plan,
Pension Plan or Multiemployer Plan, (B) is entered into, maintained,
contributed to or required to be contributed to, as the case may be, by the
Company or an ERISA Affiliate or under which the Company or any ERISA
Affiliate may incur any liability, and (C) covers any present or former
employees, directors or consultants of the Company (with respect to their
relationship with such entities).
2
<PAGE>
"Board of Directors" means the Board of Directors of the Company.
"Business" means the business of the Company as described more fully
in the "Business" section of the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996.
"Business Day" shall mean any day other than a Saturday, a Sunday or a
bank holiday in New York, New York.
"Bylaws" means the Bylaws of the Company as in effect on the date
hereof and as may be amended from time to time.
"Bylaws Amendments" means the amendments in substantially the form set
forth in Exhibit F and Exhibit H attached hereto and any other amendments
to the bylaws of the Company and any of its Subsidiaries reasonably
necessary in connection with the transactions contemplated under this
Agreement and the Ancillary Agreements (including amendments required to
give effect to the Supermajority provisions of the Stockholders Agreement).
"Certificate Amendments" means the amendments in substantially the
form set forth in Exhibit G attached hereto and any other amendments to the
Certificate of Incorporation or the certificates of incorporation of the
Company's Subsidiaries reasonably necessary in connection with the
transactions contemplated under this Agreement and the Ancillary
Agreements, including, without limitation, (a) an increase to the
authorized number of shares of Common Stock of the Company if necessary,
(b) the terms and conditions of the designations, rights and preference of
the Preferred Stock set forth in the Preferred Stock Certificates of
Designations, (c) certain amendments to the Class AA Certificate of
Designations and (d) such other changes to the Certificate of Incorporation
as are reasonably necessary to give effect to the rights, preferences and
designations of the Preferred Stock contained in the Preferred Stock
Certificates of Designations and the provisions of this Agreement and the
Ancillary Agreements (including the voting provisions set forth in the
Stockholders Agreement, if requested by the Purchaser).
"Certificate of Incorporation" means the Certificate of Incorporation
of the Company as amended or restated and as in effect on the date hereof.
"Claim" shall have the meaning set forth in Section 9.5.
"Claim Notice" shall have the meaning set forth in Section 9.5.
"Class AA Certificate of Designations" means the Certificate of
Designations, Preferences and Relative, Participating, Optional and Other
Special Rights and Qualifications, Limitations and Restrictions thereof of
the Class AA Convertible Preferred Stock, $0.01 par value per share, of the
Company, adopted on September 30, 1997, as the same shall be amended as set
forth in the Certificate Amendments.
3
<PAGE>
"Class AA Per Share Purchase Price" shall mean the price of $1000 per
share for the Class AA Preferred Stock.
"Class AA Preferred Stock" means the 6% - 12% Class AA Convertible
Preferred Stock, $0.01 par value per share, of the Company.
"Class ABI Certificate of Designations" means the Certificate of
Designations, Preferences and Relative, Participating, Optional and Other
Special Rights and Qualifications, Limitations and Restrictions thereof of
the Class AB Convertible Redeemable Preferred Stock, $0.01 par value per
share, of the Company, substantially in the form attached thereto as
Exhibit A.
"Class ABII Certificate of Designations" means the Certificate of
Designations, Preferences and Relative, Participating, Optional and Other
Special Rights and Qualifications, Limitations and Restrictions thereof of
the Class ABII Convertible Redeemable Preferred Stock, $0.01 par value per
share, of the Company, substantially in the form attached thereto as
Exhibit B.
"Class ABI Per Share Purchase Price" shall mean the price of $1000 per
share for the Class ABI Preferred Stock.
"Class ABII Per Share Purchase Price" shall mean the price of $1000
per share for the Class ABII Preferred Stock.
"Class AB Preferred Stock" means the Class ABI Preferred Stock and the
Class ABII Preferred Stock.
"Class ABI Preferred Stock" means the 12% Class ABI Convertible
Redeemable Preferred Stock, $0.01 par value per share, of the Company.
"Class ABII Preferred Stock" means the 12% Class ABII Convertible
Redeemable Preferred Stock, $0.01 par value per share, of the Company.
"Closing" shall mean the consummation of any purchase of Preferred
Stock.
"Closing Date" means, with respect to the consummation of any purchase
of Preferred Stock, the third Business Day following the date on which the
conditions set forth herein with respect thereto shall be satisfied or duly
waived, or if the Company and the Purchaser mutually agree on a different
date in this Agreement or otherwise, the date upon which they have mutually
agreed.
"Code" means the Internal Revenue Code of 1986, as it may be amended
from time to time.
"Commission" means the United States Securities and Exchange
Commission.
"Commitment" shall have the meaning set forth in Section 4.11.
4
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"Common Stock" means the common stock, par value $0.01 per share, of
the Company.
"Company" shall have the meaning set forth in the first paragraph
hereof.
"Company Employee Plan" shall have the meaning set forth in Section
4.8(a).
"Company Indemnified Parties" shall have the meaning set forth in
Section 9.3.
"Company Pension Plan" shall have the meaning set forth in Section
4.8(a).
"Contract" shall mean any written or oral agreement, contract, lease,
commitment, understanding, instrument or obligation to which the Company or
any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries or any of their respective properties may be bound.
"Conversion Shares" means the shares of Common Stock issuable upon the
conversion of the Preferred Stock.
"Employee Plans" means all Benefit Arrangements, Multiemployer Plans,
Pension Plans and Welfare Plans.
"Encumbrance" means any claim, lien, mortgage, deed of trust, deed to
secure debt, pledge, option, charge, easement, security interest,
right-of-way, encumbrance or other rights of third parties of any nature,
and, with respect to any securities, any agreements, understandings or
restrictions affecting the voting rights or other incidents of record or
beneficial ownership pertaining to such securities.
"Environmental Conditions" means (1) the Release or threatened Release
of any Hazardous Material (whether or not upon a Facility or any former
Facility or the Real Property or other property and whether or not such
Release constituted at the time thereof a violation of any Environmental
Law), or (2) the state of the environment, including natural resources
(e.g., flora and fauna) soil, surface water, ground water, wetlands or
ambient air, as a result of which the Company has or may become liable
under any Environmental Laws or by reason of which any Facility, any former
Facility or any of the Real Property or the other assets of the Company may
suffer or be subjected to any Encumbrances.
"Environmental Laws" means any and all applicable Federal, state,
local or municipal laws, rules, orders, regulations, statutes, ordinances,
codes, legally binding decrees, or other requirement of any Governmental
Entity (including, without limitation, common law) regulating, relating to
or imposing liability or standards of conduct concerning protection of the
environment or of human health or relating to exposure of any kind to
Hazardous Materials, as has been, is now, or may at any time hereafter be,
in effect.
"Environmental Permits" means any and all permits, licenses,
registrations, notifications, exemptions and any other authorization
required under any Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
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"ERISA Affiliate" means any entity which is (or at any relevant time
was) a member of a "controlled group of corporations" with, under "common
control" with, a member of an "affiliated service group" with, or otherwise
required to be aggregated with the Company, as set forth in Section 414(b),
(c), (m) or (o) of the Code or Section 4001(b)(1) of ERISA.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Executive Committee" shall have the meaning set forth in Section
7.3(f).
"Existing Preferred Stock" means the Series A Preferred Stock, the
Series B Preferred Stock, the Series C Preferred Stock, the Series D
Preferred Stock and the Series E Preferred Stock of the Company.
"Existing Preferred Stock Certificates of Designations" means the
Company's (i) Certificate of Designations, Preferences and Relative,
Participating, Optional and Other Special Rights and Qualifications,
Limitations and Restrictions thereof of the Series A 11% Cumulative
Convertible Preferred Stock, $0.01 par value per share, (ii) Certificate of
Designations, Preferences and Relative, Participating, Optional and Other
Special Rights and Qualifications, Limitations and Restrictions thereof of
the Series B Convertible Preferred Stock, $0.01 par value per share, (iii)
Certificate of Designations, Preferences and Relative, Participating,
Optional and Other Special Rights and Qualifications, Limitations and
Restrictions thereof of the Series C Convertible Preferred Stock, $0.01 par
value per share, (iv) Certificate of Designations, Preferences and
Relative, Participating, Optional and Other Special Rights and
Qualifications, Limitations and Restrictions thereof of the Series D 6%
Convertible Redeemable Preferred Stock, $0.01 par value per share and (v)
Certificate of Designations, Preferences and Relative, Participating,
Optional and Other Special Rights and Qualifications, Limitations and
Restrictions thereof of the Series E Preferred Stock.
"Existing Stockholders Agreement" shall mean that certain Stockholders
Agreement, dated as of April 15, 1996, by and among Charles F. Smith, Jr.,
James J. Martell, Jr., Patricia Donnelly, Michael P. Kahn and Pepi Kahn,
Co-Trustees of the Kahn Grantor Trust of 1993, James F. McEneany, Jr.,
James M. Pirrello, Brian McGregor, Brian Buchanan, Thomas B. Buffington,
Edward A. Kirkpatrick, James M. Giddens, J. Christopher Stuhmer, Robert
Short, Lanold W. Caldwell and Lawrence J. Witek.
"Facilities" means the offices, buildings and other improvements and
all other real property and related facilities, including the Real
Property, which are owned, leased or operated by the Company or any of its
Subsidiaries.
"Financial Product Agreement" shall mean any (a) interest rate,
currency, commodity or other swap, cap, floor, collar, insurance or similar
agreement or arrangement, (b) put, call, futures or forward contract,
straddle, commodities contract, option or warrant other than outstanding
options or warrants for Common Stock, (c) repurchase or reverse repurchase
or similar agreement or arrangement or (d) any other financial, derivative,
hedge, or speculative product, service or agreement, contract or
arrangement.
"First Closing" shall have the meaning set forth in Section 3.2(a).
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"Fixtures and Equipment" shall mean all of the furniture, fixtures,
furnishings, machinery and equipment owned by the Company or any of its
Subsidiaries.
"Further Purchase" shall have the meaning set forth in Section 3.9.
"GAAP" shall have the meaning set forth in Section 4.9.
"Governmental Entity" means any court or tribunal in any jurisdiction
(domestic or foreign) or any public, governmental, or regulatory body,
agency, department, commission, board, bureau, or other authority or
instrumentality (domestic or foreign).
"Hazardous Materials" means any hazardous substance, gasoline or
petroleum (including crude oil or any fraction thereof) or petroleum
products, polychlorinated biphenyls, ureaformaldehyde insulation, asbestos
or asbestos-containing materials, pollutants, contaminants, radioactivity,
and any other materials or substances of any kind, whether solid, liquid or
gas, that is regulated pursuant to any Environmental Law or that gives rise
to liability under any Environmental Law.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Indemnified Parties" shall have the meaning set forth in Section 9.3.
"Indenture" shall mean that certain Indenture, dated as of May 21,
1996, by and between The Fortress Group, Inc. and IBJ Schroder Bank & Trust
Company, as amended by that certain First Supplemental Indenture, dated as
of May 21, 1996, and that certain Second Supplemental Indenture, dated as
of May 27, 1997, between the same parties.
"Liabilities" shall mean, as to any person, all debts, adverse claims,
liabilities and obligations, direct, indirect, absolute or contingent of
such person, whether known or unknown, accrued, vested or otherwise,
whether in contract, tort, strict liability or otherwise and whether or not
actually reflected, or required by GAAP to be reflected, in such person's
or entity's balance sheets or other books and records, including without
limitation (i) obligations arising from non-compliance with any law, rule
or regulation of any Government Entity or imposed by any court or any
arbitrator of any kind, (ii) all indebtedness or liability of such person
for borrowed money, or for the purchase price of property or services
(including trade obligations), (iii) all obligations of such person as
lessee under leases, capital or other, (iv) liabilities of such person in
respect of plans covered by Title IV of ERISA, or otherwise arising in
respect of plans for the Company's employees or former
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employees or their respective families or beneficiaries, (v) reimbursement
obligations of such person in respect of letters of credit, (vi) all
obligations of such person arising under acceptance facilities, (vii) all
liabilities of other persons or entities, directly or indirectly,
guaranteed, endorsed (other than for collection or deposit in the ordinary
course of business) or discounted with recourse by such person or with
respect to which the person in question is otherwise directly or indirectly
liable, (viii) all obligations secured by any Encumbrance on property of
such person, whether or not the obligations have been assumed, and (ix) all
other items which have been, or in accordance with GAAP would be, included
in determining total liabilities on the liability side of the balance
sheet.
"Losses" shall have the meaning set forth in Section 9.2.
"Material Adverse Effect" with respect to any person or entity shall
mean an event, occurrence or condition that has had or reasonably would be
expected to have a material adverse effect on the business, condition
(financial or otherwise), assets, liabilities, working capital, operations
or prospects of such person or entity and its Subsidiaries (if any), taken
as a whole.
"Material Agreements" shall mean all of the following Contracts to
which the Company or any of its Subsidiaries is a party: (a) all Contracts
which (i) involve payments by or to any Person, of more than $50,000 in
cash or other property or services, or (ii) extend for a term of more than
thirty (30) days from the date hereof (unless the same is (y) cancelable on
not more than thirty (30) days' notice without fee, premium or penalty or
(z) motor vehicle or equipment leases not involving payments in excess of
$50,000), (b) all loan agreements and commitments, credit agreements,
indentures, promissory notes, mortgages, deeds of trust, pledge or security
agreements, factoring agreements, conditional sales Contracts, letters of
credit or other agreements or instruments evidencing, securing or issued in
connection with any Liability, (c) all operating leases or capital leases
for equipment to which the Company is a party, involving annual payments in
excess of $50,000 per lease, (d) all union, labor or collective bargaining
Contracts, (e) all consulting, management, development, leasing brokerage
or similar agreements with total obligations in excess of $50,000, (f) any
guarantee of any Liability or other obligations of any Person other than
guarantees by the Company of the obligations of its wholly owned
Subsidiaries, (g) each joint venture, partnership, operating or similar
agreement, (h) each agreement relating to any outstanding commitment for
capital expenditures involving future payments which, together with future
payments under all other agreements, Contracts or commitments relating to
the same capital project, exceed $50,000, (i) any agreement, Contract or
commitment relating to a disposition or an acquisition of the assets
(except in respect of the disposition or acquisition of assets with a fair
market value of less than $50,000) or securities of, or any interest in,
any Person or other business enterprise, (j) any agreement, Contract or
commitment in respect of any Liability of whatever nature (including,
without limitation, open account indebtedness) to any Affiliate of the
Company, or any agreement, Contract or commitment with or to any Affiliate
of the Company, (k) any agreement, Contract or commitment containing any
covenant limiting the freedom of the Company to undertake, conduct or
engage in any business or activity or to compete with any Person in any
geographic area, (l) any Financial Product Agreement, (m) any construction,
development, service, supply and maintenance agreement (unless the same is
(y) cancelable on not more than thirty (30) days' notice without fee,
premium or penalty or (z) does not involve payments in excess of $50,000),
(n) all leases of Real Property and (o) all agreements not entered into in
the ordinary course of business;
"Multiemployer Plan" means any "multiemployer plan," as defined in
Section 4001(a)(3) or 3(37) of ERISA, which (A) the Company or any ERISA
Affiliate maintains, administers, contributes to or is required to
contribute to, or, after September 25, 1980, maintained, administered,
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contributed to or was required to contribute to, or under which the Company
or any ERISA Affiliate may incur any liability and (B) covers any employee
or former employee of the Company or any ERISA Affiliate (with respect to
their relationship with such entities).
"PBGC" means the Pension Benefit Guaranty Corporation.
"Pension Plan" means any "employee pension benefit plan" as defined in
Section 3(2) of ERISA (other than a Multiemployer Plan) which (A) the
Company or any ERISA Affiliate maintains, administers, contributes to or is
required to contribute to, or, within the five years prior to the Closing
Date, maintained, administered, contributed to or was required to
contribute to, or under which the Company or any ERISA Affiliate may incur
any liability and (B) covers any employee or former employee of the Company
or any ERISA Affiliate (with respect to their relationship with such
entities).
"Permits" shall mean all licenses, permits, orders, consents,
approvals, registrations, authorizations, qualifications and filings
required by any federal, state, local or foreign laws or governmental or
regulatory bodies and all industry or other non-governmental
self-regulatory organizations.
"Permitted Encumbrances" means (i) any mechanic's or materialmen's
lien or similar Encumbrances arising in the ordinary course of business
with respect to amounts not yet due and payable or which are being
contested in good faith by appropriate proceedings and for which
appropriate reserves have been established, (ii) Encumbrances for Taxes not
yet due and payable or which are being contested in good faith by
appropriate proceeding, for which appropriate reserves have been
established, (iii) easements, licenses, covenants, rights of way and
similar Encumbrances which, individually or in the aggregate, would not
materially and adversely affect the marketability or value of the property
encumbered thereby or materially interfere with the operations of the
Company.
"Person" means any individual, co-partner, association, partnership,
joint venture, limited liability company, trust, estate or other entity or
organization.
"Preferred Stock" means the Class AA Preferred Stock, the Class ABI
Preferred Stock and the Class ABII Preferred Stock.
"Preferred Stock Certificates of Designations" shall mean the Class AA
Certificate of Designations, the Class ABI Certificate of Designations and
the Class ABII Certificate of Designations.
"Preferred Stock Director" shall mean the three directors elected by
the holders of the Preferred Stock in the manner set forth in the Preferred
Stock Certificates of Designations.
"Preferred Stock Liquidation Preference" shall mean $1,000 per share
of Preferred Stock, plus any accrued and unpaid dividends thereon.
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"Proceeding" means any action, suit or proceeding, whether civil,
criminal, administrative, arbitrative or investigative, any appeal in such
an action, suit or proceeding, and any inquiry or investigation that could
reasonably be expected to lead to such an action, suit or proceeding.
"Proprietary Rights" shall have the meaning set forth in Section
4.26(a).
"Proxy Materials" means the proxy statement and other proxy materials
(as amended and supplemented) to be used to solicit proxies on behalf of
the board of directors of the Company in connection with the Stockholders
Meeting.
"Purchase Price" shall mean the Class AA Per Share Purchase Price
multiplied by the number of shares of Class AA Preferred Stock to be
purchased and sold at a particular Closing plus the Class ABI Per Share
Purchase Price multiplied by the number of shares of Class ABI Preferred
Stock to be purchased and sold at a particular Closing plus the Class ABII
Per Share Purchase Price multiplied by the number of shares of Class ABII
Preferred Stock to be purchased and sold at a particular Closing.
"Purchaser" shall have the meaning set forth in the first paragraph
hereof.
"Purchaser Indemnified Parties" shall have the meaning set forth in
Section 9.2.
"Registration Rights Agreement" means the Amended and Restated
Registration Rights Agreement substantially in the form of Exhibit C
attached hereto.
"Regulation D" shall have the meaning set forth in Section 4.27(b).
"Regulations" means any laws, statutes, ordinances, regulations,
rules, notice requirements, court decisions and orders of any foreign,
federal, state or local government and any other governmental department or
agency, including without limitation Environmental Laws, energy, motor
vehicle safety, public utility, zoning, building and health codes,
occupational safety and health laws and laws respecting employment
practices, employee documentation, terms and conditions of employment and
wages and hours.
"Release" means and includes any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, dumping or
disposing into the environment or the workplace of any Hazardous Materials,
and otherwise as defined in any Environmental Law.
"Schedules" shall have the meaning set forth in Section 10.10.
"SEC Filings" shall have the meaning set forth in Section 4.9.
"Second Closing" shall have the meaning set forth in Section 3.2(b).
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"Securities" means the Preferred Stock, the Warrants and the
Supplemental Warrants.
"Securities Act" means the Securities Act of 1933, as amended.
"Series A Preferred Stock" means the shares of Series A 11% Cumulative
Convertible Preferred Stock, $0.01 par value per share, of the Company
outstanding on the date hereof.
"Series B Preferred Stock" means the shares of Series B Convertible
Preferred Stock, $0.01 par value per share, of the Company outstanding on
the date hereof.
"Series C Preferred Stock" means the shares of Series C Convertible
Preferred Stock, $0.01 par value per share, of the Company to be issued in
accordance with existing contractual provisions.
"Series D Preferred Stock" means the shares of Series D 6% Convertible
Redeemable Preferred Stock, $0.01 par value per share, of the Company
outstanding on the date hereof or to be issued in accordance with existing
contractual provisions.
"Series E Preferred Stock" means the shares of Series E Preferred
Stock, $0.01 par value per share, of the Company outstanding on the date
hereof.
"Shareholder Undertakings" means the undertakings delivered by the
Company to the Purchaser on the date of this Agreement pursuant to the
Stockholders Voting Agreement by all the stockholders party to the
Stockholders Voting Agreement including the proxy of each such person to
vote in favor of the Stockholder Approval.
"Stockholder Approval" shall have the meaning set forth in Section
8.1(a).
"Stockholders Agreement" means the Amended and Restated Stockholders
Agreement substantially in the form of Exhibit E attached hereto.
"Stockholders Meeting" shall have the meaning set forth in Section
6.1(a).
"Stockholders Voting Agreement" shall mean that certain Stockholders
Voting Agreement, dated as of September 30, 1997, by and among the Company,
the Purchaser and certain stockholders named therein.
"Subsequent Closing" shall mean each Closing of a Subsequent Purchase.
"Subsequent Purchase" shall have the meaning set forth in Section
3.3(a).
"Subsidiary" means, with respect to any Person, (a) any corporation of
which at least a majority in interest of the outstanding voting stock
(having by the terms thereof voting power under ordinary circumstances to
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elect a majority of the directors of such corporation, irrespective of
whether or not at the time stock of any other class or classes of such
corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time, directly or indirectly, owned
or controlled by such Person, by one or more Subsidiaries of such Person,
or by such Person and one or more of its Subsidiaries, or (b) any corporate
or non-corporate entity in which such Person, one or more Subsidiaries of
such Person, or such person and one or more Subsidiaries of such Person,
directly or indirectly, at the date of determination thereof, has an
ownership interest and 100% of the revenue of which is included in the
consolidated financial reports of such Person consistent with GAAP.
"Supplemental Warrant Agreement" means that certain Warrant Agreement
by and between the Company and the Purchaser substantially in the form
attached hereto as Exhibit I pursuant to which the Company shall at the
first Subsequent Closing issue the Supplemental Warrants to the Purchaser
or its designee.
"Supplemental Warrants" shall have the meaning set forth in the
recitals hereto.
"Tax" or "Taxes" means any federal, state, local or foreign net or
gross income, gross receipts, license, payroll, employment, excise,
severance, stamp, occupation, premium, (including taxes under Code Sec.
59A), customs duties, capital stock, franchise, profits, withholding,
social security (or similar), unemployment, disability, real property,
personal property, sales, use, transfer, registration, value added,
alternative or add-on minimum, estimated, or other tax, governmental fee or
like assessment or charge of any kind whatsoever, including any interest,
penalty or addition thereto, whether disputed or not, imposed by any
governmental authority or arising under any Tax law or agreement,
including, without limitation, any joint venture or partnership agreement.
"Tax Return" means any return, declaration, report, claim for refund
or information or return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendments thereof.
"Third Party Notice" shall have the meaning set forth in Section 9.5.
"Title Policies" shall have the meaning set forth in Section 4.16(a).
"Transaction" means, taken together, the transactions contemplated
under this Agreement.
"Transaction Expenses" means the reasonable fees and expenses incurred
by the Purchaser, including, but not limited to, fees and expenses of legal
counsel, accountants and consultants and travel expenses in connection with
the preparation of the Agreement and the Purchaser's due diligence
examination relating to the Agreement and the transactions contemplated
hereby, including, without limitation, Hart-Scott-Rodino filing fees, if
any.
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"Warrant Agreement" means that certain Amended and Restated Warrant
Agreement by and between the Company and the Purchaser substantially in the
form attached hereto as Exhibit D, pursuant to which the Company has at the
First Closing and shall at the first Subsequent Closing, issue the Warrants
to the Purchaser.
"Warrants" shall have the meaning set forth in the recitals hereto.
"Warrant Shares" means the Common Stock issuable upon the exercise of
the Warrants and the Supplemental Warrants.
"Welfare Plan" means any "employee welfare benefit plan" as defined in
Section 3(1) of ERISA, which (A) the Company or any ERISA Affiliate
maintains, administers, contributes to or is required to contribute to, or
under which the Company or any ERISA Affiliate may incur any liability and
(B) covers any employee or former employee of the Company or any ERISA
Affiliate (with respect to their relationship with such entities).
ARTICLE II.
PURCHASE AND SALE OF SECURITIES
Section 2.1. Purchase and Sale of Securities. Subject to the terms and
conditions hereof, from time to time, at the Closings, the Company has and will
sell, convey, assign, transfer, and deliver, and the Purchaser will purchase and
acquire from the Company (i) an aggregate of 40,000 shares of Class AA Preferred
Stock (including the 11,700 shares of Class AA Preferred Stock issued to the
Purchaser on September 30, 1997), (ii) an aggregate of 35,000 shares of Class AB
Preferred Stock which shall be apportioned between the Class ABI Preferred Stock
and the Class ABII Preferred Stock as set forth in Section 10.17 and (iii) an
aggregate of 1,000,000 Warrants (subject to adjustment in accordance with the
terms of the Warrant Agreement), including the 375,000 Warrants issued to the
Purchaser on September 30, 1997 and an aggregate of up to 5,714,286 Supplemental
Warrants (subject to adjustment as set forth in the Supplemental Warrant
Agreement).
Section 2.2. Consideration. Subject to the terms and conditions hereof, at
each Closing, the Purchaser shall deliver to the Company the Purchase Price with
respect to the number of shares of Preferred Stock to be purchased and sold at
such Closing by wire transfer of immediately available funds in U.S. dollars to
the account or accounts specified by the Company.
Section 2.3. Right to Assign. The Purchaser may assign its rights and
delegate its obligations created hereby to purchase Securities in accordance
with the provisions of Section 10.7.
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ARTICLE III.
CLOSING
Section 3.1. Location of Closings. Each Closing shall be held at 9:00 a.m.
Eastern Time on the applicable Closing Date at the offices of Latham & Watkins,
885 Third Avenue, New York, New York 10022.
Section 3.2. First and Second Closings.
(a) First Closing. On September 30, 1997, on terms substantially similar to
those set forth herein, the Purchaser purchased and acquired from the Company,
and the Company sold, conveyed, assigned, transferred and delivered to the
Purchaser, 11,700 shares of Class AA Preferred Stock and 375,000 Warrants, and
the Purchaser paid to the Company the Purchase Price for such shares of Class AA
Preferred Stock (the "First Closing").
(b) Second Closing. Subject to the terms and conditions hereof, on February
27, 1998, the Purchaser will purchase and acquire from the Company and the
Company will sell, convey, assign, transfer and deliver to the Purchaser, 28,300
shares of Class AA Preferred Stock and the Purchaser will pay to the Company the
Purchase Price for such shares of Class AA Preferred Stock (the "Second
Closing").
Section 3.3. Subsequent Purchases and Sales.
(a) Subject to the terms and conditions hereof, following the Second
Closing, the Company shall be obligated to sell to the Purchaser, from time to
time at one or more Subsequent Closings, an aggregate of 35,000 shares of Class
AB Preferred Stock, apportioned between the Class ABI Preferred Stock and the
Class ABII Preferred Stock as set forth in Section 10.17 (each referred to as a
"Subsequent Purchase" and, together, the "Subsequent Purchases"), subject to
satisfaction or waiver of the conditions set forth in Sections 7.1 and 7.3 and
Article VIII. Subject to the terms and conditions hereof, the Closing of any
Subsequent Purchase shall occur as soon as practicable following the date on
which the conditions set forth in Article VII and Article VIII shall have been
satisfied or duly waived and the applicable notice period referred to in Section
3.3(b) below shall have expired; provided, however, that no Subsequent Purchase
shall occur within six months following the date of the Second Closing unless
the Purchaser expressly consents in writing to any such Subsequent Purchase.
Concurrently with the earlier of (i) the first sale of Class AB Preferred Stock
(or debt instrument issued as described in Section 10.16) or (ii) the date on
which the Company receives a written notice from the Purchaser notifying the
Company that it has failed to purchase the amount of Class AB Preferred Stock
required by the terms of this Agreement (which notice shall not be delivered
prior to December 31, 1998), the Company shall issue 625,000 Warrants to the
Purchaser and shall execute and deliver the Supplemental Warrant Agreement to
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the Purchaser and shall issue the Supplemental Warrants. The Company represents
and warrants that upon satisfaction of the conditions set forth herein, no
further action is required to permit the execution and delivery of the
Supplemental Warrant Agreement and for the Warrants and the Supplemental
Warrants to be deemed issued and outstanding.
(b) At least 20 Business Days prior to any Subsequent Purchase, the Company
shall notify (which shall be in writing and irrevocable) the Purchaser of the
anticipated date of the Subsequent Closing (which shall be a Business Day) and
the number of shares of Class AB Preferred Stock the Company is requiring the
Purchaser to purchase, which shall not be fewer than 10,000 Shares of Class AB
Preferred Stock unless such purchase is of the balance of the Class AB Preferred
Stock. The Company shall be obligated to sell to the Purchaser all of the Class
AB Preferred Stock on or before December 31, 1998.
Section 3.4. Deliveries by the Company at Closing. At each Closing, the
Company shall issue and deliver to the Purchaser:
(a) certificates evidencing the Preferred Stock to be issued and
delivered at such Closing in the name of the Purchaser (or its permitted
assignee(s)) in the respective amounts as set forth in a written notice
provided to the Company by the Purchaser, free and clear of all
Encumbrances;
(b) at the First Closing, certificates evidencing 375,000 Warrants
and, at the first Subsequent Closing, certificates evidencing 625,000
Warrants and up to 5,714,286 Supplemental Warrants, in each case in the
name of the Purchaser (or its permitted assignee(s)) in the respective
amounts as set forth in a written notice provided to the Company by the
Purchaser, free and clear of all Encumbrances; and
(c) all such other documents and instruments as the Purchaser or its
counsel shall reasonably request to consummate or evidence the Transaction.
Section 3.5. Deliveries by the Purchaser at Closing.
At each Closing, the Purchaser shall deliver to the Company:
(a) immediately available funds as provided in Section 2.2;
(b) all such other documents and instruments as the Company or its
counsel shall reasonably request to consummate or evidence the Transaction.
Section 3.6. Certificates; Opinions. At each Closing, the Purchaser and the
Company shall deliver the certificates, opinions of counsel, and other documents
described in Article VII.
Section 3.7. Ancillary Agreements. (a) At the Second Closing, the Company
and the Purchaser shall enter into the Ancillary Agreements other than the
Supplemental Warrant Agreement.
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(b) At the first Subsequent Closing, the Company and the Purchaser
shall enter into the Supplemental Warrant Agreement.
Section 3.8. Form of Documents and Instruments. All of the documents and
instruments delivered at Closing shall be in form and substance, and shall be
executed and delivered in a manner, reasonably satisfactory to the parties'
respective counsel.
Section 3.9. Further Purchases. Provided that the Company has at such time
sold all Subsequent Purchases to the Purchaser, the Company may, at its option,
request in writing on not less than thirty (30) Business Days' notice that the
Purchaser purchase in the aggregate from the Company, in proportionate amounts
and on terms otherwise identical to the terms of the securities set forth in
Section 2.1., in addition to the Securities set forth in Section 2.1, up to an
additional 13,333 shares of Class AA Preferred Stock, up to an additional 11,667
shares of Class AB Preferred Stock apportioned between Class ABI Preferred Stock
and Class ABII Preferred Stock as set forth in Section 10.17, up to an
additional 333,250 Warrants and up to an additional 1,904,762 Supplemental
Warrants (a "Further Purchase"). The Purchaser may, in its sole discretion
accede to or refuse any such request for a Further Purchase. If the Purchaser
accepts any request for a Further Purchase, all Further Purchases shall take
place in accordance with Sections 3.3 through 3.8 as if the number of Securities
set forth in Section 3.3(a) were increased by the number of additional
Securities which the Purchaser has agreed to purchase as a Further Purchase
pursuant to this Section 3.9. Purchaser shall have a right of first refusal with
respect to any bona fide offer to purchase up to $25,000,000 of equity capital
(provided that Purchaser must respond to such offer within 30 days and if
Purchaser does not accept such offer, the Company cannot raise such capital on
terms materially less favorable to the Company without first offering the
securities again to Purchaser).
Section 3.10. Redelivery and Cancellation of Warrants. From and after the
Second Closing, in the event the Purchaser defaults in any of its obligations
hereunder to fund Subsequent Purchases (otherwise than by reason of a default of
the Company), the Purchaser shall promptly redeliver to the Company for
cancellation all Warrants (but not Supplemental Warrants) received by it in
excess of one (1) Warrant for every seventy five dollars ($75) liquidation
preference of Preferred Stock issued pursuant to this Agreement.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchaser as follows:
Section 4.1. Organization of the Company. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite corporate power and authority to own, lease, and
operate its properties and to carry on its business as presently being
conducted. No actions or proceedings to dissolve the Company are pending or, to
the knowledge of the Company, threatened. The copies of the Certificate
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of Incorporation and Bylaws heretofore delivered by the Company to the Purchaser
are accurate and complete as of the date hereof. The Company is duly qualified
or licensed to do business as a foreign corporation and is in good standing in
each jurisdiction in which the property owned, leased, or operated by it or the
conduct of its business requires such qualification or licensing, except where
the failure to do so taken in the aggregate would not have a Material Adverse
Effect on the Company.
Section 4.2. Capitalization of the Company. (a)The authorized capital stock
of the Company as of the date hereof, consists of 49,000,000 shares of Common
Stock, par value $0.01 per share and 1,000,000 shares of preferred stock. As of
the date hereof, 11,612,594 shares of Common Stock, 11,700 shares of Class AA
Preferred Stock, 10,000 shares of Series A Preferred Stock, 8,854 shares of
Series B Preferred Stock, no shares of Series C Preferred Stock, 60,000 shares
of Series D Preferred Stock and 2,500 shares of Series E Preferred Stock were
outstanding. As of the date hereof, 379,800 shares of Common Stock are reserved
for issuance upon exercise of outstanding employee stock options, 188,540 shares
of Common Stock are reserved for issuance upon conversion of the Existing
Preferred Stock and other outstanding securities, a maximum of 60,000 shares of
Series C Preferred Stock are reserved for issuance pursuant to existing
contractual agreements and a maximum of 600,000 shares of Common Stock are
reserved for issuance upon conversion of such Series C Preferred Stock. Schedule
4.2 sets forth the beneficiaries of all such reserved shares. Schedule 4.2
contains the aggregate number of outstanding options to purchase shares of
Common Stock, the weighted average exercise price with respect to such options
and the plan or other arrangements pursuant to which such options were issued.
All outstanding shares of capital stock of the Company have been validly issued
and are fully paid and nonassessable, and no shares of capital stock of the
Company are subject to, nor have any been issued in violation of, any preemptive
or similar rights.
(b) Except as set forth above in paragraph (a) of this Section 4.2, as
contemplated by this Agreement and as set forth on Schedule 4.2 hereof, there
are outstanding (i) no shares of capital stock or other voting securities of the
Company; (ii) no securities of the Company convertible into or exchangeable for
shares of capital stock or other voting securities of the Company; (iii) no
subscriptions, options, warrants, calls, commitments, preemptive rights or other
rights of any kind to acquire from the Company, and no obligation of the Company
to issue or sell, any shares of capital stock or other voting securities of the
Company or any securities of the Company convertible into or exchangeable for
such capital stock or voting securities; and (iv) no equity equivalents, stock
appreciation rights, interests in the ownership or earnings or other similar
rights of or with respect to the Company. Except as set forth on Schedule 4.2,
there are no outstanding contractual obligations of the Company to repurchase,
redeem or otherwise acquire any shares of Common Stock or any other securities
of the type described in clauses (i)-(iv) of the preceding sentence. Except as
set forth on Schedule 4.2, there are no restrictions upon the voting or transfer
of any share of the capital stock or other voting securities of the Company
pursuant to the Certificate of Incorporation, the Existing Preferred Stock
Certificates of Designations, the Bylaws or other governing documents or any
agreement or other instrument to which the Company is a party or by which the
Company is bound other than restricted stock held by certain employees. Schedule
4.2 contains a true and
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correct list of all persons holding restricted stock (as defined under any plan
or arrangement pursuant to which it was issued), the number of shares of
restricted stock held by such persons and the document or documents which
describe such restrictions.
Section 4.3. Authorization of Issuance. Upon consummation of the
transactions contemplated hereby, the Preferred Stock acquired by the Purchaser
from the Company will be duly authorized and validly issued, fully paid and not
subject to any preemptive or similar rights. Upon consummation of the
transactions contemplated hereunder, the Conversion Shares will be duly
authorized and reserved for issuance and upon conversion in accordance with the
terms of the Preferred Stock will be validly issued, fully paid and
nonassessable and not subject to any preemptive or similar rights. Upon the
First Closing, the Warrant Shares issuable upon exercise of the Warrants will be
duly authorized and reserved for issuance and, upon exercise of the Warrants in
accordance with the terms thereof, will be validly issued, fully paid and
nonassessable and not subject to any preemptive or similar rights. Upon the
Second Closing, the Warrant Shares issuable upon the exercise of the
Supplemental Warrants will be duly authorized and reserved for issuance and,
upon exercise of the Supplemental Warrants in accordance with the terms thereof,
will be validly issued, fully paid and nonassessable and not subject to any
preemptive or similar rights.
Section 4.4. Authorization. The Company has full corporate power and
authority to execute and deliver this Agreement and the Ancillary Agreements to
which it is a party and to consummate the transactions contemplated hereby and
thereby other than the Stockholder Approval. The execution and delivery by the
Company of this Agreement has been duly authorized by all necessary corporate
action of the Company. The execution and delivery by the Company of the
Ancillary Agreements to which it is a party, and the consummation by it of the
transactions contemplated hereby and thereby, have been duly authorized by all
necessary corporate action of the Company (other than the Stockholder Approval).
This Agreement has been duly executed and delivered by the Company and
constitutes, and each Ancillary Agreement executed or to be executed by the
Company has been, or when executed will be, duly executed and delivered by the
Company and constitutes, or when executed and delivered will constitute, a valid
and legally binding obligation of the Company, enforceable against the Company
in accordance with its terms.
Section 4.5. Noncontravention. Except as set forth on Schedule 4.5, the
execution and delivery by the Company of this Agreement and the Ancillary
Agreements and the performance by it of the transactions contemplated hereby and
thereby (including the conversion/exercise of all of the Securities acquired or
to be acquired by the Purchaser hereunder) do not and will not (i) conflict with
or result in a violation of any provision of the Certificate of Incorporation or
the Bylaws, or the charter, bylaws, or other governing instruments of any of its
Subsidiaries, (ii) conflict with or result in a violation of any provision of,
or constitute (with or without the giving of notice or the passage of time or
both) a default under, or give rise (with or without the giving of notice or the
passage of time or both) to any loss of a benefit which would have a Material
Adverse Effect, or of any event of default, right of termination, cancellation,
or acceleration under, any Material Agreement including, without limitation, the
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Indenture, (iii) result in the creation or imposition of any Encumbrance (other
than a Permitted Encumbrance) upon the properties of the Company or any of its
Subsidiaries, or (iv) violate any Applicable Law binding upon the Company or any
of its Subsidiaries. Schedule 4.5 sets forth, in reasonable detail, the
calculations of the Company demonstrating that the Company is currently in
compliance with the Indenture and that the transactions contemplated hereby do
not and will not result in an event of default under or breach of the terms of
the Indenture, or give rise to a "Change of Control Offer" as defined in the
Indenture.
Section 4.6. Consents and Approvals. No consent, approval, order,
authorization of, or declaration, filing, or registration with, any Governmental
Entity is required to be obtained or made by the Company or any of its
Subsidiaries in connection with the execution and delivery by the Company of
this Agreement and the Ancillary Agreements to which it is a party or the
consummation of the transactions contemplated hereby and thereby, other than (i)
filings under the HSR Act and expiration or termination of any applicable
waiting period required thereunder, (ii) the filing of the Certificate
Amendments with the Secretary of State of the State of Delaware, and (iii)
filings under the Exchange Act. Except as set forth on Schedule 4.6, no consent
or approval of any person other than any Governmental Entity or The Nasdaq Stock
Market, Inc. is required to be obtained or made by the Company or any of its
Subsidiaries in connection with the execution and delivery by the Company of
this Agreement and the Ancillary Agreements to which it is a party or the
consummation of the transactions contemplated hereby and thereby.
Section 4.7. Subsidiaries. (a) Except as otherwise set forth on Schedule
4.7, the Company does not own, directly or indirectly, any of the capital stock
or other securities of any corporation or partnership or have any direct or
indirect equity or ownership interest of more than five percent in any other
person, other than its Subsidiaries. Schedule 4.7 lists each such Subsidiary of
the Company as of the date hereof and its respective jurisdiction of
incorporation or formation. As set forth on Schedule 4.7, each Subsidiary of the
Company is a corporation, partnership or limited liability company duly
organized or formed, as the case may be, validly existing, and in good standing
under the laws of the jurisdiction of its incorporation or formation. Each such
Subsidiary has all requisite organizational authority to own, lease, and operate
its properties and to carry on its business as now being conducted. Except as
otherwise indicated on Schedule 4.7, no actions or proceedings to dissolve any
Subsidiary of the Company are pending.
(b) Except as otherwise indicated on Schedule 4.7 or under the Securities
Act or the rules and regulations promulgated thereunder, all the outstanding
capital stock or other equity interests of each Subsidiary of the Company is
owned directly or indirectly by the Company, free and clear of all Encumbrances
and restrictions on voting, sale, transfer or disposition. All outstanding
shares of capital stock of each Subsidiary of the Company have been validly
issued and are fully paid and nonassessable. No shares of capital stock or other
equity interests of any Subsidiary of the Company are subject to, nor have any
been issued in violation of, preemptive or similar rights.
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(c) Except for shares of Common Stock owned by the Company or any
Subsidiary of the Company and as set forth above on Schedule 4.7, there are
outstanding (i) no shares of capital stock or other voting securities of any
Subsidiary of the Company; (ii) no securities of any Subsidiary of the Company
convertible into or exchangeable for shares of capital stock or other voting
securities of any of any Subsidiary of the Company; (iii) no subscriptions,
options, warrants, calls, commitments, preemptive rights or other rights of any
kind to acquire from any Subsidiary of the Company, and no obligation of any
Subsidiary of the Company to issue or sell, any shares of capital stock or other
voting securities of any Subsidiary of the Company or any securities of any
Subsidiary of the Company convertible into or exchangeable for such capital
stock or voting securities; and (iv) no equity equivalents, stock appreciation
rights, interests in the ownership or earnings, or other similar rights of or
with respect to any Subsidiary of the Company. There are no outstanding
contractual obligations of any Subsidiary of the Company to repurchase, redeem
or otherwise acquire any shares of capital stock or any other securities of the
type described in clauses (i)-(iv) of the preceding sentence.
Section 4.8. Employee Benefit Plans and Other Agreements. (a) Disclosure;
Delivery of Copies of Relevant Documents and Other Information. Schedule 4.8
contains a complete list of Employee Plans which cover or have covered present
or former employees, directors or consultants of the Company or any of its
Subsidiaries (with respect to their relationship with such entities) (each, a
"Company Employee Plan"). True and complete copies of each of the following
Company Employee Plan documents have been delivered or made available by the
Company to the Purchaser: (i) each Company Employee Plan document (and, if
applicable, related trust agreements and all annuity contracts or other funding
instruments) and all amendments thereto, all reasonably available written
descriptions thereof which have been distributed to the Company's employees and
those of its ERISA Affiliates and a complete description of any Company Employee
Plan, which is not in writing (including a description of the number and level
of employees covered thereby), (ii) the most recent determination or opinion
letter issued by the Internal Revenue Service with respect to each Pension Plan
and each Welfare Plan (other than a Multiemployer Plan), which covers or has
covered employees of the Company or any of its ERISA Affiliates (with respect to
their relationship with such entities), (iii) for the three most recent plan
years, any Annual Reports on Form 5500 Series required to be filed with any
governmental agency for each Pension Plan which covers or has covered employees
or former employees of the Company or any of its ERISA Affiliates (with respect
to their relationship with such entities) (each, a "Company Pension Plan"), (iv)
any actuarial reports prepared for the last three plan years for each Pension
Plan which covers or has covered present or former employees, directors or
consultants of the Company or any of its Subsidiaries (with respect to their
relationship with such entities), (v) a tabulation of age, salary, service and
related data as of the last day of the last plan year for employees of the
Company or any of its Subsidiaries and (vi) a description setting forth the
amount of any liability of the Company or any of its Subsidiaries as of the
Closing Date for payments more than thirty (30) calendar days past due with
respect to each Welfare Plan which covers or has covered employees or former
employees of the Company or any of its Subsidiaries.
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(b) Employee Plans.
(i) Pension Plans.
(A) The funding method used in connection with any Pension Plan which is
subject to the minimum funding requirements of ERISA is acceptable and the
actuarial assumptions used in connection with funding each such plan are
reasonable. As of the last day of the last plan year of each Pension Plan and as
of the Closing Date, the "amount of unfunded benefit liabilities" as defined in
Section 4001(a)(18) of ERISA (but excluding from the definition of "current
value" of "assets" of such Pension Plan, accrued but unpaid contributions) did
not and will not exceed zero. No "accumulated funding deficiency" (for which an
excise tax is due or would be due in the absence of a waiver) as defined in
Section 412 of the Code or as defined in Section 302(a)(2) of ERISA, whichever
may apply, has been incurred with respect to any Pension Plan with respect to
any plan year, whether or not waived. Neither the Company nor any ERISA
Affiliate has failed to pay when due any "required installment", within the
meaning of Section 412(m) of the Code and Section 302(e) of ERISA, whichever may
apply, with respect to any Pension Plan. Neither the Company nor any ERISA
Affiliate is subject to any lien imposed under Section 412(n) of the Code or
Section 302(f) of ERISA, whichever may apply, with respect to any Pension Plan.
Neither the Company nor any ERISA Affiliate has any liability for unpaid
contributions with respect to any Pension Plan.
(B) Neither the Company nor any ERISA Affiliate is required to provide
security to any Company Pension Plan under Section 401(a)(29) of the Code.
(C) Any Company Pension Plan and each related trust agreement, annuity
contract or other funding instrument is qualified and tax-exempt under the
provisions of Code Sections 401(a) (or 403(a), as appropriate) and 501(a) and
has been so qualified during the period from its adoption to date.
(D) Any Company Pension Plan and each related trust agreement, annuity
contract or other funding instrument presently complies and has been maintained
in compliance, in all material respects, with its terms and, both as to form and
in operation, with the requirements prescribed by any and all statutes, orders,
rules and regulations which are applicable to such plans, including without
limitation ERISA and the Code.
(E) The Company has paid all premiums (and interest charges and penalties
for late payment, if applicable) due the PBGC with respect to each Company
Pension Plan for each plan year thereof for which such premiums are required.
Neither the Company nor any ERISA Affiliate has engaged in, or is a successor or
parent corporation to an entity that has engaged in, a transaction described in
Section 4069 of ERISA. There has been no "reportable event" (as defined in
Section 4043(b) of ERISA and the PBGC regulations under such Section) with
respect to any Pension Plan. No filing has been made by the Company or any ERISA
Affiliate with the PBGC, and no proceeding has been commenced by the PBGC, to
terminate any Pension Plan. No condition exists and no event has occurred
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that could constitute grounds for the termination of any Pension Plan by the
PBGC. Neither the Company nor any ERISA Affiliate has, at any time, (1) ceased
operations at a facility so as to become subject to the provisions of Section
4062(e) of ERISA, (2) withdrawn as a substantial employer so as to become
subject to the provisions of Section 4063 of ERISA, or (3) ceased making
contributions on or before the Closing Date to any Pension Plan subject to
Section 4064(a) of ERISA to which the Company or any ERISA Affiliate made
contributions during the six years prior to the Closing Date.
(ii) Multiemployer Plans.
(A) Neither the Company nor any ERISA Affiliate has, at any time, withdrawn
from a Multiemployer Plan in a "complete withdrawal" or a "partial withdrawal"
as defined in Sections 4203 and 4205 of ERISA, respectively, so as to result in
a liability, contingent or otherwise (including without limitation the
obligations pursuant to an agreement entered into in accordance with Section
4204 of ERISA), of the Company or any ERISA Affiliate. Neither the Company nor
any ERISA Affiliate has engaged in, or is a successor or parent corporation to
an entity that has engaged in, a transaction described in Section 4212(c) of
ERISA.
(B) All contributions required to be made by the Company or any ERISA
Affiliate to any Multiemployer Plan have been made when due.
(C) If, as of the Closing Date, the Company (and all ERISA Affiliates) were
to withdraw from any Multiemployer Plans to which it (or any of them) has
contributed or been obligated to contribute, it (and they) would incur no
liabilities to such plans under Title IV of ERISA.
(D) To the best of the Company's knowledge, with respect to any
Multiemployer Plan: (1) no such Multiemployer Plan has been terminated or has
been in reorganization under ERISA so as to result, directly or indirectly, in
any liability, contingent or otherwise, of the Company or any ERISA Affiliate
under Title IV of ERISA; (2) no proceeding has been initiated by any person
(including the PBGC) to terminate such Multiemployer Plan; (3) a "mass
withdrawal", as defined in PBGC Reg. Section 2640.7, with respect to such
Multiemployer Plan has not occurred; (4) the Company and the ERISA Affiliates
have no reason to believe that such Multiemployer Plan will be terminated or
will be reorganized under ERISA or that a "mass withdrawal", as defined in PBGC
Reg. Section 2640.7, will occur with respect to such Multiemployer Plan; and (5)
the Company and the ERISA Affiliates do not expect to withdraw in a "complete
withdrawal" or "partial withdrawal" from such Multiemployer Plan.
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(iii) Welfare Plans
(A) Each Welfare Plan presently complies and has been maintained in
compliance, in all material respects, with its terms and, both as to form and
operation, with the requirements prescribed by any and all statutes, orders,
rules and regulations which are applicable to such Welfare Plan, including
without limitation ERISA and the Code.
(B) None of the Company, any ERISA Affiliate or any Welfare Plan has any
present or future obligation to make any payment to, or with respect to any
present or former employee of the Company or any ERISA Affiliate pursuant to,
any retiree medical benefit plan, or other retiree Welfare Plan, and no
condition exists which would prevent the Company from amending or terminating
any such benefit plan or Welfare Plan.
(C) Each Welfare Plan which is a "group health plan," as defined in Section
607(1) of ERISA, has been operated in material compliance with provisions of
Part 6 of Title I, Subtitle B of ERISA and 4980B of the Code at all times.
(D) Neither the Company nor any ERISA Affiliate has incurred any liability
with respect to any Welfare Plan that is a "multiemployer plan", as defined in
Section 3(37) of ERISA, under the terms of such Welfare Plan, any collective
bargaining agreement or otherwise resulting from any cessation of contributions,
cessation of obligation to make contributions or other form of withdrawal from
such Welfare Plan.
(E) If, as of the Closing Date, the Company (and all ERISA Affiliates) were
to have a cessation of contribution, cessation of obligations to make
contribution or other form of withdrawal from all Welfare Plans that are
"multiemployer plans", as defined in Section 3(37) of ERISA, it (and they) would
incur no material liabilities with respect to any such Welfare Plans under the
terms of such Welfare Plans, any collective bargaining agreement or otherwise.
(iv) Benefit Arrangements. Each Benefit Arrangement has been maintained in
all material respects in compliance with its terms and with the requirements
prescribed by any and all statutes, orders, rules and regulations which are
applicable to such Benefit Arrangement, including without limitation, the Code.
Except as set forth in Schedule 4.8 and except as provided by law, the
employment of all persons presently employed or retained by the Company is
terminable at will.
(v) Unrelated Business Taxable Income. No Employee Plan (or trust or other
funding vehicle pursuant thereto) is subject to any tax under Code Section 511.
(vi) Deductibility of Payments. There is no contract, agreement, plan or
arrangement covering any present or former employee, director or consultant of
the Company or any of its Subsidiaries (with respect to his or her relationship
with such entities) that, individually or collectively, provides for the payment
by the Company of any amount (i) that is not deductible under Section 162(a)(1),
162(m) or 404 of the Code or (ii) that is an "excess parachute payment" pursuant
to Section 280G of the Code.
(vii) Fiduciary Duties and Prohibited Transactions. Neither the Company nor
any plan fiduciary of any Welfare Plan or Pension Plan, has engaged in any
transaction in violation of Sections 404 or
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406 of ERISA or any "prohibited transaction," as defined in Section 4975(c)(1)
of the Code, for which no exemption exists under Section 408 of ERISA or Section
4975(c)(2) or (d) of the Code, or has otherwise violated the provisions of Part
4 of Title I, Subtitle B of ERISA. The Company has not knowingly participated in
a violation of Part 4 of Title I, Subtitle B of ERISA by any plan fiduciary of
any Welfare Plan or Pension Plan and has not been assessed any civil penalty
under Section 502(l) of ERISA.
(viii) Validity and Enforceability. Each Welfare Plan, Pension Plan,
related trust agreement, annuity contract or other funding instrument is legally
valid and binding and in full force and effect.
(ix) Litigation. There is no action, order, writ, injunction, judgment or
decree outstanding or claim, suit, litigation, proceeding, arbitral action,
governmental audit or investigation relating to or seeking benefits under any
Employee Plan that is pending, threatened or anticipated against the Company,
any ERISA Affiliate or any Employee Plan.
(x) No Amendments. Neither the Company nor any ERISA Affiliate has any
announced plan or legally binding commitment to create any additional Employee
Plans which are intended to cover present or former employees, directors or
consultants of the Company or any of its Subsidiaries (with respect to their
relationship with such entities) or to amend or modify any existing Company
Employee Plan.
(xi) No Other Material Liability. No event has occurred in connection with
which the Company or any ERISA Affiliate or any Employee Plan, directly or
indirectly, could be subject to any material liability (A) under any statute,
regulation or governmental order relating to any Employee Plan or (B) pursuant
to any obligation of the Company to indemnify any person against liability
incurred under any such statute, regulation or order as they relate to the
Employee Plans.
(xii) Unpaid Contributions. Neither the Company nor any ERISA Affiliate has
any liability for unpaid contributions under Section 515 of ERISA with respect
to any Pension Plan, Multiemployer Plan or Welfare Plan.
(xiii) Insurance Contracts. Neither the Company nor any Employee Plan
(other than a Multiemployer Plan) holds as an asset of any Employee Plan any
interest in any annuity contract, guaranteed investment contract or any other
investment or insurance contract issued by an insurance company that is the
subject of bankruptcy, conservatorship or rehabilitation proceedings.
(xiv) No Acceleration or Creation of Rights. Except as disclosed on
Schedule 4.8, neither the execution and delivery of this Agreement by the
Company nor the consummation of the transactions contemplated hereby (including
the conversion/exercise of all of the Securities acquired or to be acquired by
the Purchaser hereunder) will result in the acceleration or creation of any
rights of any person to
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benefits under any Employee Plan (including, without limitation, the
acceleration of the vesting or exercisability of any stock options, the
acceleration of the vesting of any restricted stock, the acceleration of the
accrual or vesting of any benefits under any Pension Plan or the acceleration or
creation of any rights under any severance, parachute or change in control
agreement).
(xv) No Severance Payments. There are no agreements, including, without
limitation, any employment or consulting agreements to which the Company or any
of its Subsidiaries is a party that will require the Company or any of its
Subsidiaries to make a severance payment or incur or assume any other liability
as a result of the transactions contemplated by this Agreement and the Ancillary
Agreements, including, without limitation, any obligation to make any payments
upon the occurrence of a change of control.
Section 4.9. SEC Filings. The Company has filed with the Commission all
forms, reports, schedules, statements, and other documents required to be filed
by it under the Securities Act, the Exchange Act, and all other Federal
securities laws and the rules and regulations promulgated thereunder, during the
period from June 1996 to the date of this Agreement (the "SEC Filings"). A copy
of the unaudited consolidated balance sheet and statement of operations of the
Company as at and for the period ended on November 28, 1997 (the "November
Financial Statements") is annexed to Schedule 4.9. Each SEC Filing and the
November Financial Statements was prepared in accordance with, and at the time
of filing complied (or will comply) in all material respects with, the
requirements of the Securities Act, the Exchange Act or other applicable Federal
securities law and the rules and regulations promulgated thereunder, as the case
may be, except as the same was corrected or superseded in a subsequent SEC
Filing filed with the Commission. Neither the SEC Filings nor the November
Financial Statements, including, without limitation, any financial statements or
schedules included therein, at the time filed, contained any untrue statement of
a material fact or omitted to state any material fact required to be stated
therein or necessary in order to make the statements contained therein, in light
of the circumstances under which they were made, not misleading, except as the
same was corrected or superseded in a subsequent SEC Filing filed with the
Commission. The consolidated historical financial statements (including, in each
case, any related notes thereto) contained in the SEC Filings and the November
Financial Statements have been prepared in conformity with generally accepted
accounting principles ("GAAP") applied on a consistent basis (except as
described therein) and each presents fairly the consolidated financial position
of the Company and its consolidated Subsidiaries at the respective dates thereof
and the consolidated results of its operations and changes in cash flows for the
period indicated (subject to normal year-end audit adjustments in the case of
any unaudited interim financial statements).
Section 4.10. Absence of Undisclosed Liabilities; Guarantees. (a) Except as
set forth on Schedule 4.10, neither the Company nor any of its Subsidiaries has
any Liabilities which are reasonably expected to have, individually or in the
aggregate, a Material Adverse Effect on the Company (including any liabilities,
tax or otherwise, related to the "roll-up" of the homebuilding operations into
the Company).
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(b) Except as set forth on Schedule 4.10, neither the Company nor any
of its Subsidiaries is a party to: (i) any Material Agreement relating to the
making of any advance to, or investment in, any Person other than advances or
investments made by the Company to or in its Subsidiaries; or (ii) any Material
Agreement, other than from the Company with respect to its Subsidiaries
providing for a guaranty or other contingent liability with respect to any
indebtedness for money borrowed or similar obligation of any Person.
Section 4.11. Absence of Certain Changes. Except as set forth on Schedule
4.11 or disclosed in any SEC Filings or the November Financial Statements, since
December 31, 1996: (i) there has not been any event or occurrences, or series of
events or occurrences, which have had, or may have, a Material Adverse Effect on
the Company, (ii) neither the Company nor any of its Subsidiaries has incurred
any liability or engaged in any transaction that is material to the Company and
its Subsidiaries taken as a whole, or entered into any Material Agreement,
except in the ordinary course of business consistent with past practice, or as
contemplated by this Agreement, (iii) neither the Company nor any of its
Subsidiaries is in default under (and no event has occurred which with the lapse
of time or action by a third party could result in a default under) any Material
Agreement, (iv) except for the dividends on the Common Stock and the dividends
paid on the Class AA Preferred Stock, there has not been any declaration,
setting aside or payment of any dividend or other distribution with respect to
the Preferred Stock or the Existing Preferred Stock, (v) there has not been any
commitment, contractual obligation, borrowing, capital expenditure or
transaction (each, a "Commitment") entered into by the Company or any of its
Subsidiaries, other than Commitments which would not, individually or in the
aggregate, reasonably be expected to result in a Material Adverse Effect on the
Company, or (vi) there has not been any change in the Company's accounting
principles, practices or methods which would, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect on the Company.
Section 4.12. Compliance With Laws. Except as set forth on Schedule 4.12,
(i) the Company and its Subsidiaries are in compliance with all Applicable Laws
other than violations which do not and will not, individually or in the
aggregate, have a Material Adverse Effect on the Company; (ii) each of the
Company and its Subsidiaries has obtained and holds all material permits,
licenses, variances, exemptions, orders, franchises, approvals and
authorizations of all Governmental Entities necessary for the lawful conduct of
its business as currently conducted or the lawful ownership, use and operation
of its assets; (iii) neither the Company nor any of its Subsidiaries has
received any written notice of violation of any Applicable Law, which has not
been dismissed or otherwise disposed of, that the Company or such Subsidiary has
not so complied other than with respect to violations of Applicable Law which do
not and will not, individually or in the aggregate, have a Material Adverse
Effect on the Company; and (iv) neither the Company nor any of its Subsidiaries
is charged or, to the best knowledge of the Company, threatened with, or, to the
best knowledge of the Company, under investigation with respect to, any
violation of any Applicable Law, including Environmental Laws, relating to any
aspect of the business of the Company or any of its Subsidiaries other than
violations which do not and will not, individually or in the aggregate, have a
Material Adverse Effect on the Company.
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Section 4.13. Litigation. Schedule 4.13 sets forth all Proceedings pending
or, to the best knowledge of the Company, threatened against or involving the
Company or any of its Subsidiaries (or any of their respective directors or
officers in connection with the business or affairs of the Company or such
Subsidiary) or any properties or rights of the Company or any of its
Subsidiaries as of the date hereof. Except as set forth on Schedule 4.13, any
and all liabilities of the Company and its Subsidiaries under such Proceedings
that are probable and subject to reasonable estimation within the meaning of
GAAP are adequately covered (except for standard deductible amounts) by the
existing insurance maintained by the Company or estimates in accordance with
GAAP for the uninsured costs thereof are reflected in the financial statements
of the Company. Except as set forth on Schedule 4.13, the Company has no
knowledge of any facts that are likely to give rise to any additional
Proceedings that would reasonably be expected to have a Material Adverse Effect
on the Company. As of the date hereof, there are no Proceedings (including with
respect to Environmental Laws) pending or, to the best knowledge of the Company,
threatened seeking to restrain, prohibit, or obtain damages or other relief in
connection with this Agreement, the Ancillary Agreements to which the Company is
a party or the transactions contemplated hereby or thereby.
Section 4.14. True and Complete Disclosure. The representations and
warranties of the Company set forth with this Agreement, the information
included in the Schedules, and in any certificates delivered pursuant to Section
7.3 of this Agreement, when taken together, are true and accurate in all
material respects on the date as of which such information is dated and not
incomplete by omitting to state any material fact necessary to make the
statements of fact contained therein, in the light of the circumstances under
which they were made, not misleading at such date. All financial projections
prepared and furnished by the Company to the Purchaser were prepared in good
faith on the basis of assumptions believed to be reasonable at the time such
projections were prepared.
Section 4.15. Taxes. (a) Except as set forth on Schedule 4.15:
(i) The Company and all of its Subsidiaries have filed all Tax Returns
required to be filed by them on or before the Closing Date (taking into
account all extensions for filing such Tax Returns) and all such Tax
Returns are correct and complete in all material respects. Each affiliated
group with which any of the Company and its Subsidiaries files a
consolidated or combined Tax Return has filed all such Tax Returns that it
was required to file for each taxable period during which any of the
Company and its Subsidiaries was a member of the group. All such
consolidated and combined Tax Returns were correct and complete in all
materials respects;
(ii) All Taxes due and payable by the Company and/or its Subsidiaries
(whether or not shown on any Tax Return) have been timely paid in full. All
income Taxes owed by any affiliated group with which any of the Company and
its Subsidiaries files a consolidated or combined Tax Return (whether or
not shown on any Tax Return) have been paid for each taxable period during
which any of the Company and its Subsidiaries was a member of the group;
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(iii) There are no liens or encumbrances related to Taxes on any of
the assets of the Company or its Subsidiaries (other than for current Taxes
not yet due and payable);
(iv) The Company and its Subsidiaries have withheld all Taxes required
to have been withheld and paid by them or on their behalf in connection
with amounts paid or owing to any employee, independent contractor,
creditor, stockholder, or other third party, and such withheld Taxes have
either been duly paid to the proper governmental authority or set aside in
accounts for such purpose;
(v) None of the Company or any of its Subsidiaries (A) has been a
member of any affiliated group filing a consolidated federal income Tax
Return (other than (i) a group the common parent of which is the Company or
(ii) a former group of members of which are owned by the Company) and (B)
has any liability for the Taxes of any person as defined in Section
7701(a)(1) of the Code (other than the Company and its Subsidiaries) under
Treas. Reg. ss. 1.1502-6 (or any similar provision of state, local, or
foreign tax), as a transferee or successor, by contract, or otherwise;
(vi) The charges, accruals and reserves for Taxes (including deferred
Taxes) currently reflected on the Financial Statements in accordance with
GAAP are adequate in the reasonable estimation of the Company to cover all
unpaid Taxes accruing or payable by the Company and its Subsidiaries in
respect of taxable periods that end on or before the Closing Date and for
any taxable periods that begin before the Closing Date and end thereafter
to the extent such Taxes are attributable to the portion of such period
ending on the Closing Date (determined under the closing of the books
method of allocation);
(vii) The Company and its Subsidiaries have no Tax deficiency or claim
assessed or, to the best of the Company's knowledge, proposed or threatened
(whether orally or in writing) against any of them, except to the extent
that adequate liabilities or reserves with respect thereto are accrued on
the Financial Statements in accordance with GAAP or (i) such deficiency or
claim is being contested in good faith by appropriate proceedings, (ii) no
such accrual is required by GAAP and (iii) the nature and amount of the
disputed Tax is set forth on Schedule 4.15.
(viii) None of the Company or any of its Subsidiaries has made any
payments, nor is any of them obligated to make any payments, and is not a
party to any agreements that could obligate it to make any payments, that
will not be deductible under Code Section 280G.
(ix) None of the assets of the Company (a) is property that is
required to be treated as being owned by any other person pursuant to the
so-called safe harbor lease provisions of former Section 168(f)(8) of the
Code, or (b) directly or indirectly secures any debt the interest on which
is tax-exempt under Section 103(a) of the Code, or (c) is "tax-exempt use
property" within the meaning of Section 168(h) of the Code.
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(x) Except as set forth on Schedule 4.7, none of the Company or any of
its Subsidiaries is subject to any joint venture, partnership or other
arrangement or contract which is treated as a partnership for federal
income tax purposes.
(b) Schedule 4.15 lists (a) elections or material consents with respect to
Taxes affecting the Company or any of its Subsidiaries as of the date hereof,
and (b) all federal, state, local, and foreign Tax Returns that have been
audited, and indicates those Tax Returns that currently are the subject of
audit. Correct and complete copies of all federal Tax Returns, examination
reports, and statements of deficiencies assessed against or agreed to by the
Company or any of its Subsidiaries since January 1, 1994 have been delivered to
Purchaser.
Section 4.16. Properties. (a) Permits. The Company possesses all material
Permits and waivers necessary for the lawful conduct of its Business as
currently conducted, the absence of which would materially adversely affect the
Real Property or the Business of the Company. Each of the material Permits is
listed on Schedule 4.16(a) hereto. All material Permits are in full force and
effect, no material violations have occurred with respect thereto, and to the
Company's knowledge no basis exists for any limitation, revocation, or
withdrawal thereof or any denial of any extension or renewal with respect
thereto.
(b) Real Property. Schedule 4.16(b) hereto sets forth each parcel of real
property that the Company owns as of the date hereof (collectively, the "Real
Property"). The Real Property has all necessary access to and from public
highways, streets, and roads and no pending or to the best knowledge of the
Company, threatened proceeding or other fact or condition exists that could
limit or result in the termination of such access. The Real Property is
connected to and serviced by electric, gas, sewage, telephone, and water
facilities in all areas where such connections and services are available, which
facilities are in compliance, in all material respects, with all Applicable Laws
and installation and connection charges with respect thereto have been paid in
full.
(c) Under the heading "Real Property Leases", Schedule 4.16(c) hereto
describes each agreement, arrangement, contract, commitment, or lease (the "Real
Property Leases") pursuant to which the Company is the lessor or the lessee with
respect to any real property (the "Leased Real Property") as of the date hereof.
As to each Real Property Lease (a) the Company has neither delivered nor
received notice that any material breach or material event of default exists,
and (b) no condition or event of default by the Company or any other Person.
(d) Land Contracts. Under the heading "Land Contracts", Schedule 4.16(d)
hereto lists all written and oral agreements, arrangements, contracts, and
commitments to which the Company is a party or entered into on behalf thereof
pursuant to which the Company has any material obligation or right to purchase
any developed or undeveloped real property (the "Land Contract Property") as of
the date hereof. Each such parcel of developed real property included in the
Land Contract Property satisfies all of the representations and warranties set
forth herein concerning the Real Property.
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(e) Good and Marketable Title. The Company has good and marketable title in
fee simple to its Real Property, subject to the Permitted Encumbrances and upon
acquisition of the Land Contract Property, the Land Contract Property will
likewise be owned in fee and the Company shall have good and marketable title
thereto subject only to Permitted Encumbrances and the Encumbrances listed on
Schedule 4.16(e).
(f) No Breach or Default. Except as set forth in Schedule 4.16(f) hereto,
with respect to any agreements, arrangements, contracts, covenants, conditions,
deeds, deeds of trust, rights-of-way, easements, mortgages, restrictions,
surveys, title insurance policies, and other documents granting to the Company
title to or an interest in or otherwise affecting its Real Property, no material
breach or event of default has occurred nor has any event occurred that with the
giving of notice, the lapse of time, or both would constitute a material breach
or event of default, by the Company or, to the best knowledge of the Company,
any other Person.
(g) No Condemnation. No condemnation, eminent domain, or similar proceeding
exists, is pending or, to the best knowledge of the Company is threatened with
respect to, or that could affect, in any material respect any Real Property or
Leased Real Property.
(h) Compliance with Laws. The buildings and improvements on the Real
Property and the Leased Real Property and the subdivision and improvements of
the Real Property do not violate, in any material respect (i) any Applicable
Law, including any building, set-back, or zoning law, ordinance, regulation, or
statute, or other governmental restriction in the nature thereof, or (ii) any
restrictive covenant affecting any such property.
(i) Parties in Possession. There are no parties in possession (other than
in the ordinary course of the Company's business) of any material portion of the
Real Property as lessees, tenants at sufferance, or trespassers.
(j) Unpaid Obligations. Except as set forth on Schedule 4.16(j), there are
not material unpaid charges, debts, liabilities, claims or obligations arising
from the construction, occupancy, ownership, use, or operation of the Real
Property. No such Real Property is subject to any condition or obligation to any
material Governmental Entity or other person requiring the owner or any
transferee thereof to donate land, money or other property or to make off-site
public improvements.
(k) Assessments. Except as set forth on Schedule 4.16(k), no
developer-related material charges or assessments for public improvements or
otherwise made against the Real Property or any lots included therein are
unpaid, including without limitation those for construction of sewer lines,
water lines, storm drainage systems, electric lines, natural gas lines, streets
(including perimeter streets), roads and curbs.
(l) Subdivision Standards. The Real Property and all lots included therein
conform in all material respects to the appropriate governmental authority's
subdivision standards.
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(m) Moratoria. There is no moratorium applicable to any of the Real
Property on (i) the issuance of building permits for the construction of houses,
or certificates of occupancy therefor or (ii) the purchase of sewer or water
taps.
(n) Construction Conditions. The lots included in the Real Property are
stable and otherwise suitable in all material respects for the construction of a
residential structure by customary means and without extraordinary site
preparation measures.
(o) Environmental Matters. The Real Property does not contain wetlands or a
level of radon above action levels of the U.S. Environmental Protection Agency
and is not located within a "critical", "preservation", "conservation", or
similar type of area except where such conditions are not reasonably expected to
have a Material Adverse Effect on the Company. No material portion of the Real
Property is situated within a "noise cone" such that the Federal Housing
Administration will not approve mortgages due to the noise level classification
of such Real Property.
(p) Claims. No material Proceeding is pending or, to the best knowledge of
the Company, threatened which involves any of the Real Property or against the
Company with respect to any of the Real Property; all of the Real Property and
the lots included therein are in compliance, in all material respects, with all
applicable zoning and subdivision ordinances; none of the development-site
preparation and construction work performed on the Real Property has
concentrated or diverted surface water or percolating water improperly onto or
from the Real Property in any material respect.
(q) Third Party Rights. The Company has not granted to any Person any
contract or other right to the use of any portion of the Real Property or to the
furnishing or use of any facility or amenity on or relating to the Real Property
other than rights granted to individual homebuyers to purchase lots in the
ordinary course of business.
(r) Zoning. All of the Real Property is zoned to permit single-family home
construction and occupancy thereon, except as set forth on Schedule 4.16(s).
(s) No Foreign Sellers. The Company is not a "foreign person" within the
meaning of Sections 1445 and 7701 of the Code.
Section 4.17. Environmental Matters. (a) For purposes of this Section, the
term "Company" shall include (i) the Company, (ii) any Subsidiaries of the
Company, (iii) all partnerships, joint ventures and other entities or
organizations in which Company was at any time or is a partner, joint venturer,
member or participant, and (iv) all predecessor or former corporations,
partnerships, joint ventures, organizations, businesses or other entities,
whether in existence as of the date hereof or at any time prior to the date
hereof, the assets or obligations of which have been acquired or assumed by
Company or the Business or to which Company or the Business has succeeded.
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(b) Except as disclosed in Schedule 4.17, the Company and its Subsidiaries:
(i) are, and within the period of all applicable statutes of limitation have
been, in compliance with all applicable Environmental Laws; (ii) hold all
Environmental Permits (each of which is in full force and effect) required for
any of their current operations or for any property owned, leased or otherwise
operated by any of them; (iii) are, and within the period of all applicable
statutes of limitation have been, in compliance with all of their Environmental
Permits; and (iv) reasonably believe that each of their Environmental Permits
will be renewed before the expiration of such Environmental Permit currently in
effect, except where the failure to so comply with such Environmental Laws, hold
or comply with such Environmental Permits or timely renew such Environmental
Permits is not reasonably expected to have a Material Adverse Effect on the
Company. With respect to the Company's reasonably foreseeable future operations,
it does not anticipate any issues arising under Environmental Laws that would
prevent the Company from receiving Permits that are necessary to allow it to
conduct its Business.
(c) Except as set forth on Schedule 4.17, the Company and its Subsidiaries
have not received any notice of alleged, actual or potential responsibility for,
or any inquiry or investigation regarding, any Environmental Condition except
where such Environmental Condition is not reasonably expected to have a Material
Adverse Effect on the Company. The Company has not received any notice of any
other claim, demand or action by any individual or entity alleging any actual or
threatened injury or damage to any person, property, natural resource or the
environment arising from or relating to any Release or threatened Release of any
Hazardous Materials at, on, under, in or from any Facility or any former
Facilities, or in connection with any operations or activities of the Company or
any of its Subsidiaries except with respect to any claim, demand or action which
is not reasonably expected to have a Material Adverse Effect on the Company.
(d) Except as disclosed in Schedule 4.17 or with respect to such matters as
have been fully and finally resolved and as to which there are no remaining
obligations known or reasonably anticipated, neither the Company nor any of its
Subsidiaries has entered into or agreed to any consent decree, order, or
settlement or other agreement, nor is subject to any judgment, decree, or order
or other agreement, in any judicial, administrative, arbitral, or other forum,
relating to compliance with or liability under any Environmental Law, except
where such obligations, consent decrees, orders, settlement or other agreements
is not reasonably expected to have a Material Adverse Effect on the Company.
(e) Except as disclosed in Schedule 4.17 or for actions of third parties
occurring after the Company's or any of its Subsidiaries disposition of any real
property formerly owned or leased by the Company or any of its Subsidiaries,
Hazardous Materials have not been disposed of, emitted, discharged, transported
or otherwise Released or threatened to be Released, to or at any real property
presently or formerly owned or leased by the Company or any of its Subsidiaries,
or, to the knowledge of the Company, any other location, which Hazardous
Materials are reasonably expected to (i) give rise to liability of the Company
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or any of its Subsidiaries under any applicable Environmental Law, except where
such liability is not reasonably expected to have a Material Adverse Effect on
the Company, or (ii) interfere with the Company's or any of its Subsidiaries'
continued operations, except where such interference is not reasonably expected
to have a Material Adverse Effect on the Company or (iii) impair the fair
saleable value of any real property owned or leased by the Company or any of its
Subsidiaries, except for such impairment as is not reasonably expected to have a
Material Adverse Effect on the Company.
(f) Except as disclosed in Schedule 4.17, neither the Company nor any of
its Subsidiaries has assumed or retained, whether by contract or by operation of
law in connection with the sale or transfer of any assets or business,
liabilities under any applicable Environmental Law arising from or associated
with or otherwise in connection with such assets or business of any kind, fixed
or contingent, known or not known, except where such liabilities are not
reasonably expected to have a Material Adverse Effect on the Company.
(g) True, complete and correct copies of the written reports, and all parts
thereof, of all environmental audits or assessments which have been conducted in
respect of any Facility or any former Facility within the past five years,
either by the Company or any attorney, environmental consultant or engineer
engaged for such purpose, have been delivered to the Purchaser and a list of all
such reports, audits and assessments and any other similar report, audit or
assessment of which the Company has knowledge is included on Schedule 4.17.
Section 4.18. Insurance. Schedule 4.18 sets forth a list of the insurance
policies held by, or for the benefit of, the Company and its Subsidiaries. Each
of the Company and its Subsidiaries carry, and will continue to carry, insurance
with reputable insurers with respect to such of their respective properties and
business, in such amounts and against such risks as is customarily maintained by
other entities of similar size engaged in similar businesses. None of such
insurance was obtained through the use of materially false or misleading
information or the failure to provide the insurer with all material information
requested in order to evaluate the liabilities and risks insured. Neither the
Company nor any of its Subsidiaries has received any notice of cancellation or
non-renewal of any current insurance policies or binders.
Section 4.19. Condition of Tangible Assets. The Facilities of the Company
and its Subsidiaries and the Fixtures and Equipment are in good operating
condition and repair (except for ordinary wear and tear) are reasonably
sufficient for the operation of the business of the Company and its Subsidiaries
as presently conducted and are in conformity, in all material respects, with all
Applicable Laws, ordinances, orders, regulations and other requirements
(including applicable zoning, environmental, motor vehicle safety or standards,
occupational safety and health laws and regulations) relating thereto currently
in effect, except where the failure to conform would not have a Material Adverse
Effect on the Company.
Section 4.20. Contracts and Commitments. Except for documents set forth on
Schedule 4.20 or listed as exhibits to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996, neither the Company nor any of its
Subsidiaries is a party to any Material Agreement except for contracts between
the Company or any of its Subsidiaries and individual home buyers for purchases
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of homes or lots in the ordinary course of business. Except as set forth on
Schedule 4.20, neither the Company nor any of its Subsidiaries is (and, to the
knowledge of the Company, no other party is) in material breach or violation of,
or default under any Material Agreement to which it is a party, the breach or
violation of which will or may have a Material Adverse Effect on the Company.
Section 4.21. Books and Records. The Company has made and kept (and given
the Purchaser access to) books and records and accounts, which, in reasonable
detail, accurately and fairly reflect the activities of the Company and each of
its Subsidiaries. The minute books of the Company and each of its Subsidiaries
previously provided to the Purchaser accurately and adequately reflect all
action previously taken by the stockholders, the board of directors and
committees of the board of directors of the Company and each of its
Subsidiaries.
Section 4.22. Labor Matters. Since January 1, 1994, neither the Company nor
any of its Subsidiaries has experienced any attempt by organized labor or its
representatives to make the Company or such Subsidiary conform to demands of
organized labor relating to its employees or to enter into a binding agreement
with organized labor that would cover the employees of the Company or any of its
Subsidiaries. The Company and its Subsidiaries are in compliance with all
Applicable Laws respecting employment practices, terms and conditions of
employment and wages and hours except where noncompliance would not have a
Material Adverse Effect on the Company and, to the Company's knowledge, are not
engaged in any unfair labor practice. There is no unfair labor practice charge
or complaint against the Company or any of its Subsidiaries pending before the
National Labor Relations Board or any other governmental agency arising out of
the activities of the Company or any of its Subsidiaries, and the Company has no
knowledge of any facts or information which would give rise thereto. There is no
labor strike or labor disturbance pending or, to the Company's knowledge,
threatened against the Company or any of its Subsidiaries. There is no grievance
currently being asserted and neither the Company nor any of its Subsidiaries has
experienced since January 1, 1994, a work stoppage or other labor difficulty
which grievance, work stoppage or other labor difficulty is reasonably likely to
have a Material Adverse Effect on the Company.
Section 4.23. Payments. Neither the Company nor any of its Subsidiaries
has, directly or indirectly, paid or delivered any fee, commission or other sum
of money or item of property, however characterized, to any finder, agent,
government official or other party, in the United States or any other country,
which is in any manner related to the business or operations of the Company or
its Subsidiaries and which the Company knows or has reason to believe to have
been illegal under any federal, state or local laws of the United States
(including, without limitation the U.S. Foreign Corrupt Practices Act) or any
other country having jurisdiction; and neither the Company nor any of its
Subsidiaries has participated, directly or indirectly, in any boycotts or other
similar practices affecting any of its actual or potential customers.
Section 4.24. Information. The information contained in the Proxy Materials
(other than information with respect to the Purchaser, or any of their
Affiliates which shall have been supplied in writing by them or any of their
authorized representatives for use in or in preparing the Proxy Materials) will
not, at the date of mailing to the Company's stockholders or at the date of the
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Stockholders Meeting, contain any statement which, at the time and in light of
the circumstances under which it is made, is false or misleading with respect to
any material fact required to be stated therein or necessary to correct any
statement in any earlier communication with respect to the solicitation of
proxies for the Stockholders Meeting. The Proxy Materials will comply as to form
in all material respects with the Exchange Act and the rules and regulations of
the SEC thereunder.
Section 4.25. Board Recommendations. By a vote of the directors present at
a meeting of the board of directors of the Company (which meeting was duly
called and held and at which a quorum was present at all times), the board of
directors has (i) approved and adopted (A) this Agreement, including the
issuance of the Securities, (B) the Company's entering into the Ancillary
Agreements to which it is or will be a party, and (C) the Certificate
Amendments, and (ii) resolved to recommend to the Company's stockholders
approval of the transactions contemplated hereunder and under the Ancillary
Agreements to which it is or will be a party, including issuance of the
Securities to the Purchaser pursuant to this Agreement.
Section 4.26. Intellectual Property.
(a) The Company and its Subsidiaries either own or have valid licenses or
other rights to use all patents, copyrights, trademarks, software, databases,
data, other technical information used in their businesses as presently
conducted ("Proprietary Rights"), subject to the limitations contained in the
agreements governing the use of the same, with such exceptions as would not
result in a Material Adverse Effect on the Company. There are no limitations
contained in the agreements of the type described in the immediately preceding
sentence which, upon consummation of the transactions contemplated hereunder,
will alter or impair any such rights, breach any such agreement with any third
party vendor, or require payments of additional sums thereunder, except any such
limitations that would not have a Material Adverse Effect on the Company. The
Company and its Subsidiaries are in compliance with such licenses and agreements
and, except as set forth on Schedule 4.26, there are no pending or, to the best
knowledge of the Company or any of its Subsidiaries, threatened Proceedings
challenging or questioning the validity or effectiveness of any license or
agreement relating to such property or the right of the Company or any of its
Subsidiaries to use, copy, modify or distribute the same.
(b) No person has a right, other than those set forth on Schedule 4.26 to
receive a royalty or similar payment in respect of any material Proprietary
Rights whether or not pursuant to any contractual arrangements entered into by
the Company or its Subsidiaries.
Section 4.27. Securities Offerings.
(a) Except as set forth on Schedule 4.27, since the date of its initial
public offering, the Company has not sold any securities other than securities
registered pursuant to the Securities Act. The sale of the Securities to the
Purchaser hereunder and the issuance of the Conversion Shares and the
Supplemental Warrant Shares complies with all federal and state securities laws.
(b) Neither the Company nor any affiliate (as defined in Rule 501(b) of
Regulation D under the Securities Act ("Regulation D")) of the Company has,
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directly or through any agent (provided that no representation is made as to the
Purchaser or any person acting on their behalf), (i) sold, offered for sale,
solicited offers to buy or otherwise negotiated in respect of any security (as
defined in the Securities Act) that is or will be integrated with the offering
and sale of the Securities in a manner that would require the registration of
the Securities under the Securities Act or (ii) engaged in any form of general
solicitation or general advertising (within the meaning of Regulation D) in
connection with the offering of the Securities.
(c) Except as set forth on Schedule 4.27, neither the Company nor any of
its Subsidiaries is a party to or bound by any contract or other agreement, or
otherwise obligated, to register any of the securities of the Company or any of
its Subsidiaries under the Act.
Section 4.28. No Agreements to Sell the Assets or the Company. Except as
contemplated by this Agreement, none of the Company or any of its Subsidiaries
have any legal obligation, absolute or contingent, to any person or firm to sell
the capital stock, material assets or business of the Company or any of its
Subsidiaries or to effect any merger, consolidation, liquidation, dissolution,
recapitalization or other reorganization of the Company or any of its
Subsidiaries or to enter into any agreement with respect thereto.
Section 4.29. No Brokers. The Company has not employed, and is not subject
to the valid claim of, any broker, finder, consultant or other intermediary in
connection with the transactions contemplated hereby who might be entitled to a
fee or commission from the Company in connection with such transactions.
Section 4.30. Transactions with Certain Persons. Except as disclosed in SEC
Filings or as would not be required to be so disclosed, no officer, director or
employee of the Company or any of its Subsidiaries nor any member of any such
person's immediately family is or has been, since the Company's formation, a
party to any transaction with the Company or any of its Subsidiaries, including
without limitation, any contract, agreement or other arrangement (a) providing
for the furnishing of services by, (b) providing for the rental of real or
personal property from, or (c) otherwise requiring payments to (other than for
services as officers, directors or employees of the Company or its Subsidiaries)
any such person or corporation, partnership, trust or other entity in which any
such person has an interest as a shareholder, officer, director, trustee or
partner.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF PURCHASER
The Purchaser hereby represents and warrants to the Company as follows:
Section 5.1. Organization of the Purchaser. The Purchaser is a limited
liability company duly formed and validly existing and in good standing as a
limited liability company under the laws of its jurisdiction of formation and
has full limited liability company power and authority to carry on its business
as currently being conducted.
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Section 5.2. Authorization. The Purchaser has full limited liability
company power and authority to execute and deliver this Agreement and the
Ancillary Agreements and to consummate the transactions contemplated hereby and
thereby. The execution and delivery by the Purchaser of this Agreement and the
Ancillary Agreements, and the consummation by it of the transactions
contemplated hereby and thereby, have been duly authorized by all necessary
limited liability company action of the Purchaser. This Agreement has been duly
executed and delivered by the Purchaser and constitutes, and each Ancillary
Agreement executed or to be executed by the Purchaser has been, or when executed
will be, duly executed and delivered by the Purchaser and constitutes, or when
executed and delivered will constitute, a valid and legally binding obligation
of the Purchaser, enforceable against the Purchaser in accordance with its
terms.
Section 5.3. Noncontravention. The execution and delivery by the Purchaser
of this Agreement and the Ancillary Agreements and the consummation by it of the
transactions contemplated hereby and thereby do not and will not (i) conflict
with or result in a violation of any provision of the limited liability company
agreement or other governing agreement of the Purchaser, (ii) conflict with or
result in a violation of any provision of, or constitute (with or without the
giving of notice or the passage of time or both) a default under, or give rise
(with or without the giving of notice or the passage of time or both) to any
right of termination, cancellation, or acceleration under, any bond, debenture,
note, mortgage, indenture, lease, agreement, or other instrument or obligation
to which the Purchaser is a party or by which the Purchaser or any of its
properties may be bound, (iii) result in the creation or imposition of any
Encumbrance upon the properties of the Purchaser, or (iv) violate any Applicable
Law binding upon the Purchaser, except, in the case of clauses (ii), (iii), and
(iv) above, for any such conflicts, violations, defaults, termination,
cancellations, accelerations, or Encumbrances which would not, individually or
in the aggregate, materially and adversely affect the ability of the Purchaser
to consummate the transactions contemplated hereby.
Section 5.4. Consents and Appeals. No consent, approval, order or
authorization of, or declaration, filing or registration with, any Government
Entity is required to be obtained or made by the Purchaser in connection with
the execution and delivery by the Purchaser of this Agreement and the Ancillary
Agreements or the consummation of the transaction contemplated hereby and
thereby other than (i) filings under the HSR Act and expiration or termination
of any applicable waiting period required thereunder and (ii) any filings
required under Section 13 and Section 16 of the Exchange Act and Rule 13d-1
under the Exchange Act and (iii) such consents, approvals, orders or
authorization which, if not made, would not, individually or in the aggregate,
materially and adversely affect the ability of the Purchaser to consummate the
transactions contemplated hereby.
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Section 5.5. Purchase for Investment.
(a) The Purchaser is acquiring the Securities solely by and for its own
account, for investment purposes only and not for the purpose of resale or
distribution; and the Purchaser has no contract, undertaking, agreement or
arrangement with any person or entity to sell, transfer or pledge to such person
or anyone else any Securities; and the Purchaser has no present plans or
intentions to enter into any such contract, undertaking or arrangement.
(b) The Purchaser acknowledges and understands that: (i) the Securities,
the Conversion Shares and the Warrant Shares cannot be sold or transferred
without compliance with the registration provisions of the Securities Act or
compliance with exemptions, if any, available thereunder; (ii) the certificates
representing the respective Securities will include a legend thereon that refers
to the foregoing; and (iii) the Company has no obligation or intention to
register the Securities, Conversion Shares or the Warrant Shares under any
federal or state securities act or law; except to the extent, in each case, that
the terms of the Registration Rights Agreement shall otherwise provide.
(c) The Purchaser (i) is an "accredited investor" as defined in Rule 501 of
Regulation D; (ii) has such knowledge and experience in financial and business
matters in general that it has the capacity to evaluate the merits and risks of
an investment in the Securities and to protect its own interest in connection
with an investment in the Securities; (iii) has such a financial condition that
it has no need for liquidity with respect to its investment in the Securities to
satisfy any existing or contemplated undertaking, obligation or indebtedness;
and (iv) is able to bear the economic risk of its investment in the Securities
for an indefinite period of time.
Section 5.6. Disclosure Documents. None of the information with respect to
the Purchaser or any of its Affiliates which shall have been supplied in writing
by the Purchaser for inclusion in the Proxy Material will at the date of mailing
of the Proxy Material to the Company's stockholders contain any statement which,
at the time and in light of the circumstances under which it is made, is false
or misleading with respect to any material fact required to be stated therein or
necessary to correct any statement in any earlier communication with respect to
the solicitation of proxies for the Stockholders Meeting.
Section 5.7. No Brokers. The Purchaser has not employed, and is not subject
to the valid claim of, any broker, finder, consultant or other intermediary in
connection with the transactions contemplated by this Agreement who might be
entitled to a fee or commission in connection with such transactions.
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ARTICLE VI.
ACTIONS BY THE COMPANY AND
THE PURCHASER PRIOR TO THE SECOND CLOSING
The Company and the Purchaser covenant as follows for the period from the
date hereof through the Second Closing (unless otherwise specified herein):
Section 6.1. Meeting of Stockholders; Proxy Statement; Certificate
Amendments.
(a) The Company shall take all action necessary in accordance with
Applicable Law and the Certificate of Incorporation and Bylaws to duly call,
give notice of, convene and hold a meeting of its stockholders, which meeting
may be the Company's annual meeting of stockholders (the "Stockholders
Meeting"), as promptly as practicable after the date hereof to consider and vote
upon the adoption and approval of the transaction as contemplated hereunder,
including, without limitation, the Certificate Amendments. The stockholder vote
required for the adoption and approval of the transactions contemplated
hereunder shall be the vote or votes required by Applicable Law, the Certificate
of Incorporation, the Existing Preferred Stock Certificates of Designations and
the rules of The Nasdaq Stock Market, Inc. Except as provided in Section 6.1(b)
below, the board of directors of the Company shall (i) recommend to the
Company's stockholders that they vote in favor of the adoption and approval of
all matters necessary to effectuate the transactions contemplated hereunder,
(ii) use its reasonable best efforts to solicit from the Company's stockholders
proxies in favor of such adoption and approval, and (iii) take all other action
reasonably necessary to secure a vote of the Company's stockholders in favor of
such adoption and approval. The Company has delivered the Shareholder
Undertakings committing all of its executive officers and directors who own
shares of Common Stock to vote all such shares of Common Stock in favor of the
transactions contemplated hereunder at the Stockholders Meeting.
(b) As promptly as practicable after the date hereof, the Company shall
take or cause to be taken, all actions, and do, or cause to be done, all things
reasonably necessary, proper or advisable to (i) prepare and file with the
Commission any documents or materials, including, but not limited to, the Proxy
Materials, pertaining to the issuance of the Securities and the Stockholders
Meeting, (ii) have the Proxy Materials cleared by the Commission (including with
respect to clauses (i) and (ii) by consulting with the Purchaser and responding
promptly to any comments from the Commission) and (iii) take such action as may
be required to be taken under applicable state securities or blue sky laws in
connection with the issuance of the Securities, the Conversion Shares or the
Warrant Shares except that the Company shall have no registration obligations
other than as set forth in the Registration Rights Agreement. Except to the
extent otherwise determined in good faith by the Company's board of directors in
the exercise of its fiduciary duties, taking into account the advice of outside
counsel, the Proxy Materials shall contain the recommendation of the Board of
Directors that stockholders of the Company vote in favor of the adoption and
approval of all matters necessary to effectuate the transactions contemplated
hereunder. The Company shall notify the Purchaser promptly of the receipt of any
comments on, or any requests for amendments or supplements to, the Proxy
Materials by the Commission, and the Company shall supply the Purchaser with
copies of all correspondence between it and its representatives, on the one
hand, and the Commission or members of its staff, on the other, with respect to
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the Proxy Materials. The Company, after consultation with the Purchaser, shall
use its reasonable best efforts to respond promptly to any comments made by the
Commission with respect to the Proxy Materials. The Company and the Purchaser
shall cooperate with each other in preparing the Proxy Materials, and the
Company and the Purchaser shall each use its reasonable best efforts to obtain
and furnish the information required to be included in the Proxy Materials. The
Company and the Purchaser each agrees promptly to correct any information
provided by it for use in the Proxy Statement if and to the extent that such
information shall have become false or misleading in any material respect, and
the Company further agrees to take all steps necessary to cause the Proxy
Statement as so corrected to be filed with the Commission and to be disseminated
promptly to holders of shares of the Common Stock, in each case as and to the
extent required by Applicable Law.
Section 6.2. Stock Exchange Approval. The Company shall use its reasonable
best efforts and take all action reasonably necessary to obtain the confirmation
of The Nasdaq Stock Market, Inc. that the transactions contemplated hereby
(including the Certificate Amendments) will not violate Rule 4310 or Rule 4460
of the National Association of Securities Dealers, Inc. Manual.
Section 6.3. Continuing Operations. From the date of this Agreement to the
earlier of (i) the Second Closing or (ii) the termination of this Agreement in
accordance with its terms, the Company and its Subsidiaries shall conduct their
business in the ordinary and usual course, and, except as set forth on Schedule
6.3, neither the Company nor any of its Subsidiaries shall, without the prior
consent of the Purchaser except as expressly contemplated hereby:
(a) purchase, sell, license, assign, transfer, convey or otherwise
acquire or dispose of any assets, securities, or businesses, unless such
transaction is provided for in the annual budget or is in the ordinary
course of business and does not involve (i) the acquisition or disposition
of homebuilding operations or any homebuilding company or entity or (ii)
land acquisitions with a value in excess of $100,000 for any transaction or
group of related transactions or with an aggregate value in excess of
$5,000,000 in any twelve (12) month period;
(b) directly or indirectly incur, refinance, repay, prepay, create,
assume, guarantee or otherwise become liable with respect to any
liabilities with an aggregate face amount in excess of $1,000,000 in the
aggregate, other than in accordance with existing credit facilities and
renewals thereof on substantially the same terms;
(c) enter into any transaction after the date hereof or materially
amend any transaction in effect on the date hereof, with any Affiliate of
the Company (other than between the Company and its Subsidiaries or between
Subsidiaries);
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(d) split (including any reverse split), combine, or reclassify any
shares of its capital stock; adopt resolutions authorizing a liquidation,
dissolution, merger, consolidation, restructuring, recapitalization, or
other reorganization of the capital structure of the Company or any of its
subsidiaries; or make any other material changes in its capital structure;
(e) engage in any new development or redevelopment of any real
property for an amount in excess of $100,000, whether in a single
transaction or a series of related transactions;
(f) incur any capital expenditure for an amount, outside of the
approved annual budget, in excess of $50,000 per occurrence or $500,000 in
the aggregate, whether in a single transaction or a series of related
transactions or waive, release, grant or transfer any rights of value in
respect thereof or enter into any agreement or arrangement that could
adversely affect the marketability of any real estate of the Company or any
of its subsidiaries;
(g) enter into any employment agreement with any employee involving
payments in excess of $100,000 per annum or with any director or executive
officer of the Company or any of its Subsidiaries or enter into or
materially change any Benefit Arrangement ;
(h) enter into any new line of business other than the business
engaged in by the Company and its Subsidiaries on the date hereof, cease to
be engaged in any material line of business engaged in by the Company and
its Subsidiaries on the date hereof or materially change the nature of the
business engaged in by any of them on the date hereof;
(i) approve the annual operating budget of the Company for any year
after 1997;
(j) amend or take actions materially inconsistent with the approved
annual operating budget for 1997 or any subsequent year;
(k) make any general assignment for the benefit of creditors;
(l) file any petition seeking relief, or consent to the institution of
any proceeding against itself seeking to adjudicate it a bankrupt or
insolvent, under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors;
(m) institute, voluntarily dismiss, terminate or settle any litigation
or arbitration against any Person (A) involving payments for damages and
penalties in excess of $50,000 or (B) otherwise material to the Company and
its subsidiaries taken as a whole;
(n) engage, retain, pay or agree to pay the fees or expenses of any
third party consultants or advisors (other than advisors retained in the
ordinary course of business), to the extent that such fees and expenses
exceed one hundred thousand dollars ($100,000) in the aggregate;
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(o) appoint, ratify or replace the independent accountants, change any
accounting policy or practice other than as mandated by generally accepted
accounting principles then in effect; or change any significant tax
methods, practices, procedures or policies;
(p) enter into or amend any joint venture, partnership or profit
sharing agreement or arrangement;
(q) amend to the Company's or any Subsidiary's certificate of
incorporation or bylaws; or
(r) declare or pay any dividend or make any other distribution with
respect to its capital stock, other than dividends paid by any subsidiary
to the Company or another subsidiary in the ordinary and usual course of
business or to the holders of the Preferred Stock and the Existing
Preferred Stock as required pursuant to the terms of the Preferred Stock
and the Preferred Stock Certificates of Designations;
(s) issue, sell, (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase, or otherwise) any
of its capital stock (other than upon conversion of the Preferred Stock or
the Existing Preferred Stock or upon exercise of the Warrants or the
Supplemental Warrants) or deliver or other securities other than as
contemplated herein or pursuant to stock options issued and outstanding as
of the date hereof or purchase or otherwise acquire any of its capital
stock, employee or director stock options or debt securities; or
(t) agree to do any of the foregoing.
Section 6.4. Press Releases. Except as may be required by applicable law or
by the rules of any national securities exchange, neither the Purchaser nor the
Company shall issue any press release with respect to this Agreement or the
transactions contemplated hereunder without the prior consent of the Company in
the case of the Purchaser, and of the Purchaser in the case of the Company
(which consent shall not be unreasonably withheld under the circumstances). Any
such press release required by applicable law or by the rules of any national
securities exchange shall only be made after reasonable notice to the other
party.
Section 6.5. Additional Financial Statements. During the period from the
date hereof through the Second Closing, as soon as reasonably practicable after
they become publicly available, the Company shall furnish to the Purchaser (i)
the quarterly consolidated financial statements of the Company and its
consolidated Subsidiaries, which shall have been prepared in accordance with
GAAP and on a basis consistent with past practice and (ii) all monthly financial
statements or reports of the Company and its consolidated Subsidiaries, which
shall have been prepared in a manner consistent with past practice.
Section 6.6. Investigations and Access. The Company agrees to permit the
Purchaser and its agents and representatives reasonable access during normal
business hours to (i) the premises of the Company and its Subsidiaries and (ii)
all the books, computer software application systems, files and records of the
Company and its Subsidiaries, including, but not limited to, lease, loan, real
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estate, financial, tax and personnel files and records, and to furnish the
Purchaser such financial and operating data and other information with respect
to the business, assets and properties of the Company as the Purchaser shall
reasonably request. The Company will authorize its accountants to provide the
Purchaser, in accordance with such accountant's internal policies, with their
working papers for the Company's financial statements. The Company shall deliver
true, correct and complete copies of all resolutions, and minutes of all
meetings, reflecting any action taken by the Company stockholders, board of
directors or committees of the board of directors and by each Subsidiary during
the period from the date hereof through the First Closing.
Section 6.7. Notification of Certain Matters. The Company shall give prompt
notice to the Purchaser, and the Purchaser shall give prompt notice to the
Company, of (i) the occurrence, or failure to occur, of any event which
occurrence or failure would be likely to cause any representation or warranty
contained in this Agreement to be untrue or inaccurate in any material respect
any time from the date hereof to the Closing Date and (ii) any material failure
of the Company or the Purchaser, as the case may be, to comply with or satisfy
any covenant, condition or agreement to be complied with or satisfied by it
hereunder, and each party shall use all reasonable efforts to remedy such
failure. In addition, the Company shall give prompt notice to the Purchaser of
any material developments involving the operations or activities of the Company
or its Subsidiaries.
Section 6.8. No Solicitation. Until the Second Closing shall have occurred,
neither the Company nor any of its Affiliates nor any of their respective
directors, officers, employees, representatives or agents, shall directly or
indirectly solicit or initiate any discussions, submissions of proposals or
offers or negotiations with, participate in any negotiations or discussions
with, or provide any information or data of any nature whatsoever to, or
otherwise cooperate in any other way with, or assist or participate in,
facilitate or encourage any effort or attempt by, any corporation, partnership,
person or other entity or group, other than the Purchaser and its respective
partners, employees, representatives, agents and Affiliates, concerning any
Alternative Transaction, provided, however, that nothing contained in this
Section 6.8 shall prohibit the Board of Directors from (i) furnishing
information or affording access to properties, books or records to, or entering
into discussions or negotiations with, any person or entity in connection with
any unsolicited bona fide proposal by such person or entity to enter into any
Alternative Transaction or entering into an Alternative Transaction if, and only
to the extent that, (A) the Company receives the written advice of outside legal
counsel that such action is advisable to enable the Board of Directors to comply
with its fiduciary duties imposed by Applicable Law and (B) prior to furnishing
such information to, or entering into discussions or negotiations with, such
person or entity, the Company (A) provides written notice to the Purchaser to
the effect that it is furnishing information or affording access to properties,
books or records to, or entering into discussions or negotiations with, such
person or entity and (B) receives from such person or entity an executed
confidentiality agreement on terms and in form customary for similar
transactions or (ii) complying with Rule 14e-2 promulgated under the Exchange
Act, with regard to an Alternative Transaction. For purposes of this Agreement,
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"Alternative Transaction" means any merger, consolidation (other than insofar as
such merger or consolidation relates exclusively to the acquisition by the
Company or one of its Subsidiaries of companies or businesses engaged primarily
in the same business as the Company), sale of substantial assets not in the
ordinary course, sale of shares of existing or future capital stock or other
equity securities or securities convertible into equity securities or
derivatives thereof (other than pursuant to employee stock options),
recapitalization, capital infusion, incurrence of material additional
indebtedness except pursuant to existing lines of credit or refinancings
thereof, debt restructuring or similar transaction involving the Company or any
of its Subsidiaries, or any division of the Company or any of its Subsidiaries
except, in each case, as disclosed in the Schedules to this Agreement. As part
of the written notice provided to the Purchaser pursuant to clause (i)(B) above,
the Company shall indicate the identity of the offeror and the terms and
conditions of any proposals or offers or the nature of any inquiries or
contacts, and thereafter shall use reasonable efforts to keep the Purchaser
informed, on a current basis, of the status and terms of any such proposals or
offers and the status of any such discussions or negotiations. The Company shall
not release any third party from, or waive any provision of, any confidentiality
or standstill agreement to which the Company is a party.
Section 6.9. Further Assurances. Upon the terms and subject to the
conditions contained herein, the Company agrees, both before and after each
Closing, (i) to use all reasonable efforts to take, or cause to be taken, all
actions and to do, or cause to be done, all things necessary, proper or
advisable to consummate and make effective the transactions contemplated by this
Agreement, (ii) to execute any documents, instruments or conveyances of any kind
which may be reasonably necessary or advisable to carry out any of the
transactions contemplated hereunder, and (iii) to cooperate with the Purchaser
in connection with the foregoing. Without limiting the foregoing, the Company
agrees to use its reasonable best efforts (A) to obtain all necessary waivers,
consents and approvals, (B) to defend all actions challenging this Agreement or
the consummation of the transactions contemplated hereby, (C) to lift or rescind
any injunction or restraining order or other court order adversely affecting the
ability of the Company to consummate the transactions contemplated hereby, (D)
to give all notices to and make all registrations and filings with third
parties, including without limitation, submissions of information requested by
Governmental Entities and The Nasdaq National Market, Inc., and (E) to fulfill
all conditions to this Agreement. In addition, the Company will commence all
action required under this Section 6.9 by a date which is early enough to allow
the transactions contemplated hereunder to be consummated by each Closing Date.
Section 6.10. HSR Act Notification. To the extent it is determined that the
HSR Act will be applicable to the transactions as contemplated hereunder, each
of the affected parties hereto shall (i) file or cause to be filed, as promptly
as practicable after the execution and delivery of this Agreement, with the
Federal Trade Commission and the United States Department of Justice, all
reports and other documents required to be filed by such party under the HSR Act
concerning the transactions contemplated hereby and (ii) promptly comply with or
cause to be complied with any requests by the Federal Trade Commission or the
United States Department of Justice for additional information concerning the
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Transaction, in each case so that the waiting period applicable to this
Agreement and the transaction contemplated hereby under the HSR Act shall expire
as soon as practicable after the execution and delivery), of this Agreement.
Each party hereto agrees to request, and to cooperate with the other party or
parties in requesting, early termination of any applicable waiting period under
the HSR Act.
Section 6.11. Employee Matters. On or prior to the Second Closing, the
Board of Directors shall take all actions necessary to ensure that the
acquisition of the Securities by the Purchaser (including the
conversion/exercise of all of the Securities acquired or to be acquired by the
Purchaser hereunder) and the transactions contemplated herein shall not result
in the acceleration or creation of any rights of any person to benefits under
any Employee Plan (including, without limitation, the acceleration of the
vesting or exercisability of any stock options, the acceleration of the vesting
of any restricted stock, the acceleration of the accrual or vesting of any
benefits under any Pension Plan or the acceleration or creation of any rights
under any severance, parachute or change in control agreement).
Section 6.12. Action by the Company. On the date of Stockholder Approval,
the Board of Directors shall take, or cause to be taken, all actions necessary
or desirable to (i) cause the Board of Directors to consist of fifteen (15)
directors, three of whom shall be elected by the Purchaser by delivery of a
written consent immediately following the date of Stockholder Approval and (ii)
effect the Bylaws Amendments. Prior to the Second Closing, the Board of
Directors shall take, or cause to be taken, all actions necessary or desirable
to file with the Secretary of State of the State of Delaware the Certificate
Amendments.
Section 6.13. Liability Insurance. On or prior to the appointment of the
Preferred Stock Directors to the Board of Directors, the Company shall ensure
that each person serving on the Board of Directors on and after date of such
appointment shall receive substantially the same liability insurance coverage as
a member of the Board of Directors as the Company's directors receive as of the
date hereof (including coverage for liabilities arising before the date of
taking office to the extent arising from such person's status as a prospective
member of the Board of Directors) and that such policies shall be in full force
and effect in accordance with their terms as of the date of such appointment and
in no event shall such coverage be for an amount less than $25,000,000.
Section 6.14. Confidentiality. The Company and the Purchaser agree that all
information provided to any of them or any of their representatives pursuant to
this Agreement shall be kept confidential, and such parties shall not (x)
disclose such information to any persons other than the directors, officers,
employees, financial advisors, legal advisors, accountants, consultants and
affiliates of such parties who reasonably need to have access to the
confidential information and who are advised of the confidential nature of such
information or (y) use such information in a manner which would be detrimental
to the Company or the Purchaser; provided, however, the foregoing obligation of
such parties shall not (a) relate to any information that (i) is or becomes
generally available other than as a result of unauthorized disclosure by such
parties or by persons to whom such parties have made such information available,
(ii) is or becomes available to such parties on a non-confidential basis from a
third party that is not, to such parties' knowledge, bound by any other
confidentiality agreement with the Company, or (b) prohibit disclosure of any
information if required by law, rule, regulation, court order or other legal or
governmental process.
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Section 6.15. Action following Stockholder Approval. Immediately following
the Stockholder Approval, (i) the Board of Directors shall adopt the Bylaws
Amendments, (ii) the Certificate Amendments shall be duly filed with the
Secretary of State of the State of Delaware and (iii) the Preferred Stock
Directors shall be appointed to the Board of Directors; provided, however, that
with respect to clauses (i) and (iii) the Company shall take such actions
earlier, upon the written request of the Purchaser.
ARTICLE VII.
CONDITIONS TO ALL CLOSINGS
Section 7.1. Conditions to Each Party's Obligations. The respective
obligations of each party to consummate the transactions contemplated hereby in
respect of each Closing are subject to the satisfaction or waiver, on or prior
to the relevant Closing Date, of each of the following conditions:
(a) No Governmental or Other Proceedings or Litigation. There shall be
no injunction or court order restraining consummation of the transactions
contemplated hereunder and there shall be no pending or threatened action
or proceeding by or before a court or governmental body brought by or on
behalf of any Governmental Entity seeking to restrain or invalidate all or
any portion of the transactions contemplated hereunder, and there shall not
have been adopted any law or regulation making all or any portion of the
transactions contemplated hereunder illegal.
(b) HSR Act. To the extent that the HSR Act is applicable to the
transactions contemplated hereunder, all waiting periods (and any
extensions thereof) applicable to any such transactions under the HSR Act
shall have expired or been terminated.
Section 7.2. Conditions to the Company's Obligations. The obligation of the
Company to consummate the transactions contemplated hereby on the applicable
Closing Date is subject to the satisfaction or waiver on or prior to the
applicable Closing Date of each of the following conditions:
(a) Representations, Warranties and Covenants. All representations and
warranties of the Purchaser contained in this Agreement shall be true and
correct in all material respects at and as of the applicable Closing Date
as if such representations and warranties were made at and as of the
applicable Closing Date, and the Purchaser shall have performed in all
material respects all agreements and covenants required hereby to be
performed by it prior to or at the applicable Closing Date. There shall be
delivered to the Company a certificate (signed by the sole member of the
Purchaser) to the foregoing effect.
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(b) Opinion of Counsel. The Purchaser shall have delivered to the
Company the opinions of Latham & Watkins, counsel to the Purchaser, in form
and substance reasonably acceptable to the Company.
(c) Certificates. The Purchaser will furnish the Company with such
certificates of its general partner and others to evidence compliance with
the conditions set forth in this Article VII as may be reasonably requested
by the Company.
Section 7.3. Conditions to the Purchaser's Obligations. The obligation of
the Purchaser to consummate the transactions contemplated hereby on the
applicable Closing Date is subject to the satisfaction or waiver on or prior to
the applicable Closing Date of each of the following conditions:
(a) Representations, Warranties and Covenants. All representations and
warranties of the Company contained in this Agreement shall be true and
correct in all material respects at and as of the applicable Closing Date
as if such representations and warranties were made at and as of the
applicable Closing Date (provided that no representation or warranty shall
be deemed breached if the action causing such representation or warranty to
be untrue as of the relevant Closing Date permitted by Section 6.3 or was
consented to by the Purchaser under Section 6.3), and the Company shall
have performed in all material respects all agreements and covenants
required hereby to be performed prior to or at the applicable Closing Date.
There shall be delivered to the Purchaser a certificate (signed by the
President and Chief Executive Officer and the Secretary of the Company) to
the foregoing effect.
(b) Consents. All consents, approvals, Permits and waivers from
Governmental Entities and other parties necessary to permit the Purchaser
and the Company to consummate the transactions contemplated hereby shall
have been obtained, unless the failure to obtain any such consent,
approval, Permit or waiver would not have a Material Adverse Effect upon
the Company or the Purchaser.
(c) Opinion of Counsel. The Company shall have delivered to the
Purchaser the opinions of Arent Fox Kintner Plotkin & Kahn, counsel for the
Company, in form and substance reasonably acceptable to the Purchaser.
(d) Certificates. The Company shall furnish the Purchaser with such
certificates of the Chief Executive Officer and the Secretary of the
Company and others to evidence compliance with the conditions set forth in
this Article VII as may be reasonably requested by the Purchaser.
(e) No Adverse Changes. Since the date of this Agreement, there shall
not have been any Material Adverse Effect on the Company.
(f) Elections of Directors. All actions shall have been taken by the
Company, its stockholders and Board of Directors so that, immediately upon
the Stockholder Approval, the Board of Directors shall consist of fifteen
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(15) directors and the Purchaser may, by execution and delivery of a
written consent, elect three (3) members of the Board of Directors
effective as of the Stockholder Approval as set forth in Section 6.15. As
of the date of the Stockholder Approval the Company shall have established
a five-member executive committee (the "Executive Committee") of the Board
of Directors to which substantial authority for operational matters shall
be delegated, as further described in the Stockholders Agreement. The
Company shall appoint two members of the Executive Committee nominated by
the Purchaser.
(g) Ancillary Agreements. The Company shall enter into and deliver to
the Purchaser the Ancillary Agreements to which it is a party.
(h) Amendment to Existing Stockholders Agreement. If necessary, the
Existing Stockholders Agreement shall be amended to be consistent with the
terms of this Agreement and the Ancillary Agreements (including the
Stockholders Agreement).
ARTICLE VIII.
SECOND AND SUBSEQUENT CLOSINGS
Section 8.1. Conditions to Each Party's Obligations at the Second Closing.
In addition to the conditions set forth in Article VII, the respective
obligations of each party to consummate the transactions contemplated hereby on
the Second Closing and on Subsequent Closings are subject to the satisfaction or
waiver, on or prior to the date of the Second Closing or the date of any
Subsequent Closing (as the case may be), of each of the following conditions:
(a) Stockholder Approval. The holders of the requisite number of
shares of outstanding Common Stock of the Company shall have duly and
validly approved all items necessary to effectuate the transactions
contemplated hereby and under the Ancillary Agreements, including without
limitation, the Certificate Amendments (the "Stockholder Approval").
Section 8.2. Conditions to the Purchaser's Obligations at the Second and
Subsequent Closings. In addition to the conditions set forth in Article VII, the
obligations of the Purchaser to consummate the transactions on the Second
Closing and on Subsequent Closings are subject to the satisfaction or waiver, on
or prior to the date of the Second Closing and the date of any Subsequent
Closing (as the case may be), of each of the following conditions:
(a) Certificate Amendments; Bylaws Amendments. The Certificate
Amendments and Bylaws Amendments in a form satisfactory to Purchaser
necessary to give effect to the transactions contemplated hereby and the
provisions of the Ancillary Documents shall have become effective in
accordance with Section 6.15.
(b) Liability Insurance. The Company shall have provided to the
Purchaser a copy of the insurance policies together with the riders and
schedules thereto which evidence compliance with the provisions set forth
in Section 6.13.
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(c) Employment Agreements. The Company shall amend the employment
agreement of James J. Martell, Jr. in a form and substance satisfactory to
the Purchaser, in the Purchaser's sole discretion, to require that he
devote not less than 95% of his working time to conducting the business
affairs of the Company and to include customary non-compete provisions and,
if the Purchaser in its sole discretion so requires, enter into an
employment agreement on similar terms with J. Marshall Coleman.
ARTICLE IX.
INDEMNIFICATION
Section 9.1. Survival of Representations, Etc. The representations,
warranties, covenants and agreements of the parties hereto contained herein
shall survive all of the Closings and shall remain in full force and effect
until December 31, 2000; provided, however, that (i) the representations and
warranties set forth in Section 4.17 shall survive until December 31, 2004; (ii)
the representations and warranties in Sections 4.1 through 4.4 and Section 4.7
shall survive indefinitely and the covenants and agreements set forth in
Articles IX and X shall remain in full force and effect indefinitely and (iii)
the representations and warranties set forth in Section 4.15 shall survive and
shall remain in full force and effect for a period equal to the applicable
statute of limitations for any Taxes imposed payable in breach of such
representations and warranties; and provided, further, that there shall be no
termination with respect to any representation or warranty as to which either
(a) a bona fide claim has been asserted prior to such date or (b) the Purchaser
had actual knowledge of any breach thereof prior to any Closing Date.
Section 9.2. Indemnification by the Company. The Company shall indemnify
and hold harmless the Purchaser and its members, Affiliates, directors,
officers, advisors, agents and employees (the "Purchaser Indemnified Parties")
to the fullest extent lawful, from and against any and all demands, damages,
penalties, claims, liabilities, obligations, actions, causes of action, and
reasonable expenses (including without limitation, costs of investigating,
preparing or defending any such claim or action and reasonable legal fees and
expenses) (collectively, "Losses"), (i) arising out of or in connection with
this Agreement, the transactions contemplated hereby, and/or the delivery,
enforcement and performance of this Agreement or the Ancillary Agreements except
to the extent that Losses with respect thereto are the result of the Purchaser's
actions or omissions, or (ii) arising by reason of or resulting from any breach
of any warranty, representation, covenant or agreement of the Company contained
in this Agreement, the Ancillary Agreements or in any certificate delivered
pursuant thereto.
Section 9.3. Indemnification by the Purchaser. The Purchaser shall
indemnify and hold harmless the Company and its Affiliates, directors, officers,
advisors, agents and employees (the "Company Indemnified Parties" and, together
with the Purchaser Indemnified Parties, the "Indemnified Parties") to the
fullest extent lawful, from and against any and all Losses (i) arising from this
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Agreement or the Ancillary Agreements, to the extent of Losses from the
Purchaser's actions or omissions or (ii) arising by reason of or resulting from
any breach of any warranty, representation, covenant or agreement of the
Purchaser contained in this Agreement or in any certificate delivered pursuant
thereto.
Section 9.4. Losses. The term "Losses" as used in this Section 9 is not
limited to matters asserted by third parties, but includes Losses incurred or
sustained by an Indemnified Party in the absence of third party claims. Payments
by an Indemnified Party of amounts for which such Indemnified Party is
indemnified hereunder shall not necessarily be a condition precedent to
recovery.
Section 9.5. Defense of Claims. If a claim for Losses (a "Claim") is to be
made by an Indemnified Party, such Indemnified Party shall give written notice
(a "Claim Notice") to the indemnifying party as soon as practicable after such
Indemnified Party becomes aware of any fact, condition or event which may give
rise to Losses for which indemnification may be sought under this Section 9. If
any lawsuit or enforcement action is filed against any Indemnified Party
hereunder, notice thereof (a "Third Party Notice") shall be given to the
indemnifying party as promptly as practicable (and in any event within five (5)
calendar days after the service of the citation or summons). The failure of any
indemnified party to give timely notice hereunder shall not affect rights to
indemnification hereunder, except to the extent that the indemnifying party
demonstrates actual damage caused by such failure. After receipt of a Third
Party Notice, if the indemnifying party shall acknowledge in writing to the
indemnified party that the indemnifying party shall be obligated under the terms
of its indemnity hereunder in connection with such lawsuit or action, then the
indemnifying party shall be entitled, if it so elects, (i) to take control of
the defense and investigation of such lawsuit or action, (ii) to employ and
engage attorneys approved by the Indemnified Party (such approval not to be
unreasonably withheld) to handle and defend the same, at the indemnifying
party's cost, risk and expense unless the named parties to such action or
proceeding include both the indemnifying party and the Indemnified Party and the
Indemnified Party has been advised in writing by counsel that there may be one
or more legal defenses available to such Indemnified Party that are different
from or additional to those available to the indemnifying party, and (iii) to
compromise or settle such claim, which compromise or settlement shall be made
only with the written consent of the Indemnified Party, such consent not to be
unreasonably withheld. The Indemnified Party shall cooperate in all reasonable
respects with the indemnifying party and such attorneys in the investigation,
trial and defense of such lawsuit or action and any appeal arising therefrom;
and the Indemnified Party may, at its own cost, participate in the
investigation, trial and defense of such lawsuit or action and any appeal
arising therefrom and appoint its own counsel therefor, at its own cost. The
parties shall also cooperate with each other in any notifications to insurers.
If the indemnifying party fails to assume the defense of such claim within
fifteen (15) calendar days after receipt of the Third Party Notice, the
Indemnified Party against which such claim has been asserted will (upon
delivering notice to such effect to the indemnifying party) have the right to
undertake the defense, compromise or settlement of such claim and the
indemnifying party shall have the right to participate therein at its own cost;
provided, however, that such claim shall not be compromised or settled without
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the written consent of the Indemnifying Party, which consent shall not be
unreasonably withheld. In the event the Indemnified Party assumes the defense of
the claim, the Indemnified Party will keep the indemnifying party reasonably
informed of the progress of any such defense, compromise or settlement.
Notwithstanding the foregoing, the indemnifying party shall not be liable for
the reasonable fees and expenses of more than one separate firm of attorneys at
any time for any and all Indemnified Parties (which firm shall be designated in
writing by such Indemnified Party or Parties) in connection with any one such
action or proceeding arising out of the same general allegations or
circumstances.
Section 9.6. Tax Treatment of Indemnity. The parties agree that any
indemnification payments made pursuant to this Agreement shall be treated for
Tax purposes as an adjustment to the consideration for the purchase of the
Securities, unless otherwise required by applicable law, in which event
indemnification payments shall be made in an amount sufficient to indemnify the
party on a net after-Tax basis.
ARTICLE X.
MISCELLANEOUS
Section 10.1. Termination. (a)Prior to the First Closing, this Agreement
may be terminated:
(i) by the Purchaser, if there is a breach of any representation
warranty set forth in Article IV hereof or any covenant or agreement to be
complied with or performed by the Company pursuant to the terms of this
Agreement except for any breach which would not have a Material Adverse
Effect on the Company or the Purchaser; or
(ii) by the Company, if there is a material breach of any
representation or warranty set forth in Article V hereof or of any covenant
or agreement to be complied with or performed by the Purchaser pursuant to
the terms of this Agreement except for any breach which would not have a
Material Adverse Effect on the Company.
(a) Prior to the Second Closing, this Agreement may be terminated:
(i) by the Company or the Purchaser if the Stockholder Approval shall
not have been obtained on or before March 6, 1998, provided that the
Company shall not have the right to elect this termination if the Company
has not complied with all of its obligations under this Agreement;
(ii) by the Purchaser if the Second Closing shall not have occurred by
March 6, 1998.
(iii) by the Purchaser, if there is a breach of any representation or
warranty set forth in Article IV hereof or any covenant or agreement to be
complied with or performed by the Company pursuant to the terms of this
Agreement except for any breach which would not have a Material Adverse
Effect on the Company or the Purchaser; or
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(iv) by the Company, if there is a material breach of any
representation or warranty set forth in Article V hereof or of any covenant
or agreement to be complied with or performed by the Purchaser pursuant to
the terms of this Agreement except for any breach which would not have a
Material Adverse Effect on the Company.
Section 10.2. In the Event of Termination: In the event of termination of
this Agreement:
(a) Each party will redeliver all documents, work papers and other
material of any other party relating to the transactions contemplated
hereby, whether so obtained before or after the execution hereof to the
party furnishing the same;
(b) The provisions of Sections 9 and 10.3 shall continue in full force
and effect; and
(c) Other than pursuant to Sections 9 and 10.3, no party hereto shall
have any liability or further obligation to any other party relating to the
transactions contemplated hereby, provided that no such termination shall
relieve any party from liability or a prior breach of this Agreement.
Section 10.3. Fees and Expenses. The Company shall be responsible for the
payment of all costs and expenses incurred by the Company in connection with the
transactions contemplated hereunder, regardless of whether such transactions
close, including, without limitation, all fees and expenses incurred in
connection with the Proxy Materials and the fees and expenses of the Company's
legal counsel and all third party consultants engaged by the Company to assist
in the transactions. On each Closing Date, the Company shall reimburse the
Purchaser for the Transaction Expenses (by wire transfer of same day funds). In
the event that the Agreement is terminated, other than pursuant to Section
10.1(a)(ii) or Section 10.1(b)(iv) hereof, in addition to any other rights of
the Purchaser hereunder, the Company shall promptly pay the Purchaser, by way of
liquidated damages, a termination fee of $4,000,000, plus the Transaction
Expenses (to the extent not already paid or reimbursed by the Company).
Section 10.4. Injunctive Relief. The parties hereto acknowledge and agree
that irreparable damage would occur in the event any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of the provisions of this
Agreement, and shall be entitled to enforce specifically the provisions of this
Agreement, in any court of the United States or any state thereof having
jurisdiction, in addition to any other remedy to which the parties may be
entitled under the Agreement or at law or in equity.
Section 10.5. Independent Determination. From and after the date of the
Second Closing, all decisions on behalf of the Company as to payment of
indemnification pursuant hereto and otherwise regarding the Company's rights and
obligations pursuant to this Agreement and the Ancillary Agreements shall be
made by a committee of the board of directors consisting of all directors not
elected by the holders of the Preferred Stock voting as a separate class and a
decision of a majority of such directors shall be the decision of the committee.
Nothing contained in this Section 10.5 shall prevent any Indemnified Party from
receiving indemnification pursuant to some other source (such as, by way of
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example, the bylaws of the Company in the event that such Indemnified Party is a
director of the Company and such director seeks indemnification due to
circumstances that do not pertain to an alleged breach of this Agreement), and
the determination as to whether indemnification pursuant to such other source is
available shall be made in accordance with the procedures applicable thereto.
Section 10.6. Brokers, etc. No brokerage fees shall be payable to any
Person in connection with the transactions contemplated hereunder, other than a
fee to be payable to Furman Selz, LLC by the Company (in an amount to be
negotiated).
Section 10.7. Assignment. Neither this Agreement nor any of the rights or
obligations hereunder may be assigned by the Company without the prior written
consent of the Purchaser, or by the Purchaser without the prior written consent
of the Company, except that the Purchaser may, without such consent, assign its
rights hereunder, in whole or in part, including, the right to acquire the
Preferred Stock, the Warrants and the Supplemental Warrants hereunder, to one or
more affiliates of the Purchaser. Subject to the foregoing, this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, and no other person shall have any right,
benefit or obligation hereunder.
Section 10.8. Notices. Unless otherwise provided herein, any notice,
request, instruction or other document to be given hereunder by any party to the
other shall be in writing and delivered by hand-delivery, registered first-class
mail, telex, confirmed telecopy, or air courier guaranteeing overnight delivery,
as follows:
If to the Company:
The Fortress Group, Inc.
1650 Tysons Boulevard, Suite 600
McLean, Virginia 22102
Telephone: (703) 442-4545
Facsimile: (703) 442-7730
Attn: J. Marshall Coleman
with a copy to: Secretary
With an additional copy to:
Arent Fox Kintner Plotkin & Kahn
1050 Connecticut Avenue, NW
Washington, DC 20036
Telephone: (202) 857-6473
Facsimile: (202) 857-6395
Attn: Jeffrey E. Jordan
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If to the Purchaser:
Prometheus Homebuilders LLC
c/o Lazard Freres Real Estate Investors, LLC
Thirty Rockefeller Plaza, 63rd Floor
New York, NY 10020
Telephone: (212) 632-6060
Facsimile: (212) 632-6052
Attn: Robert P. Freeman
Murry N. Gunty
With a copy to:
Latham & Watkins
885 Third Avenue
New York, NY 10022
Telephone: (212) 906-1200
Facsimile: (212) 751-4864
Attn: R. Ronald Hopkinson
or to such other place and with such other copies as either party may designate
as to itself by written notice to the other.
All such notices, requests, instructions or other documents shall be deemed
to have been duly given; at the time delivered by hand, if personally delivered;
four Business Days after being deposited in the mail, postage prepaid, if
mailed; when answered back, if telexed; when receipt acknowledged by addressee,
if by telecopier transmission; and on the next Business Day if timely delivered
to an air courier guaranteeing overnight delivery.
Section 10.9. Choice of Law. This Agreement shall be construed, interpreted
and the rights of the parties determined in accordance with the internal laws of
the State of New York, without regard to the conflict of law principles thereof,
except with respect to matters of law concerning the internal corporate affairs
of any corporate entity which is a party to or the subject of this Agreement,
and as to those matters the law of the jurisdiction under which the respective
entity derives its powers shall govern.
Section 10.10. Entire Agreement; Amendments and Waivers. This Agreement,
including all schedules attached hereto (each, a "Schedule" and, collectively,
the "Schedules") constitutes the entire agreement among the parties pertaining
to the subject matter hereof and supersedes all prior agreements,
understandings, negotiations and discussions, whether oral or written, of the
parties, including the written summary of proposed terms between the Company and
the Purchaser. Capitalized terms used in the Schedules but not defined therein
shall have the respective meanings ascribed to such terms in this Agreement. Any
item disclosed in one Schedule shall be deemed to have been disclosed in all
other Schedules.
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Section 10.11. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 10.12. Invalidity. In the event that any one or more of the
provisions contained in this Agreement or in any other instrument referred to
herein, shall, for any reason, be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provision of this Agreement or any other such instrument.
Section 10.13. Headings. The headings of the Articles and Sections herein
are inserted for convenience of reference only and are not intended to be a part
of or to affect the meaning or interpretation of this Agreement.
Section 10.14. Limitation of Liability. In no event shall any member,
partner or representative of the Purchaser or of any partnership which is a
partner of the Purchaser or any partner of any such partnership, or any direct
or indirect stockholder, officer, director, partner, employee or any other such
person, be personally liable for any obligation of the Purchaser under this
Agreement. In no event shall any officer, director, employee or shareholder of
the Company be personally liable for any obligation of the Company under this
Agreement.
Section 10.15. Abstention from Voting.
Neither the Purchaser nor any assignee of the Purchaser shall vote on the
resolution to be proposed to stockholders of the Company to authorize the
issuance of the Securities.
Section 10.16. Mutual Agreement.
The Company shall have the right to issue a debt instrument in lieu of all
or any portion of the Class AB Preferred Stock to be issued hereunder, provided
that such debt instrument contains terms and conditions that are no less
favorable to the Purchaser than the terms and conditions of the Class ABI
Preferred Stock (such debt to have a maturity date of December 31, 2004).
Section 10.17. Apportionment of Stock Between Class ABI Preferred Stock and
Class ABII Preferred Stock The parties will apportion the Class AB Preferred
Stock to be issued between the Class ABI Preferred Stock and the Class ABII
Preferred Stock to ensure that the Purchaser has no more than 45% of the total
voting power of the Company on the date of issuance of such Class AB Preferred
Stock with respect to the election of directors to the Board of Directors
generally (other than directors elected exclusively by holders of Preferred
Stock), but so that the Company shall issue the maximum amount of Class ABI
Preferred Stock it is permitted to issue before issuing any Class ABII Preferred
Stock.
Section 10.18. Merger of Company. Following the Second Closing, the parties
hereby acknowledge and agree that, in the event that the Purchaser, in its
discretion pursuant to the terms of the Preferred Stock and the Stockholders
Agreement, gives its consent to a merger or consolidation of the Company with a
bona fide third party in an arms length transaction ("Merger") such that,
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following such Merger, more than 51 percent of the Common Stock of the Company
(or the surviving corporation in the Merger) is beneficially owned by such third
party, following the consummation of such Merger the Company shall have the
right to be released from its obligations under this Agreement to sell to the
Purchaser the then-unissued balance of the Preferred Stock (and any debt
instrument issuable in lieu thereof as set forth in Section 10.16) at one or
more Subsequent Closings.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
THE FORTRESS GROUP, INC.
By: /s/
------------------------------
Name: James J. Martell, Jr.
Title: President
PROMETHEUS HOMEBUILDERS LLC
By: LF Strategic Realty Investors II L.P., its member
By: Lazard Freres Real Estate Investors L.L.C.,
its general partner
By: /s/
------------------------------
Name: Murry N. Gunty
Title: Principal
<PAGE>
EXHIBIT A
FORM OF
CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL AND OTHER SPECIAL
RIGHTS AND QUALIFICATIONS, LIMITATIONS
AND RESTRICTIONS THEREOF
OF
CLASS ABI PREFERRED STOCK
OF
THE FORTRESS GROUP, INC.
<PAGE>
EXHIBIT B
FORM OF
CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL AND OTHER SPECIAL
RIGHTS AND QUALIFICATIONS, LIMITATIONS
AND RESTRICTIONS THEREOF
OF
CLASS ABII PREFERRED STOCK
OF
THE FORTRESS GROUP, INC.
<PAGE>
EXHIBIT C
FORM OF
AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
<PAGE>
EXHIBIT D
FORM OF
AMENDED AND RESTATED
WARRANT AGREEMENT
<PAGE>
EXHIBIT E
FORM OF
AMENDED AND RESTATED
STOCKHOLDER AGREEMENT
<PAGE>
EXHIBIT F
FORM OF
BYLAWS AMENDMENTS
<PAGE>
EXHIBIT G
FORM OF
CERTIFICATE AMENDMENTS
<PAGE>
EXHIBIT H
FORM OF
BYLAWS AMENDMENTS-SUBSIDIARIES
<PAGE>
EXHIBIT I
FORM OF
SUPPLEMENTAL WARRANT AGREEMENT
<PAGE>
SCHEDULES ON FILE
AT LATHAM & WATKINS
AND AVAILABLE UPON REQUEST
