SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant /_/
Check the appropriate box:
/_/ Preliminary Proxy Statement
/x/ Definitive Proxy Statement
/_/ Definitive Additional Materials
/_/ Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
THE FORTRESS GROUP, INC.
________________________________________________________________________________
(Name of Registrant as Specified In Its Charter)
James J. Martell, Jr.,
________________________________________________________________________________
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rule 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
_____________________________________________________________________________
2) Aggregate number of securities to which transaction applies:
_____________________________________________________________________________
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing
fee is calculated and state how it was determined):
_____________________________________________________________________________
4) Proposed maximum aggregate value of transaction:
_____________________________________________________________________________
/_/ Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the form or schedule
and the date of its filing.
1) Amount previously paid: _________________________________________________
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3) Filing party: ___________________________________________________________
4) Date filed: _____________________________________________________________
<PAGE>
[LOGO]
THE FORTRESS GROUP, INC.
1650 TYSONS BOULEVARD, SUITE 600
MCLEAN, VIRGINIA 22102
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON WEDNESDAY, JUNE 17, 1998
------------------------
The Annual Meeting of Stockholders of The Fortress Group, Inc. will be held
on June 17, 1998 at The Ritz Carlton, 1700 Tysons Boulevard, McLean, VA 22102,
at 8:30 a.m., local time, to consider and act upon the following matters:
1. To elect twelve directors to serve for the ensuing year.
2. To transact such other business as may properly come before the meeting
or any adjournment thereof.
Stockholders of record at the close of business on April 20, 1998 will be
entitled to notice of and to vote at the meeting or any adjournment thereof.
All stockholders are cordially invited to attend the meeting.
BY ORDER OF THE BOARD OF DIRECTORS,
JAMES J. MARTELL, JR.,
President and Chief Executive Officer
McLean, Virginia
April 30, 1998
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE FOLLOW THE INSTRUCTIONS
ON THE ENCLOSED PROXY IN ORDER TO ENSURE REPRESENTATION OF YOUR SHARES AT THE
MEETING.
<PAGE>
THE FORTRESS GROUP, INC.
1650 TYSONS BOULEVARD, SUITE 600
MCLEAN, VIRGINIA 22102
------------------------
PROXY STATEMENT FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 17, 1998
------------------------
GENERAL INFORMATION
The Annual Meeting of Stockholders of The Fortress Group, Inc. (the
'Company') will be held at The Ritz Carlton, 1700 Tysons Boulevard, McLean, VA
22102, on Wednesday, June 17, 1998 at 8:30 a.m., Eastern Daylight Time, for the
purposes set forth in the accompanying Notice of Annual Meeting of
Stockholders.The approximate mailing date for this proxy statement and proxy is
May 5, 1998.
It is important that your shares be represented at the meeting. If it is
impossible for you to attend the meeting, please sign and date the enclosed
proxy and return it in the envelope provided. The proxy is solicited by the
Board of Directors of the Company (the 'Board'). Shares represented by valid
proxies in the enclosed form will be voted if received in time for the Annual
Meeting. Expenses in connection with the solicitation of proxies will be borne
by the Company and may include requests by mail and personal contact by its
directors, officers and employees. The Company will reimburse brokers or other
nominees for their expenses in forwarding proxy materials to principals. The
giving of the enclosed proxy does not preclude the right to vote in person at
the meeting, should the stockholder giving the proxy so desire. Any person
giving a proxy has the power to revoke it any time before it is voted. The proxy
may be revoked at any time prior to its exercise by notice of revocation in
writing sent to the Secretary of the Company, by presenting to the Company a
later-dated proxy card executed by the person executing the prior proxy card or
by attending the meeting and voting in person.
Shares of Common Stock represented by properly executed proxy cards
received by the Company in time for the meeting will be voted in accordance with
the choices specified in the proxies. Abstentions and broker non-votes (proxies
that indicate that brokers or nominees have not received instructions from the
beneficial owner of shares) will be counted for purposes of determining the
presence or absence of a quorum for the transaction of business. Abstentions are
counted in tabulating the total number of votes cast on proposals presented to
shareholders, whereas broker non-votes are not counted for purposes of
determining the total number of votes cast.
VOTING SECURITIES AND PRINCIPAL HOLDERS
Holders of record of shares of the Company's Common Stock, $.01 par value
(the 'Common Stock'), at the close of business on April 20, 1998 (the 'Record
Date') are entitled to notice of, and to vote at, the Annual Meeting or at any
adjournment or adjournments of the Annual Meeting. Each share of Common Stock
has one vote. On the Record Date, there were issued and outstanding 11,771,975
shares of Common Stock.
In addition, holders of record of shares of the Company's Class AA
Convertible Preferred Stock, $.01 par value, at the close of business on the
Record Date are entitled to notice of , and to vote at, the Annual Meeting or at
any adjournment or adjournments of the Annual Meeting. On the Record Date, there
were issued and outstanding 40,000 shares of Class AA Convertible Preferred
Stock, entitling the holder thereof to cast 6,666,667 votes at the Annual
Meeting.
1
<PAGE>
OWNERSHIP BY PERSONS OWNING MORE THAN FIVE PERCENT
The following table sets forth information with respect to persons known to
the Company to be the beneficial owners of more than five percent of the
outstanding Common Stock or preferred stock with voting rights. Other than the
Class AA Preferred Stock held by Prometheus, all of the stock set forth in the
table is Common Stock.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT OF PERCENT OF VOTING
NAME AND ADDRESS OF BENEFICIAL CLASS AS OF STOCK AS
BENEFICIAL OWNER OWNERSHIP RECORD DATE OF RECORD DATE
- - -------------------------------------------------------------------- ---------- ----------- -----------------
<S> <C> <C> <C>
Prometheus Homebuilders LLC ........................................ 898,845 7.6% 4.9%
30 Rockefeller Plaza, 63rd Floor 40,000(a) 100.0% 36.2%
New York, NY 10020
Robert Short ....................................................... 1,573,517(b) 13.4% 8.5%
534 Commons Drive
Golden, CO 80401
J. Christopher Stuhmer ............................................. 1,509,409 12.8% 8.2%
9500 Hillwood Drive, Suite 200
Las Vegas, NV 89134
Heartland Advisors, Inc. ........................................... 1,082,600(c) 9.2% 5.9%
790 North Milwaukee Street
Milwaukee, WI 53202
Charles F. Smith ................................................... 675,041(d) 5.7% 3.7%
P.O. Box 9672
McLean, VA 22102
Thomas Buffington .................................................. 714,265(e) 6.0% 3.9%
8716 Mopac Expressway, Suite 100
Austin, TX 78759
J. Marshall Coleman ................................................ 651,585(f) 5.5% 3.5%
1650 Tysons Boulevard, Suite 600
McLean, VA 22102
James J. Martell, Jr. .............................................. 624,423(g) 5.3% 3.4%
1650 Tysons Boulevard, Suite 600
McLean, VA 22102
</TABLE>
- - ------------------
(a) 40,000 shares, having an initial liquidation value of $40,000,000, of Class
AA Preferred Stock are issued and outstanding. Such shares entitle
Prometheus to cast 6,666,667 votes at the Annual Meeting. Subject to the
terms and conditions of the Stock Purchase Agreement dated as of February
19, 1998 between the Company and Prometheus, Prometheus has also acquired
Warrants for 375,000 shares of Common Stock and has the right to acquire an
aggregate of 35,000 shares, having an initial liquidation value of
$35,000,000, of Class AB Preferred Stock; Warrants for 625,000 shares of
Common Stock; and Contingent Warrants, which potentially provide for the
issuance of between 380,952 and 5,714,286 shares of Common Stock.
Prometheus, which may be deemed to be the beneficial owner of the foregoing
securities, disclaims beneficial ownership of all but the 40,000 shares of
Class AA Preferred Stock.
(b) Of the 1,573,517 shares, Mr. Short's children own 4,000 shares.
(c) This information is based on a Schedule 13G dated January 27, 1998 which was
filed by Heartland Advisors, Inc. According to such Schedule 13G, Heartland
Advisors, Inc. has sole voting power over 1,011,600 shares.
(d) Of the 675,041 shares, Mr. Smith's family members own 28,098 shares.
2
<PAGE>
(e) Includes options to purchase 50,000 shares of Common Stock that are
exercisable within the next 60 days.
(f) Of the 651,585 shares, Mr. Coleman owns 325,792.5 shares, and Patricia A.
Donnelly, his wife, owns 325,792.5 shares.
(g) Of the 624,423 shares, Mr. Martell, his wife, owns 490,423 shares, Mary Ann
Martell, his wife, owns 120,150 shares, and their children own 13,850
shares.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's executive officers, directors, persons who own more than ten
percent of a registered class of the Company's equity securities and certain
entities associated with the foregoing ('Reporting Persons') to file reports of
ownership and changes in ownership of Forms 3, 4 and 5 with the Securities and
Exchange Commission (the 'SEC'). These Reporting Persons are required by SEC
regulation to furnish the Company with copies of all Forms 3, 4 and 5 they file
with the SEC. Based solely upon its review of Forms 3, 4 and 5 and any
amendments thereto furnished to the Company, all of such forms were filed on a
timely basis by reporting persons during 1997 except for the inadvertent late
filing of a monthly reporting form representing one transaction by Mr. Pirrello
and the inadvertent late filing of a monthly reporting form representing one
transaction by Mr. Martell.
I. ELECTION OF DIRECTORS
The Company's By-laws provide that the Board shall consist of twelve
directors who shall be elected annually by the holders of the Common Stock and
the Series AA Preferred Stock (the 'Common Directors') and three directors who
shall be elected annually by the holders of the Series AA Preferred Stock (the
'Preferred Directors'). The following persons are proposed to be elected as the
Common Directors to hold office until the next Annual Meeting of Stockholders
and until their respective successors have been duly elected and qualified. In
the event that any of the nominees for Common Director should become
unavailable, it is intended that the shares represented by the proxies will be
voted for such substitute nominees as may be nominated by the Board, unless the
number of Common Directors is reduced. The Company has no reason to believe,
however, that any of the nominees is, or will be, unavailable to serve as a
Common Director.
3
<PAGE>
The following information is furnished with respect to each nominee for
election as a Common Director, with respect to each Preferred Director, and with
respect to each executive officer of the Company named in the Summary
Compensation Table below.
<TABLE>
<CAPTION>
SHARES OF
COMMON PERCENTAGE OF
STOCK OF OUTSTANDING
THE SHARES OF THE
COMPANY COMPANY'S
BENEFICIALLY COMMON STOCK
OWNED BENEFICIALLY YEAR FIRST
POSITIONS AND OFFICES AS OF THE OWNED AS OF THE BECAME
NAME AGE WITH THE COMPANY RECORD DATE RECORD DATE A DIRECTOR
- - -------------------------- --- -------------------------------------- ----------- --------------- ----------
NOMINEES FOR ELECTION AS COMMON DIRECTORS
<S> <C> <C> <C> <C> <C>
J. Marshall Coleman....... 55 Director; Chairman of the Board of the 651,585 5.5% 1996
Company
James J. Martell, Jr...... 47 Director; President and Chief 624,423 5.3% 1995
Executive Officer of the Company
George C. Yeonas.......... 43 Director; Chief Operating Officer 42,500(a) * 1997
Thomas B. Buffington...... 53 Director; President of Buffington 714,265(b) 6.0% 1996
Homes, Inc.
Robert Short.............. 52 Director; President of The Genesee 1,573,517 13.4% 1996
Company
J. Christopher Stuhmer.... 41 Director; President of Christopher 1,509,409 12.8% 1996
Homes, Inc.
Lawrence J. Witek......... 45 Director; President and Chief 367,628 3.1% 1996
Executive Officer of Sunstar Homes
Mark L. Fine.............. 53 Director 6,000(c) * 1996
Edward J. Mathias......... 56 Director 16,000(c) * 1997
Steven D. Rivers.......... 49 Director 6,000(c) * 1996
William A. Shutzer........ 51 Director 11,000(c) * 1996
Charles F. Smith.......... 54 Director 675,041 5.7% 1995
PREFERRED DIRECTORS
Robert P. Freeman......... 52 Director 500(d) * 1998
Murry N. Gunty............ 30 Director 500(d) * 1998
James D. Klingbeil........ 61 Director 500(d) * 1998
OTHER EXECUTIVE OFFICERS
Jamie M. Pirrello......... 39 Chief Financial Officer 18,632 *
</TABLE>
- - ------------------
* Less than 1%
(a) Includes 30,000 shares restricted by vesting terms and 12,500 shares that
Mr. Yeonas has the right to acquire pursuant to the Company's Stock Option
Plan.
(b) Includes 50,000 shares that Mr. Buffington has the right to acquire pursuant
to the Company's Stock Option Plan.
(c) Includes 3,000 shares that Mr. Mathias and 6,000 shares that Messrs. Fine,
Shutzer and Rivers have the right to acquire pursuant to the Company's Stock
Option Plan.
(d) Consists of 500 shares that Messrs. Freeman, Gunty and Klingbeil have the
right to acquire pursuant to the Company's Stock Option Plan.
4
<PAGE>
OTHER INFORMATION RELATING TO DIRECTORS
The following is a brief description of the business experience during the
last five years of each member of the Board.
Mr. Coleman has been Chairman of the Board of the Company since May 1996.
Prior to assuming this position, Mr. Coleman was an attorney with Katten Muchin
& Zavis, a national law firm, and was the Managing Partner of its Washington
office from 1994 until April 1996. From 1985 until 1992, Mr. Coleman was an
attorney at the Washington, D.C. law firm of Arent Fox Kintner Plotkin & Kahn.
Mr. Coleman was Attorney General of Virginia from 1978 to 1982. From 1986 to
1993, Mr. Coleman was a director of NVR, a publicly traded homebuilding company.
Mr. Martell has been President and Chief Executive Officer of the Company
since June 1995 and has more than 10 years in the homebuilding industry. Since
1992, Mr. Martell has been an advisor and consultant to various companies in the
homebuilding and technology industries. From 1991 to 1992, Mr. Martell served as
Managing Director of Investment Banking at Credit International Bank as well as
a member of its board of directors.
Mr. Yeonas joined the Company as Chief Operating Officer in August 1997 and
has over 20 years in the homebuilding industry. Prior to joining Fortress, Mr.
Yeonas served for seven years as Vice President and General Manager of the
Arvida Company's South Florida division. His responsibilities there included the
management of the city of Weston, Florida's number one selling community. Prior
to joining Arvida, Mr. Yeonas served as Vice President of Development for NVR in
Washington, DC, and as Divisional Partner for Trammell Crow in Tampa, Florida.
Mr. Buffington became a director of the Company in March 1996 and has
served as the President of Buffington Homes, Inc. since 1987.
Mr. Short became a director of the Company in March 1996 and has served as
the President and Chief Executive Officer of The Genesee Company since 1980.
Mr. Stuhmer became a director of the Company in March 1996 and has served
as the President of Christopher Homes, Inc. since 1987.
Mr. Witek became a director of the Company in March 1996 and served as the
Chief Operating Officer of Sunstar Homes from 1987 to April of 1998 and
currently serves as the Chief Executive Officer of Sunstar Homes.
Mr. Fine became a director for the Company in April 1996 and currently is
the President of Mark L. Fine & Associates, a development company formed in June
1994. Mr. Fine has more than 20 years of experience in the building industry and
led the development of Las Vegas' two largest master-planned communities. From
June 1990 to June 1994, Mr. Fine served as the President of Summerlin, a
division of Howard Hughes Corporation.
Mr. Mathias has been a Managing Director of The Carlyle Group, a
Washington, D.C. merchant banking firm, since January 1994. Previously, Mr.
Mathias was with T. Rowe Price Associates, Inc. where he served on its board of
directors and was a member of its Management committee for over ten years. In
addition, he is a director of U.S. Office Products Company and Sirrom Capital.
Mr. Rivers became a director of the Company in April 1996 and, since 1991,
has been a broker with A.G. Edwards & Sons, Inc., an investment firm, in Austin,
Texas. Since July 1995, Mr. Rivers has served as a Director for the Lower
Colorado River Authority in Austin, Texas, and he currently serves as the
Chairman of such Authority's Audit Committee.
Mr. Shutzer is an Executive Vice President and the head of the investment
banking division at Furman Selz, LLC, an international investment banking,
financial services and securities firm headquartered in New York. Mr. Shutzer is
a member of the operating committee and is also a member of the board of
directors. He is head of the investment banking operating committee and a member
of the firm's commitment committee. Mr. Shutzer joined Furman Selz in 1994 after
spending 21 years in the investment banking division at Lehman Brothers. He also
serves on the board of directors of Tiffany & Co.
5
<PAGE>
Mr. Smith is a founder of the Company and has been a director since June
1995. Mr. Smith founded Madison Financial Investors in 1997 and is its Managing
Director. From 1972 to 1997, Mr. Smith served as Chief Financial Officer, Senior
Vice President and Treasurer of I & K Productions, Inc., a privately held
entertainment holding company which owns Ringling Brothers Barnum & Bailey
Combined Shows, Inc., Ice Follies, Holiday On Ice and other entertainment and
merchandising operations.
Mr. Freeman is a principal of Lazard Freres Real Estate Investors LLC
('Lazard'). In that capacity, Mr. Freeman is responsible for Lazard's
investments, portfolio management, asset management, and administrative
functions. Mr. Freeman joined Lazard at the end of 1992 from Perini Investment
Properties, Inc., an American Stock Exchange listed real estate investment and
management company, where he had been president and chief executive officer
since 1991 and a director since 1985. Mr. Freeman serves on the board of
directors of ARV Assisted Living; American Apartment Communities II; American
Apartment Communities III; Kapson Senior Quarters, Inc.; The Rubenstein
Company, LP; Atlantic American Properties Trust; and Commonwealth Atlantic
Properties.
Mr. Gunty is a principal of Lazard. In that capacity, Mr. Gunty is
responsible for Lazard's investments. Prior to joining Lazard in 1995, Mr. Gunty
was employed by J.E. Robert Company, where he worked on investment activities,
real estate investment trusts, commercial mortgage-backed securities, and other
corporate opportunities. Prior to that he worked at Trammell Crow Ventures. Mr.
Gunty serves on the board of directors of ARV Assisted Living; The Rubenstein
Company, LP; Kapson Senior Quarters, Inc.; and Atlantic American Properties
Trust.
American Properties.
Mr. Klingbeil is the Chairman, President and Chief Executive Officer of
American Apartment Communities, which owns, manages, or has a controlling
interest in a portfolio of apartment communities. Mr. Klingbeil also serves as
Chairman of The Klingbeil Company which since its formation in 1961 has engaged
in real estate investment, construction, and management.
COMMITTEES OF THE BOARD
Audit Committee
The Audit Committee is responsible for assuring the accuracy and
consistency of financial reporting and accounting practices by the Company and
its subsidiaries. The Audit Committee is responsible for (i) retaining, and
evaluating the performance of, the Company's independent auditors; (ii)
approving the Company's annual audit plan; (iii) reviewing reports of the
independent auditors concerning the adequacy of financial controls,
responsiveness of management, quality of systems and other related subjects;
(iv) monitoring compliance with the Company's policies and procedures; and (v)
when requested, reviewing proposed transactions between the Company and its
'affiliates' (e.g., officers, directors and significant stockholders) to
determine the fairness and reasonableness of the transactions.
Compensation Committee
The Compensation Committee is responsible for the oversight and
administration of the Company's executive compensation structure and is
responsible for (i) establishing the overall compensation policies for the
Company; (ii) determining the compensation of the Company's senior executives;
(iii) approving the Company's Incentive Compensation Plan and all other long- or
short-term incentive compensation plans; (iv) assuring that the Company's
compensation plans and policies are competitive with the market and in
compliance with applicable SEC and Internal Revenue Service regulations; and (v)
reporting on the Company's compensation practices in each year's proxy
statement.
Nominating Committee
The Nominating Committee is responsible for recruiting and nominating
candidates for the Board as well as re-nominating existing directors. Prior to
each annual meeting of stockholders, the Nominating Committee reports to the
Board regarding its nominees and the background and an evaluation of each
candidate. The Committee may also advise the Board with respect to matters of
Company philosophy, diversity, composition and related matters. The nominating
committee will consider nominees for Common Directors recommended by
stockholders. Recommendations by stockholders should be submitted to the
Company's secretary and should identify the recommended nominee by name and
provide detailed background information. Recommendations
6
<PAGE>
received by December 31, 1998 will be considered by the nominating committee for
nomination at the 1999 Annual Meeting of Stockholders. Until the term of the
Stockholders' Agreement (as defined and described below) expires, nominees for
Common Directors are determined pursuant to the Stockholders' Agreement.
Committee Members
The current members of the above-referenced committees are (a) Audit
Committee--Messrs. Fine, Rivers, Smith, and Gunty; (b) Compensation
Committee--Messrs. Shutzer, Fine, Mathias, and Gunty; and (c) Nominating
Committee--Messrs. Smith, Rivers, Shutzer, Fine, and Gunty. Committee membership
is determined on an annual basis and will be modified following the next Annual
Meeting.
STOCKHOLDERS' AGREEMENT
Each of the owners of the four founding builders prior to the initial
public offering, (Buffington Homes, Christopher Homes, The Genesee Company and
Sunstar Homes), (the 'Founding Builders') and each of the pre-initial public
offering stockholders of the Company, Messrs. Coleman, Martell, Smith, Pirrello
and certain other persons ('Existing Stockholders') entered into an agreement
(the 'Stockholders' Agreement') with respect to nominating and electing
Directors to the Board. Pursuant to the Stockholders' Agreement, the Existing
Stockholders and the Founding Builders have agreed to elect one director each
from the four Founding Builders and four directors nominated by the Existing
Stockholders in each of the Annual Stockholders' Meetings for fiscal years 1996,
1997, 1998 and 1999; in each of the Annual Stockholders' Meetings for fiscal
years 1996 and 1997, the Existing Stockholders and the Founding Builders have
agreed to elect two independent directors nominated by the Founding Builders and
one independent director nominated by the Existing Stockholders. Each of the
parties to the Stockholders' Agreement has agreed to vote its Common Stock in
order to cause the nominees of the Founding Builder's Owners and the Existing
Stockholders nominated for election to be elected to the Board. The
Stockholders' Agreement will terminate immediately following the Company's
Annual Meeting of Stockholders relating to fiscal year 1999 (but occurring in
fiscal year 2000). By virtue of the Stockholders' Agreement, the election of the
nominees to the Board at the Annual Meeting is assured.
II. COMPENSATION
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
Summary Compensation Table
The following table sets forth information for the two fiscal years ended
December 31, 1997 concerning the compensation of the Company's Chief Executive
Officer and each of the Company's other executive officers whose total annual
salary and bonus exceeded $100,000 (the 'Named Executive Officers').
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
-------------------------
AWARDS PAYOUTS
------------------------- ------- ALL OTHER
ANNUAL COMPENSATION SHARES OF SHARES LTIP COMPEN-
NAME AND ----------------------- RESTRICTED UNDERLYING PAYOUTS SATION
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) STOCK OPTIONS (#) ($) ($)
- - -------------------------------------- ---- ---------- --------- ---------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
James J. Martell, Jr., ............... 1997 350,000 -0- -0- -0- -0- 7,720
President and Chief 1996 166,667 225,490 -0- -0- -0- 75,078(1)
Executive Officer
George Yeonas, ...................... 1997 98,485 150,000 30,000(2) 50,000 -0- -0-
Chief Operating Officer 1996 -0- -0- -0- -0- -0- -0-
Jamie M. Pirrello, ................... 1997 180,000 -0- -0- -0- -0- -0-
Chief Financial Officer 1996 106,667 112,745 -0- -0- -0- 36,000(1)
</TABLE>
(Footnotes on next page)
7
<PAGE>
(Footnotes from previous page)
- - ------------------
1) Except for Mr. Martell, the entire amount of other compensation represents
payment for consulting services prior to the Company's initial public
offering. Mr. Martell's total includes the above and an auto allowance in the
amount of $3,078.
2) Mr. Yeonas received 30,000 shares of Common Stock that vest in equal portions
over 6, 18, and 30 months of employment.
Stock Options
The Company's Employee Stock Option Plan provides for the grant of options
with respect to the Common Stock. The table below sets forth information on
option grants in fiscal 1997 to the named executive officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
PERCENT OF TOTAL
OPTIONS GRANTED TO
OPTIONS EMPLOYEES IN FISCAL EXERCISE EXPIRATION GRANT DATE
NAME GRANTED(1) YEAR PRICE DATE PRESENT VALUE(2)
- - ----------------------------------------- ---------- ------------------- -------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
James J. Martell, Jr..................... 0 0 0 0 0
George C. Yeonas......................... 50,000 21.7% $ 5.9375 8/11/07 $139,000
Jamie M. Pirrello........................ 0 0 0 0 0
</TABLE>
- - ------------------
1) Options vest in equal portions on the date of initial employment and the
first, second, and third anniversaries thereof.
2) The grant date present values are calculated based on the Black-Scholes
model. The assumptions used in the calculations include an expected
volatility of 35%, a risk free rate of return of 6.0%, an annual dividend
yield of one cent per share and a time to exercise of 7.68 years.
Aggregated Option Exercises and Fiscal Year-End Option Value Table
The following table sets forth information concerning each exercise of
stock options during the fiscal year ended December 31, 1997 by each of the
Named Executive Officers and the value of unexercised options held by such
persons as of December 31, 1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
SHARES UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS AT IN-THE-MONEY
ACQUIRED FY-END (#) OPTIONS AT FY-END ($)
ON VALUE ---------------------------- ----------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- - -------------------------------- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James J. Martell, Jr............ -0- -0- -0- -0- -0- -0-
George C. Yeonas................ -0- -0- -0- 50,000 -0- -0-
Jamie M. Pirrello............... -0- -0- -0- -0- -0- -0-
</TABLE>
EMPLOYMENT AGREEMENTS
Messrs. Martell and Pirrello have employment agreements with the Company
effective April 15, 1996 and expiring in the year 2000. Mr. Yeonas has an
employment agreement with the Company, effective August 11, 1997 and expiring in
the year 2000. The agreements automatically renew for successive one-year
periods, following the initial term, unless either the Company or employee
provides written notice of its intent to terminate. The agreements provide for
various benefits including a base salary of $350,000, $180,000, and $250,000,
respectively. The agreements also provide for additional bonus compensation
under the Company bonus program, which is tied to operational results.
8
<PAGE>
Messrs. Martell, Pirrello, and Yeonas may be terminated for 'cause' as
defined in the agreements, or without cause. If terminated for cause, the
termination will be effective upon receipt of proper notice by the employee. If
Messrs. Martell, Pirrello, or Yeonas are terminated for other than cause, the
employee shall be entitled to his base salary for the remainder of the agreement
term as well as a pro-rata share of his bonus, as determined by the Board.
Compensation of Directors
Under the Company's standard arrangements, each non-employee director of
the Company receives an annual director's fee of $20,000, payable $5,000 each
quarter, and $1,000 for attendance at Board meetings. All directors are
reimbursed for out-of-pocket expenses incurred to attend meetings. Employee
directors of the Company do not receive any additional compensation for services
as a director.
Compensation Committee Interlocks and Insider Participation
None of the Compensation Committee members are or were officers or
employees of the Company or any of its subsidiaries.
During 1997, the Company paid fees to Furman Selz related to the Company's
agreement with Prometheus Homebuilders LLC. Mr. Shutzer is a Vice President of
and the head of investment banking at Furman Selz.
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REPORT OF THE COMPENSATION COMMITTEE
Board Compensation Committee Report on Executive Compensation
General. The Compensation Committee's compensation philosophy relative to
the Company's executive officers is to provide a compensation program that is
intended to attract and retain qualified executives for the Company and to
provide them with incentive to achieve Company goals and increase shareholder
value. This philosophy is implemented by establishing salaries, cash and stock
bonuses, and stock option programs.
Salaries. The Compensation Committee's policy is to provide salaries that
are competitive with those of similar executive officers in similar companies.
The Compensation Committee determines comparable salaries through Company
research and the research of consultants concerning the salaries paid by the
Company's competitors.
Bonuses. The Compensation Committee's policy is to provide a significant
portion of executive officers' total compensation through annual bonuses as
incentives to achieve the Company's financial and operational goals and increase
shareholder value. The Company's bonus arrangements for its executive officers
are intended to make a major portion of each executive officer's compensation
dependent on the Company's overall performance.
Stock Options. The Compensation Committee's policy is to award stock
options to the Company's officers in amounts reflecting the participant's
position and ability to influence the Company's overall performance. Options are
intended to provide participants with an increased incentive to make
contributions to the long-term performance and growth of the Company, to join
the interests of participants with the interests of stockholders of the Company,
and to attract and retain qualified employees. The Compensation Committee's
policy has generally been to grant options with terms of five to ten years (in
certain cases, with portions exercisable over shorter periods) to provide a
long-term incentive and to fix the exercise price of the options at the fair
market value of the underlying shares on the date of grant. Such options only
have value if the price of the underlying shares increases above the exercise
price.
The only stock options granted to executive officers of the Company in 1997
were options for 50,000 shares, with a strike price of $5.9375 per share, issued
to George C. Yeonas on August 11, 1997.
1997 Compensation Decisions Regarding the President and Chief Executive
Officer. Compensation paid to Mr. Martell was in accordance with his employment
agreement, which was negotiated prior to the Company's initial public offering
and creation of the Compensation Committee. No bonus was paid to Mr. Martell for
the fiscal year 1997 based on the Company's performance in accordance with a
previously established policy.
COMPENSATION COMMITTEE
William A. Shutzer
Mark L. Fine
Edward J. Mathias
Murry N. Gunty
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COMPARATIVE STOCK PERFORMANCE
The graph below compares cumulative total stockholder return on the Common
Stock during the period from May 16, 1996 (the date on which the Common Stock
commenced trading) with the cumulative total return over the same period of (ii)
the Standard & Poor's 500 Index and (ii) a peer group of publicly-traded
companies selected by the Company for purposes of this comparison (the 'Peer
Group')*. This graph assumes the investment of $100 at the close of trading on
May 16, 1996 in the Common Stock, the Standard & Poor's 500 Index and the Peer
Group and assumes reinvestment of dividends. Measurement points are at May 16,
1996, June 30, 1996, September 30, 1996, December 31, 1996, March 31, 1997, June
30, 1997, September 30, 1997, and December 31, 1997.
COMPARATIVE TOTAL RETURNS
THE FORTRESS GROUP, INC., STANDARD & POOR'S 500, PEER GROUP
(Performance results from 5/16/96 through 12/31/97)
[GRAPH]
Source: Zacks Investment Research, Inc.
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* The peer group includes the following companies: Beazer Homes USA, Inc., DR
Horton, Inc., Engle Homes, Inc., Kaufman and Broad Home Corporation, Pulte
Corporation, Toll Brothers, Inc., Zaring Homes, Inc., M/I Schottenstein Homes,
Inc., Centex Corporation, Continental Homes, Hovnanian Enterprises, Inc.,
M.D.C. Holdings, Inc., The Ryland Group, Inc. and U.S. Home Corporation. The
Lennar Corporation was included in the peer group comparison in the 1996 Proxy
Statement. The Lennar Corporation is not included above due to the lack of
comparability of its 1997 and 1996 results due to a division spin-off in 1997.
III. CERTAIN TRANSACTIONS
At the beginning of 1997, the Company's Genesee subsidiary leased its
administrative office space from Genesee Holdings Corporation, of which Mr.
Short was the president and owner; the Company made lease payments of $83,215 to
this entity in 1997. Genesee relocated their offices during 1997 and currently
leases its administrative office space from RS Investments III LLC, in which Mr.
Short has 33.3% beneficial interest (25.4% personally held and 7.9% held by
family members). In 1997, the Company made lease payments of $28,586 to RS
Investments III LLC. The Company's Christopher Homes subsidiary leases its
administrative office space from Towne Center L.P. Mr. Stuhmer is the president
and sole shareholder of the general partner, which owns 1% of this partnership.
The remaining 99% of Towne Center L.P. is owned by Mr. Stuhmer's Family Trust.
In 1997, the Company made lease payments of $252,888 to Towne Center L.P. The
Company believes that the above referenced leases are at market rates.
The Company has a note receivable bearing interest at 13.75% from another
director, Mr. Stuhmer, for approximately $600,000, at December 31, 1997, net of
accrued interest, which is secured by that director's shares in the Company.
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The Company has entered into a Consulting Agreement dated as of May 1, 1996
with Commonwealth Homes, Inc. (Commonwealth), a company owned by Mr. Coleman
(the Consulting Agreement). Pursuant to the Consulting Agreement, Commonwealth
(including Mr. Coleman and his employees) is engaged to provide mergers and
acquisitions, financial advisory and strategic planning services. The Consulting
Agreement has a term of three years and automatically renews for successive
one-year periods unless either party provides notice within 90 days of
termination stating that the agreement will be terminated. The Consulting
Agreement provides for the payment of consulting fees, in amounts to be agreed
upon, on a transaction-by-transaction basis in connection with acquisitions,
joint ventures and similar arrangements and capital raising transactions. Such
fees will generally be based upon a percentage of the value of the transaction
and are required to be (i) approved as to fairness by a committee of
disinterested directors, (ii) reasonable and customary in relation to the size
and complexity of the transaction and (iii) contingent upon the completion of
the subject transaction. The agreement also provides for reimbursement for
reasonable and necessary out-of-pocket expenses and an annual fee of $350,000,
which amount is to be taken into account in determining the transaction based
fees. The Company paid $540,000 pursuant to the Consulting Agreement in 1997.
In the ordinary course of business, the Company has entered into model home
sale-leaseback transactions with certain directors and entities owned by certain
directors. During 1997, the Company sold ten model homes for a total sales price
of approximately $2,000,000 to a limited liability company that is 50% owned by
Mr. Witek and paid lease payments, at terms no more favorable than available to
an unrelated party, totaling approximately $144,000 to that same entity.
Additionally, the Company made lease payments of approximately $22,000 to Mr.
Witek, at terms no more favorable than available to an unrelated party, relating
to a model home which he and his wife had purchased in 1996. During 1997, the
Company sold seven model homes for a total sales price of approximately
$1,400,000 to a limited liability company beneficially-owned by Mr. Short (73%
personally held and 27% held by family members) and paid lease payments, at
terms no more favorable than available to an unrelated party, totaling
approximately $72,000 to this entity. The Company also sold six model homes for
a total sales price of approximately $1,700,000 to a limited liability company
beneficially-owned in part by Mr. Short (23.8% personally held and 57.2% held by
family members) and paid lease payments, at terms no more favorable than
available to an unrelated party, totaling approximately $38,000 to this entity.
During 1997, the Company paid fees to Furman Selz related to the Company's
agreement with Prometheus Homebuilders LLC. Mr. Shutzer is a Vice President of
and the head of investment banking at Furman Selz.
IV. OTHER MATTERS
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP served as the independent accountants for the Company
and its subsidiaries for 1997 and has reported on the Company's consolidated
financial statements included in the Annual Report of the Company which
accompanies this proxy statement. The Board, which appoints the Company's
independent accountants, has not yet appointed the independent accountants for
1998 and anticipates doing so in the second quarter upon recommendation of the
Audit Committee.
Representatives of Price Waterhouse LLP are expected to be present at the
Annual Meeting of Stockholders and will have the opportunity to make a statement
at the meeting if they desire to do so. The representatives will also be
available to respond to appropriate questions.
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OTHER PROPOSALS
Neither the Company nor the members of its Board intend to bring before the
Annual Meeting any matters other than those set forth in the Notice of Annual
Meeting of Stockholders, and they have no present knowledge that any other
matters will be presented for action at the meeting by others. If any other
matters properly come before such meeting, however, it is the intention of the
persons named in the enclosed form of proxy to vote in accordance with their
best judgment.
By Order of the Board of Directors
/s/ James J. Martell, Jr.
-------------------------
JAMES J. MARTELL, JR.
President and Chief Executive Officer
Dated: April 30, 1998
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THE FORTRESS GROUP, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS OF THE FORTRESS GROUP
ANNUAL MEETING OF SHAREHOLDERS -- JUNE 17, 1998
James J. Martell, Jr. and J. Marshall Coleman, and each of them, are hereby
authorized to represent and vote the stock of the undersigned at the Annual
Meeting of Shareholders to be held June 17, 1998, and at any adjournment or
adjournments thereof.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN ACCORDANCE WITH
SPECIFICATIONS MADE HEREIN. IF NO SPECIFICATIONS ARE MADE, THIS PROXY WILL BE
VOTED FOR THE ELECTION OF THE NOMINEES FOR DIRECTOR LISTED ON THE REVERSE SIDE
OF THIS PROXY CARD.
PLEASE VOTE, DATE AND SIGN ON REVERSE
AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
PLEASE SIGN EXACTLY AS YOUR NAME
APPEARS ON THIS PROXY. WHEN SIGNING AS
ATTORNEY, EXECUTOR, ADMINISTRATOR,
TRUSTEE, OR GUARDIAN, PLEASE GIVE YOUR
FULL TITLE. IF SHARES ARE HELD JOINTLY,
EACH HOLDER SHOULD SIGN.
<TABLE>
<S> <C>
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
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</TABLE>
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<TABLE>
<CAPTION>
FOR WITHHOLD FOR ALL EXCEPT
<S> <C> <C> <C> <C>
1. Election of Directors: / / / / / /
J. Marshall Coleman Lawrence J. Witek
James J. Martell, Jr. Mark L. Fine
George C. Yeonas Edward J. Mathias
Thomas B. Buffington Steven D. Rivers
Robert Short William A. Shutzer
J. Christopher Stuhmer Charles F. Smith
NOTE: If you do not wish your shares voted 'For' a particular nominee, mark the 'For All Except' box and strike
a line through the nominee's name. Your shares will be voted for the remaining nominees.
2. In their discretion, the proxies are authorized to vote upon any other business that may properly come before the
meeting.
Mark box at right if an address change or comment has been noted on the reverse side of this card. / /
</TABLE>
The undersigned hereby acknowledges receipt of the notice of said Annual Meeting
of Stockholders, the proxy statement relating thereto and the Annual Report for
1997.
The undersigned hereby revokes any proxy or proxies heretofore given to vote
such stock, and hereby ratifies and confirms all that said attorneys and
proxies, or other substitutes, may do by virtue hereof. If only one attorney and
proxy shall be present and acting, then that one shall have and may exercise all
the powers of said attorneys and proxies.
The signature of shareholder should correspond exactly with the name stenciled
hereon. Joint owners should sign individually. When signing as attorney,
executor, administrator, trustee or guardian, please give your full title as
such.
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SHAREHOLDER SIGN HERE DATE CO-OWNER SIGN HERE DATE
