<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 4
to
SCHEDULE 13D
Under the Securities Exchange Act of 1934
THE FORTRESS GROUP, INC.
- --------------------------------------------------------------------------------
(Name of Issuer)
Common Stock, par value $0.01 per share
- --------------------------------------------------------------------------------
(Title of Class of Securities)
34956K108
---------
(CUSIP Number)
Murry N. Gunty
Prometheus Homebuilders LLC
LF Strategic Realty Investors II L.P.
LFSRI II Alternative Partnership L.P.
LFSRI II-CADIM Alternative
Partnership L.P.
30 Rockefeller Plaza, 63rd Floor
New York, NY 10020
(212) 632-6000
with a copy to:
R. Ronald Hopkinson, Esq.
Latham & Watkins
885 Third Avenue
New York, New York 10022
(212) 906-1200
- --------------------------------------------------------------------------------
(Name, Address and Telephone Number of Person Authorized to
Receive Notices and Communications)
December 31, 1998
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(e), Rule 13d-1(f) or Rule 13d-1(g), check the
following box __ .
Note: Schedules filed in paper format shall include a signed original and five
copies of the schedule, including all exhibits. See Rule 13d-7 for other parties
to whom copies are to be sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
<PAGE> 2
SCHEDULE 13D
CUSIP No. 34956K108 Page 2 of 10
----------- --- ---
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
SS. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Prometheus Homebuilders LLC
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a)
(b) X
---
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3 SEC USE ONLY
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4 SOURCE OF FUNDS
AF (See Item 3)
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS
IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) ---
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF
SHARES 7,565,512 (1)
BENEFICIALLY -------------------------------------------------
OWNED BY 8 SHARED VOTING POWER
EACH
REPORTING None
PERSON -------------------------------------------------
WITH 9 SOLE DISPOSITIVE POWER
7,565,512 (1)
-------------------------------------------------
10 SHARED DISPOSITIVE POWER
None
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
7,565,512 (1)
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* X
---
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
40.7%
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14 TYPE OF REPORTING PERSON*
OO (limited liability company)
- --------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
- -------------------
(1) Including 6,666,667 shares of Common Stock receivable upon conversion of
certain preferred stock (See Item 5).
<PAGE> 3
SCHEDULE 13D
CUSIP No. 34956K108 Page 3 of 10
----------- --- ---
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
SS. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
LF Strategic Realty Investors II L.P.
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a)
(b) X
---
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3 SEC USE ONLY
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4 SOURCE OF FUNDS
AF (See Item 3)
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS
IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) ---
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF
SHARES None
BENEFICIALLY -------------------------------------------------
OWNED BY 8 SHARED VOTING POWER
EACH
REPORTING 7,565,512 (2)
PERSON -------------------------------------------------
WITH 9 SOLE DISPOSITIVE POWER
None
-------------------------------------------------
10 SHARED DISPOSITIVE POWER
7,565,512 (2)
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
7,565,512 (2)
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* X
---
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
40.7%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
PN (limited partnership)
- --------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
- -------------------
(2) Including 6,666,667 shares of Common Stock receivable upon conversion of
certain preferred stock (See Item 5).
<PAGE> 4
SCHEDULE 13D
CUSIP No. 34956K108 Page 4 of 10
----------- --- ---
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
SS. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
LFSRI II Alternative Partnership L.P.
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a)
(b) X
---
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3 SEC USE ONLY
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4 SOURCE OF FUNDS
AF (See Item 3)
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS
IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) ---
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF
SHARES None
BENEFICIALLY -------------------------------------------------
OWNED BY 8 SHARED VOTING POWER
EACH
REPORTING 7,565,512 (3)
PERSON -------------------------------------------------
WITH 9 SOLE DISPOSITIVE POWER
None
-------------------------------------------------
10 SHARED DISPOSITIVE POWER
7,565,512 (3)
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
7,565,512 (3)
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* X
---
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
40.7%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
PN (limited partnership)
- --------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
- -------------------
(3) Including 6,666,667 shares of Common Stock receivable upon conversion of
certain preferred stock (See Item 5).
<PAGE> 5
SCHEDULE 13D
CUSIP No. 34956K108 Page 5 of 10
----------- --- ---
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
SS. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
LFSRI II-CADIM Alternative Partnership L.P.
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a)
(b) X
---
- --------------------------------------------------------------------------------
3 SEC USE ONLY
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4 SOURCE OF FUNDS
AF (See Item 3)
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS
IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) ---
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF
SHARES None
BENEFICIALLY -------------------------------------------------
OWNED BY 8 SHARED VOTING POWER
EACH
REPORTING 7,565,512 (4)
PERSON -------------------------------------------------
WITH 9 SOLE DISPOSITIVE POWER
None
-------------------------------------------------
10 SHARED DISPOSITIVE POWER
7,565,512 (4)
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
7,565,512 (4)
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* X
---
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
40.7%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
PN (limited partnership)
- --------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
- -------------------
(4) Including 6,666,667 shares of Common Stock receivable upon conversion of
certain preferred stock (See Item 5).
<PAGE> 6
Page 6 of 10
This Amendment No. 4, dated January 12 1999, which supplements and
amends the Schedule 13D, dated August 25, 1997, as amended by Amendment No. 1,
dated October 14, 1997, Amendment No. 2, dated March 3, 1998 ("Amendment No.
2"), and Amendment No. 3, dated August 27, 1998, (as so amended, the "Previous
Statement"), of Prometheus Homebuilders LLC ("Prometheus") and its owners LF
Strategic Realty Investors II L.P. ("LFSRI II"), LFSRI II Alternative
Partnership L.P. ("Alternative") and LFSRI II-CADIM Alternative Partnership L.P.
(CADIM and, together with Prometheus, LFSRI II and Alternative, the "Reporting
Persons") is filed to reflect information required pursuant to Rule 13d-2 of the
General Rules and Regulations under the Securities Exchange Act of 1934, as
amended, relating to the common stock, $0.01 par value per share (the "Common
Stock"), of the Fortress Group, Inc., a Delaware corporation (the "Issuer" or
the "Company"). Capitalized terms not otherwise defined herein have the meaning
ascribed to them in Amendment No. 2.
Item 1. Security and Issuer.
This statement relates to the Common Stock. The Issuer's principal
executive offices are located at 1650 Tysons Boulevard, Suite 600, McLean,
Virginia 22102.
Item 3. Source and Amount of Funds or Other Consideration.
Item 4. Purpose of Transaction.
The Issuer and Prometheus have agreed to the restructuring (the
"Restructuring") of certain existing agreements pertaining to Prometheus'
investment in the Issuer, as disclosed in the Previous Statement, pursuant to a
Restructuring Agreement, dated as of December 31, 1998, by and among the Issuer,
Prometheus and the stockholders of the Issuer party thereto (the "Restructuring
Agreement"), which provides, among other things, that Prometheus will exchange
Class AA Preferred Stock of the Issuer currently owned by it for shares of a new
issue of Class AAA Preferred Stock. The Issuer and Prometheus decided to enter
into the Restructuring Agreement as a result of, among other things, there
occurring since the date of the Stock Purchase Agreement (i) a change in the
corporate circumstances and strategies of the Company and (ii) a decline in the
price of the Common Stock. As part of the Restructuring, Prometheus has agreed,
subject to certain conditions, to modify and/or waive certain provisions of the
Company's Certificate of Incorporation granting Prometheus certain super
majority voting rights and the Company has agreed to amend its By-Laws to
conform to certain changes made to the Stockholders Agreement, all as further
described in Item 6.
Item 5. Interest in Securities of the Issuer.
(a) Prometheus currently owns (i) 40,000 shares of Class AA Preferred
Stock which are convertible into approximately 6,666,667 shares of Common Stock
at a conversion price of $6.00 per share and (ii) 878,845 shares of Common Stock
which it acquired from certain founders of the Company, representing beneficial
ownership by the Reporting Persons of a total of 7,545,512 shares of Common
Stock, or approximately 40.7% of the approximately 18,582,845 issued and
outstanding shares of the Issuer, based on the number of shares of Common Stock
outstanding as of November 13, 1998, as disclosed in the Company's most recent
filing on Form 10-Q, and the conversion of the Class AA Preferred Stock into
Common Stock. Assuming the consummation of the exchange of the Class AA
Preferred Stock for the Class AAA Preferred Stock (as defined below) as
contemplated by the Restructuring Agreement, the interest of the Reporting
Persons in the Common Stock of the Issuer will not change.
<PAGE> 7
Page 7 of 10
Item 6. Contracts, Arrangements, Understandings, or Relationships with
Respect to Securities of the Issuer.
Pursuant to the terms of the Restructuring Agreement, Prometheus will
exchange the Class AA Preferred Stock now owned by it for a new series of the
Company's Class AAA Convertible Redeemable Preferred Stock, $0.01 par value per
share (the "Class AAA Preferred Stock"). The Class AAA Preferred Stock will be
redeemable at the Company's option, at any time until December 31, 2000 for its
liquidation value plus dividends that, when combined with dividends previously
paid on the Class AA Preferred Stock, provide a 20% annual return from the
inception of Prometheus' investment in the Company to the date of redemption.
Any redemption of the Class AAA Preferred Stock will be subject to compliance
with the Company's senior note indenture, which restricts redemptions in certain
circumstances.
The dividend rate on the Class AAA Preferred Stock will be 9% per
annum, payable quarterly, and will be credited towards the annual return
required to be paid on the Class AAA Preferred Stock if it is redeemed. The
Certificate of Designations of Class AAA Preferred Stock attached as Exhibit A
to the Restructuring Agreement includes provisions permitting Prometheus to
elect a majority of the Company's board of directors upon certain payment
defaults but, unlike the current provisions of the Class AA Preferred Stock,
does not provide for such election based upon specified financial results and
stock price. Depending on whether or not shareholder approval is required (as
discussed below), the Purchaser and the Company have agreed, pursuant to the
terms of the Restructuring Agreement, to modify and/or waive certain provisions
of the Company's Certificate of Incorporation and By-Laws to give effect to
certain changes in the voting rights of the Purchaser contemplated by the
Restructuring. Specifically, certain actions requiring supermajority approval as
previously disclosed and set forth in the Class AA Certificate of Designations
and the Stockholders Agreement will either be eliminated or modified as set
forth in the form of Second Amended and Restated Stockholders Agreement attached
as Exhibit C to the Restructuring Agreement attached hereto as Exhibit 1.
In addition, the terms of the Restructuring Agreement call for the
termination of the provisions of the Stock Purchase Agreement that had obligated
the Company to issue and Prometheus to purchase an additional $35 million
liquidation value of Class AB Preferred Stock. The Restructuring Agreement also
provides for (A) the cancellation of the 375,000 Warrants, (B) the cancellation
of the obligation to issue 625,000 additional Warrants, which would have been
issued in connection with the issuance of the Class AB Preferred Stock, and (C)
the modification of the previously disclosed "reset provisions."
In connection with entering into the Restructuring Agreement, the
Company paid Prometheus $5 million on December 31, 1998. This amount may be
credited towards the annual return required to be paid on the Class AAA
Preferred Stock if it is redeemed. Also in connection with any optional
redemption of the Class AAA Preferred Stock, Prometheus may require the Company
by February 15, 2001 to sell for Prometheus' benefit a proportional amount of
the 898,845 shares of Common Stock owned by Prometheus and to pay Prometheus the
amount, if any, by which the proceeds of such sale are less than $5.50 per
share.
Although the Restructuring Agreement retains, in the form of new
supplemental warrants, all of the previously disclosed reset provisions
contained in the Class AA Certificate of Designations and the Supplemental
Warrants, the Restructuring Agreement amends these provisions to place
additional conditions on their exercise and to provide that they will be
canceled to the extent that the Class AAA Preferred Stock is redeemed.
<PAGE> 8
Page 8 of 10
Pursuant to the provisions of the Restructuring Agreement, the
Company and Prometheus will enter into the Second Amended and Restated
Registration Rights Agreement in the form attached as Exhibit B to the
Restructuring Agreement, which will amend and restate the previously disclosed
Registration Rights Agreement to give effect to the Restructuring including,
without limitation, the elimination of the Warrants.
The transactions contemplated by the Restructuring Agreement are
expected to close promptly following the earlier of advice from the Nasdaq Stock
Market that no shareholder approval is required or receipt of the required
shareholder approval. Certain principal shareholders, together holding in the
aggregate more than 50% of the voting shares, have agreed to use their
reasonable best efforts to take such action, if any, as is reasonably necessary
to cause the transactions contemplated by the Restructuring Agreement to be
consummated.
All references to the Restructuring Agreement, the Second Amended and
Restated Stockholders Agreement and the Second Amended and Restated Registration
Rights Agreement and the terms of the Class AAA Preferred Stock are qualified in
their entirety by the full text of such agreements and the text of the
Certificate of Designations of the Class AAA Preferred Stock, copies of which
are attached as Exhibit 1 hereto (or exhibits to such Exhibit) and are
incorporated herein by reference.
Item 7. Material to be Filed as Exhibits.
Exhibit 1. Restructuring Agreement, dated as of December 31,
1998, by and among the Issuer, Prometheus and the
stockholders of the Issuer party thereto, including the
exhibits attached thereto.
<PAGE> 9
Page 9 of 10
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief,
I certify that the information set forth in this statement is true, complete and
correct.
PROMETHEUS HOMEBUILDERS LLC
By: LF Strategic Realty Investors II L.P.,
as managing member
By: Lazard Freres Real Estate Investors L.L.C.,
as general partner
By: /s/ Murry Gunty
---------------------
Name: Murry Gunty
Title: Principal
LF STRATEGIC REALTY INVESTORS II L.P.
LFSRI II ALTERNATIVE PARTNERSHIP L.P.
LFSRI II-CADIM ALTERNATIVE PARTNERSHIP L.P.
By: Lazard Freres Real Estate Investors L.L.C.,
as general partner
By: /s/ Murry Gunty
-------------------
Name: Murry Gunty
Title: Principal
Dated: January 12, 1999
<PAGE> 10
Page 10 of 10
SCHEDULE I
Executive Officers of Prometheus and LFREI
The business address for each of the following
persons is 30 Rockefeller Plaza, 63rd Floor, New
York, NY 10020.
Name of Office Present and Principal Occupation
- -------------- --------------------------------
Arthur P. Solomon Principal of LFREI
Anthony E. Meyer Principal of LFREI
Robert P. Freeman Principal of LFREI
Klaus P. Kretschmann Principal of LFREI
Murry N. Gunty Principal of LFREI
Marjorie L. Reifenberg Vice President, General Counsel
and Secretary of LFREI
Henry C. Herms Comptroller of LFREI
Douglas Healy Principal of LFREI
John A. Moore Principal and CFO of LFREI
Douglas N. Wells Vice President of LFREI
<PAGE> 1
Exhibit 1
EXECUTION COPY
RESTRUCTURING AGREEMENT
by and among
THE FORTRESS GROUP, INC.
PROMETHEUS HOMEBUILDERS LLC
and the
HOMEBUILDER STOCKHOLDERS
listed on the signature pages hereto
Dated as of December 31, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I. DEFINITIONS........................................................................................ 2
SECTION 1.1. DEFINED TERMS................................................................................. 2
ARTICLE II. RESTRUCTURING EVENTS.............................................................................. 4
SECTION 2.1. ISSUANCE OF NEW PREFERRED STOCK............................................................... 4
SECTION 2.2. AMENDMENT OF REGISTRATION RIGHTS AGREEMENT.................................................... 4
SECTION 2.3. AMENDMENT OF STOCKHOLDERS AGREEMENT........................................................... 4
SECTION 2.4. MAKE-WHOLE/TRANSACTION PAYMENT................................................................ 4
SECTION 2.5. PAYMENT OF THIRD AND FOURTH QUARTER DIVIDEND.................................................. 4
SECTION 2.6. PROMETHEUS COMMON OBLIGATION.................................................................. 5
ARTICLE III. CLOSING.......................................................................................... 5
SECTION 3.1. LOCATION OF CLOSING........................................................................... 5
SECTION 3.2. DELIVERIES BY THE COMPANY AT CLOSING.......................................................... 5
SECTION 3.3. DELIVERIES BY THE PURCHASER AT CLOSING........................................................ 5
SECTION 3.4. CERTIFICATES; OPINIONS........................................................................ 5
SECTION 3.5. ANCILLARY AGREEMENTS.......................................................................... 6
SECTION 3.6. FORM OF DOCUMENTS AND INSTRUMENTS............................................................. 6
SECTION 3.7. TERMINATION OF PRIOR RIGHTS AND OBLIGATIONS................................................... 6
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE COMPANY..................................................... 6
SECTION 4.1. AUTHORIZATION OF ISSUANCE..................................................................... 6
SECTION 4.2. AUTHORIZATION................................................................................. 7
SECTION 4.3. NONCONTRAVENTION.............................................................................. 7
SECTION 4.4. CONSENTS AND APPROVALS........................................................................ 7
SECTION 4.5. EXECUTIVE COMMITTEE........................................................................... 7
SECTION 4.6. MATERIAL ADVERSE CHANGE....................................................................... 8
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF PURCHASER........................................................ 8
SECTION 5.1. ORGANIZATION OF THE PURCHASER................................................................. 8
SECTION 5.2. AUTHORIZATION................................................................................. 8
SECTION 5.3. NONCONTRAVENTION.............................................................................. 8
SECTION 5.4. CONSENTS AND APPEALS.......................................................................... 9
SECTION 5.5. ACCREDITED INVESTOR........................................................................... 9
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE VI. ACTIONS BY THE COMPANY AND THE PURCHASER PRIOR TO THE CLOSING..................................... 9
SECTION 6.1. FURTHER ASSURANCES............................................................................ 9
SECTION 6.2. PRESS RELEASES................................................................................ 10
SECTION 6.3. CONFIDENTIALITY............................................................................... 10
SECTION 6.4. EXTENSION OF STOCK PURCHASE AGREEMENT......................................................... 11
ARTICLE VII. CONDITIONS TO ALL CLOSINGS....................................................................... 11
SECTION 7.1. CONDITIONS TO THE COMPANY'S OBLIGATIONS....................................................... 11
SECTION 7.2. CONDITIONS TO THE PURCHASER'S OBLIGATIONS..................................................... 11
ARTICLE VIII. INDEMNIFICATION................................................................................. 12
SECTION 8.1. SURVIVAL OF REPRESENTATIONS, ETC.............................................................. 12
SECTION 8.2. INDEMNIFICATION BY THE COMPANY................................................................ 13
SECTION 8.3. INDEMNIFICATION BY THE PURCHASER.............................................................. 13
SECTION 8.4. LOSSES........................................................................................ 13
SECTION 8.5. DEFENSE OF CLAIMS............................................................................. 13
SECTION 8.6. TAX TREATMENT OF INDEMNITY.................................................................... 14
ARTICLE IX. MISCELLANEOUS..................................................................................... 14
SECTION 9.1. TERMINATION................................................................................... 14
SECTION 9.2. TERMINATION BY THE PURCHASER.................................................................. 15
SECTION 9.3. TERMINATION BY THE COMPANY.................................................................... 15
SECTION 9.4. FEES AND EXPENSES............................................................................. 16
SECTION 9.5. INJUNCTIVE RELIEF............................................................................. 16
SECTION 9.6. INDEPENDENT DETERMINATION..................................................................... 16
SECTION 9.7. ASSIGNMENT.................................................................................... 17
SECTION 9.8. NOTICES....................................................................................... 17
SECTION 9.9. CHOICE OF LAW................................................................................. 18
SECTION 9.10. ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS...................................................... 18
SECTION 9.11. COUNTERPARTS.................................................................................. 18
SECTION 9.12. INVALIDITY.................................................................................... 18
SECTION 9.13. HEADINGS...................................................................................... 18
SECTION 9.14. LIMITATION OF LIABILITY....................................................................... 18
SECTION 9.15. SHAREHOLDER APPROVAL.......................................................................... 19
SECTION 9.16. SHAREHOLDER APPROVAL ASSURANCES............................................................... 19
</TABLE>
ii
<PAGE> 4
EXHIBITS
Exhibit A Form of New Preferred Stock Certificate of Designations
Exhibit B Form of Second Amended and Restated Registration Rights
Agreement
Exhibit C Form of Second Amended and Restated Stockholders Agreement
Exhibit D Form of Supplemental Warrant Agreement
iii
<PAGE> 5
This RESTRUCTURING AGREEMENT, dated as of December 31, 1998, is made by and
between (i) The Fortress Group, Inc., a Delaware corporation (the "Company"),
(ii) Prometheus Homebuilders LLC (the "Purchaser") and (iii) the Homebuilder
Stockholders (as defined below). Capitalized terms not otherwise defined herein
have the meaning ascribed to them in the Stock Purchase Agreement (as
hereinafter defined).
RECITALS
WHEREAS, the Company and the Purchaser are parties to that certain Amended
and Restated Stock Purchase Agreement, dated as of February 19, 1998 (the "Stock
Purchase Agreement").
WHEREAS, pursuant to the Stock Purchase Agreement and a series of related
agreements (collectively, the "Existing Agreements") the Purchaser has acquired
40,000 shares of Class AA Preferred Stock (the "Old Preferred Stock") and
375,000 Warrants (the "Warrants") from the Company and 898,845 shares of Common
Stock from certain of the Company's founding homebuilders (the "Prometheus
Common").
WHEREAS, pursuant to the terms of the Class AA Certificate of Designations
and the Warrant Agreement, the Class AA Preferred Stock and the Warrants are
convertible into and exercisable for, as the case may be, Common Stock at
specified exercise prices and are subject to certain reset provisions (the
"Reset Provisions") that lower the exercise price and/or increase the amount of
Common Stock such securities are convertible or exchangeable into as the price
of the Common Stock declines.
WHEREAS, since the date of the Stock Purchase Agreement, among other
things, there has been a change in corporate circumstances and strategies of the
Company and the price of the Common Stock has declined such that the Company and
the Purchaser have mutually determined that it is in the best interest of the
Company to restructure (the "Restructuring") the Existing Agreements.
WHEREAS, in determining to restructure the Existing Agreements, the Company
and the Purchaser have agreed to (i) exchange the Old Preferred Stock and the
Warrants for a new series of the Company's Convertible Redeemable Preferred
Stock (the "New Preferred Stock"), having the rights designations and
preferences set forth in the New Preferred Stock Certificate of Designations (as
defined herein), which New Preferred Stock will differ from the Class AA
Preferred Stock in that the New Preferred Stock will, among other things,
contain no Reset Provisions, have a higher dividend rate and will be callable at
any time after issuance by the Company at the Redemption Price (as defined
herein); (ii) amend the Registration Rights Agreement and the Stockholders
Agreement to give effect to the Restructuring; (iii) revise the Supplemental
Warrant Agreement incorporating the Reset Provisions and certain revenue tests
therein, execute the same and issue the Supplemental Warrants; (iv) upon the
redemption of any or all of the New Preferred Stock, cause the Prometheus Common
Obligation (as defined herein) to immediately vest with respect to a pro rata
amount of Prometheus Common; and (v) have the Company pay the Purchaser a $5.0
million make-whole payment with respect to the Old Preferred Stock in connection
with the Restructuring on December 31, 1998.
<PAGE> 6
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:
"Amended and Restated Registration Rights Agreement" means that certain
Second Amended and Restated Registration Rights Agreement, dated as of the
Closing Date, by and between the Company and the Purchaser amending and
restating the Registration Rights Agreement in the form attached as Exhibit B
hereto.
"Amended and Restated Stockholders Agreement" means that certain Second
Amended and Restated Stockholders Agreement, dated as of the Closing Date, by
and among the Company, the Purchaser and the Homebuilder Stockholders amending
and restating the Stockholders Agreement in the form attached as Exhibit C
hereto.
"Ancillary Agreements" means the Amended and Restated Registration Rights
Agreement, the Amended and Restated Stockholders Agreement, and the Supplemental
Warrant Agreement.
"Closing" shall mean the consummation of the transactions contemplated
herein and in the Ancillary Agreements.
"Closing Date" means January 22, 1999, or promptly following notice by the
National Association of Securities Dealers, Inc. (the "NASD") that shareholder
approval is not required (provided that no later than January 6, 1999 the
Company make a submission to the NASD to allow the NASD to make a determination
of the necessity of shareholder approval) or, if the NASD requires shareholder
approval for the transactions contemplated by the Restructuring, such later date
as is first practicable after such shareholder approval is obtained; provided
that in no event shall the Closing Date be later than April 1, 1999.
"Common Stock" means the common stock, par value $0.01 per share, of the
Company.
"Conversion Shares" means the shares of Common Stock issuable upon the
conversion of the New Preferred Stock.
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"Homebuilder Stockholders" means all stockholders of the Company party to
the Stockholders Agreement (except for the Purchaser), all of which stockholders
are listed on the signature pages hereto.
"New Preferred Stock" means the 9% Class AAA Convertible Redeemable
Preferred Stock, $0.01 par value per share, of the Company.
"New Preferred Stock 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
9% Class AAA Convertible Redeemable Preferred Stock, $0.01 par value per share,
of the Company, in the form attached as Exhibit A hereto.
"Old Preferred Stock Issue Date" means September 30, 1997 with respect to
the first $11.7 million of Class AAA Preferred Stock redeemed, if any, and March
6, 1998 with respect to any other Class AAA Preferred Stock redeemed.
"Prometheus Common Sale Notice" means a notice given by the Purchaser to
the Company at least ten days prior to November 15, 2000 stating that the
Purchaser is exercising its right under Section 2.6 hereof to sell the
Prometheus Common in accordance with the provisions of such Section 2.6.
"Redemption Price" shall have the meaning given to it in the New Preferred
Stock Certificate of Designations.
"Securities" means the New Preferred Stock.
"Supplemental Warrant Agreement" means that certain Warrant Agreement by
and between the Company and the Purchaser substantially in the form attached as
Exhibit D hereto pursuant to which the Company shall on the Closing Date issue
the Supplemental Warrants to the Purchaser.
"Supplemental Warrants" shall mean an aggregate of up to 33,333,333
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.
"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 this Agreement and the Ancillary Agreements.
"Warrant Shares" means the Common Stock issuable upon the exercise of the
Supplemental Warrants.
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ARTICLE II.
RESTRUCTURING EVENTS
Section 2.1. Issuance of New Preferred Stock. Subject to the terms and
conditions hereof, on the Closing Date, the Company shall issue to the Purchaser
the Class AAA Redeemable Preferred Stock with an aggregate liquidation
preference of $40.0 million in exchange for all of the Old Preferred Stock and
the Warrants held by the Purchaser. The New Preferred Stock will have the terms
set forth in the New Preferred Stock Certificates of Designations attached as
Exhibit A hereto.
Section 2.2. Amendment of Registration Rights Agreement. Subject to the
terms and conditions hereof, on the Closing Date, the Company and the Purchaser
shall enter into the Amended and Restated Registration Rights Agreement
providing for registration rights with respect to the New Preferred Stock, the
Prometheus Common and the Supplemental Warrants. The Amended and Restated
Registration Rights Agreement is attached as Exhibit B hereto.
Section 2.3. Amendment of Stockholders Agreement. Subject to the terms and
conditions hereof, on the Closing Date, the Company, the Homebuilder
Stockholders and the Purchaser shall enter into the Amended and Restated
Stockholders Agreement. The Amended and Restated Stockholders Agreement is
attached as Exhibit C hereto.
Section 2.4. Make-Whole/Transaction Payment. On December 31, 1998, the
Company shall make a $5.0 million non-refundable payment with respect to the Old
Preferred Stock to the Purchaser in connection with the Restructuring (the
"Make-Whole Payment"), which amount shall be fully earned by the Purchaser on
the signing of this Agreement and which amount shall be treated for financial
and accounting purposes as a dividend in respect of the Old Preferred Stock;
provided that on the Closing Date the Company shall pay to the Purchaser an
additional make-whole amount equal to that necessary to put the Purchaser in the
same economic position as it would have been had the dividend rate on the Old
Preferred Stock been 9% for the period from and including January 1, 1999 until
the Closing Date.
Section 2.5. Payment of Third and Fourth Quarter Dividend. On or prior to
the Closing Date, the Company shall pay to the Purchaser any and all accrued but
unpaid dividends required by the Certificate of Designations relating to the Old
Preferred Stock for the Dividend Periods (as defined in the New Preferred Stock
Certificate of Designations) ended September 30, 1998 and December 31, 1998 and
the pro rata portion for the Dividend Period through the Closing Date.
Section 2.6. Prometheus Common Obligation. Upon the redemption of all or
any part of the New Preferred Stock, the Company shall concurrently become
obligated upon the delivery of a Prometheus Common Sale Notice (the "Prometheus
Common Obligation") to arrange for the sale for cash of a pro rata amount of the
Prometheus Common at any time during the period from and including November 15,
2000 until and including February 15, 2001 in a single transaction or a series
of transactions and upon the sooner of the settlement of any such transaction or
ten days after February 15, 2001 deliver the cash proceeds from such transaction
or
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transactions, as the case may be, to the Purchaser; provided that if such
proceeds would result in the Purchaser receiving less than $5.50 per share for
its Prometheus Common, the Company shall be obligated to make up the difference
so that the Purchaser receives an amount in cash equal to $5.50 per share for
any Prometheus Common sold pursuant to this Section 2.6. In the event that the
Company receives an amount greater than $5.50 per share for any Prometheus
Common sold pursuant to this Section 2.6, it is understood that the Company
shall be obligated to deliver such greater amount to the Purchaser.
ARTICLE III.
CLOSING
Section 3.1. Location of Closing. The Closing shall be held at 9:00 a.m.
Eastern Time on the Closing Date at the offices of Latham & Watkins, 885 Third
Avenue, New York, New York 10022.
Section 3.2. Deliveries by the Company at Closing. At the Closing, the
Company shall issue and deliver to the Purchaser:
(a) certificates evidencing the New Preferred Stock and up to 33,333,333
Supplemental Warrants, in each case, in the name of the Purchaser (or its
permitted assignee(s)), free and clear of all Encumbrances; and
(b) all such other documents and instruments as the Purchaser or its
counsel shall reasonably request to consummate or evidence the Restructuring.
Section 3.3. Deliveries by the Purchaser at Closing. At the Closing, the
Purchaser shall deliver to the Company, all such documents and instruments
(including certificates representing the Old Preferred Stock and the Warrants)
as the Company or its counsel shall reasonably request to consummate or evidence
the Restructuring.
Section 3.4. Certificates; Opinions. At the Closing, the Purchaser and the
Company shall deliver the certificates, opinions of counsel, and other documents
described in Article VII.
Section 3.5. Ancillary Agreements. At the Closing, the Company and the
Purchaser (and in the case of the Amended and Restated Stockholders Agreement,
the Homebuilder Stockholders) shall have entered into all of the Ancillary
Agreements.
Section 3.6. Form of Documents and Instruments. All of the documents and
instruments delivered at the Closing shall be in form and substance, and shall
be executed and delivered in a manner, reasonably satisfactory to the parties'
respective counsel.
Section 3.7. Termination of Prior Rights and Obligations. Until
consummation of the Closing, all obligations under the Existing Agreements shall
remain in full force and effect. Upon consummation of the Closing, certain
rights and obligations under the Stock
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Purchase Agreement shall terminate as follows: (i) the Company shall not be
obligated to sell to the Purchaser and the Purchaser shall not be obligated to
purchase from the Company any additional securities of the Company, including
the Class AB Preferred Stock; (ii) the Company and the Purchaser shall have no
further rights or obligations with respect to the Class AA Preferred Stock (such
Class AA Preferred Stock having been exchanged for the New Preferred Stock); and
(iii) the Company shall not be obligated to issue to the Purchaser any
additional Warrants other than the Supplemental Warrants. Upon consummation of
the Closing, the Ancillary Agreements, as amended in accordance with the terms
of this Agreement, shall become effective. Notwithstanding the foregoing, all of
the Company's rights to indemnification under the Stock Purchase Agreement with
respect to breaches of representations and warranties and covenants shall
survive and not be effected by this Restructuring Agreement.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchaser as follows:
Section 4.1. Authorization of Issuance. Upon the Closing, the New 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 the Closing, the Conversion Shares will be duly authorized and reserved for
issuance and upon conversion in accordance with the terms of the New Preferred
Stock will be validly issued, fully paid and nonassessable and not subject to
any preemptive or similar rights. Upon the Closing, the Supplemental Warrants
acquired by the Purchaser from the Company shall be duly authorized and validly
issued, fully paid and not subject to any preemptive or similar rights. Upon the
Closing, the Warrant Shares 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 4.2. Authorization. The Company has full corporate 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 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, and the consummation by it of the
transactions contemplated hereby and thereby, have been duly authorized by all
necessary corporate action of the Company. This Agreement has been duly executed
and delivered by the Company and constitutes, and each Ancillary Agreement to be
executed by the Company, when executed, will be duly executed and delivered by
the Company and 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 4.3. Noncontravention. 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 to be
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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
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.
Section 4.4. 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 or the consummation of the
transactions contemplated hereby and thereby, other than (i) the filing of the
New Preferred Stock Certificate of Designations with the Secretary of State of
the State of Delaware, and (ii) filings under the Exchange Act.
Section 4.5. Executive Committee. On or before the date hereof, the Board
of Directors of the Company has duly and validly constituted the Executive
Committee (as defined in the Company's Bylaws) consisting of the following
members: Murry Gunty, Klaus Kretschmann, Chris Stuhmer, Mark Fine and George
Yeonas.
Section 4.6. Material Adverse Change. Since the date of the Stock Purchase
Agreement, (i) there has not occurred any material adverse change or any
development involving a prospective material adverse change in the condition,
financial or otherwise, or the earnings, business, management or operations of
the Company and its subsidiaries, taken as a whole, (ii) there has not been any
material adverse change or any development involving a prospective material
adverse change in the capital stock or in the long-term debt of the Company or
any of its subsidiaries and (iii) neither the Company nor any of its
subsidiaries has incurred any material liability or obligation, direct or
contingent; other than such events as have been disclosed in the Company's
public filings with the Securities and Exchange Commission or otherwise
disclosed to the Purchaser on or before December 29, 1998.
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 to be executed by the Purchaser when executed will be, duly executed
and delivered by the Purchaser and 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) any filings required under Section 13 and Section 16 of
the Exchange Act and Rule 13d-1 under the Exchange Act and (ii) 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.
Section 5.5. Accredited Investor. The Purchaser (i) is an "accredited
investor" as defined in Rule 501 of Regulation D of the Securities Act of 1933,
as amended; (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.
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ARTICLE VI.
ACTIONS BY THE COMPANY AND
THE PURCHASER PRIOR TO THE CLOSING
The Company and the Purchaser covenant as follows for the period from the
date hereof through the Closing:
Section 6.1. Further Assurances. Upon the terms and subject to the
conditions contained herein, the Company agrees, (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 and (E) to fulfill all
conditions to this Agreement. In addition, the Company will commence all action
required under this Section 6.1 by a date which is early enough to allow the
transactions contemplated hereunder to be consummated by the Closing Date. In
the event that the NASD does not require shareholder approval for the
transactions contemplated by the Restructuring, the Purchaser agrees to provide,
in conjunction with the Closing, notice to the Secretary of the Company pursuant
to the terms of the Company's Certificate of Incorporation that it elects to
have some or all of such provisions of Article Eleventh of the Company's
Certificate of Incorporation modified and/or eliminated as are necessary to give
effect to the Restructuring; provided that appropriate modifications are made to
the Company's By-Laws to incorporate the Super Majority Director Approval and
other provisions set forth in Section 3.2 of the Amended and Restated
Stockholders Agreement and provide the Purchaser with adequate protection of its
interest in respect thereof as determined by the Purchaser in its reasonable
discretion. The Purchaser and the Company agree to use their reasonable best
efforts to take all necessary action as is reasonable to amend the Company's
By-Laws in such a manner. In the event that the NASD does require shareholder
approval for the transactions contemplated by the Restructuring, the Company
agrees to also seek shareholder approval to effect any such changes as are
necessary to the Company's Certificate of Incorporation to modify the Super
Majority Director Approval provisions as set forth in Section 3.2 of the Amended
and Restated Stockholders Agreement.
Section 6.2. 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
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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 6.3. 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
or (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.
Section 6.4. Extension of Stock Purchase Agreement. The Purchaser and the
Company agree that references in Section 3.3 of the Stock Purchase Agreement to
December 31, 1998 shall be extended until the earlier of the Closing Date or the
termination of this Agreement in accordance with its terms.
ARTICLE VII.
CONDITIONS TO ALL CLOSINGS
Section 7.1. Conditions to the Company's Obligations. The obligation of the
Company to consummate the transactions contemplated hereby on the Closing Date
is subject to the satisfaction or waiver on or prior to the 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 Closing Date as if such
representations and warranties were made at and as of the 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 Closing Date.
There shall be delivered to the Company a certificate (signed by the sole member
of the Purchaser) to the foregoing effect.
(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 managing member and others to evidence compliance with the
conditions set forth in this Article VII as may be reasonably requested by the
Company.
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Section 7.2. Conditions to the Purchaser's Obligations. The obligation of
the Purchaser to consummate the transactions contemplated hereby on the Closing
Date is subject to the satisfaction or waiver on or prior to the 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 Closing Date as if such
representations and warranties were made at and as of the Closing Date, and the
Company shall have performed in all material respects all agreements and
covenants required hereby to be performed prior to or at the 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.
(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) Ancillary Agreements. The Company (and, in the case of the Amended and
Restated Stockholders Agreement, the Homebuilder Stockholders) shall have
entered into and delivered to the Purchaser the Ancillary Agreements. The New
Preferred Stock Certificate of Designations shall have been filed with the
Secretary of State of the State of Delaware and shall have become effective
under the General Corporation Law of the State of Delaware.
ARTICLE VIII.
INDEMNIFICATION
Section 8.1. Survival of Representations, Etc. The representations,
warranties, covenants and agreements of the parties hereto contained herein
shall survive the Closing and shall remain in full force and effect until
December 31, 2000; provided, however, that the representations and warranties in
Sections 4.1 and 4.2 shall survive indefinitely and the covenants and agreements
set forth in Articles VIII and IX shall remain in full force and effect
indefinitely; 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 the Closing Date.
Section 8.2. Indemnification by the Company. The Company shall indemnify
and hold harmless the Purchaser and its members, Affiliates, directors,
officers, advisors, agents
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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 execution, 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 8.3. 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 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 8.4. Losses. The term "Losses" as used in this Article VIII 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 8.5. 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 Article VIII.
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 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 in which case the
Indemnified Party shall be permitted to employ separate
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counsel and be indemnified for the cost of such counsel, 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 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 plus any local counsel 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 8.6. 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 IX.
MISCELLANEOUS
Section 9.1. Termination. This Agreement may be terminated prior to the
Closing:
(i) by the Purchaser if the Closing shall not have occurred on or
before April 1, 1999 (other than as a result of the Purchaser's failure to
comply with its obligations hereunder);
(ii) 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;
13
<PAGE> 18
(iii) by the Purchaser, if the Purchaser does not receive the
Make-Whole Payment by December 31, 1998; or
(iv) by the Company, if there is a 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 9.2. Termination by the Purchaser. In the event of termination of
this Agreement by the Purchaser pursuant to Section 9.1(i), (ii) or (iii):
(a) The Purchaser's obligation to purchase Class AB Preferred Stock under
the Stock Purchase Agreement shall terminate; provided that the Purchaser's
right to purchase such Class AB Preferred Stock shall continue and all other
provisions of the Stock Purchase Agreement, including provisions with respect to
the Warrants and the Supplemental Warrants, shall remain in full force and
effect;
(b) The provisions of Article VIII and Sections 9.2 and 9.3 shall continue
in full force and effect; and
(c) Other than pursuant to Article VIII and Sections 9.2 and 9.3., 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 for a prior breach of this
Agreement.
Notwithstanding the foregoing, nothing contained in this Section 9.2 shall
prevent the Purchaser from seeking injunctive relief or demanding specific
performance of this Agreement pursuant to Section 9.5.
Section 9.3. Termination by the Company. In the event of termination of
this Agreement by the Company pursuant to Section 9.1(iv):
(a) The Purchaser's obligation to purchase, and the Company's right to
issue, the Class AB Preferred Stock shall continue and all other provisions of
the Stock Purchase Agreement, including provisions with respect to the Warrants
and the Supplemental Warrants, shall remain in full force and effect;
(b) The provisions of Article VIII and Sections 9.2 and 9.3 shall continue
in full force and effect; and
(c) Other than pursuant to Article VIII and Sections 9.2 and 9.3., 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 for a prior breach of this
Agreement.
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<PAGE> 19
Notwithstanding the foregoing, nothing contained in this Section 9.3 shall
prevent the Company from seeking injunctive relief or demanding specific
performance of this Agreement pursuant to Section 9.5.
Section 9.4. 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 of the Company's
legal counsel and all third party consultants engaged by the Company to assist
in the transactions. On or before the 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, the Company shall promptly pay
the Purchaser, the Transaction Expenses.
Section 9.5. Injunctive Relief. The parties hereto acknowledge and agree
that irreparable damage would occur to the parties 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 9.6. Independent Determination. From and after the date of the
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 9.6 shall prevent any Indemnified Party from receiving
indemnification pursuant to some other source (such as, by way of 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 9.7. 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 New
Preferred Stock 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.
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<PAGE> 20
Section 9.8. 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
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
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 9.9. 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 9.10. Entire Agreement; Amendments and Waivers. This Agreement
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
16
<PAGE> 21
written, of the parties, including the written summary of proposed terms between
the Company and the Purchaser.
Section 9.11. 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 9.12. 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 9.13. 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 9.14. 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 9.15. Shareholder Approval. If the Company notifies the Purchaser,
which notice shall in no event be given later than January 22, 1999, that the
NASD requires shareholder approval for the transactions contemplated by the
Restructuring, then each of the Homebuilder Stockholders shall constitute and
appoint the Purchaser, with full power of substitution, as the proxy of the
Homebuilder Stockholders and authorize 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 Homebuilder
Stockholder might or could do under applicable law, rules and regulations. Any
proxy granted pursuant to the immediately preceding sentence will be deemed
given in consideration of the agreements and covenants of the Company pursuant
to this Agreement and as such will be coupled with an interest and will be
irrevocable unless and until the earlier of the Closing or a termination of this
Agreement in accordance with its terms occurs. Each Homebuilder Stockholder
shall revoke any and all previous proxies granted with respect to any of its
shares of capital stock and shall not thereafter, unless and until the earlier
of the Closing or a termination of this Agreement in accordance with its terms
occurs, purport to grant any other proxy or power of attorney with respect to
any of its shares of capital stock, deposit any of its shares of capital stock
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 its shares of
capital stock.
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<PAGE> 22
Section 9.16. Shareholder Approval Assurances. In the event that the NASD
requires shareholder approval for the transactions contemplated by the
Restructuring, the Purchaser agrees to use its reasonable best efforts to take
such action, if any, as is reasonably necessary to cause the transactions
contemplated by the Restructuring to be consummated.
Section 9.17. Homebuilder Stockholders Signatures. The absence of any
signature by a Homebuilder Stockholder shall not affect the validity of this
Agreement and notwithstanding the absence of any such signature, this Agreement
shall be binding on all parties executing this Agreement; provided that if any
of the Homebuilder Stockholders have not executed this Agreement on the date
hereof it shall be a condition to the Purchaser's obligations to close hereunder
that such Homebuilder Stockholders execute this Agreement prior to the Closing
Date.
[Signature Page Follows]
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<PAGE> 23
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/ J. Marshall Coleman
-------------------------------------------
Name: J. Marshall Coleman
--------------------------------------
Title: Chairman
-------------------------------------
PROMETHEUS HOMEBUILDERS LLC
By: LF Strategic Realty Investors II L.P., a
managing member
By: Lazard Freres Real Estate Investors L.L.C.,
its general partner
By: /s/ Murry N. Gunty
-----------------------------------------
Name: Murry N. Gunty
Title: Principal
HOME BUILDER STOCKHOLDERS
/s/ J. Marshall Coleman
----------------------------------------
Name: J. Marshall Coleman
/s/ Robert Short
----------------------------------------
Name: Robert Short
/s/ J. Christopher Stuhmer
----------------------------------------
Name: J. Christopher Stuhmer
----------------------------------------
Name: Thomas Buffington
----------------------------------------
Name: Lawrence Witek
<PAGE> 24
----------------------------------------
Name: Ted Kirkpatrick
----------------------------------------
Name: Lanold Caldwell
----------------------------------------
Name: James Giddens
/s/ Patricia Donnelly
----------------------------------------
Name: Patricia Donnelly
<PAGE> 25
Exhibit A
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RELATIVE, PARTICIPATING, OPTIONAL AND
OTHER SPECIAL RIGHTS OF PREFERRED
STOCK AND QUALIFICATIONS, LIMITATIONS
AND RESTRICTIONS THEREOF
OF
CLASS AAA CONVERTIBLE
REDEEMABLE PREFERRED STOCK
OF
THE FORTRESS GROUP, INC.
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
The Fortress Group, Inc., a Delaware corporation (the "Corporation"),
hereby certifies that the following Certificate of Designations, Preferences and
Relative, Participating, Optional and Other Special Rights of Preferred Stock
and Qualifications, Limitations and Restrictions Thereof of Class AAA
Convertible Redeemable Preferred Stock, effective December 29, 1998, 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 151 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 AAA Convertible Redeemable Preferred Stock" (the "Class AAA
Preferred Stock"), shall consist of 40,000 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:
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).
<PAGE> 26
Additional Preferred Stock Directors. The term "Additional Preferred
Stock Directors" shall have the meaning set forth in subparagraph 5(d).
Average Trading Price. The term "Average Trading Price" means the
average of the closing prices of the Common Stock over the 30 day period prior
to any date of determination.
Adverse Event. The term "Adverse Event" 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.
Change of Control. The term "Change of Control" shall have the meaning
given to it in the Indenture.
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.
Conversion Date. The term "Conversion Date" shall have the meaning set
forth in subparagraph 4(b)(i) below.
Conversion Price. The term "Conversion Price," in respect of any share
of Class AAA Preferred Stock, shall mean $6.00, as adjusted pursuant to
paragraph 4.
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 mean
each March 31, June 30, September 30 and December 31 of each year.
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<PAGE> 27
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 nine percent (9%)
per annum; provided that the Dividend Rate shall be increased by two percent per
quarter for each and every quarter from and after the later of (i) the
consummation of any Merger, Change of Control or sale in excess of 50% of the
Company's assets in any one transaction or a series of related transactions over
any twelve-month period and (ii) if the Corporation is required (in connection
with any transaction described in clause (i) above) to make an Excess Proceeds
Offer (as defined in the Indenture) or a Change of Control Offer (as defined in
the Indenture) pursuant to the provisions of Section 5.11 or Section 5.16 of the
Indenture, as applicable, the expiration of all such offer period or periods in
accordance with the terms of the Indenture through the date of redemption in
full of the Class AAA Preferred Stock at the Redemption Price. The Dividend Rate
shall also be increased if required by Section 14(d) or Section 15 hereof.
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.
Indenture. The term "Indenture" shall mean that certain Indenture,
dated May 21, 1998, by and between the Corporation and IBJ Schroder Bank & Trust
Company, as Trustee, as amended and supplemented from time to time.
Initial Issue Date. The term "Initial Issue Date" shall mean the date
of initial issuance of the Class AAA Preferred Stock.
Investor. The term "Investor" shall mean, at any time, Prometheus
Homebuilders LLC and any of its affiliates, including, but not limited to,
Lazard Freres 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 AAA 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 AAA 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
$1,000 per share.
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<PAGE> 28
Mandatory Redemption. The term "Mandatory Redemption" shall have the
meaning ascribed to it in Section 14(b)(i) hereof.
Merger. The term "Merger" shall mean the consolidation or merger with
or into (whether or not the Corporation survives), or sale, assignment,
transfer, lease, conveyance or other disposition of all or substantially all of
the Corporation's properties or assets in one or more related transactions, to
another corporation, person or entity, including by way of a dissolution or
liquidation of the Company.
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.
Old Preferred Stock Issue Date. The term Old Preferred Stock Issue
Date means September 30, 1997 with respect to the first $11.7 million of Class
AAA Preferred Stock redeemed, if any, and March 6, 1998 with respect to any
other Class AAA Preferred Stock redeemed.
Optional Redemption. The term "Optional Redemption" shall have the
meaning ascribed to it in Section 14(a)(i) hereof.
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 and
(v) 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 AAA 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 and (v)
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 AAA
Preferred Stock.
Payment Default. The term "Payment Default" shall mean any failure by
the Corporation to pay (i) dividends in cash, when due, or pay the Redemption
Price upon redemption or otherwise when due, (ii) the Make-Whole Payment (as
defined in the Restructuring Agreement) in accordance with Section 2.4 of the
Restructuring Agreement and (iii) any amounts in respect of the Prometheus
Common Obligation (as defined in the Restructuring Agreement) in accordance with
Section 2.6 of the Restructuring Agreement; provided, however, that it shall not
be a Payment Default unless and until the Purchaser has provided written notice
of the Payment Default to the Corporation and the Payment Default continues for
two days after delivery of written notice by the Purchaser to the Corporation.
4
<PAGE> 29
Permitted Transaction. The term "Permitted Transaction" shall mean (i)
any sale that is closed on or before December 31, 2000 of a subsidiary of the
Corporation or all or substantially all of the assets of a subsidiary of the
Corporation for cash in an amount that the Board of Directors determines in its
good faith judgment to be equal to the fair market value for any such sale and
that results in the proceeds of which remaining after any payment required by
Section 5.11 of the Indenture being used to redeem Class AAA Preferred Stock of
the Company or (ii) any sale that is closed on or prior to December 31, 2000 of
all or substantially all of the assets of the Corporation or Merger or
consolidation of the Corporation for cash, the net proceeds of which remaining
after any payment required by Section 5.16 of the Indenture are sufficient and
are used to redeem 100% of the Class AAA Preferred Stock in full at the
Redemption Price and purchase (or result in the purchase of) all of the
Prometheus Common at a price of $5.50 per share or such greater amount, if any,
that the holders of Common Stock are entitled to receive pursuant to such
transaction.
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 AAA Preferred Stock, and any dispute shall be resolved at the
Corporation's cost, by an investment banking firm of recognized national
standing selected by the Corporation and reasonably acceptable to such holders
of Class AAA 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 AAA Preferred Stock who challenged such
price.
Redemption Date. The term "Redemption Date" shall mean, with respect
to any shares of Class AAA Preferred Stock, the date on which such shares of
Class AAA Preferred Stock are redeemed by the Corporation.
Redemption Price. The term "Redemption Price" shall have the meaning
ascribed to it in Section 14(a)(i) hereof.
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
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<PAGE> 30
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.
Restructuring Agreement. The term "Restructuring Agreement" shall mean
that certain Restructuring Agreement, dated December 31, 1998, by and among the
Fortress Group, Inc., Prometheus Homebuilders LLC and Stockholders listed
therein.
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.
Termination Event. The term "Termination Event" shall have the meaning
set forth in subparagraph 6(a) below.
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. 40,000 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 AAA Convertible Redeemable
Preferred Stock" (the "Class AAA Preferred Stock").
2. Dividends.
(a) The record holders of Class AAA 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 plus accrued and unpaid dividends
as provided in Section 2(c) below.
(b) Dividends on shares of Class AAA Preferred Stock shall accrue and
be cumulative from the Initial Issue Date and shall be payable on each Dividend
Payment Date.
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<PAGE> 31
(c) 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. Dividends shall be paid
to the holders of record of the Class AAA 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 at the full Dividend Rate (9%) on a
quarterly basis 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 AAA Preferred Stock) to the Liquidation Preference of the
Class AAA 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.
(d) So long as any shares of Class AAA 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 AAA 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.
(e) 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 AAA Preferred Stock and of any Parity Stock with
respect to any Dividend Period and funds available for payment of dividends
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 AAA 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 AAA 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 AAA Preferred Stock are a mandatory
obligation, it is the explicit intent of the Corporation to eliminate any and
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<PAGE> 32
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 AAA 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 plus the Further Amount (as
defined in Section 14(a)(iii) hereof). Except as provided in this paragraph,
holders of Class AAA 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 AAA
Preferred Stock plus the Further Amount and the full liquidating payments on all
Parity Stock, then the assets of the Corporation shall be ratably distributed
among the holders of Class AAA 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 AAA Preferred Stock may convert such shares into Common Stock at the
Conversion Price.
(ii) Intentionally Omitted.
For the purposes of conversion, each share of Class AAA 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 Conversion Price to determine the number of shares issuable upon
conversion. Immediately following such conversion, the rights of the holders of
converted Class AAA Preferred Stock shall cease (in respect of such converted
stock) and the persons entitled to receive the Common Stock upon the conversion
of Class AAA Preferred Stock shall be treated for all purposes as having become
the owners of such Common Stock.
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<PAGE> 33
(b) (i) To convert Class AAA Preferred Stock pursuant to subparagraph
4(a)(i), a holder must (i) surrender the certificate or certificates evidencing
the shares of Class AAA 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 AAA Preferred Stock, (ii) notify the Corporation at such
office that he elects to convert Class AAA 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 AAA
Preferred Stock). In the case of lost or destroyed certificates evidencing
ownership of shares of Class AAA 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 AAA
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 "Conversion Date." As soon as practical and in any event within five (5)
Business Days of the Conversion Date, the Corporation shall 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
AAA 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
Conversion Date. All shares of Common Stock issuable upon conversion of the
Class AAA 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 AAA 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 AAA 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 Conversion Date. If a holder of Class AAA
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 AAA Preferred Stock converted.
(ii) Intentionally Omitted.
(c) The Corporation will not issue a fractional share of Common Stock
upon conversion of Class AAA 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.
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<PAGE> 34
(d) If a holder converts shares of Class AAA 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 AAA
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 AAA 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 AAA
Preferred Stock and will endeavor to list such shares on each national
securities exchange on which the Common Stock is listed.
(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 Price shall be adjusted so that each holder of Class AAA
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 AAA 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 AAA
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 Price between the classes of capital
stock. After such allocation, the Conversion Price 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, the Conversion Price shall be adjusted in accordance with
the formula:
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<PAGE> 35
NxP
---
C'= C x O + M
-----
O + N
where:
C' = the adjusted Conversion Price.
C = the Conversion 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 warrants or rights are
exercisable, not all warrants or rights shall have been exercised, the
Conversion 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.
(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),
the Conversion Price shall be adjusted in accordance with the formula:
C'= C x M - F
-----
M
where:
C' = the adjusted Conversion Price.
C = the Conversion Price.
M = the Current Market Price per share of Common Stock on the
record date mentioned below.
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<PAGE> 36
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.
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, the
Conversion Price shall be adjusted in accordance with the formula:
P
C'= C x O + M
-----
A
where:
C' = the adjusted Conversion Price.
C = the 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 shares.
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 AAA 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 pursuant to the Supplemental Warrant
Agreement, as defined in the Restructuring Agreement, or the conversion,
exchange or exercise of other securities convertible into or exchangeable or
exercisable for Common Stock whose
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<PAGE> 37
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 Corporation's
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 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 pursuant to the Supplemental Warrant
Agreement) or other securities convertible into or exchangeable or exercisable
for Common Stock (other than Class AAA 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, the Conversion Price shall be adjusted in
accordance with the formula:
P
-
C'= C x O + M
-----
O + D
where:
C' = the adjusted Conversion Price.
C = the 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.
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<PAGE> 38
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 Conversion Price shall promptly be readjusted to the Conversion 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
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
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, (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 Corporation's
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 the Conversion Price need be made unless the
adjustment would require an increase or decrease of at least 1% in the
Conversion Price. Any adjustments that are not made shall be carried forward and
taken into account in any subsequent
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<PAGE> 39
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.
(m) No adjustment in the Conversion Price 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 Price 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 Price shall be readjusted, effective as of the date when the Board of
Directors determines to cancel such distribution, to the Conversion Price which
would have been in effect if such record date had not been fixed. No adjustment
in the Conversion Price need be made under subparagraphs 4(g) and 4(h) above if
the Corporation issues or distributes to each holder of Class AAA 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 AAA 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 Price is adjusted, the Corporation shall
promptly mail to holders of Class AAA Preferred Stock, first class, postage
prepaid, a notice of the adjustment. The Corporation shall file with the
transfer agent, if any, for Class AAA Preferred Stock a certificate from the
Corporation's 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 Price
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 Price be less than the par value of a share of Common
Stock. Whenever the Conversion Price is reduced, the Corporation shall mail to
holders of Class AAA 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 Price does not change or adjust the Conversion Price otherwise in
effect for purposes of subparagraphs 4(f), 4(g), 4(h), 4(i) and 4(j) above.
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<PAGE> 40
(p) If:
(i) the Corporation takes any action which would require an
adjustment in the Conversion Price 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
(iii) there is a dissolution or liquidation of the Corporation;
a holder of Class AAA 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 AAA
Preferred Stock shall automatically become convertible into the kind and amount
of securities, cash or other assets which the holder of Class AAA Preferred
Stock would have owned immediately after the consolidation, merger, transfer or
lease if such holder had converted Class AAA 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 AAA Preferred Stock, to the end that the provisions set forth
herein (including provisions with respect to changes in and other adjustment of
the Conversion Price) 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 AAA 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 AAA 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 Price 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
16
<PAGE> 41
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 AAA Preferred Stock, and any dispute shall be resolved, at
the Corporation's expense, by an investment banking firm of recognized national
standing selected by the Corporation and acceptable to such holders of Class AAA
Preferred Stock; provided, however, if the Conversion Price as determined by the
Board of Directors is 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 AAA Preferred Stock who challenged such price.
(t) All shares of Class AAA 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 AAA Preferred Stock.
5. Voting Rights.
(a) The holders of record of shares of Class AAA 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 AAA Preferred Stock remain
outstanding, each share of Class AAA 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 AAA 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 AAA 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 AAA Preferred Stock is convertible
based on the Conversion Price of the Class AAA Preferred Stock. Such voting
right of the holders of the Class AAA 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 AAA 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.
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<PAGE> 42
(d) Until a Termination Event (or an Adverse Event to the extent
provided below), the number of Directors comprising the Board of Directors shall
be equal to not more than fifteen (15) and the holders of Class AAA 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 above fifteen (15) 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 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 Corporation's subsidiaries and
affiliates, other than operational home building companies. In the event (an
"Adverse Event") there has occurred a Payment Default, then the holders of Class
AAA 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 Class AAA Preferred Stock to
elect Additional Preferred Stock Directors shall continue until such time as all
Payment Defaults have been cured (including any amount in respect of the
Prometheus Common Obligation) and the Corporation has paid its dividends
currently for four consecutive quarterly periods.
(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 Class AAA 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 Class AAA 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 Class AAA 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.
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<PAGE> 43
(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 AAA 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 AAA Preferred
Stock then outstanding, addressed to the Secretary of the Corporation, call a
special meeting of holders of Class AAA 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 AAA Preferred Stock then outstanding may designate in writing a holder of
Class AAA 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 AAA 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 Class AAA
Preferred Stock to be called pursuant to the provisions of this paragraph and to
contact the holders of Class AAA 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) Intentionally Omitted.
(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 AAA 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 AAA
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 AAA 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 AAA Preferred Stock;
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<PAGE> 44
(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 AAA
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 AAA 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's 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 AAA Preferred
Stock then outstanding as provided for herein, make any agreement or become
obligated to do so, except pursuant to any Permitted Transaction;
(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 AAA Preferred Stock have been paid in cash.
6. Financial Statements.
(a) Until the aggregate remaining investment in the Corporation by
Investor (or any single transferee of Investor or related group of transferees)
is less than $10,000,000 (a "Termination Event") with the value of such
investment to be based on the sum of (x) the greater of the Liquidation
Preference of the Class AAA Preferred Stock (plus any accrued and unpaid
dividends) and the value of the Common Stock underlying such Class AAA Preferred
Stock (as measured by the Conversion Price) then held by it, (y) the value of
the Common Stock (giving effect to the value of any Prometheus Common
Obligation) then held by it based on the Average Trading Price 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 AAA 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 Corporation's
certified independent accountants, (ii) all current reports required to be filed
with the Commission on Form 8-K.
20
<PAGE> 45
(b) The Corporation shall, so long as a Termination Event has not
occurred, deliver to the holders of Class AAA 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 AAA
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 Designations. The Class AAA 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 AAA Preferred Stock
then outstanding.
9. Exclusion of Other Rights.
Except as may otherwise be required by law, the shares of Class AAA
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 AAA 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 special rights of Class AAA 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 AAA Preferred Stock
and qualifications, limitations and restrictions thereof shall, nevertheless,
remain in full force and effect, and no voting powers, preferences and relative,
21
<PAGE> 46
participating, optional or other special rights of Class AAA 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 AAA Preferred Stock and
qualifications, limitations and restrictions thereof unless so expressed herein.
12. Record Holders.
The Corporation and the transfer agent for the Class AAA Preferred
Stock may deem and treat the record holder of any shares of Class AAA 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 1650 Tysons Boulevard, Suite 600, McLean, Virginia 22102 Attention:
Secretary or to an agent of the Corporation designated as permitted by this
Certificate, or, if to any holder of the Class AAA Preferred Stock, to such
holder at the address of such holder of the Class AAA Preferred Stock as listed
in the stock record books of the Corporation (which may include the records of
any transfer agent for the Class AAA Preferred Stock); or to such other address
as the Corporation or holder, as the case may be, shall have designated by
notice similarly given.
14. Redemption.
(a) Optional Redemption. (i) On or before December 31, 2000, the Class
AAA Preferred Stock may be redeemed by the Corporation at the option of the
Board of Directors (an "Optional Redemption"), in whole or in part, at any time
or from time to time, from any source of funds legally available therefor, at a
redemption price equal to (i) an amount in cash equal to the aggregate
Liquidation Preference of such Class AAA Preferred Stock plus (ii) an amount in
cash equal to the sum of all accumulated and unpaid dividends (including an
amount equal to a prorated dividend from the last Dividend Payment Date to the
Redemption Date) plus (iii) an amount in cash (the "Further Amount") equal to
that necessary to cause the holders of any such Class AAA Preferred Stock so
redeemed to realize a 20% internal rate of return on an annual basis on such
redeemed Class AAA Preferred Stock calculated from the Old Preferred Stock Issue
Date; provided that in calculating the internal rate of return the Make-Whole
Payment shall be allocated to the first portion (the "First Tranche") of Class
AAA Preferred Stock redeemed until such time as the Make-Whole Payment is fully
applied to satisfy the 20% internal rate of return (it being understood that
dividends payable with respect to the First Tranche, the Second Tranche and/or
the Old Preferred Stock shall not be calculated in determining the internal rate
of return for the First Tranche) and with respect to additional Class AAA
Preferred Stock redeemed after the First Tranche (the "Second Tranche") the
Make-Whole
22
<PAGE> 47
Payment shall not be allocated to such Second Tranche and the dividends paid
with respect to the First Tranche and the Second Tranche (including the
dividends paid on the Old Preferred Stock) shall be included in calculating the
20% internal rate of return with respect to the Second Tranche (it being
understood that all such dividends paid shall be allocated to the Second Tranche
on a pro rata basis) (the "Redemption Price").
(ii) To the extent that any Excess Proceeds (as such term is
defined in the Indenture) remain after the consummation of an Asset Sale (as
such term is defined in the Indenture), the Corporation shall apply such Excess
Proceeds, to first make an Excess Proceeds Offer (as such term is defined in the
Indenture), and, thereafter may, at its option, apply any remaining Excess
Proceeds to redeem outstanding shares of Class AAA Preferred Stock, it being
understood that if the Corporation fails to apply any such remaining Excess
Process to redeem outstanding shares of Class AAA Preferred Stock, such Asset
Sale shall not constitute a Permitted Transaction. If the Liquidation Preference
(plus accrued but unpaid dividends and the Further Amount) of the Class AAA
Preferred Stock exceeds the amount of any such remaining Excess Proceeds and the
Corporation has opted to redeem Class AAA Preferred Stock with all or a portion
of such remaining Excess Proceeds, the Corporation shall redeem the Class AAA
Preferred Stock on a pro rata basis.
(b) Mandatory Redemption. On or before December 31, 2000, in the event
of a Change of Control, the Corporation shall redeem (a "Mandatory Redemption"),
from any source of funds legally available therefor after the payment of any
amounts required by Section 5.16 of the Indenture, all shares of Class AAA
Preferred Stock at the Redemption Price.
(c) Procedures for Redemption. (i) In the case of an Optional
Redemption, at least fifteen (15) days and not more than sixty (60) days prior
to the date fixed for any redemption of the Class AAA Preferred Stock, and in
the case of a Mandatory Redemption, ten days (10) after receiving written notice
of a Holder's intention to exercise such Holder's rights set forth in Section
14(b)(i), written notice (the "Redemption Notice") shall be given by first class
mail, postage prepaid, to each Holder of record, in the case of an Optional
Redemption, or each Holder who has exercised his right in the case of a
Mandatory Redemption, of the record date fixed for such redemption of the Class
AAA Preferred Stock at such Holder's address as the same appears on the stock
register of the Corporation, provided, however, that no failure to give such
notice nor any deficiency therein shall affect the validity of the procedure for
the redemption of any shares of Class AAA Preferred Stock to be redeemed except
as to the Holder or Holders to whom the Corporation has failed to give said
notice or except as to the Holder or Holders whose notice was defective. The
Redemption Notice shall state:
(A) the Redemption Price;
(B) whether all or less than all the outstanding shares of the Class
AAA Preferred Stock redeemable thereunder are to be redeemed and the total
number of shares of such Class AAA Preferred Stock being redeemed;
(C) the number of shares of Class AAA Preferred Stock held by the
Holder that the Corporation intends to redeem;
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<PAGE> 48
(D) the date fixed for redemption;
(E) that the Holder is to surrender to the Corporation, at the place
or places where certificates for shares of Class AAA Preferred Stock are to
be surrendered for redemption, in the manner and at the price designated,
the certificate or certificates representing the shares of Class AAA
Preferred Stock to be redeemed; and
(F) that dividends on the shares of the Class AAA Preferred Stock to
be redeemed shall cease to accrue on such Redemption Date unless the
Corporation defaults in the payment of the Redemption Price.
(ii) On or before the date fixed for redemption, each holder of
Class AAA Preferred Stock shall surrender the certificate or certificates
representing such shares of Class AAA Preferred Stock to the Corporation, in the
manner and at the place designated in the Redemption Notice, and on the
Redemption Date the full Redemption Price for such shares shall be payable in
cash to the Person whose name appears on such certificate or certificates as the
owner thereof, and each surrendered certificate shall be canceled and retired.
In the event that less than all of the shares represented by any such
certificate are redeemed, a new certificate shall be issued representing the
unredeemed shares.
(iii) Unless the Corporation defaults in the payment in full of
the Redemption Price, dividends on the Class AAA Preferred Stock called for
redemption shall cease to accumulate on the Redemption Date, and further rights
with respect thereto shall cease on the Redemption Date, other than the right to
receive the Redemption Price without interest.
(iv) In the event of a redemption pursuant to Section 14(a)
hereof, the Corporation shall effect such redemption pro rata according to the
number of shares held by each Holder of such Class AAA Preferred Stock.
(d) Redemption Default Penalty. In the event that the Corporation
fails to redeem the shares of the Class AAA Preferred Stock as required by
Section 14(b) or does not apply remaining Excess Proceeds to redeem Class AAA
Preferred Stock as contemplated by Section 14(a)(ii), the Dividend Rate on the
Class AAA Preferred Stock shall increase by two percent per quarter for each and
every quarter until in the case of Section 14(b) all shares of the Class AAA
Preferred Stock are redeemed and in the case of Section 14(a)(ii) until an
amount equal to such remaining Excess Proceeds is used to redeem Class AAA
Preferred Stock.
(e) Assignment of Redemption Rights. The Corporation shall be
permitted to assign its rights of redemption with respect to the Class AAA
Preferred Stock hereunder to a subsidiary of the Corporation provided that the
Corporation shall remain obligated with respect to such redemption rights.
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<PAGE> 49
15. Covenants of the Corporation.
To the extent that during any twelve-month fiscal period the
Corporation shall not have used at least 80% of the net increase in funds
available for Restricted Payments generated during such twelve-month fiscal
period to pay dividends on and redeem the Class AAA Preferred Stock at the
Redemption Price, then in such event, and for so long as this covenant has not
been satisfied, the Dividend Rate shall be increased by two percent per quarter;
provided that in no event shall the Corporation be required to pay an amount
greater than the total amount of Restricted Payments permitted by the Indenture
as a result of any such increase.
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<PAGE> 50
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
duly executed by ______________________, its __________________, and attested by
_________________, its ________________, this ____ day of December, 1998.
THE FORTRESS GROUP, INC.
By:___________________________________
Name:
Title:
ATTEST:
By:___________________________________
Name:
Title: Secretary
<PAGE> 51
EXHIBIT B
SECOND AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
by and between
THE FORTRESS GROUP, INC.
and
PROMETHEUS HOMEBUILDERS LLC
Dated as of
January __, 1999
<PAGE> 52
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
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................................................. 5
(e) Underwriter's Cutback......................................... 5
(f) Managing Underwriter.......................................... 5
(g) Black-Out Periods of Investor................................. 5
3. PIGGYBACK REGISTRATIONS........................................... 6
(a) Participation................................................. 6
(b) Underwriter's Cutback......................................... 6
(c) Company Control............................................... 6
4. HOLD-BACK AGREEMENTS.............................................. 7
(a) By Holders of Registrable Securities.......................... 7
(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.............................................. 12
7. INDEMNIFICATION................................................... 12
(a) Indemnification by Company.................................... 12
(b) Indemnification Procedures.................................... 12
(c) Indemnification by Holder of Registrable Securities........... 13
(d) Contribution.................................................. 14
8. EXCHANGE ACT REPORTING REQUIREMENTS............................... 15
9. REQUIREMENTS FOR PARTICIPATION IN UNDERWRITTEN OFFERINGS.......... 15
10. SUSPENSION OF SALES................................................ 15
11. FUTURE REGISTRATION RIGHTS AGREEMENTS.............................. 16
12. MISCELLANEOUS...................................................... 16
(a) Remedies...................................................... 16
(b) No Inconsistent Agreements.................................... 17
</TABLE>
i
<PAGE> 53
TABLE OF CONTENTS(CONT'D)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
(c) Amendments and Waivers........................................ 17
(d) Notices....................................................... 17
(e) Successors and Assigns........................................ 18
(f) Counterparts.................................................. 18
(g) Table of Contents and Headings................................ 18
(h) Governing Law................................................. 18
(i) Severability.................................................. 18
(j) Forms......................................................... 19
(k) Entire Agreement.............................................. 19
</TABLE>
ii
<PAGE> 54
This SECOND AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (this
"AGREEMENT") is made and entered into as of January __, 1999, 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, on March 6, 1998, the Company and the Investor entered into
an amended and restated Registration Rights Agreement (the "AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT").
WHEREAS, in order to induce the Investor to enter into that certain
Restructuring Agreement, dated as of December 31, 1998 (the "RESTRUCTURING
AGREEMENT"), the Company has agreed to further amend and restate the Amended and
Restated Registration Rights Agreement as set forth in this Agreement. The
execution of this Agreement is a condition of the Restructuring 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
<PAGE> 55
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.
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 AAA Convertible Redeemable Preferred
Stock of the Company being issued and sold pursuant to the Restructuring
Agreement.
Prometheus Common: The 898,845 shares of Common Stock acquired by
the Purchaser pursuant to the Stock Purchase Agreement, dated as of February 19,
1998.
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;
2
<PAGE> 56
(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);
(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) the shares of Prometheus Common, (c)
the shares of Common Stock issued or issuable upon conversion of the Preferred
Stock, 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, and (e) any securities issued or issuable with respect to the
Prometheus Common 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 Holder's hands are freely transferable in any
public or private
3
<PAGE> 57
transaction without registration under the Securities Act (or such Holder has
waived receipt of such opinion).
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 Supplemental Warrant Agreement, dated as of the date hereof, by and
between 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 Company's 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
4
<PAGE> 58
which it has received written requests to register such shares within 30 days
after such written notice has been given.
(e) Underwriter's 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.
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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 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.
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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.
(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
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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;
(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
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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;
(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;
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(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;
(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
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(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
(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 Company's 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.
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(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
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
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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
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
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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.
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.
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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
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 Holder's
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:
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(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 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 Restructuring 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.
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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
Investor, the address set forth in the Restructuring 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 Restructuring 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.
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(e) 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 Investor may, without such
consent, assign its rights hereunder, in whole or in part, to one or more
affiliates of the Investor or any transferee or assignee or group of transferees
or assignees of any of the Registrable Securities provided that such person
agrees to be bound by this Agreement.
(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.
(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 Restructuring 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 issued pursuant to the Restructuring Agreement.
This Agreement and the
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Restructuring Agreement supersede all prior agreements and understandings
between the parties with respect to such subject matter.
[Signature Page Follows]
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<PAGE> 73
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
THE FORTRESS GROUP, INC.
By:_______________________________________
Name:
Title:
PROMETHEUS HOMEBUILDERS LLC
by: LF Strategic Realty Investors II L.P.,
a managing member
by: Lazard Freres Real Estate Investors L.L.C.,
its general partner
By:_______________________________________
Name:
Title:
<PAGE> 74
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.
<PAGE> 75
EXHIBIT C
SECOND AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
by and among
THE FORTRESS GROUP, INC.,
PROMETHEUS HOMEBUILDERS LLC
and
THE STOCKHOLDERS NAMED HEREIN
dated as of
January __, 1999
<PAGE> 76
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I. DEFINITIONS.................................................. 1
SECTION 1.1. DEFINED TERMS............................................ 1
ARTICLE II. BOARD....................................................... 5
SECTION 2.1. MEMBERS OF THE BOARD..................................... 5
ARTICLE III. COVENANTS.................................................. 6
SECTION 3.1. OPERATING STATEMENTS; PUBLIC COMPANY STATUS.............. 6
SECTION 3.2. CONDUCT OF BUSINESS...................................... 7
ARTICLE IV. PARTICIPATION RIGHTS........................................ 10
SECTION 4.1........................................................... 10
ARTICLE V. TAG-ALONG RIGHTS............................................. 12
SECTION 5.1. TAG-ALONG RIGHTS......................................... 12
ARTICLE VI. MISCELLANEOUS............................................... 14
SECTION 6.1. COUNTERPARTS............................................. 14
SECTION 6.2. GOVERNING LAW............................................ 14
SECTION 6.3. EXPENSES................................................. 14
SECTION 6.4. NOTICES.................................................. 14
SECTION 6.5. SUCCESSORS AND ASSIGNS.................................. 15
SECTION 6.6. HEADINGS................................................. 15
SECTION 6.7. AMENDMENTS AND WAIVERS................................... 16
SECTION 6.8. INTERPRETATION, ABSENCE OF PRESUMPTION................... 15
SECTION 6.9. SEVERABILITY............................................. 16
SECTION 6.10. FURTHER ASSURANCES...................................... 16
SECTION 6.11. SPECIFIC PERFORMANCE.................................... 17
SECTION 6.12. CONFIDENTIALITY......................................... 17
</TABLE>
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<PAGE> 77
SECOND AMENDED AND RESTATED STOCKHOLDERS AGREEMENT (the
"Agreement"), dated as of January __, 1999, 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, on March 6, 1998, the Purchaser, the Company and the
Stockholders entered into that amended and restated stockholders agreement (the
"AMENDED AND RESTATED STOCKHOLDERS AGREEMENT").
WHEREAS, the Company, and the Purchaser have entered into that
certain Restructuring Agreement, dated as of December 31, 1998 (the
"RESTRUCTURING AGREEMENT").
WHEREAS, it is a condition to the transactions contemplated by the
Restructuring Agreement and the parties believe it to be in their best interests
that they further amend and restate the Amended and Restated 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 it is in the
best interest of the Company to effect the restructuring contemplated by the
Restructuring Agreement.
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:
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).
<PAGE> 78
"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" means the average of the closing prices of
the Common Stock over the 30 day period prior to any date of determination.
"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 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 which the Supplemental Warrants are exercisable for, based on
the Issue Price (as defined in the Supplemental Warrant Agreement) of such
Supplemental Warrants in effect on the relevant date plus the number of shares
of Common Stock into which the Class AAA Preferred Stock is convertible, based
on the Conversion Price (as defined in the Class AAA Preferred Stock
Certificates of Designations) of such Class AAA 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 AAA Preferred Stock" shall mean the Class AAA Convertible
Redeemable Preferred Stock of the Company, $0.01 par value per share.
"Class AAA Preferred Stock Certificate of Designations" shall mean
the Certificate of Designations of the Class AAA Preferred Stock.
"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.
"Conversion Event" shall have the meaning set forth in Section
2.1(d).
"Director" shall mean a member of the Board.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
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"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).
"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).
"Liquidation Preference" shall mean $1,000.00 per share.
"Payment Default" shall have the meaning given such term in the
Class AAA Preferred Stock Certificate of Designations.
"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 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 Class AAA 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 Class AAA
Preferred Stock, and any dispute shall be resolved at the Company's cost, by an
investment banking firm of recognized national
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<PAGE> 80
standing selected by the Company and acceptable to such holders of Class AAA
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.
"Securities Filings" shall have the meaning set forth in Section
3.1(a)(iii).
"Selling Shareholder" shall mean the Stockholders.
"Stockholders" shall have the meaning set forth in the first
paragraph hereof.
"Stock Purchase Agreement" shall mean that certain Amended and
Restated Stock Purchase Agreement, dated as of February 19, 1998, between the
Company and the Purchaser.
"Supplemental Warrants" shall mean the Warrants to purchase Common
Stock issued pursuant to that certain Supplemental Warrant Agreement, dated the
date hereof, between the Company and the Purchaser.
"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 the date hereof, 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 $10,000,000 with the value of such
investment to be based on the sum of (x) the Liquidation Preference of the Class
AAA Preferred Stock (plus any accrued and unpaid dividends) and the value of the
Common Stock underlying such Class AAA Preferred Stock (as measured by the
Conversion Price) then held by it, (y) the value of the Common Stock (giving
effect to the value of the Prometheus Common Obligation (as defined in the
Restructuring Agreement)) then held by it based on the Average Trading Price and
(z) the value of the warrants then held by it whether or not required by the
rules and regulations of the Commission.
"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.
ARTICLE II.
BOARD
Section 2.1. Members of the Board. (a) Until a Termination Event (or
an Adverse Event to the extent provided below), the Company and the Stockholders
shall take all
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action necessary to cause: (i) the number of Directors comprising the Board to
be equal to not more than fifteen (15) (subject to increase in the case of an
Adverse Event, as provided below), (ii) the holders of Class AAA Preferred
Stock, voting separately as a single class, as set forth in the Class AAA
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 above fifteen (15) 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 a Payment Default
shall have occurred then the Company and the Stockholders shall take all action
necessary to cause: (i) the holders of Class AAA 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 AAA Preferred Stock to elect Additional Preferred
Stock Directors shall continue until such time as all Payment Defaults have been
cured (including any amounts in respect of the Prometheus Common Obligation) and
the Company has paid its dividends currently for four consecutive quarterly
periods.
(b) In the event that all the shares of the Class AAA 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 if Purchaser still owned all of the Class
AAA 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.
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(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 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) 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, except pursuant
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to any Permitted Transaction (as defined in the Class AAA Preferred
Stock Certificate of Designations), and except for any transaction
that 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, except for secured debt incurred in the aggregate by the
Company's Subsidiaries in an amount not to exceed $10.0 million;
(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
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 $250,000 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 $150,000 per annum or with any
director
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<PAGE> 84
or executive officer of the Company or any of its Subsidiaries or
enter into or materially change any Benefit Arrangement unless
approved in the annual operating budget for the Company or within
the guidelines approved by the Executive Committee;
(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 $75,000 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 two hundred and fifty thousand dollars
($250,000) in the aggregate;
(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 unless approved by the
Company's acquisitions committee in accordance with the standards
set by the Executive Committee;
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(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 Class
AAA Preferred Stock and the Existing Preferred Stock as required
pursuant to the terms of the Class AAA Preferred Stock and the Class
AAA Preferred Stock Certificates of Designations;
(xix) issue, sell, or deliver (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 Class AAA Preferred Stock or the Existing
Preferred Stock or upon exercise of the Supplemental Warrants) 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) The Board shall keep in full force and effect an Executive
Committee, which shall retain the delegated 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 at all times provide that a
majority of the number of directors then in office shall constitute a quorum for
the Board and Executive Committee, respectively.
(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
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) 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
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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 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 Supplemental Warrants to be acquired pursuant to the
Restructuring 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 Supplemental Warrants to be acquired pursuant to the
Restructuring Agreement, but not yet issued); provided, however, that the
provisions of this Section 4.1 shall not apply to (i) the conversion of the
Class AAA Preferred Stock or the exercise of Supplemental 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 Class AAA Preferred Stock Certificates of
Designations and (ii) Common Stock issued to the Corporation's employees under
to the
10
<PAGE> 87
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
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
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<PAGE> 88
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 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 Stockholders 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 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 Stockholder, an amount of 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 Class AAA Preferred Stock and Supplemental Warrants to be purchased by
the Third Party (at the Conversion Price for the Class AAA Preferred Stock being
sold, and at the prevailing Exercise Price for the Supplemental Warrants being
sold, by the Purchaser) which the Purchaser desires to
12
<PAGE> 89
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.
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<PAGE> 90
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
14
<PAGE> 91
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
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 (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 Class AAA
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,
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<PAGE> 92
"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.
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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<PAGE> 93
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
THE FORTRESS GROUP, INC.
By:_____________________________________
Name:
Title:
PROMETHEUS HOMEBUILDERS LLC
by: LF Strategic Realty Investors II L.P.,
a managing member
by: Lazard Freres Real Estate Investors L.L.C.,
its general partner
By:______________________________________
Name:
Title:
STOCKHOLDERS
_____________________________________
Name: J. Marshall Coleman
_____________________________________
Name: Robert Short
_____________________________________
Name: J. Christopher Stuhmer
_____________________________________
Name: Thomas Buffington
_____________________________________
Name: Lawrence Witek
_____________________________________
Name: Ted Kirkpatrick
<PAGE> 94
_____________________________________
Name: Lanold Caldwell
_____________________________________
Name: James Giddens
_____________________________________
Name: Patricia Donnelly
<PAGE> 95
EXHIBIT D
SUPPLEMENTAL WARRANT AGREEMENT
by and between
THE FORTRESS GROUP, INC.
and
PROMETHEUS HOMEBUILDERS LLC
Dated as of January __, 1999
<PAGE> 96
SUPPLEMENTAL WARRANT AGREEMENT, dated as of January __, 1999, 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 Restructuring Agreement, dated as of December 31, 1998 (the
"RESTRUCTURING AGREEMENT").
WHEREAS, it is a condition of the Restructuring Agreement that the
parties enter into this Supplemental Warrant Agreement (the "WARRANT AGREEMENT")
and the Company issue warrants, as hereinafter described (the "WARRANTS"), to
purchase up to an aggregate of 33,333,333 shares of Common Stock.
The Common Stock issuable upon 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 Restructuring Agreement or, if not defined
therein, in the Amended and Restated Stock Purchase Agreement, dated as of
February 19, 1998, by and between the Company and the Warrant Holder.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereto agree as follows:
SECTION 1. Warrant Certificates; Certain Definitions. 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.
Definitions. As used in this Agreement, the following capitalized terms
shall have the following meanings:
"Annualized Revenue Adjustment Amount" means the sum of the cumulative
revenues of any dispossessed subsidiary of the Company for the four full fiscal
quarters ended immediately prior to its disposition and (ii) any Annualized
Revenue Maintenance Credit.
"Annualized Revenue Maintenance Amount" means (a) $625 million for each
four quarter period tested; provided that (i) such amount shall be decreased to
$590 million for the four quarter period ended March 31, 2001 and the four
quarter period ended June 30, 2001 if the Company's cumulative consolidated
revenues for the four quarter period ended December 31, 1999 were in excess of
$675 million (such that an Annualized Revenue Maintenance Credit was available)
and (ii) such amount shall be decreased to $515 million for the four quarter
period ended September 30, 2001 and the four quarter period ended December 31,
2001, minus (b) any Annualized Revenue Adjustment Amount.
"Annualized Revenue Maintenance Credit" means for purposes of
determining whether any Annualized Revenue Maintenance Default has occurred with
respect to the annualized revenue test performed for the period ending December
31, 2000, the amount, if any, that the Company's cumulative consolidated
revenues for the four quarter period ended
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<PAGE> 97
December 31, 1999 exceed $625.0 million; provided that no Annualized Revenue
Maintenance Credit shall be available if the Company's cumulative consolidated
revenues for the four quarter period ended December 31, 1999 do not exceed
$675.0 million.
"Annualized Revenue Maintenance Default" means any time when the
Company's cumulative consolidated revenues, tested quarterly within fifteen days
of the end of each quarter beginning with the first quarter of 1999 through and
including the first quarter of 2004, for the most recently ended four full
fiscal quarters (minus the cumulative revenues generated by any dispossessed
subsidiaries during such period) is less than the Annualized Revenue Maintenance
Amount.
"Asset Sale Adjustment Amount" means (i) with respect to each
dispossessed subsidiary, the cumulative revenues of such dispossessed subsidiary
for the four full fiscal quarters ended immediately prior to its disposition
multiplied by the Asset Sale Multiplier or, if higher, the cumulative amount of
the next fiscal year's budgeted revenue for each such dispossessed subsidiary
multiplied by the Asset Sale Multiplier and (ii) with respect to each
Discontinued Subsidiary, the cumulative revenues of such Discontinued Subsidiary
for the four full fiscal quarters ended immediately prior to the date its
operations were discontinued multiplied by the Asset Sale Multiplier or, if
higher, the cumulative amount of the 1998 budgeted revenue for each such
Discontinued Subsidiary multiplied by the Asset Sale Multiplier.
"Asset Sale Multiplier" shall be determined as follows:
<TABLE>
<CAPTION>
Quarter in which
Asset Sale occurs Asset Sale Multiplier
<S> <C>
1st Quarter 1999 2.25
2nd Quarter 1999 2.00
3rd Quarter 1999 1.75
4th Quarter 1999 1.50
1st Quarter 2000 1.25
2nd Quarter 2000 1.00
3rd Quarter 2000 0.75
4th Quarter 2000 0.50
1st Quarter 2001 0.25
2nd Quarter 2001 and thereafter 0.00
</TABLE>
"Discontinued Subsidiary" means (i) any subsidiary of the Company whose
operations have been discontinued; (ii) any subsidiary of the Company for which
the Board of Directors of the Company has formally adopted a plan to discontinue
its operations; or (iii) any subsidiary of the Company whose cumulative revenues
for the prior four quarter period are less than 50% of its cumulative revenues
for the comparable four quarter period from the preceding year.
2
<PAGE> 98
"Quarterly Revenue Adjustment Amount" means the lower of (a) 15.75% of
the cumulative revenues of any dispossessed subsidiary of the Company for the
four full fiscal quarters ended immediately prior to its disposition and (b) the
lowest quarterly revenue such dispossessed subsidiary produced in the four full
fiscal quarters ended immediately prior to its disposition.
"Quarterly Revenue Maintenance Amount" means $100.0 million minus any
Quarterly Revenue Adjustment Amount.
"Quarterly Revenue Maintenance Default" means any time when the
Company's consolidated revenues, tested quarterly within fifteen days of the end
of each quarter beginning with the first quarter of 1999 though and including
the first quarter of 2004, for the most recently ended full fiscal quarter is
less than the Quarterly Revenue Maintenance Amount.
"Revenue Test Event" means the occurrence of any of (i) a Revenue
Threshold Event; (ii) an Annualized Revenue Maintenance Default; or (iii) a
Quarterly Revenue Maintenance Default.
"Revenue Threshold Event" means the time when the Company's cumulative
consolidated revenues, tested quarterly within fifteen days of the end of each
quarter, for the most recently ended 16 full fiscal quarters exceeds
$2,235,091,000 [plus actual fourth quarter 1998 revenue to be added prior to the
Closing], less any Asset Sale Adjustment Amounts, it being understood that the
Company's revenues for the first quarter of 1995 through and including the
fourth quarter of 1998 for the purposes of determining the occurrence of a
Revenue Threshold Event shall at all times be $36,868,000 for the first quarter
of 1995; $45,629,000 for the second quarter of 1995; $52,320,000 for the third
quarter of 1995; $64,212,000 for the fourth quarter of 1995; $41,312,000 for the
first quarter of 1996; $67,195,000 for the second quarter of 1996; $76,557,000
for the third quarter of 1996; $91,409,000 for the fourth quarter of 1996;
$70,065,000 for the first quarter of 1997; $105,581,000 for the second quarter
of 1997; $117,763,000 for the third quarter of 1997; $151,902,000 for the fourth
quarter of 1997; $119,482,000 for the first quarter of 1998; $165,818,000 for
the second quarter of 1998; $174,545,000 for the third quarter of 1998; and
$216,945,000 [actual fourth quarter 1998 revenue to be inserted prior to the
Closing] for the fourth quarter of 1998.
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.
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.
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<PAGE> 99
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. (a) On or after September
30, 2001 and on or before September 30, 2003 (the "ADJUSTMENT PERIOD") the
Warrant Holder may elect to adjust up to five (5) times per year the number of
shares issuable upon exercise of the Warrants as of such date (the "ADJUSTMENT
DATE") and from and including such date, during the Exercise Period, the Warrant
Holder shall have the right to exercise Warrants hereunder such that the
aggregate number of Warrants exercisable pursuant to this Agreement equals the
number of Warrants set forth in the table below corresponding to the specified
Issue Price as of the Adjustment Date. Such number of Warrants exercisable shall
remain the number of Warrants exercisable (subject to adjustment as set forth in
Section 10) until the next adjustment, if any, as provided above. "ISSUE PRICE"
shall mean, as of any date, the Average of the Quoted Prices of the Common Stock
for the 60 days preceding such date.
<TABLE>
<CAPTION>
Issue Price ($) Warrants
-------------- --------
<S> <C>
$12.01 - or greater 0
10.01 - 12.00 606,061
8.01 - 10.00 1,333,333
6.01 - 8.00 3,333,333
</TABLE>
4
<PAGE> 100
<TABLE>
<CAPTION>
<S> <C>
4.01 - 6.00 6,666,667
2.01 - 4.00 13,333,333
0.00 - 2.00 33,333,333
</TABLE>
For purposes of illustration, if the Issue Price as of September 30,
2001 is $9.00 per share, the number of Warrants exercisable on September 30,
2001 will be 1,333,333. If any adjustment is made to the Exercise Rate pursuant
to Section 10, whether before or after any Warrants become exercisable, an
equivalent adjustment shall be made to the Issue Price.
(b) Subject to the terms of this Agreement, each Warrant holder shall
have the right, which shall fully vest upon the occurrence of a Revenue Test
Event and may be exercised during the period commencing on September 30, 2001,
until 11:59 p.m., New York City time, on March 31, 2004 (the "EXERCISE
PERIOD"), to receive from the Company one fully paid and nonassessable Warrant
Share (subject to adjustment as described below) upon exercise of each Warrant
and payment of $0.01 per Warrant Share (the "EXERCISE PRICE"). 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
who challenged such price. Each Warrant not exercised on or before 11:59 p.m.,
New York City time, on March 31, 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.
(c) Notwithstanding anything in this Section 5 to the contrary, in the
event that the Company redeems any of the New Preferred Stock prior to December
31, 2000 in accordance with the terms of the Certificate of Designations of the
New Preferred Stock the aggregate number of Warrants exercisable pursuant to
this Agreement shall be reduced in a pro rata amount.
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.
5
<PAGE> 101
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 which is set forth in the form of Warrant
Certificate attached hereto as Exhibit A, 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 Section 5(b).
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;
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
Warrants exercisable or potentially exercisable Warrant Shares or 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.
6
<PAGE> 102
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 Rate in effect at such time.
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
7
<PAGE> 103
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 Rate. The number of Warrant Shares
for which a Warrant may be exercised (the "Exercise Rate") is 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
(iv) issues by reclassification of its Common Stock any shares
of its capital stock;
then the Exercise Rate 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 Rates between the classes of capital stock.
After such allocation, the exercise privilege and the Exercise Rates in respect
of each class of capital stock issuable 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 Rate shall be adjusted
in accordance with the formula:
8
<PAGE> 104
C'= C x O + N
-------------
O + (N x P/M)
where:
C' = the adjusted Exercise Rate.
C = the then current Exercise Rate.
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
exercisable, not all rights or warrants shall have been exercised, the Exercise
Rate 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 Rate shall be adjusted in accordance
with the formula:
C'= C x M
---
M-F
where:
C' = the adjusted Exercise Rate.
C = the then current Exercise Rate.
M = the Current Market Price per share of Common Stock on the
record date mentioned below.
9
<PAGE> 105
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 Rate shall be
adjusted in accordance with the formula:
C'= C x A
-------
O + P/M
where:
C' = the adjusted Exercise Rate.
C = the then current Exercise Rate.
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,
the issuance and exercise of any Warrants pursuant to the terms of this
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 Section 10(b) or Section 10(c) above or
Section 10(e) below, (iii) Common Stock issued to the
10
<PAGE> 106
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,
the issuance and exercise of any Warrants pursuant to the terms of this
Agreement 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 Rate shall be adjusted in accordance
with the formula:
C'= C x O + D
-------
O + P/M
where:
C' = the adjusted Exercise Rate.
C = the then current Exercise Rate.
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
11
<PAGE> 107
such securities are no longer outstanding, then the Exercise Rate shall promptly
be readjusted to the Exercise Rate 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 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.
(g) Consideration Received.
12
<PAGE> 108
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 Rate need be made unless the
adjustment would require an increase or decrease of at least 1% in the Exercise
Rate. 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 Rate is adjusted, the Company shall provide
the notices required by Section 13 hereof.
(k) The Company from time to time may increase the Exercise Rate 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. Whenever the Exercise Rate is
increased, the Company shall mail to Warrant holders a notice of the increase
first class, postage prepaid. The Company shall mail the notice at least 15 days
before the date the increased Exercise Rate takes effect. The notice shall state
the increased Exercise Rate and the period it will be in effect. An increase in
the Exercise Rate does not change or adjust the Exercise Rate otherwise in
effect for purposes of Sections 10(a)-(e).
(l) If:
13
<PAGE> 109
(i) the Company takes any action that would require an
adjustment in the Exercise Rate 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 Rate 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
basis consistent with the essential intent and principles established in the
foregoing Exercise Rate adjustment provisions, necessary to
14
<PAGE> 110
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 Rate 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 Rate
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) Irrespective of any adjustments in the Exercise Rate 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 Rate 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,
15
<PAGE> 111
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 Rate 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 Rate 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 Rate, upon exercise of a Warrant and payment of
the adjusted Exercise Rate, 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
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<PAGE> 112
(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 Rate 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.
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
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<PAGE> 113
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 March 31, 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.
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.
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<PAGE> 114
[Signature Page Follows]
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<PAGE> 115
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:______________________________________
Name:
Title:
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:______________________________________
Name:
Title:
<PAGE> 116
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
EXERCISABLE ON OR BEFORE MARCH 31, 2004
No. Up to 33,333,333 Warrants,
as determined in accordance
with the Warrant Agreement
Warrant Certificate
THE FORTRESS GROUP, INC.
This Warrant Certificate certifies that Prometheus Homebuilders LLC or
registered assigns, is the registered holder of Warrants expiring March 31, 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. New York City time, on March 31, 2004, one fully paid and nonassessable
share of Common Stock (a "WARRANT SHARE") at the exercise price of $0.01 per
share (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 number of
Warrant Shares issuable upon exercise of the Warrants (the "Exercise Rate") is
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
March 31, 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.
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<PAGE> 117
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be signed by its President and by its Secretary.
Dated:
THE FORTRESS GROUP, INC.
By ______________________
President
By ______________________
Secretary
A-2
<PAGE> 118
[FORM OF WARRANT CERTIFICATE]
[REVERSE]
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants expiring March 31, 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 January ___, 1999 (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 during the Exercise Period provided that a
Revenue Test Event shall have occurred. 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 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 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 Second Amended and Restated
Registration Rights Agreement, dated as of January ___, 1999, between the
Company and the Warrant Holder. A copy of the Second Amended and Restated
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.
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<PAGE> 119
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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<PAGE> 120
[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:
A-5
