Supplement dated March 11, 1999 Rule 424(b)(3)
(To Prospectus dated March 26, 1998) File No. 333-48147
EXPLANATORY NOTE:
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Attached is a Supplement to the Prospectus dated March 26, 1998 supplementing
the discussions in the sections titled "Risk Factors" and "Selling
Securityholders."
No additional shares are being registered under this Supplement.
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Supplement dated March 11, 1999
(To Prospectus dated March 26, 1998)
THE FORTRESS GROUP, INC.
6,431,192 Shares of Common Stock
This Prospectus Supplement supplements and updates the risk factors
entitled "Dilution," "Change of Control, "Anti-takeover Effects" and "Shares
Eligible for Future Sale" set forth in the Prospectus under the heading "Risk
Factors" as follows:
Dilution of Earnings per Share. The Company has issued $40,000,000
initial liquidation value (40,000 shares) of Class AAA preferred stock and has
also issued Contingent Warrants which potentially provide for the issuance of
between 606,061 and 33,333,333 shares of common stock to Prometheus Homebuilders
LLC.
The Class AAA preferred stock is convertible at Prometheus' option into
common stock at any time into 6,666,667 shares of common stock at a conversion
price of $6.00 per share. The Contingent Warrants would become exercisable at an
exercise price of $.01 per share on September 30, 2001 and would expire on March
31, 2004. The number of shares of common stock potentially issuable pursuant to
the exercise of the Contingent Warrants is subject to adjustment depending upon
the 60 day average closing price of the common stock between September 30, 2001
and September 30, 2003. If during this entire period the closing price remains
greater than $12.00 per share, no shares would be issuable pursuant to the
Contingent Warrants. If at any time during this period the average closing price
is $12 per share or less, the number of shares of common stock for which the
Contingent Warrants may be exercisable would be adjusted, up to five times per
year. The Contingent Warrants would be exercisable for 606,061 shares if the
average closing price were no lower than $10.01 per share at any time during
this period and would increase based upon lower average closing prices,
increasing to a maximum of 33,333,333 shares if the average closing price was
$2.00 or less per share during this period. The issuance and conversion of the
Class AAA preferred stock and the issuance and exercise of the Contingent
Warrants could have the effect of materially reducing the Company's earnings per
share and diluting the economic interest of the Company's existing stockholders.
Dilution of Voting Power. Pursuant to the terms of the Class AAA
preferred stock, Prometheus has the right to elect three Preferred Stock
directors out of an up to 15-member board of directors. A proportionate number
of the Preferred Stock directors also are entitled to serve on each committee of
the board of directors, except for the executive committee. The executive
committee, which has substantial operational authority, consists of five members
of which two are Preferred Stock directors. Upon the occurrence of an event of
default under the Class AAA preferred stock (which principally consist of
defaults on dividends or other payment obligations), Prometheus would be
entitled to elect additional Preferred Stock directors sufficient to constitute
a majority of the board of directors and all committees of the board of
directors.
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Prometheus, as the holder of Class AAA preferred stock, is entitled to
vote on all matters voted on by holders of common stock, voting together with
the common stock as a single class at all meetings of the stockholders. Each
share of Class AAA preferred stock entitles its holder to cast the number of
votes equal to the number of shares of common stock into which such share of
Class AAA preferred stock is convertible, based on the $6.00 per share
conversion price. Based upon its ownership of $40,000,000 initial liquidation
value (40,000 shares) of Class AAA preferred stock and 898,845 shares of common
stock, Prometheus holds approximately 41% of the total voting power of the
Company's stock. Prometheus may acquire additional voting power under certain
circumstances, including the conversion of Class AAA preferred stock and the
exercise of the Contingent Warrants.
Change of Control. As described above, Prometheus has substantial
voting power, including the right under certain circumstances to elect a
majority of the board of directors, its executive committee and other
committees. The holders of Class AAA preferred stock also have certain consent
rights, which require the approval of the holders of at least 66 2/3% of the
Class AAA preferred stock to effect certain significant corporate actions or
transactions, including a merger or sale of substantial assets, unless the Class
AAA preferred stock is redeemed as part of the transaction. Further, under the
Company's amended bylaws, and the amended bylaws of the Company's subsidiaries,
the Company may not, and may not permit any of its subsidiaries to, engage in or
agree to engage in a number of significant actions or transactions, including
adopting an annual operating budget, taking actions not provided for in the
budget, incurring new debt and issuing securities, without the affirmative vote
of over 81% of the board of directors (Supermajority Director Approval) or the
affirmative vote of over 81% of the members of the executive committee
(Supermajority Executive Committee Approval). Therefore, the Company needs the
approval of at least one of the three Preferred Stock directors (together with
12 non-Preferred Stock directors) or the unanimous approval of the executive
committee, including two Preferred Stock directors, to engage in significant
actions or transactions. As a result, Prometheus has substantial influence over,
and could under certain circumstances exercise effective control of, the
direction and management of the Company and the conduct of its business. There
is no assurance that the influence and participation of Prometheus and the
Preferred Stock directors in the direction and management of the Company will
have a positive effect on the Company's financial performance and condition.
Anti-takeover Effects. Prometheus's representation on the board of
directors and the executive committee, its voting rights, its consent rights and
the requirements of Supermajority Director Approval and Supermajority Executive
Committee Approval for certain significant actions and transactions could have
anti-takeover effects. Also, provisions of Delaware law and of the Company's
Amended and Restated Certificate of Incorporation could have the effect of
making it more difficult for a third party to acquire, or of discouraging a
third party from attempting to acquire, control of the Company. These provisions
could deter, delay or prevent tender offers or other takeover proposals or
attempts that might result in benefits to stockholders, including the payment to
stockholders of a premium over the market price of the Common Stock.
Shares Eligible for Future Sale. The Company has outstanding
approximately 12,100,000 shares of common stock, of which approximately
10,500,000 shares are freely
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tradable without restriction (including shares subject to this Prospectus) and
approximately 1,600,000 shares are saleable subject to certain volume and other
restrictions of Rule 144 under the Securities Act. In addition, at least 895,407
shares are issuable upon the conversion of the Company's outstanding classes of
preferred stock and 336,604 shares are issuable upon exercise of currently
exercisable options. Additional shares would be issuable upon the conversion of
the Class AAA preferred stock and the adjustment and exercise of the Contingent
Warrants. See "Dilution." Sale of substantial amounts of such shares in the
public market or the prospect of such sales could materially adversely affect
the market price of the common stock.
In addition, this Prospectus Supplement supplements and updates the
table set forth in the Prospectus under the heading "Selling Securityholders" as
follows:
D.W. Hutson Construction Co., a corporation named as a selling
securityholder in the table, has changed its name and is now called OBCO, Inc.
