SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
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<PAGE>
[GRAPHIC OMITTED]
THE FORTRESS GROUP, INC.
1650 Tysons Boulevard, Suite 600, McLean, Virginia 22102
--------------------
Notice of Annual Meeting of Stockholders
To Be Held on Wednesday, May 26, 1999
--------------------
The Annual Meeting of Stockholders of The Fortress Group, Inc. will be
held on May 26, 1999 at the Sheraton Premiere Hotel at 8661 Leesburg Pike,
Vienna, Virginia, 22182, at 8:30 a.m., local time, to consider and act upon the
following matters:
1. To elect six directors to serve for the ensuing year.
2. To transact such other business as may properly come before
the meeting or any adjournment thereof.
Stockholders of record at the close of business on April 21, 1999 will
be entitled to notice of and to vote at the meeting or any adjournment thereof.
All stockholders are cordially invited to attend the meeting.
By Order of the Board of Directors,
GEORGE C. YEONAS, President
and Chief Executive Officer
McLean, Virginia
April 23, 1999
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE FOLLOW
THE INSTRUCTIONS ON THE ENCLOSED PROXY IN ORDER TO ENSURE
REPRESENTATION OF YOUR SHARES AT THE MEETING.
<PAGE>
THE FORTRESS GROUP, INC.
1650 Tysons Boulevard, Suite 600
McLean, Virginia 22102
--------------------
PROXY STATEMENT FOR THE ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 26, 1999
General Information
The Annual Meeting of Stockholders of The Fortress Group, Inc. (the
"Company" or "Fortress") will be held at the Sheraton Premiere Hotel at 8661
Leesburg Pike, Vienna, Virginia, 22182, on Wednesday, May 26, 1999 at 8:30 a.m.,
Eastern Daylight Time, for the purposes set forth in the accompanying Notice of
Annual Meeting of Stockholders (the "Annual Meeting"). The approximate mailing
date for this proxy statement and proxy is April 26, 1999.
It is important that your shares be represented at the meeting. If it
is impossible for you to attend the meeting, please sign and date the enclosed
proxy and return it in the envelope provided. The proxy is solicited by the
Board of Directors of the Company (the "Board"). Shares represented by valid
proxies in the enclosed form will be voted if received in time for the Annual
Meeting. Expenses in connection with the solicitation of proxies will be borne
by the Company and may include requests by mail and personal contact by its
directors, officers and employees. The Company will reimburse brokers or other
nominees for their expenses in forwarding proxy materials to principals. The
giving of the enclosed proxy does not preclude the right to vote in person at
the meeting, should the stockholder giving the proxy so desire. Any person
giving a proxy has the power to revoke it any time before it is voted. The proxy
may be revoked at any time prior to its exercise by notice of revocation in
writing sent to the Secretary of the Company, by presenting to the Company a
later-dated proxy card executed by the person executing the prior proxy card or
by attending the meeting and voting in person.
Shares of the Company's Common Stock, $.01 par value (the "Common
Stock"), represented by properly executed proxy cards received by the Company in
time for the meeting will be voted in accordance with the choices specified in
the proxies. Abstentions and broker non-votes (proxies that indicate that
brokers or nominees have not received instructions from the beneficial owner of
shares) will be counted for purposes of determining the presence or absence of a
quorum for the transaction of business. Abstentions are counted in tabulating
the total number of votes cast on proposals presented to stockholders, whereas
broker non-votes are not counted for purposes of determining the total number of
votes cast.
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Voting Securities and Principal Holders
Holders of record of shares of Common Stock at the close of business on
April 21, 1999 (the "Record Date") are entitled to notice of, and to vote at,
the Annual Meeting or at any adjournment or adjournments of the Annual Meeting.
Each share of Common Stock has one vote. On the Record Date, there were issued
and outstanding 12,136,767 shares of Common Stock.
In addition, holders of record of shares of the Company's Class AAA
Convertible Preferred Stock, $.01 par value ("Class AAA Preferred Stock"), at
the close of business on the Record Date are entitled to notice of, and to vote
at, the Annual Meeting or at any adjournment or adjournments of the Annual
Meeting. On the Record Date, there were issued and outstanding 34,500 shares of
Class AAA Preferred Stock, entitling the holder thereof to cast 5,750,000 votes
at the Annual Meeting.
Ownership by Persons Owning More Than Five Percent
The following table sets forth information with respect to persons
known to the Company to be the beneficial owners of more than five percent of
the outstanding Common Stock or preferred stock with voting rights and all
Directors, nominees, and named Executive Officers, as a group. Other than the
Class AAA Preferred Stock held by Prometheus, all of the stock set forth in the
table is Common Stock.
<TABLE>
<CAPTION>
Percent of Voting
Name and Address Amount and Nature Percent of Class Stock as of
Of Beneficial Owner of Beneficial Ownership As of Record Date Record Date
- ------------------- ----------------------- ----------------- -----------
<S> <C> <C> <C>
Prometheus Homebuilders LLC
30 Rockefeller Plaza, 63rd Floor 898,845 7.4% 5.0%
New York, NY 10020 34,500(a) 100.0% 32.1%
Robert Short
603 Park Point Drive, Suite 201
Golden, CO 80401 1,816,207(b) 15.0% 10.2%
J. Christopher Stuhmer
9500 Hillwood Drive, Suite 200
Las Vegas, NV 89134 1,508,409 12.4% 8.4%
Thomas Buffington
8716 Mopac Expressway, Suite 100
Austin, TX 78759 652,264 5.4% 3.6%
J. Marshall Coleman
1650 Tysons Boulevard, Suite 600
McLean, VA 22102 651,585(c) 5.4% 3.6%
- ---------------------------
All directors, nominees, and named 4,037,201(d) 33.3% 22.5%
executive officers, as a group.
(10 persons)
</TABLE>
(a) 34,500 shares of Class AAA Preferred Stock, having an initial
liquidation value of $34,500,000, are issued and outstanding. Such
shares entitle Prometheus to cast 5,750,000 votes at the Annual
Meeting. Subject to the terms and conditions of the amended Stock
Purchase Agreement dated as of December 31, 1998 between the Company
and Prometheus, Prometheus has also acquired Contingent Warrants, which
potentially provide for the issuance of between zero and 28,750,000
shares of Common Stock beginning September 30, 2001.
(b) Of the 1,816,207 shares, Mr. Short's children own 6,000 shares.
(c) Of the 651,585 shares, Mr. Coleman owns 325,792.5 shares, and Patricia
A. Donnelly, his wife, owns 325,792.5 shares.
(d) Includes 56,000 shares subject to options under the Company's Stock
Option Plan.
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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's executive officers, directors, persons who own more than
ten percent of a registered class of the Company's equity securities and certain
entities associated with the foregoing ("Reporting Persons") to file reports of
ownership and changes in ownership on Forms 3, 4 and 5 with the Securities and
Exchange Commission (the "SEC"). These Reporting Persons are required by SEC
regulation to furnish the Company with copies of all Forms 3, 4 and 5 they file
with the SEC. Based solely upon its review of Forms 3, 4 and 5 and any
amendments thereto furnished to the Company, all of such forms were filed on a
timely basis by reporting persons during 1998 except for the late filing of an
initial report on Form 3 by Mr. Kretschmann and by former directors Robert P.
Freeman, Murry N. Gunty and James D. Klingbeil. Additionally, two monthly
reports on Form 4 representing five transactions were filed late by Mr. Smith, a
director who is not standing for reelection.
I. ELECTION OF DIRECTORS
The Company's By-laws provide that the Board shall consist of eight
directors who shall be elected annually by the holders of the Common Stock and
the Series AAA Preferred Stock (the "Common Directors") and three directors who
shall be elected annually by the holders of the Series AAA Preferred Stock (the
"Preferred Directors"). The following persons are proposed to be elected as the
Common Directors to hold office until the next Annual Meeting of Stockholders
and until their respective successors have been duly elected and qualified. Due
to recent departures from the Board, only six persons are nominated to be Common
Directors, and there will be two Common Director vacancies on the Board
following the Annual Meeting. Later this year, the Board will consider
appointing additional Common Directors or reducing the size of the board. If any
of the nominees for Common Director should become unavailable, it is intended
that the shares represented by the proxies will be voted for such substitute
nominees as may be nominated by the Board, unless the number of Common Directors
is reduced. The Company has no reason to believe, however, that any of the
nominees is, or will be, unavailable to serve as a Common Director.
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The following information is furnished with respect to each nominee for
election as a Common Director, each Preferred Director, each other Common
Director, and each executive officer of the Company named in the Summary
Compensation Table below.
<TABLE>
<CAPTION>
Percentage of
Shares of Outstanding
Common Stock Shares of the
Beneficially Common Stock Year
Owned Beneficially First
Positions and Offices As of the Owned as of the Became
Name Age With the Company Record Date Record Date A Director
- ---- --- ---------------- ----------- ----------- ----------
Nominees for Election as Common Directors
<S> <C> <C> <C> <C> <C>
J. Marshall Coleman 56 Director; Chairman of the Board 651,585 5.4% 1996
George C. Yeonas 44 Director; Chief Executive Officer 25,000(a) * 1997
Robert Short 53 Director; President of The Genesee 1,816,207 15.0% 1996
Company
J. Christopher Stuhmer 42 Director; President of Christopher 1,508,409 12.4% 1996
Homes, Inc.
Mark L. Fine 53 Director 9,000(b) * 1996
William A. Shutzer 52 Director 14,000(c) * 1996
Preferred Directors (d)
Klaus Kretschmann 46 Director 2,000(e) * 1998
Linda H. Lewis 31 Director 500(f) * 1999
Other Common Director
Charles F. Smith 55 Director 3,000(g) * 1995
Other Executive Officers
Jeffrey W. Shirley 40 Interim Chief Financial Officer 7,500(h) *
</TABLE>
- ------------------------------------
* Less than 1%
(a) Includes 25,000 shares that Mr. Yeonas has the right to acquire pursuant to
the Company's Stock Option Plan.
(b) Includes 9,000 shares that Mr. Fine has the right to acquire pursuant to
the Company's Stock Option Plan.
(c) Includes 9,000 shares that Mr. Shutzer has the right to acquire pursuant to
the Company's Stock Option Plan.
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<PAGE>
(d) Currently one Preferred Director position is vacant. Pursuant to the terms
of the AAA Preferred Stock only preferred shareholders are entitled to
elect a person to fill this position.
(e) Includes 2,000 shares that Mr. Kretschmann has the right to acquire
pursuant to the Company's Stock Option Plan.
(f) Includes 500 shares that Ms. Lewis has the right to acquire pursuant to the
Company's Stock Option Plan.
(g) Includes 3,000 shares that Mr. Smith has the right to acquire pursuant to
the Company's Stock Option Plan.
(h) Includes 7,500 shares that Mr. Shirley has the right to acquire pursuant to
the Company's Stock Option Plan.
Other Information Relating To Directors
The following is a brief description of the business experience during
the last five years of each of the Common Directors standing for election and
each of the Preferred Directors.
Mr. Coleman has been Chairman of the Board of the Company since May
1996. Prior to assuming this position, Mr. Coleman was an attorney with the law
firm of Katten Muchin & Zavis, and was the Managing Partner of its Washington
office from 1994 until April 1996. From 1985 until 1992, Mr. Coleman was an
attorney with the law firm of Arent Fox Kintner Plotkin & Kahn. Mr. Coleman was
Attorney General of Virginia from 1978 to 1982. From 1986 to 1993, Mr. Coleman
was a director of NVR, a publicly traded homebuilding company.
Mr. Yeonas is the President and CEO of the Company. He joined the
Company as Chief Operating Officer in August 1997 and was named its President in
August 1998 and CEO in March, 1999. Mr. Yeonas has over 20 years in the
homebuilding industry. Prior to joining Fortress, Mr. Yeonas served for seven
years as Vice President and General Manager of the Arvida Company's South
Florida division. His responsibilities there included the management of the city
of Weston, Florida's number one selling community. Prior to joining Arvida, Mr.
Yeonas served as Vice President of Development for NVR in Washington, DC, and as
Divisional Partner for Trammell Crow in Tampa, Florida.
Mr. Short became a director of the Company in March 1996 and has served
as the President and Chief Executive Officer of the Company's subsidiary, The
Genesee Company since 1980.
Mr. Stuhmer became a director of the Company in March 1996 and has
served as the President of the Company's subsidiary, Christopher Homes, Inc.,
since 1987.
Mr. Fine became a director for the Company in April 1996 and currently
is the President of Mark L. Fine & Associates, a development company formed in
June 1994. Mr. Fine has more than 20 years of experience in the building
industry and led the development of Las Vegas' two largest master-planned
communities. From June 1990 to June 1994, Mr. Fine served as the President of
Summerlin, a division of Howard Hughes Corporation.
Mr. Shutzer is Chairman of Investment Banking at ING Baring Furman Selz
LLC, the U.S. securities unit of ING Barings, an international investment
banking, financial services and securities firm, headquartered in London. Mr.
Shutzer is a member of the U.S. Combined America's operating committee and is
also a member of the board of directors and a member of the firm's commitment
committee. Mr. Shutzer joined Furman Selz in 1994 after spending 21 years in the
investment banking division at Lehman Brothers. He also serves on the board of
directors of Tiffany & Co.
5
<PAGE>
Mr. Kretschmann is a Principal in charge of Portfolio Management for
Lazard Freres Real Estate Investors (LFREI). Mr. Kretschmann is a director of
American Apartment Communities III, L.P., Konover Property Trust, Inc. and
InTown Suites, Inc. He joined LFREI in 1995 from Hyperion Credit Services
Corporation where he was Senior Vice President responsible for the asset
management and administrative functions of a $435 million 140 asset, largely
non-performing loan and REO portfolio acquired from the RTC. Previously, Mr.
Kretschmann was Chief Financial Officer of Collins Development Company and spent
nearly twelve years in a variety of senior roles with Connecticut Mutual Life
Insurance Company, including President/CEO of its real estate development
subsidiary.
Ms. Lewis is a Portfolio Manager for LFREI. She joined LFREI in 1998
from Security Capital Group, a global real estate research and investment firm,
where she worked on corporate finance and strategy related issues, including
asset repositioning, corporate restructuring, and new investments. Prior to this
Ms. Lewis received a Masters Degree in Management from the J.L. Kellog Graduate
School of Management. Previously, Ms. Lewis was with the Prudential Realty Group
in the Equity Investment and Development Division, where she was responsible for
the financial analysis of a $1.5 billion diversified real estate portfolio.
Committees of the Board
Audit Committee
The Audit Committee is responsible for assuring the accuracy and
consistency of financial reporting and accounting practices by the Company and
its subsidiaries. The Audit Committee is responsible for (i) retaining, and
evaluating the performance of, the Company's independent auditors; (ii)
approving the Company's annual audit plan; (iii) reviewing reports of the
independent auditors concerning the adequacy of financial controls,
responsiveness of management, quality of systems and other related subjects;
(iv) monitoring compliance with the Company's policies and procedures; and (v)
when requested, reviewing proposed transactions between the Company and its
"affiliates" (e.g., officers, directors and significant stockholders) to
determine the fairness and reasonableness of the transactions.
Compensation Committee
The Compensation Committee is responsible for the oversight and
administration of the Company's executive compensation structure and is
responsible for (i) establishing the overall compensation policies for the
Company; (ii) determining the compensation of the Company's senior executives;
(iii) approving the Company's Incentive Compensation Plan and all other long- or
short-term incentive compensation plans; (iv) assuring that the Company's
compensation plans and policies are competitive with the market and in
compliance with applicable SEC and Internal Revenue Service regulations; and (v)
reporting on the Company's compensation practices in each year's proxy
statement.
Nominating Committee
The Nominating Committee is responsible for recruiting and nominating
candidates for the Board as well as re-nominating existing directors. Prior to
each annual meeting of stockholders, the Nominating Committee reports to the
Board regarding its nominees and the background and an evaluation of each
candidate. The Committee may also advise the Board with respect to matters of
Company philosophy, diversity, composition and related matters. The Nominating
Committee will consider nominees for Common Directors recommended by
stockholders. Recommendations by stockholders should be submitted to the
Company's secretary and should identify the recommended nominee by name and
6
<PAGE>
provide detailed background information. Recommendations received by December
31, 1999 will be considered by the Nominating Committee for nomination at the
2000 annual meeting of stockholders.
Committee Members
The current members of the above-referenced committees are (a) Audit
Committee - Messrs. Fine, Smith, and Kretschmann; (b) Compensation Committee -
Messrs. Shutzer and Fine; and (c) Nominating Committee - Messrs. Shutzer and
Fine. Committee membership is determined on an annual basis and will be modified
following the Annual Meeting.
Stockholders' Agreement
In connection with the initial public offering certain pre-initial public
offering stockholders entered into a Stockholders' Agreement which, as amended
(the "Stockholders' Agreement), affects the manner by which members of the Board
are nominated and elected. Pursuant to the Stockholders' Agreement Messrs.
Coleman, Short, and Stuhmer have agreed to vote their Common Stock at the Annual
Meeting to elect each other to the Board. The Stockholders Agreement expires
following the 2000 annual meeting.
7
<PAGE>
II. COMPENSATION
Compensation of Executive Officers and Directors
Summary Compensation Table
The following table sets forth information for the three fiscal years
ended December 31, 1998 concerning the compensation of the Company's Chief
Executive Officer and each of the Company's other executive officers whose total
annual salary and bonus exceeded $100,000 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation -----------------------
------------------- Awards Payouts
--------------------------- -------
Shares of Shares LTIP All Other
Name and Restricted Underlying Payouts Compen-
Principal Position Year Salary ($) Bonus ($) Stock Options (#) ($) Sation ($)
------------------ ---- ---------- --------- ----- ----------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
George Yeonas,...... 1998 350,000 262,500 -0- -0- -0- 96,415(1)
President and Chief 1997 98,485 150,000 -0- 50,000 -0- -0-
Executive Officer 1996 -0- -0- -0- -0- -0- -0-
James J. Martell, Jr., .. 1998 190,312 -0- -0- -0- -0- 522,833(2)
Former President and 1997 350,000 -0- -0- -0- -0- 7,720(3)
Chief Executive Officer 1996 166,667 225,490 -0- -0- -0- 75,078(3)
Jeffrey W. Shirley, ... 1998 175,000 87,500 -0- -0- -0- 50,000(4)
Vice President and 1997 175,000 -0- -0- -0- -0- 16,457(5)
Interim Chief 1996 25,000 13,660 -0- 10,000 -0- -0-
Financial Officer
Jamie M. Pirrello, .... 1998 169,208 -0- -0- -0- -0- 239,600(6)
Former Chief Financial 1997 180,000 -0- -0- -0- -0- -0-
Officer 1996 106,667 112,745 -0- -0- -0- 36,000(7)
</TABLE>
1) Other compensation includes $50,392 in relocation cost reimbursements,
$44,423 associated with replacement of a previously issued stock grant, and
$1,600 contributed under The Fortress Group, Inc. 401(K) Profit Sharing
Plan. ("FGPSP")
2) Includes $512,000 paid to Mr. Martell as part of a severance agreement and
$10,833 paid under an executive "perk" agreement.
3) The amount reported as other compensation in 1996 includes $72,000 as
payment for consulting services prior to the Company's initial public
offering. Other amounts reported represent payment of an auto allowance.
4) Represent forgiveness of debt related to a 1997 moving expense advance.
5) Represents relocation cost reimbursements.
6) Includes $225,000 paid to Mr. Pirrello as part of a severance agreement,
$13,000 paid under an executive "perk" agreement, and $1,600 contributed
under the FGPSP.
7) The amount reported as other compensation in 1996 represents payment for
consulting services prior to the Company's initial public offering.
8
<PAGE>
Stock Options
The Company's Stock Option Plan provides for the grant of options with respect
to the Common Stock. No option grants were made in fiscal 1998 to the named
executive officers.
Aggregated Option Exercises and Fiscal Year-End Option Value Table
The following table sets forth information concerning each exercise of
stock options during the fiscal year ended December 31, 1998 by each of the
Named Executive Officers and the value of unexercised options held by such
persons as of December 31, 1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
Shares Underlying Value of Unexercised
Shares Unexercised Options at In-the-Money
Acquired FY-End (#) Options at FY-End ($)
On Value -------------------------- ---------------------
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
George C. Yeonas -0- -0- 25,000 25,000 -0- -0-
James J. Martell, Jr. -0- -0- -0- -0- -0- -0-
Jeffrey W. Shirley -0- -0- 7,500 2,500 -0- -0-
Jamie M. Pirrello -0- -0- -0- -0- -0- -0-
</TABLE>
Employment Agreements
Mr. Yeonas has an employment agreement with the Company, effective
August 11, 1997 and expiring in the year 2000. The agreement automatically
renews for successive one-year periods, following the initial term, unless
either the Company or employee provides written notice of its intent to
terminate. The agreement provides for various benefits including a base salary
of $350,000. The agreement also provides for additional bonus compensation under
the Company bonus program, which is tied to operational results.
Mr. Yeonas may be terminated for "cause" as defined in the agreements,
or without cause. If terminated for cause, the termination will be effective
upon receipt of proper notice by the employee. If Mr. Yeonas is terminated for
other than cause, the employee shall be entitled to his base salary for the
remainder of the agreement term as well as a pro-rata share of his bonus, as
determined by the Board. Additionally, Mr. Yeonas has an agreement obligating
the Company to pay him $1 million in the event of a change of control of the
Company and obligating the Company to pay him $900 thousand in the event that
his employment is terminated following a change of control.
Mr. Shirley has an agreement, effective October 7, 1998, and expiring
in the year 2001, obligating the Company to pay him $175,000 in the event his
employment is terminated following a change of control.
Compensation of Directors
Under the Company's standard arrangements, each non-employee director
of the Company receives an annual director's fee of $20,000, payable $5,000 each
quarter, and $1,000 for attendance at Board meetings. In addition non-employee
directors are granted options for 3,000 shares of Common Stock annually. All
directors are reimbursed for out-of-pocket expenses incurred to attend meetings.
9
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Employee directors of the Company do not receive any additional compensation for
services as a director.
Compensation Committee Interlocks and Insider Participation
None of the Compensation Committee members are or were officers or
employees of the Company or any of its subsidiaries.
During 1998, the Company paid fees to Furman Selz related to the
Company's agreement with Prometheus Homebuilders LLC. Mr. Shutzer is Chairman of
Investment Banking at ING Baring Furman Selz LLC.
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<PAGE>
REPORT OF THE COMPENSATION COMMITTEE
Board Compensation Committee Report on Executive Compensation
General. The Compensation Committee's compensation philosophy relative
to the Company's executive officers is to provide a compensation program that is
intended to attract and retain qualified executives for the Company and to
provide them with incentive to achieve Company goals and increase stockholder
value. This philosophy is implemented by establishing salaries, cash and stock
bonuses, and stock option programs.
Salaries. The Compensation Committee's policy is to provide salaries
that are competitive with those of similar executive officers in similar
companies. The Compensation Committee determines comparable salaries through
Company research and the research of consultants concerning the salaries paid by
the Company's competitors.
Bonuses. The Compensation Committee's policy is to provide a
significant portion of executive officers' total compensation through annual
bonuses as incentives to achieve the Company's financial and operational goals
and increase stockholder value. The Company's bonus arrangements for its
executive officers are intended to make a major portion of each executive
officer's compensation dependent on the Company's overall performance.
Stock Options. The Compensation Committee's policy is to award stock
options to the Company's officers in amounts reflecting the participant's
position and ability to influence the Company's overall performance. Options are
intended to provide participants with an increased incentive to make
contributions to the long-term performance and growth of the Company, to join
the interests of participants with the interests of stockholders of the Company,
and to attract and retain qualified employees. The Compensation Committee's
policy has generally been to grant options with terms of five to ten years (in
certain cases, with portions exercisable over shorter periods) to provide a
long-term incentive and to fix the exercise price of the options at the fair
market value of the underlying shares on the date of grant. Such options only
have value if the price of the underlying shares increases above the exercise
price.
No stock options were granted to any executive officer in 1998.
1998 Compensation Decisions Regarding the President and Chief Executive Officer.
Compensation paid to Mr. Yeonas was in accordance with his employment
agreement, which was authorized by the Compensation Committee in 1997 and
modified in 1998. A bonus of $262,500 was paid to Mr. Yeonas for the fiscal year
1998 based on the Company's performance in accordance with a previously
established policy. In addition, he was paid $44,423 associated with the
replacement of a previously issued stock grant.
COMPENSATION COMMITTEE
William A. Shutzer
Mark L. Fine
11
<PAGE>
Comparative Stock Performance
The graph below compares cumulative total stockholder return on the
Common Stock during the period from May 16, 1996 (the date on which the Common
Stock commenced trading) with the cumulative total return over the same period
of (ii) the Standard & Poor's 500 Index and (ii) a peer group of publicly-traded
companies selected by the Company for purposes of this comparison (the "Peer
Group")**. This graph assumes the investment of $100 at the close of trading on
May 16, 1996 in the Common Stock, the Standard & Poor's 500 Index and the Peer
Group and assumes reinvestment of dividends.
COMPARATIVE TOTAL RETURNS
The Fortress Group, Inc., Standard & Poor's 500, Peer Group
(Performance results from 5/16/96 through 12/31/98)
[GRAPHIC OMITTED]
Source: Zacks Investment Research, Inc.
- ------------------------------------
** The peer group includes the following companies: Beazer Homes USA, Inc., DR
Horton, Inc., Engle Homes, Inc., Kaufman and Broad Home Corporation, Pulte
Corporation, Toll Brothers, Inc., Zaring Homes, Inc., M/I Schottenstein
Homes, Inc., Centex Corporation, Continental Homes, Hovnanian Enterprises,
Inc., M.D.C. Holdings, Inc., The Ryland Group, Inc. and U.S. Home
Corporation. Continental Homes was included in the peer group comparison in
the 1997 Proxy Statement. Continental Homes was acquired during 1998 is not
included above.
III. CERTAIN TRANSACTIONS
The Company's Genesee subsidiary leases its administrative office space
from RS Investments III, LLC of which Mr. Short is the manager and holds a 33.3%
beneficial ownership interest (25.4% personally held and 7.9% held by family
members). In 1998, the Company made lease payments of $128,088 to RS Investments
III, LLC. The Company's Christopher Homes subsidiary and Fortress
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Mortgage's Nevada division lease administrative office space from Towne Center
L.P. Mr. Stuhmer is the president and sole stockholder of the general partner,
which owns 99% of this partnership. In addition, Christopher Homes leases
storage space from Alta-Highlands Properties, LLC, a company owned 35 % by Mr.
Stuhmer and 65% by a Stuhmer family trust. In 1998, the Company made lease
payments of $272,631 to Towne Center LP, and $5,635 to Alta-Highlands
Properties, LLC. The Company believes that these leases are at market rates.
The Company had a note receivable bearing interest at 13.75% from Mr.
Stuhmer, for approximately $600,000, at December 31, 1997, net of accrued
interest. The note was paid in full in June 1998.
The Company has entered into a Consulting Agreement dated as of May 1,
1996 with Commonwealth Homes, Inc. ("Commonwealth"), a company owned by Mr.
Coleman (the "Consulting Agreement"). Pursuant to the Consulting Agreement,
Commonwealth (including Mr. Coleman and other employees) is engaged to provide
mergers and acquisitions, financial advisory and strategic planning services.
The Consulting Agreement has a term of three years and automatically renews for
successive one-year periods unless either party provides notice within 90 days
of termination stating that the agreement will be terminated. The Consulting
Agreement provides for the payment of consulting fees, in amounts to be agreed
upon, on a transaction by transaction basis in connection with acquisitions,
joint ventures and similar arrangements and capital raising transactions. Such
fees will generally be based upon a percentage of the value of the transaction
and are required to be (i) approved as to fairness by a committee of
disinterested directors, (ii) reasonable and customary in relation to the size
and complexity of the transaction and (iii) contingent upon the completion of
the subject transaction. The agreement also provides for reimbursement for
reasonable and necessary out-of-pocket expenses and an annual fee of $350,000,
which amount is to be taken into account in determining the transaction based
fees. The Company paid $363,590 pursuant to the Consulting Agreement in 1998.
In the ordinary course of business, the Company has entered into model
home sale-leaseback transactions with certain directors and entities owned by
certain directors. During 1997, the Company sold seven model homes to a limited
liability company beneficially-owned by Mr. Short (73% personally held and 27%
held by family members) and leased them back from this entity. Lease payments
during 1998 under these leases totaled approximately $104,684. During 1997, the
Company also sold six model homes to a limited liability company
beneficially-owned in part by Mr. Short (23.8% personally held and 57.2% held by
family members) and leased these back. The Company made lease payments during
1998 totaling approximately $38,000 to this entity. The Company believes that
these leases are at market rates.
During 1998, the Company paid fees to Furman Selz related to the
Company's agreement with Prometheus Homebuilders LLC. Mr. Shutzer is Vice
Chairman of Investment Banking at ING Baring Furman Selz LLC.
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IV. OTHER MATTERS
Relationship with Independent Accountants
PricewaterhouseCoopers LLP served as the independent accountants for
the Company and its subsidiaries for 1998 and has reported on the Company's
consolidated financial statements included in the Annual Report of the Company
which accompanies this proxy statement. The Board, which appoints the Company's
independent accountants, has not yet appointed the independent accountants for
1999 and anticipates doing so in the second quarter upon recommendation of the
Audit Committee.
Representatives of PricewaterhouseCoopers LLP are expected to be
present at the Annual Meeting of Stockholders and will have the opportunity to
make a statement at the meeting if they desire to do so. The representatives
will also be available to respond to appropriate questions.
Other Proposals
Neither the Company nor the members of its Board intend to bring before
the Annual Meeting any matters other than those set forth in the Notice of
Annual Meeting of Stockholders, and they have no present knowledge that any
other matters will be presented for action at the meeting by others. If any
other matters properly come before such meeting, however, it is the intention of
the persons named in the enclosed form of proxy to vote in accordance with their
best judgment.
By Order of the Board of Directors
GEORGE C. YEONAS
PRESIDENT
Dated: April 23, 1999
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THE FORTRESS GROUP, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS OF THE FORTRESS GROUP
ANNUAL MEETING OF SHAREHOLDERS -- MAY 26, 1999
George C. Yeonas and J. Marshall Coleman, and each of them, are hereby
authorized to represent and vote the stock of the undersigned at the Annual
Meeting of Shareholders to be held May 26, 1999, and at any adjournment or
adjournments thereof.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN ACCORDANCE WITH
SPECIFICATIONS MADE HEREIN. IF NO SPECIFICATIONS ARE MADE, THIS PROXY WILL BE
VOTED FOR THE ELECTION OF THE NOMINEES FOR DIRECTOR LISTED ON THE REVERSE SIDE
OF THIS PROXY CARD.
PLEASE VOTE, DATE AND SIGN ON REVERSE
AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
PLEASE SIGN EXACTLY AS YOUR NAME
APPEARS ON THIS PROXY. WHEN SIGNING AS
ATTORNEY, EXECUTOR, ADMINISTRATOR,
TRUSTEE, OR GUARDIAN, PLEASE GIVE YOUR
FULL TITLE. IF SHARES ARE HELD JOINTLY,
EACH HOLDER SHOULD SIGN.
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
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<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
FOR WITHHOLD FOR ALL EXCEPT
1. Election of Directors: / / / / / /
J. Marshall Coleman J. Christopher Stuhmer
George C. Yeonas Mark L. Fine
Robert Short William A. Shutzer
NOTE: If you do not wish your shares voted 'For' a particular nominee, mark
the 'For All Except' box and strike a line through the nominee's name. Your
shares will be voted for the remaining nominees.
2. In their discretion, the proxies are authorized to vote upon any other
business that may properly come before the meeting.
Mark box at right if an address change or comment has been noted on the reverse FOR ALL EXCEPT
side of this card. / /
</TABLE>
The undersigned hereby acknowledges receipt of the notice of said Annual Meeting
of Stockholders, the proxy statement relating thereto and the Annual Report for
1998.
The undersigned hereby revokes any proxy or proxies heretofore given to vote
such stock, and hereby ratifies and confirms all that said attorneys and
proxies, or other substitutes, may do by virtue hereof. If only one attorney and
proxy shall be present and acting, then that one shall have and may exercise all
the powers of said attorneys and proxies.
The signature of shareholder should correspond exactly with the name stenciled
hereon. Joint owners should sign individually. When signing as attorney,
executor, administrator, trustee or guardian, please give your full title as
such.
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SHAREHOLDER SIGN HERE DATE CO-OWNER SIGN HERE DATE
