<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 5
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)
Klaus P. Kretschmann
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)
April 1, 1999 and April 7, 1999
(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 9
________________________________________________________________________________
1 NAME OF REPORTING PERSON
S.S. 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]
________________________________________________________________________________
3 SEC USE ONLY
________________________________________________________________________________
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 6,648,845(1)
SHARES _________________________________________________________________
8 SHARED VOTING POWER
BENEFICIALLY
None
OWNED BY
_________________________________________________________________
EACH 9 SOLE DISPOSITIVE POWER
REPORTING 6,648,845(1)
PERSON _________________________________________________________________
10 SHARED DISPOSITIVE POWER
WITH
None
________________________________________________________________________________
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
6,648,845(1)
________________________________________________________________________________
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
[X]
________________________________________________________________________________
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
36.9%
________________________________________________________________________________
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 5,750,000 shares of Common Stock receivable upon conversion
of certain preferred stock (See Item 5).
<PAGE> 3
SCHEDULE 13D
CUSIP No. 34956K108 Page 3 of 9
________________________________________________________________________________
1 NAME OF REPORTING PERSON
S.S. 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]
________________________________________________________________________________
3 SEC USE ONLY
________________________________________________________________________________
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 None
SHARES _________________________________________________________________
8 SHARED VOTING POWER
BENEFICIALLY
6,648,845(2)
OWNED BY
_________________________________________________________________
EACH 9 SOLE DISPOSITIVE POWER
REPORTING None
PERSON _________________________________________________________________
10 SHARED DISPOSITIVE POWER
WITH
6,648,845(2)
________________________________________________________________________________
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
6,648,845(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)
36.9%
________________________________________________________________________________
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 5,750,000 shares of Common Stock receivable upon conversion
of certain preferred stock (See Item 5).
<PAGE> 4
SCHEDULE 13D
CUSIP No. 34956K108 Page 4 of 9
________________________________________________________________________________
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
LFSRI II Alternative Partnership L.P.
________________________________________________________________________________
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [_]
(b) [X]
________________________________________________________________________________
3 SEC USE ONLY
________________________________________________________________________________
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 None
SHARES _________________________________________________________________
8 SHARED VOTING POWER
BENEFICIALLY
6,648,845(3)
OWNED BY
_________________________________________________________________
EACH 9 SOLE DISPOSITIVE POWER
REPORTING None
PERSON _________________________________________________________________
10 SHARED DISPOSITIVE POWER
WITH
6,648,845(3)
________________________________________________________________________________
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
6,648,845(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)
36.9%
________________________________________________________________________________
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 5,750,000 shares of Common Stock receivable upon conversion
of certain preferred stock (See Item 5).
<PAGE> 5
SCHEDULE 13D
CUSIP No. 34956K108 Page 5 of 9
________________________________________________________________________________
1 NAME OF REPORTING PERSON
S.S. 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
________________________________________________________________________________
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 None
SHARES _________________________________________________________________
8 SHARED VOTING POWER
BENEFICIALLY
6,648,845(4)
OWNED BY
_________________________________________________________________
EACH 9 SOLE DISPOSITIVE POWER
REPORTING None
PERSON _________________________________________________________________
10 SHARED DISPOSITIVE POWER
WITH
6,648,845(4)
________________________________________________________________________________
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
6,648,845(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)
36.9%
________________________________________________________________________________
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 5,750,000 shares of Common Stock receivable upon conversion
of certain preferred stock (See Item 5).
<PAGE> 6
Page 6 of 9
This Amendment No. 5, dated May 20, 1999, which supplements and amends
the Schedule 13D, dated August 25, 1997, as previously amended (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 the Previous Statement.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.
(a) Prometheus currently owns (i) 34,500 shares of Class AAA Preferred
Stock which it acquired in exchange for Class AA Preferred Stock of the Issuer
pursuant to the Restructuring Agreement described in the Previous Statement
convertible into 5,750,000 shares of Common Stock at a conversion price of $6.00
per share and (ii) 898,845 shares of Common Stock which it acquired from certain
founders of the Company, representing beneficial ownership by the Reporting
Persons of a total of 6,648,845 shares of Common Stock, or approximately 36.9%
of the approximately 18,037,867 issued and outstanding shares of the Issuer,
based on the number of shares of Common Stock outstanding as of March 23, 1999,
as disclosed in the Company's most recent filing on Form 10-K, and the
conversion of the Class AAA Preferred Stock into Common Stock.
(c) The Issuer redeemed 3,100 shares of Class AAA Preferred Stock and
2,400 shares of Class AAA Preferred Stock held by Prometheus on April 1, 1999
and April 7, 1999, respectively. Prometheus' ownership of Class AAA Preferred
Stock as set forth in clause 5(a) above reflects these redemptions.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS, OR RELATIONSHIPS WITH RESPECT
TO SECURITIES OF THE ISSUER.
Pursuant to the terms of the Restructuring Agreement, as more fully
described in the Previous Statement, Prometheus received 40,000 shares of Class
AAA Preferred Stock on February 4, 1999. Such Class AAA Preferred Stock is
governed by a certificate of designations (the "Certificate of Designations"),
dated as of February 4, 1999. Subject to the terms of the Certificate of
Designations, the Issuer has the right to redeem the Class AAA Preferred Stock,
in whole or in part, at any time on or before December 31, 2000. Any redemption
of the Class AAA Preferred Stock automatically results in a pro rata reduction
in the amount of warrants Prometheus is entitled to under, and pursuant to the
terms of, a Supplemental Warrant Agreement, dated as of February 4, 1999, by and
between the Issuer and Prometheus (the "Supplemental Warrant Agreement").
All references to the Restructuring Agreement, the Certificate of
Designations and the Supplemental Warrant Agreement are qualified in their
entirety by the full text of such agreements, copies of which were attached as
Exhibit 1 to the Previous Statement (or exhibits to such Exhibit) or as Exhibit
1 hereto and are incorporated herein by reference.
<PAGE> 7
Page 7 of 9
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.
Supplemental Warrant Agreement, dated as of February 4, 1999, by and
between the Issuer and Prometheus.
<PAGE> 8
Page 8 of 9
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/ Klaus P. Kretschmann
------------------------
Name: Klaus P. Kretschmann
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/ Klaus P. Kretschmann
------------------------
Name: Klaus P. Kretschmann
Title: Principal
Dated: May 20, 1999
<PAGE> 9
Page 9 of 9
SCHEDULE I
EXECUTIVE OFFICERS OF PROMETHEUS AND LFREI
The business address for each of the following persons is
c/o Lazard Freres Real Estate Investors LLC ("LFREI"),
30 Rockefeller Plaza, 63rd Floor, New York, NY 10020.
<TABLE>
<CAPTION>
NAME OF OFFICE PRESENT AND PRINCIPAL OCCUPATION
- -------------- --------------------------------
<S> <C>
Anthony E. Meyer Principal of LFREI
Klaus P. Kretschmann 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
</TABLE>
<PAGE> 1
EXECUTION COPY
SUPPLEMENTAL WARRANT AGREEMENT
by and between
THE FORTRESS GROUP, INC.
and
PROMETHEUS HOMEBUILDERS LLC
Dated as of February 4, 1999
<PAGE> 2
SUPPLEMENTAL WARRANT AGREEMENT, dated as of February 4, 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 disposed 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
1
<PAGE> 3
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 disposed
subsidiaries during such period) is less than the Annualized Revenue Maintenance
Amount.
"Asset Sale Adjustment Amount" means (i) with respect to each disposed
subsidiary, the cumulative revenues of such disposed 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 disposed 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 four quarter period ended December 31, 1998.
"Quarterly Revenue Adjustment Amount" means the lower of (a) 15.75% of
the cumulative revenues of any disposed subsidiary of the Company for the four
full fiscal quarters
2
<PAGE> 4
ended immediately prior to its disposition and (b) the lowest quarterly revenue
such disposed 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
$2,463,153,000, 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 forth
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
$228,062,000 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.
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
3
<PAGE> 5
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
4.01 - 6.00 6,666,667
2.01 - 4.00 13,333,333
0.00 - 2.00 33,333,333
</TABLE>
4
<PAGE> 6
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.
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
5
<PAGE> 7
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.
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
6
<PAGE> 8
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 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.
7
<PAGE> 9
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:
C'= C x O + N
-------------
O + (N x P/M)
where:
C' = the adjusted Exercise Rate.
8
<PAGE> 10
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.
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
9
<PAGE> 11
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 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
10
<PAGE> 12
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 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
11
<PAGE> 13
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.
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
12
<PAGE> 14
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:
(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
13
<PAGE> 15
(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 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
14
<PAGE> 16
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, 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
15
<PAGE> 17
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
(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
15
<PAGE> 18
(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
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
17
<PAGE> 19
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.
[Signature Page Follows]
18
<PAGE> 20
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.,
its member
by: Lazard Freres Real Estate Investors L.L.C.,
its general partner
By: /s/ Murry N. Gunty
---------------------
Name: Murry N. Gunty
Title: Vice President
<PAGE> 21
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.
A-1
<PAGE> 22
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> 23
[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 February 4, 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 February 4, 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.
A-3
<PAGE> 24
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.
A-4
<PAGE> 25
[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
