UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Soliciting Material Pursuant to
[_] Confidential, For Use of the SS.240.14a-11(c) or SS.240.14a-12
Commission Only (as permitted
by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
THE FORTRESS GROUP, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
________________________________________________________________________________
1) Title of each class of securities to which transaction applies:
________________________________________________________________________________
2) Aggregate number of securities to which transaction applies:
________________________________________________________________________________
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
________________________________________________________________________________
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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4) Date Filed:
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SEC 1913 (3-99)
<PAGE>
[FORTRESS LOGO]
THE FORTRESS GROUP, INC.
1650 Tysons Boulevard, Suite 600, McLean, Virginia 22102
--------------------
Notice of Annual Meeting of Stockholders
To Be Held on Wednesday, May 24, 2000
--------------------
The Annual Meeting of Stockholders of The Fortress Group, Inc. will be
held on May 24, 2000 at the Ritz-Carlton Hotel, 1700 Tysons Boulevard, McLean,
Virginia, 22102, at 8:30 a.m., local time, to consider and act upon the
following matters:
1. To elect five 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 14, 2000 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 21, 2000
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 24, 2000
General Information
The Annual Meeting of Stockholders of The Fortress Group, Inc. (the
"Company" or "Fortress") will be held at the Ritz-Carlton Hotel, 1700 Tysons
Boulevard, McLean, Virginia, 22102, on Wednesday, May 24, 2000 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 24, 2000.
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. Solicitations of proxies may include requests by mail and personal
contact by its directors, officers and employees. Expenses in connection with
the solicitation of proxies will be borne by the Company. 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.
Voting Securities and Principal Holders
Holders of record of shares of Common Stock at the close of business on
April 14, 2000 (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 12,278,097 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
1
<PAGE>
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 28,500 shares of Class AAA Preferred Stock, entitling the holder
thereof to cast 4,750,000 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 7.3% 5.3%
New York, NY 10020 28,500(a) 100.0% 27.9%
Robert Short
603 Park Point Drive, Suite 201
Golden, CO 80401 1,816,207(b) 14.8% 10.7%
J. Christopher Stuhmer
9500 Hillwood Drive, Suite 200
Las Vegas, NV 89134 1,513,209 12.3% 8.9%
David Hutson
3030 Hartley Road, Suite 100
Jacksonville, FL 32223 614,878 5.0% 3.6%
- ---------------------------
All directors, nominees, and named 3,468,466(c) 28.0% 20.2%
executive officers, as a group.
(9 persons)
</TABLE>
(a) 28,500 shares of Class AAA Preferred Stock, having an initial
liquidation value of $28,500,000, are issued and outstanding. Such
shares entitle Prometheus to cast 4,750,000 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 23,750,000
shares of Common Stock beginning September 30, 2001.
(b) Of the 1,816,207 shares, Mr. Short's children own 6,000 shares.
(c) Includes 115,750 shares subject to options under the Company's Stock
Option Plan.
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
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<PAGE>
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 1999 except for the late filing of an initial report on
Form 3 by Mr. Giusti and Mr. Shirley and one monthly report on Form 4
representing one transaction by Mr. Fine.
I. ELECTION OF DIRECTORS
The Board consists of five 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. 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, 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
Owned Beneficially Year First
Positions and Offices As of the Owned as of the Became
Name Age With the Company Record Date Record Date a Director
- ---- --- ---------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Nominees for Election as Common Directors
George C. Yeonas 45 Director; Chief Executive Officer 64,300(a) * 1997
Robert Short 54 Director; President of The Genesee 1,816,207(b) 14.8% 1996
Company
J. Christopher Stuhmer 43 Director 1,513,209 12.3% 1996
Mark L. Fine 54 Director 22,000(c) * 1996
William A. Shutzer 53 Director 17,000(d) * 1996
Preferred Directors (e)
Sandra A. Lamb 55 Director * 1999
Linda H. Lewis 32 Director 500(f) * 1999
Other Executive Officers
Paul Giusti 42 Chief Operating Officer 23,750(g) *
Jeffrey W. Shirley 41 Chief Financial Officer 11,500(h) *
</TABLE>
- ---------------------------
* Less than 1%
(a) Includes 62,500 shares that Mr. Yeonas has the right to acquire pursuant to
the Company's Stock Option Plan.
(b) Includes 6,000 that are owed by Mr. Short's children.
(c) Includes 12,000 shares that Mr. Fine has the right to acquire pursuant to
the Company's Stock Option Plan.
(d) Includes 12,000 shares that Mr. Shutzer has the right to acquire pursuant to
the Company's Stock Option Plan.
(e) 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.
(f) Includes 500 shares that Ms. Lewis has the right to acquire pursuant to the
Company's Stock Option Plan.
(g) Includes 18,750 shares that Mr. Giusti has the right to acquire pursuant to
the Company's Stock Option Plan.
(h) Includes 10,000 shares that Mr. Shirley has the right to acquire pursuant to
the Company's Stock Option Plan.
4
<PAGE>
Other Information Relating To Directors
The following is a brief description of the business experience during
the last five years of each of the Common Directors standing for election and
each of the Preferred Directors.
Mr. Yeonas is 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.
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 served as
the President of the Company's subsidiary, Christopher Homes, Inc., from 1987
until January 2000. He is currently President of J. Christopher Stuhmer, Inc., a
development company.
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 a Partner of Thomas Weisel Partners. Mr. Shutzer was
Executive Vice President of Furman-Selz, an investment bank, from March 1994 to
March 1996. He served as President from April 1996 to September 1997, and as
Chairman, from October 1997 to August 1999, of the investment banking group of
ING Furman-Selz. Prior to that, Mr. Shutzer was employed at the investment bank,
Lehman Brothers, from August 1972 to February 1994, most recently as a Managing
Director. He also serves on the Board of Directors of Tiffany & Company and
Internet.com, Inc. and on the Advisory Board of E&J Gallo Winery.
Ms. Lewis is a Portfolio Manager for Lazard Freres Real Estate Investors
("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. Kellogg 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.
Ms. Lamb is a Director of Lazard Freres & Co. LLC, the private
investment bank and global financial services firm ("Lazard"). Ms. Lamb joined
Lazard in 1983 and is a member of its Banking Department in New York City. She
advises clients on mergers and acquisitions, corporate financial matters and
complex financial restructurings. Prior to joining Lazard, Ms. Lamb was an
officer at an institutional investor specializing in private placement
investments.
5
<PAGE>
Committees of the Board
Audit Committee
The Audit Committee is responsible for assuring the accuracy and
consistency of financial reporting and accounting practices by the Company and
its subsidiaries. The Audit Committee is responsible for (i) retaining, and
evaluating the performance of, the Company's independent auditors; (ii)
approving the Company's annual audit plan; (iii) reviewing reports of the
independent auditors concerning the adequacy of financial controls,
responsiveness of management, quality of systems and other related subjects;
(iv) monitoring compliance with the Company's policies and procedures; and (v)
when requested, reviewing proposed transactions between the Company and its
"affiliates" (e.g., officers, directors and significant stockholders) to
determine the fairness and reasonableness of the transactions.
Compensation Committee
The Compensation Committee is responsible for the oversight and
administration of the Company's executive compensation structure and is
responsible for (i) establishing the overall compensation policies for the
Company; (ii) determining the compensation of the Company's senior executives;
(iii) approving the Company's Incentive Compensation Plan and all other long- or
short-term incentive compensation plans; (iv) assuring that the Company's
compensation plans and policies are competitive with the market and in
compliance with applicable SEC and Internal Revenue Service regulations; and (v)
reporting on the Company's compensation practices in each year's proxy
statement.
Nominating Committee
The Nominating Committee is responsible for recruiting and nominating
candidates for the Board as well as re-nominating existing directors. Prior to
each annual meeting of stockholders, the Nominating Committee reports to the
Board regarding its nominees and the background and an evaluation of each
candidate. The Committee may also advise the Board with respect to matters of
Company philosophy, diversity, composition and related matters. The Nominating
Committee will consider nominees for Common Directors recommended by
stockholders. Recommendations by stockholders should be submitted to the
Company's secretary and should identify the recommended nominee by name and
provide detailed background information. Recommendations received by December
31, 2000 will be considered by the Nominating Committee for nomination at the
2001 annual meeting of stockholders.
Committee Members
The current members of the above-referenced committees are (a) Audit
Committee - Messrs. Fine and Shutzer and Ms. Lamb; (b) Compensation Committee -
Messrs. Shutzer and Fine; and Ms. Lewis; and (c) Nominating Committee -
Messrs. Shutzer and Yeonas. Committee membership is determined on an annual
basis.
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. 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.
6
<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, 1999 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 $100,000 (the "Named Executive Officers").
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Long Term Compensation
----------------------------- ---------------------------------------
Annual Compensation Awards Payouts
---------------------------------------------------------------------------------------------
Shares of Shares LTIP All Other
Name and Restricted Underlying Payouts Compen-
Principal Position Year Salary ($) Bonus ($) Stock Options (#) ($) sation ($)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
George Yeonas, 1999 385,000 262,500 -0- 100,000 -0- 11,520(1)
President and Chief 1998 350,000 262,500 -0- -0- -0- 96,415(2)
Executive Officer 1997 98,485 150,000 -0- 50,000 -0- -0-
- -------------------------------------------------------------------------------------------------------------------------
Paul A. Giusti, 1999 300,000 125,000 -0- 75,000 -0- 17,455(3)
Vice President and 1998 250,000 -0- -0- -0- -0- 7,235(3)
Chief Operating 1997 202,550 -0- -0- -0- -0- -0-
Officer
- -------------------------------------------------------------------------------------------------------------------------
Jeffrey W. Shirley, 1999 181,844 82,917 -0- -0- -0- 2,054(4)
Vice President and 1998 175,000 87,500 -0- -0- -0- 50,000(5)
Chief Financial 1997 175,000 -0- -0- -0- -0- 16,457(6)
Officer
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
1) Other compensation includes $7,290 associated with replacement of a
previously issued stock grant and $4,230 contributed under The Fortress
Group, Inc. 401(K) Profit Sharing Plan ("FGPSP").
2) Includes $50,392 in relocation cost reimbursements, $44,423 associated with
replacement of a previously issued stock grant, and $1,600 contributed under
the FGPSP.
3) Auto allowance.
4) Amount contributed under the FGPSP.
5) Represent forgiveness of debt related to a 1997 moving expense advance.
6) Represents relocation cost reimbursements.
7
<PAGE>
Stock Options
The Company's Stock Option Plan provides for the grant of options with respect
to the Common Stock. The table below sets forth information on option grants in
fiscal 1999 to the named executive officers.
<TABLE>
Option Grants in Last Fiscal Year
<CAPTION>
Percent of Total
Options Granted
Options to Employees in Exercise Expiration Grant Date
Name Granted (1) Fiscal Year Price Date Present Value (2)
- ---- ----------- ----------- ----- ---- -----------------
<S> <C> <C> <C> <C> <C> <C>
George C. Yeonas 100,000 55.2% $1.59375 8/17/09 $96,860
Paul A. Giusti 75,000 41.4% $1.59375 8/17/09 $72,645
</TABLE>
1) Options vest in equal portions on the date of grant and the first, second,
and third anniversaries thereof.
2) The grant date present values are calculated based on the Black-Sholes
model. The assumptions used in the calculations include an expected
volatility of 60%, a risk free rate of return of 5.7%, and a time to
exercise of 5.84 years.
Aggregated Option Exercises and Fiscal Year-End Option Value Table
The following table sets forth information concerning each exercise of
stock options during the fiscal year ended December 31, 1999 by each of the
Named Executive Officers and the value of unexercised options held by such
persons as of December 31, 1999.
<TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
<CAPTION>
Shares Underlying Value of Unexercised
Shares Unexercised Options at In-the-Money
Acquired FY-End (#) Options at FY-End ($)
On Value ----------------------------- ---------------------
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
George C. Yeonas -0- -0- 62,500 87,500 -0- -0-
Paul Giusti -0- -0- 18,750 56,250 -0- -0-
Jeffrey W. Shirley -0- -0- 10,000 -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 currently provides for various benefits including a base salary of
$385,000. 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
8
<PAGE>
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 entitling him
to certain benefits, in the event of a change of control prior to August 17,
2002 that results in either the termination of Mr. Yeonas' employment or his
loss of the office of Chief Executive Officer. Under this agreement, unless the
Company affords him the same level of cash compensation and incentive
opportunities provided to him prior to the change in control, Mr. Yeonas is
entitled to severance compensation in a lump sum equal to 1.75 times his then
annual salary. In addition, all of his unvested stock options will immediately
vest.
Mr. Giusti has an agreement, effective August 17, 1999, entitling him
to certain benefits, in the event of a change of control prior to August 17,
2002 that results in either the termination of Mr. Giusti's employment or his
loss of the office of Chief Operating Officer. Under this agreement, unless the
Company affords him the same level of cash compensation and incentive
opportunities provided to him prior to the change in control, Mr. Guisti is
entitled to severance compensation in a lump sum equal to 1.5 times his then
annual salary. In addition, all of his unvested stock options will immediately
vest.
Mr. Shirley has an agreement, effective October 7, 1998, and expiring
in the year 2001, obligating the Company to pay him $175,000 in a lump sum, 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, $1,000 for attendance at Board meetings, and $500 for attendance at
committee meetings. In addition non-employee common 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. Employee directors and
preferred 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.
9
<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.
Stock options granted to executive officers of the Company in 1999
consisted of options for 100,000 and 50,000 issued to Mr. Yeonas and Mr. Giusti,
respectively. These options were granted on August 17, 1999 at a strike price of
$1.59375 per share.
1999 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 and 1999. A bonus of $262,500 was paid to Mr. Yeonas for the
fiscal year 1999 under a formula, based on the Company's performance relative to
a plan approved by the Board. The 1999 bonus reflects attainment of 100% of the
1999 plan. In addition, he was paid $7,290 associated with the replacement of a
previously issued stock grant.
COMPENSATION COMMITTEE
William A. Shutzer, Chairman
Mark L. Fine
Linda H. Lewis
10
<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 $100 at the close of trading on
May 16, 1996 in the Common Stock, the Standard & Poor's 500 Index and the Peer
Group and assumes reinvestment of dividends.
COMPARATIVE TOTAL RETURNS
The Fortress Group, Inc., Standard & Poor's 500, Peer Group
(Performance results from 5/16/96 through 12/31/99)
[CHART]
STARTING
BASIS
DESCRIPTION 5/16/96 1996 1997 1998 1999
----------- ------- ---- ---- ---- ----
FORTRESS GROUP (%) -33.33 -29.05 -41.08 -72.48
FORTRESS GROUP ($) $100.00 $66.67 $47.30 $27.87 $7.67
S & P 500 (%) 15.00 33.36 28.58 21.04
S & P 500 ($) $100.00 $115.00 $153.36 $197.20 $238.69
PEER GROUP ONLY (%) 15.40 54.51 27.14 -28.38
PEER GROUP ONLY ($) $100.00 $115.40 $178.30 $226.70 $162.36
NOTE: Data complete through last fiscal year.
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.
11
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III. CERTAIN TRANSACTIONS
The Company's Genesee subsidiary ("Genesee") 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 1999, the Company made lease payments of approximately
$130,000 to RS Investments III, LLC. The Company's Christopher Homes subsidiary
("Christopher") and Fortress Mortgage's Nevada division lease administrative
office space in a building owned 50.96% by Mr. Stuhmer and 49.04% by Towne
Center L.P. Towne Center L.P. is owned 98% by a Stuhmer Family Trust and 2% by
J. Christopher Stuhmer, Inc. The Company made lease payments of $250,044 in 1999
for occupying space in this building.
On September 10, 1999, Christopher entered into an agreement with
Southern Highlands/Christopher Homes I, LLC, a Nevada limited liability company
("Southern Highlands"), to manage the entity's development of approximately 43
acres of land located in Clark County, Nevada (the "Southern Highlands
Development"). Mr. Stuhmer holds a 50% equity interest in Southern Highlands,
subject to certain return of capital and preferred return provisions benefiting
his partner. Christopher is entitled to a management fee equal to 10.5% of the
revenues generated from sales of lots and residences constructed in the Southern
Highlands Development. There were no payments made during 1999 under this
agreement.
On January 6, 2000, Mr. Stuhmer entered into a consulting agreement
with Christopher pursuant to which he assists it in fulfilling its management
duties under the agreement with Southern Highlands, described above. Under the
consulting agreement Mr. Stuhmer is entitled to the following fees: $4,500 cash
per month, commencing April 15, 2000, and 1 1/2% of the revenues generated from
sales of lots and residences constructed in the Southern Highlands Development.
In addition the Company provides Mr. Stuhmer office space having a value of
approximately $1,000 per month. In return, Mr. Stuhmer agreed to divide with
Christopher his share of the net profits under the Southern Highlands operating
agreement on a 65% (Christopher) - 35% (Mr. Stuhmer) basis. The consulting
agreement has a one year term, renewable at the option of Mr. Stuhmer.
On February 29, 1999, Christopher entered into an agreement with
Bellacere, LLC, a Nevada limited liability company ("Bellacere"), to manage the
entity's development of approximately 36 acres of land located in Clark County,
Nevada (the "Bellacere Development"). Mr. Stuhmer holds a 50% equity interest in
Bellacere, subject to certain return of capital provisions benefiting his
partner. Christopher is entitled to a management fee equal to 12.0% of the
revenues generated from sales of lots and residences constructed in the
Bellacere Development. During 1999 Christopher reported approximately $216,000
in fees under this agreement and had a receivable of approximated $516,000 due
from Bellacere at year end.
On January 6, 2000, Mr. Stuhmer entered into a consulting agreement
with Christopher pursuant to which he assists it in fulfilling its management
duties under the agreement with Bellacere, described above. Under the consulting
agreement Mr. Stuhmer is entitled to a fee equal to 2% of the revenues generated
from sales of lots and residences constructed in the Bellacere Development. In
return, Mr. Stuhmer agreed to divide with Christopher his share of the net
profits under the Bellacere operating agreement on a 80% (Christopher) - 20%
(Mr. Stuhmer) basis. The consulting agreement has a one year term, renewable at
the option of Mr. Stuhmer.
In 1999 Genesee acquired 24 finished lots in the ordinary course of
business from The Genesee Company / Boyd Lake LLC ("Boyd Lake") at a cost of
$1,151,700. Additionally, Genesee received approximately $175,000 under a
management agreement with this entity. Mr. Short, or members of his
12
<PAGE>
family, own 80% of the equity of Boyd Lake. In 2000 it is proposed that Genesee
will acquire approximately 12 finished lots in the ordinary course of business
at a cost of $624,000 from The Genesee Company / Horseshoe Lake LLC ("Horseshoe
Lake"). During 1999 Genesee received approximately $55,000 under a management
agreement with Horseshoe Lake. Mr. Short owns 85.5% of the equity of Horseshoe
Lake.
In December 1999 Genesee entered into a financing transaction with RS
Investments/Stonebridge, LLC ("Stonebridge"), an entity of which Mr. Short owns
a 20% equity interest. Genesee conveyed 83 improved lots to Stonebridge for $5.3
million, equal to Genesee's cost, using the cash sale price to pay off debt
associated with these lots. Simultaneously, Genesee acquired an option from
Stonebridge to reacquire the lots over a period of approximately eighteen months
for $5.3 million plus interest at the rate of 17% per annum.
In September 1999 Genesee entered into a financing transaction with RS
Investments VI, LLC ("Investments VI"), an entity in which Mr. Short owns a
30.5% equity interest. Investments VI owns approximately 204 acres of unimproved
real estate, and it has contracted with Genesee to improve the real estate for
use as a residential community ("Development Agreement"). Genesee's fee for
constructing the improvements is a negotiated amount representing its
anticipated out-of-pocket costs plus an amount for overhead (the "Development
Cost"). Simultaneous with the execution of the Development Agreement, Genesee
acquired a fourteen-month option from Investments VI to acquire the entitled
lots for $5.1 million. The option price is the sum of Investments VI's cost to
acquire the 204 acres, the Development Cost, and a cost to carry at the rate of
17% per annum. Genesee loaned Investments VI $2.1 million in September 1999 for
a period of sixty days to facilitate its purchase of the 204 acres. The loan
carried interest at the rate of 17% per annum and was paid in full on a timely
basis.
During 1999, the Company's Brookstone Homes subsidiary ("Brookstone")
purchased 35 developed lots, with a total purchase price of approximately
$631,000 from Riverwood Properties ("Riverwood"), pursuant to agreements related
to the acquisition of Brookstone. Riverwood is wholly owned by Mr. Giusti.
Brookstone also placed deposits totaling $151,000 with Riverwood for options to
purchase future lots. In addition, Brookstone purchased 4 lots, with a total
purchase price of $82,000 from Watertown LLC, which is 50% owned by Riverwood.
In January 2000, the Company received notification from David Hutson
pursuant to a Schedule 13-G filing that effective January 13, 2000 he had become
the owner of more than 5% of the Company's common stock. The Company's
subidiary, Fortress Homes and Communities of Florida ("Fortress Florida"),
acquires land and building materials from companies owned by David Hutson. These
agreements, which relate to the 1997 acquisition of DW Hutson Construction by
the Company, provide for an option on lots developed by Hutson Land Company and
for the supply of certain building materials from Southeastern Supply. At
December 31, 1999 the Company had deposits of approximately $1.1 million with
Hutson Land related to the future acquisition of lots.
13
<PAGE>
IV. OTHER MATTERS
Relationship with Independent Accountants
PricewaterhouseCoopers LLP served as the independent accountants for
the Company and its subsidiaries for 1999 and has reported on the Company's
consolidated financial statements included in the Annual Report of the Company
which accompanies this proxy statement. On April 14, 2000 the Board, which
appoints the Company's independent accountants, dismissed PricewaterhouseCoopers
LLP and appointed Ernst & Young LLP as the independent accountants for 2000 upon
recommendation of the Audit Committee. In connection with this change and for
the last two fiscal years and through April 14, 2000; (a) there were no
disagreements with PricewaterhouseCoopers on matters of accounting principles or
practices, financial statement disclosure or audit scope or procedure which, if
unresolved, would have led to reference in the accountants report on the
financial statements, (b) the reports of PricewaterhouseCoopers contained no
adverse opinion, disclaimer, or qualification of opinion, and (c) there were no
reportable events ( as defined in Regulation S-K Item 304 (a) (1) (v)). In
addition the Company has not in the last two fiscal years and through April 14,
2000 consulted Ernst & Young LLP regarding either; (a) the application of
accounting principles to a specified transaction, either completed or proposed;
or the type of audit opinion that might be rendered on the Company's financial
statements, and either a written report was provided to the Company or oral
advice was provided that Ernst & Young LLP concluded was an important factor
considered by the Company in reaching a decision as to the accounting, auditing
or financial reporting issue: or (b) any matter that was either the subject of a
disagreement, as that term is defined in Item 304(a)(1)(iv) of Regulation S-K
and the related instructions to Item 304 of Regulation S-K, or a reportable
event, as that term is defined in Item 304(a)(1)(v) of Regulation S-K.
Representatives of Ernst & Young LLP are expected to be present at the
Annual Meeting and will have the opportunity to make a statement at the meeting
if they desire to do so. Their representatives will also be available to respond
to appropriate questions. Representatives of PricewaterhouseCoopers are not
expected to attend the Annual Meeting.
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.
2001 Annual Meeting
Stockholders may present proposals to be considered for inclusion in
the proxy statement relating to the next Annual Meeting, provided they are
received by the Company no later than December 15, 2000 and are in compliance
with applicable laws and Securities and Exchange Commission regulations.
By Order of the Board of Directors
GEORGE C. YEONAS
PRESIDENT
Dated: April 21, 2000
<PAGE>
THE FORTRESS GROUP, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS OF THE FORTRESS GROUP
ANNUAL MEETING OF STOCKHOLDERS -- MAY 24, 2000
The undersigned does hereby appoint George C. Yeonas and Jeffrey W. Shirley
or any one of them acting in the absence of the other, the true and lawful
attorneys and proxies with full power of substitution, for and in the name,
place and stead of the undersigned, to vote all shares of Common Stock of the
Company which the undersigned would be entitled to vote if personally present at
the Annual Meeting of Stockholders to be held May 24, 2000, and any 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>
<CAPTION>
FOR WITHHOLD FOR ALL EXCEPT
<S> <C> <C> <C> <C>
1. Election of Directors: / / / / / /
George C. Yeonas Mark L. Fine
Robert Short William A. Shutzer
J. Christopher Stuhmer
</TABLE>
NOTE: If you do not wish your shares voted "For" a particular nominee, mark
the "For All Except" box and strike a line through the nominee's name. Your
shares will be voted for the remaining nominees.
2. In their discretion, the proxies are authorized to vote upon any other
business that may properly come before the meeting.
Mark box at right if an address change or comment has been noted on the reverse
side of this card. / /
The undersigned hereby acknowledges receipt of the notice of said Annual Meeting
of Stockholders, the proxy statement relating thereto and the Annual Report for
1999.
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 stockholder 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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STOCKHOLDER SIGN HERE DATE CO-OWNER SIGN HERE DATE
