Exhibit 4.7
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
by and among
THE FORTRESS GROUP, INC.,
PROMETHEUS HOMEBUILDERS LLC
and
THE STOCKHOLDERS NAMED HEREIN
dated as of
March 6, 1998
TABLE OF CONTENTS
Page
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ARTICLE I. DEFINITIONS.......................................................ii
Section 1.1. Defined Terms................................................ii
ARTICLE II. BOARD............................................................vi
Section 2.1. Members of the Board.........................................vi
ARTICLE III. COVENANTS......................................................vii
Section 3.1. Operating Statements; Public Company Status.................vii
Section 3.2. Conduct of Business........................................viii
ARTICLE IV. PARTICIPATION RIGHTS.............................................xi
Section 4.1...............................................................xi
ARTICLE V. TAG-ALONG RIGHTS.................................................xiv
Section 5.1. Tag-Along Rights............................................xiv
ARTICLE VI. MISCELLANEOUS...................................................xvi
Section 6.1. Counterparts...............................................xvi
Section 6.2. Governing Law..............................................xvi
Section 6.3. Expenses................................................. .xvi
Section 6.4. Notices....................................................xvi
Section 6.5. Successors and Assigns...................................xviii
Section 6.6. Headings.................................................xviii
Section 6.7. Amendments and Waivers...................................xviii
Section 6.8. Interpretation, Absence of Presumption...................xviii
Section 6.9. Severability...............................................xix
Section 6.10. Further Assurances.........................................xix
Section 6.11. Specific Performance.......................................xix
Section 6.12. Confidentiality............................................xix
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THIS AMENDED AND RESTATED STOCKHOLDERS AGREEMENT (the "Agreement"), dated
as of March 6, 1998, is made by and among Prometheus Homebuilders LLC (the
"Purchaser"), The Fortress Group, Inc., a Delaware corporation (the "Company")
and the stockholders named herein (the "Stockholders"). Capitalized terms not
otherwise defined herein have the meaning ascribed to them in the Stock Purchase
Agreement (as hereinafter defined).
RECITAL
WHEREAS, on September 30, 1997, the Purchaser, the Company and the
Stockholders entered into that certain stockholders agreement (the "Original
Stockholders Agreement").
WHEREAS, the Company, and the Purchaser have entered into that certain
Second Amended and Restated Stock Purchase Agreement, dated as of February 19,
1998 (the "Stock Purchase Agreement"), pursuant to which the Company has agreed
to sell, and the Purchaser has agreed to purchase (i) up to an aggregate of
40,000 shares of the Class AA Convertible Preferred Stock of the Company, $0.01
par value per share, (ii) up to an aggregate of 35,000 shares of Convertible
Redeemable Preferred Stock of the Company $0.01 par value per share divided into
Class ABI Convertible Redeemable Preferred Stock and Class ABII Convertible
Redeemable Preferred Stock, together with up to an aggregate of, initially,
1,000,000 Warrants, and up to, initially, 5,714,286 Supplemental Warrants upon
the terms and subject to the conditions set forth therein;
WHEREAS, it is a condition to the transactions contemplated by the Stock
Purchase Agreement and the parties believe it to be in their best interests that
they amend and restate the Original Stockholders Agreement as set forth herein
and provide for certain rights and restrictions with respect to the investment
by the Purchaser in the Company and the corporate governance of the Company; and
WHEREAS, the Company and the Purchaser believe that the combination in a
strategic partnership of the leadership, expertise and experience in the
operations of the Company and the investment and capital markets expertise and
access to capital of the Purchaser and its Affiliates will significantly enhance
the Company's ability to pursue its growth and operating strategies.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the covenants and
agreements contained herein and for good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, and intending to be legally
bound hereby, the parties hereto hereby agree as follows:
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ARTICLE I.
DEFINITIONS
Section 1.1. Defined Terms. As used in this Agreement, the following terms
shall have the following respective meanings:
"Additional Preferred Stock Directors" shall have the meaning set
forth in Section 2.1(a).
"Adverse Event" shall have the meaning set forth in Section 2.1(a).
"Affiliate" shall mean any entity controlling, controlled by or under
common control with the Company. For the purposes of this definition,
"control" shall have the meaning presently specified for that word in Rule
405 promulgated by the Commission under the Securities Act.
"Agreement" shall have the meaning set forth in the first paragraph
hereof.
"Average Trading Price" shall have the meaning set forth in Section
2.1(a).
"Beneficially Own" shall mean, with respect to any security, having
direct or indirect (including through any Subsidiary or Affiliate)
"beneficial ownership" of such security, as determined pursuant to Rule
13d-3 under the Exchange Act, including pursuant to any agreement,
arrangement or understanding, whether or not in writing; provided, however,
that all of the shares of the Preferred Stock and the Warrants which the
Purchaser has agreed to purchase under the Stock Purchase Agreement but
which have not yet been purchased shall be deemed to be Beneficially Owned
by the Purchaser until the Termination Event, if any, and provided,
further, that for the purposes of Section 5.1 the Purchaser shall be deemed
to own that number of shares of Common Stock that it actually Beneficially
Owns at any given date plus the number of shares of Common Stock into which
the Preferred Stock is convertible, based on the Conversion Price (as
defined in the Preferred Stock Certificates of Designations) of such
Preferred Stock in effect on the relevant date.
"Board" shall mean the board of directors of the Company.
"Business Day" shall mean any day other than a Saturday, a Sunday or a
bank holiday in New York, New York.
"Class AA Preferred Stock" shall mean the Class AA Convertible
Preferred Stock of the Company, $0.01 par value per share.
"Class AB Preferred Stock" shall mean the Class ABI Preferred Stock
and the Class ABII Preferred Stock.
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"Class ABI Preferred Stock" shall mean the Class ABI Convertible
Redeemable Preferred Stock of the Company, $0.01 par value per share.
"Class ABII Preferred Stock" shall mean the Class ABII Convertible
Redeemable Preferred Stock of the Company, $0.01 par value per share.
"Common Stock" shall mean the common stock, par value $0.01 per share,
of the Company.
"Company" shall have the meaning set forth in the first paragraph
hereof.
"Comparable Group" shall mean Pulte Corporation, The Xxxxxx Group,
Inc., U.S. Home Corporation, NVR Inc., Hovnanian Enterprises, Inc., Toll
Brothers, Inc., Washington Homes, Inc., Xxxxxx National Corporation, M/I
Schottenstein Homes, Inc., Continental Homes Holding Corp., Xxxxx Homes,
Inc., Xxxxxxxx Communities, Beazer Homes USA, Inc. and X.X. Xxxxxx, Inc.
"Conversion Event" shall have the meaning set forth in Section 2.1(d).
"Director" shall mean a member of the Board.
"EBT" shall mean earnings of the Company before interest, expenses,
income, taxes, and extraordinary or non-recurring items, all calculated in
accordance with generally accepted accounting principles.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Executive Committee" shall mean the five-member executive committee
of the Board which shall have the powers set forth in Section 3.2(b).
"Executive Equity Plan" shall have the meaning set forth in Section
3.2(e).
"Executive Shareholders" shall mean J. Xxxxxxxx Xxxxxxx and Xxxxx X.
Xxxxxxx, Xx..
"Exercise Notice" shall have the meaning set forth in Section 4.1(b).
"Governmental Entity" shall mean any court or tribunal in any
jurisdiction (domestic or foreign) or any public, governmental, or
regulatory body, agency, department, commission, board, bureau, or other
authority or instrumentality (domestic or foreign).
"Homebuilder Shareholders" shall mean all the Stockholders other than
the Executive Shareholders.
"Liquidation Preference" shall mean $1000.00 per share.
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"Market Capitalization" shall mean the market value of the Company's
outstanding Common Stock as measured by the thirty (30) Trading Days (as
defined in the Stock Purchase Agreement) preceding any measurement date.
"Participation Notice" shall have the meaning set forth in Section
4.1(b).
"Person" shall mean any individual, corporation, partnership, limited
liability company, joint venture, trust, unincorporated organization, other
form of business or legal entity or Governmental Entity.
"Preferred Stock" shall mean the Class AA Preferred Stock and the
Class AB Preferred Stock.
"Preferred Stock Certificate of Designations" shall mean the
Certificate of Designations of the Class AA Preferred Stock, the
Certificate of Designations of the Class ABI Preferred Stock and the
Certificate of Designations of the Class ABII Preferred Stock.
"Preferred Stock Director" shall have the meaning set forth in Section
2.1(a).
"Purchaser" shall have the meaning set forth in the first paragraph
hereof.
"Purchaser Nominees" shall mean the designees to the Board by
Purchaser (or its assignee), with the number, committee representation and
subsidiary and affiliate representation of such Purchaser Nominees being
equal to the number of Preferred Stock Directors (as if such Preferred
Stock remained outstanding) that would be entitled to sit on the Board or
on the board of any subsidiary or affiliate of the Company and any
committee of the Board pursuant to Section 2.1(a).
"Quoted Price" The term "Quoted Price," with respect to the Common
Stock, shall mean the last reported sales price for Common Stock as
reported by the National Association of Securities Dealers, Inc. Automatic
Quotations System, National Market System, or, if the applicable security
is listed or admitted for trading on a securities exchange, the last
reported sales price of the applicable security on the principal exchange
on which the applicable security is listed or admitted for trading (which
shall be for consolidated trading if applicable to such exchange), or if
neither so reported or listed or admitted for trading, the last reported
bid price of the applicable security in the over-the-counter market. In the
event that the Quoted Price cannot be determined as aforesaid, the Board
shall determine the Quoted Price on the basis of such quotations as it in
good faith considers appropriate. Such determination may be challenged in
good faith by a majority of holders of shares of Preferred Stock, 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 Preferred Stock and shall be made in good faith and be
conclusive absent manifest error.
"Securities Act" shall mean the Securities Act of 1933, as amended.
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"Securities Filings" shall have the meaning set forth in Section
3.1(a)(iii).
"Selling Shareholder" shall mean the Executive Shareholders and the
Homebuilder Shareholders.
"Stockholders" shall have the meaning set forth in the first paragraph
hereof.
"Stock Purchase Agreement" shall have the meaning set forth in the
second paragraph hereof.
"Supplemental Warrants" shall mean warrants to purchase Common Stock
issued pursuant to that certain Supplemental Warrant Agreement to be
entered into pursuant to the Stock Purchase Agreement between the Company
and the Purchaser as the same may be amended from time to time.
"Tag-Along Notice" shall have the meaning set forth in Section 5.1(a).
"Tag-Along Rights" shall have the meaning set forth in Section 5.1(a).
"Termination Event" shall mean on and after all Closings under the
Stock Purchase Agreement have occurred, the date on which the aggregate
remaining investment or commitment to invest in the Company by Purchaser
(or any transferee or assignee of the Purchaser or group of transferees or
assignees) is less than the greater of $10,000,000 or ten percent (10%) of
the Market Capitalization, with the value of such investment to be based on
the sum of (x) the greater of the Liquidation Preference of the Preferred
Stock and the value of the Common Stock underlying such Preferred Stock (as
measured by the Conversion Price) then held by it, (y) the value of the
Common Stock then held by it, and (z) the value of the Warrants then held
by it.
"Test Date" shall have the meaning set forth in Section 2.1(a).
"Third Party" shall have the meaning set forth in Section 5.1(a).
"Third Party Terms" shall have the meaning set forth in Section
5.1(a).
"Transfer" shall mean sell, transfer, assign, pledge, hypothecate or
in any way alienate.
"Warrants" shall mean warrants to purchase Common Stock issued
pursuant to that certain amended and restated Warrant Agreement dated as of
the date hereof between the Company and the Purchaser as the same may be
amended from time to time.
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ARTICLE II.
BOARD
Section 2.1. Members of the Board. (a) Until a Termination Event, the
Company and the Stockholders shall take all action necessary to cause: (i) the
number of Directors comprising the Board to be equal to fifteen (15) (subject to
increase in the case of an Adverse Event, as provided below), (ii) the holders
of Preferred Stock, voting separately as a single class, as set forth in the
Preferred Stock Certificates of Designations, to have the exclusive right to
elect a minimum of three (3) Directors (each such Director, a "Preferred Stock
Director"), (iii) any increases in the size of the Board to result in an
increase in the number of Preferred Stock Directors (rounded up to the next
whole number) such that Preferred Stock Directors represent at least 20 percent
(20%) of the votes exercisable by the Board, and (iv) at least a proportionate
number (rounded up to the next whole number) of Preferred Stock Directors to
serve on each committee of the Board (provided that with respect to the
Executive Committee, the Executive Committee shall consist of five members, of
which two members shall be Preferred Stock Directors), and at least one
Preferred Stock Director to serve on the board or other governing body of each
of the Company's subsidiaries and affiliates, other than operational home
building companies. In the event (an "Adverse Event") that on any date following
the Second Closing that is 60 days after the end of a fiscal quarter of the
Company (a "Test Date") both (i) the Average Trading Price of the Common Stock
is below $4.375 per share (provided that such amount shall be adjusted for
reverse stock splits, recapitalizations and other similar events) and (ii) (x)
the percentage change in the EBT per share of the Company (of the Common Stock
issued and outstanding) for the most recent two fiscal quarters as measured
against the same two fiscal quarters from the prior fiscal year is less than (y)
the percentage change in the EBT per share (of the Common Stock issued and
outstanding) of the Comparable Group for the same period as compared against the
EBT per share (calculated on the same basis) of the Comparable Group during the
same period in the prior fiscal year then the Company and the Stockholders shall
take all action necessary to cause: (i) the holders of Preferred Stock voting
separately as a single class, to elect Preferred Stock Directors sufficient to
cause the Preferred Stock Directors to constitute a majority of the Board and
all committees of the Board, including the Executive Committee ("Additional
Preferred Stock Directors") and (ii) the size of the Board and all committees to
be automatically increased in order to effect any such additional Directors. The
right of the holders of Class AA Preferred Stock and Class ABI Preferred Stock
to elect Additional Preferred Stock Directors shall continue until such time as
neither (i) nor (ii) above is true for two consecutive Test Dates. The "Average
Trading Price" shall mean, on any date of determination, the average of the
closing prices of the Common Stock over the 90 day period prior to such date.
(b) In the event that all the shares of the Preferred Stock shall have been
converted into Common Stock prior to the occurrence of a Termination Event (a
"Conversion Event"), the Company will support the nomination of and the election
of Purchaser Nominees, and each Stockholder shall vote all of its shares to
elect such Purchaser Nominees, such that Purchaser shall have the same right to
elect Directors as set forth in paragraph (a) above, including rights to appoint
Directors to committees and subsidiaries as set forth in paragraph (a) above, as
vi
if Purchaser still owned all of the Preferred Stock, and the Company and the
Stockholders will exercise all authority under applicable law to cause such
Purchaser Nominees to be elected to the Board. Without limiting the generality
of the foregoing, with respect to each meeting of stockholders of the Company at
which Directors are to be elected, the Company shall use its best efforts to
solicit from the stockholders of the Company (other than the Purchaser) eligible
to vote in the election of Directors provided in favor of each Purchaser
Nominee.
(c) If a Director has been designated by Purchaser and Purchaser requests
that such Director be removed (with or without cause) then such Director shall
be removed with or without cause, and each Stockholder hereby agrees to vote all
shares of Common Stock owned or held of record to effect such removal.
(d) Nothing in this Agreement shall prevent Purchaser or any of its
transferees or assignees from voting securities owned by them in their sole and
absolute discretion, including voting securities to elect additional directors
to the Board in excess of the Directors which Purchaser is entitled to elect
pursuant to the terms of this Agreement.
ARTICLE III.
COVENANTS
Section 3.1. Operating Statements; Public Company Status.
(a) From and after the date of this Agreement until the Termination Event,
if any, the Company will:
(i) deliver to the Purchaser, as soon as practicable after the end of
each month or other reporting period, operating and financial statements
and management reports (x) of the Company, and (y) of each Subsidiary not
consolidated with the Company, each as, at and for the end of such month or
other reporting period, and such other statements or reports as are
reasonably requested by Purchaser, all in such form as shall reasonably be
required by Purchaser;
(ii) deliver to Purchaser copies of all other information distributed
by the Company to the Board;
(iii) deliver to the Purchaser, as promptly as practicable following
filing, a copy of each report, schedule or other document filed by the
Company pursuant to the requirements of any federal or state securities
laws (collectively, the "Securities Filings"); and
(iv) continue to comply in all material respects with the reporting
requirements of Section 13 or 15(d) of the Exchange Act.
(b) Until a Termination Event, the Company will afford the Purchaser a
reasonable opportunity to review any Securities Filing, any other filing with a
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Governmental Entity and any press release or similar public announcement to be
issued, released or made by the Company or any of its Affiliates (including,
without limitation, any oral announcement) which refers to, describes or
mentions the Purchaser or any of its Affiliates at least three (3) Business Days
prior to the time that such filing is filed with or sent to the applicable
Governmental Entity or such release or announcement is disseminated.
Section 3.2. Conduct of Business. (a) From and after the Bylaws Amendments
(as defined in the Stock Purchase Agreement) shall have become effective,
notwithstanding the fact that a vote of the Board or the Executive Committee may
not be required under applicable law, the Company shall not, and shall not
permit any of its subsidiaries without either (A) the affirmative vote of over
eighty-one percent (81%) of the entire Directors ("Supermajority Director
Approval") or (B) the affirmative vote of over eighty-one percent (81%) of the
members of the entire Executive Committee ("Supermajority Executive Committee
Approval") to:
(i) purchase, sell, license, assign, transfer, convey or otherwise
acquire or dispose of any assets, securities, or businesses, unless such
transaction is provided for in the annual budget or is in the ordinary
course of business and does not involve (i) the acquisition or disposition
of homebuilding operations or any homebuilding company or entity or (ii)
land acquisitions with a value in excess of $100,000 for any transaction or
group of related transactions or with an aggregate value in excess of
$5,000,000 in any twelve (12) month period;
(ii) directly or indirectly incur, refinance, repay, prepay, create,
assume, guarantee or otherwise become liable with respect to any
liabilities with an aggregate face amount in excess of $1,000,000 in the
aggregate, other than in accordance with existing credit facilities and
renewals thereof on substantially the same terms;
(iii) enter into any transaction after the date hereof or materially
amend any transaction in effect on the date hereof, with any Affiliate of
the Company (other than between the Company and its Subsidiaries or between
its Subsidiaries);
(iv) split (including any reverse split), combine, or reclassify any
shares of its capital stock; adopt resolutions authorizing a liquidation,
dissolution, merger, consolidation, restructuring, recapitalization, or
other reorganization of the capital structure of the Company or any of its
subsidiaries; or make any other material changes in its capital structure;
(v) engage in any new development or redevelopment of any real
property for an amount in excess of $100,000, whether in a single
transaction or a series of related transactions (provided that it is
viii
contemplated that such authority will be delegated to the Company's
acquisitions committee on guidelines approved by the Executive Committee);
(vi) incur any capital expenditure for an amount, outside of the
approved annual budget, in excess of $50,000 per occurrence or $500,000 in
the aggregate, whether in a single transaction or a series of related
transactions or waive, release, grant or transfer any rights of value in
respect thereof or enter into any agreement or arrangement that could
adversely affect the marketability of any real estate of the Company or any
of its subsidiaries;
(vii) enter into any employment agreement with any employee involving
payments in excess of $100,000 per annum or with any director or executive
officer of the Company or any of its Subsidiaries or enter into or
materially change any Benefit Arrangement;
(viii) enter into any new line of business other than the business
engaged in by the Company and its Subsidiaries on the date hereof, cease to
be engaged in any material line of business engaged in by the Company and
its Subsidiaries on the date hereof or materially change the nature of the
business engaged in by any of them on the date hereof;
(ix) approve the annual operating budget of the Company for any year
after 1997;
(x) amend or take actions materially inconsistent with the approved
annual operating budget for 1997 or any subsequent year;
(xi) make any general assignment for the benefit of creditors;
(xii) file any petition seeking relief, or consent to the institution
of any proceeding against itself seeking to adjudicate it a bankrupt or
insolvent, under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors;
(xiii) institute, voluntarily dismiss, terminate or settle any
litigation or arbitration against any Person (A) involving payments for
damages and penalties in excess of $50,000 or (B) otherwise material to the
Company and its subsidiaries taken as a whole;
(xiv) engage, retain, pay or agree to pay the fees or expenses of any
third party consultants or advisors (other than advisors retained in the
ordinary course of business), to the extent that such fees and expenses
exceed one hundred thousand dollars ($100,000) in the aggregate;
ix
(xv) appoint, ratify or replace the independent accountants, change
any accounting policy or practice other than as mandated by generally
accepted accounting principles then in effect; or change any significant
tax methods, practices, procedures or policies;
(xvi) enter into or amend any joint venture, partnership or profit
sharing agreement or arrangement;
(xvii) amend to the Company's or any Subsidiary's certificate of
incorporation or bylaws; or
(xviii) declare or pay any dividend or make any other distribution
with respect to its capital stock, other than dividends paid by any
subsidiary to the Company or another subsidiary in the ordinary and usual
course of business or to the holders of the Preferred Stock and the
Existing Preferred Stock as required pursuant to the terms of the Preferred
Stock and the Preferred Stock Certificates of Designations;
(xix) issue, sell, (whether through the issuance or granting of
options, warrants, commitments, subscriptions, rights to purchase, or
otherwise) any of its capital stock (other than upon conversion of the
Preferred Stock or the Existing Preferred Stock or upon exercise of the
Warrants or the Supplemental Warrants) or deliver or other securities other
than as contemplated herein or pursuant to stock options issued and
outstanding as of the date hereof or purchase or otherwise acquire any of
its capital stock, employee or director stock options or debt securities;
or
(xx) agree to do any of the foregoing.
(b) From and after the Bylaws Amendments shall have become effective the
Board will promptly establish an Executive Committee, which shall be delegated
the authority to the maximum extent permitted by law to approve any matter
permissible under law for authorization by an Executive Committee, including the
matters set forth in Section 3.2(a).
(c) The bylaws of the Company shall provide that the number of directors
required to constitute a Supermajority Director Approval and a Supermajority
Executive Committee Approval shall constitute a quorum for the Board and
Executive Committee, respectively, and the Company and the Stockholders shall
take all action necessary to amend its Certificate of Incorporation, and bylaws
(and the bylaws, certificates of incorporation of its subsidiaries) to give
effect to terms and conditions of this Agreement, the forms of such amendments
to be reasonably satisfactory to Purchaser.
(d) Prior to a Termination Event, Purchaser may elect to terminate all or a
portion of the voting provisions of this Agreement, such that except as
x
otherwise required by law, actions requiring Supermajority Director Approval or
Supermajority Executive Committee Approval will require only majority approval,
and the Company and each Stockholder agree to take all such action as may be
necessary to give effect to such termination, including amending this Agreement
and the bylaws and certificates of incorporation of the Company and its
subsidiaries. Upon the occurrence of a Termination Event, Purchaser shall
deliver a notice to the Company electing to have Sections (A) and (B) of Article
II of the Certificate of Incorporation of the Company to be of no further force
and effect in accordance with Section (C) thereof.
(e) Purchaser agrees to vote the 11,700 shares of Class AA Preferred Stock
it acquired at the First Closing under the Stock Purchase Agreement, in favor of
the Company's proposal to authorize an increase in the shares of Common Stock
available for grant under the 1996 Stock Incentive Plan as amended, from
1,125,000 shares to 1,550,000 shares.
(f) Each of the Stockholders agree to take all such action as may be
necessary to effect a Certificate Amendment to increase the number of authorized
shares of Common Stock if required to satisfy the conversion/exercise rights of
the Securities purchased by Purchaser under the Stock Purchase Agreement.
(g) Each of the Stockholders hereby constitutes and appoints the Purchaser,
with full power of substitution, as the proxy of the Stockholders and hereby
authorizes the Purchaser to represent and to vote all of the shares of capital
stock of the Company held by them in favor of the approval of all transactions
that are necessary to give effect to the terms of this Agreement to the same
extent and with the same effect as the Stockholder might or could do under
applicable law, rules and regulations. The proxy granted pursuant to the
immediately preceding sentence is given in consideration of the agreements and
covenants of the Company pursuant to this Agreement and as such is coupled with
an interest and shall be irrevocable unless and until a Termination Event
occurs. Each Stockholder hereby revokes any and all previous proxies granted
with respect to any of the Shares and shall not hereafter, unless and until a
Termination Event occurs, purport to grant any other proxy or power of attorney
with respect to any of the Shares, deposit any of the Shares into a voting trust
or enter into any agreement (other than this Agreement), arrangement or
understanding with any Person, directly or indirectly, to vote or grant any
proxy or give instructions with respect to the voting of any of the Shares.
ARTICLE IV.
PARTICIPATION RIGHTS
Section 4.1. (a) Right to Participate. From and after the date hereof until
a Termination Event, if any, the Purchaser shall be entitled to a participation
right to purchase or subscribe for up to that number of additional shares of
capital stock (including as "capital stock" for purposes of this Section 4.1,
any security, option, warrant, call, commitment, subscription, right to purchase
or other agreement of any character that is convertible into or exchangeable or
redeemable for shares of capital stock of the Company or any Subsidiary (and all
references in this Section 4.1 to capital stock shall, as appropriate, be deemed
to be references to any such securities), and also including additional shares
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of capital stock to be issued pursuant to the conversion, exchange or redemption
of any security, option, warrant, call, commitment, subscription, right to
purchase or other agreement of any character that is convertible into or
exchangeable or redeemable for shares of capital stock, as if the price at which
such additional shares of capital stock is issued pursuant to any such
conversion, exchange or redemption were the market price on the date of such
issuance) to be issued or sold by the Company which represents the same
proportion of the total number of shares of capital stock to be issued or sold
by the Company (including the shares of capital stock to be issued to the
Purchaser upon exercise of its participation rights hereunder; it being
understood and agreed that the Company will accordingly be required to either
increase the number of shares of capital stock to be issued or sold so that the
Purchaser may purchase additional shares to maintain its proportionate interest,
or to reduce the number of shares of capital stock to be issued or sold to
Persons other than the Purchaser) as is represented by the number of shares of
Common Stock owned by the Purchaser or for which the Purchaser may exercise the
Supplemental Warrants or into which the Purchaser has the right to convert prior
to such sale or issuance, in each case at the respective exercise rates or
conversion prices in effect at the relevant time (and including for this purpose
any shares of Common Stock and Supplemental Warrants to be acquired pursuant to
the Stock Purchase Agreement, but not yet issued), relative to the number of
shares of Common Stock outstanding prior to such sale or issuance (and including
for this purpose any shares of Common Stock and Supplemental Warrants to be
acquired pursuant to the Stock Purchase Agreement, but not yet issued);
provided, however, that the provisions of this Section 4.1 shall not apply to
(i) the conversion of the Existing Preferred Stock, the Preferred Stock or the
exercise of Warrants, or the conversion, exchange or exercise of other
securities convertible into or exchangeable or exercisable for Common Stock
whose issuance was subject to an adjustment pursuant to the Preferred Stock
Certificates of Designations and (ii) Common Stock issued to the Corporation's
employees under to the Executive Equity Plan and other bona fide employee
benefit plans adopted by the Board and approved by the holders of Common Stock
when required by law (but only to the extent that the aggregate number of shares
excluded thereby and issued after the date hereof pursuant to such other benefit
plans shall not exceed 5% of the Common Stock outstanding at the time of any
such issuance).
(b) Notice. In the event the Company proposes to issue or sell any shares
of capital stock in a transaction giving rise to the participation rights
provided for in this Section, the Company shall send a written notice (the
"Participation Notice") to the Purchaser setting forth the number of shares of
such capital stock of the Company that the Company proposes to sell or issue,
the price (before any commission or discount) at which such shares are proposed
to be issued (or, in the case of an underwritten or privately placed offering in
which the price is not known at the time the Participation Notice is given, the
method of determining such price and an estimate thereof), and all other
relevant information as to such proposed transaction as may be necessary for the
Purchaser to determine whether or not to exercise the rights granted in this
Section. At any time within 20 days after its receipt of the Participation
Notice, the Purchaser may exercise its participation rights to purchase or
subscribe for shares of such shares of capital stock, as provided for in this
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Section, by so informing the Company in writing (an "Exercise Notice"). Each
Exercise Notice shall state the percentage of the proposed sale or issuance that
the Purchaser elects to purchase.
(c) Terms of Sale. The purchase or subscription by the Purchaser or an
Affiliate thereof, as the case may be, pursuant to this Section shall be on the
same price and other terms and conditions, including the date of sale or
issuance, as are applicable to the purchasers or subscribers of the additional
shares of capital stock of the Company whose purchases or subscriptions give
rise to the participation rights (except that the price to Investor to make such
purchase or subscription shall be net of payment of any underwriting, placement
agent or similar fee associated with such purchase or subscription), which price
and other terms and conditions shall be substantially as stated in the relevant
Participation Notice (which standard shall be satisfied if the price, in the
case of a negotiated transaction, is not greater than 110% of the estimated
price set forth in the relevant Participation Notice or, in the case of an
underwritten or privately placed offering, is not greater than the greater of
(i) 110% of the estimated price set forth in the relevant Participation Notice,
and (ii) the most recent Quoted Price on or prior to the date of the pricing of
the offering); provided, however, that in the event the purchases or
subscriptions giving rise to the participation rights are effected by an
offering of securities registered under the Securities Act and in which offering
it is not legally permissible for the securities to be purchased by the
Purchaser to be included, such securities to be purchased by Investor will be
purchased in a concurrent private placement.
(d) Timing of Sale. If, with respect to any Participation Notice, the
Purchaser fails to deliver an Exercise Notice within the requisite time period,
the Company shall have sixty (60) days after the expiration of the time in which
the Exercise Notice is required to be delivered in which to sell not more than
110% of the number of shares of capital stock of the Company described in the
Participation Notice (plus, in the event such shares are to be sold in an
underwritten public offering, an additional number of shares of capital stock of
the Company, not in excess of 15% of 110% of the number of shares of capital
stock of the Company described in the Participation Notice, in respect of any
underwriters overallotment option) and not less than 90% of the number of shares
of capital stock of the Company described in the Participation Notice at a price
of not less than 90% of the estimated price set forth in the Participation
Notice. If, at the end of sixty (60) days following the expiration of the time
in which the Exercise Notice is required to be delivered, the Company has not
completed the sale or issuance of capital stock of the Company in accordance
with the terms described in the Participation Notice (or at a price which is at
least 90% of the estimated price set forth in the Participation Notice), or in
the event of any contemplated sale or issuance within such sixty (60)-day period
but outside such price parameters, the Company shall again be obligated to
comply with the provisions of this Section with respect to, and provide the
opportunity to participate in, any proposed sale or issuance of shares of
capital stock of the Company; provided, however, that notwithstanding the
foregoing, if the price at which such capital stock is to be sold in an
underwritten offering is not at least 90% of the estimated price set forth in
the Participation Notice, the Company may inform Investor of such fact and
xiii
Investor shall be entitled to elect, by written notice delivered within three
(3) Business Days following such notice from the Company, to participate in such
offering in accordance with the provisions of this Section 4.1.
ARTICLE V.
TAG-ALONG RIGHTS
Section 5.1. Tag-Along Rights. (a) Each of the Executive Shareholders
agrees that (i) from the date hereof through the third anniversary of the date
hereof he shall not Transfer, whether in a single transaction or in a series of
linked transactions, more than ten percent (10%) per year, when aggregated with
all such other Transfers made by such shareholder in such year, of the Common
Stock Beneficially Owned by him on the date hereof and (ii) from the third
anniversary of the date hereof through the fourth anniversary of the date hereof
he shall not Transfer, whether in a single transaction or in a series of linked
transactions, more than five percent (5%), when aggregated with all such other
Transfers made by such shareholder during such period, of the Common Stock
Beneficially Owned by him on the date hereof, unless, the terms and conditions
of such Transfer shall include an offer to the Purchaser to include in the
transfer to the proposed transferee (the "Third Party"), at the Purchaser's
option and on the same price and on the same terms and conditions as apply to
the Executive Shareholder, an amount of Preferred Stock and Common Stock held by
the Purchaser determined in accordance with this Section 5.1. Each of the
Homebuilder Shareholders agrees that from and after the date hereof, he shall
not Transfer, whether in a single transaction or in a series of linked
transactions, more than fifty percent (50%), when aggregated with all such other
Transfers made by such shareholder, of the Common Stock then Beneficially Owned
by him, unless the terms and conditions of such Transfer shall include an offer
to the Purchaser to include in the transfer to the Third Party at the
Purchaser's Option and on the same price and on the same terms and conditions as
apply to the Homebuilder Shareholder, an amount of Preferred Stock and Common
Stock determined in accordance with this Section 5.1.
The Third Party shall be required to purchase from the Purchaser, if the
Purchaser desires to participate in such transaction, the number of shares of
Common Stock Beneficially Owned by the Purchaser equaling the lesser of (x) the
number derived by multiplying (i) the total number of shares of Common Stock
which the Third Party proposes to purchase by (ii) a fraction, the numerator of
which shall be the number of shares of Common Stock Beneficially Owned by the
Purchaser and the denominator of which shall be the number of shares of Common
Stock Beneficially Owned by the Purchaser and the applicable Selling Shareholder
or (y) such lesser number of shares as the Purchaser shall designate in the
Tag-Along Notice (defined below). If the Tag-Along Right results in the
Purchaser including more shares of Common Stock Beneficially Owned by him in any
Tag-Along Notice, than will, on the date of transfer by the Purchaser to the
Third Party, have been converted into Common Stock, the Purchaser and the
Company shall take such steps as are reasonably required to convert to Common
Stock any Preferred Stock and Supplemental Warrants to be purchased by the Third
Party (at the prevailing Conversion Price(s) for the Preferred Stock being sold,
and at the prevailing Exericise Rate for the Supplemental Warrants being sold,
xiv
by the Purchaser) which the Purchaser desires to transfer immediately prior to
such transfer and contingent upon such transfer occurring, it being the parties'
intention that only Common Stock will be transferred to the Third Party pursuant
to this Section 5.1.
The Selling Shareholder shall notify the Company and the Purchaser of any
proposed Transfer to which the provisions of this Section 5.1 apply. Each such
notice shall set forth: (i) the name of the Third Party and the number of shares
of Common Stock proposed to be transferred, (ii) the address of the Third Party,
(iii) the proposed amount and form of consideration and terms and conditions of
payment offered by the Third Party, and any other material terms pertaining to
the Transfer (the "Third Party Terms") and (iv) that the Third Party has been
informed of the "Tag-Along Rights" provided for in this Section 5.1 and has
agreed to purchase shares of Common Stock in accordance with the terms hereof.
The Tag-Along Rights set forth above in this Section 5.1 may be exercised
by the Purchaser by delivery of a written notice to the Company and the Selling
Shareholder (the "Tag-Along Notice") within thirty (30) days following receipt
of the notice specified in the preceding paragraph. The Tag-Along Notice shall
state the number of shares of Common Stock that the Purchaser wishes to include
in such transfer to the Third Party.
Upon the giving of a Tag-Along Notice, the Purchaser shall be entitled and
obligated to sell the number of shares of Common Stock set forth in the
Tag-Along Notice to the Third Party on the Third Party Terms; provided, however,
that neither the Selling Shareholder nor the Purchaser shall consummate the sale
of any shares offered by it if the Third Party does not purchase all shares
which the Selling Shareholder and the Purchaser are entitled and desire to sell
pursuant hereto. After expiration of the thirty-day period referred to above, if
the provisions of this Section have been complied with in all respects, the
Selling Shareholder shall have the right for a sixty (60)-day period to transfer
the shares of Common Stock to the Third Party on the Third Party Terms (or on
other terms no more favorable to the Selling Shareholder) without further notice
to the Purchaser, but after such sixty (60)-day period no such transfer may be
made without again giving notice to the Purchaser of the proposed transfer and
complying with the requirements of this Section 5.1.
(b) At the closing of the transfer to any Third Party (of which the Selling
Shareholder shall give the Purchaser who has elected to exercise the Tag-Along
Right provided by this Section 5.1 at least five (5) Business Days' prior
written notice), the Third Party shall remit to the Purchaser the consideration
for the total sales price of the Common Stock of the Purchaser sold pursuant
thereto, against delivery by the Purchaser of certificates for such Common
Stock, duly endorsed or with duly executed stock powers and the compliance by
such Shareholder with any other conditions to closing generally applicable to
the Selling Shareholder and all Other Shareholders selling shares in such
transaction.
(c) Notwithstanding the foregoing, the Tag-Along Rights provided by this
Section 5.1 shall terminate upon a Termination Event.
xv
ARTICLE VI.
MISCELLANEOUS
Section 6.1. Counterparts. This Agreement maybe executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party. Copies of executed counterparts
transmitted by telecopy, telefax or other electronic transmission service shall
be considered original executed counterparts for purposes of this Section,
provided receipt of copies of such counterparts is confirmed.
Section 6.2. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE WITHOUT REFERENCE
TO THE CHOICE OF LAW PRINCIPLES THEREOF.
Section 6.3. Expenses. The Company shall pay all costs and expenses
incurred by the Company and the Purchaser in connection with the transactions
contemplated by this Agreement.
Section 6.4. Notices. Unless otherwise provided herein, any notice,
request, instruction or other document to be given hereunder by any party to the
other shall be in writing and delivered by hand-delivery, registered first-class
mail, telex, confirmed telecopy, or air courier guaranteeing overnight delivery,
as follows:
If to the Company:
The Fortress Group, Inc.
0000 Xxxxxxx Xxxx, Xxxxx 000
Xxxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attn: J. Xxxxxxxx Xxxxxxx
with a copy to: Secretary
With an additional copy to:
Arent Fox Xxxxxxx Xxxxxxx & Xxxx
0000 Xxxxxxxxxxx Xxxxxx, XX
Xxxxxxxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attn: Xxxxxxx X. Xxxxxx
xvi
If to the Purchaser:
Prometheus Homebuilders LLC
c/o Lazard Frres Real Estate Investors, LLC
Thirty Xxxxxxxxxxx Xxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attn: Xxxxxx X. Xxxxxxx
Xxxxx X. Xxxxx
With a copy to:
Xxxxxx & Xxxxxxx
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attn: R. Xxxxxx Xxxxxxxxx
or to such other place and with such other copies as either party may designate
as to itself by written notice to the other.
xvii
All such notices, requests, instructions or other documents shall be deemed
to have been duly given; at the time delivered by hand, if personally delivered;
four (4) Business Days after being deposited in the mail, postage prepaid, if
mailed; when answered back, if telexed; when receipt acknowledged by addressee,
if by telecopier transmission; and on the next Business Day if timely delivered
to an air courier guaranteeing overnight delivery.
Section 6.5. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors.
No party shall be permitted to assign any of its rights hereunder to any third
party without the prior written consent of the other parties, except that the
Purchaser may, without such consent, assign its rights hereunder, in whole or in
part, to one or more affiliates of the Purchaser or any transferee or assignee
or group of transferees or assignees of any of the Preferred Stock provided that
such person agrees to be bound by this Agreement.
Section 6.6. Headings. The Section, Article and other headings contained in
this Agreement are inserted for convenience of reference only and will not
affect the meaning or interpretation of this Agreement. All references to
Sections or Articles contained herein mean Sections or Articles of this
Agreement unless otherwise stated.
Section 6.7. Amendments and Waivers. This Agreement may not be modified or
amended except by an instrument or instruments in writing signed by the party
against whom enforcement of any such modification or amendment is sought. Any
party hereto may, only by an instrument in writing, waive compliance by another
party hereto with any term or provision hereof on the part of such other party
hereto to be performed or complied with. The waiver by any party hereto of a
breach of any term or provision hereof shall not be construed as a waiver of any
subsequent breach.
Section 6.8. Interpretation, Absence of Presumption. (a) For the purposes
hereof, (i) words in the singular shall be held to include the plural and vice
versa and words of one gender shall be held to include the other gender as the
context requires, (ii) the terms "hereof", "herein", and "herewith" and words of
similar import shall, unless otherwise stated, be construed to refer to this
Agreement as a whole (including all of the Schedules and Exhibits hereto) and
not to any particular provision of this Agreement, and Article, Section and
paragraph, references are to the Articles, Sections and paragraphs to this
Agreement unless otherwise specified, (iii) the word "including" and words of
similar import when used in this Agreement shall mean "including, without
limitation," unless the context otherwise requires or unless otherwise
specified, (iv) the word "or" shall not be exclusive, and (v) provisions shall
apply, when appropriate, to successive events and transactions.
(b) This Agreement shall be construed without regard to any presumption or
rule requiring construction or interpretation against the party drafting or
causing any instrument to be drafted.
xviii
Section 6.9. Severability. Any provision hereof which is invalid or
unenforceable shall be ineffective to the extent of such invalidity or
unenforceability, without affecting in any way the remaining provisions hereof.
Section 6.10. Further Assurances. The Company and the Purchaser agree that,
from time to time, each of them will, and will cause their respective Affiliates
to, execute and deliver such further instruments and take such other action as
may be necessary to carry out the purposes and intents hereof.
Section 6.11. Specific Performance. The Company and the Purchaser each
acknowledge that, in view of the uniqueness of arrangements contemplated by this
Agreement, the parties hereto would not have an adequate remedy at law for money
damages in the event that this Agreement were not performed in accordance with
its terms, and therefore agree that the parties hereto shall be entitled to
specific enforcement of the terms hereof in addition to any other remedy to
which the parties hereto may be entitled at law or in equity.
Section 6.12. Confidentiality. The Purchaser and the Company agrees that
all information provided to each other or any of their respective
representatives pursuant to this Agreement shall be kept confidential, and such
parties shall not (x) disclose such information to any persons other than the
directors, officers, employees, financial advisors, legal advisors, accountants,
consultants and affiliates of such parties who reasonably need to have access to
the confidential information and who are advised of the confidential nature of
such information or (y) use such information in a manner which would be
detrimental to the Company or the Purchaser; provided, however, the foregoing
obligation of such parties shall not (a) relate to any information that (i) is
or becomes generally available other than as a result of unauthorized disclosure
by such parties or by persons to whom such parties have made such information
available, (ii) is or becomes available to such parties on a non-confidential
basis from a third party that is not, to such parties' knowledge, bound by any
other confidentiality agreement with the other party, or (b) prohibit disclosure
of any information if required by law, rule, regulation, court order or other
legal or governmental process.
[Signature Page Follows]
xix
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
THE FORTRESS GROUP, INC.
By: /s/
-----------------------------------
Name: Xxxxx X. Xxxxxxx, Xx.
Title: President
PROMETHEUS HOMEBUILDERS LLC
by: LF Strategic Realty Investors II L.P.,
its member
by: Lazard Frres Real Estate Investors L.L.C.,
its general partner
By: /s/
-----------------------------------
Name: Xxxxx X. Xxxxx
Title: Principal
STOCKHOLDERS
/s/
-----------------------------------
Name: J. Xxxxxxxx Xxxxxxx
/s/
-----------------------------------
Name: Xxxxx X. Xxxxxxx, Xx.
/s/
-----------------------------------
Name: Xxxxxx Xxxxx
/s/
-----------------------------------
Name: J. Xxxxxxxxxxx Xxxxxxx
/s/
-----------------------------------
Name: Xxxxxx Xxxxxxxxxx
/s/
-----------------------------------
Name: Xxxxxxxx Xxxxx
xx
/s/
-----------------------------------
Name: Xxx Xxxxxxxxxxx
/s/
-----------------------------------
Name: Lanold Xxxxxxxx
/s/
-----------------------------------
Name: Xxxxx Xxxxxxx
/s/
-----------------------------------
Name: Xxxxxxxx Xxxxxxxx
/s/
-----------------------------------
Name: Xxxx Xxx Xxxxxxx
xxi
