EXHIBIT 4
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
by and among
THE FORTRESS GROUP, INC.,
PROMETHEUS HOMEBUILDERS LLC
and
THE STOCKHOLDERS NAMED HEREIN
dated as of
February ___, 1998
TABLE OF CONTENTS
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Page
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ARTICLE I. DEFINITIONS..................................................... 2
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Section 1.1. Defined Terms.............................................. 2
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ARTICLE II. BOARD.......................................................... 5
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Section 2.1. Members of the Board....................................... 5
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ARTICLE III. COVENANTS..................................................... 7
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Section 3.1. Operating Statements; Public Company Status................ 7
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Section 3.2. Conduct of Business........................................ 7
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ARTICLE IV. PARTICIPATION RIGHTS........................................... 11
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Section 4.1.............................................................. 11
ARTICLE V. TAG-ALONG RIGHTS................................................ 13
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Section 5.1. Tag-Along Rights........................................... 13
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ARTICLE VI. MISCELLANEOUS.................................................. 15
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Section 6.1. Counterparts............................................... 15
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Section 6.2. Governing Law.............................................. 15
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Section 6.3. Expenses................................................... 15
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Section 6.4. Notices.................................................... 15
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Section 6.5. Successors and Assigns..................................... 17
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Section 6.6. Headings................................................... 17
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Section 6.7. Amendments and Waivers..................................... 17
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Section 6.8. Interpretation, Absence of Presumption..................... 17
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Section 6.9. Severability............................................... 18
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Section 6.10. Further Assurances......................................... 18
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Section 6.11. Specific Performance....................................... 18
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Section 6.12. Confidentiality............................................ 18
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THIS AMENDED AND RESTATED STOCKHOLDERS AGREEMENT (the "Agreement"),
dated as of March __, 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
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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 ___,
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
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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:
ARTICLE I.
DEFINITIONS
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Section 1.1. Defined Terms. As used in this Agreement, the following
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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
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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
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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
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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.
"Class ABI Preferred Stock" shall mean the Class ABI Convertible
Redeemable Preferred Stock of the Company, $0.01 par value per share.
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"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.
"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.
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"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.
"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.
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"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.
ARTICLE II.
BOARD
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Section 2.1. Members of the Board. (a) Until a Termination Event,
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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,
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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 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
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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
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Section 3.1. Operating Statements; Public Company Status.
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(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 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
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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
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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
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
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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;
(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;
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(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
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
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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
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Section 4.1. (a) Right to Participate. From and after the date
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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 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
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(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
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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
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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
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
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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
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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
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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
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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
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.
13
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 Exercise Rate for the Supplemental Warrants being sold, 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,
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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.
14
(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.
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
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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
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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,
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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
15
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
If to the Purchaser:
Prometheus Homebuilders LLC
c/o Lazard Freres 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.
16
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. 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.
17
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
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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]
18
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
THE FORTRESS GROUP, INC.
By:
------------------------------------------------
Name:
Title:
PROMETHEUS HOMEBUILDERS LLC
by: LF Strategic Realty Investors II L.P.,
its member
by: Lazard Freres Real Estate Investors L.L.C.,
its general partner
By:
------------------------------------------------
Name:
Title:
STOCKHOLDERS
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Name: J. Xxxxxxxx Xxxxxxx
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Name: Xxxxx X. Xxxxxxx, Xx.
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Name: Xxxxxx Xxxxx
---------------------------------------------------
Name: J. Xxxxxxxxxxx Xxxxxxx
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Name: Xxxxxx Xxxxxxxxxx
---------------------------------------------------
Name: Xxxxxxxx Xxxxx
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Name: Xxx Xxxxxxxxxxx
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Name: Lanold Xxxxxxxx
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Name: Xxxxx Xxxxxxx
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Name: Xxxxxxxx Xxxxxxxx
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Name: Xxxx Xxx Xxxxxxx
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