Exhibit 1
PROMETHEUS HOMEBUILDERS LLC
c/o Lazard Freres Real Estate Investors L.L.C.
THIRTY XXXXXXXXXXX XXXXX
XXX XXXX, XXX XXXX 00000
July 31, 2001
Mr. Xxxxxx Xxxxx
000 Xxxx Xxxxx Xxxxx
Xxxxxx, Xxxxxxxx 00000
Dear Mr. Short:
After giving effect to Paragraph (4)(c)(i) and (ii) of the Recognition
Agreement referred to below, Prometheus Homebuilders LLC ("Prometheus") will own
(i) 28,500 shares (the "Preferred Shares") of the Class AAA Convertible
Redeemable Preferred Stock of The Fortress Group, Inc., a Delaware corporation
("Fortress"), and (ii) 5,937,500 warrants (the "Warrants"), each to purchase one
share of the common stock, $.01 par value, of Fortress (the "Common Shares").
Prometheus hereby agrees to sell to you, and you hereby agree to purchase from
Prometheus, (i) 3,500 of the Preferred Shares (the "Purchased Shares") and (ii)
729,167 Warrants (the "Purchased Warrants"). The Purchased Warrants are subject
to adjustment as set forth in the Supplemental Warrant Agreement, dated February
4, 1999, as amended by the Recognition Agreement. The Purchased Shares and the
Purchased Warrants are hereinafter referred to, collectively, as the
"Securities". Prometheus and you hereby acknowledge and agree that Prometheus
shall not sell or transfer to you any right or entitlement to receive any
dividend which shall have accrued, but not been paid, on any of the Preferred
Shares on or prior to the date of the Closing referred to below (the "Unpaid
Dividends").
The sale and purchase of the Securities hereunder shall be consummated upon
the following terms and subject to the following conditions:
(1) PURCHASE PRICE. The purchase price, which you shall pay to
Prometheus at the Closing referred to below, shall total $3,500,000 in the
aggregate, of which (a) $1,750,000 shall be payable by wire transfer to
such account as Prometheus shall designate to you in writing and (b)
$1,750,000 shall be payable by your execution, issuance and delivery to
Prometheus of your secured promissory note in such principal amount, which
shall be in the form attached hereto as Exhibit A (the "Note").
(2) CLOSING. The purchase and sale of the Securities shall be
consummated at a closing (the "Closing") to take place at the address of
Prometheus set forth above promptly following the execution and delivery of
this letter agreement by each of Prometheus and you (or at such other
place, or such other date or time, as Prometheus and you shall agree in
writing). At the Closing:
Mr. Xxxxxx Xxxxx
July 31, 2001
Page 2
(a) Prometheus shall:
(i) execute and deliver to you a Pledge, Security and Voting
Trust Agreement in the form attached hereto as Exhibit B (the "P, S &
VT Agreement"); and
(ii) execute and deliver, or cause to be executed and delivered,
to you such other closing documents (including an assignment of the
Purchased Shares and Purchased Warrant) as are customary in
transactions substantially similar to the purchase of the Securities,
as contemplated hereby, as you may reasonably request.
(b) You shall:
(i) cause the cash portion of the purchase price referred to in
clause (a) of Paragraph (1) hereof to be wire transferred to
Prometheus and execute, issue and deliver the Note to Prometheus;
(ii) execute and deliver to Prometheus the P, S & VT Agreement
and execute and deliver, or cause to be executed and delivered, to
Prometheus such other closing documents (including stock powers and
other instruments of transfer and conveyance and such documents as
Fortress may require to cause the Purchased Shares to be reissued to
Prometheus, as voting trustee, under the P, S & VT Agreement) as are
customary in transactions substantially similar to the sale of the
Securities, as contemplated hereby, as Prometheus may reasonably
request.
(3) RECOGNITION AGREEMENT. At the Closing, Prometheus, you and
Fortress shall enter into a mutually agreeable Recognition Agreement in the
form attached hereto as Exhibit C.
(4) REPRESENTATIONS AND WARRANTIES.
(a) Prometheus hereby represents and warrants to you as follows:
(i) Prometheus is a duly organized and validly existing limited
liability company.
(ii) The execution and delivery by Prometheus of this letter
agreement and each other agreement, document or instrument to be
executed and delivered by Prometheus hereunder, and the consummation
by Prometheus of each of the transactions contemplated hereby or
thereby, have been duly authorized by all necessary corporate action
on the part of Prometheus.
Mr. Xxxxxx Xxxxx
July 31, 2001
Page 3
(iii) At the Closing, Prometheus shall convey to you good title
to the Securities, free and clear of any liens or encumbrances of any
nature whatsoever, other than any liens or encumbrances granted or
created by you (including, but not limited to, those created and
granted by you under the P, S & VT Agreement).
(iv) Prometheus:
(A) has three representatives on the Board of Directors of
Fortress;
(B) is therefore fully informed as to the business, affairs
and prospects of Fortress; and
(C) is not relying upon you for any information concerning
such business, affairs or prospects or otherwise with respect to
its sale of the Securities to you hereunder and hereby waives any
claim of any nature whatsoever which it may have against you with
respect to such matters or such information or any omission
thereof or therefrom.
(b) You hereby represent and warrant to Prometheus that:
(i) you are a member of the Board of Directors of Fortress;
(ii) you are therefore fully informed as to the business, affairs
and prospects of Fortress (the "Fortress Information");
(iii) you have such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks
of (and you are not relying upon Prometheus for any Fortress
Information or otherwise with respect to) your purchase of the
Securities from Prometheus hereunder and you hereby waive any claim of
any nature whatsoever which you may have against Prometheus with
respect to any Fortress Information; and
(iv) you (A) will acquire the Purchased Shares, Purchased
Warrants and any securities acquired by you upon the conversion,
exercise or exchange of any thereof for investment purposes only and
not with a view to any distribution of any thereof and (B) will not
sell, transfer or otherwise dispose of any of such securities other
than in compliance with all applicable laws and regulations
(including, but not limited to, the federal securities laws and
regulations of the United States and the "blue sky" rules and
regulations of each state and territory thereof).
Mr. Xxxxxx Xxxxx
July 31, 2001
Page 4
Please acknowledge your agreement to the foregoing in the space provided
for that purpose below.
Very truly yours,
PROMETHEUS HOMEBUILDERS LLC
By LF STRATEGIC RELATY INVESTORS II L.P.,
its managing member,
By LAZARD FRERES REAL
ESTATE INVESTORS L.L.C.,
its general partner,
By
------------------------------
Name:
Title:
Agreement acknowledged as
of the date first set forth above
---------------------------------
Xxxxxx Xxxxx
EXHIBIT A
SECURED PROMISSORY NOTE
FOR GOOD AND VALUABLE CONSIDERATION, the receipt and adequacy of which are
acknowledged hereby, the undersigned, Xxxxxx Xxxxx (the "Payor"), does hereby
promise to pay to the order of Prometheus Homebuilders LLC (the "Payee") located
at 00 Xxxxxxxxxxx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000 the principal sum of
$1,750,000, together with interest thereon, at the times and rate set forth
below. Payment of principal, interest and any other sum due hereunder shall be
made in lawful money of the United States of America.
Subject to the provisions with respect to acceleration and prepayment set
forth below, the principal amount of this Secured Promissory Note shall be
payable on the first to occur of (a) July 31, 2002 or (b) the consummation of
(i) any sale, merger or liquidation of The Fortress Group, Inc. ("Fortress"),
(ii) any sale of all or any substantial amount of the assets of Fortress or
(iii) any Change of Control (as defined in the indenture under which the 13.75%
Senior Notes Due 2003 of Fortress are currently outstanding) other than any such
Change of Control caused by the acquisition by Prometheus of beneficial
ownership of additional shares of the Common Stock of Fortress or the sale by
Prometheus of beneficial ownership of any shares of the capital stock of
Fortress if Payor does not receive any cash, cash equivalents or freely
transferable marketable securities; PROVIDED, HOWEVER, that in the case of any
sale, merger or liquidation of Fortress, this Secured Promissory Note shall only
be prepayable prior to July 31, 2001 to the extent that Payor receives cash,
cash equivalents or freely transferable marketable securities in consideration
of such sale, merger or liquidation and any amounts not prepaid prior to July
31, 2002 shall be due and payable on July 31, 2002.
Interest shall accrue on the unpaid principal amount of this Secured
Promissory Note outstanding from time to time at a rate equal to the Dividend
Rate applicable to the Class AAA Convertible Redeemable Preferred Stock of
Fortress (the "Preferred Stock") then in effect and whether or not any dividend
on the Preferred Stock is ever paid at that rate or at any other rate. Such
interest shall be payable as follows:
(a) In the event that any dividend (other than any dividend which
shall have accrued but not been paid on the Preferred Stock on or prior to
the date hereof) shall be paid to the Payor or its transferee or assignee
with respect to any share or shares of the Preferred Stock, the Payor shall
pay to the Payee an amount equal to the lesser of (i) the total amount of
accrued but unpaid interest hereon then outstanding or (ii) the total
amount of such dividend.
(b) Upon the payment of any portion (including all) of the
outstanding principal balance of this Secured Promissory Note, the Payor
shall pay to the Payee all of the accrued but unpaid interest on such
portion of such outstanding principal balance.
The obligations of the Payor under this Secured Promissory Note are secured
by a pledge of, and a first priority security interest in, the Pledged
Collateral referred to in the Pledge, Security and Voting Trust Agreement, dated
July 31, 2001 by and between the Payor and the
Payee. In the event of any sale of any of such Pledged Collateral prior to the
satisfaction in full of all of the obligations of the Payor under this Secured
Promissory Note, the proceeds of such sale shall be applied, FIRST to the
payment of any accrued but unpaid interest hereon, SECOND to the payment of the
outstanding principal balance hereof, and THIRD to the satisfaction of any other
obligations of the Payor hereunder.
Notwithstanding anything to the contrary set forth hereinabove:
(a) The outstanding principal balance of, all accrued but unpaid
interest on, and all other payment obligations of the Payor in respect of,
this Secured Promissory Note shall automatically become due and payable
without any demand or other action by or on behalf of the Payee,
immediately upon the default by the Payor of any of its obligations under
this Secured Promissory Note or the Pledge, Security and Voting Trust
Agreement referred to above.
(b) The outstanding principal balance of this Secured Promissory Note
may be prepaid, in whole or in part, by the Payor at any time; PROVIDED,
HOWEVER, that any such prepayment shall be accompanied by (i) the payment
in full of all accrued but unpaid interest on the portion hereof which is
prepaid and (ii) the satisfaction in full of all other obligations of the
Payor hereunder.
(c) This Secured Promissory Note shall not, at any time, bear
interest at a rate in excess of the maximum rate of interest then permitted
by applicable law and the rate of interest otherwise provided for herein
shall be reduced to such maximum amount at all times when it would
otherwise be in excess thereof.
The Payor and all others who may become liable for the payment of all or
any part of the indebtedness hereunder do hereby severally waive presentment and
demand for payment, notice of dishonor, protest, notice of protest, notice of
non-payment, notice of intent to accelerate the maturity hereof and all
acceleration. No release of any security for the indebtedness hereunder or of
any person liable for payment of such indebtedness, no extension of time for
payment of this Secured Promissory Note or any portion thereof, and no
alteration, amendment or waiver of any provision of any agreement relating
hereto shall release, modify, amend, waive, extend, change, discharge, terminate
or affect the liability of the Payor and any other person who may become liable
hereunder for the payment of all or any part of the indebtedness hereunder.
This Secured Promissory Note shall (a) be governed by and construed and
interpreted in accordance with the laws of the State of New York and (b) be an
absolute and unconditional obligation of the Payor, which shall not be subject
to offset, claim, counterclaim or defense (other than the defense of full
payment and discharge) of any kind. In addition to all of the other obligations
of the Payor hereunder, the Payor shall pay to the Payee all of the Payee's
costs and expenses of any nature whatsoever incurred in, or relating to, the
enforcement of any of the Payor's obligations, or the collection of any amount
payable, hereunder.
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IN WITNESS WHEREOF, the Payor has executed and delivered this Secured
Promissory Note on the 31st day of July, 2001.
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Xxxxxx Xxxxx
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EXHIBIT B
PLEDGE, SECURITY AND VOTING TRUST AGREEMENT
This Pledge, Security and Voting Trust Agreement, dated July 31, 2001 (this
"P, S & VT Agreement"), by and between Prometheus Homebuilders LLC
("Prometheus") and Xxxxxx Xxxxx ("Mr. Short");
W I T N E S S E T H:
WHEREAS, Prometheus and Mr. Short are parties to a letter agreement, dated
July 31, 2001 (the "Letter Agreement"), pursuant to which Prometheus sold to Mr.
Short the Securities referred to therein (the "Securities") and Mr. Short
executed, issued and delivered to Prometheus the Note referred to therein (the
"Note"); and
WHEREAS, Prometheus and Mr. Short have agreed that, as security for the
satisfaction in full of all of Mr. Short's obligations under the Letter
Agreement, the Note and this P, S & VT Agreement (the "Secured Obligations"),
Mr. Short shall grant to Prometheus a perfected first prior security interest in
the Pledged Collateral referred to hereinbelow; and
WHEREAS, Prometheus and Mr. Short have further agreed to provide herein for
a voting trust (the "Voting Trust") with respect to all of the Purchased Shares
referred to in the Letter Agreement (the "Purchased Shares");
NOW, THEREFORE, for good and valuable consideration (the receipt and
adequacy of which is acknowledged by each of Prometheus and Short), Prometheus
and Short do hereby covenant and agree as follows:
(1) PLEDGE. Mr. Short hereby pledges to Prometheus, and grants to
Prometheus, a first priority security interest and lien in, the following
(the "Pledged Collateral"):
(a) all of the Securities;
(b) all of the shares (the "Common Shares") of the common stock of
The Fortress Group, Inc. issued upon the conversion or exercise of any of
the Securities;
(c) all certificates representing any of the Securities or Common
Shares; and
(d) all dividends, interest, cash, instruments and other property or
proceeds, from time to time received, receivable or otherwise distributed
in respect of or in exchange for any or all of the foregoing (collectively,
"Dividends and Distributions"); PROVIDED, HOWEVER, that such Dividends and
Distributions shall not include any unpaid Dividends (as defined in the
Letter Agreement).
(2) SECURITY FOR OBLIGATIONS. This P, S & VT Agreement secures, and
the Pledged Collateral is security for, the full and prompt payment when
due (whether at
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stated maturity, by acceleration or otherwise) and the timely performance,
of all of the Secured Obligations.
(3) FURTHER ASSURANCES. Mr. Short agrees that at any time and from
time to time, at his sole cost and expense, he will promptly execute and
deliver all further instruments and documents, and take all further action,
that may be necessary or desirable, or that Prometheus may request, in
order to perfect and protect the pledge and security interest granted
hereby or to enable Prometheus to exercise and enforce its rights and
remedies hereunder with respect to any Pledged Collateral.
(4) DIVIDENDS AND DISTRIBUTIONS. All Dividends and Distributions
received by any person with respect to any of the Pledged Collateral shall
be applied in accordance with the terms of the Note.
(5) REMEDIES UPON DEFAULT. In the event of any default by Mr. Short
in respect of any of the Secured Obligations:
(a) Prometheus may exercise in respect of the Pledged Collateral, in
addition to other rights and remedies provided for herein or otherwise
available to it, all the rights and remedies of a secured party after
default under the Uniform Commercial Code (the "Code") in effect in the
State of New York at that time, and may also, without notice except as
specified below, sell the Pledged Collateral or any part thereof in one or
more parcels at public or private sale, at any exchange, broker's board or
at any office of Prometheus or elsewhere, for cash, on credit or for future
delivery, and upon such other terms as Prometheus may deem commercially
reasonable. Mr. Short agrees that, to the extent notice of sale shall be
required by law, at least ten days' notice to Mr. Short of the time and
place of any public sale or the time after which any private sale is to be
made shall constitute reasonable notification. Prometheus shall not be
obligated to make any sale of Pledged Collateral regardless of notice of
sale having been given. Prometheus may adjourn any public or private sale
from time to time by announcement at the time and place fixed therefor, and
such sale may, without further notice, be made at the time and place to
which it was so adjourned. Mr. Short hereby waives any claims against
Prometheus arising by reason of the fact that the price at which any
Pledged Collateral may have been sold at such a private sale was less than
the price which might have been obtained at a public sale, even if
Prometheus accepts the first offer received and does not offer such Pledged
Collateral to more than one offeree.
(b) Any cash held by Prometheus as Pledged Collateral and all cash
proceeds received by Prometheus in respect of any sale of, collection from,
or other realization upon all or any part of the Pledged Collateral shall
be applied by Prometheus:
(i) first, to the payment of the costs and expenses of such
sale, including, without limitation, reasonable expenses of
Prometheus, including the fees and expenses of its counsel, and all
expenses, liabilities and advances made or incurred by Prometheus in
connection therewith or otherwise hereunder;
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(ii) next, to the payment of the Secured Obligations; and
(iii) finally, after payment in full of all of the Secured
Obligations, to Mr. Short, or to whomsoever may be lawfully entitled
to receive the same as a court of competent jurisdiction may direct.
(c) In addition, Prometheus may exercise all of the voting rights and
powers to which any of the securities included within the Pledged
Collateral may be entitled at any time. THE TRANSFER OF VOTING RIGHTS AND
POWERS TO PROMETHEUS IN ACCORDANCE WITH THE PRECEDING SENTENCE HEREOF IS
COUPLED WITH AN INTEREST AND SHALL BE IRREVOCABLE SO LONG AS THIS P, S & VT
AGREEMENT SHALL BE IN FORCE AND EFFECT.
(6) VOTING TRUST. Separate and apart from the pledge, grant and
existence hereunder of the pledge of, and security interest and lien, in
the Pledged Collateral, Mr. Short and Prometheus hereby create and
establish the Voting Trust, upon the following terms and subject tot he
following conditions:
(a) SECURITIES SUBJECT TO THE VOTING TRUST. All of the Purchased
Shares shall be subject to the Voting Trust and shall be deposited with the
voting trustee referred to below promptly upon the execution and delivery
of the P, S & VT Agreement by Mr. Short.
(b) VOTING TRUSTEE.
(i) So long as Prometheus shall be in existence, Prometheus
shall be the sole trustee of the Voting Trust. In the event of the
merger of Prometheus (or any successor voting trustee) into any other
person, such other person shall become the sole trustee of the Voting
Trust. In the event of the dissolution of Prometheus (or any successor
voting trustee), such person as Prometheus (or any successor voting
trustee) shall, prior to its dissolution, designate as its successor
shall become the sole trustee of the Voting Trust.
(ii) The voting trustee in office from time to time shall have
the sole and exclusive right and authority to cast votes, grant
consents, appoint proxies and take other similar actions with respect
to the Purchased Shares and shall do so in its sole and absolute
discretion. Such voting trustee shall have no fiduciary duty or
obligation of any nature to Mr. Short or any other record or
beneficial owner of any of the Purchased Shares.
(c) RECORD HOLDER. In order to facilitate any action by the voting
trustee pursuant to subparagraph 6(b) hereof, the voting trustee shall at
all times (prior to conversion of the Purchased Shares) be the holder of
record (as voting trustee under this P, S &VT Agreement) of all Purchased
Shares and each party hereto shall take, or cause
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to be taken, all such action as may be necessary or helpful to cause the
voting trustee to be such holder of record.
(d) TERM OF THE VOTING TRUST. The term of the Voting Trust shall
commence immediately following the execution and delivery of this P, S & VT
Agreement by each of the parties hereto and shall continue until the first
to occur of such time as (i) Prometheus shall cease to be the beneficial
owner of any shares of the Class AAA Convertible Redeemable Preferred Stock
of Fortress or (ii) no Purchased Shares shall be outstanding (in either
case, whether or not all of the Secured Obligations shall have theretofore
been satisfied and the pledge and security interest granted hereunder shall
have terminated). In addition, the Voting Trust shall not be applicable to
any common stock issued as a result of conversion of any Purchased Shares
and nothing herein shall restrict Mr. Short's conversion rights with
respect to the Purchased Shares.
(e) TRANSFER OF PURCHASED SHARES. Any transfer by any person of any
of the Purchased Shares or of any interest of any nature therein shall be
subject to the terms and conditions of this Paragraph 6 and each transferee
shall take such Purchased Shares or interest therein subject to the Voting
Trust and the rights of the voting trustee hereunder (including, but not
limited to, the rights of the voting trustee as set forth in Subparagraph
6(b)(ii) hereof). Each certificate or instrument evidencing or constituting
any of the Purchased Shares shall bear a prominent legend describing the
Voting Trust and the provisions of the preceding sentence of this
Subparagraph 6(e).
(7) TERM OF THIS P, S AND VT AGREEMENT. This P, S & VT Agreement
shall create a continuing security interest in the Pledged Collateral until
the Note is paid in full, at which time the security interest shall be
released. However, the provisions of Paragraph 6 shall remain in full force
and effect until the termination of the Voting Trust pursuant to
Subparagraph 6(d) hereof.
(8) GOVERNING LAW. This P, S & VT Agreement shall be governed by, and
construed and interpreted in accordance with, the laws of the State of New
York. Wherever possible, each provision of this P, S & VT Agreement shall
be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this P, S & VT Agreement shall be prohibited
by or invalid under applicable law, such provision shall be ineffective
only to the extent of such prohibition or invalidity and without
invalidating the remaining provisions of this P, S & VT Agreement. Unless
otherwise defined herein or in the credit agreement, terms defined in
Article 9 of the Uniform Commercial Code as in effect in the State of New
York are used herein as therein defined.
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IN WITNESS WHEREOF, each of Prometheus and Mr. Short has caused this P, S &
VT Agreement to be duly executed and delivered on the date first above written.
PROMETHEUS HOMEBUILDERS LLC
By LF STRATEGIC REALTY INVESTORS II L.P.,
a managing member,
By LAZARD FRERES REAL
ESTATE INVESTORS L.L.C.,
its general partner,
By
-------------------------------
Name:
Title:
---------------------------------------------
Xxxxxx Xxxxx
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EXHIBIT C
RECOGNITION AGREEMENT
This Recognition Agreement, dated July 31, 2001, by and among Prometheus
Homebuilders LLC ("Prometheus"), Xxxxxx Xxxxx ("Mr. Short") and The Fortress
Group, Inc. ("Fortress").
W I T N E S S E T H:
WHEREAS, Prometheus and Mr. Short are parties to a letter agreement, dated
July 31, 2001 (the "Letter Agreement"); and
WHEREAS, Prometheus and Fortress are parties to a Second Amendment and
Restated Registration Rights Agreement, dated as of February 3, 1999 (the
"Registration Rights Agreement"), and a Supplemental Warrant Agreement, dated as
of February 4, 1999 (the "Warrant Agreement"); and
WHEREAS, as contemplated by the Letter Agreement, the parties hereto (the
"Parties") wish to provide herein for (i) Fortress to acknowledge the
transactions contemplated by the Letter Agreement and (ii) the clarification and
amendment of the Registration Rights Agreement and the Warrant Agreement;
NOW, THEREFORE, for good and valuable consideration (the receipt and
adequacy of which are acknowledged by each of the Parties), the Parties do
hereby covenant and agree as follows:
(1) DEFINITIONS.
(a) Each of the terms used herein which is defined in the Letter
Agreement shall, when so used, have the meaning ascribed thereto in the
Letter Agreement.
(b) Each of the terms used herein which is defined in the
Registration Rights Agreement and not defined in the Letter Agreement
shall, when so used, have the meaning ascribed thereto in the Registration
Rights Agreement.
(c) Each of the terms used herein which is defined in the Warrant
Agreement and not defined in the Letter Agreement or the Registration
Rights Agreement shall, when so used, have the meaning ascribed thereto in
the Warrant Agreement.
(2) RECOGNITION.
(a) Fortress hereby recognizes, acknowledges, consents and agrees to
the execution and delivery of the Letter Agreement by Prometheus and Mr.
Short and to the consummation by Prometheus and Mr. Short of each of the
transactions contemplated thereby.
(b) Each of the Parties hereby acknowledges and agrees that all of
the Unpaid Dividends shall be paid by Fortress or its agent directly to
Prometheus or any assignee of Prometheus and not to Mr. Short or any holder
of the Purchased Shares other than Prometheus or any assignee of
Prometheus.
(c) Fortress hereby acknowledges that, except as otherwise provided
in Subparagraph (2)(b) hereof and subject to all of the terms and
conditions of the Letter Agreement and the P, S & VT Agreement (including,
but not limited to the pledge and first security interest created and
granted to Prometheus under the P, S & VT Agreement and the Voting Trust
created and established under the P, S & VT Agreement), Mr. Short is the
owner of the Securities and entitled to all of the rights of the holder and
owner of the Securities. By execution of this Recognition Agreement, Mr.
Short shall become a party to (and be entitled to the benefits of) the
Warrant Agreement.
(3) REGISTRATION RIGHTS AGREEMENT. Each of the Parties hereby
acknowledges and agrees that, notwithstanding anything to the contrary set
forth in the Registration Rights Agreement:
(a) Prometheus and any assignee of Prometheus shall be the only
persons who shall have the right to request any Demand Registration
pursuant to Section 2 of the Registration Rights Agreement. Without
limiting the generality of the foregoing, it is expressly acknowledged and
agreed that Mr. Short shall have no such right, except to the extent that
Prometheus (or any assignee thereof) shall, in its sole and absolute
discretion, assign such right to Mr. Short subsequent to the date hereof.
(b) For purposes of Section 3 of the Registration Rights Agreement,
Mr. Short shall be deemed to be a Holder of Registrable Securities and, as
such, shall be entitled to the Piggyback Registrations provided for therein
and shall be deemed bound thereby, upon all of the terms (and subject to
all of the conditions) set forth therein. The foregoing shall not reduce,
limit or otherwise affect, in any way, the rights of Prometheus (under
Section 3 or otherwise) as a Holder of Registrable Securities.
(4) WARRANT AGREEMENT. Notwithstanding anything to the contrary set
forth in the Warrant Agreement or in any Warrants or Warrant Certificates
issued or issuable thereunder:
(a) Each of the Parties hereby consents and agrees to the election by
Prometheus and Mr. Short on the date hereof (notwithstanding that the date
hereof is neither on nor after September 30, 2001) to adjust the number of
Common Shares issuable upon exercise of the Warrants as of the date hereof
and (ii) Prometheus and Mr. Short do hereby make, and Fortress does hereby
agree to and accept, such election.
(b) Each of the Parties hereby agrees that:
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(i) each Warrant shall, at all times hereafter during which such
Warrant shall be exercisable, be so exercisable for the purchase of
exactly one Common Share;
(ii) any adjustment hereafter made pursuant to Sections 5 or 10
of the Warrant Agreement shall be appropriately made to the number of
Warrants outstanding or issuable under the Warrant Agreement (and not
to the number of Common Shares issuable upon the exercise of any
Warrant); and
(iii) the exercise price of the Warrant shall, from time to time
as necessary, be appropriately adjusted to reflect and give effect to
the terms and intent of the foregoing.
(c) (i) Each of the Parties hereby acknowledges and agrees that, by
reason of the provisions of Subparagraphs (4)(a) and (b) hereof, an
aggregate of 5,937,500 Warrants, each exercisable to purchase one
Common Share at the current exercise price of $.04 per Common Share,
are currently outstanding.
(ii) As promptly as practicable following the execution and
delivery of this Recognition Agreement by each of the Parties,
Prometheus shall deliver to Fortress all of the outstanding Warrant
Certificates, in exchange for which Fortress shall issue, execute and
deliver to Prometheus and Mr. Short Warrant Certificates evidencing
5,208,333 and 729,167 Warrants, respectively.
(iii) Notwithstanding anything to the contrary set forth in
Subparagraphs (4)(c)(i) and (ii) hereof, in the event that the Issue
Price as of September 30, 2001 shall exceed $8.00 per share, the
provisions of such subparagraphs shall be null and void AB INITIO, the
number of outstanding Warrants shall be determined pursuant to Section
5 of the Warrant Agreement as in effect prior to the effectiveness of
this Recognition Agreement and Prometheus and Mr. Short shall exchange
the Warrant Certificates delivered to them pursuant to Subparagraph
(4)(c)(ii) for new Warrant Certificates that shall evidence the number
of outstanding Warrants as so determined. The new Warrants and Warrant
Certificates shall be issued to Prometheus and Mr. Short in the same
proportions as the Warrants and Warrant Certificates surrendered by
them in such exchange. In the event of any such exchange, Prometheus
shall have the exclusive right to elect to make adjustments pursuant
to Section 5 of the Warrant Agreement.
(5) MR. SHORT HEREBY REPRESENTS AND WARRANTS AS FOLLOWS:
(i) he is a member of the Board of Directors of Fortress;
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(ii) he is therefore fully informed as to the business, affairs and
prospects of Fortress (the "Fortress Information");
(iii) he has such knowledge and experience in financial and business
matters as to be capable of evaluating the merits and risks of (and he is
not relying upon Prometheus or Fortress Information or otherwise with
respect to) his purchase of the Securities from Prometheus hereunder and he
hereby waives any claim of any nature whatsoever which he may have against
Prometheus or Fortress with respect to any Fortress Information; and
(iv) he (A) will acquire the Purchased Shares, Purchased Warrants and
any securities acquired by him upon the conversion, exercise or exchange of
any thereof for investment purposes only and not with a view to any
distribution of any thereof and (B) will not sell, transfer or otherwise
dispose of any of such securities other than in compliance with all
applicable laws and regulations (including, but not limited to, the federal
securities laws and regulations of the United States and the "blue sky"
rules and regulations of each state and territory thereof).
(6) CONTINUED EFFECT OF AGREEMENTS. Except as otherwise expressly provided
herein, following the execution and delivery of this Recognition Agreement by
each of the Parties, each of the Letter Agreement, Registration Rights
Agreement, Warrant Agreement, Warrant, Warrant Certificates and other
agreements, instruments or other documents heretofore entered into, or otherwise
executed and delivered, by any of the Parties with or to any of the other
Parties, shall continue to be and remain in full force and effect in accordance
with all of the terms and conditions thereof.
(7) GOVERNING LAW. This Recognition Agreement shall be governed by, and
construed and interpreted in accordance with, the laws of the State of New York.
(8) EXPENSES. Each of Prometheus and Mr. Short shall reimburse Fortress
for one-half of the reasonable out-of-pocket costs and expenses incurred by
Fortress in connection with this Recognition Agreement.
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IN WITNESS WHEREOF, each of Prometheus, Mr. Short and Fortress has caused
this Recognition Agreement to be duly executed and delivered on the date first
above written.
PROMETHEUS HOMEBUILDERS LLC
By LF STRATEGIC REALTY INVESTORS II L.P.,
a managing member,
By LAZARD FRERES REAL ESTATE
INVESTORS L.L.C., its general
partner,
By
------------------------------
Name:
Title:
---------------------------------------------
Xxxxxx Xxxxx
THE FORTRESS GROUP, INC.
By:
------------------------------------------
Name:
Title:
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