EXHIBIT 5
AMENDED AND RESTATED
WARRANT AGREEMENT
by and between
THE FORTRESS GROUP, INC.
and
PROMETHEUS HOMEBUILDERS LLC
Dated as of February __, 1998
AMENDED AND RESTATED WARRANT AGREEMENT, dated as of February __, 1998,
between The Fortress Group, Inc., a Delaware corporation (the "Company") and
Prometheus Homebuilders LLC (the "Warrant Holder").
WHEREAS, the Company and the Warrant Holder have entered into that
certain Warrant Agreement dated as of September 30, 1997 (the "Original Warrant
Agreement").
WHEREAS, the Company has issued warrants (the "Initial Warrants") to
purchase 325,000 shares of Common Stock, $0.01 per share of the Company (the
"Common Stock") to the Warrant Holder on the terms of the Original Warrant
Agreement.
WHEREAS, the Company and the Warrant Holder have entered into that
certain Second Amended and Restated Stock Purchase Agreement dated as of
February __, 1998 (the "Stock Purchase Agreement").
WHEREAS, it is a condition to the Second Closing (as defined in the
Stock Purchase Agreement) that the parties amend and restate the Original
Warrant Agreement as set forth herein.
WHEREAS, pursuant to the Stock Purchase Agreement, the Company
proposes, in part, to issue to the Warrant Holder, or its assignees, additional
warrants (together with the Initial Warrants, the "Warrants"), to purchase up to
an aggregate of 675,000 shares of Common Stock, subject to adjustment as set
forth herein. The Common Stock issuable on exercise of the Warrants is referred
to herein as the "Warrant Shares". Certain capitalized terms used herein and
not elsewhere defined are defined in the Stock Purchase Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereto agree as follows:
SECTION 1. Warrant Certificates. The certificates evidencing the Warrants (the
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"Warrant Certificates") to be delivered pursuant to this Warrant Agreement shall
be in registered form only and shall be substantially in the form set forth in
Exhibit A attached hereto.
SECTION 2. Execution of Warrant Certificates. Warrant Certificates shall be
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signed on behalf of the Company by its Chairman of the Board or its President or
a Vice President and by its Secretary or an Assistant Secretary under its
corporate seal. Each such signature upon the Warrant Certificates may be in the
form of a facsimile signature of the present or any future Chairman of the
Board, President, Vice President, Secretary or Assistant Secretary and may be
imprinted or otherwise reproduced on the Warrant Certificates and for that
purpose the Company may adopt and use the facsimile signature of any person who
shall have been Chairman of the Board, President, Vice President, Secretary or
Assistant Secretary, notwithstanding the fact that at the time the Warrant
Certificates shall be delivered or disposed of he shall have ceased to hold such
office. The seal of the Company may be in the form of a facsimile thereof and
may be impressed, affixed, imprinted or otherwise reproduced on the Warrant
Certificates.
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In case any officer of the Company who shall have signed any of the
Warrant Certificates shall cease to be such officer before the Warrant
Certificates so signed shall have been disposed of by the Company, such Warrant
Certificates nevertheless may be delivered or disposed of as though such person
had not ceased to be such officer of the Company; and any Warrant Certificate
may be signed on behalf of the Company by any person who, at the actual date of
the execution of such Warrant Certificate, shall be a proper officer of the
Company to sign such Warrant Certificate, although at the date of the execution
of this Warrant Agreement any such person was not such officer.
SECTION 3. Registration. The Company shall number and register the Warrant
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Certificates in a register as they are issued. The Company may deem and treat
the registered holder(s) of the Warrant Certificates as the absolute owner(s)
thereof (notwithstanding any notation of ownership or other writing thereon made
by anyone) for all purposes, and shall not be affected by any notice to the
contrary.
SECTION 4. Registration of Transfers and Exchanges. The Company shall from time
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to time register the transfer of any outstanding Warrant Certificates in a
Warrant register to be maintained by the Company upon surrender thereof
accompanied by a written instrument or instruments of transfer in form
satisfactory to the Company, duly executed by the registered holder or holders
thereof or by the duly appointed legal representative thereof or by a duly
authorized attorney. Upon any such registration of transfer, a new Warrant
Certificate shall be issued to the transferee(s) and the surrendered Warrant
Certificate shall be canceled and disposed of by the Company.
SECTION 5. Warrants; Exercise of Warrants. Subject to the terms of this
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Agreement, each Warrant holder shall have the right, which may be exercised
during the period commencing on September 30, 1999, until 11:59 p.m., New York
City time, September 30, 2004 (the "Exercise Period"), to receive from the
Company the number of fully paid and nonassessable Warrant Shares which the
holder may at the time be entitled to receive on exercise of such Warrants and
payment of the Exercise Price (as defined below) then in effect for such Warrant
Shares. In the alternative, each Warrant holder may exercise his right to
receive Warrant Shares on a net basis, such that, without the exchange of any
funds, the Warrant holder receives that number of Warrant Shares otherwise
issuable (or payable) upon exercise of his Warrants less that number of Warrant
Shares having an aggregate fair market value (as defined below) at the time of
exercise equal to the aggregate Exercise Price that would otherwise have been
paid by the holder of the Warrant Shares. For purposes of the foregoing
sentence, "fair market value" of the Warrant Shares will be determined in good
faith by a majority of the Non-Preferred Stock Directors of the Company, as of
the date of any such exercise. Such determination of the Non-Preferred Stock
Directors may be challenged in good faith by holders of a majority of the
Warrants, and any dispute shall be resolved at the Company's cost, by an
investment banking firm of recognized national standing selected by the Company
and acceptable to such Warrant holders and shall be made in good faith and be
conclusive absent manifest error; provided, however, that in the event that the
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determination by the majority of the Non-Preferred Stock Directors is more than
110% of the price determined by the investment banking firm, then the costs
incurred by such investment banking firm shall be borne by the Warrant holders
who
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challenged such price. Each Warrant not exercised on or before 11:59 p.m., New
York City time, on September 30, 2004 shall become void and all rights
thereunder and all rights in respect thereof under this Agreement shall cease as
of such time. No adjustments as to dividends will be made upon exercise of the
Warrants.
For purposes hereof, "Non-Preferred Stock Directors" means directors
of the Company excluding any director elected to the Board of Directors by the
holders of the Preferred Stock voting as a separate class.
On or after September 30, 2001, and on or before September 30, 2003
(the "Adjustment Period"), a holder of Warrants may elect to adjust up to five
(5) times per year (i) the Exercise Price of each Warrant and (ii) the number of
shares of Common Stock into which each Warrant held by such holder shall convert
upon exercise of the Warrants ("Additional Shares"), by reference to the Average
of the Quoted Price of the Common Stock for the 60 days preceding such
adjustment (the "Adjustment Price"). Upon such election the Company will
deliver a new Warrant Certificate to reflect the revised Exercise Price and
number of shares into which such Warrant is convertible. Notwithstanding this,
any such adjustments to the Exercise Prices and Adjustment Prices shall take
effect immediately upon any Warrant holder electing any such adjustments.
Adjustment Price ($) Exercise Price ($) Additional Shares Per Warrant
--------------------- ------------------------- -----------------------------
20.01 or greater 7.00 0.00
17.51 - 20.00 7.00 0.33
15.01 - 17.50 7.00 0.667
12.01 - 15.00 7.00 1.00
10.01 - 12.00 6.50 1.25
8.01 - 10.00 6.00 1.50
6.01 - 8.00 5.00 1.75
4.01 - 6.00 4.00 2.00
2.01 - 4.00 3.00 2.25
0.00 - 2.00 2.00 2.50
For purposes of illustration, if the Common Stock price is $9.00 per
share, the total number of Warrant Shares will be 2,500,000.
If any adjustment to the Exercise Price is made pursuant to Section 10
hereof, the Adjustment Prices shall be adjusted in like manner as set forth in
Section 10 hereof. The
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Exercise Prices set forth above are subject to the adjustments set forth in
Section 10 hereto. If during the Adjustment Period it is possible for a holder
of Warrants to adjust the Exercise Price and such holder elects to do so, he
must inform the Company in writing of such election. The Company will then be
obligated to notify such electing holder and all other holders of Warrants in
writing within three (3) Business Days of receipt of the election by the holder
of the new Exercise Price for such holder's Warrants and/or the number of
Additional Shares to which such holder is entitled. Such new Exercise Price and
such entitlement to Additional Shares shall remain the Exercise Price and such
entitlement to Additional Shares for such Warrants until such time, if any, as
the then holder elects to re-adjust the Exercise Price and such entitlement to
Additional Shares of the Warrants then held by such holder. If any other holder
of Warrants, upon receipt of a notice from the Company, wishes to adjust the
Exercise Price in respect of the Warrants held by him, he may do so by notifying
the Company accordingly in writing within fifteen (15) Business Days of the
receipt of notice from the Company. Upon such notification in writing, the
Exercise Price of Warrants and the number of Additional Shares for which such
Warrants may be exercised shall be adjusted by the Company with effect from the
date of his receipt of notification from the Company.
Notwithstanding any provision in this Agreement to the contrary, in
the event that the Stock Purchase Agreement is terminated (other than as a
result of a default by the Purchaser of its obligations under the Stock Purchase
Agreement), the Exercise Price of each Warrant shall immediately be adjusted to
one cent ($0.01).
A Warrant may be exercised upon surrender to the Company at its office
designated for such purpose (the address of which is set forth in Section 14
hereof) of the certificate or certificates evidencing the Warrants to be
exercised with the form of election to purchase on the reverse thereof duly
filled in and signed, which signature shall be guaranteed by a bank or trust
company having an office or correspondent in the United States or a broker or
dealer which is a member of a registered securities exchange or the National
Association of Securities Dealers, Inc. (the "NASD"), and upon payment to the
Company of the exercise price (the "Exercise Price") which is set forth in the
form of Warrant Certificate attached hereto as Exhibit A as adjusted as herein
provided, for the number of Warrant Shares in respect of which such Warrants are
then exercised. Payment of the aggregate Exercise Price shall be made, at the
option of the Warrant holder (i) in cash or by certified or official bank check
payable to the order of the Company, (ii) through the surrender of debt or
preferred equity securities of the Company having a principal amount or
liquidation preference, as the case may be, equal to the aggregate Exercise
Price to be paid (the Company will pay the accrued interest or dividends on such
surrendered debt or preferred equity securities in cash at the time of surrender
notwithstanding the stated terms thereof), or (iii) in the manner provided in
the first paragraph of this Section 5.
Subject to the provisions of Section 6 hereof, upon such surrender of
Warrants and payment of the Exercise Price, the Company shall issue and cause to
be delivered with all reasonable dispatch to or upon the written order of the
holder and in such name or names as the Warrant holder may designate, a
certificate or certificates for the number of full Warrant Shares issuable upon
the exercise of such Warrants together with cash as provided in Section 11;
provided, however, that if any consolidation, merger or lease or sale of assets
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is proposed to be
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effected by the Company as described in Section 10(m) hereof, or a tender offer
or an exchange offer for shares of Common Stock of the Company shall be made,
upon such surrender of Warrants and payment of the Exercise Price as aforesaid,
the Company shall, as soon as possible, but in any event not later than two
business days thereafter, issue and cause to be delivered the full number of
Warrant Shares issuable upon the exercise of such Warrants in the manner
described in this sentence together with cash as provided in Section 11. Such
certificate or certificates shall be deemed to have been issued and any person
so designated to be named therein shall be deemed to have become a holder of
record of such Warrant Shares as of the date of the surrender of such Warrants
and payment of the Exercise Price.
The Warrants shall be exercisable, at the election of the holders
thereof, either in full or from time to time in part and, in the event that a
certificate evidencing Warrants is exercised in respect of fewer than all of the
Warrant Shares issuable on such exercise at any time prior to the date of
expiration of the Warrants, a new certificate evidencing the remaining Warrant
or Warrants will be issued and delivered by the Company and at its expense
pursuant to the provisions of this Section and of Section 2 hereof.
All Warrant Certificates surrendered upon exercise of Warrants shall
be canceled and disposed of by the Company. The Company shall keep copies of
this Agreement and any notices given or received hereunder available for
inspection by the holders during normal business hours at its office.
SECTION 6. Payment of Taxes. The Company will pay all documentary stamp taxes
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attributable to the initial issuance of Warrant Shares upon the exercise of
Warrants; provided, however, that the Company shall not be required to pay any
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tax or taxes which may be payable in respect of any transfer involved in the
issue of any Warrant Certificates or any certificates for Warrant Shares in a
name other than that of the registered holder of a Warrant Certificate
surrendered upon the exercise of a Warrant, and the Company shall not be
required to issue or deliver such Warrant Certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid.
SECTION 7. Mutilated or Missing Warrant Certificates. In case any of the
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Warrant Certificates shall be mutilated, lost, stolen or destroyed, the Company
may in its discretion issue, in exchange and substitution for and upon
cancellation of the mutilated Warrant Certificate, or in lieu of and
substitution for the Warrant Certificate lost, stolen or destroyed, a new
Warrant Certificate of like tenor and representing an equivalent number of
Warrants, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction of such Warrant Certificate and
indemnity, if requested, also reasonably satisfactory to it. Applicants for such
substitute Warrant Certificates shall also comply with such other reasonable
regulations and pay such other reasonable charges as the Company may prescribe.
SECTION 8. Reservation of Warrant Shares. The Company will at all times reserve
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and keep available, free from preemptive rights, out of the aggregate of its
authorized but unissued Common Stock or its authorized and issued Common Stock
held in its treasury, for the
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purpose of enabling it to satisfy any obligation to issue Warrant Shares upon
exercise of Warrants, the maximum number of shares of Common Stock which may be
deliverable upon the exercise of all outstanding Warrants as determined in good
faith by the Board of Directors from time to time based on the Exercise Price
in effect at such time.
The Company or, if appointed, the transfer agent for the Common Stock
(the "Transfer Agent") and every subsequent transfer agent for any shares of the
Company's capital stock issuable upon the exercise of any of the rights of
purchase aforesaid will be irrevocably authorized and directed at all times to
reserve such number of authorized shares as shall be required for such purpose.
The Company will keep a copy of this Agreement on file with the Transfer Agent
and with every subsequent transfer agent for any shares of the Company's capital
stock issuable upon the exercise of the rights of purchase represented by the
Warrants. The Company will furnish such Transfer Agent a copy of all notices of
adjustments and certificates related thereto, transmitted to each holder
pursuant to Section 13 hereof.
The Company covenants that all Warrant Shares which may be issued upon
exercise of Warrants will, upon issue, be fully paid, nonassessable, free of
preemptive rights and free from all taxes, liens, charges and security interests
with respect to the issue thereof.
SECTION 9. Stock Exchange Listings. The Company will from time to time take all
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action, at its expense, which may be necessary so that the Warrant Shares,
immediately upon their issuance upon the exercise of Warrants, will be listed
and maintained on the principal securities exchanges and markets within the
United States of America, if any, on which other shares of Common Stock are then
listed and register under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), all shares of Common Stock from time to time issuable upon
exercise if and at the time that any existing shares of the Company's capital
stock are so registered.
SECTION 10. Adjustment of Exercise Price and Number of Warrant Shares Issuable.
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The Exercise Price and the number of Warrant Shares issuable upon the exercise
of each Warrant are subject to adjustment from time to time upon the occurrence
of the events enumerated in this Section 10. For purposes of this Section 10,
"Common Stock" means shares now or hereafter authorized of any class of common
stock of the Company, including the Common Stock, and any other stock of the
Company, howsoever designated, authorized after this date hereof, has the right
(subject always to prior rights of any class or series of preferred stock) to
participate in any distribution of the assets and earnings of the Company
without limit as to per share amount.
(a) If the Company:
(i) pays a dividend or makes a distribution on its Common Stock in shares
of its Common Stock;
(ii) subdivides its outstanding shares of Common Stock into a greater
number of shares;
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(iii) combines its outstanding shares of Common Stock into a smaller number
of shares; or
(iv) issues by reclassification of its Common Stock any shares of its
capital stock;
then the Exercise Price in effect immediately prior to such action shall be
adjusted so that each holder of a Warrant thereafter converted may receive the
number of shares of capital stock of the Company which he would have owned
immediately following such action if he had exercised such Warrant immediately
prior to such action. The adjustment shall become effective immediately after
the record date in the case of a dividend or distribution and immediately after
the effective date of a subdivision, combination or reclassification. Such
adjustment shall be made successively whenever any event listed above shall
occur. If, after an adjustment referred to in clauses (i) through (iv) above, a
holder of a Warrant upon exercise of it may receive shares of two or more
classes of capital stock of the Company, the Company shall determine the
allocation of the adjusted Exercise Prices between the classes of capital stock.
After such allocation, the Exercise Price of each class of capital stock shall
thereafter be subject to adjustment on terms comparable to those applicable to
Common Stock in this Section 10(a).
(b) If the Company distributes any rights or warrants to all holders of its
Common Stock entitling them to purchase shares of Common Stock at a price
per share less than the current market price per share on the record date
mentioned below, the Exercise Price shall be adjusted in accordance with
the formula:
NxP
---
C'= C x O + M
-----
O + N
where:
C' = the adjusted Exercise Price.
C = the then current Exercise Price.
O = the number of shares of Common Stock outstanding on the
record date.
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N = the number of additional shares of Common Stock offered.
P = the offering price per share of the additional shares of
Common Stock.
M = the Current Market Price per share of Common Stock on the
record date.
The adjustment shall be made successively whenever any such rights or
warrants are issued and shall become effective immediately after the record date
for the determination of stockholders entitled to receive the rights or
warrants. If at the end of the period during which such rights or warrants are
exercisable, not all rights or warrants shall have been exercised, the Exercise
Price shall be immediately readjusted to what it would have been if "N" in the
above formula had been the number of shares actually issued.
(c) If the Company distributes to all holders of shares of its Common Stock (i)
any shares of any class of capital stock of the Company other than its
Common Stock, (ii) any evidence of indebtedness or other securities of the
Company or any subsidiary of the Company, (iii) any other assets of the
Company or any subsidiary of the Company (other than cash), (iv)
distributions in cash in excess of three percent (3%) of net earnings
before extraordinary items of the Company for the previous fiscal year or
(v) any rights, options or warrants to acquire any of the foregoing (other
than rights, options or warrants referred to in Section 10(b) above), the
Exercise Price shall be adjusted in accordance with the formula:
C'= C x M - F
-----
M
where:
C' = the adjusted Exercise Price.
C = the then current Exercise Price.
M = the Current Market Price per share of Common Stock on the
record date mentioned below.
F = the fair market value on the record date of the capital
stock, securities, indebtedness, assets, rights, options or
warrants applicable to one share of Common Stock or if the
adjustment pursuant to this Section 10(c) being made in
respect of a cash dividend, the total amount of cash to be
distributed at such time to holders of Common Stock. The
Board of Directors of the Company shall determine the fair
market value.
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The adjustment shall be made successively whenever any such
distribution is made and shall become effective immediately after the record
date for the determination of stockholders entitled to receive the distribution.
(d) If the Company issues shares of Common Stock for a consideration per share
less than the Current Market Price per share on the date the Company fixes
the offering price of such additional shares, the Exercise Price shall be
adjusted in accordance with the formula:
P
-
C'= C x O + M
-----
A
where:
C' = the adjusted Exercise Price.
C = the then current Exercise Price.
O = the number of shares outstanding immediately prior to the
issuance of such additional shares.
P = the aggregate consideration received for the issuance of such
additional shares.
M = the Current Market Price per share on the date of issuance of
such additional shares.
A = the number of shares outstanding immediately after the
issuance of such additional shares.
The adjustment shall be made successively whenever any such issuance
is made, and shall become effective immediately after such issuance. This
Section 10(d) does not apply to (i) any transaction or issuance described in
Section 10(b) or Section 10(c) above or Section 10(e) below, (ii) the conversion
of Class AA Preferred Stock, Class AB Preferred Stock, Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock
or the conversion, exchange or exercise of other securities convertible into or
exchangeable or exercisable for Common Stock whose issuance was subject to an
adjustment pursuant to Section 10(b) or Section 10(c) above or Section 10(e)
below, (iii) Common Stock issued to the Company's employees under bona fide
employee benefit plans adopted by the Board of Directors of the Company and
approved by the holders of Common Stock when required by law, if such Common
Stock would otherwise be covered by this Section 10(d) (but only to the extent
that the aggregate number of shares excluded hereby (together with the aggregate
number of shares issuable upon conversion, exchange or exercise of the
securities excluded by clause (iii) of
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Section 10(e) below) and issued after the Initial Issue Date shall not exceed 5%
of the Common Stock outstanding at the time of any such issuance), (iv) Common
Stock issued to acquire, or in the acquisition of, all or any portion of a
business, in an arm's-length transaction between the Company and an unaffiliated
third party, whether such acquisition shall be effected by purchase of assets,
exchange of securities, merger, consolidation or otherwise, or (v) Common Stock
issued in a bona fide public offering pursuant to a firm commitment
underwriting.
(e) If the Company issues any options, warrants or other securities convertible
into or exchangeable or exercisable for Common Stock (other than Class AA
Preferred Stock, Class AB Preferred Stock, Series A Preferred Stock, Series
B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock or
securities issued in transactions described in Section 10(b) or Section
10(c) above) and for a consideration per share of Common Stock initially
deliverable upon conversion, exchange or exercise of such securities less
than the Current Market Price per share on the date of issuance of such
options, warrants or other securities, the Exercise Price shall be adjusted
in accordance with the formula:
P
-
C'= C x O + M
-----
O + D
where:
C' = the adjusted Exercise Price.
C = the then current Exercise Price.
O = the number of shares outstanding immediately prior to the
issuance of such securities.
P = the aggregate consideration received for the issuance of
such securities.
M = the Current Market Price per share on the date of issuance
of such securities.
D = the maximum number of shares deliverable upon conversion or
in exchange for or upon exercise of such securities at the
initial conversion, exchange or exercise rate.
The adjustment shall be made successively whenever any such issuance
is made, and shall become effective immediately after such issuance. If all of
the Common Stock deliverable upon conversion, exchange or exercise of such
securities has not been issued when such securities are no longer outstanding,
then the Exercise Price shall promptly be readjusted to the Exercise Price which
would then be in effect had the adjustment upon the issuance of such
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securities been made on the basis of the actual number of shares of Common Stock
issued upon conversion, exchange or exercise of such securities. This Section
10(e) does not apply to (i) the issuance of any such securities to acquire, or
in the acquisition of, all or any portion of a business, in an arm's-length
transaction between the Company and an unaffiliated third party, whether such
acquisition shall be effected by purchase of assets, exchange of securities,
merger, consolidation or otherwise, (ii) the issuance of any such securities in
a bona fide public offering pursuant to a firm commitment underwriting, or (iii)
the issuance of any such securities to the Company's employees under bona fide
employee benefit plans adopted by the Board of Directors of the Company and
approved by the holders of Common Stock when required by law, if such securities
would otherwise by covered by this Section 10(e) (but only to the extent that
the aggregate number of shares issuable upon the conversion, exchange or
exercise of the aggregate number of securities excluded hereby (together with
the aggregate number of shares excluded by clause (iii) of Section 10(d) above)
and issued after the Initial Issue Date shall not exceed 5% of the Common Stock
outstanding at the time of any such issuance).
The reduction shall become effective immediately prior to the opening of
business on the day following the Expiration Time.
(f) Current Market Price.
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In Sections 10(b)-(e) the current market price per share of Common
Stock on any date is the average of the Quoted Prices of the Common Stock for 30
consecutive Trading Days commencing 45 trading days before the date in question
(the "Current Market Price"). "Trading Day" means, with respect to any
security, any day on which any market in which the applicable security is then
traded and in which a Quoted Price may be ascertained is open for business. The
"Quoted Price" means, with respect to Common Stock, the last reported sales
price for Common Stock as reported by the NASD Automatic Quotations System,
National Market System, or, if the Common Stock is listed or admitted for
trading on a securities exchange, the last reported sales price of the Common
Stock on the principal exchange on which the Common Stock is listed or admitted
for trading (which shall be for consolidated trading if applicable to such
exchange), or if not so reported or listed or admitted for trading, the last
reported bid price of the applicable security in the over-the-counter market. In
the event that the Quoted Price cannot be determined as aforesaid, the Board of
Directors of the Company shall determine the Quoted Price on the basis of such
quotations as it in good faith considers appropriate. Such determination may be
challenged in good faith by a majority of holders of Warrants, and any dispute
shall be resolved at the Company's cost, by an investment banking firm of
recognized national standing selected by the Company and acceptable to such
holders of Warrants and shall be made in good faith and be conclusive absent
manifest error provided, however, if the Quoted Price as determined by the Board
-----------------
of Directors of the Company is more than 110% of the price determined by the
investment banking firm, then the costs incurred by such investment banking firm
shall be borne by the Warrant holders who challenged such price.
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(g) Consideration Received.
----------------------
For purposes of any computation respecting consideration received
pursuant to Sections 10(d)-(e), the following shall apply:
(i) in the case of the issuance of shares of Common Stock for cash, the
consideration shall be the amount of such cash, provided that in no case
shall any deduction be made for any commissions, discounts or other
expenses incurred by the Company for any underwriting of the issue or
otherwise in connection therewith;
(ii) in the case of the issuance of shares of Common Stock for a
consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair market value thereof as determined
in good faith by the Board of Directors, (irrespective of the accounting
treatment thereof);
(iii) in the case of the issuance of options, warrants or other
securities convertible into or exchangeable or exercisable for shares, the
aggregate consideration received therefor shall be deemed to be the
consideration received by the Company for the issuance of such securities
plus the additional minimum consideration, if any, to be received by the
Company upon the conversion, exchange or exercise thereof (the
consideration in each case to be determined in the same manner as provided
in clauses (i) and (ii) of this section)
(h) No adjustment in the Exercise Price need be made unless the adjustment
would require an increase or decrease of at least 1% in the Exercise Price.
Any adjustments that are not made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this Section
shall be made to the nearest cent or to the nearest 1/100th of a share, as
the case may be.
(i) To the extent the Warrants become convertible into cash, no adjustment need
be made thereafter as to the cash. Interest will not accrue on the cash.
(j) Whenever the Exercise Price is adjusted, the Company shall provide the
notices required by Section 13 hereof.
(k) The Company from time to time may reduce the Exercise Price by any amount
for any period of time if the period is at least 20 Business Days and if
the reduction is irrevocable during the period but in no event may the
Exercise Price be less than the par value of a share of Common Stock.
Whenever the Exercise Price is reduced, the Company shall mail to Warrant
holders a notice of the reduction first class, postage prepaid. The Company
shall mail the notice at least 15 days before the date the reduced Exercise
Price takes effect. The notice shall state the reduced Exercise Price and
the period it will be in effect. A reduction of the Exercise Price does not
change or adjust the Exercise Price otherwise in effect for purposes of
Sections 10(a)-(e).
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(l) If:
(i) the Company takes any action that would require an adjustment in the
Exercise Price pursuant to Sections 10(a)-(e) and if the Company does not
arrange for Warrant holders to participate pursuant to Section 10(h);
(ii) the Company takes any action that would require a supplemental
Warrant Agreement pursuant to Section 10(m); or
(iii) there is a liquidation or dissolution of the Company,
the Company shall mail to Warrant holders a notice stating the proposed record
date for a dividend or distribution or the proposed effective date of a
subdivision, combination, reclassification, consolidation, merger, transfer,
lease, liquidation or dissolution. The Company shall mail the notice at least
15 days before such date. Failure to mail the notice or any defect in it shall
not affect the validity of the transaction.
(m) If the Company consolidates or merges with or into, or transfers or leases
all or substantially all its assets to, any person, upon consummation of
such transaction the Warrants shall automatically become exercisable for
the kind and amount of securities, cash or other assets which the holder of
a Warrant would have owned immediately after the consolidation, merger,
transfer or lease if the holder had exercised the Warrant immediately
before the effective date of the transaction. Concurrently with the
consummation of such transaction, the Company formed by or surviving any
such consolidation or merger if other than the Company, or the person to
which such sale or conveyance shall have been made, shall enter into a
supplemental Warrant Agreement so providing and further providing for
adjustments which shall be as nearly equivalent as may be practical to the
adjustments provided for in this Section. The successor Company shall mail
to Warrant holders a notice describing the supplemental Warrant Agreement.
If the issuer of securities deliverable upon exercise of Warrants
under the supplemental Warrant Agreement is an affiliate of the formed,
surviving, transferee or lessee Company, that issuer shall join in the
supplemental Warrant Agreement.
If this Section 10(m) applies, Sections 10(a)-(e) do not apply.
(n) In addition, in the event that any other transaction or event occurs to
which the foregoing Exercise Price adjustment provisions are not strictly
applicable but the failure to make any adjustment would adversely affect
the rights represented by the Warrants in accordance with the essential
intent and principles of such provisions, then, in each such case, the
Company shall appoint an investment banking firm of recognized national
standing, or any other financial expert that does not (or whose directors,
officers, employees, affiliates or stockholders do not) have a direct or
material indirect financial interest in the Company or any of its
subsidiaries, who has not been, and, at the time it is called upon to give
independent financial advice to the Company, is not (and none of its
directors, officer, employees, affiliates or stockholders are) a promoter,
director or officer of the Company or any of its subsidiaries, which
13
will give their opinion upon the adjustment, if any, on a basis consistent
with the essential intent and principles established in the foregoing
Exercise Price adjustment provisions, necessary to preserve, without
dilution, the rights represented by the Warrants. Upon receipt of such
opinion or determination, the Company shall promptly mail a copy thereof to
the Warrant holders and will make the adjustments described therein.
(o) Except as provided in the immediately following sentence, any determination
that the Company or its Board of Directors must make pursuant to Section 10
shall be conclusive. Whenever the Company, its Board of Directors or the
Non-Preferred Stock Directors shall be required to make a determination
under this Section 10, such determination shall be made in good faith and
may be challenged in good faith by the holders of a majority of Warrants
and any dispute shall be resolved at the Company's expense, by an
investment banking firm of recognized national standing selected by the
Company and acceptable to such Warrant holders; provided, however, that in
-------- -------
the event the determination by the Board of Directors of the Company is
more than 110% of the price determined by the investment banking firm, then
the costs incurred by such investment banking firm shall be borne by the
Warrant holders who challenged such price.
(p) In any case in which this Section 10 shall require that an adjustment in
the Exercise Price be made effective as of a record date for a specified
event, the Company may elect to defer until the occurrence of such event
(i) issuing to the holder of any Warrant exercised after such record date
the Warrant Shares and other capital stock of the Company, if any, issuable
upon such exercise over and above the Warrant Shares and other capital
stock of the Company, if any, issuable upon such exercise on the basis of
the Exercise Price and (ii) paying to such holder any amount in cash in
lieu of a fractional share pursuant to Section 11; provided, however, that
-------- --------
that the Company shall deliver to such holder a due ▇▇▇▇ or other
appropriate instrument evidencing such holder's right to receive such
additional Warrant Shares, other capital stock and cash upon the occurrence
of the event requiring such adjustment.
(q) Upon each adjustment of the Exercise Price pursuant to this Section 10,
each Warrant outstanding prior to the making of the adjustment in the
Exercise Price shall thereafter evidence the right to receive upon payment
of the adjusted Exercise Price that number of shares of Common Stock
(calculated to the nearest hundredth) obtained from the following formula:
N' = N x (E/E')
where:
N' = the adjusted number of Warrant Shares issuable upon exercise of a
Warrant by payment of the adjusted Exercise Price.
N = the number or Warrant Shares previously issuable upon exercise of a
Warrant by payment of the Exercise Price prior to adjustment.
E' = the adjusted Exercise Price.
14
E = the Exercise Price prior to adjustment.
(r) Irrespective of any adjustments in the Exercise Price or the number or kind
of shares purchasable upon the exercise of the Warrants, Warrants therefore
or thereafter issued may continue to express the same price and number and
kind of shares as are stated in the Warrants initially issuable pursuant to
this Agreement.
SECTION 11. Fractional Interests. The Company shall not be required to issue
--------------------
fractional Warrant Shares on the exercise of Warrants. If more than one Warrant
shall be presented for exercise in full at the same time by the same holder, the
number of full Warrant Shares which shall be issuable upon the exercise thereof
shall be computed on the basis of the aggregate number of Warrant Shares
purchasable on exercise of the Warrants so presented. If any fraction of a
Warrant Share would, except for the provisions of this Section 11, be issuable
on the exercise of any Warrants (or specified portion thereof), the Company
shall pay an amount in cash equal to the Exercise Price on the day immediately
preceding the date the Warrant is presented for exercise, multiplied by such
fraction.
SECTION 12. Financial Statements.
--------------------
(a) Whether or not required by the rules and regulations of the Securities and
Exchange Commission (the "Commission"), so long as any of the Warrants
remain outstanding, the Company shall furnish to the Warrant Holder (i) all
quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K if the
Company were required to file such Forms, including "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and, with respect to the annual information only, a report thereon by the
Company's certified independent accountants and (ii) all current reports
that would be required to be filed with the Commission on Form 8-K if the
Company were required to file such reports. In addition, whether or not
required by the rules and regulations of the Commission, the Company shall
file a copy of all such information and reports with the Commission for
public availability (unless the Commission will not accept such a filing)
and make such information available to securities analysts and prospective
investors upon request. In addition, for so long as any Warrant remains
outstanding, the Company shall furnish to the Warrant Holder and to
securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.
(b) The Company shall, so long as any of the Warrants are outstanding, deliver
to the Warrant Holder, forthwith upon any Executive Officer of the Company
becoming aware of any default under this Agreement, an Officers'
Certificate specifying such default and what action the Company is taking
or proposes to take with respect thereto.
SECTION 13. Notices to Warrant Holder. Upon any adjustment of the Exercise
-------------------------
Price pursuant to Section 10, the Company shall promptly thereafter (i) cause to
be filed with the Company a certificate of a firm of independent public
accountants of recognized standing selected by the Board of Directors of the
Company (who may be the regular auditors of the Company) setting forth the
Exercise Price after such adjustment and setting forth in
15
reasonable detail the method of calculation and the facts upon which such
calculations are based and setting forth the number of Warrant Shares (or
portion thereof) issuable after such adjustment in the Exercise Price, upon
exercise of a Warrant and payment of the adjusted Exercise Price, which
certificate shall be conclusive evidence of the correctness of the matters set
forth therein, and (ii) cause to be given to each of the registered holders of
the Warrant Certificates at his address appearing on the Warrant register
written notice of such adjustments by first-class mail, postage prepaid. Where
appropriate, such notice may be given in advance and included as a part of the
notice required to be mailed under the other provisions of this Section 13.
In case:
(a) the Company shall authorize the issuance to all holders of shares of Common
Stock of Rights to subscribe for or purchase shares of Common Stock or of
any other subscription rights or warrants; or
(b) the Company shall authorize the distribution to all holders of shares of
Common Stock of evidences of its indebtedness or assets (other than cash
dividends or cash distributions payable out of consolidated earnings or
earned surplus or dividends payable in shares of Common Stock or
distributions referred to in Section 10(a) hereof); or
(c) of any consolidation or merger to which the Company is a party and for
which approval of any shareholders of the Company is required, or of the
conveyance or transfer of the properties and assets of the Company
substantially as an entirety, or of any reclassification or change of
Common Stock issuable upon exercise of the Warrants (other than a change in
par value, or from par value to no par value, or from no par value to par
value, or as a result of a subdivision or combination), or a tender offer
or exchange offer for shares of Common Stock; or
(d) of the voluntary or involuntary dissolution, liquidation or winding up of
the Company; or
(e) the Company proposes to take any action (other than actions of the
character described in Section 10(a)) which would require an adjustment of
the Exercise Price pursuant to Section 10; then the Company shall cause to
be given to each of the registered holders of the Warrant Certificates at
his address appearing on the Warrant register, at least 20 days prior to
the applicable record date hereinafter specified, or promptly in the case
of events for which there is no record date, by first-class mail, postage
prepaid, a written notice stating (i) the date as of which the holders of
record of shares of Common Stock to be entitled to receive any such Rights
or distribution are to be determined, or (ii) the initial expiration date
set forth in any tender offer or exchange offer for shares of Common Stock,
or (iii) the date on which any such consolidation, merger, conveyance,
transfer, dissolution, liquidation or winding up is expected to become
effective or consummated, and the date as of which it is expected that
holders of record of shares of Common Stock shall be entitled to exchange
such shares for securities or other property, if any, deliverable upon such
reclassification, consolidation, merger, conveyance, transfer, dissolution,
liquidation or winding up. The failure to give the notice required by this
Section 13 or any defect therein shall not affect the legality or validity
of any distribution, right,
16
option, warrant, consolidation, merger, conveyance, transfer, dissolution,
liquidation or winding up, or the vote upon any action.
Nothing contained in this Agreement or in any of the Warrant
Certificates shall be construed as conferring upon the holders thereof the right
to vote or to consent or to receive notice as shareholders in respect of the
meetings of shareholders or the election of Directors of the Company or any
other matter, or any rights whatsoever as shareholders of the Company.
SECTION 14. Notices to Company and Warrant Holder. Any notice or demand
-------------------------------------
authorized by this Agreement to be given or made by the registered holder of any
Warrant Certificate to or on the Company shall be sufficiently given or made
when and if deposited in the mail, first class or registered, postage prepaid,
addressed to the office of the Company expressly designated by the Company at
its office for purposes of this Agreement (until the Warrant holders are
otherwise notified in accordance with this Section by the Company), as follows:
The Fortress Group, Inc.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: J. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Any notice pursuant to this Agreement to be given by the Company to
the registered holder(s) of any Warrant Certificate shall be sufficiently given
when and if deposited in the mail, first-class or registered, postage prepaid,
addressed (until the Company is otherwise notified in accordance with this
Section by such holder) to such holder at the address appearing on the Warrant
register of the Company.
SECTION 15. Supplements and Amendments. The Company may from time to time
--------------------------
supplement or amend this Agreement without the approval of any holders of
Warrant Certificates in order to cure any ambiguity or to correct or supplement
any provision contained herein which may be defective or inconsistent with any
other provision herein, or to make any other provisions in regard to matters or
questions arising hereunder which the Company may deem necessary or desirable
and which shall not in any way adversely affect the interests of the holders of
Warrant Certificates.
SECTION 16. Successors. All the covenants and provisions of this Agreement by
----------
or for the benefit of the Company shall bind and inure to the benefit of its
respective successors and assigns hereunder.
SECTION 17. Termination. This Agreement shall terminate at 11:59 p.m., Eastern
-----------
Standard Time on September 30, 2004. Notwithstanding the foregoing, this
Agreement will terminate on any earlier date if all Warrants have been
exercised.
17
SECTION 18. Governing Law. This Agreement and each Warrant Certificate issued
-------------
hereunder shall be deemed to be a contract made under the laws of the State of
New York and for all purposes shall be construed in accordance with the internal
laws of said State.
SECTION 19. Benefits of This Agreement. Nothing in this Agreement shall be
--------------------------
construed to give to any person or Company other than the Company and the
registered holders of the Warrant Certificates any legal or equitable right,
remedy or claim under this Agreement; but this Agreement shall be for the sole
and exclusive benefit of the Company and the registered holders of the Warrant
Certificates.
SECTION 20. HSR Act. Promptly (but in no event later than five days) after
-------
receipt of notice from any Warrant Holder of its intention to exercise any
Warrants, the Company shall make all filings required to be made under the ▇▇▇▇-
▇▇▇▇▇-▇▇▇▇▇▇ Improvements Act of ▇▇▇▇ (▇▇▇ "▇▇▇ ▇▇▇") in connection with such
exercise. The applicable waiting period, including any extension thereof, under
the HSR Act shall have expired or been terminated prior to the issuance of any
Warrant Shares upon exercise of Warrants.
SECTION 21. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
[Signature Page Follows]
18
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed, as of the day and year first above written.
THE FORTRESS GROUP, INC.
By:______________________________________
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:
19
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
EXERCISABLE ON OR BEFORE SEPTEMBER 30, 2004
No. _____ Warrants
Warrant Certificate
THE FORTRESS GROUP, INC.
This Warrant Certificate certifies that [ ] or registered
assigns, is the registered holder of Warrants expiring September 30, 2004 (the
"Warrants") to purchase Common Stock, $0.01 par value (the "Common Stock"), of
The Fortress Group, Inc., a Delaware Company (the "Company"). Each Warrant
entitles the holder upon exercise to receive from the Company on or before 11:59
p.m. on New York City time, on September 30, 2004, one fully paid and
nonassessable share of Common Stock (a "Warrant Share") at the exercise price of
$7.00 (the "Exercise Price"), payable in lawful money of the United States of
America upon surrender of this Warrant Certificate and payment of the Exercise
Price at the office of the Company designated for such purpose, but only subject
to the conditions set forth herein and in the Warrant Agreement. The Exercise
Price and number of Warrant Shares issuable upon exercise of the Warrants are
subject to adjustment upon the occurrence of certain events set forth in the
Warrant Agreement.
No Warrant may be exercised after 11:59 p.m., New York City time, on
September 30, 2004, and to the extent not exercised by such time such Warrants
shall become void.
Reference is hereby made to the further provisions of this Warrant
Certificate set forth on the reverse hereof and such further provisions shall
for all purposes have the same effect as though fully set forth at this place.
This Warrant Certificate shall not be valid unless countersigned by
the Company, as such term is used in the Warrant Agreement.
20
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be signed by its President and by its Secretary and has caused its corporate
seal to be affixed hereunto or imprinted hereon.
Dated:
THE FORTRESS GROUP, INC.
By ______________________
President
By ______________________
Secretary
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[FORM OF WARRANT CERTIFICATE]
[REVERSE]
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants expiring September 30, 2004, entitling the holder
on exercise to receive shares of Common Stock, $0.01 par value, of the Company
(the "Common Stock"), and are issued or to be issued pursuant to a Warrant
Agreement dated as of September 30, 1997 (the "Warrant Agreement"), duly
executed and delivered by the Company, which Warrant Agreement is hereby
incorporated by reference in and made a part of this instrument and is hereby
referred to for a description of the rights, limitation of rights, obligations,
duties and immunities thereunder of the Company and the holders (the words
"holders" or "holder" meaning the registered holders or registered holder) of
the Warrants (the "Warrant Holder"). A copy of the Warrant Agreement may be
obtained by the holder hereof upon written request to the Company.
Warrants may be exercised at any time on or before September 30, 2004.
The holder of Warrants evidenced by this Warrant Certificate may exercise them
by surrendering this Warrant Certificate, with the form of election to purchase
set forth hereon properly completed and executed, together with payment of the
Exercise Price in cash at the office of the Company designated for such purpose.
In the alternative, each Warrant Holder may exercise its right, during the
Exercise Period, as defined in the Warrant Agreement, to receive Warrant Shares
on a net basis, such that, without the exchange of any funds, the Warrant Holder
receives that number of Warrant Shares otherwise issuable (or payable) upon
exercise of its Warrants less that number of Warrant Shares having an aggregate
fair market value (as defined below) at the time of exercise equal to the
aggregate Exercise Price that would otherwise have been paid by the Warrant
Holder of the Warrant Shares. For purposes of the foregoing sentence, "fair
market value" of the Warrant Shares will be determined in good faith by the Non-
Preferred Stock Directors of the Company, as defined in the Warrant Agreement,
as of the date of any such exercise. In the event that upon any exercise of
Warrants evidenced hereby the number of Warrants exercised shall be less than
the total number of Warrants evidenced hereby, there shall be issued to the
holder hereof or his assignee a new Warrant Certificate evidencing the number of
Warrants not exercised. No adjustment shall be made for any dividends on any
Common Stock issuable upon exercise of this Warrant.
The Warrant Agreement provides that upon the occurrence of certain
events the Exercise Price set forth on the face hereof and the number of shares
of Common Stock issuable upon exercise of the Warrants may, subject to certain
conditions, be adjusted. If the Exercise Price is adjusted, the Warrant
Agreement provides that the number of shares of Common Stock issuable upon the
exercise of each Warrant shall be adjusted. No fractions of a share of Common
Stock will be issued upon the exercise of any Warrant, but the Company will pay
the cash value thereof determined as provided in the Warrant Agreement.
The holders of the Warrants are entitled to certain registration
rights with respect to the Common Stock purchasable upon exercise thereof. Said
registration rights are set forth in full in a Registration Rights Agreement
dated as of September 30, 1997, between the Company
22
and the Warrant Holder. A copy of the Registration Rights may be obtained by the
holder hereof upon written request to the Company.
Warrant Certificates, when surrendered at the office of the Company by
the registered holder thereof in person or by legal representative or attorney
duly authorized in writing, may be exchanged, in the manner and subject to the
limitations provided in the Warrant Agreement, but without payment of any
service charge, for another Warrant Certificate or Warrant Certificates of like
tenor evidencing in the aggregate a like number of Warrants.
Upon due presentation for registration of transfer of this Warrant
Certificate at the office of the Company a new Warrant Certificate or Warrant
Certificates of like tenor and evidencing in the aggregate a like number of
Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided in the Warrant Agreement,
without charge except for any tax or other governmental charge imposed in
connection therewith.
The Company may deem and treat the registered holder(s) thereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, of any distribution to the holder(s) hereof, and for all other
purposes, and the Company shall not be affected by any notice to the contrary.
Neither the Warrants nor this Warrant Certificate entitles any holder hereof to
any rights of a stockholder of the Company.
23
[FORM OF ELECTION TO PURCHASE]
(TO BE EXECUTED UPON EXERCISE OF WARRANT)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to receive __________ shares of Common
Stock and herewith tenders payment for such shares to the order of The Fortress
Group, Inc. in the amount of $______ or by delivery of ___ Warrants or in
accordance with the terms hereof. The undersigned requests that a certificate
for such shares be registered in the name of ________________, whose address is
_______________________________ and that such shares be delivered to
________________ whose address is ___________ ______________________. If said
number of shares is less than all of the shares of Common Stock purchasable
hereunder after giving effect to any delivery of Warrants in payment of the
Exercise Price, the undersigned requests that a new Warrant Certificate
representing the remaining balance of such shares be registered in the name of
______________, whose address is _________________________, and that such
Warrant Certificate be delivered to _________________, whose address is
__________________.
Signature:
Date:
Signature Guaranteed:
24