-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, S1LoJ2m8gwe0n3zyeXXDkP2CDWQh6vE/3dHiglXONQDwmOEz2TfoiQ/HS7TTbeiv CLu9ykbpiUGVCucMje4+UA== 0000950123-02-006581.txt : 20020627 0000950123-02-006581.hdr.sgml : 20020627 20020627170825 ACCESSION NUMBER: 0000950123-02-006581 CONFORMED SUBMISSION TYPE: SC 14D9 PUBLIC DOCUMENT COUNT: 12 FILED AS OF DATE: 20020627 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: FORTRESS GROUP INC CENTRAL INDEX KEY: 0001010607 STANDARD INDUSTRIAL CLASSIFICATION: GEN BUILDING CONTRACTORS - RESIDENTIAL BUILDINGS [1520] IRS NUMBER: 541774997 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 14D9 SEC ACT: 1934 Act SEC FILE NUMBER: 005-50213 FILM NUMBER: 02689635 BUSINESS ADDRESS: STREET 1: 1650 TYSONS BLVD STREET 2: SUITE 600 CITY: MCLEAN STATE: VA ZIP: 22102 BUSINESS PHONE: 7034424545 MAIL ADDRESS: STREET 1: 1650 TYSONS BLVD STREET 2: SUITE 600 CITY: MCLEAN STATE: VA ZIP: 22102 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: FORTRESS GROUP INC CENTRAL INDEX KEY: 0001010607 STANDARD INDUSTRIAL CLASSIFICATION: GEN BUILDING CONTRACTORS - RESIDENTIAL BUILDINGS [1520] IRS NUMBER: 541774997 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 14D9 BUSINESS ADDRESS: STREET 1: 1650 TYSONS BLVD STREET 2: SUITE 600 CITY: MCLEAN STATE: VA ZIP: 22102 BUSINESS PHONE: 7034424545 MAIL ADDRESS: STREET 1: 1650 TYSONS BLVD STREET 2: SUITE 600 CITY: MCLEAN STATE: VA ZIP: 22102 SC 14D9 1 y61738sc14d9.txt SCHEDULE 14D9 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ SCHEDULE 14D-9 (RULE 14D-101) SOLICITATION/RECOMMENDATION STATEMENT UNDER SECTION 14(d)(4) OF THE SECURITIES EXCHANGE ACT OF 1934 ------------------------ THE FORTRESS GROUP, INC. (NAME OF SUBJECT COMPANY) THE FORTRESS GROUP, INC. (NAME OF PERSONS FILING STATEMENT) COMMON STOCK, PAR VALUE $0.01 PER SHARE (TITLE OF CLASS OF SECURITIES) ------------------------ 34956K207 (CUSIP NUMBER OF CLASS OF SECURITIES) ------------------------ GEORGE C. YEONAS PRESIDENT AND CHIEF EXECUTIVE OFFICER THE FORTRESS GROUP, INC. 1650 TYSONS BOULEVARD, SUITE 600 MCLEAN, VIRGINIA 22102 TELEPHONE: (703) 442-4545 (NAME, ADDRESS AND TELEPHONE NUMBERS OF PERSON AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF THE PERSONS FILING STATEMENT) COPIES TO: DENNIS F. DUNNE, ESQ. MILBANK, TWEED, HADLEY & MCCLOY LLP ONE CHASE MANHATTAN PLAZA NEW YORK, NEW YORK 10005 (212) 530-5000 [ ] Check the box if the filing relates solely to preliminary communications made before the commencement of a tender offer. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ITEM 1. SUBJECT COMPANY INFORMATION NAME AND ADDRESS The name of the subject company to which this Solicitation/Recommendation Statement on Schedule 14D-9 (this "Statement") relates is The Fortress Group, Inc., a Delaware corporation (the "Company"). The address of the Company's principal executive offices is 1650 Tysons Boulevard, Suite 600, McLean, Virginia 22102. The telephone number of the Company's principal executive offices is (703) 442-4545. SECURITIES The title of the class of equity securities to which this Statement relates is the Common Stock, par value $0.01 per share, of the Company (the "Common Stock" or the "Shares"). As of June 19, 2002, not more than 3,120,582 Shares were issued and outstanding. ITEM 2. IDENTITY AND BACKGROUND OF FILING PERSON NAME AND ADDRESS The name, address and telephone number of the Company, which is the person filing this Statement and is also the subject company, are set forth under Item 1 of this Statement. TENDER OFFER AND MERGER This Statement relates to the tender offer by FG Acquisition Corporation, a Delaware corporation (the "Purchaser") and a wholly-owned subsidiary of Lennar Corporation, a Delaware corporation ("Lennar"), as disclosed in a Tender Offer Statement on Schedule TO (the "Schedule TO"), dated June 20, 2002, offering to purchase all of the outstanding shares of Common Stock that are not already owned by the Purchaser, at a price of $3.68 per Share (the "Offer Price"), net to the seller in cash without interest, on the terms and subject to the conditions set forth in the Offer to Purchase, dated June 20, 2002 (the "Offer to Purchase"), and the related Letter of Transmittal (the "Letter of Transmittal" which, together with the Offer to Purchase, as they may be amended and supplemented from time to time, constitute the "Offer"). The Offer will expire at 5:00 p.m., New York City time, on Monday, July 22, 2002, unless it is extended. The Offer is being made pursuant to a Plan and Agreement of Merger, dated as of June 17, 2002 (the "Merger Agreement"), by and among Lennar, the Purchaser and the Company. The Merger Agreement provides, among other things, that following satisfaction or waiver of the conditions set forth in the Merger Agreement, the Purchaser will be merged with and into the Company (the "Merger"), the separate corporate existence of the Purchaser will cease and the Company will continue as the surviving corporation (the "Surviving Corporation"). In the Merger, each Share (other than Shares held in the treasury of the Company, or by Lennar, the Purchaser or any other wholly-owned subsidiary of Lennar, which Shares will be cancelled, and other than Shares, if any, held by stockholders who perfect any appraisal rights they may have under the Delaware General Corporation Law) remaining outstanding, will, by virtue of the Merger and without any action by the holder thereof, be converted into the right to receive the Offer Price in cash. The Merger Agreement is more fully described in Section 13 "The Merger" of the Offer to Purchase, which is incorporated by reference as Exhibit (a)(1) and incorporated herein by reference. The Offer is not conditioned on a minimum number of Shares being tendered. The Purchaser already beneficially owns 678,130 Shares, or 21.7% of the outstanding Shares, which it acquired on June 17, 2002 in accordance with a Securities Purchase Agreement (the "Securities Purchase Agreement") dated that day, among the Purchaser, Lennar, Prometheus Homebuilders LLC ("Prometheus") and Robert Short ("Mr. Short"). Under the Securities Purchase Agreement, the Purchaser also acquired all of the Class AAA preferred stock, par value $0.01 per share, of the Company (the "Preferred Stock"), and acquired or agreed to acquire on August 1, 2002 warrants (the "Supplemental Warrants") which, if exercised, and taking into account the voting power of the Preferred Stock, would increase the Purchaser's voting power to a substantial majority of all the votes which can be cast by the Company's stockholders in respect of the Merger. Subject to 1 the conditions of the Offer, the Purchaser will accept all Shares that are properly tendered in response to the Offer and not withdrawn, regardless of how many Shares that may be. According to the Schedule TO, the principal executive offices of Lennar and the Purchaser are located at 700 N.W. 107th Avenue, Miami, Florida 33172. ITEM 3. PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS Except as described or referred to in the Company's Definitive Proxy Statement filed with the Securities and Exchange Commission on May 7, 2002 (the "Proxy Statement") under the heading "Certain Transactions", a copy of which is incorporated by reference as Exhibit (e)(1) and incorporated herein by reference, or as set forth below, to the knowledge of the Company, there are no material agreements, arrangements or understandings nor any actual or potential conflicts of interests between the Company and its affiliates and (i) the Company, its executive officers and directors or affiliates, or (ii) Lennar or the Purchaser or any of their respective executive officers, directors or affiliates. MERGER AGREEMENT Lennar, the Purchaser and the Company have entered into the Merger Agreement, a copy of which is incorporated by reference as Exhibit (e)(2) and incorporated herein by reference. The description of the terms of the Merger Agreement contained in the Offer to Purchase under the heading "The Merger" is incorporated herein by reference. Pursuant to the Merger Agreement, the Surviving Corporation must honor for at least six years after the date of the Merger Agreement existing obligations of the Company and its subsidiaries to indemnify current and former directors, officers or employees of the Company or its subsidiaries with respect to matters that occur on or prior to the effective time of the Merger. The Surviving Corporation also must maintain in effect for not less than six years after the Effective Time, with respect to occurrences prior to the Effective Time, the Company's policies of directors' and officers' liability insurance currently in effect or substantially similar insurance. SECURITIES PURCHASE AGREEMENT On June 17, 2002, Lennar, Prometheus and Mr. Short entered into the Securities Purchase Agreement pursuant to which Lennar purchased or agreed to purchase from Prometheus and Mr. Short 28,500 shares of Preferred Stock, 678,130 Shares and 5,937,500 Supplemental Warrants to purchase Shares. The Securities Purchase Agreement is filed herewith as Exhibit (e)(3) and incorporated herein by reference. WILSHIRE AGREEMENT On June 14, 2002, two subsidiaries of the Company and certain partnerships (the "Partnerships") indirectly controlled by the Company entered into an agreement with Partnership Acquisition Co. and Condo Acquisition Co. to merge the Partnerships into the acquiring entities in consideration of $23 million in cash (the "Wilshire Sale Agreement"). The acquiring entities are owned by Mr. Edward Horne, the President of the Texas Region of the Company. The Partnerships conducted the Company's business in Austin and San Antonio, Texas. On June 26, 2002, the merger under the Wilshire Sale Agreement was effected. The Wilshire Sale Agreement is filed herewith as Exhibit (e)(4) and incorporated herein by reference. AGREEMENTS WITH MR. SHORT On June 14, 2002, and June 17, 2002, Mr. Short, as President of GCH, Inc., a Colorado corporation ("Custom"), and the Company entered into an Agreement Regarding Name and an Indemnification Agreement, respectively, to induce Lennar and the Purchaser to enter into and carry out the transactions contemplated by the Securities Purchase Agreement. Pursuant to the Agreement Regarding Name, Custom agreed to stop marketing homes presently and in the future under the name "Genesee Custom Homes" or any other name that includes the word "Genesee". Pursuant to the Indemnification Agreement, Custom agreed to 2 indemnify the Company against any liability arising from two lawsuits in the Colorado state courts relating to, among other things, alleged defects in the construction of homes. The Agreement Regarding Name and the Indemnification Agreement are filed herewith as Exhibit (e)(5) and (e)(6), respectively, and are incorporated herein by reference. CONFIDENTIALITY AGREEMENT On September 4, 2001, Lennar and UBS Warburg LLC ("UBS Warburg") on behalf of the Company entered into a confidentiality agreement (the "Confidentiality Agreement") pursuant to which Lennar agreed to use the Evaluation Material (as defined in the Confidentiality Agreement) furnished to it by the Company solely for the purpose of evaluating a possible negotiated transaction between Lennar and the Company and further agreed to keep such material confidential. Lennar agreed for a period of one year that it would refrain from acquiring, seeking or proposing to acquire the Company or any of its securities or to engage in the solicitation of proxies for the Company's securities or otherwise from seeking or proposing to influence or control the Board of Directors of the Company (the "Company Board"), or management or policies of the Company, other than with the consent of the Company Board. In addition, Lennar agreed for a period of one year that it and any of its affiliates would refrain from soliciting to employ any officer or employee of the Company or any of its subsidiaries without obtaining the prior written consent of the Company. The Confidentiality Agreement is filed herewith as Exhibit (e)(7) and incorporated herein by reference. GALLOWAY AGREEMENT On December 21, 2001, the Company sold its interest in Galloway Enterprises, LLC and substantially all of the assets of Landmark Homes, Inc. to NC Builders Acquisition Corp., a newly formed subsidiary of Lennar (the "Galloway Agreement"). The total sale price was approximately $50.0 million, which included approximately $20.0 million in cash and the assumption of secured debt and other liabilities. Galloway conducted the Company's business in Charlotte, North Carolina and in Charleston, South Carolina and Landmark, under the name Sunstar, conducted the Company's business in Raleigh, North Carolina. The Galloway Agreement is incorporated by reference as Exhibit (e)(8) and incorporated herein by reference. PREFERRED STOCK AND SUPPLEMENTAL WARRANTS PREFERRED STOCK Pursuant to a Restructuring Agreement dated December 31, 1998 between the Company and Prometheus (the "Restructuring Agreement"), the Company agreed to issue to Prometheus shares of Preferred Stock having an initial liquidation value of $40.0 million in exchange for the outstanding 40,000 shares of Class AA Convertible Preferred Stock then held by Prometheus. The Restructuring Agreement is incorporated by reference as Exhibit (e)(9) and incorporated herein by reference. The Preferred Stock ranks senior to the Common Stock as to the payment of dividends and distributions upon the dissolution, liquidation or winding up of the Company. The Merger is not deemed to be a dissolution, liquidation or winding up of the Company. Dividends are payable in cash at the annual rate of 9% cumulative and compounded quarterly, on the liquidation value of $1,000 per share. The Preferred Stock is convertible, in whole or in part, at the option of the holder, into the Common Stock, at any time after issuance, at a conversion price of $24.00 per share, subject to customary anti-dilution adjustments. The Preferred Stock votes together with the Common Stock on an as-if-converted basis. Pursuant to the terms of the Preferred Stock, the holders of the Preferred Stock had the right to elect three Preferred Stock directors of the seven-member Company Board. A proportionate number of the Preferred Stock directors also were entitled to serve on each committee of the Company Board. Upon the occurrence of certain events under the Preferred Stock (which consist principally of non-payment of dividends or other obligations), the holders of the Preferred Stock were entitled to elect additional Preferred Stock directors sufficient to constitute a majority of the Company Board and all committees of the Company Board. Due to the certain restrictions in the Senior Note Indenture with respect to the Company's 13.75% Senior 3 Notes due 2003 (the "Senior Note Indenture") that existed during the latter part of 2000 and through the third quarter of 2001, dividends payable, which totaled approximately $1.3 million during that time period, were not paid in a timely manner. On October 11, 2000, Prometheus, as holder of all of the Preferred Stock at such time, sent a notice to the Company reserving its rights to elect a majority of the Company Board. As of the date hereof, the holders of the Preferred Stock have not exercised their rights to elect a majority of the Company Board. These dividends were paid in full on January 15, 2002, but this right continues until the Company has paid dividends currently for four consecutive quarters. Prometheus, as the majority holder of the Preferred Stock, also had certain consent rights, which required the approval of the holders of at least 66 2/3% of the Preferred Stock to effect certain significant corporate actions or transactions, including a merger or sale of substantially all of the assets. Further, under the Company's amended bylaws, and the amended bylaws of the Company's subsidiaries, the Company could not, and could not permit any of its subsidiaries to, engage in or agree to engage in a number of significant actions or transactions without the affirmative vote of over 81% of the Company Board. Therefore, the Company needed the approval of at least two of the three Preferred Stock directors (together with four non-Preferred Stock directors) to engage in any significant actions or transactions. SUPPLEMENTAL WARRANTS In connection with the issuance of the Preferred Stock to Prometheus, the Company also issued the Supplemental Warrants to Prometheus to purchase Common Stock. The exercise price of the Supplemental Warrants is $0.04 per share. The Supplemental Warrants expire on March 31, 2004. The Supplemental Warrants are exercisable for 5,937,500 Shares. The Supplemental Warrants were initially scheduled to become exercisable on September 30, 2001. However, Prometheus and the Company agreed to limit the number of Supplemental Warrants which may be exercised by Prometheus and its affiliates prior to a specified date so that Prometheus would not be deemed to beneficially own 50% or more of the aggregate voting power of the common equity of the Company. The purpose of this agreement was to avoid the occurrence of a change of control under the Senior Note Indenture, which would have required the Company to offer to purchase the outstanding Senior Notes at 101% of the principal amount thereof. Since Lennar is not an affiliate of Prometheus, the Supplemental Warrants owned by them are currently exercisable. PROMETHEUS SALE TO ROBERT SHORT Pursuant to a letter agreement between Prometheus and Mr. Short, dated July 31, 2001, Prometheus sold to Mr. Short 3,500 shares of the Preferred Stock and Supplemental Warrants to purchase 729,167 Shares. Mr. Short paid part of the purchase price of such securities with a promissory note. In addition, pursuant to a Pledge, Security and Voting Trust Agreement, dated July 31, 2001, Prometheus retained a first priority security interest in all of the securities which it sold to Mr. Short as collateral for Mr. Short's promissory note, and Prometheus also retained the right (as voting trustee) to vote all of the 3,500 shares of Preferred Stock which it sold to Mr. Short. Pursuant to the Securities Purchase Agreement, Mr. Short directed the Purchaser to pay to Prometheus a specified sum to constitute payment in full and satisfaction of all obligations under the note between Prometheus and Mr. Short. WAIVER OF CLAIMS By letter dated February 12, 2001, Prometheus delivered to the Company a notice purporting to confirm that Prometheus had elected to exercise its rights under the Restructuring Agreement to have the Company repurchase a portion of the outstanding Shares held by Prometheus. By letter dated February 15, 2001, the Company advised Prometheus that it disagreed that a timely election had been made. Each party reserved its rights with respect to this matter. The Company could have been obligated to make payments as required under Section 2.6 of the Restructuring Agreement, which would have amounted to approximately $1.4 million. However, by letter dated June 17, 2002, Prometheus waived any such right. 4 EMPLOYMENT AGREEMENTS Mr. George C. Yeonas, the President and Chief Executive Officer of the Company, has an employment agreement with the Company effective January 1, 2001 and expiring December 31, 2002 (the "Yeonas Employment Agreement"). Mr. Jeffrey W. Shirley, the Vice President and Chief Financial Officer of the Company, has an employment agreement with the Company expiring December 31, 2002 (the "Shirley Employment Agreement). Mr. Horne has an employment agreement with the Company expiring December 31, 2002 (the "Horne Employment Agreement"). Mr. Short, President of the Western Region of the Company, has an employment agreement with the Company expiring December 31, 2002 (the "Short Employment Agreement"). Each of the Yeonas, Shirley, Horne and Short Employment Agreements is summarized in the Proxy Statement under the heading "Compensation" and are filed herewith as Exhibits (e)(10), (e)(11), (e)(12), and (e)(13), respectively, hereto and incorporated herein by reference. In accordance with the terms of the Yeonas Employment Agreement, Mr. Yeonas will receive a pro-rata amount of his 2002 target performance bonus (approximately $117,000, assuming a closing of the Merger in July 2002), severance equal to two times his base salary ($850,000), and the compensation that was deferred from 2001 for accomplishing the Company's restructuring objectives ($240,000). In accordance with the terms of the Shirley Employment Agreement, Mr. Shirley will receive a pro-rata amount of his 2002 target performance bonus (approximately $98,000, assuming a closing of the Merger in July 2002), a severance payment ($350,000, which represents a $25,000 increase, as agreed to by the Company, over the amount reflected in the Shirley Employment Agreement), and the compensation that was deferred from 2001 for accomplishing the Company's restructuring objectives ($160,000). In connection with the Wilshire Sales Agreement, Mr. Horne, in a letter agreement dated June 14, 2002, a copy of which is filed herewith as Exhibit (e)(14) and incorporated herein by reference, agreed to waive his rights under the Horne Employment Agreement to receive severance payments from the Company. ITEM 4. THE SOLICITATION OR RECOMMENDATION RECOMMENDATION OF THE COMPANY BOARD On June 14, 2002, the Company Board unanimously, after taking into account the recommendation of the Special Committee (as hereinafter defined) with respect to the allocation of the consideration which the Purchaser was willing to pay to the Company's equity holders to acquire the Company between the shares of the Preferred Stock and the Shares (the "Allocation"), (i) determined that the Merger Agreement and the transactions contemplated thereby, including the Merger, the Offer, and the Allocation, taken together, are fair to, and in the best interests of, the Company and its stockholders, (ii) approved and adopted and declared advisable the Merger Agreement and the transactions contemplated thereby, including the Merger, the Offer, and the Allocation and (iii) recommended that the stockholders of the Company tender their shares in response to the Offer and that the stockholders approve and adopt the Merger Agreement and the transactions contemplated thereby at any meeting of stockholders called for such purpose. ACCORDINGLY, THE COMPANY BOARD RECOMMENDS THAT THE STOCKHOLDERS OF THE COMPANY TENDER THEIR SHARES PURSUANT TO THE OFFER. Copies of a press release announcing the Merger Agreement and the transactions contemplated thereby and of a letter to the stockholders of the Company communicating the Company Board's recommendation are filed herewith as Exhibits (a)(3) and (a)(4), respectively, and are incorporated herein by reference. BACKGROUND OF THE OFFER Throughout 2001, the Company's Planning Committee reviewed strategic and financial alternatives for the Company. In August, the Company engaged UBS Warburg to advise it in this regard. UBS Warburg prepared and distributed an information memorandum concerning the Company and its homebuilding operations in various regions of the country to companies that were believed to have a potential interest in the Company or aspects of its operations. As part of this process, on August 27, 2001, Lennar was contacted by a representative of UBS Warburg and asked whether Lennar might have such an interest. When Lennar indicated it might, UBS Warburg sent Lennar the information memorandum. 5 On October 4, 2001, Lennar sent UBS Warburg a letter in which it said it was interested in pursuing an in-depth investigation of the Company with the intention of submitting a definitive proposal for its acquisition. In the letter, Lennar said it believed it would be prepared to acquire 100% of the equity securities of the Company for an aggregate price of $225 million (including retirement of the Company's debt, which at the time was approximately $175 million), consisting of $197 million in cash and 750,000 shares of Lennar common stock. At that time, the Company had operations in the Carolinas and the Philadelphia, Pennsylvania area, as well as its current operations in Colorado, Arizona and Texas. The letter requested a 45-day due diligence period. On October 18, 2001, Stuart Miller, Lennar's Chief Executive Officer, Robert Strudler, Lennar's Chief Operating Officer, Bruce Gross, Lennar's Chief Financial Officer, and other representatives of Lennar met at Lennar's Houston, Texas office with George Yeonas and Jeffrey Shirley, the Chief Executive Officer and Chief Financial Officer, respectively, of the Company, Robert Short, who is in charge of the Company's operations in Colorado and Arizona, Edward Horne, who is in charge of the Company's operations in Texas, and David Guy, who was in charge of the Company's East Coast operations, as well as representatives of UBS Warburg. At that meeting, the representatives of the Company made a presentation about the Company, which included information about its recent operating results. Shortly after the meeting, the Lennar representatives told the representatives of the Company that, in view of a very substantial reduction in the Company's sales since September 11, 2001, Lennar was not interested in purchasing the Company. A few days later, Bruce Gross called a representative of UBS Warburg and told him that, although Lennar was not interested in purchasing the Company in its entirety, Lennar might be interested in acquiring the Company's East Coast operations, which at the time were conducted in the Carolinas and the Philadelphia area. Lennar proceeded to perform diligence regarding those operations. It eventually decided it was not particularly interested in purchasing the operations in the Philadelphia area, but was interested in purchasing the Company's operations in North and South Carolina. While Lennar discussed the price it would pay for the entire East Coast operation, as well as the price it would pay for the Carolinas operations alone, the value it gave to the Philadelphia area operation was not attractive to the Company. Therefore, the discussion focused on the operations in North and South Carolina. On November 21, 2001, Lennar signed an exclusivity agreement and letter of intent, and on December 21, 2001 it signed an Asset Purchase Agreement, relating to a purchase of the Company's Carolinas operations (which were conducted by Don Galloway Homes and Sunstar Homes) for approximately $50 million, of which approximately $20 million would be paid in cash, and the remainder by assumption of existing debts and liabilities. The transaction was completed on that date. Following this sale and the sale of the Philadelphia business to an unrelated purchaser, the Planning Committee continued to explore opportunities to maximize value for the stockholders. The Planning Committee determined in March 2002 to explore a sale of all or part of the Company's remaining operations in view of the stabilization of the homebuilding industry following a period of great uncertainty in the fall of 2001 and the renewed strength of public homebuilder stocks and interest in strategic transactions. Using publicly available information and other information supplied by the Company, UBS Warburg prepared and produced an updated information memorandum in mid-March 2002. In late March and early April, twenty potential buyers, including Lennar and other major companies in the industry (other than those which had previously indicated they were not interested in the Company's operations), were contacted and, as a result, thirteen information memoranda were distributed to prospective bidders. As part of this solicitation, on March 15, 2002, a representative of UBS Warburg contacted Bruce Gross and asked whether Lennar might be interested in purchasing the Company's remaining operations. Mr. Gross indicated Lennar might, and on March 25, 2002, UBS Warburg sent Lennar a copy of the updated confidential information memorandum, as well as a description of procedures for submitting purchase proposals. On April 12, Lennar submitted a proposal for a purchase of all the stock of The Genesee Company (which conducts the Company's homebuilding operations in Colorado and Arizona) for $60 million in cash and assumption of debt and other liabilities of Genesee, and a purchase of the assets of Wilshire Homes 6 (which conducts the Company's homebuilding activities in Texas) for $23 million in cash. Lennar stated that its interest was predicated upon its being selected as the sole candidate and proceeding immediately with the due diligence process in order to reach a definitive agreement. On April 17, 2002, UBS Warburg and the Company's Planning Committee met in New York to discuss the proposals received. At this meeting, the Planning Committee articulated its preference to pursue the sale of the equity securities of the parent Company rather than the sale of specific assets followed by a liquidation, since this structure provided an efficient and expeditious mechanism for resolving the Company's liabilities (including possible contingent liabilities retained from operating divisions sold previously). The Company so informed certain of the potential buyers of selected assets. Among them, Lennar and another major homebuilder agreed to undertake due diligence with respect to the Company's liabilities from prior dispositions and otherwise and to submit a bid for the Company's equity securities. On April 22, Bruce Gross and other representatives of Lennar attended a meeting at the New York offices of Milbank, Tweed, Hadley & McCloy LLP, the Company's lawyers, with George Yeonas and Jeffrey Shirley, as well as representatives of UBS Warburg and insurance consultants both to Lennar and to the Company. At the meeting, various matters relating to the Company were discussed, including possible contingent liabilities retained when the Company had sold eight businesses (in addition to the sale to Lennar) and matters related to insurance maintained by the Company, including insurance covering part of the warranty obligation relating to homes sold by the Company's subsidiaries. On April 29, there was a meeting at Wilshire Homes' offices in Austin, Texas, attended by Diane Bessette, a Lennar vice president, and the persons in charge of Lennar's Texas homebuilding operations on behalf of Lennar, and by Jeff Shirley, the Company's chief financial officer, Edward Horne and other Wilshire Homes executives on behalf of the Company. The principal purposes of the meeting were to introduce the people involved in Lennar's Texas homebuilding operations and the Wilshire Homes executives to one another and to discuss Wilshire Homes' activities. On May 1, there was a meeting at Genesee's offices in Denver, Colorado, attended by Bruce Gross and the persons in charge of Lennar's Colorado homebuilding operations on behalf of Lennar, and by George Yeonas, Robert Short and other Genesee executives, as well as a representative of UBS Warburg, on behalf of the Company. The purposes of the meeting were to introduce the people involved in Lennar's Colorado homebuilding operations and the Genesee executives to one another and to discuss Genesee's business plan and other matters relating to Genesee. On May 3, the Company Board met to receive and review a report concerning developments with respect to the sale process. Recognizing that a potential conflict of interest might exist in the context of a sale of the entire company with respect to the allocation of proceeds between the holders of the Common Stock and the holders of its Preferred Stock, the Company Board appointed a special committee consisting of independent directors Richard Balzano and Thomas R. Kowalski (the "Special Committee") to negotiate this Allocation with the holders of the Preferred Stock and to make a recommendation with respect to the allocation to the full Company Board. On May 7, Stuart Miller, Bruce Gross and other representatives of Lennar met at the offices of Lazard Freres in New York City with, among others, George Yeonas and Jeffrey Shirley of the Company, Andrew Zobler, an officer of Lazard Freres Real Estate Investors L.L.C., the general partner of the managing members of Prometheus, and a representative of UBS Warburg. Mr. Zobler is a director of the Company and chairs its Planning Committee. At that meeting, the representatives of Lennar said that Lennar was interested in the Company's Colorado and Arizona operations, but that it would prefer not to acquire the Company's Texas operations. The representatives of the Company said that might not be a problem, because Edward Horne, who headed Wilshire Homes (which conducts the Company's Texas operations), had expressed an interest in purchasing it. The Company had also received a written proposal to acquire the Company from the other potential buyer. Taking into account such matters as price and conditions in the respective proposals, it was determined to pursue a transaction with Lennar. A preliminary agreement was reached on May 7th that, subject to a 7 detailed diligence review by Lennar, Lennar and the Company would work toward a transaction in which Lennar would purchase all the stock, warrants and options of the Company for $52 million, which would be increased to $53.5 million if, by the time the transaction was ready to take place, the Company had sold Wilshire Homes for at least $23 million. In addition, Lennar would have to provide funding for a tender offer by the Company for $33.3 million principal amount of the Company's 13.75% Senior Notes due 2003 at 101% of their principal amount, which would be required because of Lennar's acquisition of control of the Company (or, to the extent the Senior Notes were not tendered, Lennar would have to provide funds for the payment of the Senior Notes when they matured in May 2003). At that time, there was no decision regarding how the $52 million (or $53.5 million) would be allocated among the Preferred Stock and the Common Stock and Supplemental Warrants. However, Mr. Zobler said it was likely that Prometheus and Mr. Short would in support of the transaction being proposed by Lennar accept less for the Preferred Stock than its $1,000 per share liquidation preference. At the conclusion of the May 7 meeting, Lennar said it wanted to begin a detailed pre-acquisition diligence review of the Company's operations, assets and financial results. It targeted June 7 for completion of this review. Lennar, Prometheus and the Company agreed that they would work on agreements while the diligence review was being conducted. Also on May 7, the Special Committee had an organizational meeting in which Milbank, Tweed, Hadley & McCloy LLP the Company's counsel, and UBS Warburg, the Company's financial advisor, both participated. The Special Committee began discussing the relative legal entitlements of the Preferred Stock and the Common Stock and potential methodologies for deriving an equitable sharing of proceeds. On May 8, there was a conference telephone call among representatives of Lennar, Prometheus and the Company, and their respective attorneys (with Clifford Chance Rogers & Wells LLP representing Lennar, Weil Gotshal & Manges LLP representing Prometheus and Milbank, Tweed, Hadley & McCloy LLP representing the Company). During this call, there was discussion of transactions in which Lennar would purchase from Prometheus and Mr. Short the Preferred Stock, Common Stock and Supplemental Warrants they held, and Lennar would acquire the publicly held Common Stock through a cash tender offer followed by a merger in which the shareholders who did not tender their Shares would receive the same cash consideration they would have received if they had tendered their Shares. During the call, Lennar indicated it would probably prefer to have the purchase from Prometheus and Mr. Short take place before the Offer began, rather than following expiration of the Offer. On May 9, the Special Committee met again with counsel, management representatives and Mr. Zobler to receive an update on developments. The parties discussed factors that would be relevant to the Allocation, as well as alternative strategies for the Company if it determined not to proceed with the Lennar transaction. On May 13, there was a conference call among Bruce Gross of Lennar, George Yeonas of the Company, and Andrew Zobler of Prometheus. Lennar discussed the status of its diligence review. It asked the Company to agree that it would not, until after Lennar's diligence period expired on June 7, discuss with anyone other than Lennar a sale of the Company or similar transaction and that if Lennar wanted to proceed with a transaction, but the Company would not enter into the Merger Agreement, the Company would reimburse Lennar for its expenses in connection with its efforts to acquire the Company. Lennar's counsel subsequently circulated drafts of an Exclusivity Agreement reflecting the requested agreements, but it was never signed. Later in the day on May 13, counsel for Lennar distributed drafts of the Merger Agreement and of what became the Securities Purchase Agreement. These drafts contemplated that the purchase of stock and Supplemental Warrants from Prometheus and Mr. Short would take place on June 10, which was the first business day after the June 7 end of Lennar's anticipated diligence period. They contemplated that the Merger Agreement would be signed on the same day that Lennar purchased stock and Supplemental Warrants from Prometheus and Mr. Short. During the period from May 13 until June 7, Lennar continued its review of the Company's operations, assets and financial results, and counsel for the parties negotiated the terms of the Merger Agreement and the Securities Purchase Agreement. Those negotiations focused primarily on (a) the conditions under which 8 Lennar could elect not to accept Shares which were tendered in response to the Offer, and (b) whether the representations and warranties by Prometheus and Mr. Short would extend beyond the closing of the purchase of their stock and Supplemental Warrants. Because Lennar's acquisition of stock and Supplemental Warrants from Prometheus and Mr. Short would, in effect, give Lennar majority ownership of the Company, it was agreed that (i) only under very limited conditions would Lennar have the right not to purchase the tendered Shares and (ii) most of the representations by Prometheus and Mr. Short would expire when Lennar purchased their stock and Supplemental Warrants. Consistent with those decisions, inaccuracy of the Company's representations and warranties in the Merger Agreement would not be a basis for Lennar's not purchasing the Shares which are tendered in response to the Offer. There also were discussions of the exact circumstances under which the purchase price for the Company would increase from $52 million to $53.5 million. It was tentatively agreed that the purchase price would be increased to $53.5 million if, at least ten business days before the Offer was scheduled to expire, the Company signed an agreement to sell Wilshire Homes for at least $23 million and either (i) that sale was completed, or (ii) the Company received a deposit of at least $1.5 million with regard to the sale which was not refundable under any circumstances (other than because the Company failed to fulfill its obligations in a material respect) (the "Wilshire Condition"). Other topics that were discussed during the negotiations of the agreements included (i) Lennar's request that a company Mr. Short had purchased from the Company acknowledge that, as between it and the Company, the company acquired by Mr. Short was responsible for any liability in connection with two pending lawsuits, (ii) Lennar's request that the president of Wilshire Homes waive any right to severance compensation if he was part of the group which purchased Wilshire Homes (which he was expected to be) or if the purchaser retained him as an employee or in a similar capacity, and (iii) the amount of directors and officers liability insurance the Company would provide after the Merger with regard to occurrences before the Merger. Also, in order to enable Mr. Short to get long term capital gain treatment for his sale of Supplemental Warrants (which he had acquired on July 31, 2001), Lennar agreed that its purchase of Mr. Short's Supplemental Warrants would not take place until August 1, 2002, even if the Merger took place before then, and as a result Mr. Short's Supplemental Warrants became warrants to purchase shares of the corporation which resulted from the Merger. On May 16, the Company Board held a telephonic meeting to discuss the status of the Lennar offer. UBS Warburg presented draft valuation materials to the Company Board and conducted discussions about the proposed valuation. At this meeting the Company Board determined to continue discussions with Lennar. On May 21, the Special Committee met again with counsel to consider the appropriate Allocation, based, among other things, on draft financial information prepared by UBS Warburg using publicly available information and other information supplied by the Company. The Special Committee decided to request that Prometheus make the first proposal concerning the Allocation. On May 23, Prometheus proposed to Company counsel an Allocation that would have resulted in a tender offer price and merger price of $3.45 per Share. On May 29, the Special Committee met with Prometheus, Messrs. Yeonas and Shirley and representatives of Company counsel to continue price negotiations. On May 30, a Company Board meeting was held with management present to review progress on negotiations with Lennar. UBS Warburg was present to advise on transaction process. Following the Company Board meeting, there were further negotiations between the Special Committee with Messrs. Yeonas, Shirley and Prometheus concerning the Allocation. On June 4, Prometheus and the Special Committee agreed on an Allocation which the Special Committee would recommend to the Company's Board. That allocation would be $3.75 per Share, which would increase to $3.81 per Share if the Wilshire Condition were satisfied, and $615.75 per share for the Preferred Stock, which would increase to $648.63 per share if the Wilshire condition were satisfied. In either case, the purchase price for the Preferred Stock would be significantly less than its liquidation preference of $1,000 per share. 9 On June 5, Bruce Gross of Lennar told George Yeonas of the Company and Andrew Zobler of Prometheus that Lennar had learned that the Company no longer believed its projections of its 2003 earnings before interest, taxes, depreciation and amortization (EBITDA) would be met. On June 6, Messrs. Yeonas and Shirley went to Lennar's offices in Miami and explained that the reason the Company would not meet its 2003 EBITDA projection was that the Company would not be able to start several new home communities in Colorado which had been expected to generate revenues in 2003. On the following day, there were conversations, with Mr. Zobler participating by telephone, in which the representatives of the Company agreed that, in view of the reduction in the projected EBITDA, they would recommend to the Company Board a reduced sale price of $51 million. It was also agreed as an accommodation for the reduced projections that the signing of the Securities Purchase Agreement and the Merger Agreement, and the closing of the purchase of stock and Supplemental Warrants from Prometheus and Mr. Short in accordance with the Securities Purchase Agreement, would be postponed to June 14 and would take place simultaneously with and be conditioned upon the Company's signing of Wilshire Sales Agreement and receipt of a $1.5 million deposit in connection with that transaction, which would not be refundable unless the transaction was cancelled because of a material breach of warranty by the Company or because the Company failed to fulfill its obligations in a material respect. Prometheus and the Special Committee agreed that the Special Committee would recommend an Allocation of the reduced purchase price which would result in payment for the Shares (and, therefore, an Offer Price and Merger consideration) of $3.70 per Share, and a purchase price of $3.66 per Supplemental Warrant, and $603.38 per share of Preferred Stock. During May and the first part of June, counsel for the Company drafted and negotiated the Wilshire Sale Agreement and related documents, including an Escrow Agreement relating to the $1.5 million deposit. Copies of the drafts were sent to Lennar, and the Company and its counsel incorporated many of Lennar's comments in the Wilshire Sale Agreement. Those comments focused primarily on eliminating the possibility that, after Wilshire Homes was sold, the Company might have liabilities related to the sale or might remain liable for some of Wilshire Homes' obligations. Among other things, the purchaser of Wilshire Homes agreed to obtain insurance against some of Wilshire Homes' pre-sale liabilities, in order to ensure that those liabilities would not significantly reduce the insurance coverage which would be available with regard to the Company's other activities. When it was learned that such insurance could not be confirmed within an acceptable time period, the Company, Prometheus and Mr. Short agreed to reduce by a total of $350,000 (equal to what the Company's insurance broker had estimated the insurance would cost) the purchase price Lennar would pay for all the equity securities of the Company. As a result, Prometheus and the Special Committee agreed that the Special Committee would recommend a reduced purchase price for the Shares (and, therefore, an Offer Price and Merger consideration) of $3.68 per Share, and a purchase price of $3.64 per Supplemental Warrant and $597.68 per share of Preferred Stock. On June 14, (a) the Securities Purchase Agreement was executed, (b) the Merger Agreement was executed, (c) the documents carrying out FG Acquisition's purchase of Preferred Stock, Common Stock and Supplemental Warrants under the Securities Purchase Agreement were executed and (d) the Wilshire sale Agreement was executed. However, because the Wilshire Sales Agreement was not signed until late afternoon, Eastern time, the $1.5 million deposit could not be made in its entirety on June 14. Therefore, the Securities Purchase Agreement, the Merger Agreement and the documents relating to the closing under the Securities Purchase Agreement were dated June 17 and were held by counsel for Lennar under an agreement that (i) they would be released as soon as counsel for Lennar was notified that the $1.5 million deposit had been received and (ii) until that deposit was received, the Securities Purchase Agreement, the Merger Agreement and the other documents would not be effective. On the morning of June 17, 2002 (i) the deposit was received, (ii) the Securities Purchase Agreement, the Merger Agreement and the other documents became effective, and (iii) the Purchaser acquired 25,000 shares of Preferred Stock and Supplemental Warrants to purchase 5,208,333 Shares from Prometheus, 3,500 shares of Preferred Stock from Mr. Short, and 678,130 Shares from Prometheus and Mr. Short, and agreed to acquire on August 1, 2002 Supplemental Warrants to purchase 729,167 Shares from Mr. Short. On June 21, the Purchaser commenced the Offer. 10 REASONS FOR THE RECOMMENDATION In making the determinations and recommendations, the Company Board considered a number of factors including, without limitation, the following: - The fact that the Offer Price provided for in the Merger Agreement represented a premium of approximately 16.8% over the closing trading price of the Shares on the last trading day prior to the announcement of the Merger and a premium of approximately 22.1% over the average closing trading price of the Shares for the month prior to the announcement of the Merger; - The Special Committee's determination, after spirited negotiations with Prometheus and in light of the premium being paid over historical prices, trading and acquisition prices of securities deemed comparable to the Shares and the value of the Preferred Stock considered independently, that the Allocation is fair to, and in the best interests of, the unaffiliated holders of the Shares; - The advice and presentation of UBS Warburg, including the opinion of UBS Warburg delivered on June 14, 2002 that, as of such date and based upon its review and analysis and subject to the limitations set forth therein, the $3.68 per Share cash consideration to be received by the unaffiliated holders of Shares in the Offer and the Merger is fair, from a financial point of view, to such holders. A copy of the written opinion dated June 14, 2002 of UBS Warburg, which sets forth the procedures followed, matters considered, assumptions made and limitations of the review undertaken by UBS Warburg in rendering its opinion, is attached as Exhibit (a)(5) hereto and is incorporated herein by reference. THE OPINION OF UBS WARBURG IS DIRECTED ONLY TO THE FAIRNESS FROM A FINANCIAL POINT OF VIEW OF THE $3.68 PER SHARE CASH CONSIDERATION TO BE RECEIVED BY THE UNAFFILIATED HOLDERS OF SHARES IN THE OFFER AND THE MERGER AND IS NOT INTENDED TO CONSTITUTE, AND DOES NOT CONSTITUTE, A RECOMMENDATION AS TO WHETHER ANY STOCKHOLDER SHOULD TENDER SHARES OF COMMON STOCK PURSUANT TO THE OFFER, VOTE IN FAVOR OF OR CONSENT TO, IF NECESSARY, THE MERGER, OR AS TO ANY OTHER ACTIONS TO BE TAKEN BY SUCH STOCKHOLDER IN CONNECTION WITH THE OFFER OR THE MERGER. STOCKHOLDERS ARE URGED TO READ SUCH OPINION CAREFULLY IN ITS ENTIRETY; - The Company's comprehensive sales process which involved contacts over a significant period, directly and through its well-respected financial advisor, with a substantial number of potential buyers within the industry; - The fact that Prometheus and Mr. Short, together controlling approximately 21.7% of the voting power of the outstanding Shares and a substantial majority of the number of outstanding Shares on a fully- diluted basis, were in favor of the transaction with Lennar and were willing to sell their Shares to Lennar at the same price per Share as in the Offer and the Merger; - The high likelihood that the transactions contemplated by the Merger Agreement would be consummated because Lennar was going to acquire a substantial majority of the Shares pursuant to the Securities Purchase Agreement at the same time the Merger Agreement would be executed, and because of Lennar's ability pay for the acquisition, its reputation and its familiarity and relationship with the Company following successful completion of the Galloway transaction and the absence of any financing condition or bringdown of the representations and warranties in the Merger Agreement; - The terms and conditions of the Merger Agreement and, in particular, the fact that the transaction is structured as a two-step transaction that provides Company stockholders with an opportunity to receive their cash payment on an accelerated basis; - The Company Board's familiarity with the Company's business, prospects, financial condition, results of operations and current business strategy and the significant issues and challenges that the Company would face if it did not proceed with the proposed transaction with Lennar, including: - the increasing difficulty that the Company faces in its ability to achieve increased sales of its products and services, and the loss of certain economies of scale resulting from the significant reduction in the Company's size; 11 - its relatively limited resources and significant debt and short-term liquidity needs, including without limitation the Company's need to refinance the remaining $33.3 million of Senior Notes due in May 2003; - the lack of liquidity, trading volume and analyst coverage of the Shares due to the Company's relatively small market capitalization; - the increasing risk of key management defections; - the Company's need for significant investment in information technology, including web marketing, that would diminish earnings and liquidity over the short term; - the crisis in the liability insurance industry that has increased the cost and reduced significantly the amount of the Company's coverage for 2002 and beyond, including the virtually complete exclusion for claims resulting from mold at a time when mold claims have been increasing; and - the additional risks in the homebuilding industry often outside of the Company's control, including slowdown in the overall economy, weather conditions, natural disasters and construction defect claims; - The fact that Lennar has agreed to make available to the Company the funds it requires to purchase the Senior Notes which may be tendered if the Company is required as a result of the Securities Purchase Agreement to tender for the Senior Notes. The Company Board also considered the provision in the Merger Agreement that prohibited the Company from soliciting competing offers, but determined that such provision was customary in nature and would be of reduced importance following the completion of the Securities Purchase Agreement because the Purchaser would have acquired a substantial majority of the Shares. The Company Board considered other strategic alternatives to maximize value for the Company's stockholders, including pursuit of a competing offer, liquidation of the Company, and continuing the operations of the Company. With respect to the competing offer, the Company Board recommended Lennar over the other potential buyer because Lennar's offer involved a higher indicated price and fewer conditions. In examining the alternative of liquidating the Company, which would be accomplished by the separate sales of divisions and paying down the Company's debt, the Company Board determined that such an option was inferior because it could result in a lower price, involved more execution risk because it might require multiple transactions and would result in deferral of payments to the Company's stockholders pending resolution of contingent liabilities. Regarding the alternative of continuing the Company's operations, although the Company Board believed this would be feasible, it nonetheless recommended the Lennar transaction because of the risks involved with continuing the operations of the Company, including impending turnovers and retirements in the Company's management and difficulty in finding replacements, the geographic concentration of the Company in the two competitive markets in which the Company operates, near and long term business risks due to insurance coverage reductions and cost increases and the Company's significant debt and short-term liquidity needs (including without limitation the Company's need to refinance the remaining $33.3 million of Senior Notes due in May 2003). The foregoing discussion of information and factors considered and given weight by the Company Board is not intended to be exhaustive, but is believed to include all of the material factors, both positive and negative, considered by the Company Board. In evaluating the Merger and the Offer, the members of the Company Board considered their knowledge of the business, financial condition and prospects of the Company, and the views of the Company's management and its financial and legal advisors. In view of the wide variety of factors considered in connection with its evaluation of the Merger and Offer, the Company Board did not find it practicable to, and did not, quantify or otherwise assign relative weights to the specific factors considered in reaching its determinations and recommendations. In addition, individual members of the Company Board may have given different weights to different factors. 12 INTENT TO TENDER To the best of the Company's knowledge, each of its executive officers and directors intend to tender his or her Shares pursuant to the Offer. ITEM 5. PERSONS/ASSETS RETAINED, EMPLOYED, COMPENSATED OR USED On August 14, 2001, the Company formally engaged UBS Warburg to act as the Company's exclusive financial advisor in connection with any proposed sale transaction (a "Sale") involving the Company and another business entity (the "Financial Advisor Agreement"). Pursuant to the Financial Advisor Agreement, UBS Warburg agreed, upon the Company's reasonable request, to perform certain customary financial advisory and investment banking services, including the rendering of a fairness opinion to the Company Board in connection with a Sale. In addition to the Offer and the Merger, there have been several prior Sales under the Financial Advisor Agreement. Pursuant to the Financial Advisor Agreement, the fees and expenses the Company has agreed to pay UBS Warburg for its services in respect of the Merger and the Offer are not expected to exceed $1,450,000. In addition, the Company has agreed to indemnify UBS Warburg against certain liabilities in connection with UBS Warburg' engagement under the Financial Advisor Agreement. ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY There have been no transactions in Shares which were effected during the past 60 days by the Company or, to the best of the Company's knowledge, any executive officer, director or affiliate of the Company, other than the transactions pursuant to the Securities Purchase Agreement described in Items 3 and Items 4 of this Statement. On May 20, 2002, the Company issued 1,387 Shares under its Employee Stock Purchase Plan at a price of $2.77 per Share. ITEM 7. PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS Except as set forth in Items 3 and 4 of this Statement, the Company is not engaged in any negotiation in response to the Offer which relates to or would result in (i) a tender offer or other acquisition of securities by or of the Company; (ii) an extraordinary transaction, such as a merger, reorganization or liquidation, involving the Company; (iii) a purchase, sale or transfer of a material amount of assets by the Company; or (iv) any material change in the present dividend rate or policy, or indebtedness, or capitalization of the Company. Except as described in Item 3 of this Statement, there are no transactions, Company Board resolutions, agreements in principle or signed contracts in response to the Offer which relates to one or more of the matters referred to in Item 1006(d)(1) of Regulation M-A. ITEM 8. ADDITIONAL INFORMATION Reference is hereby made to the Offer to Purchase and the related Letter of Transmittal, which are attached as Exhibits (a)(1) and (a)(2) hereto, respectively, and are incorporated by reference herein in their entirety. ITEM 9. EXHIBITS (a)(1) Offer to Purchase, dated as of June 20, 2002 (incorporated by reference to Exhibit (a)(1) to the Schedule TO filed by the Purchaser on June 21, 2002). (a)(2) Letter of Transmittal with respect to Shares (incorporated by reference to Exhibit (a)(2) to the Schedule TO filed by the Purchaser on June 21, 2002). (a)(3) Press Release issued by the Purchaser on June 21, 2002 (incorporated by reference to Exhibit (a)(8) to Amendment No. 1 to the Schedule TO filed by the Purchaser on June 21, 2002).
13 (a)(4) Letter to stockholders of the Company dated June 27, 2002. (a)(5) Opinion of UBS Warburg dated June 14, 2002 (attached hereto as Annex A). (e)(1) Definitive Proxy Statement, dated as of April 29, 2002 (incorporated by reference to the definitive proxy statement filed by the Company on May 7, 2002). (e)(2) Plan and Agreement of Merger, dated as of June 17, 2002, by and among Lennar, the Purchaser and the Company (incorporated by reference to Exhibit (d)(2) to the Schedule TO filed by the Purchaser on June 21, 2002). (e)(3) Securities Purchase Agreement, dated as of June 17, 2002, by and among Lennar, the Purchaser, Prometheus, and Mr. Short (incorporated by reference to Exhibit (d)(1) to the Schedule TO filed by the Purchaser on June 21, 2002). (e)(4) Agreement and Plan of Merger, dated as of June 14, 2002, by and among Partnership Acquisition Co., Condo Acquisition Co., the Partnerships, Fortress Management, Inc., and Fortress Holding-Virginia, LLC. (e)(5) Agreement Regarding Name, dated as of June 14, 2002 between Custom and the Company. (e)(6) Indemnification Agreement, dated as of June 17, 2002 between Custom and the Company. (e)(7) Confidentiality Agreement, dated September 4, 2001, by and between Lennar and UBS Warburg on behalf of the Company. (e)(8) Galloway Agreement, dated December 21, 2001, by and between NC Builders Acquisition Corp., Landmark Homes, Inc., Fortress Holding -- Virginia, LLC and the Company and person named therein (incorporated by reference to Exhibit 2.13 of the Current Report on Form 8-K dated January 7, 2002). (e)(9) Restructuring Agreement, dated December 31, 1998, between the Company, Prometheus and the Homebuilder Stockholders listed therein (incorporated by reference to Exhibit 1 to Amendment No. 4 to Schedule 13D filed by Prometheus on January 12, 1999). (e)(10) Employment Agreement, dated as of January 1, 2001, by and between the Company and George Yeonas. (e)(11) Employment Agreement, dated as of January 1, 2001, by and between the Company and Jeffrey Shirley. (e)(12) Employment Agreement, dated as of January 1, 2001, by and between the Company and Edward Horne. (e)(13) Employment Agreement, dated as of January 1, 2001, by and between the Company and Robert Short. (e)(14) Agreement, dated as of June 14, 2002, by Edward Horne.
14 SIGNATURE After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this Statement is true, complete and correct. THE FORTRESS GROUP, INC. By: /s/ GEORGE C. YEONAS ------------------------------------ Name: George C. Yeonas Title: President and Chief Executive Officer Dated: June 27, 2002 15 EX-99.A.4 3 y61738exv99waw4.txt LETTER TO STOCKHOLDERS Exhibit (a)(4) [THE FORTRESS GROUP, INC. LETTERHEAD] THE FORTRESS GROUP, INC. 1650 TYSONS BOULEVARD, SUITE 600, MCLEAN, VIRGINIA 22102 Dear Fellow Stockholder: I am pleased to inform you that on June 17, 2002, The Fortress Group, Inc. entered into a Plan and Agreement of Merger with Lennar Corporation and its wholly-owned subsidiary. Under this agreement, the Lennar subsidiary has commenced a cash tender offer to purchase all of the issued and outstanding shares of Fortress Common Stock at a purchase price of $3.68 per share in cash. Following the successful completion of this cash tender offer, in accordance with the terms of the Merger Agreement, the Lennar subsidiary will merge with Fortress and Fortress will become a wholly owned subsidiary of Lennar. Each share of Fortress Common Stock not purchased in such cash tender offer will be converted in the merger into the right to receive $3.68 per share in cash, without interest. Concurrent with the signing of the Merger Agreement, Lennar, Prometheus Homebuilders LLC and Robert Short entered into a Securities Purchase Agreement pursuant to which Lennar purchased 21.7% of the outstanding Fortress Common Stock and all of the Fortress Class AAA Preferred Stock, and acquired or agreed to acquire on August 1, 2002 warrants which, if exercised, and taking into account the voting power of the Class AAA Preferred Stock, would increase Lennar's voting power to a substantial majority of all the votes which can be cast by Fortress stockholders. YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE CASH TENDER OFFER AND THE MERGER, TAKEN TOGETHER, ARE FAIR TO, AND IN THE BEST INTERESTS OF, FORTRESS AND ITS STOCKHOLDERS, AND RECOMMENDS THAT ALL FORTRESS STOCKHOLDERS ACCEPT THE CASH TENDER OFFER AND TENDER THEIR SHARES PURSUANT TO THE CASH TENDER OFFER. In arriving at its recommendation, the Board of Directors gave careful consideration to a number of factors which are described in the enclosed Schedule 14D-9, including the opinion of UBS Warburg to the effect that the $3.68 per share cash consideration to be received by the unaffiliated holders of Fortress Common Stock in the cash tender offer and the merger is fair, from a financial point of view, to such holders. In addition to the attached Schedule 14D-9 relating to the cash tender offer, you should have already received from Lennar its Offer to Purchase, dated June 20, 2002, together with related materials, including a Letter of Transmittal to be used for tendering your shares of Fortress Common Stock in the cash tender offer. These documents set forth the terms and conditions of the cash tender offer and merger and provide instructions as to how to tender your shares. I urge you to read the enclosed materials carefully. On behalf of your Board of Directors, I thank you for your continued support. Sincerely yours, GEORGE C. YEONAS, President and Chief Executive Officer McLean, Virginia June 27, 2002 EX-99.A.5 4 y61738exv99waw5.txt OPINION OF UBS WARBURG Exhibit (a)(5) ANNEX A June 14, 2002 The Board of Directors The Fortress Group, Inc. 1650 Tysons Boulevard McLean VA, 22102 Members of the Board of Directors: We understand that The Fortress Group, Inc., a Delaware corporation (together with its subsidiaries, the "Company"), is considering a transaction whereby Lennar Corporation, a Delaware corporation ("Lennar"), will acquire the Company pursuant to a series of transactions that will involve a tender offer followed by a merger of FG Acquisition Corporation, a wholly owned subsidiary of Lennar, with and into the Company (the "Transaction"). Pursuant to the terms of the Plan and Agreement of Merger to be dated June 17, 2002 (the "Merger Agreement"), all of the issued and outstanding shares of the common stock of the Company, par value of $.01 per share, including all issued and outstanding options and warrants, other than certain warrants to be purchased by Lennar at the same price (the "Company Common Stock"), will be converted into the right to receive for each share of Company Common Stock, $3.68 in cash (the "Consideration"). The terms and conditions of the Transaction are more fully set forth in the Merger Agreement. You have requested our opinion as to the fairness, from a financial point of view, to the holders of the Company Common Stock, other than Prometheus Homebuilders LLC and Robert Short ("Affiliated Shareholders" of the Company), of the Consideration to be received by such holders in the Transaction. UBS Warburg LLC ("UBS Warburg ") has acted as financial advisor to the Company in connection with the Transaction and will receive a fee upon the consummation thereof. UBS Warburg will also receive a fee upon delivery of this opinion. In the past, UBS Warburg has provided investment banking services to the Company and to Lennar Corporation, and received customary compensation for the rendering of such services. In the ordinary course of business, UBS Warburg, its successors and affiliates may trade securities of the Company or Lennar Corporation, for their own accounts and the accounts of their customers and, accordingly, may at any time hold a long or short position in such securities. Our opinion does not address the Company's underlying business decision to effect the Transaction or constitute a recommendation to any shareholder of the Company as to whether such shareholder should tender into the tender offer or how such shareholder should vote with respect to the Transaction. At your direction, we have not been asked to, nor do we, offer any opinion as to either (i) the consideration to be received by holders of the Company's preferred stock in the Transaction or (ii) the material terms of the Merger Agreement or the form of the Transaction. In rendering this opinion, we have assumed, with your consent, that the final executed form of the Merger Agreement does not differ in any material respect from the draft that we have examined, and that Lennar Corporation and the Company will comply with all the material terms of the Merger Agreement. In arriving at our opinion, we have, among other things: (i) reviewed certain publicly available business and historical financial information relating to the Company, (ii) reviewed certain internal financial information and other data relating to the business and financial prospects of the Company, including financial forecasts and estimates for the fiscal year ending December 31, 2002 prepared by management of the Company and not publicly available, (iii) conducted discussions with members of the senior management of the Company concerning the businesses and financial prospects of the Company, (iv) reviewed publicly available financial and stock market data with respect to certain other companies in lines of business we believe to be generally comparable to those of the Company, (v) compared the financial terms of the Transaction with the publicly available financial terms of certain other transactions which we believe to be generally relevant, (vi) reviewed drafts of the Merger Agreement, and (vii) conducted such other financial A-1 studies, analyses and investigations, and considered such other information as we deemed necessary or appropriate. In connection with our review, with your consent, we have not assumed any responsibility for independent verification of any of the information reviewed by us for the purpose of this opinion and have, with your consent, relied on such information being complete and accurate in all material respects. In addition, at your direction, we have not made any independent evaluation or appraisal of any of the assets or liabilities (contingent or otherwise) of the Company, nor have we been furnished with any such evaluation or appraisal. With respect to the financial forecasts and estimates referred to above, we have assumed, at your direction, that they have been reasonably prepared on a basis reflecting the best currently available estimates and judgments of the management of the Company as to the future prospects of the Company. Further, we have assumed that all governmental, regulatory or other consents and approvals necessary for the consummation of the Transaction will be obtained without any material adverse effect on the Company or the Transaction. Our opinion is necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to us as of, the date hereof. Based upon and subject to the foregoing, it is our opinion that, as of the date hereof, the Consideration to be received by the holders of the Company Common Stock, other than the Affiliated Shareholders, in the Transaction is fair, from a financial point of view, to such holders. Very truly yours, UBS WARBURG LLC By: By: - --------------------------------------------- --------------------------------------------- Name: Adam Reeder Name: Dan Chu Title: Managing Director Title: Managing Director
A-2 EX-99.E.4 5 y61738exv99wew4.txt AGREEMENT AND PLAN OF MERGER Exhibit (e)(4) AGREEMENT AND PLAN OF MERGER by and among PARTNERSHIP ACQUISITION CO. and CONDO ACQUISITION CO. (as Purchasers), FORTRESS MANAGEMENT, INC. and FORTRESS HOLDING-VIRGINIA, LLC. (as the Partners) and THE PARTNERSHIPS (listed on the signature pages herein) dated as of June 14, 2002 TABLE OF CONTENTS This Table of Contents is not part of the Agreement to which it is attached but is inserted for convenience only.
Page No. --- ARTICLE I THE MERGER............................................................................................ 2 1.01 The Merger........................................................................................ 2 1.02 Closing........................................................................................... 2 1.03 Deposit Amount.................................................................................... 2 1.04 Effective Time.................................................................................... 3 1.05 Organizational Documents of the Surviving Entities................................................ 3 1.06 Directors and Officers of the Surviving Entities.................................................. 3 1.07 Effects of the Merger............................................................................. 3 1.08 Pre-Tax Loss Adjustment........................................................................... 3 1.09 Insurance Matters................................................................................. 4 1.10 401(k) Plan....................................................................................... 4 1.11 Sale of Fortress Management Shares................................................................ 5 1.12 Indemnity Agreement............................................................................... 5 1.13 Further Assurances................................................................................ 6 ARTICLE II CONVERSION OF THE PARTNERSHIP INTERESTS.............................................................. 6 2.01 Conversion of the Partnership Interests........................................................... 6 ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE PARTNERS AND THE PARTNERSHIPS................................. 6 3.01 Formation; Qualification; Capitalization.......................................................... 6 3.02 Authority......................................................................................... 7 3.03 No Conflicts...................................................................................... 7 3.04 Governmental Approvals and Filings................................................................ 8 3.05 No Continuing Obligations......................................................................... 8 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PURCHASERS......................................................... 8 4.01 Organization...................................................................................... 8 4.02 Authority......................................................................................... 8 4.03 No Conflicts...................................................................................... 8 4.04 Financing......................................................................................... 9 ARTICLE V COVENANTS OF THE PARTNERS AND THE PARTNERSHIPS........................................................ 9 5.01 Regulatory and Other Approvals.................................................................... 9 5.02 Conduct of Business............................................................................... 9 5.03 Fulfillment of Conditions......................................................................... 10 ARTICLE VI COVENANTS OF PURCHASER............................................................................... 10
i 6.01 Regulatory and Other Approvals.................................................................... 10 6.02 Fulfillment of Conditions......................................................................... 10 ARTICLE VII CONDITIONS TO OBLIGATIONS OF PURCHASERS............................................................. 11 7.01 Representations and Warranties.................................................................... 11 7.02 Performance....................................................................................... 11 7.03 Officers' Certificates............................................................................ 11 7.04 Orders and Laws................................................................................... 11 7.05 Regulatory Consents and Approvals................................................................. 11 ARTICLE VIII CONDITIONS TO OBLIGATIONS OF THE PARTNERSHIPS...................................................... 12 8.01 Representations and Warranties.................................................................... 12 8.02 Performance....................................................................................... 12 8.03 Officers' Certificates............................................................................ 12 8.04 Orders and Laws................................................................................... 12 8.05 Regulatory Consents and Approvals................................................................. 12 8.06 Waiver Letter..................................................................................... 13 8.07 Computer Access and Transfer Agreement............................................................ 13 ARTICLE IX SURVIVAL; NO OTHER REPRESENTATIONS................................................................... 13 9.01 Survival; No Other Representations................................................................ 13 ARTICLE X TERMINATION........................................................................................... 13 10.01 Termination...................................................................................... 13 10.02 Effect of Termination............................................................................ 14 ARTICLE XI DEFINITIONS.......................................................................................... 14 11.01 Definitions...................................................................................... 14 ARTICLE XII MISCELLANEOUS....................................................................................... 18 12.01 Notices.......................................................................................... 18 12.02 Entire Agreement................................................................................. 19 12.03 Expenses......................................................................................... 20 12.04 Mortgage Services Arrangement.................................................................... 20 12.05 Public Announcements............................................................................. 20 12.06 Confidentiality.................................................................................. 20 12.07 Waiver........................................................................................... 20 12.08 Amendment........................................................................................ 21 12.09 No Third Party Beneficiary....................................................................... 21 12.10 No Assignment; Binding Effect.................................................................... 21 12.11 Headings......................................................................................... 21 12.12 Invalid Provisions............................................................................... 21 12.13 Governing Law.................................................................................... 21 12.14 Counterparts..................................................................................... 21
ii EXHIBITS AND ANNEXES EXHIBIT A - Escrow Agreement EXHIBIT B-1 - Officer's Certificate EXHIBIT B-2 - Officer's Certificate EXHIBIT C-1 - Secretary's Certificate EXHIBIT C-2 - Secretary's Certificate EXHIBIT D - Officer's Certificate of Purchaser EXHIBIT E - Secretary's Certificate of Purchaser EXHIBIT F - Waiver Letter EXHIBIT G - Computer Access and Transfer Agreement EXHIBIT H - Joint Venture Agreement ANNEX I - Allocation of Merger Consideration among the Partnerships ANNEX II - Allocation of Escrow amount among the Partners iii AGREEMENT AND PLAN OF MERGER This AGREEMENT AND PLAN OF MERGER, dated as of June 14, 2002, is made and entered into by and among Partnership Acquisition Co., a Texas corporation ("Homebuilding Purchaser"), and Condo Acquisition Co., a Texas corporation ("Condo Purchaser" and, together with Homebuilding Purchaser, "Purchasers"), each of the limited partnerships referred to below (each, a "Partnership" and collectively, the "Partnerships"), Fortress Management, Inc., a Texas corporation and sole general partner of each Partnership ("Fortress Management"), and Fortress Holding-Virginia, LLC, a Delaware limited liability company and sole limited partner of each Partnership ("FHV" and, together with Fortress Management, the "Partners"). Capitalized terms not otherwise defined herein have the meanings set forth in Section 11.01. W I T N E S S E T H: WHEREAS, Fortress Management is the sole or managing general partner of each of the following Partnerships: Wilshire Homes, Ltd., a Texas limited partnership, Wilshire Homes San Antonio, Ltd., a Texas limited partnership, Buffington Homes of Texas, Ltd., a Texas limited partnership (collectively, the "Homebuilding Partnerships"), Cahill Condo Partners, Ltd., a Texas limited partnership, and Retreat at Anderson Oaks, Ltd., a Texas limited partnership (collectively, the "Condo Partnerships"); WHEREAS, FHV is the sole limited partner of each Partnership; WHEREAS, Purchasers and Fortress Management each have determined that it is in the best interests of Purchasers and Fortress Management (in its individual capacity, as the sole or managing general partner of each Partnership) to merge each Partnership with and into Purchasers and each has approved the merger of each Partnership, upon the terms and subject to the conditions contained herein (the "Merger"); WHEREAS, FHV has approved the merger of the Partnerships into Purchasers in accordance with the terms of this Agreement; WHEREAS, upon the consummation of the Merger, the Partners will have the right to receive cash consideration for each of their partnership interests in the Partnerships (the "Partnership Interests"); and WHEREAS, for federal income tax purposes, it is intended that the Merger of each Partnership shall qualify, under the provisions of Section 1001 of the Code, as a sale of all of the assets of each such Partnership in exchange for each such Partnership's allocable share of the Merger Consideration (as defined hereafter) as set forth on Annex I hereto, followed by a distribution of the Merger Consideration by each Partnership to its respective Partners in complete liquidation of each Partnership. NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements herein contained and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: ARTICLE I THE MERGER 1.01 The Merger. Upon the terms and subject to the conditions of this Agreement, at the Effective Time (as defined in Section 1.04), each Homebuilding Partnership shall be merged with and into Homebulding Purchaser and each Condo Partnership shall be merged with and into Condo Purchaser in accordance with the Revised Limited Partnership Act of the State of Texas (the "TRLPA"), whereupon the separate existence of each Partnership shall cease and Purchasers shall continue as the surviving entities of the Merger (the "Surviving Entities"). The Partnerships and Purchasers are sometimes referred to herein as the "Constituent Entities". As a result of the Merger, the Partnership Interests of each Partnership shall be converted and cancelled in the manner provided in Article II. 1.02 Closing. Unless this Agreement shall have been terminated and the transactions herein contemplated shall have been abandoned pursuant to Section 10.01, and subject to the satisfaction or waiver (where applicable) of the conditions set forth in Articles VII and VIII, the closing of the Merger (the "Closing") will take place at the offices of Town & Country Title, Austin, Texas, at 10:00 a.m., local time, on the later to occur of (i) June 26, 2002 or (ii) the second Business Day after the day on which the last of the conditions set forth in Articles VII and VIII has been satisfied or waived, unless another date, time or place is agreed to in writing by the parties hereto (the "Closing Date"). At the Closing, Purchasers will pay the Merger Consideration (as defined in Section 2.01(a)) to the Partners in accordance with Annex I hereto, less each Partner's pro rata share of the Deposit Amount, by wire transfer of immediately available funds to the account of the Partners listed in Section 12.01. At the Closing there shall also be delivered to the Partners, the Partnerships and Purchasers the certificates and other documents and instruments required to be delivered under Sections 7.03 and 8.03. 1.03 Deposit Amount. Upon execution of this Agreement, Purchasers will deliver to Forrest Walpole, Esq., as escrow agent (the "Escrow Agent"), an amount in cash equal to $1,500,000 (the "Deposit Amount"), by wire transfer of immediately available funds to the account of the Escrow Agent set forth in Section 10 of the escrow agreement being entered into on the date hereof by and among the Partners, Purchasers and the Escrow Agent, in the form of Exhibit A hereto (the "Escrow Agreement"). At the Closing, the Escrow Agent shall deliver the Deposit Amount to the Partners, and the Partners shall apply the Deposit Amount towards payment of the Merger Consideration. 1.04 Effective Time. At the Closing, certificates of merger (the "Certificates of Merger") shall be duly prepared and executed by the Surviving Entities and each Partnership and thereafter promptly delivered to the Secretary of State of the State of Texas for filing, as 2 provided in Section 2.11 of the TRLPA, as soon as practicable on the Closing Date. The Merger shall become effective at the time of the filing of the applicable Certificate of Merger with the Secretary of State of the State of Texas (the date and time of such filing being referred to herein as the "Effective Time"). 1.05 Organizational Documents of the Surviving Entities. The articles of incorporation of Purchasers before the Merger of each Partnership shall be and remain the articles of incorporation of Purchasers after the Effective Time, until the same shall thereafter be altered, amended, or repealed in accordance with law and Purchasers' articles of incorporation. The bylaws of Purchasers as in effect at the Effective Time shall be and remain the bylaws of Purchasers as the Surviving Entities, until the same shall thereafter be altered, amended, or repealed in accordance with law, Purchasers' articles of incorporation or such bylaws. 1.06 Directors and Officers of the Surviving Entities. At the Effective Time, each of the persons who was serving as an officer of a Purchaser immediately prior to the Effective Time shall continue to be an officer of such Purchaser and shall continue to serve in such capacity at the pleasure of the board of directors of such Purchaser or, if earlier, until their respective death or resignation. At the Effective Time, each of the persons who was serving as a director of a Purchaser immediately prior to the Effective Time shall continue to be a director of such Purchaser. 1.07 Effects of the Merger. Subject to the foregoing, the effects of the Merger shall be as provided in the applicable provisions of the TRLPA. 1.08 Pre-Tax Loss Adjustment. (a) Not later than 45 days following the Closing Date, Fortress Management, on behalf of the Partners, shall deliver to Purchasers a certificate and supporting documentation (collectively, the "Pre-Tax Income/Loss Certificate"), prepared by Fortress Management, in good faith consistent with past practice and in accordance with generally accepted accounting principles, setting forth thereon Fortress Management's calculation of the Partnerships' Pre-Tax Income/Loss for the period beginning June 14, 2002 and ending on the Closing Date (the "Interim Period"). "Pre-Tax Income/Loss" means the consolidated net income or net loss of the Partnerships before income taxes and goodwill amortization. Purchasers shall have 15 Business Days (the "Dispute Period") after receipt of the Pre-Tax Income/Loss Certificate to independently verify that the determination of Pre-Tax Income/Loss is accurate and to give written notice of any discrepancies to Fortress Management. If Purchasers fail to provide written notice of any discrepancies with Fortress Management's determination of the Pre-Tax Income/Loss within the Dispute Period, then Fortress Management's determination of the Pre-Tax Income/Loss shall be final and binding on each of the Purchasers and the Partnerships for all purposes. In the event that Purchasers notify Fortress Management of any discrepancies within the Dispute Period, and if Purchasers and Fortress Management cannot resolve the discrepancies within 10 Business Days after such notice is delivered to Fortress Management, their dispute shall be promptly submitted to an independent, nationally-recognized public accounting firm jointly selected by Purchasers and Fortress Management (the "Independent Accountant"), which shall conduct such additional review as is necessary to resolve the specific disagreements referred to it and, based thereon, shall determine the Pre-Tax Income/Loss. The review of the Independent Accountant will be restricted in scope 3 to address only those matters as to which Purchasers and Fortress Management have not reached agreement pursuant to the preceding sentence. The Independent Accountant's determination of the Pre-Tax Income/Loss, which shall be completed as promptly as practicable but in no event later than 15 Business Days following its selection, shall be confirmed by the Independent Accountant in writing to, and shall be final and binding on, each of Purchasers and the Partnerships for all purposes. The fees and expenses of the Independent Accountant shall be prorated between the Partners, on the one hand, and Purchasers, on the other, in proportion to the amounts in dispute resolved against each of them. (b) At the Closing, in addition to and not including the Merger Consideration, Purchasers shall place an additional sum of $150,000 into escrow with the Escrow Agent pursuant to the terms of the Escrow Agreement (the "Escrow"). To the extent that there is a Pre-Tax Loss for the Interim Period, and such Pre-Tax Loss is less than $150,000, the Escrow Agent shall pay (i) to the account of the Partners listed in Section 12.01 (in accordance with Annex II hereto) the amount of such Pre-Tax Loss and (ii) to the account of Purchasers listed in Section 12.01 the amount by which $150,000 exceeds the Pre-Tax Loss, after payment to the Partners of the amount of the Pre-Tax Loss, in each case, by wire transfer of immediately available funds. To the extent that there is a Pre-Tax Loss for the Interim Period, and such Pre-Tax Loss is equal to or greater than $150,000, the Escrow Agent shall pay $150,000 to the account of the Partners listed in Section 12.01 (in accordance with Annex II hereto) and Purchasers shall pay the amount by which the Pre-Tax Loss exceeds $150,000, to the account of the Partners by wire transfer of immediately available funds. Any payments to be made pursuant to this paragraph (b) shall be made within three (3) Business Days after the earliest to occur of (i) the date on which Purchasers notify Fortress Management of Purchasers' agreement with the computation of Pre-Tax Income/Loss for the Interim Period as reflected on the Pre-Tax Income/Loss Certificate delivered by Fortress Management, (ii) the expiration of the Dispute Period without Purchasers having given notice of any discrepancies to Fortress Management or (iii) the date every discrepancy regarding the computation of Pre-Tax Income/Loss for the Interim Period is resolved by the Independent Accountant as provided above. 1.09 Insurance Matters. The Fortress Group, Inc. ("Fortress") shall continue to list or cause to be listed the Partnerships as named insureds under each insurance policy covering Fortress since May 15, 1996 insofar as they relate to the activities of the Partnerships prior to the Closing Date. In addition, Fortress shall cause Purchasers to be named as additional insureds under each of the such policies insofar as they relate to the activities of the Partnerships prior to the Closing Date. 1.10 401(k) Plan. Fortress shall, with respect to all employees who are participants in The Fortress Group, Inc. 401(k) Profit Sharing Plan (the "Fortress 401(k) Plan") and are employees of the Partnerships to be merged with either Purchaser, contribute and allocate to the accounts of such participants all employer contributions (including matching contributions with respect to all employee contributions and salary deferrals) for the portion of the current plan year ending on the Closing Date that would otherwise have been made to the Fortress 401(k) Plan for the current 2002 plan year but for the transactions contemplated hereby, without regard to any year of service or last day of year active participant requirements. Fortress shall cause the accounts of all participants in the Fortress 401(k) Plan to be fully vested as of the 4 Closing Date. As of the Closing Date, any entity merged into either Purchaser shall cease to be eligible to participate in the Fortress 401(k) Plan. 1.11 Sale of Fortress Management Shares. (a) Fortress shall have the right (the "Sale Right"), to be exercised at any time on or prior to the 30th day following the Closing Date (the "Exercise Date"), to require Purchasers to purchase from Fortress all, but not less than all, of the 100 outstanding shares of common stock, par value $.01 per share (the "Shares"), of Fortress Management owned by Fortress, at an aggregate purchase price of $100 (the "Share Consideration"). (b) The Sale Right may be exercised by Fortress by delivery of a notice (the "Exercise Notice") to Purchasers on or prior to the Exercise Date, stating that Fortress intends to exercise the Sale Right and certifying that Fortress has valid title to the Shares, free and clear of all liens. As soon as practicable after the exercise of the Sale Right, and in any event within five Business Days thereafter, Purchasers shall pay to Fortress the Share Consideration, by wire transfer of immediately available funds to the account of Fortress listed in the Exercise Notice, or by any other means mutually agreed to by Purchasers and Fortress. Simultaneously, Fortress shall assign, sell, transfer and convey to Purchasers all of its interest in and to the Shares, by delivering to Purchasers a certificate or certificates representing the Shares, duly endorsed in blank or accompanied by duly executed stock powers endorsed in blank. (c) Purchasers agree that with respect to the sale of the Shares, they will, if requested to do so in writing by Fortress, make an election pursuant to Section 338(h)(10) of the Code and all comparable elections under the relevant provisions of state and local tax Laws (the "338 Election") and complete and execute all related forms in form reasonably satisfactory to Fortress, including without limitation Form 8023 (Elections under Section 338 on Corporations Making Qualified Stock Purchases). (d) As a material inducement to Purchasers to purchase the Shares, Fortress represents and warrants to Purchasers that Fortress Management has no unpaid state or federal income tax liabilities of any kind or character and will have no state or federal income tax liabilities for the current fiscal year. Fortress hereby agrees to defend, indemnify and hold Purchasers harmless from any state or federal income tax obligations of any kind or character, by audit adjustment or otherwise, of Fortress Management attributable to any period of time through the closing of the purchase of the Shares by Purchasers. The indemnity herein made shall expressly cover and include any income tax arising from the consummation of the Merger or from the 338 Election. 1.12 Indemnity Agreement. Purchasers agree to indemnify Fortress and hold it harmless from and against any obligations, liabilities or losses arising under (i) any of the leases listed on Section 3.03 of the Disclosure Schedule and (ii) any indemnity, surety or guaranty agreement entered into on behalf of any Partnership by Fortress with HOME of Texas prior to the date hereof and (iii) any guaranty of Fortress under any of the bonds listed on Section 1.12 of the Disclosure Schedule. 1.13 Further Assurances. Each party hereto will, either prior to or after the Effective Time, execute such further documents, instruments, deeds, bills of sale, assignments 5 and assurances and take such further actions as may reasonably be requested by one or more of the others to consummate the Merger, to vest the Surviving Entities with title to all assets, properties, rights, and approvals of either of the Constituent Entities or to effect the other purposes of this Agreement. ARTICLE II CONVERSION OF THE PARTNERSHIP INTERESTS 2.01 Conversion of the Partnership Interests. At the Effective Time, by virtue of the Merger and without any action on the part of the Partners: (a) Purchase Price Allocation for Each Partnership. Each Partnership Interest outstanding immediately prior to the Effective Time shall be converted into the right to receive that portion of the $23,000,000 in cash as is allocated to the assets of each such Partnership, as set forth on Annex I hereto (the "Merger Consideration"). Purchasers and each Partnership agree that for all income tax purposes including but not limited to the application of Section 1060 of the Code, Purchasers and each such Partnership shall allocate among the assets sold the Merger Consideration in accordance with Annex I hereto, and that such allocations will be used by Purchasers and each such Partnership for purposes of meeting their respective filing obligations on Form 8594 with respect to each such Merger. (b) Cancellation of Partnership Interests. The Partnership Interest of each Partnership, when converted into the right to receive cash, shall no longer be outstanding and shall automatically be cancelled and retired and shall cease to exist, and each holder of any such Partnership Interest shall cease to have any rights with respect thereto, except the right to receive the amount of cash to be delivered in consideration thereof. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE PARTNERS AND THE PARTNERSHIPS Each Partner and Partnership hereby represents and warrants as of the date hereof to Purchasers as follows: 3.01 Formation; Qualification; Capitalization. Fortress Management is a corporation duly incorporated and validly existing under the laws of the state of Texas. FHV is a limited liability company duly organized and validly existing under the laws of the state of Delaware. Each Partnership is a limited partnership duly formed under the TRLPA, and is validly existing under the laws of the State of Texas. Each Partnership has all requisite partnership power and authority to own, operate or lease its properties and to carry on its business as now being conducted. All of the outstanding Partnership Interests of the Partnerships are free of all liens, encumbrances, defects and preemptive rights and are fully paid. 6 3.02 Authority. Each Partner and Partnership has all requisite power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary action on the part of each Partner and Partnership. This Agreement has been duly and validly executed and delivered by each Partner and Partnership and constitutes the legal, valid and binding obligation of each Partner and Partnership enforceable against such Partner or Partnership, as the case may be, in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors' rights or by general principles of equity. 3.03 No Conflicts. The execution and delivery by each Partner and Partnership of this Agreement does not, and the performance by the Partners and the Partnerships of their obligations under this Agreement and the consummation of the transactions contemplated hereby will not: (a) conflict with or result in a violation or breach of any of the terms, conditions or provisions of the partnership agreement of each Partnership; (b) conflict with or result in a violation or breach of any term or provision of any Law or Order applicable to any Partner or Partnership, (other than such conflicts, violations or breaches (i) which could not in the aggregate reasonably be expected to adversely affect the validity or enforceability of this Agreement or to have a material adverse effect on the Partners or Partnerships or (ii) as would occur solely as a result of the identity or the legal or regulatory status of Purchasers or any of their affiliates); or (c) except as disclosed in Section 3.03 of the Disclosure Schedule or as could not, individually or in the aggregate, reasonably be expected to be materially adverse to the Partnerships or to adversely affect the ability of any Partner or Partnership to consummate the transactions contemplated hereby or to perform its obligations hereunder or thereunder, (i) conflict with or result in a violation or breach of, (ii) constitute (with or without notice or lapse of time or both) a default under, (iii) require a Partner or Partnership to obtain any consent or approval of any Person under the terms of, (iv) result in or give to any Person any right of termination, cancellation, or modification under, or (v) result in the creation or imposition of any Lien upon a Partner or Partnership or any of their Assets and Properties under, any Contract or License to which a Partner or Partnership is a party or by which any of its Assets and Properties is bound. 3.04 Governmental Approvals and Filings. Except as disclosed in Section 3.04 of the Disclosure Schedule, and except for the filing of the applicable Certificate of Merger with the Secretary of State of the State of Texas, no consent, approval or action of, filing with or notice to any Governmental or Regulatory Authority on the part of any Partner or Partnership is required in connection with the execution, delivery and performance of this Agreement or the consummation of the transactions contemplated hereby. 7 3.05 No Continuing Obligations. Except as disclosed in Section 3.05 of the Disclosure Schedule or as otherwise provided for herein or in connection with the agreements, instruments and other transactions contemplated hereby, following the Merger there will be no material obligations owing to the Partners by the Partnerships or the Purchasers. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PURCHASERS Purchasers hereby represent and warrant as of the date hereof to the Partners and the Partnerships as follows: 4.01 Organization. Each Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of Texas. Each Purchaser has full corporate power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. 4.02 Authority. The execution and delivery by each Purchaser of this Agreement, and the performance by such Purchaser of its obligations hereunder, have been duly and validly authorized by the board of directors of such Purchaser, no other corporate action on the part of such Purchaser being necessary. This Agreement has been duly and validly executed and delivered by each Purchaser and constitutes the legal, valid and binding obligation of such Purchaser enforceable against such Purchaser in accordance with its terms. 4.03 No Conflicts. The execution and delivery by each Purchaser of this Agreement does not, and the performance by such Purchaser of its obligations under this Agreement and the consummation of the transactions contemplated hereby will not: (a) conflict with or result in a violation or breach of any of the terms, conditions or provisions of the articles of incorporation or bylaws (or other comparable corporate charter document) of such Purchaser; (b) conflict with or result in a violation or breach of any term or provision of any Law or Order applicable to such Purchaser (other than such conflicts, violations or breaches which could not in the aggregate reasonably be expected to adversely affect the validity or enforceability of this Agreement); or (c) except as could not, individually or in the aggregate, reasonably be expected to adversely affect the ability of such Purchaser to consummate the transactions contemplated hereby or to perform its obligations hereunder, (i) conflict with or result in a violation or breach of, (ii) constitute (with or without notice or lapse of time or both) a default under, (iii) require such Purchaser to obtain any consent or approval of any Person under the terms of, or (iv) result in the creation or imposition of any Lien upon such Purchaser or any of its Assets or Properties under, any Contract or License to which such Purchaser is a party or by which any of its Assets and Properties is bound. 8 4.04 Financing. Purchasers have received a letter from Hearthstone, Inc. pursuant to which such entity has committed to make available to Purchasers funds sufficient to pay the Merger Consideration and to make all other necessary payments of fees and expenses in connection with the transactions contemplated by this Agreement. ARTICLE V COVENANTS OF THE PARTNERS AND THE PARTNERSHIPS Each Partner and Partnership covenants and agrees with Purchasers that, at all times from and after the date hereof until the Closing, each Partner and Partnership will comply with all covenants and provisions of this Article V, except to the extent Purchasers may otherwise consent in writing. 5.01 Regulatory and Other Approvals. Each Partner and Partnership will, as promptly as practicable, (a) take all commercially reasonable steps necessary or desirable to obtain all consents, approvals or actions of, make all filings with and give all notices to Governmental or Regulatory Authorities or any other Person required of such Partner or Partnership, as the case may be, to consummate the transactions contemplated hereby, including without limitation those described in Sections 3.03 and 3.04 of the Disclosure Schedule, (b) provide such other information and communications to such Governmental or Regulatory Authorities or other Persons as Purchasers or such Governmental or Regulatory Authorities or other Persons may reasonably request in connection therewith and (c) cooperate with Purchasers in connection with the performance of its obligations under Sections 6.01 and 6.02. Each Partner and Partnership will provide prompt notification to Purchasers when any such consent, approval, action, filing or notice referred to in clause (a) above is obtained, taken, made or given, as applicable, and will advise Purchasers of any communications with any Governmental or Regulatory Authority or other Person regarding any of the transactions contemplated by this Agreement. 5.02 Conduct of Business. The Partner and the Partnerships will conduct the business of the Partnerships only in the ordinary course consistent with past practice. 5.03 Fulfillment of Conditions. The Partners and the Partnerships will execute and deliver at the Closing each agreement that the Partners and the Partnerships are required hereby to execute and deliver as a condition to the Closing, will take all commercially reasonable steps necessary or desirable and proceed diligently and in good faith to satisfy each condition to the obligations of Purchasers contained in this Agreement and will not intentionally take or fail to take any action that could reasonably be expected to result in the nonfulfillment of any such condition. Without limitation of the foregoing, the Partners and the Partnerships will proceed diligently and in good faith to cause the Closing to occur on or prior to the Termination Date. 9 ARTICLE VI COVENANTS OF PURCHASER Purchasers covenant and agree with the Partners and the Partnerships that, at all times from and after the date hereof until the Closing, Purchasers will comply with all covenants and provisions of this Article VI, except to the extent the Partners or the Partnerships may otherwise consent in writing. 6.01 Regulatory and Other Approvals. Purchasers will, as promptly as practicable, (a) take all commercially reasonable steps necessary or desirable to obtain all consents, approvals or actions of, make all filings with and give all notices to Governmental or Regulatory Authorities or any other Person required of Purchasers to consummate the transactions contemplated hereby, (b) provide such other information and communications to such Governmental or Regulatory Authorities or other Persons as the Partnerships or such Governmental or Regulatory Authorities or other Persons may reasonably request in connection therewith and (c) cooperate with the Partners and Partnerships in connection with the performance of their obligations under Sections 5.01. Purchasers will provide prompt notification to the Partners and Partnerships when any such consent, approval, action, filing or notice referred to in clause (a) above is obtained, taken, made or given, as applicable, and will advise the Partners and Partnerships of any communications (and, unless precluded by Law, provide copies of any such communications that are in writing) with any Governmental or Regulatory Authority or other Person regarding any of the transactions contemplated by this Agreement. 6.02 Fulfillment of Conditions. Purchasers will execute and deliver at the Closing each agreement that it is required hereby to execute and deliver as a condition to the Closing, will take all commercially reasonable steps necessary or desirable and proceed diligently and in good faith to satisfy each condition to the obligations of the Partners and Partnerships contained in this Agreement and will not take or fail to take any action that could reasonably be expected to result in the nonfulfillment of any such condition. Without limitation of the foregoing, Purchasers will proceed diligently and in good faith to cause the Closing to occur on or prior to the Termination Date. ARTICLE VII CONDITIONS TO OBLIGATIONS OF PURCHASERS The obligations of Purchasers hereunder to consummate the Merger are subject to the fulfillment, at or before the Closing, of each of the following conditions (all or any of which may be waived in whole or in part by Purchasers in their sole discretion): 7.01 Representations and Warranties. The representations and warranties made by the Partners and the Partnerships in this Agreement (other than those made as of a specified date earlier than the date of this Agreement) shall be true and correct in all material respects on and as of the Closing Date as though such representations or warranties were made on and as of 10 the Closing Date, and the representations or warranties made as of a specified date earlier than the Closing Date shall have been true and correct in all material respects on and as of such earlier date. 7.02 Performance. The Partners and the Partnership shall have performed and complied with, in all material respects, each agreement, covenant and obligation required by this Agreement to be so performed or complied with by the Partners or Partnerships at or before the Closing. 7.03 Officers' Certificates. (a) The Partners and the Partnerships each shall have delivered to Purchasers (i) certificates (each an "Officer's Certificate"), confirming satisfaction of the conditions set forth in Sections 7.01 and 7.02, dated the Closing Date and executed in the name and on behalf of such Partners and Partnerships, as the case may be, by an officer, member or general partner of the Partners and the Partnerships, as the case may be, substantially in the form and to the effect of Exhibits B-1 and B-2 hereto, and (ii) certificates (each a Secretary's Certificate"), dated the Closing Date and executed by an officer, member or general partner of the Partners and the Partnerships, as the case may be, substantially in the form and to the effect of Exhibits C-1 and C-2 hereto, which shall include, (y) copies of the Organizational Documents of the Partners and the Partnerships, and (z) copies of resolutions of the Partners and the Partnerships approving the execution, delivery, and performance of this Agreement. 7.04 Orders and Laws. There shall not be in effect on the Closing Date any Order or Law restraining, enjoining or otherwise prohibiting or making illegal the consummation of the Merger, and there shall not be pending or threatened on the Closing Date any Action or Proceeding in, before or by any Governmental or Regulatory Authority which could reasonably be expected to result in the issuance of any such Order. 7.05 Regulatory Consents and Approvals. All consents, approvals and actions of, filings with and notices to any Governmental or Regulatory Authority necessary to permit Purchaser, the Partners and the Partnerships to perform their obligations under this Agreement and to consummate the Merger (a) shall have been duly obtained, made or given, (b) shall not be subject to the satisfaction of any condition that has not been satisfied or waived and (c) shall be in full force and effect. ARTICLE VIII CONDITIONS TO OBLIGATIONS OF THE PARTNERSHIPS The obligations of the Partners and the Partnerships to consummate the Merger are subject to the fulfillment, at or before the Closing, of each of the following conditions (all or any of which may be waived in whole or in part by the Partners and the Partnerships in their sole discretion): 8.01 Representations and Warranties. The representations and warranties made by Purchasers in this Agreement shall be true and correct in all material respects on and as of the 11 Closing Date as though such representations or warranties were made on and as of the Closing Date. 8.02 Performance. Purchasers shall have performed and complied with, in all material respects, each agreement, covenant and obligation required by this Agreement to be so performed or complied with by Purchasers at or before the Closing. 8.03 Officers' Certificates. (a)(i) Purchasers shall have delivered to the Partners and the Partnerships a certificate ("Officer's Certificate of Purchaser"), confirming satisfaction of the conditions set forth in Sections 8.01 and 8.02, dated the Closing Date and executed in the name and on behalf of Purchaser, respectively, by an officer, substantially in the form and to the effect of Exhibit D hereto, and (ii) a certificate ("Secretary's Certificate of Purchaser"), dated the Closing Date and executed by an officer of Purchaser, respectively, substantially in the form and to the effect of Exhibit E hereto, which shall include, (y) copies of the Organizational Documents of Purchaser, and (z) copies of resolutions of the board of directors of Purchasers approving the execution, delivery, and performance of this Agreement. 8.04 Orders and Laws. There shall not be in effect on the Closing Date any Order or Law restraining, enjoining or otherwise prohibiting or making illegal the consummation of the Merger, and there shall not be pending or threatened on the Closing Date any Action or Proceeding in, before or by any Governmental or Regulatory Authority which could reasonably be expected to result in the issuance of any such Order. 8.05 Regulatory Consents and Approvals. All consents, approvals and actions of, filings with and notices to any Governmental or Regulatory Authority necessary to permit Purchaser, the Partners and the Partnerships to perform their obligations under this Agreement and to consummate the transactions contemplated hereby and thereby (a) shall have been duly obtained, made or given, (b) shall not be subject to the satisfaction of any condition that has not been satisfied or waived and (c) shall be in full force and effect. 8.06 Waiver Letter. The waiver letter in the form of Exhibit F hereto shall have been executed by James Edward Horne (the "Waiver Letter"). 8.07 Computer Access and Transfer Agreement. Purchasers and Fortress shall have executed and delivered the Computer Access and Transfer Agreement in the form of Exhibit G hereto. ARTICLE IX SURVIVAL; NO OTHER REPRESENTATIONS 9.01 Survival; No Other Representations. (a) The representations and warranties contained in Section 3.01 and 3.02 will survive the Closing until the expiration of the applicable statute of limitations. All other representations and warranties contained in this Agreement shall not survive the Closing, and there shall be no liability in respect thereof, whether such liability has accrued prior to the Closing Date or after the Closing Date, on the part of either party or its 12 officers, directors, employees, agents and affiliates. This Section shall not limit in any way the survival and enforceability of any covenant or agreement of the parties hereto which by its terms contemplates performance after the Closing Date, which shall survive for the respective periods set forth herein. (b) Notwithstanding anything to the contrary contained in this Agreement, it is the explicit intent of each party hereto that the Partners and the Partnerships are making no representation or warranty whatsoever, express or implied, including but not limited to any implied representation or warranty as to condition, merchantability or suitability as to any of the Assets and Properties, except those representations and warranties expressly set forth in Article II. IT IS EXPRESSLY UNDERSTOOD THAT PURCHASERS TAKE THE ASSETS AND PROPERTIES OF THE PARTNERSHIPS "AS IS" AND "WHERE IS". ARTICLE X TERMINATION 10.01 Termination. This Agreement may be terminated, and the transactions contemplated hereby may be abandoned by either the Partners, on the one hand, or Purchaser, on the other, upon notification to the non-terminating party by the terminating party at any time following July 31, 2002 (such date, the "Termination Date"), if the Merger shall not have been consummated on or prior to such date and such failure to consummate the Merger is not caused by a breach of this Agreement by the terminating party. 10.02 Effect of Termination. (a) Upon termination of this Agreement pursuant to Section 10.01, the Partners shall be entitled to retain the full Deposit Amount (which shall be their sole remedy with respect to such termination) and the Escrow Agent shall be instructed to deliver the Deposit Amount to the Partners as a termination fee to reimburse the Partners for, among other things, their cost and expenses incurred in the transaction contemplated, provided however, if at the time of such termination the representations and warranties of the Partners and the Partnerships contained herein are not true and correct in all material respects or the Partners and the Partnerships shall have failed to perform and comply with, in all material respects, the agreements and covenants required by this Agreement to be so performed or complied with by the Partners and the Partnerships at or before the Closing (including the requirement to effect the Closing if all conditions thereto have been satisfied or waived in accordance with the terms hereof), Purchasers shall be entitled to the return of the Deposit Amount and the Escrow Agent shall be instructed to deliver the Deposit Amount to Purchasers as promptly as practicable following such termination. (b) Subject to paragraph (a) above, if this Agreement is validly terminated pursuant to Section 10.01, this Agreement will forthwith become null and void, and there will be no liability or obligation on the part of the Partnerships or Purchasers (or any of their respective officers, directors, employees, agents or other representatives or affiliates), except that the provisions with respect to expenses in Section 12.03 will continue to apply following any such termination, and except that, if this Agreement has been terminated due to a failure of the Partners or the Partnerships (i) to comply with the covenants contained in Section 5.03 or (ii) to 13 effect the Closing if required to do so hereunder, then in addition to the return of the Deposit Amount, Purchasers shall also be entitled to pursue any rights or remedies against the Partners or the Partnerships which Purchasers may have at Law or in equity (including, without limitation, the right to specific performance). ARTICLE XI DEFINITIONS 11.01 Definitions. (a) Defined Terms. As used in this Agreement, the following defined terms have the meanings indicated below: "338 Election" has the meaning ascribed to it in Section 1.11(c). "Assets and Properties" means all assets and properties of every kind, nature, character and description (whether real, personal or mixed, whether tangible or intangible, whether absolute, accrued, contingent, fixed or otherwise and wherever situated), including the goodwill related thereto, operated, owned or leased by such Person, including without limitation cash, cash equivalents, investment assets, accounts and notes receivable, chattel paper, documents, instruments, general intangibles, real estate, equipment, inventory, goods and Intellectual Property. "Business Day" means a day other than Saturday, Sunday or any day on which banks located in the States of New York, Texas or Virginia are authorized or obligated to close. "Certificates of Merger" has the meaning ascribed to it in Section 1.04. "Closing" has the meaning ascribed to it in Section 1.02. "Closing Date" has the meaning ascribed to it in Section 1.02. "Code" means the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder. "Condo Partnerships" has the meaning ascribed to it in the forepart of this Agreement. "Condo Purchaser" has the meaning ascribed to it in the forepart of this Agreement. "Constituent Entities" has the meaning ascribed to it in Section 1.01. "Contract" means any agreement, lease, license, evidence of Indebtedness, mortgage, indenture, security agreement or other contract. 14 "Deposit Amount" has the meaning ascribed to it in Section 1.03. "Disclosure Schedule" means the record delivered to Purchasers by the Partnerships herewith and dated as of the date hereof, containing all lists, descriptions, exceptions and other information and materials as are required to be included therein by the Partnerships pursuant to this Agreement. "Dispute Period" has the meaning ascribed to it in Section 1.08(a). "Effective Time" has the meaning ascribed to it in Section 1.04. "Escrow" has the meaning ascribed to it in Section 1.08(b). "Escrow Agent" and "Escrow Agreement" have the meanings ascribed to them in Section 1.03. "Exercise Date" has the meaning ascribed to it in Section 1.11(a). "Exercise Notice" has the meaning ascribed to it in Section 1.11(b). "Existing Policy" has the meaning ascribed to it in Section 1.09(b). "FHV" has the meaning ascribed to it in the forepart of this Agreement. "Fortress" has the meaning ascribed to it in Section 1.09(a). "Fortress 401(k) Plan" has the meaning ascribed to it in Section 1.10(a). "Fortress Management" has the meaning ascribed to it in the forepart of this Agreement. "Governmental or Regulatory Authority" means any court, tribunal, arbitrator, authority, agency, commission, official or other instrumentality of the United States, or any domestic, county, city or other political subdivision. "Homebuilding Partnerships" has the meaning ascribed to it in the forepart of this Agreement. "Homebuilding Purchaser" has the meaning ascribed to it in the forepart of this Agreement. "Indebtedness" of any Person means all obligations of such Person (i) for borrowed money, (ii) evidenced by notes, bonds, debentures or similar instruments, (iii) for the deferred purchase price of goods or services (other than trade payables or accruals incurred in the ordinary course of business), (iv) under capital leases and (v) in the nature of guarantees of the obligations described in clauses (i) through (iv) above of any other Person. 15 "Independent Accountant" has the meaning ascribed to it in Section 1.08(a). "Interim Period" has the meaning ascribed to it in Section 1.08(a). "Laws" means all laws, statutes, rules, regulations, and ordinances of the United States or any state, county, city or other political subdivision or of any Governmental or Regulatory Authority. "Licenses" means all licenses, permits, certificates of authority, authorizations, approvals, registrations, franchises and similar consents granted or issued by any Governmental or Regulatory Authority. "Liens" means any mortgage, hypothecation, pledge, assessment, security interest, movable security, lease, lien, adverse claim, levy, defect of title, charge or other encumbrance of any kind, or any conditional sale Contract, title retention Contract or other Contract to give any of the foregoing and any other rights of third parties relating to the property, including rights of set-off, voting trusts and other encumbrances of any kind. "Merger" has the meaning ascribed to it in the forepart of this Agreement. "Merger Consideration" has the meaning ascribed to it in Section 2.01(a). "Officer's Certificate" has the meaning ascribed to it in Section 7.03(a). "Officer's Certificate of Purchaser" has the meaning ascribed to it in Section 8.03(a). "Order" means any writ, judgment, decree, injunction or similar order of any Governmental or Regulatory Authority (in each such case whether preliminary or final). "Organizational Documents" means (i) with respect to an entity that is a corporation, its certificate or articles of incorporation and bylaws and any other charter or organizational documents, (ii) with respect to an entity that is a limited liability company, its certificate or articles of formation and operating agreement and any other charter or organizational documents, and (iii) with respect to an entity that is a limited partnership, its certificate of limited partnerships and partnership agreement an any other charter or organizational documents, in each case as amended and/or restated as of the Closing Date. "Partners" has the meaning ascribed to it in the forepart of this Agreement. "Partnerships" has the meaning ascribed to it in the forepart of this Agreement. "Partnerships Interests" has the meaning ascribed to it in the forepart of this Agreement. 16 "Person" means any natural person, corporation, general partnership, limited partnership, limited liability company, proprietorship, other business organization, trust, union, association or Governmental or Regulatory Authority. "Pre-Tax Income/Loss Certificate" has the meaning ascribed to it in Section 1.08(a). "Purchaser" has the meaning ascribed to it in the forepart of this Agreement. "Sale Right" "Shares" and "Share Consideration" have the meanings ascribed to them in Section 1.11(a). "Secretary's Certificate" has the meaning ascribed to it in Section 7.03(a). "Secretary's Certificate of Purchaser" has the meaning ascribed to it in Section 8.03(a). "Surviving Entities" has the meaning ascribed to it in Section 1.01. "Termination Date" has the meaning ascribed to it in Section 10.01(a). "TRLPA" has the meaning ascribed to it in Section 1.01. "Waiver Letter" has the meaning ascribed to it in Section 8.06. (b) Construction of Certain Terms and Phrases. Unless the context of this Agreement otherwise requires, (i) words of any gender include each other gender; (ii) words using the singular or plural number also include the plural or singular number, respectively; (iii) the terms "hereof," "herein," "hereby" and derivative or similar words refer to this entire Agreement; (iv) the terms "Article" or "Section" refer to the specified Article or Section of this Agreement; and (v) the phrases "ordinary course of business" and "ordinary course of business consistent with past practice" refer to the business and practice of the Partnerships. Whenever this Agreement refers to a number of days, such number shall refer to calendar days unless Business Days are specified. All accounting terms used herein and not expressly defined herein shall have the meanings given to them under GAAP. ARTICLE XII MISCELLANEOUS 12.01 Notices. All notices, requests and other communications hereunder must be in writing and will be deemed to have been duly given only if delivered personally or by facsimile transmission or mailed (by postage prepaid registered or certified), return receipt requested, to the parties at the following addresses or facsimile numbers: 17 If to Purchasers, to: Partnership Acquisition Co. 8716 N. Mopac Suite 100 Austin, Texas 78758 Facsimile No.: (512) 338-1836 Attn: Mr. James Edward Horne with a copy to: Phil Mockford P.O. Box 1642 Austin, TX 78767 Facsimile No.: (512) 478-2772 If to any Partner or Partnership, to: The Fortress Group, Inc. 1650 Tysons Boulevard, Suite 600 McLean, Virginia 22102 Attention: Mr. George Yeonas Facsimile No. (703) 442-7730 with a copy to: Milbank, Tweed, Hadley & McCloy LLP One Chase Manhattan Plaza New York, New York 10005 Facsimile No. (212) 530-5219 Attention: Dennis F. Dunne, Esq. Wire Transfer Instructions of the Partners: Bank: First Union Bank, Roanoke, VA. ABA No.: ABA 051 400 549 Beneficiary: The Fortress Group, Inc., a/c # 206 520 348 9513 Wire Transfer Instructions of Purchasers: 50% of Wire Transfer to the Following: Bank: Bank One Texas Account No.: 636253072 ABA No.: 111000614 Account Holder: Wilshire Management, Inc. 18 50% of Wire Transfer to the Following: Bank: Bank of America, Inc. Account No.: 001390032525 ABA No.: 111000025 Account Holder: Hearthstone, Inc. Reference: Wilshire Transaction All such notices, requests and other communications will (i) if delivered personally to the address as provided in this Section, be deemed given upon delivery, (ii) if delivered by facsimile transmission to the facsimile number as provided in this Section, be deemed given upon receipt if received on a Business Day and on the next Business Day if received on a day that is not a Business Day, and (iii) if delivered by mail in the manner described above to the address as provided in this Section, be deemed given upon receipt (in each case regardless of whether such notice, request or other communication is received by any other Person to whom a copy of such notice, request or other communication is to be delivered pursuant to this Section). Any party from time to time may change its address, facsimile number or other information for the purpose of notices to that party by giving notice specifying such change to the other party hereto. 12.02 Entire Agreement. This Agreement supersedes all prior discussions and agreements between the parties with respect to the subject matter hereof, including without limitation that certain letter agreement with respect to confidentiality between the parties dated April 18, 2002, and contain the sole and entire agreement between the parties hereto with respect to the subject matter hereof and thereof. 12.03 Expenses. Whether or not the transactions contemplated hereby are consummated, each party will pay its own costs and expenses incurred in connection with the negotiation, execution and closing of this Agreement and the transactions contemplated hereby. 12.04 Mortgage Services Arrangement. Purchasers and Fortress Mortgage, Inc. or another mortgage company owned by Lennar Corporation shall have used commercially reasonable efforts to reach agreement on the terms of a joint venture agreement with respect to mortgage banking services. The parties shall commence discussions with the use of the joint venture agreement in the form attached hereto as Exhibit H; provided however, the parties shall not be obligated to agree to the terms contained herein. The execution and delivery of such a joint venture agreement shall not be a condition to the obligations of either the Partners or the Partnership to consummate the Merger. 12.05 Public Announcements. Without the prior written consent of the other parties hereto, neither party hereto will, and will cause their respective representatives not to, make any release to the press or other public disclosure at any time prior to the Closing with respect to any of the transactions contemplated by this Agreement, except for such public disclosure as may be necessary, in the written opinion of counsel, for the party proposing to make the disclosure not to be in violation of or default under any applicable Law or Order, and then only upon prior notice and review of such disclosure by the other party. 19 12.06 Confidentiality. Each party hereto will hold, and will use its reasonable efforts to cause its respective affiliates, directors, employees, agents and representatives to hold, in strict confidence from any Person (other than any such affiliate or representative), unless (i) compelled to disclose by judicial or administrative process (including without limitation in connection with obtaining the necessary approvals of this Agreement and the transactions contemplated hereby of Governmental or Regulatory Authorities) or by other requirements of Law or (ii) disclosed in an Action or Proceeding brought by a party hereto in pursuit of its rights or in the exercise of its remedies hereunder, all documents and information concerning the other party or any of its Affiliates furnished to it by the other party or such other party's representatives in connection with this Agreement or the transactions contemplated hereby, except to the extent that such documents or information can be shown to have been (a) previously known by the party receiving such documents or information, (b) in the public domain (either prior to or after the furnishing of such documents or information hereunder) through no fault of such receiving party or (c) later acquired by the receiving party from another source if the receiving party is not aware that such source is under an obligation to another party hereto to keep such documents and information confidential; provided that following the Closing the foregoing restrictions will not apply to Purchasers' use of documents and information concerning the Partners and the Partnerships furnished by or on behalf of the Partners and Partnerships hereunder. 12.07 Waiver. Any term or condition of this Agreement may be waived at any time by the party that is entitled to the benefit thereof, but no such waiver shall be effective unless set forth in a written instrument duly executed by or on behalf of the party waiving such term or condition. No waiver by any party of any term or condition of this Agreement, in any one or more instances, shall be deemed to be or construed as a waiver of the same or any other term or condition of this Agreement on any future occasion. All remedies, either under this Agreement or by Law or otherwise afforded, will be cumulative and not alternative. 12.08 Amendment. This Agreement may be amended, supplemented or modified only by a written instrument duly executed by or on behalf of each party hereto. 12.09 No Third Party Beneficiary. The terms and provisions of this Agreement are intended solely for the benefit of each party hereto and their respective successors or permitted assigns, and it is not the intention of the parties to confer third-party beneficiary rights upon any other Person. 12.10 No Assignment; Binding Effect. Neither this Agreement nor any right, interest or obligation hereunder may be assigned by any party hereto without the prior written consent of the other party hereto and any attempt to do so will be void, except (a) for assignments and transfers by operation of Law and (b) that Purchasers may assign any or all of their rights, interests and obligations hereunder to a directly wholly-owned subsidiary, provided that any such subsidiary agrees in writing to be bound by all of the terms, conditions and provisions contained herein, but no such assignment shall relieve Purchasers of their obligations 20 hereunder. Subject to the preceding sentence, this Agreement is binding upon, inures to the benefit of and is enforceable by the parties hereto and their respective successors and assigns. 12.11 Headings. The headings used in this Agreement have been inserted for convenience of reference only and do not define or limit the provisions hereof. 12.12 Invalid Provisions. If any provision of this Agreement is held to be illegal, invalid or unenforceable under any present or future Law, and if the rights or obligations of any party hereto under this Agreement will not be materially and adversely affected thereby, (a) such provision will be fully severable, (b) this Agreement will be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part hereof, and (c) the remaining provisions of this Agreement will remain in full force and effect and will not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom. 12.13 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, except to the extent the TRLPA is mandatorily applicable. 12.14 Counterparts. This Agreement may be executed in any number of counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument. 21 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the duly authorized officer of each party hereto as of the date first above written. PARTNERSHIP ACQUISITION CO. By:__________________________ Name: Title: CONDO ACQUISITION CO. By:__________________________ Name: Title: FORTRESS MANAGEMENT, INC. By:_____________________________ Name: Title: FORTRESS HOLDING-VIRGINIA, LLC By:_____________________________ Name: Title: WILSHIRE HOMES, LTD. By: Fortress Management, Inc. as General Partner By:_____________________________ Name: Title: WILSHIRE HOMES SAN ANTONIO, LTD. By: Fortress Management, Inc. as General Partner By:_____________________________ Name: Title: BUFFINGTON HOMES OF TEXAS, LTD. By: Fortress Management, Inc. as General Partner By:_____________________________ Name: Title: CAHILL CONDO PARTNERS, LTD. By: Fortress Management, Inc. as General Partner By:_____________________________ Name: Title: RETREAT AT ANDERSON OAKS, LTD. By: Fortress Management, Inc. as General Partner By:_____________________________ Name: Title: With respect to Sections 1.09 through 1.12 only: THE FORTRESS GROUP, INC. By:__________________________ Name: Title: ANNEX I Allocation of Merger Consideration among the Partners Annex I to be prepared in mutually acceptable form and with mutually acceptable allocations initialed by the parties and attached at or prior to Closing. ANNEX II Allocation of Escrow amount among the Partners EX-99.E.5 6 y61738exv99wew5.txt AGREEMENT REGARDING NAME Exhibit (e)(5) AGREEMENT REGARDING NAME June 14, 2002 The Genesee Company The Fortress Group, Inc. 1650 Tysons Boulevard Suit 600 McLean, VA 22102 Dear Sirs: This Agreement is being entered into to induce Lennar Corporation and FG Acquisition Corporation to enter into, and carry out the transactions contemplated by, a Securities Purchase Agreement dated June 14, 2002 among FG Acquisition Corporation, Lennar Corporation, Prometheus Home Builders LLC and Robert Short ("Short") and a Plan and Agreement of Merger dated June 14, 2002 among The Fortress Group, Inc., Lennar Corporation and FG Acquisition Corporation. GCH, Inc. ("Custom"), which formerly was named Genesee Custom Homes, Inc., agrees to stop marketing homes, and not to market homes in the future, under the name "Genesee Custom Homes" or any other name which includes the word "Genesee" or a word which is confusingly similar to that. This Agreement will not prevent Custom from completing and selling as Genesee Custom Homes any homes which are under construction or unsold at the date of this Agreement, or from building and selling as Genesee Custom Homes any homes which are the subject of contracts which were entered into before the date of this Agreement. Short agrees not to market homes through any entity other than Custom using any name under which Custom has agreed in this Agreement not to market homes. Very truly yours, GCH, INC. (formerly Genesee Custom Homes, Inc.), a Colorado corporation By: /s/ Robert R. Short ----------------------- Robert Short, President /s/ Robert R. Short ----------------------- Robert Short EX-99.E.6 7 y61738exv99wew6.txt INDEMNIFICATION AGREEMENT Exhibit (e)(6) INDEMNIFICATION AGREEMENT June 17, 2002 The Genesee Company The Fortress Group, Inc. 1650 Tysons Boulevard Suite 600 McLean, VA 22102 Dear Sirs: This Indemnification Agreement is being written to induce Lennar Corporation and FG Acquisition Corporation to enter into, and carry out the transactions contemplated by, a Securities Purchase Agreement dated June 17, 2002 among FG Acquisition Corporation, Lennar Corporation, Prometheus Home Builders LLC and Robert Short and a Plan and Agreement of Merger dated June 17, 2002 among The Fortress Group, Inc., Lennar Corporation and FG Acquisition Corporation. GCH, Inc. ("Custom"), which formerly was named Genessee Custom Homes, Inc., purchased from The Genessee Company (the "Company") certain assets making up the Company's custom home division under the terms of an Asset Purchase Agreement (the "Asset Purchase Agreement") dated July 1, 1996, between the Company and Custom. The Genesee Company ("Company") is a defendant in two lawsuits (the "Lawsuits") in the Colorado state courts captioned Chad and Kristin Brown v. The Genesee Company (the "Brown Case") and Keith and Lynda Webb v. The Genesee Company (the "Webb Case"), relating, among other things, to alleged defects in the construction of homes purchased from Custom. The residence that is the subject of the Brown Case was constructed by the Company prior to July 1, 1996 and purchased by Custom from Genesee under the terms of the Asset Purchase Agreement. The residence that is the subject of the Webb Case was constructed by Custom on an unimproved lot purchased by Custom from Genesee under the Asset Purchase Agreement. At the present time, insurers for the Company and Custom are providing counsel for the Brown Case and the Webb Case, but have provided notices that the claims may not be covered by insurance. A tentative agreement has been reached with plaintiff's counsel in the Webb Case to dismiss the Company, without prejudice, upon the Company's execution of a tolling agreement. Under Section 4.3 of the Asset Purchase Agreement, Custom agreed to be responsible for "all warranty claims arising out of custom homes finished and delivered since January 1, 1996." Although Section 4.3 of the Asset Purchase Agreement is not applicable to the Webb Case and may, or may not, be applicable to the claims in the Brown Case, Lennar Corporation and FG Acquisition Corporation have requested that Custom accept responsibility, as between the Company and Custom, for the Lawsuits. As the builder and seller of the residence in the Webb Case, Custom acknowledges that it is solely responsible, as between the Company and Custom, for the defense costs and payment of any successful claims in the Webb Case. Furthermore, as the seller of the residence in the Brown Case, Custom acknowledges that (notwithstanding the limitations of Section 4.3 of the Asset Purchase Agreement), it will be responsible, as between the Company and Custom, for the defense costs and payment of any successful claims in the Brown Case. In connection therewith, Custom agrees as follows: 1. If the Company, or any of The Fortress Group, Inc. or any of its subsidiaries (each a "Fortress Company") which is, or becomes, a defendant in either of both of the Lawsuits, seeks to have either of the Lawsuits dismissed as to it on the ground that Custom is responsible for any liability relating to defects in the home which is the subject of the Lawsuit, (i) Custom will acknowledge, in such form as counsel for Company or the Fortress Company may reasonably request, that, if there are any defects in the home which is the subject of the Lawsuit for which the plaintiff is entitled to recover damages, as among Custom, Company and the other Fortress Companies, Custom is responsible for any costs or liabilities relating to that defect and (ii) if Custom is not already a defendant in the Lawsuit, Custom will permit itself to be substituted for Company and any other Fortress Companies which are defendants in the Lawsuit. 2. Custom will indemnify Company and each other Fortress Company against, and will hold each of them harmless from, any costs, expenses or liabilities (including legal fees) which Company or any other Fortress Company may incur because of, or in defending, either of the Lawsuits. Nothing in this letter shall prejudice the rights of or affect, in any way, any insurance carrier providing coverage in either the Brown Case or the Webb Case. In addition, Custom's indemnification obligations will only arise to the extent the costs of defense and the claims are not covered by insurance. As a condition to Custom's indemnification obligations in this letter, the Company shall: (a) execute a tolling agreement in the Webb Case and such other documents as reasonably are required to cause the plaintiff to dismiss the Company from the Lawsuit, and (b) cooperate with Custom as reasonably requested in defense of the Brown Case and the Webb Case. Very truly yours, GCH, INC. (formerly Genesee Custom Homes, Inc.), a Colorado corporation By: /s/ Robert R. Short -------------------------- Robert R. Short, President EX-99.E.7 8 y61738exv99wew7.txt CONFIDENTIALITY AGREEMENT Exhibit (e)(7) [UBS WARBURG LETTERHEAD] September 4, 2001 Lennar Corporation 700 N.W. 107th Avenue 4th Floor Miami, FL 33172 Attn: David McCain General Counsel Dear Mr. McCain: We have advised you that UBS Warburg LLC is acting as exclusive financial advisor to The Fortress Group, Inc., a Delaware corporation (the "Company"), and its subsidiaries to explore a possible negotiated transaction relating to the business and assets of the Company (a "Transaction"). As a condition to the furnishing of information relating to the Company and its subsidiaries to you and your Representatives (as defined below), you agree that, (i) all information relating to the Company and its subsidiaries furnished by or on behalf of the Company to you or your Representatives, whether prior to or after your acceptance of this agreement and irrespective of the form of communication, or learned by you in connection with visits to the Company's facilities, in connection with your consideration of a Transaction (such information, together with notes, memoranda, summaries, analyses, compilations and other writings relating thereto or based thereon prepared by you or your Representatives being referred to herein as the "Evaluation Material") will be kept strictly confidential, (ii) the Evaluation Material will not be used in any way detrimental to the Company or its stockholders and (iii) the Evaluation Material will be used solely for the purpose of determining the desirability of a Transaction; provided, however, that the Evaluation Material may be disclosed to any of your Representatives who needs to know such information for the purpose of assisting you in evaluating a Transaction (it being understood that such Representatives will be informed by you of the contents of this agreement and that, by receiving such information, such Representatives are agreeing to be bound by this agreement). The term "Evaluation Material" does not include information which (i) is or becomes generally available to the public other than as a result of disclosure by you or your Representatives, or (ii) becomes available to you or any of your Representatives on a non-confidential basis from a source other than the Company or its affiliates or Representatives, provided that neither you nor any of your Representatives is aware that such source is under an obligation (whether contractual, legal or fiduciary) to the Company to keep such information confidential, or (iii) is or has been independently developed by you or any of your Representatives without reference to any Evaluation Material For purposes hereof, the "Representatives" of any entity means such entity's directors, officers, employees, legal and financial advisors, accountants and other agents and representatives, and also includes any bank or other financial institution or institutional investor who is considering providing financing to you for a Transaction. You will be responsible for any breach of this agreement by any of your Representatives and agree to take all reasonable measures to restrain your Representatives from prohibited or unauthorized disclosure or use of Evaluation Material. In addition, you agree that, except with the prior written consent of the Company or as required or permitted by this agreement, you will not, and you will direct your Representatives not to, make any release to the press or other public disclosure concerning either (i) the existence of this agreement or that the Evaluation Material has been made available to you or (ii) in the event that the Company or any of its Representatives engages in discussions or negotiations with you or your Representatives, the fact that discussions or negotiations are taking place concerning a possible Transaction, or any of the terms, conditions or other facts with respect to any such possible Transaction, including the status thereof, except for such public disclosure as may be necessary, in the opinion of your outside counsel, for you not to be in violation of or default under any applicable law, regulation, stock exchange requirement or governmental order. If you propose to make any disclosure based upon such an opinion, you will deliver a copy of such opinion to the Company together with the text of the proposed disclosure as far in advance of its disclosure as is reasonably practicable, and will in good faith consult with and consider the suggestions of the Company and its Representatives concerning the nature and scope of the information you propose to disclose. [UBS Warburg Logo] If you or any of your Representatives are requested in any judicial or administrative proceeding or by any governmental or regulatory authority to disclose any Evaluation Material, you will (i) give the Company prompt notice of such request so that the Company may seek an appropriate protective order and (ii) consult with the Company as to the advisability of taking legally available steps to resist or narrow such a request. You will cooperate fully with the Company in obtaining such an order, at the Company's expense. If in the absence of a protective order you are nonetheless compelled to disclose Evaluation Material, the Company agrees that you may make such disclosure without liability hereunder, provided that you give the Company written notice of the information to be disclosed as far in advance of its disclosure as is practicable and, upon the Company's request and at its expense, use your reasonable best efforts to obtain assurances that confidential treatment will be accorded to such information. If at any time you decide that you do not wish to proceed with a Transaction or, if earlier, upon the request of the Company, you will, at your option, promptly (and in no event later than five (5) business days after such request) destroy all copies of the Evaluation Material furnished to you or redeliver or cause to be redelivered to the Company all copies of the Evaluation Material furnished to you by or on behalf of the Company and destroy or cause to be destroyed all Evaluation Material prepared by you or any of your Representatives. Notwithstanding the return or destruction of the Evaluation Material, you and your Representatives will continue to be bound by your obligations hereunder. Although the Company will endeavor to include in the Evaluation Material information it believes to be relevant to the evaluation of a Transaction, you hereby acknowledge that neither the Company nor any of its affiliates or Representatives makes any representation or warranty, express or implied, as to the accuracy or completeness of any of the Evaluation Material. You agree that neither the Company nor any of its affiliates or Representatives will have any liability to you or your Representatives resulting from use of any of the Evaluation Material. You hereby acknowledge that you are aware (and that your Representatives who have been apprised of this agreement and your consideration of a Transaction have been, or upon becoming so apprised will be, advised) of the restrictions imposed by federal and state securities laws on a person possessing material nonpublic information about a company. In this regard, you hereby agree that while you are in possession of material nonpublic information with respect to the Company and its subsidiaries, you will not purchase or sell any securities of the Company, or communicate such information to any third party, in violation of any such laws. In consideration for access to the Evaluation Material which you have requested, you agree not to initiate or maintain contact (other than in the ordinary course of business) with any officer, director, employee or agent of the Company or any of its subsidiaries regarding its business, operations, prospects, finances or any other matter pertaining to the Company or any of its subsidiaries or to any proposed Transaction, other than as arranged by UBS Warburg LLC. It is understood that UBS Warburg LLC will arrange for appropriate contacts for due diligence purposes. It is further understood that all (i) communications regarding a possible Transaction, (ii) requests for additional information, (iii) requests for facility tours or management meetings and (iv) discussions or questions regarding procedures, will be submitted or directed to UBS Warburg, LLC. You hereby acknowledge that you may be disqualified from participating in a Transaction if you fail to comply with the procedures and restrictions set forth in this paragraph and the following two paragraphs. As a further condition to the furnishing of the Evaluation Material, unless specifically requested in writing in advance by the Company's Board of Directors, neither you nor any of your affiliates or associates (as such terms are defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the "1934 Act")) will, and you and they will not assist or encourage others (including by providing financing) to, directly or indirectly, for a period of one (1) year from the date of this agreement (i) acquire or agree, offer, seek or propose (whether publicly or otherwise) to acquire ownership (including but not limited to beneficial ownership (as defined in Rule 13d-3 under the 1934 Act)) of (x) the Company or any of its assets or businesses, (y) any securities issued by the Company or (z) any rights or options to acquire such ownership (including from a person other than the Company), whether by means of a negotiated purchase of securities 2 [UBS WARBURG LOGO] or assets, tender or exchange offer, merger or other business combination, recapitalization, restructuring or other extraordinary transaction (a "Business Combination Transaction"), (ii) engage in any "solicitation" of "proxies" (as such terms are used in the proxy rules promulgated under the 1934 Act, but disregarding clause (iv) of Rule 14a-1(l)(2) and including any exempt solicitation pursuant to Rule 14a-2(b)(1) or (2)), or form, join or in any way participate in a "group" (as defined under the 1934 Act), with respect to any securities issued by the Company, (iii) otherwise seek or propose to influence or control the Board of Directors, management or policies of the Company, (iv) take any action that could reasonably be expected to require the Company to make a public announcement regarding any of the types of matters referred to in clause (i), (ii) or (iii) above, or (v) enter into any discussions, negotiations, agreements, arrangements or understandings with any third party with respect to any of the foregoing. You also agree during such period not to request the Company or any of its Representatives to amend or waive any provision of this paragraph (including this sentence). If at any time during such period you are approached by any third party concerning your or their participation in any of the types of matters referred to in clause (i), (ii) or (iii) above, you will promptly inform the Company of the nature of such contact and the parties thereto. You hereby acknowledge that neither you nor any of your affiliates or associates is on the date hereof the beneficial owner of any shares of capital stock of the Company. You further agree that, for a period of one (1) year from the date hereof, neither you nor any of your affiliates will, directly or indirectly, solicit to employ any officer or employee of the Company or any of its subsidiaries, so long as they are employed by the Company or any of its subsidiaries, without obtaining the prior written consent of the Company. The term "solicit to employ" does not include general solicitations of employment not specifically directed towards employees of the Company and its subsidiaries. It is expressly understood by the parties hereto that this agreement is not intended to, and does not, constitute an agreement to consummate a Transaction or to enter into a definitive Transaction agreement, and neither the Company nor you will have any rights or obligations of any kind whatsoever with respect to a Transaction by virtue of this agreement or any other written or oral expression by either party hereto or their respective Representatives unless and until a definitive agreement relating thereto between the Company and you is executed and delivered, other than for the matters specifically agreed to herein. You further acknowledge that (i) the Company and its Representatives shall be free to negotiate with any other person and enter into a definitive agreement with regard to a Transaction without prior notice to you or any other person, (ii) the Company reserves the right to reject any and all proposals made by you or any of your Representatives with regard to a possible Transaction and to terminate any discussions or negotiations with you at any time, (iii) any procedures relating to such Transaction may be changed at any time without notice to you or any other person and (iv) neither the Company nor any of its affiliates or Representatives nor any third party with whom the Company enters into any agreement for, or completes, a Business Combination Transaction shall have any liability to you arising out of or relating to such a Business Combination Transaction (other than any liability arising under a definitive Transaction agreement with you in accordance with the terms thereof). You acknowledge and agree that money damages would not be a sufficient remedy for any breach of any provision of this agreement by you, and that in addition to all other remedies which the Company may have, the Company will be entitled to specific performance and injunctive or other equitable relief as a remedy for any such breach. No failure or delay by the Company in exercising any right, power or privilege hereunder will operate as a waiver thereof, nor will any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder. This agreement (i) contains the sole and entire agreement between the parties with respect to the subject matter hereof, (ii) may be amended, modified or waived only by a separate written instrument duly executed by or on behalf of the Company and you, and (iii) shall be governed by and construed in accordance with the laws of the State of New York without giving effect to the conflicts of laws principles thereof, other than Section 5-1401 of the General Obligations Law. 3 [UBS WARBURG LOGO] This agreement shall terminate at the earlier of (i) you consummating a Transaction for all or substantially all of the Company's assets or equity or (ii) two (2) years. If the foregoing correctly sets forth our agreement with respect to the matters set forth herein; please so indicate by signing two copies of this agreement and returning one of such signed copies to the Company us for our signature, whereupon this agreement will constitute our binding agreement with respect to the matters set forth herein. Very truly yours, UBS WARBURG LLC ON BEHALF OF THE FORTRESS GROUP, INC. By: /s/ Joseph Meisner By: /s/ Jonathan Rowley ------------------------- ------------------------- Name: Joseph Meisner Name: Jonathan Rowley Title: Associate Director Title: Director Accepted and agreed to as of the date first written above: Lennar Corp. By: /s/ David B. McCain ------------------------- Name: David B. McCain Title: Vice President and General Counsel 4 EX-99.E.10 9 y61738exv99wew10.txt EMPLOYMENT AGREEMENT Exhibit (e)(10) EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT (the "Agreement"), dated as of January 1, 2001, by and between The Fortress Group, Inc., a Delaware corporation (the "Company") and George Yeonas ("Employee"). PRELIMINARY RECITALS A. The Company is engaged in the construction and sale of detached and unattached single family residential homes (the "Business"); B. Employee has extensive knowledge and a unique understanding of the Business; C. The Company desires to employ Employee as its President and Chief Executive Officer, and Employee desires to be employed by the Company as such, all under the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the premises, the mutual covenants of the parties hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. Employment. 1.1 Engagement of Employee. The Company agrees to employ Employee as President and Chief Executive Officer of the Company, and Employee agrees to accept such employment, all in accordance with the terms and conditions of this Agreement, effective January 1, 2001. 1.2 Duties and Powers. At all times during the Employment Period (as defined herein), the Company agrees that Employee will serve as President and Chief Executive Officer of the Company. Employee shall have such other responsibilities, duties and authorities, and will render such services for the Company and its affiliates as the Board of Directors of the Company (the "Board") shall from time to time reasonably direct. Employee agrees to devote his full time and energies to the affairs of the Company and to carry out his duties and responsibilities faithfully. 1.3 Employment Period. Employee's employment under this Agreement shall be for a period of two (2) years commencing January 1, 2001 (the "Initial Employment Period"). This Agreement shall automatically renew for successive one-year periods (each one-year period, a "Renewal Period") unless either the Company or Employee, as the case may be, provides written notice at least ninety (90) days prior to the expiration of any such period, stating its/his desire to terminate this Agreement. The Initial Employment Period and each successive Renewal Period shall be referred to herein together as the "Employment Period". Notwithstanding anything to the contrary contained herein, the Employment Period is subject to termination pursuant to SECTION 4 below. Yeonas Employment Agreement 2. Compensation and Benefits. 2.1 Salary. In consideration of Employee performing his duties under this Agreement during the Employment Period, the Company will pay Employee a base salary at a rate of $425,000 per annum (the "Base Salary"), payable in accordance with the Company's regular payroll practices for salaried employees. The Base Salary may be increased (but not decreased) from time to time during the Employment Period, as determined by the Board in its sole discretion. 2.2 Bonuses. Employee shall participate in any such executive incentive compensation plan as the Board may adopt during the term of this Agreement. 2.3 Benefits, Expenses and Qualified Plan. The Company will provide Employee with such benefits as are generally provided from time to time to employee officers of the Company including, without limitation: (a) vacation, (b) health and insurance benefits, and (c) participation in the Company's qualified pensions plans, subject to Employee's meeting eligibility requirements contained in such plans. 3. Duty of Loyalty. 3.1 Confidential Information. Other than in the performance of his duties hereunder, Employee shall keep secret and retain in strictest confidence, and shall not, without the prior written consent of the Company, furnish, make available or disclose to any third party or use for the benefit of himself or any third party, any Confidential Information. Employee acknowledges that the Confidential Information is vital, sensitive, confidential and proprietary to the Company. 3.2 Non-Competition. (a) Employee hereby agrees that during the Restricted Period, he shall not, for any reason whatsoever, directly or indirectly, for himself or on behalf of or in conjunction with any other person, persons, company, partnership, corporation or business of whatever nature, engage, as an officer, director, shareholder, owner, partner, joint venturer, or in a managerial capacity, whether as an employee, independent contractor, consultant or advisor, or as a sales representative, in any business which constructs or sells single-family, detached residential homes in any county in which the Company or its subsidiaries does business (the "Restricted Territory"). (b) For purposes of this SECTION 3.2, the Restricted Period shall be a period of two (2) years commencing on January 1, 2001, plus, if this Agreement is extended for any successive one (1) year periods, for that additional period of one (1) year, regardless of whether Employee continues to be employed by the Company during such two-year or one-year period, as applicable; provided, however, that if Employee's employment is terminated pursuant to SECTION 4.3, the Restricted Period shall end on Employee's last day of employment. Yeonas Employment Agreement 2 (c) The provisions of SECTION 3.2(a) notwithstanding, neither this Agreement nor any of the provisions and recitals contained therein shall prohibit Employee from: (i) acquiring as an investment not more than one (1%) percent of the capital stock of a competing business whose stock is traded on a national securities exchange or over the counter so long as the Employee does not consult with or is not employed by such competitor, or (ii) engaging, as an officer, director, shareholder, owner, partner, joint venturer, or in a managerial capacity, whether as an employee, independent contractor, consultant or advisor, or as a sales representative, in any business which develops real estate for: (A) commercial, industrial, or multi-family uses; or (B) single-family residential use, provided the business does not construct or sell single-family residential homes on the developed lots. 3.3 Non-Solicitation. Employee hereby agrees that during the Restricted Period, he shall not, for any reason whatsoever, directly or indirectly, for himself or on behalf of or in conjunction with any other person, persons, company, partnership, corporation or business of whatever nature, as an officer, director, shareholder, owner, partner, joint venturer, or in a managerial capacity, whether as an employee, independent contractor, consultant or advisor, or as a sales representative, solicit or encourage any employee of the Company to leave the employ of the Company, or to do any act that is disloyal to the Company, is inconsistent with the interests of the Company or violates of any provision of this Agreement or any agreement such employee has with the Company. 3.4 Remedies. Employee acknowledges and agrees that the restrictions set forth in this Section 3 are reasonable and necessary for the protection of the Company's business interests, that irreparable injury will result to the Company if Employee breaches any of the terms of this Section 3, and that in the event Employee breaches or threatens to breach any of the restrictions, the Company will have no adequate remedy at law. Employee accordingly agrees that in the event Employee breaches or threatens to breach any of the restrictions, the Company shall be entitled to immediate temporary injunctive and other equitable relief, without bond and without the necessity of showing actual monetary damages, subject to hearing as soon thereafter as possible. Nothing contained herein shall be construed as prohibiting the Company from pursuing any other remedies available to it for such breach or the threat of such a breach by Employee, including the recovery of any damages which it is able to prove. 4. Termination and Effect of Termination. 4.1 Termination by the Company for Cause or Due to Death or Disability. The Company may terminate Employee's employment at any time (i) for Cause or (ii) due to the Disability of Employee, by giving written notice to Employee, and in addition, Employee's employment shall terminate immediately upon his death. Any termination under (i) or (ii) shall be effective upon the date of service of such notice pursuant to Section 9.6 hereof. Upon termination Yeonas Employment Agreement 3 under this Subsection 4.1, Employee shall be entitled only to his accrued Base Salary, vacation, 401(k) benefits (to the extent provided under the terms of the plan documents and as otherwise required by law) (the "401(k) Benefits"), and the right to continue his coverage under the Company's health insurance plan to the extent required by the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA rights"). 4.2 Termination by Employee without Good Reason. Employee may terminate his employment with the Company at any time without Good Reason, and upon such termination he shall be entitled only to his accrued Base Salary, vacation, 401(k) Benefits, and COBRA rights. 4.3 Termination by the Company without Cause or by Employee for Good Reason. (a) Subject to payment of Severance Pay as provided below, the Company may terminate Employee's employment without Cause by giving him written notice. Employee may terminate his employment with the Company at any time with Good Reason. IF the Company terminates Employee's employment without Cause, or Employee terminates his employment for Good Reason: (i) Employee shall be entitled to receive an amount equal to two (2) times his Base Salary in effect at the time of the termination and any earned but unpaid bonus(es) (collectively, "Severance Pay"), together with his accrued Base Salary, vacation, 40l(k) Benefits, and COBRA rights; and (ii) The provisions and covenants of SECTION 3.2, above, shall have no effect and shall be void. (b) IF EMPLOYEE'S EMPLOYMENT IS TERMINATED BY THE COMPANY WITHOUT CAUSE OR BY EMPLOYEE FOR GOOD REASON, HIS RIGHT TO RECEIVE SEVERANCE PAY SHALL BE CONDITIONED UPON HIS EXECUTION OF A GENERAL RELEASE IN A FORM SATISFACTORY TO THE COMPANY, AND SUCH PAYMENT SHALL BE HIS EXCLUSIVE REMEDY IN ANY ACTION ARISING OUT OF THE TERMINATION OF HIS EMPLOYMENT. Employee is under no obligation to mitigate, or attempt to mitigate, his damages in order to receive the severance pay. the amount of any payments provided for in this agreement shall not be reduced, offset, or subject to recovery by the company by reason of any compensation earned by Employee as the result of employment by another employer or by self-employment after the Date of Termination. (c) Notwithstanding the foregoing, if the Employee terminates his employment for Good Reason as defined in SECTION 7.5(f), Employee shall be entitled to receive an amount equal to one (1) times his Base Salary in effect at the time of the termination rather than two (2) times his Base Salary. (d) Notice and Opportunity to Cure. It shall be a condition precedent to the Company's right to terminate Employee's employment for Cause and Employee's right to terminate for Good Reason that: (i) the terminating party shall first have given the other party written notice stating with specificity the reason for the termination, and Yeonas Employment Agreement 4 (ii) if the reason for termination is susceptible of cure or remedy, a period of thirty (30) days from and after the giving of such notice shall have elapsed without the party receiving notice having effectively cured or remedied such reason; provided, however, that this SECTION 4.3(d)(ii) shall not be applicable to SECTION 7.1(b). 5. Income Tax Treatment. Employee and the Company acknowledge that it is the intention of the Company to deduct all amounts paid under SECTION 2 hereof as ordinary and necessary business expenses for income tax purposes. All payments made to Employee in connection with this Agreement will be subject to required withholding of federal, state, and local income, excise, and employment related taxes. Employee agrees and represents that he will treat all such amounts as taxable to the extent required pursuant to all applicable tax laws and regulations, and should he fail to report and pay such amounts as required, he will indemnify and hold the Company harmless from and against any and all taxes, penalties, interest, costs and expenses, including reasonable attorneys' and accounting fees and costs, which are incurred by Company directly or indirectly as a result thereof. 6. Indemnification. If Employee is made a party or is threatened to be made a party to any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director or officer of the Company or is or was serving at the request of the Company as a director, officer, member; employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, he shall be indemnified and held harmless by the Company to the fullest extent permitted by the laws of the State of Virginia and the Company's by-laws, as the same exist or may hereafter be amended, against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by Employee in connection therewith; provided, however, that Employee shall not be entitled to indemnification under this SECTION 6 in the event that the Company reasonably determines in good faith that any acts or omissions by Employee were: (a) in knowing violation of any agreement between Employee and the Company; (b) in bad faith or involving intentional misconduct or a knowing violation of law or that Employee personally gained a financial profit or other advantage to which he was not legally entitled; or (c) for which a court, having jurisdiction in the matter, determines that indemnification is not lawful. 7. Definitions. For purposes of this Agreement, the following terms have the meanings referred to in this Section: Yeonas Employment Agreement 5 7.1 "Cause" means the occurrence of any of the following: (a) The willful failure by Employee to perform substantially all of his duties with the Company (other than a failure resulting from his incapacity due to physical or mental illness) after a demand for substantial performance is delivered to him in writing by the Board which identifies with specificity the manner in which Employee has not substantially performed his duties; and (b) Employee's willful dishonesty, willful misconduct, or willful violation of any law, rule, or regulation, the conviction for which would constitute a felony or a crime involving moral turpitude, or both. 7.2 "Confidential Information" means any information relating to the Business or to any other business or affairs of the Company, including, but not limited to, information relating to financial statements, employees, suppliers, construction, manufacturing and servicing methods, equipment, programs, strategies and information, analyses, profit margins, or other proprietary information used by the Company, or any subsidiary of the Company in connection with the Business; provided, however, that Confidential Information shall not include any information which is in the public domain or becomes known in the industry through no wrongful act on the part of Employee. 7.3 "Date of Termination" means the date set forth in the written Notice of Termination or, if none, by mutual written agreement of the parties or by the arbitrator in a proceeding as provided in SECTION 8 hereof. 7.4 "Disability" means Employee's inability to perform his duties with the Company on a full-time basis for one hundred eighty (180) consecutive days by reason of physical or mental incapacity, and his failure to have resumed the full-time performance of his duties within thirty (30) days after Notice of Termination is given by the Company; provided, however, if Employee does not agree with the determination to terminate his employment because of Disability, the question of his disability shall be subject to the certification of a licensed healthcare practitioner agreed upon by the Company and Employee or Employee's personal representative, in the event of his incapacity enter into such agreement. In the absence of an agreement with respect to the selection of a licensed healthcare practitioner, each party shall designate a licensed healthcare practitioner and the doctors shall select a third who shall make a final and binding determination as to Disability. 7.5 "Good Reason" means any of the following: (a) a diminution in Employee's title or position or the failure to reappoint or elect Employee to his current title and position; (b) the assignment of the Employee to duties a material part of which are not consistent with his current position as a high ranking senior executive employee in the Company; the following examples are illustrative of, but do not constitute the only, assignments that meet the foregoing definition of Good Reason: Yeonas Employment Agreement 6 (i) Employee's supervisory responsibilities are substantially changed by the re-assignment of persons previously reporting to Employee to an officer or employee of the Company who does not report to Employee; (ii) Employee's duties are restricted to menial or non-essential activities; (iii) Employee's activities are primarily restricted to non-supervisory functions; (c) a reduction by the Company of Employee's Base Salary or any other compensation or benefits provided in Section 2; (d) a purported termination of Employee's employment by the Company which is not effected by a Notice of Termination; (e) following the sale of any portion of the Company's assets during the Employment Period, the Company no longer operates at least one of the following major divisions: (i) Fortress-Florida, Inc., (ii) Fortress Missouri-Construction, LLC, (iii) The Genesee Company, (iv) Wilshire Homes, Inc. or (v) Fortress Galloway, Inc. (f) the Company's requirement that Employee be based at an office that is greater than thirty-five (35) miles from McLean, Virginia, excluding required travel on the business of the Company to an extent substantially consistent with the business travel obligations which he undertook on behalf of the Company prior to the date that Employee gives a Notice of Termination for Good Reason; or (g) any other material breach by the Company of the terms of this Agreement. 7.6 "Notice of Termination" means any notice of termination, or purported notice of termination, by the Company or by Employee, as required by Section 4. 8. ARBITRATION. 8.1 ALL CLAIMS (INCLUDING CLAIMS PURSUANT TO FEDERAL OR STATE STATUTE(S) OR BY COMMON LAW, BUT EXCLUDING ANY CLAIMS ARISING OUT OF OR RELATING TO EMPLOYEE'S VIOLATION OF SECTION 3), CONTROVERSIES, DIFFERENCES OR DISPUTES BETWEEN COMPANY AND EMPLOYEE ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE BREACH OF THIS AGREEMENT, INCLUDING, BUT NOT LIMITED TO, THE TERMINATION OF EMPLOYEE'S EMPLOYMENT, SHALL BE SETTLED BY ARBITRATION IN ACCORDANCE WITH THE RULES OF THE AMERICAN ARBITRATION ASSOCIATION IN EFFECT AT THE TIME THE PROCEEDING IS COMMENCED. 8.2 THE ARBITRATION SHALL OCCUR IN NEW YORK, NEW YORK, TO THE EXCLUSION OF ALL OTHER LOCATIONS. Yeonas Employment Agreement 7 8.3 IN PREPARATION FOR THE ARBITRATION HEARING, EACH PARTY MAY UTILIZE ALL METHODS OF DISCOVERY AUTHORIZED BY THE PROCEDURAL RULES AND STATUTES OF THE STATE OF VIRGINIA AND MAY ENFORCE THE RIGHT TO OBTAIN SUCH DISCOVERY IN THE MANNER PROVIDED BY SAID RULES AND STATUTES AND/OR BY THE ARBITRATION LAWS OF THE STATE OF VIRGINIA. 8.4 THE ARBITRATOR(S) MUST CONFINE THEIR DETERMINATIONS TO THE EXPRESS PROVISIONS OF THIS AGREEMENT AND CANNOT ADD TO OR SUBTRACT FROM THE TERMS AND CONDITIONS HEREOF. 8.5 THE ARBITRATOR(S) MAY INCLUDE PROVISIONS FOR THE PAYMENT OF COSTS AND EXPENSES, INCLUDING REASONABLE ATTORNEYS' FEES, TO THE PREVAILING PARTY FEES AS PART OF ANY RULING OR AWARD MADE HEREUNDER. 8.6 THE PARTIES ACKNOWLEDGE THAT ARBITRATION SHALL BE THE SOLE, FINAL, BINDING AND EXCLUSIVE REMEDY OF THE PARTIES WITH RESPECT TO ANY SUCH MATTER FOR WHICH ARBITRATION IS REQUIRED HEREUNDER. 8.7 AFTER AN AWARD IS RENDERED BY THE ARBITRATOR(S), A JUDGMENT MAY BE ENTERED IN ANY COURT OF COMPETENT JURISDICTION. 9. Miscellaneous. 9.1 Assignment. This Agreement shall be binding upon and inure to the benefit of the Company and all of its Affiliates, successors, transferees, or surviving or continuing entity. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation, reorganization or otherwise) to assume and agree to perform this Agreement in the same manner and to the same extent the Company would be required to perform if no such succession had taken place. Except as otherwise expressly provided herein, all covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of their respective legal representatives, heirs, successors and assigns, whether so expressed or not. 9.2 Entire Agreement. Except as otherwise expressly set forth herein, this Agreement and all other agreements entered into by the parties hereto on the date hereof set forth the entire understanding of the parties and supersede and Preempt all prior oral or written understandings and agreements, with respect to the subject matter hereof, including but not limited to an employment agreement between the parties dated July 21, 1997. 9.3 Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement. Yeonas Employment Agreement 8 9.4 Amendment; Modification; Waiver. No amendment or modification of this Agreement and no waiver by any party of the breach of any covenant contained herein shall be binding unless executed in writing by the party against whom enforcement of such amendment, modification or waiver is sought. No waiver shall be deemed a continuing waiver or a waiver in respect of any subsequent breach or default, either of a similar or different nature, unless expressly so stated in writing. 9.5 Governing Law. This Agreement shall be construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Agreement shall be governed by, the laws of the State of Virginia, without giving effect to provisions thereof regarding conflict of laws. To the extent that any provision of this Agreement is inconsistent with the laws of the State of Virginia, the parties agree to be governed and abide by the law of the State of Virginia. 9.6 Notices. All notices, demands or other communications required to be given or delivered hereunder shall be in writing and shall be deemed to have been properly served if (a) delivered personally, (b) delivered by a recognized overnight courier service, (c) sent by certified or registered mail, return receipt requested and first class postage prepaid, or (d) sent by facsimile transmission followed by a confirmation copy delivered by a recognized overnight courier service the next day. Such notices, demands and other communications shall be sent to the addresses indicated below: (a) If to Employee: George Yeonas 6428 Divine Street McLean VA 22101 (b) If to the Company: The Fortress Group, Inc. 1650 Tysons Boulevard, Suite 600 McLean, VA 22102 Attention: Secretary with copies to: Lazard Freres Real Estate Investors LLC 30 Rockefeller Plaza, 50th Floor New York, New York 10020 Attention: Andrew Zobler and Attention: General Counsel or to such other address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party. The date of service of such notice shall be (i) the date such notice is personally delivered or sent by facsimile transmission (with issuance by the transmitting machine of a confirmation of successful transmission), (ii) three days after the date of Yeonas Employment Agreement 9 mailing if sent by certified or registered mail or (iii) one day after date of delivery to the overnight courier if sent by overnight courier. 9.7 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but both of which taken together shall constitute one and the same Agreement and shall become effective when one or more counterparts have been executed by each of the parties hereto and delivered to the other. 9.8 Descriptive Headings; Interpretation. The descriptive headings in this Agreement are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. The use of the word "including" in this Agreement shall be by way of example rather than by limitation. The Preliminary Recitals set forth above are incorporated by reference into this Agreement. 9.9 No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties hereto to express their mutual interest, and no rule of strict construction will be applied against any party hereto. 10. ACKNOWLEDGEMENT. Employee represents and acknowledges the following: (d) he has carefully read this Agreement in its entirety; (e) he understands the terms and conditions contained herein; (f) he has had the opportunity to review this Agreement with legal counsel of his own choosing and has not relied on any statements made by the Company or its legal counsel as to the meaning of any term or condition contained herein or in deciding whether to enter into this Agreement; and (g) he is entering into this Agreement knowingly and voluntarily. Yeonas Employment Agreement 10 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. COMPANY: THE FORTRESS GROUP, INC. By: ------------------------------------ Its ------------------------------------ EMPLOYEE: ---------------------------------------- George Yeonas Yeonas Employment Agreement 11 EX-99.E.11 10 y61738exv99wew11.txt EMPLOYMENT AGREEMENT Exhibit (e)(11) EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT (the "Agreement"), dated as of January 1,2001, by and between The Fortress Group, inc., a Delaware corporation (the "Company") and Jeffrey Shirley ("Employee"). PRELIMINARY RECITALS A. The Company is engaged in the construction and sale of detached and unattached single family residential homes (the "Business"); B. Employee has extensive knowledge and a unique understanding of the Business; C. The Company desires to employ Employee as its Vice President and Chief Financial Officer, and Employee desires to be employed by the Company as such, all under the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the premises, the mutual covenants of the parties hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. Employment. 1.1 Engagement of Employee. The Company agrees to employ Employee as Vice President and Chief Financial Officer of the Company, and Employee agrees to accept such employment, all in accordance with the terms and conditions of this Agreement, effective January 1, 2001. 1.2 Duties and Powers. At all times during the Employment Period (as defined herein), the Company agrees that Employee will serve as Vice President and Chief Financial Officer of the Company. Employee shall have such other responsibilities, duties and authorities, and will render such services for the Company and its affiliates, as the President of the Company shall from time to time reasonably direct. Employee agrees to devote his full time and energies to the affairs of the Company and to carry out his duties and responsibilities faithfully. 1.3 Employment Period. Employee's employment under this Agreement shall be for a period of one (1) year commencing January 1, 2001 (the "Initial Employment Period"). This Agreement shall automatically renew for successive one-year periods (each one-year period, a "Renewal Period") unless either the Company or Employee, as the case may be, provides written notice at least ninety (90) days prior to the expiration of any such period, stating its/his desire to terminate this Agreement. The Initial Employment Period and each successive Renewal Period shall be referred to herein together as the "Employment Period". Notwithstanding anything to the contrary contained herein, the Employment Period is subject to termination pursuant to Section 4 below. Shirley Employment Agreement 2. Compensation and Benefits. 2.1 Salary. In consideration of Employee performing his duties under this Agreement during the Employment Period, the Company will pay Employee a base salary at a rate of $225,000 per annum (the "Base Salary"), payable in accordance with the Company's regular payroll practices for salaried employees. The Base Salary may be increased (but not decreased) from time to time during the Employment Period, as determined by the Board of Directors of the Company (the "Board") in its sole discretion. 2.2 Bonuses. Employee shall participate in any such executive incentive compensation plan as the Board may adopt during the term of this Agreement. 2.3 Benefits, Expenses and Qualified Plan. The Company will provide Employee with such benefits as are generally provided from time to time to employee officers of the Company including, without limitation: (a) vacation, (b) health and insurance benefits, and (c) participation in the Company's qualified pensions plans, subject to Employee's meeting eligibility requirements contained in such plans. 3. Duty of Loyalty. 3.1 Confidential Information. Other than in the performance of his duties hereunder, Employee shall keep secret and retain in strictest confidence, and shall not, without the prior written consent of the Company, furnish, make available or disclose to any third party or use for the benefit of himself or any third party, any Confidential Information. Employee acknowledges that the Confidential Information is vital, sensitive, confidential and proprietary to the Company. 3.2 Non-Competition. (a) Employee hereby agrees that during the Restricted Period, he shall not, for any reason whatsoever, directly or indirectly, for himself or on behalf of or in conjunction with any other person, persons, company, partnership, corporation or business of whatever nature, engage, as an officer, director, shareholder, owner, partner, joint venturer, or in a managerial capacity, whether as an employee, independent contractor, consultant or advisor, or as a sales representative, in any business which constructs or sells single-family, detached residential homes in any county in which the Company or its subsidiaries does business (the "Restricted Territory"). (b) For purposes of this SECTION 3.2, the Restricted Period shall be a period of one (1) year commencing on January 1, 2001, plus, if this Agreement is extended for any successive one (1) year periods, for that additional period of one (1) year, regardless of whether Employee continues to be employed by the Company during such one-year periods; provided, however, that if Employee's employment is terminated pursuant to SECTION 4.3, the Restricted Period shall end on Employee's last day of employment. Shirley Employment Agreement 2 (c) The provisions of SECTION 3.2(a) notwithstanding, neither this Agreement nor any of the provisions and recitals contained therein shall prohibit Employee from: (i) acquiring as an investment not more than one (1%) percent of the capital stock of a competing business whose stock is traded on a national securities exchange or over the counter so long as the Employee does not consult with or is not employed by such competitor, or (ii) engaging, as an officer, director, shareholder, owner, partner, joint venture, or in a managerial capacity, whether as an employee, independent contractor, consultant or advisor, or as a sales representative, in any business which develops real estate for: (A) commercial, industrial, or multi-family uses; or (B) single-family residential use, provided the business does not construct or sell single-family residential homes on the developed lots. 3.3 Non-Solicitation. Employee hereby agrees that during the Restricted Period, he shall not, for any reason whatsoever, directly or indirectly, for himself or on behalf of or in conjunction with any other person, persons, company, partnership, corporation or business of whatever nature, as an officer, director, shareholder, owner, partner, joint venturer, or in a managerial capacity, whether as an employee, independent contractor, consultant or advisor, or as a sales representative, solicit or encourage any employee of the Company to leave the employ of the Company, or to do any act that is disloyal to the Company, is inconsistent with the interests of the Company or violates of any provision of this Agreement or any agreement such employee has with the Company. 3.4 Remedies. Employee acknowledges and agrees that the restrictions set forth in this SECTION 3 are reasonable and necessary for the protection of the Company's business interests, that irreparable injury will result to the Company if Employee breaches any of the terms of this SECTION 3, and that in the event Employee breaches or threatens to breach any of the restrictions, the Company will have no adequate remedy at law. Employee accordingly agrees that in the event Employee breaches or threatens to breach any of the restrictions, the Company shall be entitled to immediate temporary injunctive and other equitable relief, without bond and without the necessity of showing actual monetary damages, subject to hearing as soon thereafter as possible. Nothing contained herein shall be construed as prohibiting the Company from pursuing any other remedies available to it for such breach or the threat of such a breach by Employee, including the recovery of any damages which it is able to prove. Shirley Employment Agreement 3 4. Termination and Effect of Termination. 4.1 Termination by the Company for Cause or Due to Death or Disability. The Company may terminate Employee's employment at any time (i) for Cause or (ii) due to the Disability of Employee, by giving written notice to employee, and, in addition, Employee's employment shall terminate immediately upon his death. Any termination under (i) or (ii) shall be effective upon the date of service of such notice pursuant to SECTION 9.6 hereof. Upon termination under this SUBSECTION 4.1, Employee shall be entitled only to his accrued Base Salary, vacation, 401(k) benefits (to the extent provided under the terms of the plan documents and as otherwise required by law) (the "401(k) Benefits"), and the right to continue his coverage under the Company's health insurance plan to the extent required by the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA rights"). 4.2 Termination by Employee without Good Reason. Employee may terminate his employment with the Company at any time without Good Reason, and upon such termination he shall be entitled only to his accrued Base Salary, vacation, 401(k) Benefits, and COBRA rights. 4.3 Termination by the Company without Cause or by Employee for Good Reason. (a) Subject to payment of Severance Pay as provided below, the Company may terminate Employee's employment without Cause by giving him written notice. Employee may terminate his employment with the Company at any time with Good Reason. If the Company terminates Employee's employment without Cause, or Employee terminates his employment for Good Reason: (i) Employee shall be entitled to receive $325,000 and any earned but unpaid bonus(es) (collectively, "Severance Pay"), together with his accrued Base Salary, vacation, 401(k) Benefits, and COBRA rights; and (ii) The provisions and covenants of SECTION 3.2, above, shall have no effect and shall be void. (b) IF EMPLOYEE'S EMPLOYMENT IS TERMINATED BY THE COMPANY WITHOUT CAUSE OR BY EMPLOYEE FOR GOOD REASON, HIS RIGHT TO RECEIVE SEVERANCE PAY SHALL BE CONDITIONED UPON HIS EXECUTION OF A GENERAL RELEASE IN A FORM SATISFACTORY TO THE COMPANY, AND SUCH PAYMENT SHALL BE HIS EXCLUSIVE REMEDY IN ANY ACTION ARISING OUT OF THE TERMINATION OF HIS EMPLOYMENT. Employee is under no obligation to mitigate, or attempt to mitigate, his damages in order to receive the Severance Pay. The amount of any payments provided for in this Agreement shall not be reduced, offset, or subject to recovery by the Company by reason of any compensation earned by Employee as the result of employment by another employer or by self-employment after the Date of Termination. (c) Notwithstanding the foregoing, if the Employee terminates his employment for Good Reason as defined in SECTION 7.5(f), Employee shall be entitled to receive $162,500 rather than $325,000. Shirley Employment Agreement 4 (d) Notice and Opportunity to Cure. It shall be a condition precedent to the Company's right to terminate Employee's employment for Cause and Employee's right to terminate for Good Reason that: (i) the terminating party shall first have given the other party written notice stating with specificity the reason for the termination, and (ii) if the reason for termination is susceptible of cure or remedy, a period of thirty (30) days from and after the giving of such notice shall have elapsed without the party receiving notice having effectively cured or remedied such reason; provided, however, that this SECTION 4.3(d)(ii) shall not be applicable to SECTION 7.1(b). 5. Income Tax Treatment. Employee and the Company acknowledge that it is the intention of the Company to deduct all amounts paid under SECTION 2 hereof as ordinary and necessary business expenses for income tax purposes. All payments made to Employee in connection with this Agreement will be subject to required withholding of federal, state, and local income, excise, and employment related taxes. Employee agrees and represents that he will treat all such amounts as taxable to the extent required pursuant to all applicable tax laws and regulations, and should he fail to report and pay such amounts as required, he will indemnify and hold the Company harmless from and against any and all taxes, penalties, interest, costs and expenses, including reasonable attorneys' and accounting fees and costs, which are incurred by Company directly or indirectly as a result thereof. 6. Indemnification. If Employee is made a party or is threatened to be made a party to any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director or officer of the Company or is or was serving at the request of the Company as a director, officer, member, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, he shall be indemnified and held harmless by the Company to the fullest extent permitted by the laws of the State of Virginia and the Company's by-laws, as the same exist or may hereafter be amended, against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by Employee in connection therewith; provided, however, that Employee shall not be entitled to indemnification under this SECTION 6 in the event that the Company reasonably determines in good faith that any acts or omissions by Employee were: (a) in knowing violation of any agreement between Employee and the Company; (b) in bad faith or involving intentional misconduct or a knowing violation of law or that Employee personally gained a financial profit or other advantage to which he was not legally entitled; or (c) for which a court, having jurisdiction in the matter, determines that indemnification is not lawful. Shirley Employment Agreement 5 7. Definitions. For purposes of this Agreement, the following terms have the meanings referred to in this Section: 7.1 "Cause" means the occurrence of any of the following: (a) The willful failure by Employee to perform substantially all of his duties with the Company (other than a failure resulting from his incapacity due to physical or mental illness) after a demand for substantial performance is delivered to him in writing by the Board which identifies with specificity the manner in which Employee has not substantially performed his duties; and (b) Employee's willful dishonesty, willful misconduct, or willful violation of any law, rule, or regulation, the conviction for which would constitute a felony or a crime involving moral turpitude, or both. 7.2 "Confidential Information" means any information relating to the Business or to any other business or affairs of the Company, including, but not limited to, information relating to financial statements, employees, suppliers, construction, manufacturing and servicing methods, equipment, programs, strategies and information, analyses, profit margins, or other proprietary information used by the Company, or any subsidiary of the Company, in connection with the Business; provided, however, that Confidential Information shall not include any information which is in the public domain or becomes known in the industry through no wrongful act on the part of Employee. 7.3 "Date of Termination" means the date set forth in the written Notice of Termination or, if none, by mutual written agreement of the parties or by the arbitrator in a proceeding as provided in SECTION 8 hereof. 7.4 "Disability" means Employee's inability to perform his duties with the Company on a full-time basis for one hundred eighty (180) consecutive days by reason of physical or mental incapacity, and his failure to have resumed the full-time performance of his duties within thirty (30) days after Notice of Termination is given by the Company; provided, however, if Employee does not agree with the determination to terminate his employment because of Disability, the question of his disability shall be subject to the certification of a licensed healthcare practitioner agreed upon by the Company and Employee or Employee's personal representative, in the event of his incapacity enter into such agreement. In the absence of an agreement with respect to the selection of a licensed healthcare practitioner, each party shall designate a licensed healthcare practitioner who together shall select a third who shall make a final and binding determination as to Disability. 7.5 "Good Reason" means any of the following: (a) a diminution in Employee's title or position or the failure to reappoint or elect Employee to his current title and position; Shirley Employment Agreement 6 (b) the assignment of the Employee to duties a material part of which are not consistent with his current position as a high ranking senior executive employee in the Company; the following examples are illustrative of, but do not constitute the only, assignments that meet the foregoing definition of Good Reason: (i) Employee's supervisory responsibilities are substantially changed by the re-assignment of persons previously reporting to Employee to an officer or employee of the Company who does not report to Employee; (ii) Employee's duties are restricted to menial or non-essential activities; (iii) Employee's activities are primarily restricted to non-supervisory functions; (c) a reduction by the Company of Employee's Base Salary or any other compensation provided in SECTION 2; (d) a purported termination of Employee's employment by the Company which is not effected by a Notice of Termination; (e) following the sale of any portion of the Company's assets during the Employment Period, the Company no longer operates at least one of the following major divisions: (i) Fortress-Florida, Inc., (ii) Fortress Missouri-Construction, LLC, (iii) The Genesee Company, (iv) Wilshire Homes, Inc. or (v) Fortress Galloway, Inc. (f) the Company's requirement that Employee be based at an office that is greater than thirty-five (35) miles from McLean, Virginia, excluding required travel on the business of the Company to an extent substantially consistent with the business travel obligations which he undertook on behalf of the Company prior to the date that Employee gives a Notice of Termination for Good Reason; or (g) any other material breach by the Company of the terms of this Agreement. 7.6 "Notice of Termination" means any notice of termination, or purported notice of termination, by the Company or by Employee, as required by SECTION 4. 8. ARBITRATION. 8.1 ALL CLAIMS (INCLUDING CLAIMS PURSUANT TO FEDERAL OR STATE STATUTE(S) OR BY COMMON LAW, BUT EXCLUDING ANY CLAIMS ARISING OUT OF OR RELATING TO EMPLOYEE'S VIOLATION OF SECTION 3), CONTROVERSIES, DIFFERENCES OR DISPUTES BETWEEN COMPANY AND EMPLOYEE ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE BREACH OF THIS AGREEMENT, INCLUDING, BUT NOT LIMITED TO, THE TERMINATION OF EMPLOYEE'S EMPLOYMENT, SHALL BE SETTLED BY ARBITRATION IN ACCORDANCE WITH THE RULES OF THE AMERICAN Shirley Employment Agreement 7 ARBITRATION ASSOCIATION IN EFFECT AT THE TIME THE PROCEEDING IS COMMENCED. 8.2 THE ARBITRATION SHALL OCCUR IN NEW YORK, NEW YORK, TO THE EXCLUSION OF ALL OTHER LOCATIONS. 8.3 IN PREPARATION FOR THE ARBITRATION HEARING, EACH PARTY MAY UTILIZE ALL METHODS OF DISCOVERY AUTHORIZED BY THE PROCEDURAL RULES AND STATUTES OF THE STATE OF VIRGINIA AND MAY ENFORCE THE RIGHT TO OBTAIN SUCH DISCOVERY IN THE MANNER PROVIDED BY SAID RULES AND STATUTES AND/OR BY THE ARBITRATION LAWS OF THE STATE OF VIRGINIA. 8.4 THE ARBITRATOR(S) MUST CONFINE THEIR DETERMINATIONS TO THE EXPRESS PROVISIONS OF THIS AGREEMENT AND CANNOT ADD TO OR SUBTRACT FROM THE TERMS AND CONDITIONS HEREOF. 8.5 THE ARBITRATOR(S) MAY INCLUDE PROVISIONS FOR THE PAYMENT OF COSTS AND EXPENSES, INCLUDING REASONABLE ATTORNEYS' FEES, TO THE PREVAILING PARTY FEES AS PART OF ANY RULING OR AWARD MADE HEREUNDER. 8.6 THE PARTIES ACKNOWLEDGE THAT ARBITRATION SHALL BE THE SOLE, FINAL, BINDING AND EXCLUSIVE REMEDY OF THE PARTIES WITH RESPECT TO ANY SUCH MATTER FOR WHICH ARBITRATION IS REQUIRED HEREUNDER. 8.7 AFTER AN AWARD IS RENDERED BY THE ARBITRATOR(S), A JUDGMENT MAY BE ENTERED IN ANY COURT OF COMPETENT JURISDICTION. 9. Miscellaneous. 9.1 Assignment. This Agreement shall be binding upon and inure to the benefit of the Company and all of its Affiliates, successors, transferees, or surviving or continuing entity. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation, reorganization or otherwise) to assume and agree to perform this Agreement in the same manner and to the same extent the Company would be required to perform if no such succession had taken place. Except as otherwise expressly provided herein, all covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of their respective legal representatives, heirs, successors and assigns, whether so expressed or not. 9.2 Entire Agreement. Except as otherwise expressly set forth herein, this Agreement and all other agreements entered into by the parties hereto on the date hereof set forth the entire understanding of the parties and supersede and preempt all prior oral or written understandings and agreements, with respect to the subject matter hereof, including but not limited to the severance agreement between the parties dated October 7,1998. Shirley Employment Agreement 8 9.3 Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement. 9.4 Amendment; Modification; Waiver. No amendment or modification of this Agreement and no waiver by any party of the breach of any covenant contained herein shall be binding unless executed in writing by the party against whom enforcement of such amendment, modification or waiver is sought. No waiver shall be deemed a continuing waiver or a waiver in respect of any subsequent breach or default, either of a similar or different nature, unless expressly so stated in writing. 9.5 Governing Law. This Agreement shall be construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Agreement shall be governed by, the laws of the State of Virginia, without giving effect to provisions thereof regarding conflict of laws. To the extent that any provision of this Agreement is inconsistent with the laws of the State of Virginia, the parties agree to be governed and abide by the law of the State of Virginia. 9.6 Notices. All notices, demands or other communications required to be given or delivered hereunder shall be in writing and shall be deemed to have been properly served if (a) delivered personally, (b) delivered by a recognized overnight courier service, (c) sent by certified or registered mail, return receipt requested and first class postage prepaid, or (d) sent by facsimile transmission followed by a confirmation copy delivered by a recognized overnight courier service the next day. Such notices, demands and other communications shall be sent to the addresses indicated below: (a) If to Employee: Jeffrey Shirley 307 Marjorie Lane Herndon, VA 20170 (b) If to the Company: The Fortress Group, Inc. 1650 Tysons Boulevard, Suite 600 McLean, VA 22102 Attention: Secretary Shirley Employment Agreement 9 with copies to: Lazard Freres Real Estate Investors LLC 30 Rockefeller Plaza, 50th Floor New York, New York 10020 Attention: Andrew Zobler and Attention: General Counsel or to such other address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party. The date of service of such notice shall be (i) the date such notice is personally delivered or sent by facsimile transmission (with issuance by the transmitting machine of a confirmation of successful transmission), (ii) three days after the date of mailing if sent by certified or registered mail or (iii) one day after date of delivery to the overnight courier if sent by overnight courier. 9.7 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but both of which taken together shall constitute one and the same Agreement and shall become effective when one or more counterparts have been executed by each of the parties hereto and delivered to the other. 9.8 Descriptive Headings; Interpretation. The descriptive headings in this Agreement are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. The use of the word "including" in this Agreement shall be by way of example rather than by limitation. The Preliminary Recitals set forth above are incorporated by reference into this Agreement. 9.9 No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties hereto to express their mutual interest, and no rule of strict construction will be applied against any party hereto. 10. ACKNOWLEDGEMENT. Employee represents and acknowledges the following: (a) he has carefully read this Agreement in its entirety; (b) he understands the terms and conditions contained herein; (c) he has had the opportunity to review this Agreement with legal counsel of his own choosing and has not relied on any statements made by the Company or its legal counsel as to the meaning of any term or condition contained herein or in deciding whether to enter into this Agreement; and (d) he is entering into this Agreement knowingly and voluntarily. Shirley Employment Agreement 10 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. COMPANY: THE FORTRESS GROUP, INC. By: ____________________________________ Its: ___________________________________ EMPLOYEE: ________________________________________ Jeffrey Shirley Shirley Employment Agreement 11 EX-99.E.12 11 y61738exv99wew12.txt EMPLOYMENT AGREEMENT Exhibit (e)(12) EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT (the "Agreement"), dated as of January 1, 2001, by and between The Fortress Group, Inc., a Delaware corporation (the "Company") and James Edward Home ("Employee"). PRELIMINARY RECITALS A. The Company is engaged in the construction and sale of detached and unattached single family residential homes (the "Business"); B. Employee has extensive knowledge and a unique understanding of the Business; C. The Company desires to employ Employee as a regional vice president, and Employee desires to be employed by the Company as such, all under the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the premises, the mutual covenants of the parties hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. Employment. 1.1 Engagement of Employee. The Company agrees to employ Employee as a Regional Vice President of the Company, and Employee agrees to accept such employment, all in accordance with the terms and conditions of this Agreement, effective January 1, 2001. 1.2 Duties and Powers. At all times during the Employment Period (as defined herein), the Company agrees that Employee will serve as a Regional Vice President of the Company. Employee shall have such other responsibilities, duties and authorities, and will render such services for the Company and its affiliates, as the President of the Company shall from time to time reasonably direct. Employee agrees to devote his full time and energies to the affairs of the Company and to carry out his duties and responsibilities faithfully. 1.3 Employment Period. Employee's employment under this Agreement shall be for a period of one (1) year commencing January 1, 2001 (the "Initial Employment Period"). This Agreement shall automatically renew for successive one-year periods (each one-year period, a "Renewal Period") unless either the Company or Employee, as the case may be, provides written notice at least ninety (90) days prior to the expiration of any such period, stating its/his desire to terminate this Agreement. The Initial Employment Period and each successive Renewal Period shall be referred to herein together as the "Employment Period". Notwithstanding anything to the contrary contained herein, the Employment Period is subject to termination pursuant to SECTION 4 below. 1 2. Compensation and Benefits. 2.1 Salary. consideration of Employee performing his duties under this Agreement during the Employment Period, the Company will pay Employee a base salary at a rate of $225,000 per annum (the "Base Salary"), payable in accordance with the Company's regular payroll practices for salaried employees. The Base Salary may be increased (but not decreased) from time to time during the Employment Period, as determined by the Board of Directors of the Company (the "Board") in its sole discretion. 2.2 Bonuses. Employee shall participate in any such executive incentive compensation plan as the Board may adopt during the term of this Agreement. 2.3 Benefits, Expenses and Qualified Plan. The Company will provide Employee with such benefits as are generally provided from time to time to employee officers of the Company including, without limitation: (a) vacation, (b) health and insurance benefits, and (c) participation in the Company's qualified pensions plans, subject to Employee's meeting eligibility requirements contained in such plans. 3. Duty of Loyalty. 3.1 Confidential Information. Other than in the performance of his duties hereunder, Employee shall keep secret and retain in strictest confidence, and shall not, without the prior written consent of the Company, furnish, make available or disclose to any third party or use for the benefit of himself or any third party, any Confidential Information. Employee acknowledges that the Confidential Information is vital, sensitive, confidential and proprietary to the Company. 3.2 Non-Competition. (a) Employee hereby agrees that during the Restricted Period, he shall not, for any reason whatsoever, directly or indirectly, for himself or on behalf of or in conjunction with any other person, persons, company, partnership, corporation or business of whatever nature, engage, as an officer, director, shareholder, owner, partner, joint venturer, or in a managerial capacity, whether as an employee, independent contractor, consultant or advisor, or as a sales representative, in any business which constructs or sells single-family, detached residential homes in any county in which the Company or its subsidiaries does business (the "Restricted Territory"). (b) For purposes of this SECTION 3.2, the Restricted Period shall be a period of one (1) year commencing on January 1, 2001, plus, if this Agreement is extended for any successive one (I) year periods, for that additional period of one (1) year, regardless of whether Employee continues to be employed by the Company during such one-year periods; provided, however, that if Employee's employment is terminated pursuant to SECTION 4.3, the Restricted Period shall end on Employee's last day of employment. 2 (c) The provisions of SECTION 3.2(a) notwithstanding, neither this Agreement nor any of the provisions and recitals contained therein shall prohibit Employee from: (i) acquiring as an investment not more than one (1%) percent of the capital stock of a competing business whose stock is traded on a national securities exchange or over the counter so long as the Employee does not consult with or is not employed by such competitor, or (ii) engaging, as an officer, director, shareholder, owner, partner, joint venturer, or in a managerial capacity, whether as an employee, independent contractor, consultant or advisor, or as a sales representative, in any business which develops real estate for: (A) commercial, industrial, or multi-family uses; or (B) single-family residential use, provided the business does not construct or sell single-family residential homes on the developed lots. 3.3 Non-Solicitation. Employee hereby agrees that during the Restricted Period, he shall not, for any reason whatsoever, directly or indirectly, for himself or on behalf of or in conjunction with any other person, persons, company, partnership, corporation or business of whatever nature, as an officer, director, shareholder, owner, partner, joint venturer, or in a managerial capacity, whether as an employee, independent contractor, consultant or advisor, or as a sales representative, solicit or encourage any employee of the Company to leave the employ of the Company, or to do any act that is disloyal to the Company, is inconsistent with the interests of the Company or violates of any provision of this Agreement or any agreement such employee has with the Company. 3.4 Remedies. Employee acknowledges and agrees that the restrictions set forth in this SECTION 3 are reasonable and necessary for the protection of the Company's business interests, that irreparable injury will result to the Company if Employee breaches any of the terms of this SECTION 3, and that in the event Employee breaches or threatens to breach any of the restrictions, the Company will have no adequate remedy at law. Employee accordingly agrees that in the event Employee breaches or threatens to breach any of the restrictions, the Company shall be entitled to immediate temporary injunctive and other equitable relief, without bond and without the necessity of showing actual monetary damages, subject to hearing as soon thereafter as possible. Nothing contained herein shall be construed as prohibiting the Company from pursuing any other remedies available to it for such breach or the threat of such a breach by Employee, including the recovery of any damages which it is able to prove. 3 4. Termination and Effect of Termination. 4.1 Termination by the Company for Cause or Due to Death or Disability. The Company may terminate Employee's employment at any time (i) for Cause or (ii) due to the Disability of Employee, by giving written notice to Employee, and, in addition, Employee's employment shall terminate immediately upon his death. Any termination under (i) or (ii) shall be effective upon the date of service of such notice pursuant to SECTION 9.6 hereof. Upon termination under this SUBSECTION 4.1, Employee shall be entitled only to his accrued Base Salary, vacation, 401(k) benefits (to the extent provided under the terms of the plan documents and as otherwise required by law) (the "401(k) Benefits"), and the right to continue his coverage under the Company's health insurance plan to the extent required by the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA rights"). 4.2 Termination by Employee without Good Reason. Employee may terminate his employment with the Company at any time without Good Reason, and upon such termination he shall be entitled only to his accrued Base Salary, vacation, 401(k) Benefits, and COBRA rights. 4.3 Termination by the Company without Cause or by Employee for Good Reason. (a) Subject to payment of Severance Pay as provided below, the Company may terminate Employee's employment without Cause by giving him written notice. Employee may terminate his employment with the Company at any time with Good Reason. If the Company terminates Employee's employment without Cause, or Employee terminates his employment for Good Reason: (i) Employee shall be entitled to receive his accrued Base Salary, vacation, 401(k) Benefits, and COBRA rights; and (ii) Employee shall be entitled to receive any earned but unpaid bonus(es) plus the following amount, depending on the date of termination, as "Severance Pay"):
Date of Termination Amount - ------------------- ------ During 2001 $ 400,000 During 2002 $ 350,000 During 2003 $ 300,000
(iii) The provisions and covenants of SECTION 3.2, above, shall have no effect and shall be void. (b) IF EMPLOYEE'S EMPLOYMENT IS TERMINATED BY THE COMPANY WITHOUT CAUSE OR BY EMPLOYEE FOR GOOD REASON, HIS RIGHT TO RECEIVE SEVERANCE PAY SHALL BE CONDITIONED UPON HIS EXECUTION OF A GENERAL RELEASE IN A FORM SATISFACTORY TO THE COMPANY, AND SUCH PAYMENT SHALL BE HIS EXCLUSIVE REMEDY IN 4 ANY ACTION ARISING OUT OF THE TERMINATION OF HIS EMPLOYMENT. Employee is under no obligation to mitigate, or attempt to mitigate, his damages in order to receive the Severance Pay. The amount of any payments provided for in this Agreement shall not be reduced, offset, or subject to recovery by the Company by reason of any compensation earned by Employee as the result of employment by another employer or by self-employment after the Date of Termination. (c) Notwithstanding the foregoing, if the Employee terminates his employment for Good Reason as defined in SECTION 7.5(f), Employee shall be entitled to receive 50% of the amount that would otherwise due under SECTION 4.3(a)(ii). (d) Notice and Opportunity to Cure. It shall be a condition precedent to the Company's right to terminate Employee's employment for Cause and Employee's right to terminate for Good Reason that: (i) the terminating party shall first have given the other party written notice stating with specificity the reason for the termination, and (ii) if the reason for termination is susceptible of cure or remedy, a period of thirty (30) days from and after the giving of such notice shall have elapsed without the party receiving notice having effectively cured or remedied such reason; provided, however, that this SECTION 4.3(d)(ii) shall not be applicable to SECTION 7.1(b). 5. Income Tax Treatment. Employee and the Company acknowledge that it is the intention of the Company to deduct all amounts paid under SECTION 2 hereof as ordinary and necessary business expenses for income tax purposes. All payments made to Employee in connection with this Agreement will be subject to required withholding of federal, state, and local income, excise, and employment related taxes. Employee agrees and represents that he will treat all such amounts as taxable to the extent required pursuant to all applicable tax laws and regulations, and should he fail to report and pay such amounts as required, he will indemnify and hold the Company harmless from and against any and all taxes, penalties, interest, costs and expenses, including reasonable attorneys' and accounting fees and costs, which are incurred by Company directly or indirectly as a result thereof. 6. Indemnification. If Employee is made a party or is threatened to be made a party to any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director or officer of the Company or is or was serving at the request of the Company as a director, officer, member, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, he shall be indemnified and held harmless by the Company to the fullest extent permitted by the laws of the State of Virginia and the Company's by-laws, as the same exist or may hereafter be amended, against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by Employee in connection therewith; provided, 5 however, that Employee shall not be entitled to indemnification under this SECTION 6 in the event that the Company reasonably determines in good faith that any acts or omissions by Employee were: (a) in knowing violation of any agreement between Employee and the Company; (b) in bad faith or involving intentional misconduct or a knowing violation of law or that Employee personally gained a financial profit or other advantage to which he was not legally entitled; or for which a court, having jurisdiction in the matter, determines that indemnification is not lawful. 7. Definitions. For purposes of this Agreement, the following terms have the meanings referred to in this Section: 7.1 "Cause" means the occurrence of any of the following: (a) The willful failure by Employee to perform substantially all of his duties with the Company (other than a failure resulting from his incapacity due to physical or mental illness) after a demand for substantial performance is delivered to him in writing by the Board which identifies with specificity the manner in which Employee has not substantially performed his duties; and (b) Employee's willful dishonesty, willful misconduct, or willful violation of any law, rule, or regulation, the conviction for which would constitute a felony or a crime involving moral turpitude, or both. 7.2 "Confidential Information" means any information relating to the Business or to any other business or affairs of the Company, including, but not limited to, information relating to financial statements, employees, suppliers, construction, manufacturing and servicing methods, equipment, programs, strategies and information, analyses, profit margins, or other proprietary information used by the Company, or any subsidiary of the Company, in connection with the Business; provided, however, that Confidential Information shall not include any information which is in the public domain or becomes known in the industry through no wrongful act on the part of Employee. 7.3 "Date of Termination" means the date set forth in the written Notice of Termination or, if none, by mutual written agreement of the parties or by the arbitrator in a proceeding as provided in SECTION 8 hereof. 6 7.4 "Disability" means Employee's inability to perform his duties with the Company on a full-time basis for one hundred eighty (180) consecutive days by reason of physical or mental incapacity, and his failure to have resumed the full-time performance of his duties within thirty (30) days after Notice of Termination is given by the Company; provided, however, if Employee does not agree with the determination to terminate his employment because of Disability, the question of his disability shall be subject to the certification of a licensed healthcare practitioner agreed upon by the Company and Employee or Employee's personal representative, in the event of his incapacity enter into such agreement. In the absence of an agreement with respect to the selection of a licensed healthcare practitioner, each party shall designate a licensed healthcare practitioner who together shall select a third who shall make a final and binding determination as to Disability. 7.5 "Good Reason" means any of the following: (a) a diminution in Employee's title or position or the failure to reappoint or elect Employee to his current title and position; (b) the assignment of the Employee to duties a material part of which are not consistent with his current position as a high ranking senior executive employee in the Company; the following examples are illustrative of, but do not constitute the only, assignments that meet the foregoing definition of Good Reason: (i) Employee's supervisory responsibilities are substantially changed by the re-assignment of persons previously reporting to Employee to an officer or employee of the Company who does not report to Employee; (ii) Employee's duties are restricted to menial or non-essential activities; (iii) Employee's activities are primarily restricted to non-supervisory functions; (c) a reduction by the Company of Employee's Base Salary or any other compensation provided in SECTION 2; (d) a purported termination of Employee's employment by the Company which is not effected by a Notice of Termination; (e) following the sale of any portion of the Company's assets during the Employment Period, the Company no longer operates at least one of the following major divisions: (i) The Genesee Company, (ii) Wilshire Homes, Inc. or (iii) Fortress Galloway, Inc. 7 (f) the Company's requirement that Employee be based at an office that is greater than thirty-five (35) miles from Austin, Texas, excluding required travel on the business of the Company to an extent substantially consistent with the business travel obligations which he undertook on behalf of the Company prior to the date that Employee gives a Notice of Termination for Good Reason; or (g) any other material breach by the Company of the terms of this Agreement. 7.6 "Notice of Termination" means any notice of termination, or purported notice of termination, by the Company or by Employee, as required by SECTION 4. 8. ARBITRATION. 8.1 ALL CLAIMS (INCLUDING CLAIMS PURSUANT TO FEDERAL OR STATE STATUTE(S) OR BY COMMON LAW, BUT EXCLUDING ANY CLAIMS ARISING OUT OF OR RELATING TO EMPLOYEE'S VIOLATION OF SECTION 3), CONTROVERSIES, DIFFERENCES OR DISPUTES BETWEEN COMPANY AND EMPLOYEE ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE BREACH OF THIS AGREEMENT, INCLUDING, BUT NOT LIMITED TO, THE TERMINATION OF EMPLOYEE'S EMPLOYMENT, SHALL BE SETTLED BY ARBITRATION IN ACCORDANCE WITH THE RULES OF THE AMERICAN ARBITRATION ASSOCIATION IN EFFECT AT THE TIME THE PROCEEDING IS COMMENCED. 8.2 THE ARBITRATION SHALL OCCUR IN NEW YORK, NEW YORK, TO THE EXCLUSION OF ALL OTHER LOCATIONS. 8.3 IN PREPARATION FOR THE ARBITRATION HEARING, EACH PARTY MAY UTILIZE ALL METHODS OF DISCOVERY AUTHORIZED BY THE PROCEDURAL RULES AND STATUTES OF THE STATE OF VIRGINIA AND MAY ENFORCE THE RIGHT TO OBTAIN SUCH DISCOVERY IN THE MANNER PROVIDED BY SAID RULES AND STATUTES AND/OR BY THE ARBITRATION LAWS OF THE STATE OF VIRGINIA. 8.4 THE ARBITRATOR(S) MUST CONFINE THEIR DETERMINATIONS TO THE EXPRESS PROVISIONS OF THIS AGREEMENT AND CANNOT ADD TO OR SUBTRACT FROM THE TERMS AND CONDITIONS HEREOF. 8.5 THE ARBITRATOR(S) MAY INCLUDE PROVISIONS FOR THE PAYMENT OF COSTS AND EXPENSES, INCLUDING REASONABLE ATTORNEYS' FEES, TO THE PREVAILING PARTY FEES AS PART OF ANY RULING OR AWARD MADE HEREUNDER. 8.6 THE PARTIES ACKNOWLEDGE THAT ARBITRATION SHALL BE THE SOLE, FINAL, BINDING AND EXCLUSIVE REMEDY OF THE 8 PARTIES WITH RESPECT TO ANY SUCH MATTER FOR WHICH ARBITRATION IS REQUIRED HEREUNDER. 8.7 AFTER AN AWARD IS RENDERED BY THE ARBITRATOR(S), A JUDGMENT MAY BE ENTERED IN ANY COURT OF COMPETENT JURISDICTION. 9. Miscellaneous. 9.1 Assignment. This Agreement shall be binding upon and inure to the benefit of the Company and all of its Affiliates, successors, transferees, or surviving or continuing entity. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation, reorganization or otherwise) to assume and agree to perform this Agreement in the same manner and to the same extent the Company would be required to perform if no such succession had taken place. Except as otherwise expressly provided herein, all covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of their respective legal representatives, heirs, successors and assigns, whether so expressed or not. 9.2 Entire Agreement. Except as otherwise expressly set forth herein, this Agreement and all other agreements entered into by the parties hereto on the date hereof set forth the entire understanding of the parties and supersede and preempt all prior oral or written understandings and agreements, with respect to the subject matter hereof, including but not limited to the severance agreement between the parties dated October 7, 1998. 9.3 Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement. 9.4 Amendment; Modification; Waiver. No amendment or modification of this Agreement and no waiver by any party of the breach of any covenant contained herein shall be binding unless executed in writing by the party against whom enforcement of such amendment, modification or waiver is sought. No waiver shall be deemed a continuing waiver or a waiver in respect of any subsequent breach or default, either of a similar or different nature, unless expressly so stated in writing. 9.5 Governing Law. This Agreement shall be construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Agreement shall be governed by, the laws of the State of Virginia, without giving effect to provisions thereof regarding conflict of laws. To the extent that any provision of this Agreement is inconsistent with the laws of the State of Virginia, the parties agree to be governed and abide by the law of the State of Virginia. 9.6 Notices. All notices, demands or other communications required to be given or delivered hereunder shall be in writing and shall be deemed to have been properly served if (a) delivered personally, (b) delivered by a recognized overnight courier service, (c) sent 9 by certified or registered mail, return receipt requested and first class postage prepaid, or (d) sent by facsimile transmission followed by a confirmation copy delivered by a recognized overnight courier service the next day. Such notices, demands and other communications shall be sent to the addresses indicated below: (a) If to Employee: James Edward Horne 7143 Valburn Austin, TX 78731 (b) If to the Company: The Fortress Group, Inc. 1650 Tysons Boulevard, Suite 600 McLean, VA 22102 Attention: Secretary with copies to: Lazard Freres Real Estate Investors LLC 30 Rockefeller Plaza, 50th Floor New York, New York 10020 Attention: Andrew Zobler and Attention: General Counsel or to such other address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party. The date of service of such notice shall be (i) the date such notice is personally delivered or sent by facsimile transmission (with issuance by the transmitting machine of a confirmation of successful transmission), (ii) three days after the date of mailing if sent by certified or registered mail or (iii) one day after date of delivery to the overnight courier if sent by overnight courier. 9.7 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but both of which taken together shall constitute one and the same Agreement and shall become effective when one or more counterparts have been executed by each of the parties hereto and delivered to the other. 9.8 Descriptive Headings; Interpretation. The descriptive headings in this Agreement are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. The use of the word "including" in this Agreement shall be by way of example rather than by limitation. The Preliminary Recitals set forth above are incorporated by reference into this Agreement. 9.9 No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties hereto to express their mutual interest, and no rule of strict construction will be applied against any party hereto. 10 10. ACKNOWLEDGEMENT. Employee represents and acknowledges the following: (c) he has carefully read this Agreement in its entirety; (d) he understands the terms and conditions contained herein; (e) he has had the opportunity to review this Agreement with legal counsel of his own choosing and has not relied on any statements made by the Company or its legal counsel as to the meaning of any term or condition contained herein or in deciding whether to enter into this Agreement; and (f) he is entering into this Agreement knowingly and voluntarily. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. COMPANY: THE FORTRESS GROUP, INC. By: -------------------------------- Its: -------------------------------- EMPLOYEE: ------------------------------------ James Edward Home 11 EX-99.E.13 12 y61738exv99wew13.txt EMPLOYMENT AGREEMENT Exhibit(e)(13) EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT (the "Agreement"), dated as of January 1,2001, by and between The Fortress Group, Inc., a Delaware corporation (the "Company") and Robert Short ("Employee"). PRELIMINARY RECITALS A. The Company is engaged in the construction and sale of detached and unattached single family residential homes (the "Business"); B. Employee has extensive knowledge and a unique understanding of the Business; C. The Company desires to employ Employee as a regional vice president, and Employee desires to be employed by the Company as such, all under the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the premises, the mutual covenants of the parties hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. Employment. 1.1 Engagement of Employee. The Company agrees to employ Employee as a Regional Vice President of the Company, and Employee agrees to accept such employment, all in accordance with the terms and conditions of this Agreement, effective January 1, 2001. 1.2 Duties and Powers. At all times during the Employment Period (as defined herein), the Company agrees that Employee will serve as a Regional Vice President of the Company. Employee shall have such other responsibilities, duties and authorities, and will render such services for the Company and its affiliates, as the President of the Company shall from time to time reasonably direct. Employee agrees to devote his full time and energies to the affairs of the Company and to carry out his duties and responsibilities faithfully. 1.3 Employment Period. Employee's employment under this Agreement shall be for a period of one (1) year commencing January 1, 2001 (the "Initial Employment Period"). This Agreement shall automatically renew for successive one-year periods (each one-year period, a "Renewal Period") unless either the Company or Employee, as the case may be, provides written notice at least ninety (90) days prior to the expiration of any such period, stating its/his desire to terminate this Agreement. The Initial Employment Period and each successive Renewal Period shall be referred to herein together as the "Employment Period". Notwithstanding anything to the contrary contained herein, the Employment Period is subject to termination pursuant to SECTION 4 below. 1 2. Compensation and Benefits. 2.1 Salary. In consideration of Employee performing his duties under this Agreement during the Employment Period, the Company will pay Employee a base salary at a rate of $285,000 per annum (the "Base Salary"), payable in accordance with the Company's regular payroll practices for salaried employees. The Base Salary may be increased (but not decreased) from time to time during the Employment Period, as determined by the Board of Directors of the Company (the "Board") in its sole discretion. 2.2 Bonuses. Employee shall participate in any such executive incentive compensation plan as the Board may adopt during the term of this Agreement. 2.3 Benefits, Expenses and Qualified Plan. The Company will provide Employee with such benefits as are generally provided from time to time to employee officers of the Company including, without limitation: (a) vacation, (b) health and insurance benefits, and (c) participation in the Company's qualified pensions plans, subject to Employee's meeting eligibility requirements contained in such plans. 3. Duty of Loyalty. 3.1 Confidential Information. Other than in the performance of his duties hereunder, Employee shall keep secret and retain in strictest confidence, and shall not, without the prior written consent of the Company, furnish, make available or disclose to any third party or use for the benefit of himself or any third party, any Confidential Information. Employee acknowledges that the Confidential Information is vital, sensitive, confidential and proprietary to the Company. 3.2 Non-Competition. (a) Employee hereby agrees that during the Restricted Period, he shall not, for any reason whatsoever, directly or indirectly, for himself or on behalf of or in conjunction with any other person, persons, company, partnership, corporation or business of whatever nature, engage, as an officer, director, shareholder, owner, partner, joint venturer, or in a managerial capacity, whether as an employee, independent contractor, consultant or advisor, or as a sales representative, in any business which constructs or sells single-family, detached residential homes in any county in which the Company or its subsidiaries does business (the "Restricted Territory"). (b) For purposes of this Section 3.2, the Restricted Period shall be a period of one (1) year commencing on January 1, 2001, plus, if this Agreement is extended for any successive one (1) year periods, for that additional period of one (1) year, regardless of whether Employee continues to be employed by the Company during such one-year periods; provided, however, that if Employee's employment is terminated pursuant to Section 4.3, the Restricted Period shall end on Employee's last day of employment. 2 (c) The provisions of SECTION 3.2(a) notwithstanding, neither this Agreement nor any of the provisions and recitals contained therein shall prohibit Employee from: (i) acquiring as an investment not more than one (1%) percent of the capital stock of a competing business whose stock is traded on a national securities exchange or over the counter so long as the Employee does not consult with or is not employed by such competitor, or (ii) engaging, as an officer, director, shareholder, owner, partner, joint venturer, or in a managerial capacity, whether as an employee, independent contractor, consultant or advisor, or as a sales representative, in any business which develops real estate for: (A) commercial, industrial, or multi-family uses; or (B) single-family residential use, provided the business does not construct or sell single-family residential homes on the developed lots. 3.3 Non-Solicitation. Employee hereby agrees that during the Restricted Period, he shall not, for any reason whatsoever, directly or indirectly, for himself or on behalf of or in conjunction with any other person, persons, company, partnership, corporation or business of whatever nature, as an officer, director, shareholder, owner, partner, joint venturer, or in a managerial capacity, whether as an employee, independent contractor, consultant or advisor, or as a sales representative, solicit or encourage any employee of the Company to leave the employ of the Company, or to do any act that is disloyal to the Company, is inconsistent with the interests of the Company or violates of any provision of this Agreement or any agreement such employee has with the Company. 3.4 Remedies. Employee acknowledges and agrees that the restrictions set forth in this SECTION 3 are reasonable and necessary for the protection of the Company's business interests, that irreparable injury will result to the Company if Employee breaches any of the terms of this SECTION 3, and that in the event Employee breaches or threatens to breach any of the restrictions, the Company will have no adequate remedy at law. Employee accordingly agrees that in the event Employee breaches or threatens to breach any of the restrictions, the Company shall be entitled to immediate temporary injunctive and other equitable relief, without bond and without the necessity of showing actual monetary damages, subject to hearing as soon thereafter as possible. Nothing contained herein shall be construed as prohibiting the Company from pursuing any other remedies available to it for such breach or the threat of such a breach by Employee, including the recovery of any damages which it is able to prove. 3 4. Termination and Effect of Termination. 4.1 Termination by the Company for Cause or Due to Death or Disability. The Company may terminate Employee's employment at any time (i) for Cause or (ii) due to the Disability of Employee, by giving written notice to Employee, and, in addition, Employee's employment shall terminate immediately upon his death. Any termination under (i) or (ii) shall be effective upon the date of service of such notice pursuant to SECTION 9.6 hereof. Upon termination under this SUBSECTION 4.1, Employee shall be entitled only to his accrued Base Salary, vacation, 401(k) benefits (to the extent provided under the terms of the plan documents and as otherwise required by law) (the "401(k) Benefits"), and the right to continue his coverage under the Company's health insurance plan to the extent required by the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA rights"). 4.2 Termination by Employee without Good Reason. Employee may terminate his employment with the Company at any time without Good Reason, and upon such termination he shall be entitled only to his accrued Base Salary, vacation, 401(k) Benefits, and COBRA rights. 4.3 Termination by the Company without Cause or by Employee for Good Reason. (a) Subject to payment of Severance Pay as provided below, the Company may terminate Employee's employment without Cause by giving him written notice. Employee may terminate his employment with the Company at any time with Good Reason. If the Company terminates Employee's employment without Cause, or Employee terminates his employment for Good Reason: (i) Employee shall be entitled to receive his accrued Base Salary, vacation, 401(k) Benefits, and COBRA rights; and (ii) Employee shall be entitled to receive any earned but unpaid bonus(es) plus the following amount, depending on the date of termination, as "Severance Pay"):
Date of Termination Amount ------------------- ------ During 2001 $506,730 During 2002 $443,460 During 2003 $379,050
(iii) The provisions and covenants of SECTION 3.2, above, shall have no effect and shall be void. (b) IF EMPLOYEE'S EMPLOYMENT IS TERMINATED BY THE COMPANY WITHOUT CAUSE OR BY EMPLOYEE FOR GOOD REASON, HIS RIGHT TO RECEIVE SEVERANCE PAY SHALL BE CONDITIONED UPON HIS EXECUTION OF A GENERAL RELEASE IN A FORM SATISFACTORY TO THE COMPANY, AND SUCH PAYMENT SHALL BE HIS EXCLUSIVE REMEDY IN 4 ANY ACTION ARISING OUT OF THE TERMINATION OF HIS EMPLOYMENT. Employee is under no obligation to mitigate, or attempt to mitigate, his damages in order to receive the Severance Pay. The amount of any payments provided for in this Agreement shall not be reduced, offset, or subject to recovery by the Company by reason of any compensation earned by Employee as the result of employment by another employer or by self-employment after the Date of Termination. (c) Notwithstanding the foregoing, if the Employee terminates his employment for Good Reason as defined in SECTION 7.5(f), Employee shall be entitled to receive 50% of the amount that would otherwise due under SECTION 4.3(a)(ii). (d) Notice and Opportunity to Cure. It shall be a condition precedent to the Company's right to terminate Employee's employment for Cause and Employee's right to terminate for Good Reason that: (i) the terminating party shall first have given the other party written notice stating with specificity the reason for the termination, and (ii) if the reason for termination is susceptible of cure or remedy, a period of thirty (30) days from and A&R the giving of such notice shall have elapsed without the party receiving notice having effectively cured or remedied such reason; provided, however, that this SECTION 4.3(d)(ii) shall not be applicable to SECTION 7.1(b). 5. Income Tax Treatment. Employee and the Company acknowledge that it is the intention of the Company to deduct all amounts paid under SECTION 2 hereof as ordinary and necessary business expenses for income tax purposes. All payments made to Employee in connection with this Agreement will be subject to required withholding of federal, state, and local income, excise, and employment related taxes. Employee agrees and represents that he will treat all such amounts as taxable to the extent required pursuant to all applicable tax laws and regulations, and should he fail to report and pay such amounts as required, he will indemnify and hold the Company harmless from and against any and all taxes, penalties, interest, costs and expenses, including reasonable attorneys' and accounting fees and costs, which are incurred by Company directly or indirectly as a result thereof. 6. Indemnification. If Employee is made a party or is threatened to be made a party to any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director or officer of the Company or is or was serving at the request of the Company as a director, officer, member, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, he shall be indemnified and held harmless by the Company to the fullest extent permitted by the laws of the State of Virginia and the Company's by-laws, as the same exist or may hereafter be amended, against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by Employee in connection therewith, provided, 5 however, that Employee shall not be entitled to indemnification under this SECTION 6 in the event that the Company reasonably determines in good faith that any acts or omissions by Employee were: (a) in knowing violation of any agreement between Employee and the Company; (b) in bad faith or involving intentional misconduct or a knowing violation of law or that Employee personally gained a financial profit or other advantage to which he was not legally entitled; or for which a court, having jurisdiction in the matter, determines that indemnification is not lawful. 7. Definitions. For purposes of this Agreement, the following terms have the meanings referred to in this Section: 7.1 "Cause" means the occurrence of any of the following: (a) The willful failure by Employee to perform substantially all of his duties with the Company (other than a failure resulting from his incapacity due to physical or mental illness) after a demand for substantial performance is delivered to him in writing by the Board which identifies with specificity the manner in which Employee has not substantially performed his duties; and (b)Employee's willful dishonesty, willful misconduct, or willful violation of any law, rule, or regulation, the conviction for which would constitute a felony or a crime involving moral turpitude, or both. 7.2 "Confidential Information" means any information relating to the Business or to any other business or affairs of the Company, including, but not limited to, information relating to financial statements, employees, suppliers, construction, manufacturing and servicing methods, equipment, programs, strategies and information, analyses, profit margins, or other proprietary information used by the Company, or any subsidiary of the Company, in connection with the Business; provided, however, that Confidential Information shall not include any information which is in the public domain or becomes known in the industry through no wrongful act on the part of Employee. 7.3 "Date of Termination" means the date set forth in the written Notice of Termination or, if none, by mutual written agreement of the parties or by the arbitrator in a proceeding as provided in Section 8 hereof. 6 7.4 "Disability" means Employee's inability to perform his duties with the Company on a full-time basis for one hundred eighty (180) consecutive days by reason of physical or mental incapacity, and his failure to have resumed the full-time performance of his duties within thirty (30) days after Notice of Termination is given by the Company; provided, however, if Employee does not agree with the determination to terminate his employment because of Disability, the question of his disability shall be subject to the certification of a licensed healthcare practitioner agreed upon by the Company and Employee or Employee's personal representative, in the event of his incapacity enter into such agreement. In the absence of an agreement with respect to the selection of a licensed healthcare practitioner, each party shall designate a licensed healthcare practitioner who together shall select a third who shall make a final and binding determination as to Disability. 7.5 "Good Reason" means any of the following: (a) a diminution in Employee's title or position or the failure to reappoint or elect Employee to his current title and position; (b) the assignment of the Employee to duties a material part of which are not consistent with his current position as a high ranking senior executive employee in the Company; the following examples are illustrative of, but do not constitute the only, assignments that meet the foregoing definition of Good Reason: (i) Employee's supervisory responsibilities are substantially changed by the re-assignment of persons previously reporting to Employee to an officer or employee of the Company who does not report to Employee; (ii) Employee's duties are restricted to menial or non-essential activities; (iii) Employee's activities are primarily restricted to non-supervisory functions; (c) a reduction by the Company of Employee's Base Salary or any other compensation provided in SECTION 2; (d) a purported termination of Employee's employment by the Company which is not effected by a Notice of Termination; (e) following the sale of any portion of the Company's assets during the Employment Period, the Company no longer operates at least one of the following major divisions: (i) The Genesee Company, (ii) Wilshire Homes, Inc. or (iii) Fortress Galloway, Inc. 7 (f) the Company's requirement that Employee be based at an office that is greater than thirty-five (35) miles from Denver, Colorado, excluding required travel on the business of the Company to an extent substantially consistent with the business travel obligations which he undertook on behalf of the Company prior to the date that Employee gives a Notice of Termination for Good Reason; or (g) any other material breach by the Company of the terms of this Agreement. 7.6 "Notice of Termination" means any notice of termination, or purported notice of termination, by the Company or by Employee, as required by SECTION 4. 8. ARBITRATION. 8.1 ALL CLAIMS (INCLUDING CLAIMS PURSUANT TO FEDERAL OR STATE STATUTE(S) OR BY COMMON LAW, BUT EXCLUDING ANY CLAIMS ARISING OUT OF OR RELATING TO EMPLOYEE'S VIOLATION OF SECTION 3), CONTROVERSIES, DIFFERENCES OR DISPUTES BETWEEN COMPANY AND EMPLOYEE ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE BREACH OF THIS AGREEMENT, INCLUDING, BUT NOT LIMITED TO, THE TERMINATION OF EMPLOYEE'S EMPLOYMENT, SHALL BE SETTLED BY ARBITRATION IN ACCORDANCE WITH THE RULES OF THE AMERICAN ARBITRATION ASSOCIATION IN EFFECT AT THE TIME THE PROCEEDING IS COMMENCED. 8.2 THE ARBITRATION SHALL OCCUR IN NEW YORK, NEW YORK, TO THE EXCLUSION OF ALL OTHER LOCATIONS. 8.3 IN PREPARATION FOR THE ARBITRATION HEARING, EACH PARTY MAY UTILIZE ALL METHODS OF DISCOVERY AUTHORIZED BY THE PROCEDURAL RULES AND STATUTES OF THE STATE OF VIRGINIA AND MAY ENFORCE THE RIGHT TO OBTAIN SUCH DISCOVERY IN THE MANNER PROVIDED BY SAID RULES AND STATUTES AND/OR BY THE ARBITRATION LAWS OF THE STATE OF VIRGINIA. 8.4 THE ARBITRATOR(S) MUST CONFINE THEIR DETERMINATIONS TO THE EXPRESS PROVISIONS OF THIS AGREEMENT AND CANNOT ADD TO OR SUBTRACT FROM THE TERMS AND CONDITIONS HEREOF. 8.5 THE ARBITRATOR(S) MAY INCLUDE PROVISIONS FOR THE PAYMENT OF COSTS AND EXPENSES, INCLUDING REASONABLE ATTORNEYS' FEES, TO THE PREVAILING PARTY FEES AS PART OF ANY RULING OR AWARD MADE HEREUNDER. 8.6 THE PARTIES ACKNOWLEDGE THAT ARBITRATION SHALL BE THE SOLE, FINAL, BINDING AND EXCLUSIVE REMEDY OF THE 8 PARTIES WITH RESPECT TO ANY SUCH MATTER FOR WHICH ARBITRATION IS REQUIRED HEREUNDER. 8.7 AFTER AN AWARD IS RENDERED BY THE ARBITRATOR(S), A JUDGMENT MAY BE ENTERED IN ANY COURT OF COMPETENT JURISDICTION. 9. Miscellaneous. 9.1 Assignment. This Agreement shall be binding upon and inure to the benefit of the Company and all of its Affiliates, successors, transferees, or surviving or continuing entity. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation, reorganization or otherwise) to assume and agree to perform this Agreement in the same manner and to the same extent the Company would be required to perform if no such succession had taken place. Except as otherwise expressly provided herein, all covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of their respective legal representatives, heirs, successors and assigns, whether so expressed or not. 9.2 Entire Agreement. Except as otherwise expressly set forth herein, this Agreement and all other agreements entered into by the parties hereto on the date hereof set forth the entire understanding of the parties and supersede and preempt all prior oral or written understandings and agreements, with respect to the subject matter hereof, including but not limited to the severance agreement between the parties dated October 7, 1998. 9.3 Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement. 9.4 Amendment; Modification; Waiver. No amendment or modification of this Agreement and no waiver by any party of the breach of any covenant contained herein shall be binding unless executed in writing by the party against whom enforcement of such amendment, modification or waiver is sought. No waiver shall be deemed a continuing waiver or a waiver in respect of any subsequent breach or default, either of a similar or different nature, unless expressly so stated in writing. 9.5 Governing Law. This Agreement shall be construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Agreement shall be governed by, the laws of the State of Virginia, without giving effect to provisions thereof regarding conflict of laws. To the extent that any provision of this Agreement is inconsistent with the laws of the State of Virginia, the parties agree to be governed and abide by the law of the State of Virginia. 9.6 Notices All notices, demands or other communications required to be given or delivered hereunder shall be in writing and shall be deemed to have been properly served if (a) delivered personally, (b) delivered by a recognized overnight courier service, (c) sent 9 by certified or registered mail, return receipt requested and first class postage prepaid, or (d) sent by facsimile transmission followed by a confirmation copy delivered by a recognized overnight courier service the next day. Such notices, demands and other communications shall be sent to the addresses indicated below: (a) If to Employee: Robert Short 1366 Preserve Circle Golden, CO 80401 (b) If to the Company: The Fortress Group, Inc. 1650 Tysons Boulevard, Suite 600 McLean, VA 22102 Attention: Secretary with copies to: Lazard Freres Real Estate Investors LLC 30 Rockefeller Plaza, 50th Floor New York, New York 10020 Attention: Andrew Zobler and Attention: General Counsel or to such other address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party. The date of service of such notice shall be (i) the date such notice is personally delivered or sent by facsimile transmission (with issuance by the transmitting machine of a confirmation of successful transmission), (ii) three days after the date of mailing if sent by certified or registered mail or (iii) one day after date of delivery to the overnight courier if sent by overnight courier. 9.7 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but both of which taken together shall constitute one and the same Agreement and shall become effective when one or more counterparts have been executed by each of the parties hereto and delivered to the other. 9.8 Descriptive Headings; Interpretation. The descriptive headings in this Agreement are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. The use of the word "including" in this Agreement shall be by way of example rather than by limitation. The Preliminary Recitals set forth above are incorporated by reference into this Agreement. 9.9 No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties hereto to express their mutual interest, and no rule of strict construction will be applied against any party hereto. 10 10. ACKNOWLEDGEMENT. Employee represents and acknowledges the following: (c) he has carefully read this Agreement in its entirety; (d) he understands the terms and conditions contained herein; (e) he has had the opportunity to review this Agreement with legal counsel of his own choosing and has not relied on any statements made by the Company or its legal counsel as to the meaning of any term or condition contained herein or in deciding whether to enter into this Agreement; and (f) he is entering into this Agreement knowingly and voluntarily. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. COMPANY: THE FORTRESS GROUP, INC. BY: ___________________________ Its:___________________________ EMPLOYEE: _______________________________ Robert Short 11 EX-99.E.14 13 y61738exv99wew14.txt AGREEMENT BY EDWARD HORNE Exhibit (e)(14) AGREEMENT June 14, 2002 The Genesee Company The Fortress Group, Inc. 1650 Tysons Boulevard Suite 600 McLean, VA 22102 Dear Sirs: This Agreement is being written to induce Lennar Corporation and FG Acquisition Corporation to enter into, and carry out the transactions contemplated by, a Plan and Agreement of Merger dated June 14, 2002 among The Fortress Group, Inc. (the "Company"), Lennar Corporation and FG Acquisition Corporation, including aspects of those transactions which will be affected by an anticipated sale of the Company's operations in Texas known as Wilshire Homes ("Wilshire Homes") to an entity in which James Horne ("Horne") will have an ownership interest. Section 4.3 of the employment agreement between Horne and the Company dated January 1, 2001 (the "Employment Agreement"), provides that Horne will be entitled to severance pay and continued benefits if his employment is terminated by the Company without cause or if he terminates his employment with the Company for good reason (as defined in the Employment Agreement). Horne agrees that if there is a sale of Wilshire Homes (whether structured as a sale of partnership interests, a sale of substantially all of the assets, or otherwise) to an entity in which he has, or upon consummation of such sale will obtain, an ownership interest and/or to an entity which retains him as an employee, full time consultant or in a similar relationship, Horne will not have any right to receive payments or benefits pursuant to Section 4.3 of the Employment Agreement, any rights Horne might otherwise have being waived by this Agreement. This letter shall terminate and be of no further force and effect if the Plan and Agreement of Merger described in the first paragraph of this agreement is not entered into. Very truly yours, /s/ James Edward Horne ------------------------------------ James Edward Horne -----END PRIVACY-ENHANCED MESSAGE-----