<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
DIAMOND HOME SERVICES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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<PAGE>
DIAMOND HOME SERVICES, INC.
222 CHURCH STREET
WOODSTOCK, ILLINOIS 60098
(815) 334-1414
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 15, 1997
---------------------
TO THE STOCKHOLDERS:
The Annual Meeting of Stockholders of Diamond Home Services, Inc., a
Delaware corporation (the "Company"), will be held at The Clarion Hotel at
O'Hare, 6810 North Mannheim Road, Rosemont, Illinois 60018 on Friday, May 15,
1997, at 10:00 A.M. local Chicago time for the following purposes:
1. To elect five directors; and
2. To consider and transact such other business as may properly come
before the Annual Meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on April 3, 1997 as
the record date for determining the stockholders entitled to notice of and to
vote at the Annual Meeting.
By Order of the Board of Directors
Joseph U. Schorer
VICE PRESIDENT, GENERAL COUNSEL AND
SECRETARY
April 18, 1997
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE DATE, SIGN AND MAIL
THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED WHICH REQUIRES NO POSTAGE FOR
MAILING IN THE UNITED STATES. A PROMPT RESPONSE IS HELPFUL, AND YOUR COOPERATION
WILL BE APPRECIATED.
<PAGE>
DIAMOND HOME SERVICES, INC.
222 CHURCH STREET
WOODSTOCK, ILLINOIS 60098
------------------------
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 15, 1997
---------------------
To the Stockholders of
DIAMOND HOME SERVICES, INC.:
This Proxy Statement is being mailed to stockholders on or about April 18,
1997, and is furnished in connection with the solicitation by the Board of
Directors of Diamond Home Services, Inc., a Delaware corporation (the
"Company"), of proxies for the Annual Meeting of Stockholders to be held on May
15, 1997, for the purpose of considering and acting upon the matters specified
in the Notice of Annual Meeting of Stockholders accompanying this Proxy
Statement. If the form of Proxy which accompanies this Proxy Statement is
executed and returned, it will be voted. A Proxy may be revoked at any time
prior to the voting thereof by written notice to the Secretary of the Company.
A majority of the outstanding shares entitled to vote at this meeting and
represented in person or by proxy will constitute a quorum. The affirmative vote
of the holders of a majority of the shares entitled to vote and represented in
person or by proxy at this meeting is required for the election of directors and
any other proposal submitted to a vote. Shares represented by proxies which are
marked "abstain" or to deny discretionary authority on any matter will be
treated as shares present and entitled to vote, which will have the same effect
as a vote against any such matters. Broker non-votes and the shares as to which
stockholders abstain are included for purposes of determining whether a quorum
of shares is present at a meeting. A broker "non-vote" occurs when a nominee
holding shares for a beneficial owner does not vote a particular proposal
because the nominee does not have discretionary voting power with respect to
that item and has not received instructions from the beneficial owner. Broker
non-votes will have no effect on the election of directors or any other proposal
submitted to a vote.
Expenses incurred in the solicitation of proxies will be borne by the
Company. Officers of the Company may make additional solicitations in person or
by telephone.
The Annual Report to Stockholders for fiscal year 1996 accompanies this
Proxy Statement. If you did not receive a copy of the report, you may obtain one
by writing to the Secretary of the Company.
As of April 3, 1997, the record date for determining stockholders entitled
to vote at the annual meeting, the Company had 9,079,675 shares of common stock
(the "Common Stock") issued and outstanding. Shares of Common Stock are the only
shares entitled to vote at the Annual Meeting. Each share is entitled to one
vote on each matter to be voted upon at the Annual Meeting.
<PAGE>
SECURITIES BENEFICIALLY OWNED BY
PRINCIPAL STOCKHOLDERS AND MANAGEMENT
Set forth in the following table are the beneficial holdings (and the
percentages of outstanding shares represented by such beneficial holdings) as of
April 3, 1997, except as otherwise noted, of (i) each person (including any
"group" as defined in Section 13(d)(3) of the Securities Exchange Act of 1934
(the "Exchange Act")) known by the Company to own beneficially more than 5% of
its outstanding Common Stock, (ii) directors, (iii) each Named Executive Officer
(defined below), and (iv) all directors and executive officers as a group.
Except as otherwise indicated, the Company believes that the beneficial owners
of the Common Stock listed below, based on information provided by such
beneficial owners, have sole investment and voting power with respect to such
shares, subject to community property laws where applicable.
Under Rule 13d-3 of the Exchange Act, persons who have the power to vote or
dispose of Common Stock of the Company, either alone or jointly with others, are
deemed to be beneficial owners of such Common Stock. Because the voting or
dispositive power of certain stock listed in the following table is shared, the
same securities are listed opposite more than one name in the table. Except as
set forth below, the address of each of the stockholders named below is the
Company's principal executive and administrative office.
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY PERCENT OF
NAME OWNED CLASS (1)
- ---------------------------------------------------------------------------------- ----------------- -------------
<S> <C> <C>
Globe Building Materials, Inc. ("Globe")(2) ...................................... 3,417,000 37.6%
2230 Indianapolis Boulevard
Whiting, IN 46394
The Kaufman Fund, Inc.(3) ........................................................ 500,000 5.5
140 East 45th Street, 43rd Floor
New York, NY 10017
C. Stephen Clegg(4)(5)............................................................ 3,426,763 37.7
Jacob Pollock(6).................................................................. 3,417,500 37.6
George A. Stinson(6).............................................................. 3,417,000 37.6
James M. Gillespie(5)............................................................. 142,260 1.6
Frank Cianciosi(5)................................................................ 140,750 1.6
Jerome Cooper(5).................................................................. 137,575 1.5
Ronald D. Schurter(5)(7).......................................................... 130,850 1.4
James F. Bere, Jr................................................................. 5,000 *
Donald Griffin(8)................................................................. -- --
All directors and executive officers as a group (11 persons)(4)(5)(6)............. 4,016,698 44.1
</TABLE>
- ------------------------
* Less than 1%.
(1) Percentage of beneficial ownership is based on 9,079,675 shares of Common
Stock outstanding as of April 3, 1997, plus, in the case of Messrs. Clegg,
Gillespie, Cianciosi, Cooper, Schurter and all directors and executive
officers as a group, the amount of shares of Common Stock which are subject
to presently exercisable options or options that are exercisable within 60
days of April 3, 1997, which are held by such individual or group.
(2) Based upon a Schedule 13G filed by Globe and Mr. Clegg with the Securities
and Exchange Commission. Globe owns all of the stock of GBM, Inc., a
Delaware corporation ("GBM"), which in turn owns 3,417,000 shares of Common
Stock. Reference herein to Common Stock owned by Globe
2
<PAGE>
refers to shares of Common Stock owned by GBM. Mr. Clegg may be deemed to
control approximately 57.0% of the common stock of Globe through direct
ownership and through ownership by entities Mr. Clegg may be deemed to
control. In addition, Mr. Clegg controls approximately 11.0% of the common
stock of Globe through voting agreements with other Globe stockholders.
Messrs. Pollock and Stinson own approximately 1.7% and 1.4% of the common
stock of Globe, respectively.
(3) Based upon a Schedule 13G filed by The Kaufman Fund, Inc. with the
Securities and Exchange Commission. The Kaufman Fund, Inc. has sole voting
and dispositive power with respect to the shares beneficially owned.
(4) Includes all shares beneficially owned by Globe. Mr. Clegg may be deemed to
be the beneficial owner of such shares by virtue of his positions as
Chairman of the Board, Chief Executive Officer and controlling stockholder
of Globe.
(5) Includes 9,763 shares (Mr. Clegg), 1,806 shares (Mr. Gillespie), 2,400
shares (Mr. Cianciosi), 1,225 shares (Mr. Cooper), 3,500 shares (Mr.
Schurter) and 30,444 shares (all directors and executive officers as a
group) held by such persons or group which are subject to presently
exercisable options or options exercisable within 60 days of April 3, 1997.
(6) Includes all shares beneficially owned by Globe. See Note (2) above. Messrs.
Pollock and Stinson may be deemed beneficial owners of the shares owned by
Globe by virtue of their positions as directors of Globe. Messrs. Pollock
and Stinson disclaim beneficial ownership of such shares.
(7) The address of Mr. Schurter is 26920 Iron Stone Drive, Yorba Linda, CA
92687. Mr. Schurter retired effective February 20, 1997.
(8) The address of Mr. Griffin is 3637 Woodlake Dr., Bonita Springs, FL 33923.
Mr. Griffin resigned as Chief Executive Officer, Chairman of the Board and a
director of the Company effective February 12, 1996.
ELECTION OF DIRECTORS
The Amended and Restated Certificate of Incorporation of the Company
provides for one class of directors. The By-Laws of the Company provide that the
directors shall be elected at the annual meeting of stockholders and that each
director shall hold office (subject to certain exceptions) until the next annual
meeting of stockholders.
It is intended that the proxies (except proxies marked to the contrary) will
be voted for the five nominees listed below, which nominees are members of the
present Board of Directors. It is expected that the nominees will serve, but if
any nominee declines or is unable to serve for any unforeseen cause, the proxies
will be voted to fill any vacancy so arising in accordance with the
discretionary authority of the persons named in the proxies.
3
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE NOMINEES.
The following table sets forth certain information with respect to the
nominees:
<TABLE>
<CAPTION>
NAME AND AGE PRINCIPAL OCCUPATION AND OTHER INFORMATION
- --------------------------------------- ------------------------------------------------------------------------
<S> <C>
C. Stephen Clegg(46)................... Mr. Clegg has been a director of the Company since September 1993 and
has served as the Company's Chairman of the Board and Chief Executive
Officer since February 1996 and President since April 1996. From April
1989 to the present, Mr. Clegg has served as Chairman of the Board and
Chief Executive Officer, and has been the controlling stockholder, of
Globe, a manufacturer of home building products, including roofing
shingles and related roofing products. Globe is the Company's largest
stockholder. Mr. Clegg has served as the Chairman of the Board and Chief
Executive Officer of Mid-West Spring Manufacturing Company, a company
which manufactures specialty springs, wire forms and metal stamping
products ("Mid-West Spring"), and its predecessors since April 1993 and
has served as a director since 1991. Since April 1994, Mr. Clegg has
also served as the Chairman of the Board and Chief Executive Officer,
and has been the controlling stockholder, of Catalog Holdings Inc.
("Catalog"). Mr. Clegg is president of Clegg Industries, Inc., a private
investment firm which he founded in September 1988. Prior to founding
Clegg Industries, Inc., he was a managing director of AEA Investors,
Inc., a private investment firm. Mr. Clegg is currently a director of
two other public companies, Birmingham Steel Corporation, a steel
production company, and Ravens Metal Products, Inc., a manufacturer of
aluminum products.
James F. Bere, Jr.(45)................. Mr. Bere has served as a director of the Company since April 1996. From
January 1995 to the present, Mr. Bere has been the Chairman of the Board
of Directors and Chief Executive Officer of Ameritel Corporation, an
outsourcing solutions company which he founded in 1982 and for which he
served as President and Chief Executive Officer from 1982 through 1990.
From January 1993 to May 1994, Mr. Bere was a Vice President of PIA
Merchandising Company and from September 1990 to December 1992 he was a
Senior Vice President of Marketing and Business Development for Matrix
Marketing, Inc., a division of Cincinnati Bell.
James M. Gillespie(57)................. Mr. Gillespie has been a director of the Company since May 1995 and in
January 1997 he was appointed Vice President--Business Development for
the Company. From April 1996 until January 1997, Mr. Gillespie was Vice
President--Southeastern Region of the Company. He was
President--Southeastern Region of the Company from May 1995 to April
1996, had been Southeastern Region Manager from February 1994 to May
1995 and was a director of the Company from September 1993 to September
1994. Prior to joining the Company, Mr. Gillespie held various retail
management positions with Sears, Roebuck and Co. ("Sears") from 1962 to
1989 and was a regional business manager of installed home improvements
at Sears from 1989 to May 1993.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
NAME AND AGE PRINCIPAL OCCUPATION AND OTHER INFORMATION
- --------------------------------------- ------------------------------------------------------------------------
Jacob Pollock(72)...................... Mr. Pollock has served as a director of the Company since September
1993. He also serves as a director of Globe and Mid-West Spring. From
May 1991 to the present, Mr. Pollock has been Chairman of the Board,
Chief Executive Officer and Treasurer of Ravens Metal Products Inc. From
April 1989 to the present, Mr. Pollock has been the Chief Executive
Officer and the Chief Operating Officer of J. Pollock & Co., a company
which is principally engaged in the sale of aluminum, private investing
and consulting. From 1949 to 1989, Mr. Pollock served as Chief Executive
Officer of Barmet Aluminum Corporation. Mr. Pollock also serves as a
director of several non-public companies, including Techno Cast, Inc.
and Aluminum Warehouse, Inc.
<S> <C>
George A. Stinson(81).................. Mr. Stinson has served as a director of the Company since September
1993. Mr. Stinson also serves as a director of Globe and Mid-West
Spring. Mr. Stinson is currently retired from active corporate
management and the practice of law. From 1961 until 1982 he served as
Chief Executive Officer of National Steel Corporation and from 1965 to
1981 he was also its Chairman of the Board. From 1981 to 1985 he was of
counsel to the law firm of Thorp, Reed & Armstrong in Washington, D.C.
Mr. Stinson also presently serves on the Board of Directors of
Birmingham Steel Corporation.
</TABLE>
5
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information with respect to all compensation
paid or earned for services rendered to the Company by the Company's chief
executive officer, the Company's four other highest compensated executive
officers, and the former chief executive officer of the Company, who terminated
service with the Company effective February 12, 1996 (together, the "Named
Executive Officers"), for the years indicated.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
-------------
AWARDS
ANNUAL COMPENSATION -------------
------------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($)(1) OPTIONS(#)(2) COMPENSATION($)(3)
- ----------------------------------- --------- ---------- ---------- ------------------- ------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
C. Stephen Clegg(4) ............... 1996 $ 198,075 $ 337,500 -- 39,050 --
Chairman of the Board, 1995 -- -- -- -- --
Chief Executive Officer and
President
James M. Gillespie ................ 1996 183,340 147,840 -- 7,225 $ 65,000
Vice President--Business 1995 126,800 182,236 $ 3,080 -- 65,000
Development and a Director
Frank Cianciosi ................... 1996 226,920 273,080 -- 9,600 60,000
Vice President--Sales 1995 126,650 350,407 2,997 -- 60,000
Jerome Cooper ..................... 1996 183,950 178,460 -- 4,900 60,000
Vice President--Installations 1995 126,800 184,441 282 -- 60,000
Ronald D. Schurter(5) ............. 1996 159,620 38,390 -- 3,500 60,000
Vice President 1995 126,800 90,500 -- -- 60,000
Donald Griffin(6) ................. 1996 14,423 -- -- -- 350,505
1995 125,000 219,635 3,488 -- 189,020
</TABLE>
- ------------------------
(1) Reflects amounts paid to the individuals during the fiscal year for the
payment of certain taxes.
(2) Represents stock options for the indicated number of shares granted under
the Company's 1996 Incentive Stock Option Plan ("Stock Option Plan").
(3) Reflects (a) in the cases of Messrs. Cianciosi, Gillespie, Cooper and
Schurter, payments pursuant to security agreements between each of such
individuals and the Company ($20,000 annually of which was applied, in the
case of Messrs. Schurter (1995 and 1996) and Gillespie (1996 only), to the
payment of life insurance premiums), and (b) in the case of Mr. Griffin,
payments ($20,000 annually of which was applied to the payment of life
insurance premiums) in connection with his resignation and (to the extent of
$15,751.67 per month) pursuant to a security agreement between Mr. Griffin
and the Company. See "Certain Transactions."
(4) Mr. Clegg received no compensation from the Company in 1995. The Company
paid management fees of $558,000 (in 1995) and $311,000 (in 1996) to Globe,
for which Mr. Clegg is the Chairman of the Board, Chief Executive Officer
and controlling stockholder, pursuant to a management agreement between the
Company and Globe which was terminated in June 1996. See "Certain
Transactions." On February 12, 1996, Mr. Clegg became the Chairman of the
Board and Chief Executive Officer of the Company, and in April 1996 he
became the Company's President.
6
<PAGE>
(5) Mr. Schurter retired effective February 20, 1997.
(6) Mr. Griffin resigned as the Chairman, Chief Executive Officer and a director
of the Company effective February 12, 1996.
The following tables set forth the number of incentive stock options granted
to the Named Executive Officers during 1996 under the Stock Option Plan and
information regarding exercisable and unexercisable incentive stock options held
by the Named Executive Officers as of December 31, 1996.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------- GRANT DATE
NUMBER OF VALUE
SECURITIES % OF TOTAL -------------
UNDERLYING OPTIONS GRANTED EXERCISE GRANT DATE
OPTIONS TO EMPLOYEES IN PRICE EXPIRATION PRESENT
NAME GRANTED(#)(1) FISCAL YEAR (2) ($/SH)(3) DATE VALUE($)(4)
- --------------------------------------------- ------------- ----------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
C. Stephen Clegg............................. 39,050 14.2% $ 13.00 6/19/06 $ 287,000
James M. Gillespie........................... 7,225 2.6 13.00 6/19/06 53,100
Frank Cianciosi.............................. 9,600 3.5 13.00 6/19/06 70,600
Jerome Cooper................................ 4,900 1.8 13.00 6/19/06 36,000
Ronald D. Schurter........................... 3,500 1.3 13.00 6/19/06 25,700
Donald Griffin............................... -- -- -- -- --
</TABLE>
- ------------------------
(1) All options were granted on June 19, 1996, the date of the Company's initial
public offering. Twenty-five percent of the options granted to each person
became exercisable upon grant. Thereafter, the options become exercisable at
the rate of 25% of the total shares subject to the option on and after each
of the next three anniversaries of the option grant. The term of the options
is ten years.
(2) Based on 275,000 total options granted to employees, including the Named
Executive Officers, in 1996.
(3) The exercise price is equal to the initial public offering price of the
Common Stock.
(4) The Company uses a modified Black-Scholes option pricing model of option
valuation to determine grant date present value. The Company does not
advocate or necessarily agree that the Black-Scholes model can properly
determine the value of an option. The calculations for the Named Executive
Officers are based on the following assumptions: risk free interest rate of
6.22%, dividend yield of 0%, volatility factor of the expected market price
of the Company's Common Stock of .588, and weighted-average expected life of
each option of 5 years. The resulting value has not been reduced by a factor
for forfeiture because the Company does not have sufficient historical
experience upon which to make a reasoned assumption as to this factor.
7
<PAGE>
FISCAL YEAR-END OPTION VALUES(1)
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL YEAR- IN-THE- MONEY OPTIONS AT
END(#) FISCAL YEAR-END($)(2)
---------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------- ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
C. Stephen Clegg.......................................... 9,763 29,287 $ 135,462 $ 406,357
James M. Gillespie........................................ 1,806 5,419 25,058 75,189
Frank Cianciosi........................................... 2,400 7,200 33,300 99,900
Jerome Cooper............................................. 1,225 3,675 16,997 50,991
Ronald D. Schurter(3)..................................... 3,500 -- 48,563 --
Donald Griffin............................................ -- -- -- --
</TABLE>
- ------------------------
(1) No options were exercised in the last fiscal year by the Named Executive
Officers.
(2) Value is calculated by subtracting the exercise price per share from the
average of the high and low market prices at December 31, 1996, of $26.875
and multiplying by the number of shares subject to the stock option.
(3) Mr. Schurter retired from the Company in February, 1997. Under the Stock
Option Plan and the separation agreement related to his retirement, Mr.
Schurter's options became fully exercisable at that time, which this table
accordingly reflects. The value of these options is based on the average
price for the Company's Common Stock on December 31, 1996, as described in
footnote (2).
8
<PAGE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
OVERVIEW
The compensation paid to executives and key operating associates consists of
four elements: (i) base salary, (ii) annual incentive compensation, (iii)
incentive stock options and, (iv) employee benefit plans. The compensation
package is designed to attract and retain top quality management associates as
well as align management's interests with the interests of the Company's
stockholders. In the opinion of the Committee, the total compensation package is
competitive and designed to provide meaningful incentives to the Company's
management and key operating associates.
At the time of the Company's inception in 1993, initially recognizing the
risks associated with a start-up operation and following the Company's
philosophy of emphasizing a variable cost approach to its operating model, base
salary was generally set at a relatively low level with a larger component of
compensation based on net sales and profitability of the Company.
Significant changes were made in the Company's capitalization and corporate
management during the last fiscal year, in major part, due to the Company's June
1996 initial public offering; and compensation changes were implemented to
reflect these changes and the transition from a private to a public company. In
February and April 1996, the Chairman and Chief Executive Officer and President
positions were vacated and the duties and responsibilities were combined into
one executive position. In June 1996, the Company (a) increased, retroactive to
the beginning of the year, certain executive and key operating associates' base
salaries with corresponding reductions in annual incentive compensation and (b)
terminated all management employment contracts. The Company believes, consistent
with its emphasis on a variable cost approach to its operating model, that
long-term employment agreements are only appropriate in special circumstances.
Currently, the Company has no long-term employment agreements in effect. Set
forth below is a discussion of the various components of the compensation
arrangements provided to executives and key operating associates as well as a
discussion of the compensation arrangements provided to those individuals who
served as the Company's Chief Executive Officer during the last fiscal year.
1996 COMPENSATION
BASE SALARY
Base salary levels for executives and key operating associates reflected the
Committee's subjective judgments of appropriate salaries in light of the duties
and responsibilities inherent in the individual's position. The particular
qualifications of an individual, including position and level of experience,
were considered in establishing a base salary level when the individual was
appointed to a given position. The performance and future contributions of the
individual to the Company as well as the Company's overall, regional or
individual unit performance, as the case may be, were the primary criteria used
in determining base salary levels.
ANNUAL INCENTIVE COMPENSATION
The Company maintained an annual incentive compensation program that was
intended to give incentives for superior financial performance based on Company,
regional and individual unit, as the case may be, net sales and profit
performance. Annual incentive compensation pools, determined as a percentage of
net sales and operating profits, were established for each group of executives
or key operating associates. Each executive or key operating associate
participated in the annual incentive compensation pool, generally, in proportion
to his or her base salary, as such related to all base salaries in such pool.
The percentage of net sales and profits used to calculate annual incentive
compensation pools was reduced from that used in prior years, recognizing the
increases in certain base salaries and the transition from a private to a public
company. Bonuses were paid in 1996 to the executive officers and key operating
associates based on the Company's net sales and operating profit.
9
<PAGE>
INCENTIVE STOCK OPTIONS
The Company used incentive stock options as a long-term incentive program
for executives and key operating associates. Incentive stock options were used
because they directly align, over the long term, the interests of the executives
and key operating associates with the interests of the Company's stockholders.
The Committee generally grants incentive stock option awards annually. In the
case of executives and key operating associates who joined the Company during
the year, options were, in certain circumstances, awarded.
EMPLOYEE BENEFIT PLANS
The Company's executives and key operating associates participated in
employee benefit plans made available to all full-time employees. In addition,
executives and key operating associates received certain traditional
perquisites, which are customary for their positions.
CHIEF EXECUTIVE OFFICER COMPENSATION
The position of Chief Executive Officer was held by two persons during
fiscal 1996. Donald Griffin served as the Company's Chairman and Chief Executive
Officer from January 1, 1996, to February 12, 1996, at which time C. Stephen
Clegg assumed that position. In April 1996, the position of President of the
Company was also assumed by Mr. Clegg.
Mr. Griffin's base salary and annual incentive compensation were established
by an agreement with the Company which was entered into in September 1994. Mr.
Clegg's 1996 base salary was based on the combined 1995 base salaries paid to
the former chairman and chief executive officer and former president, prorated
to reflect the actual periods in 1996 in which Mr. Clegg occupied those
positions. In June 1996, Mr. Clegg's base salary was not increased when certain
other executives' and key operating associates' base salaries were increased as
a result of the Committee's determination that Mr. Clegg's base salary was
appropriate. Mr. Clegg received a bonus in 1996 based on the Company's net sales
and operating profit as well as the completion of the Company's initial public
offering in June 1996. In June 1996, Mr. Clegg was awarded options to purchase
39,050 shares of Common Stock. Mr. Clegg does not have a long-term employment
agreement with the Company.
Respectfully Submitted By:
The Compensation Committee
George A. Stinson (Chairman)
James F. Bere, Jr.
10
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
For the period from January 1, 1996, through April 1996, the Company had no
compensation committee. During that period the Company's board of directors
determined executive officer compensation. Messrs. Clegg and Gillespie,
directors of the Company, were officers of the Company during such time. Since
April 1996, the Company's Compensation Committee has consisted of Messrs. Bere
and Stinson.
Mr. Clegg is currently a member of the Compensation Committee of the Board
of Directors of Ravens Metal Products, Inc., a company for which Mr. Pollock, a
director of the Company, is the Chairman of the Board, Chief Executive Officer,
and Treasurer. Mr. Pollock does not serve on the Compensation Committee of the
Company.
PERFORMANCE GRAPH*
Set forth below is a line graph comparing the yearly cumulative total
stockholder return on the Company's Common Stock against the cumulative total
return of the indices indicated for the period beginning June 20, 1996, the date
the Company's Common Stock began trading on the Nasdaq National Market, and
ending December 31, 1996. This graph assumes that $100 was invested on June 20,
1996 and that all dividends were reinvested. The stock price performance shown
on the graph below is not necessarily indicative of future price performance.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
DIAMOND HOME
<S> <C> <C> <C>
Services, Inc.
6/20/96 $100.00
7/31/96 118.60
9/30/96 196.60
11/29/96 150.80
12/31/96 186.40
Notes:
A. The lines represent monthly index levels derived from compounded daily returns that include all
dividends, if any.
B. The indexes are reweighted daily, using the market capitalization on the previous trading day.
C. If the monthly interval, based on the fiscal year-end, is not a trading day, the preceding trading day
is used.
D. The index level for all series was set to $100.0 on 6/20/96.
<CAPTION>
NASDAQ STOCK MARKET
<S> <C>
(U.S. Companies)
6/20/96 $100.00
7/31/96 92.60
9/30/96 105.30
11/29/96 110.60
12/31/96 110.40
Notes:
A. The lines represent monthly index levels derived from compounded daily returns that include all
dividends, if any.
B. The indexes are reweighted daily, using the market capitalization on the previous trading day.
C. If the monthly interval, based on the fiscal year-end, is not a trading day, the preceding trading day
is used.
D. The index level for all series was set to $100.0 on 6/20/96.
<CAPTION>
NASDAQ STOCKS (SIC
1700-1799 US COMPANIES)
Construction-special
trade contractors
6/20/96 $100.00
7/31/96 89.90
9/30/96 91.60
11/29/96 76.40
12/31/96 80.90
Notes:
A. The lines represent monthly index levels derived from compounded daily returns that include all
dividends, if any.
B. The indexes are reweighted daily, using the market capitalization on the previous trading day.
C. If the monthly interval, based on the fiscal year-end, is not a trading day, the preceding trading day
is used.
D. The index level for all series was set to $100.0 on 6/20/96.
</TABLE>
- ------------------------
* Prepared by the Center for Research in Securities Prices, University of
Chicago/Graduate School of Business.
11
<PAGE>
CERTAIN TRANSACTIONS
TRANSACTIONS WITH SENIOR MANAGERS
In April 1996, the Company and certain of its Senior Managers entered into
agreements providing for certain monthly security payments to be made by the
Company to each such Senior Manager in exchange for non-competition and
non-disclosure covenants. The Senior Managers included the following executive
officers: Messrs. Cianciosi, Cooper, Gillespie and Schurter. The agreements
superseded employment agreements which the Company had with each Senior Manager
and do not contain any specified term of employment. In 1996, the Company made
security payments of an aggregate of $60,000 each to Messrs. Cianciosi, Cooper,
and Schurter and an aggregate of $65,000 to Mr. Gillespie. At December 31, 1996,
an aggregate of $180,000 of such security payments remained to be paid to each
of Messrs. Cianciosi, Cooper, and Schurter and an aggregate of $195,000 remained
to be paid to Mr. Gillespie. These security payments are not contingent on
future employment.
In September 1994, the Company issued an aggregate of $4.0 million in
performance notes to its Senior Managers in connection with the Company's
repurchase of Common Stock (the "Senior Manager Performance Notes"). In 1996 the
Company paid the entire $4.0 million of outstanding principal, together with all
accrued and unpaid interest. Of such payments, each of Messrs. Cianciosi,
Cooper, Gillespie, and Schurter received $500,000, plus accrued interest.
Mr. Griffin resigned as Chairman, Chief Executive Officer and a director of
the Company on February 12, 1996. In connection with his resignation, Mr.
Griffin and the Company entered into a settlement and non-competition agreement
(the "Griffin Agreement"). Under the Griffin Agreement, Mr. Griffin has released
the Company from any and all actions which he may have against the Company and
has received or is to receive, as full satisfaction and settlement of any and
all claims that he may have against the Company: (i) $30,751.66 per month from
February 1996 through February 1997; (ii) $20,751.66 per month from March 1997
through February 1999; (iii) $15,751.66 per month from March 1999 through
December 1999; and (iv) payment, pursuant to its terms, of the $1.0 million
aggregate amount outstanding under the Senior Manager Performance Note payable
to Mr. Griffin, which amount, together with all accrued and unpaid interest, was
paid in full by the Company in March and June 1996. The Company also agreed to
pay all amounts due and payable to a health insurance carrier for the cost of
providing health insurance coverage to Griffin until the earlier to occur of (x)
January 1, 1997, and (y) the date on which Griffin becomes employed. The Company
ceased making such health insurance payments on January 1, 1997. In June 1996 in
connection with the Company's initial public offering, Mr. Griffin sold all of
the 138,700 shares of Common Stock which he had owned.
Mr. Schurter retired from the Company on February 20, 1997, at which time
Mr. Schurter and the Company entered into a separation and non-competition
agreement (the "Schurter Agreement"). Under the Schurter Agreement, Mr. Schurter
has received or is to receive: (i) $155,000 in a lump sum payment; (ii) $5,000
per month from February 1997 through December 1999; (iii) in March 1997 or as
soon thereafter as practicable, the balance of his 1996 incentive compensation
payment; and (iv) in May 1997 or as soon thereafter as practicable, an
additional payment reflecting incentive compensation for the period in 1997 in
which he worked for the Company. In addition, the Company agreed that, for
purposes of the Stock Option Plan, Mr. Schurter would be deemed to have retired
as of February 1997, thereby causing all of Mr. Schurter's stock options with
the Company to vest immediately. Under the terms of the Schurter Agreement, Mr.
Schurter retained ownership of 127,350 shares of the Company's Common Stock and
of options to acquire an additional 3,500 shares of the Company's Common Stock.
TRANSACTIONS WITH GLOBE AND GLOBE AFFILIATES
Mr. Clegg, Chairman of the Board, Chief Executive Officer and President of
the Company, is also the Chairman of the Board, Chief Executive Officer and
controlling stockholder of Globe. In 1994, the Company and Globe entered into a
management agreement, pursuant to which Globe provided certain
12
<PAGE>
management, treasury, legal, purchasing and other administrative services to the
Company. This agreement terminated in June 1996 in connection with the Company's
initial public offering. Prior to the agreement's termination, the Company
incurred management fees to Globe of $311,000 for services in 1996.
In September 1994, the Company and Globe became a consolidated group for
federal tax purposes. As a result, Globe and the Company entered into a
tax-sharing agreement which specified the allocation and payment of liabilities
and benefits arising from the filing of a consolidated tax return. The tax
sharing agreement required the Company to pay its share of the consolidated
federal tax liability, as if it had taxable income, and to be compensated if
losses or credits generated benefits that were utilized to reduce the
consolidated tax liability. Pursuant to the tax sharing agreement, the Company
made $1.5 million in payments to Globe in 1996. The tax sharing agreement was
terminated in June 1996, simultaneously with the date the Company no longer
qualified to be included in Globe's consolidated tax return.
The Company purchases, through independent distributors, shingles and other
roofing products manufactured by Globe. The Company does not purchase any
products directly from Globe. In 1996, the Company purchased approximately $1.0
million of Globe roofing products through independent distributors, representing
approximately 8% in dollar volume of all roofing products purchased by the
Company. The Company believes that the prices charged by independent
distributors for Globe products are competitive with comparable products of
other roofing product manufacturers.
In February 1996, the Company loaned Globe $1.5 million, at an interest rate
of approximately 8.25% per annum. The entire amount of such principal plus
interest in the amount of $18,000 was repaid in April 1996.
Globe licenses the name "Diamond Shield" to the Company pursuant to an
exclusive, royalty-free, perpetual license.
In April 1996, the Company redeemed all of its outstanding Series A
Preferred Stock which had been owned by Globe for $1.4 million. The price at
which the Series A Preferred Stock was redeemed was equal to the purchase price
paid by Globe for the Series A Preferred Stock in July 1993. No dividends or
interest were paid to Globe with respect to the Series A Preferred Stock. Upon
consummation of the Company's initial public offering in June 1996, the Company
paid a special, one-time dividend of $8.6 million to its pre-initial public
offering stockholders, which included management and Globe, with a portion of
the net proceeds from the Company's initial public offering. As an 80%
stockholder of the Company immediately prior to the Company's initial public
offering, Globe received approximately $6.9 million of the dividend.
Globe sold certain of its shares of Common Stock in the Company's initial
public offering and again in the September 1996 offering. Pursuant to an
agreement between Globe and the Company, the expenses of Globe with respect to
both offerings were paid by the Company. The total expenses of the Company and
Globe with respect to the offerings were approximately $1,200,000.
HI, Inc. ("HI"), a company indirectly controlled by Mr. Clegg, provides call
center services for the Company for which HI is paid a predetermined amount for
each sales lead that it handles. In 1996, the Company paid HI approximately
$302,000 and at December 31, 1996, approximately $66,000 was due HI for such
services. The Company believes that the prices charged by HI are competitive
with the prices charged by comparable call center providers. For a period of
time in 1996, the Company leased portions of its headquarters office space and
provided certain administrative services to HI's affiliate, The Handy Craftsmen,
Inc. ("Handy Craftsmen"), at cost, in the aggregate amount of $126,000. The
Company believes that the rent and the service fees charged to Handy Craftsmen
for such leased office space and services approximated market rates. The leasing
arrangement with Handy Craftsmen was discontinued prior to December 31, 1996.
13
<PAGE>
LITIGATION
International Equity Capital Growth Fund, L.P. ("IECGF") owns approximately
24% of the common stock (on a fully diluted basis) of Globe. In October 1994,
IECGF indicated to Mr. Clegg that it desired liquidity and wanted to sell its
interest in Globe. Discussions took place among various Globe representatives
and representatives of IECGF regarding such a transaction, but IECGF had
demanded a price which Globe had been unwilling and unable to meet. Globe is
aware of negotiations and solicitations which IECGF has had with parties
unrelated to Globe in attempts to sell its position. No transaction has
occurred. In light of this, representatives of IECGF have taken a variety of
actions which, in the opinion of certain members of Globe management, have been
detrimental to Globe and are intended to strengthen the negotiating position of
IECGF. In a meeting in April 1996, counsel for IECGF, in the course of
negotiations regarding the possible purchase of IECGF's interest, threatened to
file litigation if Globe did not arrange to purchase the IECGF position. This
threat of litigation did not include any indication of the nature of the claims
that would be asserted by IECGF.
On May 14, 1996, IECGF filed a purported derivative action on behalf of
Globe and the Company against Mr. Clegg and Jacob Pollock, a director of both
Globe and the Company, in the Court of Chancery of the State of Delaware (the
"Delaware Suit"). The complaint alleges, among other things, that Mr. Clegg
breached his fiduciary duty to the Company by causing Catalog, a company in
which Mr. Clegg is the Chairman of the Board and Chief Executive Officer and
controlling stockholder (in lieu of the Company), to acquire Handy Craftsmen in
1994 and by virtue of the $2.0 million purchase price the Company is
contemplating paying to Catalog for the assets of Handy Craftsmen. IECGF claims
such price is in excess of the true value of those assets by an unspecified
amount. The complaint also challenges as excessive a $150,000 payment made by
the Company in 1994 to Catalog for the purchase of warrants, sales leads and
call center services. No other specific transactions are challenged in the
complaint relating to the Company's affairs. The complaint also makes
allegations against Mr. Clegg and Mr. Pollock which include breach of fiduciary
duty as a result of alleged conflicts of interest related to certain
transactions which have been consummated at Globe. Mr. Clegg and Mr. Pollock
have filed a motion to dismiss the complaint, which IECGF opposes. The court has
not ruled on this motion.
The Company believes that the allegations of the Delaware Suit are without
merit. Mr. Clegg and Mr. Pollock strongly deny the breaches alleged in the
Delaware Suit.
BOARD OF DIRECTORS
The Board of Directors held four meetings during 1996. All directors
attended at least 75 percent of the aggregate number of such meetings and of
meetings of Board committees on which they served in 1996.
BOARD COMMITTEES
The Board of Directors has established three standing committees: the Audit
Committee, the Compensation Committee and the Executive Committee. The Audit
Committee recommends the appointment of auditors and oversees the accounting and
audit functions of the Company. The Audit Committee held one meeting during
fiscal year 1996. The Compensation Committee determines executive officers' and
operating associates' salaries and bonuses and administers the Stock Option
Plan. The Compensation Committee held two meetings during fiscal year 1996. The
Executive Committee has the authority to take all actions which the Board of
Directors as a whole would be able to take, except as limited by applicable law.
The Executive Committee held no meetings during fiscal year 1996. Since April
1996, Messrs. Clegg, Gillespie and Stinson have served on the Company's
Executive Committee and Messrs. Bere and Stinson have served on the Company's
Compensation Committee and Audit Committee.
14
<PAGE>
DIRECTOR COMPENSATION
Directors who are not employees or officers of the Company receive $1,000
for each Board and committee meeting attended. In addition, all directors may be
reimbursed for certain expenses in connection with attendance at Board and
committee meetings. Other than with respect to reimbursement of expenses,
directors who are employees or officers of the Company do not receive additional
compensation for service as a director. Each year, commencing in 1997,
nonemployee directors who have served as a member of the Company's Board of
Directors for at least one year will also receive options to purchase 1,000
shares of the Company's Common Stock pursuant to the Company's Nonemployee
Director Stock Option Plan.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
that certain of the Company's officers, its directors, and persons who own more
than ten percent of the Company's outstanding stock, file reports of ownership
and changes in ownership with the Securities and Exchange Commission. During
1996, to the knowledge of the Company, its officers, directors, and greater than
ten percent beneficial owners complied with all Section 16(a) filing
requirements, except that Ms. Patterson, Vice President--Administration, filed
on October 11, 1996, a Statement of Changes in Beneficial Ownership (Form 4) to
reflect a transaction that was reportable no later than October 10, 1996, Mr.
Clegg filed an amendment on October 10, 1996, to a Statement of Changes in
Beneficial Ownership (Form 4) to reflect a transaction that was reportable no
later than July 10, 1996, and Globe filed on October 10, 1996, a Statement of
Changes in Beneficial Ownership (Form 4) to reflect a transaction that was
reportable no later than July 10, 1996.
AUDITORS
The firm of Ernst & Young LLP was the Company's independent auditors for
1996 and has been selected as independent auditors to audit the books, records
and accounts of the Company for 1997.
Representatives of Ernst & Young LLP will be present at the Annual Meeting
with the opportunity to respond to appropriate questions and to make a statement
if they desire to do so.
PROPOSALS OF SECURITY HOLDERS
A stockholder proposal to be presented at the 1998 Annual Meeting must be
received at the Company's executive offices, 222 Church Street, Woodstock,
Illinois 60098 by no later than December 19, 1997, for evaluation as to
inclusion in the Proxy Statement in connection with such Meeting.
In order for a stockholder to nominate a candidate for director, under the
Company's By-Laws, timely notice of the nomination must be given in writing to
the Secretary of the Company. To be timely, such notice must be delivered or
mailed by first class United States mail, postage prepaid, to the Secretary at
the principal executive offices of the Company not less than sixty (60) days nor
more than ninety (90) days prior to the date of the annual meeting of
stockholders or if the Company mails its notice and proxy to the stockholders
less than sixty (60) days prior to the annual meeting, within ten (10) days
after the notice and proxy is mailed. Such notice must describe various matters
regarding the nominee, including such information as name, address, occupation
and shares held.
In order for a stockholder to bring other business before a stockholders
meeting, timely notice must be given to the Secretary of the Company within the
time limits described above. These requirements are separate from and in
addition to the requirements a stockholder must meet to have a proposal included
in the Company's proxy statement.
15
<PAGE>
OTHER MATTERS TO COME BEFORE THE MEETING
The Board of Directors of the Company knows of no other business which may
come before the Annual Meeting. However, if any other matters are properly
presented to the Meeting, the persons named in the proxies will vote upon them
in accordance with their best judgment.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE SIGN THE PROXY AND
PROMPTLY RETURN IT IN THE ENCLOSED STAMPED ENVELOPE.
By Order of the Board of Directors
Joseph U. Schorer
VICE PRESIDENT, GENERAL COUNSEL
AND SECRETARY
Date: April 18, 1997
16
<PAGE>
PROXY PROXY
DIAMOND HOME SERVICES, INC.
222 CHURCH STREET, DIAMOND PLAZA, WOODSTOCK, ILLINOIS 60098
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS -- MAY 15, 1997
The undersigned hereby appoints Richard G. Reece and Joseph U. Schorer, or
either of them, with full power of substitution, to represent and to vote the
stock of the undersigned at the Annual Meeting of Stockholders of Diamond Home
Services, Inc., to be held at The Clarion Hotel at O'Hare, 6810 North Mannheim
Road, Rosemont, Illinois, on Friday, May 15, 1997, at 10 A.M., local Chicago
time, or at any adjournment thereof as follows:
THE PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED BY
THE UNDERSIGNED STOCKHOLDER(S). IF NO DIRECTION IS MADE, THE PROXY WILL BE
VOTED FOR PROPOSAL 1.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. /x/
<S><C>
1. ELECTION OF DIRECTORS--
NOMINEES: James F. Bere, Jr., C. Stephen Clegg, For All
James M. Gillespie, Jacob Pollock and For Withhold Except Nominees
George A. Stinson All All listed below
(INSTRUCTION: To withhold authority to vote for any / / / / / /
individual nominee, write the nominee's name below:
2. In their discretion on any other matter
that may properly come before the meeting or
---------------------------------------------------- any adjournment thereof.
Dated:------------------1997
Signature(s)--------------------------
--------------------------------------
When signing as attorney, administrator,
personal representative, executor, custodian,
trustee, guardian or corporate official,
please give your full title as such. When
stock is held in the name of more than one
person, each such person should sign the
proxy.
</TABLE>
YOUR VOTE IS IMPORTANT!
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE
