<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:
-----------------------------------------------------------------------
(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 14, 1998
---------------------
TO THE STOCKHOLDERS:
The Annual Meeting of Stockholders of Diamond Home Services, Inc., a
Delaware corporation (the "Company"), will be held at the Woodstock Opera House,
121 Van Buren Street, Woodstock, Illinois 60098 on Thursday, May 14, 1998, at
9:00 A.M. local Chicago time for the following purposes:
1. To elect six 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, 1998, 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
[SIGNATURE]
Joseph U. Schorer
VICE PRESIDENT, GENERAL COUNSEL AND
SECRETARY
April 14, 1998
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 14, 1998
---------------------
To the Stockholders of
DIAMOND HOME SERVICES, INC.:
This Proxy Statement is being mailed to stockholders on or about April 14,
1998, 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
14, 1998, 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. 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 1997 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, 1998, the record date for determining stockholders entitled
to vote at the annual meeting, the Company had 8,507,375 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, 1998, 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 40.2%
2230 Indianapolis Boulevard
Whiting, IN 46394
State of Wisconsin Investment Board (3) .......................................... 613,050 7.2%
P.O. Box 7842
Madison, WI 53707
C. Stephen Clegg (4)(5)........................................................... 3,444,284 40.4%
Jacob Pollock (6)(7).............................................................. 3,417,834 40.2%
George A. Stinson (6)(7).......................................................... 3,417,334 40.2%
James M. Gillespie (5)............................................................ 145,880 1.7%
Jerome Cooper (5)................................................................. 138,800 1.6%
Richard G. Reece (5).............................................................. 24,528 *
James F. Bere, Jr. (7)............................................................ 7,334 *
Joseph U. Schorer (5)............................................................. 6,495 *
William R. Griffin................................................................ -- --
All directors and executive officers as a group (11 persons) (4)(5)(6)(7)......... 3,771,774 44.0%
</TABLE>
- ------------------------
* Less than 1%.
(1) Percentage of beneficial ownership is based on 8,507,375 shares of Common
Stock outstanding as of April 3, 1998, plus, in the case of Messrs. Clegg,
Pollock, Stinson, Gillespie, Cooper, Bere, Reece, and Schorer 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, 1998, which are held by such
individual or group.
(2) Based upon an amended Schedule 13G filed by Globe and Mr. Clegg with the
Securities and Exchange Commission ("SEC"). Globe owns all of the stock of
GBM, Inc., a Delaware corporation
2
<PAGE>
("GBM"), which in turn owns 3,417,000 shares of Common Stock. Reference
herein to Common Stock owned by Globe 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 State of Wisconsin Investment Board
with the SEC.
(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 27,284 shares (Mr. Clegg), 5,376 shares (Mr. Gillespie), 2,450
shares (Mr. Cooper), 14,528 shares (Mr. Reece), 6,495 shares (Mr. Schorer)
and 60,420 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, 1998.
(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) Includes 334 shares held by each of Messrs. Bere, Pollock, and Stinson that
are subject to presently exercisable options or options exercisable within
60 days of April 3, 1998.
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 six 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>
James F. Bere, Jr.(47)................. 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.
C. Stephen Clegg(47)................... 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 is 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 is
the controlling stockholder of Catalog Holdings Inc. ("Catalog").
Catalog is the parent company of HI Inc. ("HI"), which receives fees
from the Company for providing call center services, for processing
sales leads, and for other services. HI owns a majority of the common
stock of The Handy Craftsmen, Inc. ("Handy Craftsmen"). Mr. Clegg is
president of Clegg Industries, Inc., a private investment firm which he
founded in September 1988. Mr. Clegg devotes and intends to devote a
majority of his time to the Company. 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 M. Gillespie(58)................. 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
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
NAME AND AGE PRINCIPAL OCCUPATION AND OTHER INFORMATION
- --------------------------------------- ------------------------------------------------------------------------
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.
William R. Griffin(54)................. Mr. Griffin has served as a director of the Company since July, 1997.
From 1981 to 1996 Mr. Griffin was President and Chief Executive Officer
for Roto-Rooter, Inc., a company in the home services business. Since
1996 Mr. Griffin has been providing consulting services. He is a
director of Globe Business Resources, Inc. (not related to Globe) and
Harmony Brook, Inc.
<S> <C>
Jacob Pollock(73)...................... 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, an aluminum manufacturing
company. Mr. Pollock also serves as a director of several non-public
companies, including Techno Cast, Inc. and Aluminum Warehouse, Inc.
George A. Stinson(83).................. 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 1950 to 1961 Mr. Stinson was a
partner in the New York office of Cleary, Gottlieb, Friendly & Hamilton,
an international corporate law firm. From 1961 until 1982 he served as
Chief Executive Officer of National Steel Corporation, a manufacturing
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 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 and the Company's four other highest compensated executive
officers (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) ............... 1997 $ 250,000 $ 93,700 -- 31,035 --
Chairman of the Board, 1996 198,075 337,500 -- 39,050 --
Chief Executive Officer and 1995 -- -- -- -- --
President
Jerome Cooper ..................... 1997 180,000 27,300 -- -- 60,000
Vice President--Installations 1996 177,950 178,460 -- 4,900 60,000
1995 120,800 184,441 282 -- 60,000
James M. Gillespie ................ 1997 160,250 20,000 -- 7,050 65,000
Vice President--Business 1996 177,340 147,840 -- 7,225 65,000
Development and a Director 1995 120,800 182,236 3,080 -- 65,000
Richard G. Reece(4) ............... 1997 125,000 19,000 -- 14,110 --
Vice President, Chief Financial 1996 99,000 53,000 -- 22,000 --
Officer 1995 -- -- -- -- --
and Treasurer
Joseph U. Schorer(4) .............. 1997 112,000 17,460 -- 12,980 --
Vice President, General 1996 -- -- -- -- --
Counsel and Secretary 1995 -- -- -- -- --
</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 in the cases of Messrs. Gillespie and Cooper payments pursuant to
security agreements between each of such individuals and the Company
($20,000 of which was applied in 1996, in the case of Mr. Gillespie, to the
payment of life insurance premiums). See "Certain Transactions."
(4) Mr. Clegg and Mr. Reece received no compensation from the Company in 1995.
The Company paid management fees of $558,000 (in 1995) and $311,000 (in
1996) to Globe (for which Mr. Clegg is the Chairman of the Board, Chief
Executive Officer and controlling stockholder and for which Mr. Reece acted
as chief financial officer during a part of 1996), pursuant to a management
agreement between the Company and Globe which was terminated in June 1996.
On February 12, 1996, Mr. Clegg became the Chairman of the Board and Chief
Executive Officer of the Company, and in April 1996 he became the Company's
President. Mr. Reece became chief financial officer for the Company in June
1996. Mr. Schorer was not employed by the Company in 1995 or 1996.
6
<PAGE>
The following tables set forth the number of incentive stock options granted
to the Named Executive Officers during 1997 under the Stock Option Plan and
information regarding exercisable and unexercisable incentive stock options held
by the Named Executive Officers as of December 31, 1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------------
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS GRANTED EXERCISE GRANT DATE
OPTIONS GRANTED TO EMPLOYEES IN PRICE EXPIRATION PRESENT VALUE
NAME (#)(2) FISCAL YEAR (3) ($/SH)(4) DATE (1)
- ----------------------------------------- --------------- ----------------- ----------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
C. Stephen Clegg......................... 15,518 7.8% $ 13.00 12/31/07 $ 37,400
15,517 7.8 7.125 12/31/07 56,475
Jerome Cooper............................ -- -- -- -- --
James M. Gillespie....................... 3,525 1.8 13.00 12/31/07 8,500
3,525 1.8 7.125 12/31/07 12,825
Richard G. Reece......................... 7,055 3.5 13.00 12/31/07 17,000
7,055 3.5 7.125 12/31/07 25,675
Joseph U. Schorer........................ 3,000 1.5 18.50 3/13/07 10,925
3,490 1.7 13.00 12/31/07 8,400
6,490 3.2 7.125 12/31/07 23,625
</TABLE>
- ------------------------
(1) 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
6.20%, dividend yield of 0%, volatility factor of the expected market price
of the Common Stock of 50.0%, 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.
(2) Except for certain options granted to Mr. Schorer, all options were granted
on December 31, 1997. 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.
(3) Based on 200,000 total options granted to employees, including the Named
Executive Officers, in 1997.
(4) The exercise price of $13.00 per share is equal to the initial public
offering price of the Common Stock on June 19, 1996. The exercise prices of
$7.125 per share and $18.50 per share were equal to closing market prices
per share of the Common Stock on the dates of grant (December 31, 1997, and
March 13, 1997, respectively).
7
<PAGE>
FISCAL YEAR-END OPTION VALUES(1)
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED
OPTIONS AT
FISCAL YEAR-END(#)
--------------------------
NAME EXERCISABLE UNEXERCISABLE
- ------------------------------------------------------------------ ----------- -------------
<S> <C> <C>
C. Stephen Clegg.................................................. 27,284 42,801
Jerome Cooper..................................................... 2,450 2,450
James M. Gillespie................................................ 5,376 8,899
Richard G. Reece.................................................. 14,528 21,582
Joseph U. Schorer................................................. 3,245 9,735
</TABLE>
- ------------------------
(1) No options were exercised in the last fiscal year by the Named Executive
Officers. Value is calculated by subtracting the exercise price per share
from the average of the high and low market prices at December 31, 1997, of
$7.125 and multiplying by the number of shares subject to the stock option.
No options were in-the-money at year-end.
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) 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, the
Company set base salary 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 in
1996, in major part, due to the Company's initial public offering. Compensation
changes were implemented to reflect these changes and the transition from a
private to a public company. 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 significant
employees as well as a discussion of the compensation arrangements provided to
the individual who served as the Company's Chief Executive Officer during the
last fiscal year.
1997 COMPENSATION
BASE SALARY
Base salary levels for executives and other key employees reflected the
Committee's 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, district,
or individual unit performance, as the case may be, were the primary criteria
used in determining base salary levels.
INCENTIVE COMPENSATION
The Company maintained an annual incentive compensation program that was
intended to give incentives for superior financial performance based on net
sales and profit performance for the Company, district and individual unit, as
the case may be. 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 generally was reduced from that used in 1996. The
Chief Executive Officer also awarded incentive compensation to certain
individuals based on individual performance that positively impacted profit
performance or implemented certain key programs.
The Compensation Committee also approved special incentive compensation
arrangements for Mr. Reece and Mr. Gillespie in relation to contemplated
acquisitions by the Company of other businesses or business units. Under these
arrangements, incentive compensation is a function of, among other things, the
execution of a definitive letter of intent for any acquisition and of the
consummation of any acquisition. In 1997, $20,000 was paid to Mr. Gillespie in
respect to the execution of letters of intent.
9
<PAGE>
INCENTIVE STOCK OPTIONS
The Company used incentive stock options as a long-term incentive program
for executives and other key employees. Incentive stock options were used,
because, over the long term, they align the interests of the executives and
other key employees with the interests of the Company's stockholders. The
Committee generally grants incentive stock option awards annually. In the case
of executives and other key employees who joined the Company during the year,
options were, in certain circumstances, awarded.
EMPLOYEE BENEFIT PLANS
The Company's executives and other key employees participated in employee
benefit plans made available to all full-time employees. In addition, executives
and significant employees received certain traditional perquisites, which are
customary for their positions.
CHIEF EXECUTIVE OFFICER COMPENSATION
The position of Chief Executive Officer was held by C. Stephen Clegg in
fiscal 1997. Mr. Clegg's 1997 annual base salary did not increase over his
annualized 1996 base salary and was based on the combined 1995 base salaries
paid to the former chairman and chief executive officer and former president.
Mr. Clegg's incentive compensation in 1997 was based on the Company's
undistributed pretax income. Effective December 31, 1997, Mr. Clegg was awarded
options to purchase 31,035 shares of Common Stock. Mr. Clegg does not have an
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
During fiscal 1997, the Company's Compensation Committee 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.
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, 1997. 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>
NASDAQ STOCKS
DIAMOND NASDAQ STOCK (SIC 1700-1799 US COMPANIES)
HOME MARKET CONSTRUCTION-SPECIAL
SERVICES,
INC. (U.S. COMPANIES) TRADE CONTRACTORS
<S> <C> <C> <C>
6/20/96 $100.00 $100.00 $100.00
6/28/96 113.6 101.7 104.4
7/31/96 118.6 92.6 96.2
8/30/96 210.2 97.8 116.0
9/30/96 196.6 105.3 114.2
10/31/96 155.9 104.1 97.6
11/29/96 150.8 110.6 92.7
12/31/96 186.4 110.5 104.0
1/31/97 174.6 118.3 103.9
2/28/97 118.6 111.8 89.7
3/31/97 121.2 104.5 87.1
4/30/97 76.3 107.7 72.8
5/30/97 67.8 120.0 84.4
6/30/97 65.3 123.6 84.5
7/31/97 51.7 136.7 87.5
8/29/97 50.0 136.5 89.6
9/30/97 66.9 144.5 106.8
10/31/97 57.6 137.1 104.0
11/28/97 53.4 137.7 95.5
12/31/97 48.3 135.6 89.4
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 SECURITY PRICES
11
<PAGE>
CERTAIN TRANSACTIONS
In April 1996, the Company and certain of its senior managers ("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
Messrs. Cooper and Gillespie. The agreements superseded employment agreements
which the Company had with each Senior Manager and do not contain any specified
term of employment. In 1997, the Company made security payments to officers of
the Company, including $60,000 to Mr. Cooper and $65,000 to Mr. Gillespie. At
December 31, 1997, an aggregate of $120,000 of such security payments remained
to be paid to Mr. Cooper and an aggregate of $130,000 remained to be paid to Mr.
Gillespie. These security payments are not contingent on future employment.
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. 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 1997, the Company
purchased approximately $1.1 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
prices charged for comparable products of other roofing product manufacturers.
Globe licenses the name "Diamond Shield" to Diamond Exteriors, Inc., a
wholly-owned subsidiary of the Company, pursuant to an exclusive, royalty-free,
perpetual license.
HI, a company indirectly controlled by Mr. Clegg, provided call center
services for the Company for which HI is paid a management fee and a
predetermined amount for each sales lead that it handles. In 1997, the Company
paid HI approximately $2,230,000; and at December 31, 1997, approximately
$88,500 was due HI for such services. Alexander & Walsh, Inc. ("A&W"), a company
owned by Mr. Clegg's wife, provided advertising and marketing services to the
Company for which A&W was paid amounts based, among other things, on the scope
of the project, the number of pages of copy involved, and the complexity and
sophistication of the advertising and marketing services provided. In 1997, the
Company paid A&W approximately $110,000; and at December 31, 1997, no money was
due A&W for these services. The Company believes that the prices charged by HI
and A&W are competitive with the prices charged by comparable service providers.
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 has
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, as amended, alleges, among other things, that
Mr. Clegg breached his fiduciary duty to the Company by causing Catalog (in lieu
of the Company) to
12
<PAGE>
acquire Handy Craftsmen. The complaint also challenges as excessive a $150,000
payment to Catalog for the purchase of warrants, sales leads and call center
services. No other specific transactions relating to the Company's affairs are
challenged in the complaint. 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.
The Company believes that the allegations respecting the Company in 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 five meetings during 1997. 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 1997.
BOARD COMMITTEES
The Board of Directors has established three standing committees: the Audit
Committee, the Compensation Committee and the Executive Committee. Among other
things, 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 1997. Among other things, the Compensation Committee
determines executive officers' and operating associates' salaries and bonuses
and administers the Stock Option Plan. The Compensation Committee held seven
meetings during fiscal year 1997. 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 1997. 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.
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, nonemployee directors who
have served as a member of the Company's Board of Directors for at least one
year as of the Company's annual meeting of shareholders 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
1997, 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 (a) Mr. Eugene J. O'Hern, Controller, filed an Initial
Statement of Beneficial Ownership of Securities (Form 3) on February 17, 1998,
that was due to be filed no later than March 23, 1997 indicating he holds
options to acquire 2,500 shares of the Company's Common Stock; (b) Mr. William
Griffin filed an Initial Statement of Beneficial Ownership of Securities (Form
3) on September 10, 1997, that was due to be filed no later than July 31, 1997,
indicating that he owns no shares of the Company's Common Stock; and (c) Mr.
James M. Gillespie filed an Annual Statement of Changes of Beneficial Ownership
of Securities (Form 5) on
13
<PAGE>
February 17, 1998, to reflect a transaction that was reportable no later than
July 10, 1996, indicating acquisition of an additional 50 shares of the
Company's Common Stock.
AUDITORS
The firm of Ernst & Young LLP was the Company's independent auditors for
1997 and has been selected as independent auditors to audit the books, records
and accounts of the Company for 1998.
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 1999 Annual Meeting must be
received at the Company's executive offices, 222 Church Street, Woodstock,
Illinois 60098 by no later than December 15, 1998, 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, age, business
address, residence address, occupation, shares held, and evidence of willingness
to serve.
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.
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
[SIGNATURE]
Joseph U. Schorer
VICE PRESIDENT, GENERAL COUNSEL AND
SECRETARY
Date: April 14, 1998
14
<PAGE>
DIAMOND HOME SERVICES, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY /X/
For All
For Withhold Except nominees
All All listed below
1. ELECTION OF DIRECTORS --
Nominees: James F. Bere, Jr., / / / / / /
C. Stephen Clegg, James M. Gillespie,
William R. Griffin, Jacob Pollock and
George A. Stinson
(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:----------------------------, 1998
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.
FOLD AND DETACH HERE
YOUR VOTE IS IMPORTANT!
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
<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 14, 1998
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 Woodstock Opera House, 121 Van Buren
Street, Woodstock, Illinois on Thursday, May 14, 1998, at 9 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)
