<PAGE>
SCHEDULE 14A
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 (S) 240.14a-11(c) or (S) 240.14a-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)(4) 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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Notes:
<PAGE>
DIAMOND HOME SERVICES, INC.
222 Church Street
Woodstock, Illinois 60098
(815) 334-1414
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 13, 1999
----------------
TO THE STOCKHOLDERS:
The Annual Meeting of Stockholders of Diamond Home Services, Inc., a
Delaware corporation (the "Company"), will be held at the offices of the
Company, 222 Church Street, Woodstock, Illinois 60098 on Thursday, May 13,
1999, at 9:00 A.M. local Woodstock time for the following purposes:
1. To elect six directors;
2. To consider and vote upon a proposed amendment to the Diamond Home
Services, Inc. Incentive Stock Option Plan that will increase the number of
shares of Common Stock authorized to be issued thereunder by 500,000
shares; and
3. 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 2, 1999, 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
/s/ Joseph U. Schorer
Joseph U. Schorer
Vice President, General Counsel and
Secretary
April 14, 1999
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
(815) 334-1414
----------------
Proxy Statement
Annual Meeting of Stockholders to be held May 13, 1999
----------------
To the Stockholders of
DIAMOND HOME SERVICES, INC.:
This Proxy Statement is being mailed to stockholders on or about April 14,
1999, 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 13, 1999, 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, the proposal to increase the number of shares reserved under the
Diamond Home Services, Inc. Incentive Stock Option Plan, 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 1998 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 2, 1999, 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.
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 2, 1999, 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) each director, (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.
1
<PAGE>
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>
(i)C. Stephen Clegg (2)(4)(5)...................... 3,461,805 40.5%
Jacob Pollock (6)(7)............................. 3,419,500 40.2
George A. Stinson (6)(7)......................... 3,418,000 40.2
Globe Building Materials, Inc. ("Globe") (2)..... 3,417,000 40.2
2230 Indianapolis Boulevard
Whiting, IN 46394
Talon Asset Management, Inc. (3)................. 740,800 8.7
One North Franklin, Suite 450
Chicago, IL 60606
Heartland Advisors, Inc. (8)..................... 569,000 6.9
790 North Milwaukee Street
Milwaukee, WI 53202
(ii)James M. Gillespie (5)......................... 152,448 1.8
James F. Bere, Jr. (7)........................... 8,000 *
William R. Griffin............................... 5,000 *
(iii)Michael Augello (5)........................... 38,775 *
Richard G. Reece (5)............................. 33,555 *
Geoffrey H. Foreman.............................. 26,000 *
Joseph U. Schorer (5)............................ 12,240 *
(iv)All directors and executive officers as a group
(11 persons) (4)(5)(6)(7)........................ 3,744,771 43.5
</TABLE>
- --------
*Less than 1%.
(1) Percentage of beneficial ownership is based on 8,507,375 shares of Common
Stock outstanding as of April 2, 1999, plus, in the case of individuals
and of 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 2, 1999, which are
held by them.
(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 ("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 Talon Asset Management, Inc. 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.
2
<PAGE>
(5) Includes 44,805 shares (Mr. Clegg), 4,000 shares (Mr. Augello), 8,944
shares (Mr. Gillespie), 23,555 shares (Mr. Reece), 12,240 shares (Mr.
Schorer) and 99,992 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 2,
1999.
(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 1,000 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 2, 1999.
(8) Based upon a Schedule 13G filed by Heartland Advisors, Inc. with the SEC.
PROPOSAL NO. 1: ELECTION OF DIRECTORS
The Amended and Restated Certificate of Incorporation of the Company
provides for one class of directors. The Amended 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.
Proposal
It is intended that the proxies (except proxies marked to the contrary)
will be voted for the six nominees listed below, all of whom are currently
members of the 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.
The Board of Directors Recommends A Vote For Each of the Nominees.
The following table sets forth certain information with respect to the
nominees as of April 2, 1999:
<TABLE>
<CAPTION>
Name and Age Principal Occupation and Other Information
- ------------ ------------------------------------------
<S> <C>
James F. Bere, Jr.(48)....... 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(48)......... 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 as
President from April 1996 to September 1998.
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
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Name and Age Principal Occupation and Other Information
- ------------ ------------------------------------------
<S> <C>
April 1993 and has served as a director since
1991. Since April 1994, Mr. Clegg has also
served as the Chairman of the Board, Chief
Executive Officer, and controlling stockholder
of Catalog Holdings Inc. ("Catalog"). Catalog
is the parent company of HI, Inc. ("HI"), which
received fees from the Company for providing
call center services, for processing sales
leads, and for other services prior to the
acquisition of that business by Solitaire
Heating & Cooling, Inc. ("KanTel(TM)"), a
subsidiary of the Company. 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. Mr. Clegg
is currently a director of two other public
companies, Birmingham Steel Corporation, a
steel production company, and RVM Industries,
Inc. (formerly Ravens Metal Products, Inc.), a
manufacturer of aluminum products.
James M. Gillespie(59)....... 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.
William R. Griffin(55)....... Mr. Griffin has served as a director of the
Company since July 1997. From 1984 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. Since
1995 he has been a director of Globe Business
Resources, Inc. (not related to Globe).
Jacob Pollock(74)............ 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 RVM Industries, Inc. (formerly
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.
George A. Stinson(84)........ 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 steel manufacturing
company, 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.
</TABLE>
4
<PAGE>
PROPOSAL NO. 2: INCREASE THE NUMBER OF
SHARES OF COMMON STOCK RESERVED FOR ISSUANCE UNDER
THE COMPANY'S INCENTIVE STOCK OPTION PLAN
Background
The Board of Directors has amended the Diamond Home Services, Inc.
Incentive Stock Option Plan (the "Plan"), subject to shareholder approval, to
increase the number of shares of Common Stock reserved under the Plan by
500,000 shares. Stockholder approval of this amendment is necessary for
distributions of the options to be qualified under the federal tax laws. The
amendment benefits stockholders by continuing to link a portion of
compensation to the Company's performance and by qualifying stock option
awards for favorable federal tax treatment. The purpose of the Plan is to
enable the Company to offer officers and other significant employees of the
Company and its subsidiaries performance-based incentives and other equity
interests in the Company, thereby attracting and retaining such employees and
strengthening the mutuality of interests between such employees and the
Company's shareholders. The proposed amendment will permit the Company to keep
pace with changing developments in management compensation, will make the
Company competitive with those companies that offer stock incentives to
attract and keep significant employees, and will support the new compensation
programs that the Company is implementing as part of the Company's
restructured organization.
Shares Available
The Plan originally reserved 620,000 shares of Common Stock for awards
under the Plan. Approximately 45,085 shares (after the special award of an
option on 120,000 shares to retain and compensate the Company's new president
and chief operating officer) are currently available for awards under the
Plan. All of such shares may, but need not, be issued pursuant to the exercise
of incentive stock options. The maximum number of shares that may be awarded
to any participant in any year during the term of the Plan is 300,000 shares.
If there is a lapse, expiration, termination, or cancellation of any option or
right prior to the issuance of shares or the payment of the equivalent
thereunder, or if shares are issued and thereafter are reacquired by the
Company pursuant to rights reserved upon issuance thereof, those shares may
again be used for new awards under the Plan.
Administration
The Plan provides for administration by the Compensation Committee of the
Board (the "Committee"). Among the Compensation Committee's powers are the
authority to interpret the Plan, establish rules and regulations for its
administration, select officers and other significant employees of the Company
and its subsidiaries to receive awards, and determine the amount, type, and
other terms and conditions of awards. The Committee also has the power to
modify or waive restrictions on awards, to amend awards, and to grant
extensions and accelerations of awards.
Eligibility of Participation
Officers and other significant employees of the Company or any of its
subsidiaries are eligible to participate in the Plan. The selection of
participants from eligible employees is within the discretion of the
Compensation Committee. The estimated number of employees who are eligible to
participate in the Plan is 200.
Types of Awards
The Plan provides for the grant of any or all of the following types of
awards: (1) stock options, including incentive stock options and non-qualified
stock options; (2) stock appreciation rights ("SAR"); and (3) stock awards,
including restricted stock. Awards may be granted singly, in combination, or
in tandem, as determined by the Committee.
Federal Tax Treatment
Under current law, the following are United States federal income tax
consequences generally arising with respect to awards under the Plan.
5
<PAGE>
A participant who is granted an incentive stock option does not recognize
any taxable income at the time of the grant or at the time of exercise.
Similarly, the Company is not entitled to any deduction at the time of grant
or at the time of exercise. If the participant makes no disposition of the
shares acquired pursuant to an incentive stock option before the later of two
years of the date of grant or one year of the date of exercise, any gain or
loss realized on a subsequent disposition of the shares will be treated as a
long-term capital gain or loss. Under such circumstances, the Company will not
be entitled to any deduction for federal income tax purposes.
A participant who is granted a non-qualified stock option will not have
taxable income at the time of grant, but will have taxable income at the time
of exercise equal to the difference between the exercise price of the shares
and the market value of the shares on the date of exercise. The Company is
entitled to a tax deduction for the same amount.
The grant of an SAR will produce no United States federal tax consequences
for the participant or the Company. The exercise of an SAR results in taxable
income to the participant, equal to the difference between the exercise price
of the shares and the market price of the shares on the date of exercise, and
a corresponding tax deduction to the Company.
A participant who has been granted an award of restricted shares of Common
Stock will generally not realize taxable income at the time of the grant, and
the Company will not be entitled to a tax deduction at the time of the grant.
When the restrictions lapse, the participant will recognize taxable income in
an amount equal to the excess of the fair market value of the shares at such
time over the amount, if any, paid for such shares. The Company will be
entitled to a corresponding tax deduction.
Other Information
The awards to be granted under the Plan in 1999 are not now determinable.
Stock awards granted under the Plan in 1998 are disclosed under the heading
"Executive Compensation" elsewhere in this Proxy Statement.
As of March 1, 1999, the closing price per share of the Company's Common
Stock was $5.625.
The affirmative vote of holders of a majority of the shares represented and
entitled to vote at the meeting is required for approval of the amendment to
the Plan. Abstentions will count as a vote against the proposal, but broker
nonvotes will have no effect.
It is intended that the proxies (except proxies marked to the contrary)
will be voted in favor of the proposal stated above.
The foregoing is a summary of the Plan and is qualified in its entirety by
the complete terms and conditions of the Plan.
The Board of Directors recommends a vote FOR approval of the Amendment to
the Plan.
6
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information with respect to all compensation
paid or earned for services rendered to the Company by the Company's chief
executive officer and the Company's four other highest compensated executive
officers (together, the "Named Executive Officers") for the years indicated.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
---------------------------------- -------------
Securities
Name and Principal Other Annual Underlying All Other
Position Year Salary($) Bonus($) Compensation($) Options(#)(1) Compensation($)(7)
- ------------------ ---- --------- -------- --------------- ------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
C. Stephen Clegg(2)..... 1998 250,000 -- -- -- --
Chairman of the Board
and 1997 250,000 93,700 -- 31,035 --
Chief Executive Officer 1996 198,075 337,500 -- 39,050 --
Geoffrey H. Foreman(3).. 1998 61,346 -- -- 120,000 206,000
President and Chief 1997 -- -- -- -- --
Operating Officer 1996 -- -- -- -- --
Michael Augello(4)...... 1998 138,462 -- -- 8,000 2,500
Vice President 1997 -- -- -- -- --
1996 -- -- -- -- --
Richard G. Reece(5)..... 1998 125,000 3,400 139,700 -- 721
Vice President, Chief 1997 125,000 19,000 -- 14,110 --
Financial Officer and 1996 99,000 53,000 22,000 --
Treasurer
Joseph U. Schorer(6).... 1998 169,000 3,800 -- 10,000 637
Vice President, General 1997 112,000 17,460 -- 12,980 --
Counsel and Secretary 1996 -- -- -- -- --
</TABLE>
- --------
(1) Represents stock options for the indicated number of shares granted under
the Plan.
(2) This table does not reflect management fees of $311,000 (in 1996) that,
pursuant to a management agreement between the Company and Globe which was
terminated in June 1996, the Company paid 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). 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.
(3) In September 1998 Mr. Foreman became the president and chief operating
officer of the Company. Other annual compensation includes a signing bonus
of $100,000, a car allowance, and reimbursement of certain relocation and
temporary living expenses in the amount of approximately $100,000. Mr.
Foreman's employment agreement also entitles him to participation in the
Company's benefits and incentive compensation plans.
(4) In April 1998 Mr. Augello became a vice president of the Company.
(5) In June 1996 Mr. Reece became chief financial officer of the Company.
Other annual compensation reflects payments in connection with the
acquisitions of Reeves and KanTel(TM).
(6) In March 1997 Mr. Schorer became vice president, general counsel, and
secretary of the Company.
(7) In the cases of Messrs. Augello, Reece, and Schorer, reflects
contributions to defined contribution plans.
7
<PAGE>
The following tables set forth the number of incentive stock options
granted to the Named Executive Officers during 1998 under the Plan and
information regarding exercisable and unexercisable incentive stock options
held by the Named Executive Officers as of December 31, 1998.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Grant Date
Individual Grants Present Value (1)
---------------------------------------------------- -----------------
Number of % of Total
Securities Options
Underlying Granted to Exercise
Options Employees in Price Expiration
Name Granted (#)(2)(3) Fiscal Year(4) ($/Sh) Date
- ---- ----------------- -------------- -------- ---------- -----------------
<S> <C> <C> <C> <C> <C>
C. Stephen Clegg........ -- -- -- -- --
Geoffrey H. Foreman..... 20,000 10.9% 20.000 9/16/08 $ 21,200
50,000 27.3% 3.875 9/16/08 121,000
50,000 27.3% 13.000 9/16/08 70,000
Michael Augello......... 4,000 2.2% 7.125 4/20/08 12,160
4,000 2.2% 13.000 4/20/08 9,320
Richard G. Reece........ -- -- -- -- --
Joseph U. Schorer....... 10,000 5.5% 6.875 2/19/08 43,000
</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 5.50%, dividend yield of 0%, volatility factor of the expected market
price of the Common Stock of 70.4%, 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) Options were granted to Mr. Foreman on September 16, 1998, to Mr. Augello
on April 20, 1998, and to Mr. Schorer on February 19, 1998.
(3) Except in the case of Mr. Foreman, twenty-five percent of the options
granted to each person became exercisable upon grant and, 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. None of the options granted to Mr. Foreman became
exercisable upon grant. Twenty percent of the options granted to Mr.
Foreman become exercisable on each of the next five anniversaries of the
option grant. The term of all of the options is ten years.
(4) Based on 183,000 total options granted to employees, including the Named
Executive Officers, in 1998.
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............................ 44,805 25,280
Geoffrey H. Foreman......................... -- 120,000
Michael Augello............................. 2,000 6,000
Richard G. Reece............................ 23,555 12,555
Joseph U. Schorer........................... 8,990 13,990
</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, 1998,
of $3.75 and multiplying by the number of shares subject to the stock
option. No options of the Named Executive Officers were in-the-money at
year-end.
8
<PAGE>
EMPLOYMENT AGREEMENTS
Mr. Foreman is employed at will. The Company entered into an employment
agreement with Mr. Foreman providing that, if for any reason other than his
resignation or for cause (as defined) his employment terminates within three
years after his employment by the Company commenced, he is entitled to one
year's base salary. See also Summary Compensation Table.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Overview
The compensation paid to executives and significant employees 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
significant employees.
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 for the Company's Chief
Executive Officer during the last fiscal year.
1998 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, region, 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 significant employees. Each executive and significant
employee participated in the annual incentive compensation pool, generally, in
proportion to his or her base salary, as such related to all base salaries in
the pool. No incentive compensation was earned by senior management executives
based on the Company's operating performance. The Chief Executive Officer,
however, awarded incentive compensation to certain individuals whose
individual performance positively impacted operating performance or who
significantly contributed to the implementation of certain significant
programs.
Pursuant to previously approved special incentive compensation
arrangements, the Company paid Messrs. Reece and Gillespie approximately
$139,700 each in connection with the acquisitions of KanTel(TM) and of Reeves
Southeastern Corporation and its subsidiaries ("Reeves").
Incentive Stock Options
The Company used incentive stock options as a long-term incentive program
for executives and other significant employees. Incentive stock options were
used, because, over the long term, they align the interests of the executives
and other significant employees with the interests of the Company's
stockholders. The Company
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<PAGE>
did not generally award stock options in 1998. In connection with performance
reviews and in connection with the hiring of executives and other significant
employees who joined the Company during the year (including through
acquisitions), however, options were, in certain circumstances, awarded.
Employee Benefit Plans
The Company's executives and other significant employees participated in
employee benefit plans made available to all full-time employees. In addition,
executives and significant employees received certain traditional perquisites
that the Committee believes are customary for their positions.
Chief Executive Officer Compensation
C. Stephen Clegg was Chief Executive Officer in fiscal 1998. Mr. Clegg's
1998 annual base salary did not increase over his 1997 base salary. Mr. Clegg
did not receive incentive compensation or incentive stock options in 1998. Mr.
Clegg does not have an employment agreement with the Company. The Committee
used the same executive compensation policies and approach described above to
determine Mr. Clegg's 1998 compensation including an overall assessment of Mr.
Clegg's leadership in achieving the Company's near- and long-term strategic,
operating, and business goals. The Committee has not assigned specific weights
to any one category of performance.
Federal tax law establishes certain requirements in order for compensation
exceeding $1 million earned by certain executives to be deductible. Because
the total compensation for executive officers is significantly below the $1
million threshold, the Committee has not had to address the issues relative
thereto, except for the incentive stock option award program that has been
approved by stockholders.
Respectfully Submitted By:
The Compensation Committee
George A. Stinson (Chairman)
James F. Bere, Jr.
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1998, 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 RVM Industries, Inc. (formerly 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, 1998. 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.
[DIAMOND HOME PERFORMANCE CHART]
Legend
<TABLE>
<CAPTION>
CRSP Total Returns Index for: 6/20/96 12/31/96 6/30/97 12/31/97 6/30/98 12/31/98
- ----------------------------- ------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Diamond Home Services, Inc. $100.0 $186.4 $ 65.3 $ 48.3 $ 33.9 $ 25.4
Nasdaq Stock Market (US Companies) 100.0 110.4 123.6 135.5 162.8 190.9
NASDAQ Stocks (SIC 1700-1799 US Companies) 100.0 104.1 84.5 89.4 70.7 38.1
Construction--special trade contractors
</TABLE>
Notes:
A. The lines represent monthly index levels derived from compounded daily
returns that include all dividends.
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 06/20/1996.
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 Mr.
Gillespie (an officer and a director). The agreements superseded employment
agreements which the Company had with each Senior Manager and do not contain
any specified term of employment. In 1998, the Company made security payments
to certain officers of the Company, including $65,000 to Mr. Gillespie. At
December 31, 1998, an aggregate of $65,000 remained to be paid to Mr.
Gillespie. These security payments are not contingent on future employment.
Mr. Clegg, Chairman of the Board and Chief Executive 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 1998, the Company purchased
approximately $700,000 of Globe roofing products through independent
distributors, representing approximately 10% 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.
HI, a company indirectly controlled by Mr. Clegg, provided call center
services for the Company for which HI was paid a management fee and a
predetermined amount for each sales lead that it handled. In 1998, the Company
paid HI approximately $2.6 million; and at December 31, 1998, approximately
$400,000 was due HI for such services. The Company believes that the prices HI
charged were competitive with the prices charged by comparable service
providers. In November 1998 the Company bought HI's call center business and
related assets for approximately $2.4 million. The purchase price consisted of
$1.5 million in cash (including transaction costs) and approximately $900,000
in 5% convertible subordinated notes. The purchase price reflected the
Company's assessment of the fair market value of the acquired businesses, as
determined by a special committee of directors (consisting of Messrs. Bere,
Gillespie, and Griffin). Mr. Clegg has stated that he will receive less than
20% of the consideration paid in the transaction.
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 1998, the Company paid A&W
approximately $400,000; and at December 31, 1998, nothing was due A&W for
these services. The Company believes that the prices A&W charged were and are
competitive with the prices charged by comparable service providers.
In connection with the Reeves transaction, the Company issued a certain
unsecured note in the original principal amount of $3.7 million in which Mr.
Augello has a beneficial interest in the approximate amount as of December 31,
1998, of $599,000. In March 1999, the Company agreed that a portion of the
note would begin bearing interest in May 1999 at the annual rate of 7% in
exchange for the agreement of the noteholders (including Mr. Augello) to defer
for one year certain principal payments under the note.
Litigation
International Equity Capital Growth Fund, L.P. ("IECGF") owns approximately
24% of the common stock (on a fully diluted basis) of Globe. 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 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
12
<PAGE>
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.
BOARD OF DIRECTORS
The Board of Directors held six meetings during 1998. 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 1998.
Board Committees
The Board of Directors has established an Audit Committee, a Compensation
Committee, an Executive Committee, and a Nominating 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 two meetings during fiscal year 1998. Among other things, the
Compensation Committee determines executive officers' and significant
employees' salaries and incentive compensation and administers the Plan. The
Compensation Committee held five meetings during fiscal year 1998. 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 one meeting during fiscal year 1998. 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. Mr. Griffin joined the Audit
Committee in the first quarter 1999. The Board of Directors established the
Nominating Committee in February 1999, which will consider nominees
recommended by stockholders if such recommendations are submitted in writing
to the Secretary of the Company and are directed to the Committee's attention.
The Nominating Committee's members are Messrs. Bere, Clegg, and Griffin. Among
other things the Nominating Committee recommends to the Board of Directors
persons to serve as directors and it is responsible for searching for
potential new board members. From time to time, the Board of Directors
establishes special committees to examine certain situations or issues.
Director Compensation
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.
Until March 1999, directors who were not employees or officers of the Company
received $1,000 for each Board and committee meeting attended. In addition,
until March 1999, nonemployee directors who served as a member of the Board of
Directors for at least one year as of the Company's annual meeting of
shareholders received options to purchase 1,000 shares of the Common Stock
pursuant to the Company's Nonemployee Director Stock Option Plan.
In March 1999 the Board of Directors unanimously adopted a revised policy
for compensation of non-employee directors. Under this policy each non-
employee director is paid a $2,500 quarterly retainer in arrears for each full
fiscal quarter of the Company in which the director acted as a director of the
Company. In addition, each non-employee director is paid $1,000 for each
meeting of the Board that the director attends. Non-employee directors are
further paid $1,000 for each committee meeting attended. In addition, at or
about the time of the annual meeting of stockholders, any non-employee
director that has served on the Board for at least one year, as of the annual
meeting of stockholders, is awarded options to acquire Common Stock of the
Company. The number of shares of Common Stock underlying each option awarded
will be adjusted such that the award to the director, as of the date of the
award, shall have a value of $10,000 under the Black-Sholes option pricing
model used in preparing the proxy statement for the related year.
13
<PAGE>
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 1998, 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 Mr. Augello filed an Initial
Statement of Beneficial Ownership of Securities (Form 3) on June 10, 1998
(reflecting ownership of 1,075 shares of Common Stock and options under the
Plan to acquire an additional 8,000 shares of Common Stock), that was due to
be filed no later than May 24, 1998.
AUDITORS
The firm of Ernst & Young LLP was the Company's independent auditors for
1998 and has been selected as independent auditors to audit the books, records
and accounts of the Company for 1999.
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 2000 Annual Meeting must be
received at the Company's executive offices, 222 Church Street, Woodstock,
Illinois 60098 by no later than December 16, 1999, 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 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 not less
than ninety (90) nor more than one hundred twenty (120) days before the first
anniversary of the date of the most recent annual meeting of stockholders.
Accordingly, proposals for the annual meeting of stockholders in 2000 must be
given to the Company's secretary between January 14, 2000, and February 14,
2000. 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
/s/ Joseph U. Schorer
Joseph U. Schorer
Vice President, General Counsel and
Secretary
Date: April 14, 1999
14
<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 13, 1999
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 offices of Diamond Home Services, Inc., 222
Church Street, Woodstock, Illinois on Thursday, May 13, 1999, 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 and FOR proposal 2.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
(Continued and to be signed on reverse side.)
<PAGE>
Diamond Home Services, Inc.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. [X]
[ ]
1. Election of Directors
Nominees: James F. Bere, Jr., C. Stephen Clegg, James M. Gillespie, William
R. Griffin, Jacob Pollock and George A. Stinson
For All Withheld All For All Except
[_] [_] [_]
- ----------------------------------
(Except nominee(s) written above.)
2. Increase the number of shares of Common Stock authorized to be issued under
the Incentive Stock Option Plan by 500,000 shares.
For Against Abstain
[_] [_] [_]
3. In their discretion on any other matter that may properly come before the
meeting or any adjustment thereof.
Dated: _____________________ , 1999
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.
