United States
Securities and Exchange Commission
Washington, DC 20549
Form 8-K
Current Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) June 30, 1999
Diamond Home Services, Inc.
(Exact name of registrant as specified in its charter)
Delaware 0-20829 36-3886872
(State or other jurisdiction of (Commission File Number) (I.R.S Employer
incorporation) Identification Number)
222 Church Street
Woodstock, IL 60098
(Address of principal executive offices)
Registrant's telephone number, including area code (815) 334-1414
None
(Former name or address, if changed since last report)
ITEM 5. OTHER EVENTS.
Effective July 1, 1999, Diamond Exteriors, Inc., a wholly
owned subsidiary of the Registrant ("Exteriors"), and Sears, Roebuck and Co.
("Sears") executed an agreement that amended and extended through December 31,
2001 the term of the License Agreement, dated as of January 1, 1996, as amended,
between Sears and Exteriors.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(c) Exhibits (numbered pursuant to Item 601 of Registration S-K)
(10) Amendment Agreement, dated July 1, 1999,
between Sears and Exteriors and letter
agreement dated June 30, 1999, between Sears
and Registrant.
(99) Press release dated June 30, 1999.
SIGNATURES
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Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereto duly authorized.
Diamond Home Services, Inc.
(Registrant)
/s/ Richard G. Reece
Richard G. Reece
Vice President and Chief Financial Officer
(For the Registrant and as
Principal Accounting Officer)
Date: July 8, 1999
AMENDMENT AGREEMENT
-------------------
THIS AMENDMENT AGREEMENT IS MADE AND ENTERED INTO AS OF THE 1ST DAY OF JULY,
1999 BY AND BETWEEN SEARS, ROEBUCK AND CO., A NEW YORK CORPORATION ("SEARS") AND
DIAMOND EXTERIORS, INC., A DELAWARE CORPORATION ("LICENSEE").
WHEREAS, Licensee and Sears entered into a License Agreement, dated
January 1, 1996, as amended (the "Agreement"), whereby Sears granted to Licensee
the privilege of conducting and operating, and Licensee agreed to conduct and
operate, pursuant to the terms, provisions and conditions contained in the
Agreement, a business for selling, furnishing and installing certain Sears
approved products.
WHEREAS, SEARS AND LICENSEE NOW WISH TO EXTEND THE TERM OF THE
AGREEMENT AND AMEND CERTAIN PROVISIONS IN ACCORDANCE WITH THE FOLLOWING TERMS
AND CONDITIONS.
NOW THEREFORE, THE PARTIES HERETO AGREE AS FOLLOWS:
1. Subsection 1(D) of the Agreement shall be deleted in its entirety
and the following substituted in its place:
"Sears has established, for the term of this License Agreement,
minimum Licensee Total Performance Indicator ("LTPI") and
Total Performance Indicator ("TPI") scores by product line and
as a total company quality score, as follows:
(1) Total company quality score: LTPI - 63.26; TPI - 73.59
(2) Fencing: LTPI - 63.26; TPI - 72.79
(3) Guttering: LTPI - 63.91; TPI - 74.55
(4) Roofing: LTPI - 61.29; TPI - 71.48
(5) Garage doors: LTPI - 67.67; TPI - 78.08
These minimums are equivalent to Licensee's annual LTPI and TPI scores
for 1998. If either of Licensee's quality scores for the total
company or for roofing, for any three (3) month period beginning
with the month of July, 1999, fall below the minimum scores
described herein, Sears shall have the right to terminate this
License Agreement as further described in Section 25(A)(x). If
any of Licensee's quality scores for any product line other than
roofing fall below the applicable minimum scores for any three
(3) month period beginning with the month of July, 1999, Sears
shall have the right to terminate this License Agreement as
further described in Section 25(A)(xi).
2. THE FOLLOWING LANGUAGE SHALL BE ADDED TO THE END OF SUBSECTION 2A
OF THE AGREEMENT AS FOLLOWS:
"THIS LICENSE AGREEMENT SHALL BE EXTENDED FOR AN ADDITIONAL TERM,
COMMENCING JULY 1, 1999 AND EXPIRING ON DECEMBER 31, 2001."
3. SUBSECTION 2B OF THE AGREEMENT IS HEREBY DELETED IN ITS ENTIRETY.
<PAGE>
4. THE FOLLOWING LANGUAGE SHALL BE ADDED TO THE END OF SECTION 3 OF
THE AGREEMENT AS FOLLOWS:
"Effective January 1, 2000 and throughout the remainder of the term of this
License Agreement, entry doors, security doors, patio doors and
patio storm doors shall be deleted as primary products and
Licensee may offer the sale and installation of entry doors,
security doors, patio doors and patio storm doors only as part of
and at the same time as an offer to sell Roofing, Roof
Ventilation Accessories, Mobile Home Roof-overs, Insulation,
Garage Doors, Continuous Gutters, Skylights, Mobile Home
Skirting, Patio Products for Mobile Homes, Fencing and Roofing
and Garage Repairs and Licensee may not advertise entry doors,
security doors, patio doors and patio storm doors in Sears name
after January 1, 2000."
5. The following language is added to the end of Subsection 19(A) of
the Agreement as follows:
"Effective for sales made on and after January 1, 2000, the Sears Commission
on entry doors, security doors, patio doors and patio storm doors
shall be reduced from thirteen percent (13%) to eleven percent
(11%) of Gross Sales."
6. With respect to Subsection 25(A) of the Agreement, clauses (viii)
and (ix) shall be restated and new clauses (x) and (xi) shall be
added as follows:
"(viii) Licensee otherwise fails to comply with any material
provision of this License Agreement, including
Section 42, and fails to cure such default after
fifteen (15) days written notice from Sears;
(ix) Licensee is in default of any other License Agreement with Sears;
(x) Licensee fails to meet the LTPI or TPI total company quality
scores or roofing scores specified in Subsection 1(D) for
any three (3) month period; provided, however, that Sears
may, at its option, rather than terminating this entire
License Agreement terminate all of Licensee's rights under
this License Agreement in any market or market(s) which
Sears, in its sole and reasonable discretion, believes are
causing the deterioration in the LTPI or TPI scores; or
(xi) Licensee fails to meet the LTPI or TPI scores specified in
Subsection 1(D) for any product line other than roofing for
any three (3) month period, in which case, Sears, at its
option, shall have the right to terminate all of Licensee's
rights under this License Agreement for the entire product
line for which scores have deteriorated or only all rights
of Licensee for such product line in any market or market(s)
which Sears, in its sole and reasonable discretion, believes
is causing the deterioration in the LTPI or TPI scores for
such product line."
7. Subsection 26(A) of the Agreement is hereby deleted in its
entirety and the following substituted in its place:
"At any time after October 1, 2000, this License Agreement may be
terminated, without any penalty or other liability, by either
Sears or Licensee by providing written notice to the other not
less than three (3) months prior to the proposed termination
date; provided, however, that such termination notice may not be
given by either party prior to October 1, 2000."
8. The following language shall be added to the end of Section 26 of
the Agreement as follows:
<PAGE>
"(E) Completion of Outstanding Warranties
------------------------------------
Neither the termination nor the expiration of this License Agreement, in
whole or in part, shall change Licensee's obligations to fulfill
and stand behind its obligations to customers under warranties
issued by Licensee on products and services sold by Licensee
prior to the effective date of such termination or expiration."
9. On two months written notice and at Sears sole discretion, two of
the following three markets shall be deleted as Sears Market
Areas on Exhibit A of the Agreement and all of Licensee's rights
under the Agreement in those markets shall cease: Atlanta,
Georgia; St. Louis, Missouri; and Indianapolis, Indiana. When
such notice becomes effective, the limitations imposed by Section
42 of the Agreement shall not apply to any activities in such
markets.
10. The following Section 42 is added to the Agreement as follows:
"42. Licensee agrees, that prior to October 1, 1999, neither Licensee,
any of its affiliates or owners, nor any member of its or their
immediate families shall perform services or have any direct or
indirect, controlling or non-controlling interest as a disclosed
or beneficial owner, investor, partner, director, officer,
employee, manager, consultant, representative or agent, or in any
other capacity, in any other Competitive Business located or
operating in the United States (or its territories or
possessions). The restrictions of this paragraph shall not apply
to the ownership of shares of a class of securities listed on a
stock exchange or traded in the over-the-counter market that
represent less than three percent (3%) of the number of shares
issued and outstanding. The term "Competitive Business" shall
mean (a) any business which operates, or grants franchises or
licenses to others to operate, a business performing any or all
of the services identified in Exhibit A of the Agreement, or (b)
any business which operates, or grants franchises or licenses to
others to operate, a business which offers any of the products or
services described in Section 1.A. of this License Agreement or
similar home improvement products or services; provided, however,
that nothing herein shall prevent Licensee, any of its affiliates
or owners, and any member of its or their immediate families from
performing services or having an interest in a Competitive
Business to the extent and in the manner it performed such
services or had such an interest on or prior to June 30, 1999.
Without limiting the generality of the foregoing, prior to
October 1, 1999, neither Licensee, any of its affiliates or
owners, nor any member of its or their immediate families shall
enter into any relationship with a retail competitor of Sears or
expand any existing relationship with Lowe's.
Licensee expressly recognizes that irreparable injury would be caused to
Sears by any breach of the provisions of this Section 42 by
Licensee and agrees that preliminary or permanent injunctive
relief would be appropriate in the event of breach of this
Section 42."
11. The following Section 43 is added to the Agreement as follows:
"43. Licensee and Sears shall not, during the term of the Agreement,
seek to induce any person who is at that time employed by the
other to leave his or her employment."
12. The effectiveness of this Amendment Agreement is contingent upon
the delivery by Licensee of a letter executed by Diamond Home
Services, Inc. acknowledging its commitment to be bound by the
<PAGE>
provisions of Section 10 of this Amendment Agreement.
13. In the event of any inconsistency between the terms of the
Agreement and the terms of this Amendment Agreement, the terms of
this Amendment Agreement supercede and control. In all other
respects, the terms of the Agreement are ratified and confirmed,
including but not limited to Section 33, the notice provision.
The Agreement, as amended by this Amendment Agreement, sets forth
the entire understanding of the parties with respect to the
subject matter thereof.
14. This Amendment Agreement may be signed in counterparts.
{Signature page follows}
<PAGE>
IN WITNESS WHEREOF, the parties have signed this Amendment Agreement as of the
date and year first above written.
SEARS, ROEBUCK AND CO. DIAMOND EXTERIORS, INC.
By: /s/ Michael Toll By: /s/ Joseph U. Schorer
Its: President, Home Improvement Services Its: Vice President and
General Counsel
<PAGE>
June 30, 1999
Mr. Michael Toll
Sears, Roebuck and Co.
3333 Beverly Road
Hoffman Estates, IL 60179
RE: License Agreement between Sears, Roebuck and Co. ("Sears")
and Diamond Exteriors, Inc. ("Licensee"), as amended
("License Agreement")
Dear Mr. Toll:
Reference is hereby made to that certain Amendment Agreement dated as
of July 1, 1999, between Sears and Licensee (the "Agreement"). At the request of
Sears, and in order to induce Sears to enter into the Agreement, Diamond Home
Services, Inc., a Delaware corporation ("Diamond") and the sole shareholder of
Licensee, unconditionally and irrevocably agrees that prior to October 1, 1999,
neither Diamond, Licensee, any of its or their affiliates or owners, nor any
member of its or their immediate families shall perform services or have any
direct or indirect, controlling or non-controlling interest as a disclosed or
beneficial owner, investor, partner, director, officer, employee, manager,
consultant, representative or agent, or in any other capacity, in any other
Competitive Business located or operating in the United States (or its
territories or possessions). This restriction shall not apply to the ownership
of shares of a class of securities listed on a stock exchange or traded in the
over-the-counter market that represent less than three percent (3%) of the
number of shares issued and outstanding. The term "Competitive Business" shall
mean (a) any business which operates, or grants franchises or licenses to others
to operate, a business performing any or all of the services identified in
Exhibit A of the License Agreement, or (b) any business which operates, or
grants franchises or licenses to others to operate, a business which offers any
of the products or services described in Section 1.A.. of the License Agreement
or similar home improvement products or services; provided, however, that
nothing herein shall prevent Diamond, Licensee, any of its or their affiliates
or owners, and any member of its or their immediate families from performing
services or having an interest in a Competitive Business to the extent and in
the manner it performed such services or had such an interest on or prior to
June 30, 1999. Without limiting the generality of the foregoing, prior to
October 1, 1999, neither Diamond, Licensee, any of its or their affiliates or
owners, nor any member of its or their immediate families shall enter into any
relationship with a retail competitor of Sears or expand any existing
relationship with Lowe's.
<PAGE>
Sears, Roebuck and Co.
June 30, 1999
Page 2
In the event that, prior to October 1, 1999, Sears shall give Licensee
notice pursuant to Section 9 of the Agreement that it is deleting any of the
markets identified therein from the Sears Market Areas listed on Exhibit A to
the License Agreement, the limitations provided in the preceding paragraph shall
not apply to any activities in such markets when such notice becomes effective.
Diamond expressly recognizes that irreparable injury would be caused to
Sears by any breach of the foregoing covenant by Diamond or any breach of
Section 42 of the License Agreement by Licensee and agrees that preliminary or
permanent injunctive relief would be appropriate in the event of breach thereof.
No delay or failure to exercise any right, power or privilege under
this letter or the License Agreement shall operate as a waiver thereof, and no
single or partial exercise of any right, power or privilege shall preclude any
other or further exercise thereof or the exercise of any other power or right,
or be deemed to establish a custom or course of dealing or performance between
the parties hereto. The rights and remedies herein are cumulative and not
exclusive of any rights or remedies provided by law. The terms of this letter
may be waived, discharged or terminated only by an instrument in writing signed
by Sears and any other party against which enforcement of the change, waiver,
discharge or termination is sought.
The effectiveness of this letter is contingent upon the delivery of the
Amendment Agreement by and between Sears, Roebuck and Co. and Diamond Exteriors,
Inc. effective July 1, 1999, which has been duly executed by Sears and Diamond
Exteriors, Inc.
This letter agreement may be signed in counterparts.
Very truly yours,
DIAMOND HOME SERVICES, INC.
By: /s/ Joseph U. Schorer
Its: Vice President and General Counsel
Accepted and agreed to this _____ day of __________, 1999.
SEARS, ROEBUCK AND CO.
By: /s/ Michael Toll
Its: President, Home Improvement Services
DIAMOND HOME SERVICES, INC. SIGNS SEARS LICENSE AGREEMENT
AMENDMENT AND EXTENSION
AGREEMENT EXTENDED THROUGH DECEMBER 31, 2001
Woodstock, IL (June 30, 1999) - Diamond Home Services, Inc. (NASDAQ: DHMS)
announced today that its subsidiary, Diamond Exteriors, Inc., amended and
extended its license agreement with Sears, Roebuck and Co. through December 31,
2001.
The current license agreement has been modified to cover some material issues.
Entry doors, a minor component of Diamond's product mix and profitability, have
been reclassified as "secondary" product offerings, and the license fees for
this category have been adjusted accordingly. This change becomes effective
January 1, 2000. The amendment restricts either party's ability to effect a
termination of the agreement without cause through December 31, 2000, and
specifies minimum customer service scores for each product line as well as an
aggregate score. The amendment also permits Sears, upon two months notice, to
delete two markets, as defined, as market areas under the license agreement.
Commenting on the agreement and extension, Geoffrey H. Foreman, Diamond's
President and COO, stated, "I'm pleased with the outcome. While the seven-month
negotiating period created too much uncertainty, it has been a beneficial period
for both parties to discuss and attempt to align their mutual long-term
interests. All of us at Diamond look forward to being a great business partner
with Sears."
Diamond Home Services, Inc. is a leading national marketer and contractor of
installed home improvement products, including roofing systems, gutters, doors,
and fencing. The Company, through its subsidiary, Reeves Southeastern
Corporation, is one of the largest manufacturers and distributors of fencing and
perimeter security products to the industrial and residential markets in the
U.S. Reeves Southeastern operates 32 distribution centers primarily in the
eastern half of the U.S. In addition, Reeves Southeastern furnishes and installs
private-label fencing home improvement products. Through its subsidiary Diamond
Exteriors, Inc.(R) the Company markets installed home improvement products and
services directly to consumers, primarily under the "SEARS" name. Through its
finance subsidiary Marquise Financial Services, Inc., the Company also offers
financing to its customers. The Company has home consultants located in major
cities across the U.S., providing the Company with a presence in markets
covering approximately 80% of the owner-occupied households in the U.S.
Certain statements contained herein, including without limitation, statements
addressing the beliefs, plans, objectives, estimates or expectations of the
Company or future results or events constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995, as
amended. Such forward-looking statements involve known or unknown risks,
including, but not limited to, general economic and business conditions, matters
related to the licensing agreement between Diamond Exteriors, Inc. and Sears,
Roebuck and Co., warranty exposure, the Company's reliance on home consultants
and on the availability of qualified independent installers, lead activity and
costs related thereto, customer service scores, and conditions in the installed
home improvement industry. There can be no assurance that the actual future
results, performance, or achievements expressed or implied by such
forward-looking statements will occur. Users of forward-looking statements are
encouraged to review Item 7 of the Company's latest annual report on Form 10-K,
<PAGE>
its filings on Form 10-Q, management's discussion and analysis in the Company's
latest annual report to stockholders, the Company's filings on Form 8-K, and
other federal securities law filings for a description of other important
factors that may affect the Company's business, results of operations and
financial condition.
