<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report February 24, 2000
DIAMOND HOME SERVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-20829 36-3886872
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of 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)
<PAGE> 2
ITEM 5. OTHER EVENTS.
Effective January 31, 2000, Sears, Roebuck and Co. ("Sears")
terminated its license agreement with Diamond Exteriors, Inc., a wholly owned
subsidiary of the Registrant ("Exteriors").
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(c) Exhibits (numbered pursuant to Item 601 of Registration S-K)
(99.1) Letter dated January 31, 2000, from Sears Roebuck and Co.
to Diamond Home Services, Inc. and Diamond Exteriors, Inc.
(99.2) Press release dated February 1, 2000.
<PAGE> 3
SIGNATURES
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/ C. STEPHEN CLEGG
Date: February 24, 2000 C. STEPHEN CLEGG
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
<PAGE> 1
EXHIBIT 99.1
[LOGO] Michael J. Tower
President, Sears Home Improvement Products
[LETTERHEAD OF SEARS, ROEBUCK AND CO.]
BY PERSONAL DELIVERY AND BY TELECOPY TRANSMISSION
January 31, 2000
Diamond Home Services
Diamond Exteriors, Inc.
222 Church Street
Woodstock, Illinois 60098
Attn: General Counsel
Telecopier: 815-334-1415
Dear Sir:
This letter is written pursuant to that certain License Agreement dated as
of January 1, 1996 (the "Original License Agreement") by and between Sears,
Roebuck and Co. ("Sears") and Diamond Exteriors, Inc. ("Licensee"), including
the Sears Credit Addendum to License Agreement dated as of January 1, 1996 (the
"Credit Addendum") and Addendum dated June 17, 1996 (the "Addendum") attached as
Exhibits B and C thereto, respectively, that certain Amendment Agreement dated
as of July 1, 1996 (the "1996 Amendment"), that certain Amendment Agreement
dated as of July 1, 1999 (the "July 1999 Amendment"), that certain Amendment to
License Agreement dated as of November 15, 1999 (the "November 1999 Amendment";
collectively, together with the Original License Agreement, the Credit Addendum,
the Addendum, the 1996 Amendment, and the July 1999 Amendment, the "License
Agreement") and that certain Forbearance Agreement Between Diamond Home
Services, Inc., Diamond Exteriors, Inc., and Sears, Roebuck and Co. dated as of
November 15, 1999 (the "Forbearance Agreement").
You are hereby notified that, on account of Licensee's failure to meet the
requirements of (a) Paragraphs 16(A), (C), and (E) of the Forbearance Agreement
and (b) Paragraphs 25(A)(x) and (xi) of the License Agreement, Sears declares
Licensee and Diamond Home Services, Inc. ("Home") to be in default of and
material breach under the Forbearance Agreement and the License Agreement
(collectively, the "Agreements"), and Sears elects to, and hereby does,
terminate, effective immediately, (i) the Forbearance Agreement pursuant to
Paragraph 16 thereof, (ii) the License Agreement pursuant to Paragraphs 1(D)
and 25 thereof, and (iii) the Credit Addendum pursuant to Section 12(B)(i)
thereof. You are further notified that, on account of the foregoing defaults
under the Forbearance Agreement, a Standstill Termination (as such term is
defined in the Forbearance Agreement) has occurred, which constitutes an
additional event of default under the License Agreement, and Sears elects to
exercise its rights as specified in Paragraph 18 of the Forbearance Agreement.
There may be other defaults under the
<PAGE> 2
Diamond Home Services
Diamond Exteriors, Inc.
Page 2
Agreements or other documents between the parties that are not set forth
herein. The failure by Sears to specify any such additional defaults in this
letter shall not constitute a waiver thereof and Sears expressly reserves the
right to assert such defaults at a later date.
On account of the aforementioned events of default, the occurrence of a
Standstill Termination, and the termination by Sears of both the Forbearance
Agreement and the License Agreement, and in accordance with the terms of
Paragraphs 17 and 18 of the Forbearance Agreement, Sears accelerates all
amounts due to Sears under the License Agreement, and the Forbearance
Agreement, and all amounts due to Sears by Licensee and/or Home under either or
both of such Agreements are now due and payable. Sears hereby demands
immediate payment of all such amounts pursuant to Paragraphs 17 and 18 of the
Forbearance Agreement.
Unless and until all amounts due and owing to Sears under the Forbearance
Agreement are paid in full, Licensee and Home are reminded that, pursuant to
the terms of Paragraph 19 of the Forbearance Agreement and Paragraph 42 of the
License Agreement, they, their affiliates, their owners, and the other parties
specified in Paragraph 19 of the Forbearance Agreement and Paragraph 42 of the
License Agreement are prohibited from performing services for or having any
direct or indirect, controlling or non-controlling, interest in any capacity in
any other Competitive Business (as such term is defined in the Forbearance
Agreement) or from entering into any relationship with a retail competitor of
Sears or expanding any existing relationship with Lowe's, all as more fully set
forth in Paragraph 19 of the Forbearance Agreement and Paragraph 42 of the
License Agreement. Accordingly, and because of the termination of the License
Agreement, Licensee may not continue to enter into new contracts with any
potential customers for home improvement projects. As a courtesy, Sears
intends to contact the individuals with whom Licensee has scheduled sales
appointments and inform them that Sears has terminated the License Agreement
and that it anticipates that these sales appointments may not proceed as
scheduled. Sears will not provide any credit pursuant to the Credit Addendum
to finance any home improvement projects to be performed by the Licensee
unless, as of today's date, there is a pending customer contract with Licensee
and Sears has previously approved the customer's credit application and agreed
to provide credit for such contract.
In light of the termination of the Agreements and pursuant to the terms of
the Agreements and applicable law, Sears hereby demands (i) that Licensee and
Home immediately perform each and every of their respective obligations under
the Agreements that arise on account of or that otherwise survive the
termination thereof ("Post-Termination Obligations"), including without
limitation those specified below, and (ii) that Licensee and Home immediately
cease each and every action that they are required to cease upon termination of
the Agreements ("Post-Termination Prohibited Actions"), including without
limitation those specified below. Without limiting the generality of the
foregoing, Licensee is obligated:
- - Under Paragraph 4(A) of the License Agreement, immediately to cease all uses
of the Sears licensed trademarks, service marks and trade names (including,
without limitation, any marketing activity referring to Licensee as licensed
by or in any way associated with Sears);
<PAGE> 3
Diamond Home Services
Diamond Exteriors, Inc.
Page 3
- - Under Paragraph 14(D) of the License Agreement, immediately to deliver all
customer information to Sears for reproduction by Sears and not to continue
to use any such information to solicit customers;
- - Under Paragraph 14(E) of the License Agreement, to develop, with Sears, a
methodology and process satisfactory to Sears by which Sears is able to
receive timely all customer information;
- - Under Paragraph 15 of the License Agreement, to grant Sears direct access to
customer and installation records regarding work in progress, appointments,
scheduling, jobs installed/completed in the last 30 days, backlog jobs
waiting to be installed, customer cancellations over the last 90 days,
complete outstanding service order/inquiry/complaint files and cooperation
with regard to the transfer and copying of the same and all marketing and
communication materials;
- - Under Paragraph 15 of the License Agreement, immediately to cease to use all
telephone numbers used to conduct business under the License Agreement, to
transfer such telephone numbers to Sears or its designees, to notify all
applicable telephone companies of such transfer, to use its best efforts to
assist Sears in an orderly transfer, and to execute reasonable letters of
direction to all applicable telephone companies respecting the transfer of
all such telephone numbers. To this end, attached hereto is a power of
attorney which, pursuant to Paragraph 15 of the License Agreement, Sears asks
Licensee to execute and return to me today so that the transfer of the
telephone numbers used by Licensee in the conduct of its business under the
License Agreement can be effected. As described below, Sears is asking
customers with questions regarding their pending jobs to contact Licensee at
its customer service number, 1-800-224-3661; notwithstanding anything to the
contrary contained herein, Sears will permit Licensee, until further notice,
to retain this telephone number so that Licensee can respond to customer
inquiries, but Sears demands that Licensee immediately change the recording
on this number so that there is no reference to Sears; and
- - Under Section 7C of the Credit Addendum, to provide Sears with all original
and microfilm copies of documents required to be retained thereunder.
In accordance with the terms of the Agreements, and as specified in
Paragraph 25 of the Forbearance Agreement, Sears expects that Licensee and Home
will cooperate fully with Sears in all actions that are required for a smooth
post-termination transition. As an opening step in that transition, Sears
representatives will visit each of the Licensee's district operating centers, as
well as Licensee's offices in Woodstock, Illinois and Lawrence, Kansas, tomorrow
morning to begin the process of copying customer information and files. Sears
will pay the reasonable costs for such copying. Sears trusts that its
representatives will be given access to such information and files as provided
in the Agreements. For your information, a list of the Sears representatives
who will visit each site is attached hereto.
<PAGE> 4
Diamond Home Services
Diamond Exteriors, Inc.
Page 4
Sears intends to notify customers who have, prior to the date hereof,
contracted with Licensee for a home improvement project of the termination by
Sears of the License Agreement. For your information, a copy of a letter that
Sears is mailing today to such customers is attached hereto. As reflected
therein, Sears intends to inform such customers that they should contact
Licensee regarding the status of their projects and Licensee's plans to
complete the work. Pursuant to Paragraph 37 of the License Agreement, Sears
requests that, provided and to the extent that Licensee or one of its
subcontractors has already begun work on such orders, Licensee faithfully and
promptly fulfill all orders received by customers prior to the date hereof,
consistent with the provisions of the License Agreement. Please be advised,
however, that if Licensee is unable to fulfill any such order, Sears plans to
ensure that the job is completed to the satisfaction of the customer. To this
end, if any customer with a pending contract notifies Sears that they have not
been able to obtain adequate assurances from Licensee that it will be able to
complete the project in a timely, satisfactory manner, Sears intends to offer
to make the necessary arrangements to complete the project, without prejudice
to any and all rights that Sears has to recoup any costs it incurs and any
losses it may suffer as a result of Licensee's failure to complete the
project. If any customer with a completed contract contacts Sears to request
service on their roof or other project undertaken by Licensee, Sears intends to
take the necessary steps to address the customer's concerns, again without
prejudice to any and all rights Sears has, under the Agreements and applicable
law, to recover any costs it incurs.
If Licensee and Home fail to make prompt payment of the amounts set forth
above, or fail to perform the Post-Termination Obligations and cease the
Post-Termination Prohibited Actions set forth above, then Sears will, without
further notice to Licensee and Home, immediately avail itself of all of its
legal and equitable rights and remedies pursuant to the relevant documents or
applicable law.
We regret that your continuing defaults have required us to take this
action, but our commitment to customer service leaves us no choice.
Very truly yours,
/s/ Michael J. Tower
Michael J. Tower
President, Sears Home Improvement Products
Enclosures
cc: Pamela R. Schneider, Esq.
<PAGE> 5
DIAMOND VISIT LIST - VISIT DATE 2/1 & 2/2
LOCATIONS TO VISIT NAME(S)
- ------------------ -------
Tampa DOC Harry Clymore + one assistant
Hartford DOC Don Stavanja + one assistant
Greensboro DOC Greg Deardorff + one assistant
Chicago DOC Frank Celarek + one assistant
Pittsburgh DOC Mike Duvie + one assistant
Dallas DOC John Storfa + one assistant
Hayward DOC Lee Chappel + one assistant
Kantel Jim Sparling + two assistants
Woodstock Steve Burnett & Mike Kier
<PAGE> 6
SEARS LOGO
January 31, 2000
Dear Valued Customer:
This is an important announcement regarding a Sears Home Improvement Products
licensee, Diamond Exteriors. Please be informed that Sears has ended its
business relationship with Diamond Exteriors. The termination of Sears license
agreement with Diamond Exteriors is effective January 31, 2000.
Sears has taken this action because of issues with customer satisfaction and
complaint resolution.
WHY AR YOU RECEIVING THIS NOTICE?
Sears is contacting you because we believe you may fall into one of the
following three categories:
1) CUSTOMERS WHO HAVE SIGNED A CONTRACT WITH DIAMOND FOR A HOME IMPROVEMENT
PROJECT, BUT THE PROJECT HAS NOT BEEN STARTED. If you have signed a contract
with Diamond and they have not yet begun the work, you should contact
Diamond regarding the status of your contract and their plans for the
performance of the job. Diamond's telephone number is 1-800-224-3661. If you
are unable to obtain adequate assurances from Diamond that they will
complete your project in a timely satisfactory manner, please contact us at
our toll-free telephone number specified below.
2) CUSTOMERS WHO HAVE SIGNED A CONTRACT WITH DIAMOND AND WORK ON THEIR HOME
IMPROVEMENT PROJECT IS IN PROCESS. If your job is in progress, you should
contact Diamond regarding the status of your contract and their plans for
the completion of the work. Diamond's telephone number is 1-800-224-3661.
Pease be assured that if Diamond is unable to complete your project, Sears
will ensure that the project is completed to your satisfaction and stand
behind the work. If you are unable to obtain adequate assurances from
Diamond that they will complete your project in a timely, satisfactory
manner, please contact us at our toll-free telephone number specified below.
3) CUSTOMERS WHO HAVE HAD A HOME IMPROVEMENT PROJECT COMPLETED BY DIAMOND IN
THE PAST. If your project has been completed, you do not need to take any
action. We simply want to make you aware that Sears will continue to stand
behind your job.
WE HOPE THIS ACTION WILL NOT CAUSE YOU ANY INCONVENIENCE. IF YOU HAVE ANY
QUESTIONS OR IF WE CAN PROVIDE ANY ASSISTANCE, PLEASE DON'T HESITATE TO CALL
THE SEARS TOLL-FREE NUMBER FOR HOME IMPROVEMENTS AT 1-800-4-MY-HOME. THANK YOU
FOR BEING A VALUED SEARS CUSTOMER.
<PAGE> 7
SPECIAL POWER OF ATTORNEY
Know all men by these presents, that the undersigned, DIAMOND EXTERIORS,
INC., a corporation, ("Licensee"), with its principal place of business at 222
Church Street, Woodstock, IL 60098, hereby makes, constitutes and appoints
SEARS, ROEBUCK AND CO., a New York corporation with its principal place of
business at 3333 Beverly Road, Hoffman Estates, IL 60179, its true and lawful
attorney-in-fact and agent ("Attorney-In-Fact"), with full power of
substitution, in the name, place and stead of DIAMOND EXTERIORS, INC. to
prepare, execute, file and/or record such documents and take such other actions
as may be appropriate for or on behalf of DIAMOND EXTERIORS, INC. in order to
transfer any and/or all telephone numbers used by Licensee in the conduct of its
business under a certain License Agreement dated January 1, 1996 between
Licensee and Sears, Roebuck and Co. and any amendments, extensions,
supplements, or replacement agreements thereto (collectively, the "License
Agreement").
Attorney-In-Fact shall have authority to execute such documents through any
officer, employee or attorney of Attorney-In-Fact and may execute such documents
in its own name as Attorney-In-Fact.
This Special Power of Attorney is given by DIAMOND EXTERIORS, INC. in
accordance with its obligations under the License Agreement and, accordingly,
Attorney-In-Fact shall have all rights, powers, and authorities necessary to
carry out the purpose and intention of the License Agreement with respect to the
actions necessary to protect the interests of Attorney-In-Fact in such telephone
numbers. The rights, powers and authority of Attorney-In-Fact are acknowledged
to be coupled with an interest and, accordingly, shall continue in full force
and effect until terminated or modified by an agreement in writing signed by
DIAMOND EXTERIORS, INC. and Attorney-In-Fact.
IN WITNESS WHEREOF, DIAMOND EXTERIORS, INC. has caused this Special Power
of Attorney to be executed on ______________________, 2000.
By: DIAMOND EXTERIORS, INC.
Name:
---------------------------------
Its:
---------------------------------
ACKNOWLEDGMENT
STATE OF _____________________)
COUNTY OF ____________________)
Personally appeared before me, a Notary Public in and for such State and
County, __________________ in his capacity as ___________________ of DIAMOND
EXTERIORS, INC. who acknowledge that he did sign the foregoing Special Power of
Attorney and that the same is his free act and deed as such officer.
IN TESTIMONY WHEREOF.
I herewith set my name and official seal at
- -------------------------------------
on __________________________, 2000.
- -------------------------------------
Notary Public commission expires
<PAGE> 1
EXHIBIT 99.2
[DIAMOND HOME SERVICES LOGO HERE]
NEWS RELEASE
Contact: Rebecca Hayne
Alexander & Walsh
847-604-9800
SEARS TERMINATES LICENSE AGREEMENT WITH DIAMOND EXTERIORS
WOODSTOCK, IL -- (February 1, 2000) -- Diamond Home Services, Inc. (OTCBB:DHMS),
announced today that Sears, Roebuck and Company terminated the license agreement
with Diamond Exteriors, a Diamond subsidiary, effective January 31, 2000. Under
the agreement, Diamond Exteriors was a Sears authorized contractor for the
Installation of roofs, gutters, fences, and garage doors.
"This action by Sears came as a complete surprise to us," said C. Stephen
Clegg, Diamond Home Service Chairman and chief executive officer. "Diamond had
the support of Sears as we worked together to put a difficult period behind us.
We are meeting on our next steps and will announce our plans as soon as they are
available."
Reeves Southeastern Corporation, a Diamond Home Services subsidiary, is
unaffected by this termination and will continue business as usual.
In connection with the news, a shareholder conference call will be held
Wednesday, February 2 at 3:00 p.m.
Diamond Home Services, Inc., 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.
###
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, the outcome of discussions with its creditors and other
constituencies, 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 most recent annual report on Form 10-K, its filings on Form 10-Q,
management's discussion and analysis in the Company's most recent 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.
