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SCHEDULE 14A
(RULE 14a)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
ROYAL APPLIANCE MFG. CO.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NOT APPLICABLE
(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: .........................................................
(4) Date Filed: ...........................................................
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[Royal Appliance Logo]
[Dirt Devil Trademark]
ROYAL APPLIANCE MFG. CO.
CLEVELAND, OHIO
To Our Shareholders:
You are cordially invited to attend the 1999 annual meeting of shareholders
of Royal Appliance Mfg. Co. to be held at The Forum Conference Center, One
Cleveland Center, 1375 East Ninth Street, Cleveland, Ohio, on Tuesday, April 27,
1999, at 10:00 a.m. local time. We are pleased to enclose the notice of our
annual shareholders meeting, together with a Proxy Statement, a Proxy and an
envelope for returning the Proxy.
The matters expected to be acted upon at the meeting are described in
detail in the attached Notice of Meeting and Proxy Statement.
It is important that your shares be represented at the meeting. Whether or
not you plan to attend personally, please complete and mail the enclosed proxy
card in the enclosed return envelope. If you attend the meeting and decide to
vote in person, you may withdraw your Proxy at the meeting.
If you have any questions or need assistance in how to vote your shares,
please call our proxy solicitor, Morrow & Co., Inc. at (212) 754-8000. Your time
and attention to this letter and the accompanying Proxy Statement and Proxy is
appreciated.
Sincerely,
Michael J. Merriman
Chief Executive Officer
March 26, 1999
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[Royal Applicance Logo]
[Dirt Devil Trademark]
ROYAL APPLIANCE MFG. CO.
CLEVELAND, OHIO
NOTICE OF ANNUAL SHAREHOLDERS MEETING
TO BE HELD APRIL 27, 1999
The annual meeting of shareholders of Royal Appliance Mfg. Co., an Ohio
corporation ("Company"), will be held on Tuesday, April 27, 1999 at 10:00 a.m.
local time, at The Forum Conference Center, One Cleveland Center, 1375 East
Ninth Street, Cleveland, Ohio, for the following purposes:
1. To elect three Class II Directors for a term expiring in 2001.
2. To ratify the appointment of PricewaterhouseCoopers LLP as auditors of
the Company for 1999.
3. To transact such other business that is properly brought before the
meeting.
Only holders of the Common Shares of record on the books of the Company at
the close of business on March 12, 1999 will be entitled to vote at the meeting.
YOUR VOTE IS IMPORTANT. ALL SHAREHOLDERS ARE INVITED TO ATTEND THE MEETING
IN PERSON. HOWEVER, TO ASSURE YOUR REPRESENTATION AT THE MEETING, PLEASE MARK,
DATE AND SIGN YOUR PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. Any
shareholder attending the meeting may vote in person even if the shareholder
returned a Proxy.
By Order of the Board of Directors
Richard G. Vasek
Secretary
Cleveland, Ohio
March 26, 1999
THE ENCLOSED PROXY, WHICH IS BEING SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS OF THE COMPANY, CAN BE RETURNED IN THE ENCLOSED ENVELOPE,
WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
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PROXY STATEMENT
Proxies in the accompanying form are being solicited by the Board of
Directors of the Company for use at the annual meeting of shareholders on
Tuesday, April 27, 1999, or at any adjournment thereof. The meeting will be held
at The Forum Conference Center, One Cleveland Center, 1375 East Ninth Street,
Cleveland, Ohio, at 10:00 a.m. local time. The Proxy Statement and the form of
Proxy are being mailed to shareholders commencing on or about March 26, 1999.
INFORMATION CONCERNING SOLICITATION AND VOTING
REVOCABILITY OF PROXIES
Any shareholder who executes and returns a Proxy may revoke the same at any
time before it is exercised by filing with the Secretary of the Company written
notice of such revocation or a duly executed proxy bearing a later date, or by
attending the meeting and voting in person. Attendance at the meeting will not
in and of itself constitute revocation of a Proxy.
RECORD DATE AND VOTING
Shareholders of record at the close of business on March 12, 1999 (the
"Record Date") are entitled to notice of and to vote at the meeting. Holders of
the Common Shares of record as of the close of business on the Record Date, or
their proxies, are entitled to one vote per Common Share. At the Record Date,
19,045,024 Common Shares of the Company were issued and outstanding.
Proxies properly signed and returned to the Company, in blank or without
voting instructions, will be voted "FOR" the three Director nominees named
herein, and ratification of the appointment of PricewaterhouseCoopers LLP as
auditors of the Company for 1999.
The three candidates for election as directors at the Annual Meeting who
receive the highest number of affirmative votes will be elected. Broker
non-votes and shares as to which proxy authority has been withheld with respect
to any matter are not deemed to be present or represented for purposes of
determining whether shareholder approval of that matter has been obtained, and,
consequently, will have no effect on the outcome of the vote.
SOLICITATION
The cost of soliciting proxies will be borne by the Company. The Company
has retained the services of Morrow & Co., Inc. to aid in the solicitation of
Proxies. The Company estimates that it will pay Morrow & Co., Inc. a fee of
approximately $5,000 for its services, plus out-of-pocket expenses. In addition,
the Company may reimburse brokerage firms and other persons representing
beneficial owners of shares for their expenses in forwarding solicitation
material to such beneficial owners. Proxies may also be solicited by certain of
the Company's directors, officers and regular employees, without additional
compensation, personally or by telephone or telegram.
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
Proposals of shareholders which are intended to be presented by such
shareholders at the Company's next annual meeting of shareholders to be held in
2000 must be received by the Company no later than November 26, 1999, in order
that they may be included in the proxy statement and form of proxy relating to
that meeting.
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PROPOSAL ONE
ELECTION OF DIRECTORS
The Board of Directors is divided into two classes, each of whose members
serve for a staggered two-year term. The Board is comprised of three Class I
Directors and three Class II Directors. The current term of the Class II
Directors ends upon the election of Class II Directors at this annual meeting.
The term of the Class I Directors will end upon the election of Class I
Directors at the 2000 annual meeting of shareholders.
The Board of Directors has nominated Messrs. Nalley, Richey and
Schneeberger to stand for reelection as the Class II Directors for a two-year
term. The two-year term will end upon the election of Class II Directors at the
2001 annual meeting of shareholders.
At the annual meeting, the Common Shares represented by valid Proxies,
unless otherwise specified, will be voted to reelect the Class II Directors.
Each individual nominated for election as a Director of the Company has agreed
to serve if elected. However, if any nominee becomes unable or unwilling to
serve if elected, the Proxies will be voted for the election of such other
person as may be recommended by the Board of Directors. The Board of Directors
has no reason to believe that the persons listed as nominees will be unable or
unwilling to serve.
The Board of Directors recommends that each shareholder vote "FOR" the
Board of Directors' nominees.
NOMINEES FOR TERMS EXPIRING IN 2001
DIRECTOR
NAME OF DIRECTOR AGE PRINCIPAL OCCUPATION SINCE
---------------- --- -------------------- --------
E. Patrick Nalley....................... 79 Director of Invacare Corporation 1981
Joseph B. Richey II..................... 61 President of Invacare Technologies 1994
R. Louis Schneeberger................... 44 Chief Financial Officer and Director of 1991
Olympic Steel, Inc.
E. PATRICK NALLEY has served as a Director of the Company since the
Company's formation in 1981. In 1992, Mr. Nalley retired from his positions as
Executive Vice President of Sales and Assistant to the President of Invacare
Corporation, a provider of home health care medical equipment, which he held
since 1987. Mr. Nalley also serves as a Director of Invacare Corporation.
JOSEPH B. RICHEY II has served as a Director of the Company since July
1994. Since 1992, Mr. Richey has been President -- Invacare Technologies and
Senior Vice President -- Total Quality Management for Invacare Corp., having
previously served as General Manager -- North American Operations of Invacare
Corp. Mr. Richey is also a Director of Invacare Corporation, Steris Corporation
and Unique Mobility Inc.
R. LOUIS SCHNEEBERGER has served as Chairman of the Board since July 1995
and as a Director of the Company since August 1991. He has served since 1987 as
Chief Financial Officer and as a Director of Olympic Steel, Inc., a leading
North American steel service center. Mr. Schneeberger also serves as a Trustee
and the Treasurer of the Achievement Center for Children, a non-profit
corporation focusing on children with disabilities and serves on the Business
Advisory Council for Kent State University.
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DIRECTORS WHOSE TERMS TO EXPIRE IN 2000
DIRECTOR
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION SINCE
--------------- --- -------------------- --------
Jack Kahl Jr............................ 58 Chief Executive Officer of Manco, Inc 1995
Michael J. Merriman..................... 42 Chief Executive Officer and President of 1993
the Company
John P. Rochon.......................... 47 Chairman of the Richmont Corporation and 1995
Chief Executive Officer of Mary Kay
Holding Corporation
JACK KAHL JR. has served as a Director of the Company since September 1995.
Mr. Kahl has been Chief Executive Officer of Manco, Inc., since 1971. Manco,
Inc., markets and manufactures pressure sensitive tapes, home weatherization
products, and mailing and shipping supplies. Mr. Kahl is also a Director of
Applied Industrial Technologies, Inc.
MICHAEL J. MERRIMAN has served as a Director of the Company since October
1993. Mr. Merriman was appointed Chief Executive Officer in July 1995 and
President and Chief Operating Officer in January 1995. From May 1992 until his
appointment as President, he had been Vice President -- Finance, Treasurer and
Secretary of the Company.
JOHN P. ROCHON has served as a Director of the Company since September
1995. Mr. Rochon has been Chairman of the Richmont Corporation since 1990, and
Chief Executive Officer of Mary Kay Holding Corporation since 1991. Mr. Rochon
is also a Director of Nu-Kote Holding, Inc.
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
The Board of Directors of the Company held five meetings during the fiscal
year ended December 31, 1998. The Board of Directors has an Audit Committee, a
Compensation Committee, and a Corporate Governance Committee. The Audit
Committee and the Compensation Committee each held two meetings during 1998
while the Corporate Governance Committee met once during 1998. The Committees
receive their authority and assignments from the Board of Directors and report
to the Board of Directors.
All of the current Directors attended at least 75% of the Board and
applicable committee meetings held during 1998. In addition to holding regular
committee meetings, the Board members also reviewed and considered matters and
documents and communicated with each other wholly apart from the meetings.
Several actions were taken by unanimous written consent.
Jack Kahl Jr., E. Patrick Nalley, and R. Louis Schneeberger are members of
the Audit Committee. The Audit Committee recommends the engagement of the
Company's independent auditors and is primarily responsible for approving the
services performed by the Company's independent auditors. The Committee also
reviews and evaluates the Company's accounting principles and its system of
internal accounting controls.
E. Patrick Nalley, Joseph B. Richey II, and John P. Rochon are members of
the Compensation Committee. The Compensation Committee reviews and approves the
Company's executive compensation policy, makes recommendations concerning the
Company's employee benefit policies, and has authority to administer the
Company's stock option plans.
Jack Kahl Jr., E. Patrick Nalley, Joseph B. Richey II, John P. Rochon, and
R. Louis Schneeberger are members of the Corporate Governance Committee. The
functions of the Committee are to review and evaluate the performance of the
Chief Executive Officer, changes or potential changes in corporate control, and
all public policy issues affecting the Company. In addition, the Committee
identifies and recommends to the Board of Directors candidates for membership on
the Board of Directors and reviews and evaluates all shareholder proposals.
Shareholders wishing to suggest nominees for election to the Board at the 2000
annual meeting may do so by providing written notice to the Company in care of
Richard G. Vasek, Secretary, no later than November 26, 1999.
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COMPENSATION OF DIRECTORS
Each Director who is not an employee of the Company receives a director's
fee in the amount of $16,000 per annum for up to four meetings, and
reimbursement for out-of-pocket expenses incurred in connection with attending
such meetings. An additional $4,000 is paid for attending board meetings, if
any, in excess of four meetings in any one year and $2,000 is paid for
attendance at any committee meeting held on a day other than a day of a
Directors' meeting. Each non-employee Director also received options to purchase
20,000 Common Shares upon joining the Board of Directors. In February 1995, the
then current non-employee Directors were granted options for an additional
30,000 Common Shares at an option price equal to the fair market value of the
shares on the date of grant. Options granted to Directors are exercisable for a
period of ten years and become exercisable in 20% increments on each anniversary
of the date of grant commencing with the first anniversary.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth each person or entity who has beneficial
ownership of 5% or more of the outstanding Common Shares of the Company on March
12, 1999, based upon information furnished to the Company:
NAME AND ADDRESS SHARES AND NATURE OF PERCENTAGE OF TOTAL
OF BENEFICIAL OWNERS BENEFICIAL OWNERSHIP SHARES OUTSTANDING
-------------------- -------------------- -------------------
Richmont Capital Partners I, L.P.................... 2,969,900(1) 15.6%
4300 West Grove
Dallas, Texas 75248
John P. Rochon...................................... 2,983,400(2) 15.7%
4300 West Grove
Dallas, Texas 75248
E. Patrick Nalley................................... 1,064,000(3) 5.6%
650 Alpha Drive
Cleveland, Ohio 44143
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(1) Based on a Form 4 dated March 7, 1996, filed with the Securities and
Exchange Commission.
(2) Mr. Rochon is a general partner of Richmont Capital Partners I, L.P. Amount
includes 2,969,900 shares owned by Richmont Capital Partners I L.P., 1,500
shares individually owned by Mr. Rochon, and 12,000 shares which can be
acquired by the exercise of stock options.
(3) Based on a Form 4 dated September 30, 1997, filed with the Securities and
Exchange Commission. Amount includes 44,000 shares which can be acquired by
the exercise of stock options.
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SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the amount of the Company's Common Shares
beneficially owned by the Company's Directors, each of the named officers, and
all the Directors and Executive Officers as a group as of March 12, 1999.
PERCENT OF
NAME SHARES TOTAL
---- --------- ----------
Jack Kahl Jr................................................ 132,000(1) *
Michael J. Merriman......................................... 51,000 *
E. Patrick Nalley........................................... 1,064,000(1)(2) 5.6%
Joseph B. Richey II......................................... 240,000(1) 1.3%
John P. Rochon.............................................. 2,983,400(1)(3) 15.7%
R. Louis Schneeberger....................................... 92,000(1) *
Gary J. Dieterich........................................... 160,029(1) *
James A. Holcomb............................................ 4,935(1) *
T. Keith Moone.............................................. 0 *
Richard G. Vasek............................................ 52,101(1) *
Directors and Executive Officers as a group (10 persons).... 4,779,465(4) 24.7%
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* Less than 1%
(1) Includes shares which can be acquired by the exercise of stock options on or
prior to sixty days following March 12, 1999 as follows: Mr. Kahl -- 12,000;
Mr. Nalley -- 44,000; Mr. Richey -- 40,000; Mr. Rochon -- 12,000; Mr.
Schneeberger -- 44,000;Mr. Dieterich -- 90,980; Mr. Vasek 48,540.
(2) Includes 1,000,000 shares held of record by Mr. Nalley as Trustee.
(3) Includes 2,969,900 shares beneficially owned by Richmont Capital Partners I,
L.P. of which Mr. Rochon is a General Partner.
(4) Includes 291,520 options exercisable within sixty days following March 12,
1999.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Act of 1934, as amended, requires the
Company's officers and directors, and persons who own greater than 10% of the
Company's Common Stock, to file reports of ownership and changes in ownership to
the Securities and Exchange Commission. Officers, directors and more than 10%
shareholders are required by the SEC to furnish to the company copies of all
Section 16(a) reports they file. Based solely upon a review of Forms 3 and 4 and
amendments thereto furnished to the Company during 1998 and Form 5 and
amendments thereto furnished to the Company with respect to 1998, or a written
representation from the reporting person that no Form 5 is required, all filings
required to be made by the Company's officers, directors and greater than 10%
shareholders, except as noted above, were timely made.
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EXECUTIVE OFFICERS' COMPENSATION
Shown below is information concerning the annual and long-term compensation
for services to the Company and its subsidiaries for the years ended December
31, 1998, 1997, and 1996, of those persons (the "Named Executive Officers") who
served during 1998 as the Company's Chief Executive Officer and the other four
most highly compensated (during 1998) executive officers of the Company:
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------------------- -------------------------------
OTHER ANNUAL SECURITIES LONG-TERM ALL OTHER
SALARY BONUS COMPENSATION UNDERLYING INCENTIVE PLAN COMPENSATION
NAME & PRINCIPAL POSITION YEAR ($) ($) ($)(2) OPTIONS/SAR(#) PAYOUTS($)(3) ($)(4)
------------------------- ---- ------- ------- ------------ -------------- -------------- ------------
Michael J. Merriman 1998 360,000 0 0 0 0 26,211
Chief Executive Officer, 1997 342,500 304,483 0 0 7,851 27,232
President and Director 1996 325,000 325,325 0 600,000 0 13,008
Gary J. Dieterich 1998 200,000 0 0 0 0 14,482
Senior Vice President -- 1997 190,000 159,790 0 0 5,987 14,333
Administration 1996 180,000 155,340 0 0 0 7,859
Jim A. Holcomb 1998 200,000 0 0 0 0 14,243
Vice President -- Marketing & 1997 190,000 159,790 0 0 0 13,815
Strategic Planning 1996 165,000 142,395 0 200,000 0 4,558
T. Keith Moone 1998 165,000 0 0 0 0 11,865
Vice President -- Sales 1997 157,500 132,458 0 0 0 10,308
1996 150,000 87,225 0 120,000 0 6,953
Richard G. Vasek(1) 1998 116,500 0 0 25,000 0 7,985
Chief Financial Officer
Vice President -- Finance
- ---------------
(1) Mr. Vasek became a Named Executive Officer in 1998. Pursuant to SEC rules,
no information regarding his compensation for years prior to his appointment
as a Named Executive Officer is required.
(2) Perquisites provided to each of the Named Executive Officers, if any, do not
exceed the disclosure thresholds established under the Securities and
Exchange Commission rules and are not included in this total.
(3) Amount represents payments made under the Long-Term Incentive Plan
established in 1993. The payment represents a pro rata payout based upon an
accumulative five year (1993-1997) pre-tax earnings target.
(4) The amounts shown in this column represents payments made to the Company's
Defined Contribution Plans ("DCP").
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OPTION GRANTS IN 1998
Shown below is information on grants of stock options pursuant to the
Company's 1996 Key Executive Long-Term Incentive Plan (the "Stock Option Plan")
made in the year ended December 31, 1998, to the Named Executive Officers which
are listed in the Summary Compensation Table.
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
----------------------------------------------------------- ANNUAL RATES OF
NUMBER OF STOCK PRICE
SECURITIES % OF TOTAL APPRECIATION FOR
UNDERLYING OPTIONS MARKET OPTION TERM (2)
OPTIONS GRANTED TO EXERCISE PRICE --------------------
GRANTED EMPLOYEES IN PRICE DATE OF EXPIRATION
NAME (#) (1) FISCAL YEAR ($/SH) GRANTS DATE 5% ($) 10% ($)
---- ---------- ------------ -------- ------- ---------- -------- ---------
Michael J. Merriman........... 0 0.0% $ 0 $ 0
Gary J. Dieterich............. 0 0.0% 0 0
James A. Holcomb.............. 0 0.0% 0 0
T. Keith Moone................ 0 0.0% 0 0
Richard G. Vasek.............. 25,000 25.0% $5.50 $5.50 4/27/04 46,763 106,090
- ---------------
(1) All stock options are exercisable on April 27, 2003, ("5 year cliff
vesting") assuming the executive officer remains employed by the Company.
The Options expire on April 27, 2004, subject to earlier termination in
certain events related to termination of employment. The Stock Option Plan
provides that in the event of a "change in control" of the Company, the
Compensation Committee can cause all outstanding stock options to be
immediately exercisable and may accelerate the termination date of all such
options. A "change in control" generally means the occurrence of (i) the
acquisition by a person of 20% or more of the Company's Common Shares, (ii)
the first purchase of shares pursuant to an exchange or tender offer, or
(iii) shareholder approval of a merger in which the Company is not the
surviving corporation or pursuant to which the Company's shares are
converted into cash. See also "Change-in-Control Arrangements" herein.
(2) The dollar amounts set forth in these columns are the result of calculations
at the 5% and 10% rates set by the Securities and Exchange Commission, and
therefore are not intended to forecast possible future appreciation, if any,
of the Company's Common Stock price. Using these rates, the total of
potential realizable values for the named officers represents .1% of the
gain that would be realized by all shareholders of the Company. Based on the
number of shares outstanding and the market price on the grant date, the
aggregate gain realized by the Company's shareholders assuming a 5% annual
rate of stock appreciation for the option term would be in excess of $41
million; a 10% annual rate of stock appreciation would result in a gain in
excess of $93 million.
AGGREGATED OPTION EXERCISES
IN 1998 AND YEAR-END OPTION VALUES
Shown below is information with respect to the unexercised options to
purchase the Company's Common Shares under the Stock Option Plan held by the
Named Executive Officers at December 31, 1998. None of the Named Executive
Officers exercised any stock options during 1998.
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FY-END(#) AT FY-END($)(1)
SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- ----------- ----------- ------------- ----------- -------------
Michael J. Merriman....... 0 0 0 600,000 $ 0 $73,063
Gary J. Dieterich......... 0 0 90,980 6,120 0 0
James A. Holcomb.......... 0 0 0 200,000 0 24,500
T. Keith Moone............ 0 0 0 120,000 0 14,700
Richard G. Vasek.......... 0 0 48,540 51,760 6,563 4,375
- ---------------
(1) Calculated on the basis of the fair market value of the underlying
securities at December 31, 1998, minus the exercise price.
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CHANGE-IN-CONTROL AND OTHER EMPLOYMENT ARRANGEMENTS
The Company has entered into Severance Agreements with the Named Executive
Officers that are designed to retain the executives and provide for continuity
of management in the event of any actual or threatened change in the control of
the Company. Each agreement only becomes operative upon a "Change in Control" as
defined in the Agreements. After a Change in Control, if, during the three-year
period commencing with the Change in Control, the executive's employment is
terminated for reasons other than "cause" (as defined in the Agreement), death
or disability, or the executive terminates his employment for "good reason" (as
defined in the Agreement), under their respective agreements, the executive
shall be entitled to receive a severance amount equal to two to three times (as
defined in the Agreement) of his then base salary. All options held by the
executives with respect to the Company's common stock will become immediately
exercisable upon the date of termination of employment and remain exercisable
for a period of 90 days thereafter. Certain other officers were provided similar
agreements providing severance payments of one to two years of base salary.
The Company has entered into an Employment Contract with Mr. Merriman which
provides for payment of one year's base salary if his employment is terminated
by the Company.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The report of the Compensation Committee shall not be deemed incorporated
by reference by any general statement incorporating by reference this proxy
statement into any filing under the Securities Act of 1933 or under the
Securities Exchange Act of 1934, except to the extent that the Company
specifically incorporates this information by reference, and shall not otherwise
be deemed filed under such Acts.
The Compensation Committee of the Board of Directors has furnished the
following report on executive compensation:
It is the responsibility of the Compensation Committee to set policy for
administering the Company's executive compensation plans and to make
recommendations to the Board as appropriate. These plans for Executive Officers
include base salaries, incentive compensation, stock options, and any other
forms of remuneration.
The Committee annually reviews in detail all aspects of compensation for
the Chief Executive Officer and other executive officers. If the Committee
believes that a particular situation warrants outside professional input, the
Committee may retain the services of a qualified compensation consulting firm to
assist it in the performance of its duties. The Committee reviews the
reasonableness of total compensation to officers of the Company, taking into
account how the executive compensation of the Company compares to that of
executives for its industry peer group (companies included in the Dow Jones Home
Furnishings and Appliance Index), as well as to that of other public companies
of similar size. The Committee also reviews executive compensation surveys and
other data in determining compensation policies.
Cash compensation is provided to officers through a combination of base
salaries and incentive awards under the Company's Management Incentive Plan
(MIP). Based upon the Committee's analysis, base salaries are fixed at levels
below or above the average competitive amounts paid to other executives in
similar sized public companies and below those of companies included in the Dow
Jones Home Furnishings and Appliance Index. Individual salaries may vary
somewhat below or above the average, based upon the individual's performance and
contribution to Company success, tenure on the job, and specific industry skill.
The MIP is highly leveraged such that the higher actual pre-tax earnings are
above the minimum thresholds, the higher the MIP award is as a percentage of
base salary. At the beginning of each year, the Compensation Committee sets the
MIP award percentages and the current year's minimum pre-tax earnings thresholds
that serve as the baseline for determining any payout under the MIP. For 1998,
the Company did not meet the minimum pre-tax threshold, therefore no MIP bonuses
were paid to executive officers.
The Company has designed its compensation program for officers to provide a
strong and direct link between Company performance and executive pay. Each
component of executive compensation is evaluated so that, in combination, highly
talented executives can be attracted, retained and motivated to consistently
improve the financial performance of the Company.
Mr. Merriman, Chief Executive Officer, participates in the same
compensation programs provided to the other executive officers. Mr. Merriman did
not receive any MIP bonus for 1998 since the Company did not meet
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minimum earnings threshold in 1998. The Committee based the 1998 compensation of
Mr. Merriman on the policies and procedures described above. Mr. Merriman's base
salary was fixed at approximately the average competitive amounts paid to other
Chief Executive Officers of similar sized public companies and below those of
companies included in the Dow Jones Home Furnishings and Appliance Index.
Annually, the Committee considers the desirability of granting longer-term
incentive awards to the Company's officers under the Company's Stock Option
Plans. Except for options granted to Mr. Vasek relating to his increased
responsibilites and promotion to Chief Financial Officer, the Committee did not
grant any stock options to the Executive Officers during 1998. In 1996, the
Committee granted options under the 1996 Key Executive Long-Term Incentive Plan
which will vest at the end of five years ("5 year Cliff Vesting"). These grants
have escalating exercise prices above the then current market price of the
Company's stock provide increasing incentive to these officers only if
substantial stock appreciation is actually realized for shareholders, thus
providing a direct link between the Company's stock performance and executive
compensation.
COMPENSATION COMMITTEE
Joseph B. Richey II, Chairman
E. Patrick Nalley
John P. Rochon
10
13
SHAREHOLDER RETURN PERFORMANCE PRESENTATION. Set forth below is a line
graph comparing the yearly cumulative total shareholder return on the Company's
Common Shares against the cumulative total return of the Dow Jones Equity Market
Index and the Dow Jones Home Furnishings and Appliance Index for the five-year
period ended December 31, 1998.
The stock price performance graph below shall not be deemed incorporated by
reference by any general statement incorporating by reference this proxy
statement into any filing under the Securities Act of 1933 or under the
Securities Exchange Act of 1934, except to the extent that the Company
specifically incorporates this information by reference and shall not otherwise
be deemed filed under such Acts.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURNS
Among Royal Appliance Mfg. Co., Dow Jones Equity
Market Index & Dow Jones Home Furnishings and Appliances Index
Fiscal Years Ending December 31
ROYAL APPL. MANU. DOW JONES EQUITY D.J. HOME FURN.
----------------- ---------------- ---------------
'1993' 100.00 100.00 100.00
'1994' 61.00 101.00 82.00
'1995' 43.00 139.00 93.00
'1996' 120.00 171.00 99.00
'1997' 115.00 229.00 131.00
'1998' 64.00 295.00 140.00
Royal Appliance Mfg.
- - - - - Co. 100 61 43 120 115 64
- ----------------------------------------------------------------------------------------------------------------
Dow Jones Equity
- -- Market Index 100 101 139 171 229 295
- ----------------------------------------------------------------------------------------------------------------
D.J. Home
- -- -- Furnishings and
Appliances Index 100 82 93 99 131 140
- ----------------------------------------------------------------------------------------------------------------
11
14
PROPOSAL TWO
INDEPENDENT AUDITORS
The Board of Directors recommends that you vote "FOR" the ratification of
the Board's appointment of PricewaterhouseCoopers LLP as the Company's
independent auditors to serve for the fiscal year 1999 or until their successors
are selected. The Board's appointment is made upon the recommendation of the
Audit Committee. Proxies will be so voted unless the shareholders specify
otherwise in their proxies. Proposal two will be adopted if approved by the
affirmative vote of a majority of the shares present in person or by proxy at
the meeting and entitled to vote. In the event such selection is not ratified,
the Board of Directors will reconsider its selection.
PricewaterhouseCoopers LLP has audited the Company's financial statements
for each fiscal year since the fiscal year ended December 31, 1985.
Representatives of PricewaterhouseCoopers LLP are expected to be present at the
meeting with the opportunity to make a statement if they desire to do so, and
are expected to be available to respond to appropriate questions.
OTHER MATTERS
The Board of Directors of the Company is not aware that any matter other
than those listed in the Notice of Meeting is to be presented for action at the
meeting. If any of the Board's nominees is unavailable for election as a
Director or any other matter should properly come before the meeting, it is
intended that votes will be cast pursuant to the Proxy in respect thereto in
accordance with the best judgment of the person or persons acting as proxies.
FINANCIAL INFORMATION
UPON WRITTEN REQUEST BY ANY SHAREHOLDER TO THE SECRETARY, ROYAL
APPLIANCE MFG. CO., 650 ALPHA DRIVE, CLEVELAND, OHIO 44143, A COPY OF THE
COMPANY'S 1998 ANNUAL REPORT OR FORM 10-K WILL BE PROVIDED WITHOUT CHARGE.
March 26, 1999
12
15
ROYAL APPLIANCE MFG. CO.
NOTICE: 1999 ANNUAL MEETING OF SHAREHOLDERS
The 1999 Annual Meeting of Shareholders of Royal Appliance Mfg. Co. will be held
on Tuesday, April 27, 1999 at 10:00 a.m. at The Forum Conference Center, One
Cleveland Center, 1375 East Ninth Street, Cleveland, Ohio.
LOGO
YOUR VOTE IS VERY IMPORTANT
Please sign, date and return your proxy/voting instruction card below. Detach
and return the card in the envelope provided.
DETACH CARD
- --------------------------------------------------------------------------------
ROYAL APPLIANCE MFG. CO.
The undersigned hereby appoints Michael J. Merriman and R. Louis Schneeberger,
with full power of substitution, as proxy to vote the Common Shares of Royal
Appliance Mfg. Co. owned by the undersigned at the annual meeting of
shareholders to be held April 27, 1999, at The Forum Conference Center, One
Cleveland Center, 1375 East Ninth Street, Cleveland, Ohio, at 10:00 a.m. local
time, and at any adjournment thereof, upon all business that may properly come
before the meeting, including the business identified and in the manner
indicated on this Proxy and described in the Proxy Statement furnished herewith.
THE BOARD OF DIRECTORS RECOMMENDS VOTING FOR ALL ITEMS.
1. ELECTION OF DIRECTORS WITHHOLD AUTHORITY [ ]
FOR all nominees listed below [ ] to vote for all nominees listed below
(except as indicated to the contrary below)
E. Patrick Nalley, Joseph B. Richey, and R. Louis Schneeberger
INSTRUCTION: (TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE WRITE
THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW)
-----------------------------------------------------------------------------
2. RATIFICATION OF THE APPOINTMENT OF AUDITORS
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(CONTINUED, AND TO BE SIGNED ON OTHER SIDE)
16
DETACH CARD
- --------------------------------------------------------------------------------
PROXY NO. SHARES
(Continued from the other side)
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS, WHICH RECOMMENDS
VOTING FOR ALL ITEMS. SHARES REPRESENTED BY PROPERLY EXECUTED PROXIES WILL BE
VOTED AS SPECIFIED. UNLESS OTHERWISE SPECIFIED, THE SHARES REPRESENTED BY THIS
PROXY WILL BE VOTED FOR ALL ITEMS.
Dated................, 1999
...........................
Signature
...........................
Signature
Please sign exactly as
name(s) appear on this
proxy. If joint account,
each joint owner should
sign. If signing for a
corporation or partnership
or as agent, attorney, or
fiduciary indicate the
capacity in which you are
signing.
PLEASE SIGN, DATE, AND RETURN YOUR PROXY PROMPTLY IN THE ENCLOSED ENVELOPE TO
NATIONAL CITY BANK, P.O. BOX 92301, CLEVELAND, OHIO 44197-1200.