<PAGE> 1
================================================================================
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:
<TABLE>
<S> <C>
[ ] 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
</TABLE>
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: ...........................................................
================================================================================
<PAGE> 2
[Royal Appliance Logo]
[Dirt Devil Trademark]
ROYAL APPLIANCE MFG. CO.
CLEVELAND, OHIO
To Our Shareholders:
You are cordially invited to attend the 1998 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 28,
1998, 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 27, 1998
<PAGE> 3
[Royal Applicance Logo]
[Dirt Devil Trademark]
ROYAL APPLIANCE MFG. CO.
CLEVELAND, OHIO
NOTICE OF ANNUAL SHAREHOLDERS MEETING
TO BE HELD APRIL 28, 1998
The annual meeting of shareholders of Royal Appliance Mfg. Co., an Ohio
corporation ("Company"), will be held on Tuesday, April 28, 1998 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 I Directors for a term expiring in 2000.
2. To ratify the appointment of Coopers & Lybrand L.L.P. as auditors of the
Company for 1998.
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 13, 1998 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 27, 1998
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.
1
<PAGE> 4
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 28, 1998, 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 27, 1998.
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 13, 1998 (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,
22,027,824 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 Coopers & Lybrand L.L.P. as
auditors of the Company for 1998.
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 1999 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
1999 must be received by the Company no later than November 28, 1998, in order
that they may be included in the proxy statement and form of proxy relating to
that meeting.
2
<PAGE> 5
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 I
Directors ends upon the election of Class I Directors at this annual meeting.
The term of the Class II Directors will end upon the election of Class II
Directors at the 1999 annual meeting of shareholders.
The Board of Directors has nominated Messrs. Kahl, Merriman and Rochon to
stand for reelection as the Class I Directors for a two-year term. The two-year
term will end upon the election of Class I Directors at the 2000 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 I 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 2000
<TABLE>
<CAPTION>
DIRECTOR
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION SINCE
--------------- --- -------------------- --------
<S> <C> <C> <C>
Jack Kahl Jr............................ 57 Chief Executive Officer of Manco Inc. 1995
Michael J. Merriman..................... 41 Chief Executive Officer and President of 1993
the Company
John P. Rochon.......................... 46 Chairman of the Richmont Corporation and 1995
Chief Executive Officer of Mary Kay
Holding Corporation
</TABLE>
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.
3
<PAGE> 6
DIRECTORS WHOSE TERMS TO EXPIRE IN 1999
<TABLE>
<CAPTION>
DIRECTOR
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION SINCE
--------------- --- -------------------- --------
<S> <C> <C> <C>
E. Patrick Nalley....................... 78 Director of Invacare Corporation 1981
Joseph B. Richey II..................... 60 President of Invacare Technologies 1994
R. Louis Schneeberger................... 43 Chief Financial Officer and Director of 1991
Olympic Steel, Inc.
</TABLE>
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.
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
The Board of Directors of the Company held five meetings during the fiscal
year ended December 31, 1997. The Board of Directors has an Audit Committee, a
Compensation Committee, and a Corporate Governance Committee. The Audit
Committee held two meetings during 1997 while the Compensation Committee and the
Corporate Governance Committee each met once during 1997. 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 1997. 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 1999
annual meeting may do so by providing written notice to the Company in care of
Richard G. Vasek, Secretary, no later than November 28, 1998.
4
<PAGE> 7
COMPENSATION OF DIRECTORS
Each Director who is not an employee of the Company receives a director's
fee in the amount of $10,000 per annum for up to four meetings, and
reimbursement for out-of-pocket expenses incurred in connection with attending
such meetings. An additional $2,500 is paid for attending board meetings, if
any, in excess of four meetings in any one year and $1,250 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
13, 1998, based upon information furnished to the Company:
<TABLE>
<CAPTION>
PERCENTAGE OF
NAME AND ADDRESS SHARES AND NATURE OF TOTAL
OF BENEFICIAL OWNERS BENEFICIAL OWNERSHIP SHARES OUTSTANDING
-------------------- -------------------- ------------------
<S> <C> <C>
Richmont Capital Partners I L.P..................... 2,969,900(1) 13.5%
4300 West Grove
Dallas, Texas 75248
John P. Rochon...................................... 2,979,400(2) 13.5%
4300 West Grove
Dallas, Texas 75248
Mellon Bank Corporation............................. 1,271,900(3) 5.8%
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258
</TABLE>
- ---------------
(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 8,000 shares which can be
acquired by the exercise of stock options.
(3) Based on Schedule 13G dated January 23, 1998, filed with the Securities and
Exchange Commission.
5
<PAGE> 8
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 13, 1998.
<TABLE>
<CAPTION>
PERCENT OF
NAME SHARES TOTAL
---- --------- ----------
<S> <C> <C>
Jack Kahl Jr................................................ 128,000(1) *
Michael J. Merriman......................................... 51,000 *
E. Patrick Nalley........................................... 1,058,000(3) 4.8%
Joseph B. Richey II......................................... 230,000(1) 1.0%
John P. Rochon.............................................. 2,979,400(4) 13.5%
R. Louis Schneeberger....................................... 73,000(1) *
Gary J. Dieterich........................................... 153,666(1) *
James A. Holcomb............................................ 3,143 *
Jeremiah J. Lynch........................................... 1,100 *
T. Keith Moone.............................................. 0 *
Directors and Executive Officers as a group (10 persons).... 4,677,309(2) 21.2%
</TABLE>
- ---------------
* Less than 1%
(1) Includes shares which can be acquired by the exercise of stock options on or
prior to sixty days following March 14, 1998 as follows: Mr. Kahl -- 8,000;
Mr. Nalley -- 38,000; Mr. Richey -- 30,000; Mr. Rochon -- 8,000; Mr.
Schneeberger -- 38,000; Mr. Dieterich -- 79,560.
(2) Includes 201,560 options exercisable within sixty days following March 13,
1998.
(3) Includes 1,000,000 shares held of record by Mr. Nalley as Trustee.
(4) Includes 2,969,900 shares beneficially owned by Richmont Capital Partners I
L.L.P. of which Mr. Rochon is a General Partner.
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. T. Keith Moone, Vice President -- Sales, made a
late filing with respect to an October 1997 intra-plan transfer with regards to
the Company's 401(k) plan. Based solely upon a review of Forms 3 and 4 and
amendments thereto furnished to the Company during 1997 and Form 5 and
amendments thereto furnished to the Company with respect to 1997, 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.
6
<PAGE> 9
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, 1997, 1996, and 1995, of those persons (the "Named Executive Officers") who
served during 1997 as the Company's Chief Executive Officer and the other four
most highly compensated (during 1997) executive officers of the Company:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------------------- -------------------------------
OTHER ANNUAL SECURITIES INCENTIVE PLAN ALL OTHER
SALARY BONUS COMPENSATION UNDERLYING LONG-TERM COMPENSATION
NAME & PRINCIPAL POSITION YEAR ($) ($) ($)(2) OPTIONS/SAR(#) PAYOUTS($)(3) ($)(4)
------------------------- ---- ------- ------- ------------ -------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Michael J. Merriman 1997 342,500 304,483 0 0 7,851 27,232
Chief Executive Officer, 1996 325,000 325,325 0 600,000 0 13,008
President and Director 1995 250,000 0 0 0 0 6,500
Gary J. Dieterich 1997 190,000 159,790 0 0 5,987 14,333
Senior Vice President -- 1996 180,000 155,340 0 0 0 7,859
Administration 1995 175,000 0 0 0 0 6,375
Jim A. Holcomb 1997 190,000 159,790 0 0 0 13,815
Vice President -- Marketing & 1996 165,000 142,395 0 200,000 0 4,558
Strategic Planning 1995 150,000 0 0 0 0 4,250
T. Keith Moone 1997 157,500 132,458 0 0 0 10,308
Vice President -- Sales 1996 150,000 87,225 0 120,000 0 6,953
1995 120,000 14,100(5) 49,811(6) 0 0 6,500
Jeremiah J. Lynch(1) 1997 106,000 89,146 0 0 0 6,390
Vice President -- Operations
</TABLE>
- ---------------
(1) Mr. Lynch became a Named Executive Officer in 1997. 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").
(5) Amount represents sales incentive bonus paid to Mr. Moone for his duties as
National Sales Manager, prior to his appointment as Vice President -- Sales
in December 1995.
(6) Amount represents tax gross-up payments to Mr. Moone related to
reimbursement of expenses relating to his relocation to Ohio in 1994.
7
<PAGE> 10
OPTION GRANTS IN 1997
No stock options or stock appreciation rights were granted to the Named
Executive Officers in the year ended December 31, 1997.
AGGREGATED OPTION EXERCISES
IN 1997 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, 1997. None of the Named Executive
Officers exercised any stock options during 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FY-END(#) AT FY-END($)(1)
SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE(#) REALIZED($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael J. Merriman..... 0 0 0 600,000 $ 0 $654,375
Gary J. Dieterich....... 0 0 79,560 17,540 95,185 45,790
James A. Holcomb........ 0 0 0 200,000 0 219,250
T. Keith Moone.......... 0 0 0 120,000 0 131,000
Jeremiah J. Lynch....... 0 0 0 120,000 0 63,800
</TABLE>
- ---------------
(1) Calculated on the basis of the fair market value of the underlying
securities at December 31, 1997, minus the exercise price.
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 60 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.
8
<PAGE> 11
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 1997,
the Company exceeded the minimum pre-tax threshold, therefore 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's
MIP target was higher than the other executives, therefore, despite the
Company's 31% growth in net income, Mr. Merriman's annual MIP award for 1997
resulted in a lower percentage of base salary and in lower total dollars than in
1996. The Committee based the 1997 compensation of Mr. Merriman on the policies
and procedures described above. Mr. Merriman's base salary was fixed below 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. The Committee did not grant any stock options to the Executive Officers
during 1997. However, in 1996, the Committee granted stock options to certain
executive officers under the Key Executive Long-Term Incentive Plan which was
approved by the Shareholders in 1996. In order to retain and focus the Company's
key executives on the Company's long-term profitability and increasing
shareholder value over an extended period, 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"). Further, the 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. In connection with such grants,
Mr. Merriman and certain executive officers forfeited all of their then vested
and unvested stock options outstanding under the 1991 Employees and Consultants'
Stock Option Plan.
COMPENSATION COMMITTEE
Joseph B. Richey II, Chairman
E. Patrick Nalley
John P. Rochon
9
<PAGE> 12
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, 1997.
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
<TABLE>
<CAPTION>
D. J. Home
Furnishings
Royal Dow Jones and
Measurement Period Appliance Equity Market Appliances
(Fiscal Year Covered) Mfg. Co. Index Index
<S> <C> <C> <C>
1992 100 100 100
1993 41 110 142
1994 25 111 113
1995 18 152 130
1996 49 188 137
1997 47 251 182
Royal Appliance Mfg.
- -- -- Co. 100 41 25 18 49 47
- ----------------------------------------------------------------------------------------------------------------
Dow Jones Equity
- -- Market Index 100 110 111 152 188 251
- ----------------------------------------------------------------------------------------------------------------
D.J. Home
- - - - - Furnishings and
Appliances Index 100 142 113 130 137 182
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 13
PROPOSAL TWO
INDEPENDENT AUDITORS
The Board of Directors recommends that you vote "FOR" the ratification of
the Board's appointment of Coopers & Lybrand L.L.P. as the Company's independent
accountants to serve for the fiscal year 1998 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.
Coopers & Lybrand L.L.P. has audited the Company's financial statements for
each fiscal year since the fiscal year ended December 31, 1985. Representatives
of Coopers & Lybrand L.L.P. 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 1997
ANNUAL REPORT OR FORM 10-K WILL BE PROVIDED WITHOUT CHARGE.
March 27, 1998
11
<PAGE> 14
ROYAL APPLIANCE MFG. CO.
NOTICE: 1998 ANNUAL MEETING OF SHAREHOLDERS
The 1998 Annual Meeting of Shareholders of Royal Appliance Mfg. Co. will be held
on Tuesday, April 28, 1998 at 10:00 a.m. at The Forum Conference Center,
One Cleveland Center, 1375 East Ninth Street, Cleveland, Ohio.
[DIRT DEVIL 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 28, 1998, 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.
<TABLE>
<S> <C>
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)
</TABLE>
Jack Kahl Jr, Michael J. Merriman, John P. Rochon
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)
<PAGE> 15
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................, 1998
...........................
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.
