<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
[Dirt Devil Trademark]
[Royal Appliance Logo]
ROYAL APPLIANCE MFG. CO.
CLEVELAND, OHIO
To Our Shareholders:
You are cordially invited to attend the 2000 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 25,
2000, 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 24, 2000
<PAGE> 3
[Dirt Devil Trademark]
[Royal Appliance Logo]
ROYAL APPLIANCE MFG. CO.
CLEVELAND, OHIO
NOTICE OF ANNUAL SHAREHOLDERS MEETING
TO BE HELD APRIL 25, 2000
The annual meeting of shareholders of Royal Appliance Mfg. Co., an Ohio
corporation ("Company"), will be held on Tuesday, April 25, 2000 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 2002.
2. To ratify the appointment of PricewaterhouseCoopers LLP as auditors of
the Company for 2000.
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 10, 2000 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 24, 2000
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 25, 2000, 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 24, 2000.
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 10, 2000 (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,
15,876,952 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 2000.
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 2001 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
2001 must be received by the Company no later than November 24, 2000, 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 2001 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 2002 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 2002
<TABLE>
<CAPTION>
DIRECTOR
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION SINCE
--------------- --- -------------------- --------
<S> <C> <C> <C>
Jack Kahl Jr............................ 59 Chief Executive Officer of Manco, Inc. 1995
Michael J. Merriman..................... 43 Chief Executive Officer and President of 1993
the Company
John P. Rochon.......................... 48 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. Mr. Merriman is also a
Director of Marketing Specialists Corporation.
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. and Marketing Specialists
Corporation.
3
<PAGE> 6
DIRECTORS WHOSE TERMS TO EXPIRE IN 2001
<TABLE>
<CAPTION>
DIRECTOR
NAME OF DIRECTOR AGE PRINCIPAL OCCUPATION SINCE
---------------- --- -------------------- --------
<S> <C> <C> <C>
E. Patrick Nalley....................... 80 Director of Invacare Corporation 1981
Joseph B. Richey II..................... 62 President of Invacare Technologies 1994
R. Louis Schneeberger................... 45 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. 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 eight meetings during the fiscal
year ended December 31, 1999. The Board of Directors has an Audit Committee, a
Compensation Committee, and a Corporate Governance Committee. The Audit
Committee held two meetings during 1999 while the Corporate Governance and the
Compensation Committee each met once during 1999. 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 1999. 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. In connection with new SEC regulations, the Board
of Directors has adopted an Audit Committee Charter which is included in Exhibit
A to this proxy statement.
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 2001
annual meeting may do so by providing written notice to the Company in care of
Richard G. Vasek, Secretary, no later than November 24, 2000.
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 $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. 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
10, 2000, based upon information furnished to the Company:
<TABLE>
<CAPTION>
NAME AND ADDRESS SHARES AND NATURE OF PERCENTAGE OF TOTAL
OF BENEFICIAL OWNERS BENEFICIAL OWNERSHIP SHARES OUTSTANDING
-------------------- -------------------- -------------------
<S> <C> <C>
Richmont Capital Partners I, L.P.................... 2,969,900(1) 18.7%
4300 West Grove
Dallas, Texas 75248
John P. Rochon...................................... 2,987,400(2) 18.8%
4300 West Grove
Dallas, Texas 75248
E. Patrick Nalley................................... 1,070,000(3) 6.7%
650 Alpha Drive
Cleveland, Ohio 44143
</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 16,000 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 50,000 which can be acquired by the
exercise of stock options.
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 10, 2000.
<TABLE>
<CAPTION>
PERCENT OF
NAME SHARES TOTAL
---- ------ ----------
<S> <C> <C>
Jack Kahl Jr................................................ 136,000(1) *
Michael J. Merriman......................................... 95,000(1) *
E. Patrick Nalley........................................... 1,070,000(1)(2) 6.7%
Joseph B. Richey II......................................... 250,000(1) 1.6%
John P. Rochon.............................................. 2,987,400(1)(3) 18.8%
R. Louis Schneeberger....................................... 98,000(1) *
Gary J. Dieterich........................................... 118,540(1) *
James A. Holcomb............................................ 14,932(1) *
T. Keith Moone.............................................. 10,000(1) *
Richard G. Vasek............................................ 79,855(1) *
Directors and Executive Officers as a group (11 persons).... 4,885,927(4) 30.8%
</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 10, 1999 as follows: Mr. Kahl -- 16,000;
Mr. Merriman -- 40,000; Mr. Nalley -- 50,000; Mr. Richey -- 50,000; Mr.
Rochon -- 16,000; Mr. Schneeberger -- 50,000; Mr. Dieterich -- 102,100; Mr.
Holcomb -- 10,000; Mr. Moone -- 10,000; Mr. Vasek -- 74,300.
(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 444,600 exercisable within sixty days following March 10, 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 1999 and Form 5 and
amendments thereto furnished to the Company with respect to 1999, 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.
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, 1999, 1998, and 1997, of those persons (the "Named Executive Officers") who
served during 1999 as the Company's Chief Executive Officer and the other four
most highly compensated (during 1999) executive officers of the Company:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
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)
------------------------- ---- ------- ------- ------------ -------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Michael J. Merriman 1999 360,000 410,040 0 200,000 0 17,623
Chief Executive Officer, 1998 360,000 0 0 0 0 26,211
President and Director 1997 342,500 304,483 0 0 7,851 27,232
Gary J. Dieterich 1999 197,917 166,646 0 25,000 0 10,337
Senior Vice President -- 1998 200,000 0 0 0 0 14,482
Administration 1997 190,000 159,790 0 0 5,987 14,333
Jim A. Holcomb 1999 200,000 168,400 0 50,000 0 7,843
Vice President -- Marketing & 1998 200,000 0 0 0 0 14,243
Strategic Planning 1997 190,000 159,790 0 0 0 13,815
T. Keith Moone 1999 165,000 173,930 0 50,000 0 7,109
Vice President -- Sales 1998 165,000 0 0 0 0 11,865
1997 157,500 132,458 0 0 0 10,308
Richard G. Vasek(1) 1999 143,333 120,686 0 70,000 0 7,741
Chief Financial Officer 1998 116,500 0 0 25,000 0 7,985
Vice President -- Finance
</TABLE>
- ---------------
(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) The amounts shown in this column represents payments made to the Company's
Defined Contribution Plans ("DCP") by the Company.
7
<PAGE> 10
OPTION GRANTS IN 1999
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, 1999, to the Named Executive Officers which
are listed in the Summary Compensation Table.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
----------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SECURITIES % OF TOTAL PRICE 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% ($)
---- ---------- ------------ -------- ------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Michael J. Merriman.......... 200,000 29.7% $4.50 $3.125 2/12/09 $118,059 $721,089
Gary J. Dieterich............ 25,000 3.7% $4.50 $3.125 2/12/09 14,757 90,136
James A. Holcomb............. 50,000 7.4% $4.50 $3.125 2/12/09 29,515 180,272
T. Keith Moone............... 50,000 7.4% $4.50 $3.125 2/12/09 29.515 180,272
Richard G. Vasek............. 70,000 10.4% $4.50 $3.125 2/12/09 41,321 252,381
</TABLE>
- ---------------
(1) All stock options are exercisable in cumulative 20% installments commencing
one-year from date of grant with full vesting occurring on the fifth
anniversary date, assuming the executive officer remains employed by the
Company. The Options expire on February 12, 2009, 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 2% 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 $11
million; a 10% annual rate of stock appreciation would result in a gain in
excess of $70 million.
AGGREGATED OPTION EXERCISES
IN 1999 AND YEAR-END OPTION VALUES
Shown below is information with respect to the unexercised options to
purchase the Company's Common Shares under the stock option plans held by the
Named Executive Officers at December 31, 1999. None of the Named Executive
Officers exercised any stock options during 1999.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FY-END(#) AT FY-END($)(1)
SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael J. Merriman....... 0 0 0 800,000 $0 $ 0
Gary J. Dieterich......... 0 0 97,100 25,000 0 41,050
James A. Holcomb.......... 0 0 0 250,000 0 0
T. Keith Moone............ 0 0 0 170,000 0 0
Richard G. Vasek.......... 0 0 60,300 110,000 0 49,650
</TABLE>
- ---------------
(1) Calculated on the basis of the fair market value of the underlying
securities at December 31, 1999, minus the exercise price.
8
<PAGE> 11
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. The Company may make an
additional payment to certain executives to reimburse such individuals for
excise tax payments triggered by the foregoing severance payments. 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 two to three 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 has retained the
services of PricewaterhouseCoopers LLP to provide analysis to the Committee with
respect to 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 bonus 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 earnings before taxes
and interest 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 earnings
thresholds that serve as the baseline for determining any payout under the MIP.
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.
9
<PAGE> 12
Mr. Merriman, Chief Executive Officer, participates in the same
compensation programs provided to the other executive officers. The Committee
based the 1999 compensation of Mr. Merriman on the policies and procedures
described above. Mr. Merriman's base salary was not increased in 1999. Mr.
Merriman's base salary was fixed below the average competitive amounts paid to
other Chief Executive Officers of similar sized public companies and 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 grant stock options to the Executive Officers during
1999. The Committee granted options under the 1996 Key Executive Long-Term
Incentive Plan which will vest in cumulative 20% installments, commencing
one-year from date of grant with full vesting occurring on the fifth anniversary
date. These grants had exercise prices above the then current market price of
the Company's stock to 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
<PAGE> 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, 1999.
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>
DOW JONES EQUITY MARKET D.J. HOME FURNISHINGS AND
ROYAL APPL. MANU. CO. INDEX APPLIANCES INDEX
--------------------- ----------------------- -------------------------
<S> <C> <C> <C>
1995 100.00 100.00 100.00
1996 275.00 123.00 106.00
1997 265.00 165.00 141.00
1998 148.00 212.00 150.00
1999 195.00 255.00 131.00
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- - - - - Royal Appliance Mfg. Co. 100 275 265 148 195
- -------------------------------------------------------------------------------------------------------
Dow Jones Equity Market
- -- Index 100 123 165 212 255
- -------------------------------------------------------------------------------------------------------
D.J. Home Furnishings and
- -- -- Appliances Index 100 106 141 150 131
- -------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 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 2000 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 are 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 1999
ANNUAL REPORT OR FORM 10-K WILL BE PROVIDED WITHOUT CHARGE.
March 24, 2000
12
<PAGE> 15
EXHIBIT A
ROYAL APPLIANCE MFG. CO.
AUDIT COMMITTEE CHARTER
I. PURPOSE
The Audit Committee ("Committee") will assist the Board of Directors
("Board") in fulfilling its oversight responsibilities. The audit committee will
review the financial reporting process, the system of internal control, the
audit process, and the Company's process for monitoring compliance with laws and
regulations and with the code of conduct. Consistent with this function, the
Committee shall encourage continuous improvement of, and shall foster adherence
to, the Company's policies, procedures and practices at all levels. In
performing its duties, the Committee will maintain effective working
relationships with the Board, management and the independent accountants. To
effectively perform his or her role, each Committee member will obtain an
understanding of the detailed responsibilities of Committee membership as well
as the Company's business, operations and risks.
The Committee's primary duties and responsibilities are to:
- Serve as an independent and objective party to provide a degree of
oversight over the Company's financial reporting process and systems of
internal controls
- Review and appraise the audit efforts of the Company's independent
accountants, whom are ultimately accountable to the Committee and the
Board
- Provide an open avenue of communication among the independent
accountants, financial and senior management and the Board
The Committee will primarily fill these responsibilities by carrying out
the activities enumerated in Section V of this Charter.
II. COMPOSITION AND TERM
The Committee shall be comprised of three or more directors as determined
by the Board, each of whom shall be independent directors, and free from any
relationship that, in the opinion of the Board, would interfere with the
exercise of his or her independent judgement as a member of the Committee. All
members of the Committee shall be financially literate and have a working
familiarity with basic finance and accounting practices, and at least one member
of the Committee shall have accounting or financial management expertise.
For purposes of this Charter, the definition of independence includes the
absence of any relationship with the Company that may interfere with the
exercise of their independence from management and the Company. In addition, the
following restrictions apply to every Committee member:
a) Employees: A director who is an employee (including non-employee
executive officers) of the Company or any of its affiliates may not serve
on the Committee until three years following the termination of his or her
employment. In the event the employment relationship is with a former
parent or predecessor of the Company, the director could serve on the
Committee after three years following the termination of the relationship
between the Company and the former parent or predecessor.
b) Business Relationship: A director (i) who is a partner, shareholder
or executive officer of an organization that has a business relationship
with the Company, or (ii) who has a direct business relationship with the
Company (i.e. consultant) may serve on the Committee only if the Company's
Board determines in its business judgement that the relationship does not
interfere with the director's exercise of independent judgement. In making
a determination regarding the independence of a director pursuant to this
paragraph, the Board should consider, among other things, the materiality
of the relationship to the Company, to the director, and if applicable, to
the organization with which the director is affiliated.
"Business relationships" can include commercial, industrial, banking,
consulting, legal, accounting and other relationships. A director can have
this relationship directly with the Company, or the director can be a
partner, officer or employee of an organization that has such a
relationship. The director may serve on the Committee without the above
referenced Board determination after three years following the termination
of, as applicable, either (1) the relationship between the organization
with which the director is affiliated and the
A-1
<PAGE> 16
Company, (2) the relationship between the director and his or her
partnership status, shareholder interest or executive officer position, or
(3) the direct business relationship between the director and the Company.
c) Cross Compensation Committee Link: A director who is employed as an
executive of another corporation where any of the Company's executives
serves on that corporation's compensation committee may not serve on the
Committee.
d) Immediate Family: A director who is an immediate family member of
an executive officer of the Company or any of its affiliates cannot serve
on the Committee until three years following the termination of such
employment relationship. Immediate family members include spouses, parents,
children, siblings, mothers-in-law and fathers-in-law, sons and
daughters-in-law, brothers and sisters-in-law and anyone (other than
employees) who shares such person's home.
The members of the Committee shall be elected by the Board at the annual
organizational meeting of the Board or until their successors shall be duly
elected and qualified. Unless a Chairman of the Audit Committee is elected by
the full Board, the members of the Committee may designate a Chairman by
majority vote of full Committee membership.
III. MEETINGS
The Committee shall hold at least two regular meetings annually, or more
frequently as circumstances dictate. At a minimum, the Committee shall meet with
management and the independent accountants prior to the annual audit and post
audit. The purpose of these meetings is further discussed in Section V of this
Charter. The Committee shall meet at least annually with management and the
independent accountants in separate sessions to discuss any matters that the
Committee or each of these groups believes should be discussed privately.
Minutes of each meeting are to be prepared and sent to Committee members
and also the Board members who are not members of the Committee. The minutes, as
finally approved shall be placed in the corporate minute books of the Company by
the secretary of the Company. Copies will be provided to the independent
accountants.
If the Committee deems it necessary, it may meet in executive session.
Members of the Committee and the Committee's Secretary as appointed by the
Chairman of the Audit Committee, and only those advisors and members of
management designated by a Committee member shall attend executive sessions.
IV. AUTHORITY
In addition to performing the responsibilities and duties as contained in
Section V of this Charter, the Committee may, or at the Board's request shall,
investigate any financial and/or accounting activity of the Company. The
Committee is empowered with Board authority to execute such investigations
including the ability to retain third parties having special competence as
necessary to assist the Committee in fulfilling its responsibility.
V. RESPONSIBILITIES AND DUTIES
There are certain responsibilities and duties the Committee shall observe
in fulfilling its obligation under the Charter. These responsibilities and
duties are included here in summary form.
PRE AUDIT
(1) Review, prior to the annual audit, the proposed scope and general
extent of the independent accountants audit examination. This review shall
entail an understanding from the independent accountants of the factors
considered in determining the audit scope - including among other considerations
are the following:
- Industry, business and internal control risk characteristics of the
Company
- The significance of various balance sheet accounts and the related
audit strategy
- External reporting requirements
- Quality of internal accounting controls over financial reporting
- Key changes and issues affecting the audit plan
- Review of risk assessment and audit approach
- Other areas to be covered during the audit engagement
A-2
<PAGE> 17
(2) Review and approve the independent accountants' fee schedule as agreed
upon by management
(3) Review with management the extent of non-audit services provided by the
independent accountants in relation to the objectivity needed in the audit
(4) Review statement of independence supplied by the independent
accountants in accordance with Independence Standards Board ("ISB") Standard No.
1, Communication with Audit Committees.
POST AUDIT
(1) Review financial results for the year with management and the
independent accountants upon completion of the audit and prior to the earnings
release. This review shall encompass:
- Significant financial and business issues addressed during the audit
- Significant accounting estimates and judgements impacting the
financial statements
- Extent to which external auditors review computer systems and
applications, the security of such systems and applications, and the
contingency plan for processing financial information in the event
of a systems breakdown
- Proposed audit adjustments, both recorded and unrecorded, and
related resolutions
- The Company's annual report to shareholders, including the financial
statements, and financial statement and supplemental disclosures
required by Generally Accepted Accounting Principles ("GAAP") and
the SEC. Members of the entire Board review the SEC Form 10-K.
- Significant transactions that are not a normal part of the Company's
operations
- Any changes during the year in the Company's accounting principles
or the related application of accounting principles
(2) Discuss with the independent accountants, without the presence of
management or other Company personnel, the quality of the Company's financial
and accounting personnel
(3) Discuss with the independent accountants any relevant recommendations,
which they may have regarding "reportable conditions" or "material weaknesses"
as defined below. Topics to be considered during this discussion include
improving financial controls, the selection of accounting principles and
management reporting systems. Review responses of management to the comments and
recommendations from the independent accountants, if any
REPORTABLE CONDITIONS in the internal control structure requires
communication during the audit (i.e. significant deficiencies in the design
or functioning of the internal control structure that could adversely
affect the organization's ability to record, process, summarize and report
financial data consistent with the assertions of management in the
financial statements). The internal control structure consists of the
control environment, accounting systems and the control procedures. The
term "reportable condition" is intended to be a lower threshold than
"material weaknesses".
MATERIAL WEAKNESSES in the internal control structure is a reportable
condition in which the design or operation of the specific internal control
structure elements do not reduce to a relatively low level the risk that
errors or irregularities in an amount that would be material in relation to
the financial statements being audited may occur and not be detected within
a timely period by employees in the normal course of performing their
assigned functions.
(4) Discuss the scope and quality of internal accounting controls over
financial reporting matters in effect with Company management
(5) Review any management disagreement with the independent accountants and
determine disclosure obligations with respect thereto
(6) Review summary of outstanding litigation and violations of code of
conduct, if any, as prepared by management. In connection with this review, read
the legal letter responses from counsel as requested by the independent
accountants
A-3
<PAGE> 18
INTERIM FINANCIAL STATEMENTS
(1) Be briefed on how management develops and summarizes quarterly
financial information, the extent to which the independent accountants review
quarterly financial information, and whether that review is performed on a pre-
or post-review basis
(2) Meet with management and, if a pre-issuance review was completed, with
the independent accountants, either telephonically or in person, to review the
interim financial statements and the results of the review. (This may be done by
the committee chairperson or the entire committee)
(3) To gain insight into the fairness of the interim statements and
disclosures, obtain explanations from management and from the independent
accountants on whether:
- Changes in financial ratios and relationships in the interim
financial statements are consistent with changes in the Company's
operations and financing practices
- Generally accepted accounting principles have been consistently
applied
- There are any actual or proposed changes in accounting or financial
reporting practices
- There are any significant or unusual events or transactions
- The Company's financial and operating controls are functioning
effectively
- The Company has complied with the terms of loan agreements, and
- The interim financial statements contain adequate and appropriate
disclosures
(4) Ensure that the independent accountants communicate certain required
matters to the committee
ONGOING
(1) Review and update this Charter periodically, at least annually, as
conditions dictate
(2) Review with management and the independent accountants new opinions and
releases from the Financial Accounting Standards Board ("FASB") and SEC guidance
and prospective new accounting rules and policies to the extent applicable to
the Company
(3) Apprise the Board of significant developments in the course of
performing the above duties through minutes and special presentations as
necessary.
(4) Ensuring the independence of the independent accountants
(5) Recommend any changes in the duties of the Committee to the Board
(6) The Committee and the Board have the ultimate authority and
responsibility to recommend the retention or replacement of the independent
accountants and provide a written summary of the basis for replacement
recommendations to the Board
ETHICS COMPLIANCE
(1) Review the Company's Policies and Procedures which include ethical
conduct and the Company's system to enforce these policies and procedures
(2) Review management's monitoring of the Corporation's compliance with the
organization's Ethical Code, and ensure that management has the proper review
system in place to ensure that the Corporation's financial statements, reports
and other financial information disseminated to governmental organizations and
the public satisfy legal requirements
A-4
<PAGE> 19
ROYAL APPLIANCE MFG. CO.
NOTICE: 2000 ANNUAL MEETING OF SHAREHOLDERS
The 2000 Annual Meeting of Shareholders of Royal Appliance Mfg. Co. will be held
on Tuesday, April 25, 2000 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 25, 2000, 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, and 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> 20
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................, 2000
...........................
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.
