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:
[ ] 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: ...........................................................
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
2
[Royal Appliance Logo] [Dirt Devil Trademark]
ROYAL APPLIANCE MFG. CO.
CLEVELAND, OHIO
To Our Shareholders:
You are cordially invited to attend the 2001 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 24,
2001, 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, 2001
3
[Royal Appliance Logo] [Dirt Devil Trademark]
ROYAL APPLIANCE MFG. CO.
CLEVELAND, OHIO
NOTICE OF ANNUAL SHAREHOLDERS MEETING
TO BE HELD APRIL 24, 2001
The annual meeting of shareholders of Royal Appliance Mfg. Co., an Ohio
corporation ("Company"), will be held on Tuesday, April 24, 2001 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 2003.
2. To ratify the appointment of PricewaterhouseCoopers LLP as auditors of
the Company for 2001.
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 9, 2001 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
Glenwillow, Ohio
March 26, 2001
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
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 24, 2001, 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 23, 2001.
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 9, 2001 (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,
13,728,652 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 2001.
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 2002 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
2002 must be received by the Company no later than November 26, 2001, in order
that they may be included in the proxy statement and form of proxy relating to
that meeting.
2
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 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 2002 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
2003 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 2003
DIRECTOR
NAME OF DIRECTOR AGE PRINCIPAL OCCUPATION SINCE
---------------- --- -------------------- --------
E. Patrick Nalley.................... 81 Director of Invacare Corporation 1981
Joseph B. Richey II.................. 63 President of Invacare Technologies 1994
R. Louis Schneeberger................ 46 Chief Financial Officer of Cardinal 1991
Commerce Corporation
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. Mr. Schneeberger has been
the Executive Vice President and Chief Financial Officer for Cardinal Commerce
Corporation, an early-stage development company involved in the authentication
of internet-based transactions, since December 2000. From March 2000 until
December 2000, Mr. Schneeberger served as Chief Financial Officer of Complient
Corporation, a developer of internet-based regulatory and other compliance
software. Prior thereto he served 13 years as Chief Financial Officer and as a
Director of Olympic Steel, Inc., a steel service center. Mr. Schneeberger also
serves as a Trustee of the Achievement Centers for Children, serves on the
Business Advisory Council for Kent State University and Enterprise Development
Inc., an affiliate of Case Western Reserve University.
3
6
DIRECTORS WHOSE TERMS EXPIRE IN 2002
DIRECTOR
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION SINCE
--------------- --- -------------------- --------
Jack Kahl Jr......................... 60 Chief Executive Officer of Jack Kahl 1995
& Associates, LLC
Michael J. Merriman.................. 44 Chief Executive Officer and President 1993
of the Company
John P. Rochon....................... 49 Chairman of the Richmont Corporation 1995
and Chief Executive Officer of
Mary Kay Holding Corporation
JACK KAHL JR. has served as a Director of the Company since September 1995.
Mr. Kahl was Chief Executive Officer of Manco, Inc., a manufacturer of pressure
sensitive tapes, home weatherization products and shipping supplies, from 1971
to 2000. He currently serves as CEO of Jack Kahl & Associates, LLC. Mr. Kahl is
also a Director of American Greetings Company.
MICHAEL J. MERRIMAN has served as a Director of the Company since October
1993 and as Chief Executive Officer and President since 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, a merchant
banking investment holding and trading company, since 1990, and Chief Executive
Officer of Mary Kay Holding Corporation since 1991. Mr. Rochon is also a
Director of Marketing Specialists Corporation.
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
The Board of Directors of the Company held seven meetings during the fiscal
year ended December 31, 2000. The Board of Directors has an Audit Committee, a
Compensation Committee, and a Corporate Governance Committee. The Audit
Committee held two meetings during 2000 while the Corporate Governance and the
Compensation Committee each met once during 2000. 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 2000. 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 that was included as an
exhibit in last year's proxy statement. During the year, the Board examined the
composition of the Audit Committee in light of the adoption by the New York
Stock Exchange of new rules governing audit committees. Based on this
examination, the Board confirmed that all of the Audit Committee members were
"independent" within the meaning of the Exchange's new rules.
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
4
7
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 2002 annual meeting may do so by providing
written notice to the Company in care of Richard G. Vasek, Secretary, no later
than November 26, 2001.
AUDIT COMMITTEE REPORT
The following report of the Audit Committee describes the Committee's
discussions with the Company's independent auditors and the Committee's review
of the Company's audited financial statements.
Management of the Company is responsible for the Company's internal
controls and the financial reporting process. The Company's independent auditors
are responsible for performing an independent audit of the Company's
consolidated financial statements in accordance with generally accepted auditing
standards and for issuing a report thereon. The Audit Committee's responsibility
is to monitor and oversee these processes.
In this context, the Audit Committee has met and held discussions with
management and the Company's independent auditors. Management has represented to
the Committee that the Company's consolidated financial statements were prepared
in accordance with generally accepted accounting principles, and the Committee
has reviewed and discussed the consolidated financial statements with management
and the independent auditors. The Committee also discussed with the independent
auditors matters required to be discussed by Statement on Auditing Standards No.
61 (Communication with Audit Committees).
The Company's independent auditors also provided to the Committee the
written disclosures and the letter required by Independence Standards Board
Standard No. 1 (Independence Discussions with Audit Committees), and the
Committee discussed with the independent auditors that firm's independence.
Based on the Committee's discussions with management and the independent
auditors and the Committee's review of the representations of management and the
report of independent auditors to the Committee, the Committee recommended to
the Board of Directors that the audited consolidated financial statements be
included in the Company's Annual Report on Form 10-K for the year ended December
31, 2000 as filed with the Securities and Exchange Commission.
The report by the Audit Committee shall not be deemed to be incorporated by
reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act or the Exchange Act, and
shall not otherwise be deemed filed under such Acts.
AUDIT COMMITTEE
R. Louis Schneeberger, Chairman
Jack Kahl Jr.
E. Patrick Nalley
5
8
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, pursuant to SEC
rules, had beneficial ownership of 5% or more of the Common Shares of the
Company on March 9, 2001, based upon information furnished to the Company:
NAME AND ADDRESS SHARES AND NATURE OF PERCENTAGE OF
OF BENEFICIAL OWNERS BENEFICIAL OWNERSHIP TOTAL SHARES
-------------------- -------------------- -------------------
Richmont Capital Partners I, L.P.................. 2,969,900(1) 21.6%
4300 West Grove
Dallas, Texas 75248
John P. Rochon.................................... 2,991,400(2) 21.8%
4300 West Grove
Dallas, Texas 75248
E. Patrick Nalley................................. 1,070,000(3) 7.8%
7005 Cochran Road
Glenwillow, Ohio 44139
Dimensional Fund Advisors......................... 986,800(4) 7.2%
1299 Ocean Avenue
Santa Monica, CA 90401
Kestrel Investment Management Corporation......... 797,800(5) 5.8%
411 Borel Avenue
San Mateo, CA 94402
Michael J. Merriman............................... 735,000(6) 5.1%(6)
7005 Cochran Road
Glenwillow, OH 44139
---------------
(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 20,000 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.
(4) Based on Schedule 13(G) dated February 2, 2001, filed with the Securities
and Exchange Commission.
(5) Based on Schedule 13(G) dated February 14, 2001, filed with the Securities
and Exchange Commission.
(6) Amount and percentage includes 680,000 shares subject to exercisable
options.
6
9
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 9, 2001.
PERCENT OF
NAME SHARES TOTAL
---- --------- ----------
Jack Kahl Jr............................................... 140,000(1) 1.0%
Michael J. Merriman........................................ 735,000(1) 5.1%
E. Patrick Nalley.......................................... 1,070,000(1)(2) 7.8%
Joseph B. Richey II........................................ 250,000(1) 1.8%
John P. Rochon............................................. 2,991,400(1)(3) 21.8%
R. Louis Schneeberger...................................... 98,000(1) *
Richard C. Farone.......................................... 80,882(1) *
Richard G. Vasek........................................... 102,855(1) *
David M. Brickner.......................................... 47,939(1) *
T. Keith Moone............................................. 140,000(1) 1.0%
Directors and Executive Officers as a group (11 persons)... 5,656,076(4) 37.8(4)
---------------
* Less than 1%
(1) Includes shares which can be acquired by the exercise of stock options on or
prior to sixty days following March 9, 2001 as follows: Mr. Kahl -- 20,000;
Mr. Merriman -- 680,000; Mr. Nalley -- 50,000; Mr. Richey -- 50,000; Mr.
Rochon -- 20,000; Mr. Schneeberger -- 50,000; Mr. Farone -- 79,040; Mr.
Vasek -- 97,300; Mr. Brickner -- 44,000; Mr. Moone -- 140,000.
(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 1,230,340 shares exercisable within sixty days following March 9,
2001.
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 2000 and Form 5 and
amendments thereto furnished to the Company with respect to 2000, 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.
7
10
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, 2000, 1999, and 1998, of those persons (the "Named Executive Officers") who
served during 2000 as the Company's Chief Executive Officer and the other four
most highly compensated (during 2000) 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)
------------------------- ---- ------- ------- ------------ -------------- -------------- ------------
Michael J. Merriman 2000 400,000 0 0 120,000 0 33,230
Chief Executive Officer, 1999 360,000 410,040 0 200,000 0 17,623
President and Director 1998 360,000 0 0 0 0 26,211
Richard Farone(1) 2000 145,000 0 0 50,000 0 10,873
Executive Vice President --
Sales, Marketing & Engineering
Richard G. Vasek 2000 175,000 0 0 25,000 0 12,327
Chief Financial Officer 1999 143,333 120,686 0 70,000 0 7,741
Vice President -- Finance 1998 116,500 0 0 25,000 0 7,985
David M. Brickner(1) 2000 128,500 0 0 15,000 0 5,240
Vice President -- Manufacturing
T. Keith Moone 2000 180,000 0 0 15,000 0 7,880
Vice President -- Sales 1999 165,000 173,030 0 50,000 0 7,100
1998 165,000 0 0 0 0 11,865
---------------
(1) Mr. Farone and Brickner became Named Executive Officers in 2000. Pursuant to
SEC rules, no information regarding their compensation for years prior to
their appointment as Named Executive Officers 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 show in this column represents payments made to the Company's
Defined Contribution Plans ("DCP") by the Company.
8
11
OPTION/SAR GRANTS IN 2000
Shown below is information on grants of stock rights pursuant to the
Company's Compensation plans made in the year ended December 31, 2000, to the
Named Executive Officers which are listed in the Summary Compensation Table. No
stock options were granted to such individuals during the year.
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------------------ VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS/SAR PRICE APPRECIATION FOR
UNDERLYING GRANTED TO MARKET OPTION TERM (2)
OPTIONS/SAR EMPLOYEES EXERCISE PRICE ----------------------
GRANTED IN FISCAL PRICE DATE OF EXPIRATION
NAME (#) (1) YEAR ($/SH) GRANTS DATE 5%($) 10%($)
---- ----------- -------------- -------- ------- ---------- -------- ----------
Michael J. Merriman..... 120,000 29.3% -- $4.9375 3/31/10 965,120 1,536,792
Richard C. Farone....... 25,000 6.1% -- $4.9375 3/31/10 201,067 320,165
25,000 6.1% -- $4.4375 12/15/10 180,705 287,743
Richard G. Vasek........ 25,000 6.1% -- $4.9375 3/31/10 201,067 320,165
David M. Brickner....... 10,000 2.4% -- $4.9375 3/31/10 80,427 128,066
5,000 1.2% -- $4.4375 12/15/10 36,141 57,549
T. Keith Moone.......... 15,000 3.7% -- $4.9375 3/31/10 120,640 192,099
---------------
(1) All stock rights become 60% vested on the third anniversary from the date of
grant and 80% vested on the fourth anniversary with full vesting occurring
on the fifth anniversary date, assuming the executive officer remains
employed by the Company. The Rights expire in ten years from the date of
grant, subject to earlier termination in certain events related to
termination of employment. The Plans provide that in the event of a "change
in control" of the Company, the Compensation Committee can cause all
outstanding stock rights 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 less than 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 March and
December grant dates, 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 $49 million and $38 million, respectively; a 10%
annual rate of stock appreciation would result in a gain in excess of $125
million and $97 million, respectively.
AGGREGATED OPTION/SAR EXERCISES
IN 2000 AND YEAR-END OPTION/SAR VALUES
Shown below is information with respect to the unexercised stock options
and stock rights to receive the Company's Common Shares under the plans held by
the Named Executive Officers at December 31, 2000. None of the Named Executive
Officers exercised any stock options during 2000.
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS/SAR AT FY-END
OPTIONS/SAR AT FY-END(#) ($)(1)
SHARES ACQUIRED VALUE ----------------------------- ---------------------------
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- ----------- ------------ -------------- ----------- -------------
Michael J. Merriman..... -- -- 40,000 880,000 $ -- $605,250
Richard C. Farone....... -- -- 65,040 137,000 16,760 200,000
Richard G. Vasek........ -- -- 83,300 112,000 22,200 100,000
David M. Brickner....... -- -- 39,000 41,000 12,500 60,000
T. Keith Moone.......... -- -- 10,000 175,000 -- 85,200
---------------
(1) Calculated on the basis of the fair market value of the underlying
securities at December 31, 2000, minus the exercise price.
9
12
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 times (in the case
of Messrs. Brickner and Moone) and three times (in the case of Messrs. Merriman,
Farone, and Vasek) of his then base salary. The Company may make an additional
payment to Messrs. Merriman, Farone, and Vasek to reimburse such individuals for
excise tax payments, if any, triggered by the foregoing severance payments. All
options and stock rights 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.
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 Construction and Furnishings 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 Construction and Furnishings 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,
interest, depreciation and amortization 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. For 2000, the Company did not exceed the minimum
earnings threshold, therefore no MIP bonuses were paid to the 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
10
13
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. The Committee
based the 2000 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 those of companies included in the Dow Jones Home
Construction and Furnishings Index.
Annually, the Committee considers the desirability of granting longer-term
incentive awards to the Company's officers under the Company's Stock Option and
Stock Rights Plans. The Committee granted stock rights to the Executive Officers
during 2000 that will vest 60% on the third anniversary and in cumulative 20%
installments, thereafter, with full vesting occurring on the fifth anniversary
date. These rights provide for settlement, once exercised, in the Company Stock
thus providing an incentive to these officers and creating 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
11
14
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 US Total
Market Index and the Dow Jones Home Construction and Furnishings Index for the
five-year period ended December 31, 2000.
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 Construction and Furnishings Index
Fiscal Years Ending December 31
LOGO
1996 1997 1998 1999 2000
- - - - Royal Appliance Mfg. Co. 100 96 54 65 58
--------------------------------------------------------------------------------------------------------------
Dow Jones Equity Market
-- Index 100 132 165 202 183
--------------------------------------------------------------------------------------------------------------
D.J. Home Construction
-- -- and Furnishings Index 100 141 152 125 133
--------------------------------------------------------------------------------------------------------------
12
15
PROPOSAL TWO
INDEPENDENT AUDITORS
During the year 2000, PricewaterhouseCoopers LLP provided various audit,
and non-audit services to the Company as follows:
a) Audit Fees: Aggregate fees billed for professional services rendered for
the audit of the Company's year ended December 31, 2000 annual financial
statements and review of financial statements in the Company's Form 10Q
Reports. $115,975
b) Financial Information Systems Design and Implementation Fees: None
c) All Other Fees: Principally information technology consulting.
$1,107,989.
The Audit Committee of the Board has considered whether the services
described in sections (b) and (c) above are compatible with maintaining the
independent accountant's independence and has determined that such services have
not adversely affected PricewaterhouseCoopers LLP's independence.
Upon recommendation of the Audit Committee, and subject to ratification by
the shareholders at the April 24, 2001 Annual Meeting, the Board of Directors
has appointed PricewaterhouseCoopers LLP as independent auditors to examine the
consolidated financial statements of the Company for the year ending December
31, 2001.
If the Board's appointment is not ratified, or if PricewaterhouseCoopers
LLP declines to act or becomes incapable of action, or if their appointment is
discontinued, the Board will appoint other independent auditors whose continued
appointment after the next Annual Meeting of Shareholders shall be subject to
ratification by the shareholders.
PricewaterhouseCoopers LLP representatives are expected to be present at
the Annual Meeting. They will have an opportunity to make a statement if they so
desire, and it is expected that they will respond to appropriate questions
raised at the meeting.
The persons named in the accompanying form of proxy intend to vote such
proxies to ratify the appointment of PricewaterhouseCoopers LLP unless a
contrary choice is indicated.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" RATIFICATION OF THE
APPOINTMENT OF INDEPENDENT AUDITORS.
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., 7005 COCHRAN ROAD, GLENWILLOW, OHIO 44139, A COPY OF THE COMPANY'S
2000 ANNUAL REPORT OR FORM 10-K WILL BE PROVIDED WITHOUT CHARGE.
March 26, 2001
13
16
ROYAL APPLIANCE MFG. CO.
NOTICE: 2001 ANNUAL MEETING OF SHAREHOLDERS
The 2001 Annual Meeting of Shareholders of Royal Appliance Mfg. Co. will be held
on Tuesday, April 24, 2001 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 24, 2001, 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)
R. Louis Schneeberger, E. Patrick Nalley, and Joseph B. Richey II
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)
17
DETACH CARD
--------------------------------------------------------------------------------
(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................, 2001
...........................
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.