<PAGE>
SCHEDULE 14A
(RULE 14a-101)
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 Section 240.14a-11(c) or Section
240.14a-12
DMI FURNITURE, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
DMI FURNITURE, INC.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / 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>
DMI FURNITURE, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD FEBRUARY 21, 1996
The Annual Meeting of Stockholders of DMI Furniture, Inc. (the
"Corporation"), will be held at the Brown Hotel, Fourth Street and Broadway,
Louisville, Kentucky on Wednesday, February 21, 1996, at 10:00 a.m. local time,
for the purpose of:
1. Electing five Class I directors to serve until the 1997 Annual Meeting
of Stockholders and until their successors have been elected and
qualified. Common stockholders will be entitled to vote for the Class
I directors.
2. Acting upon a proposal to appoint Arthur Andersen & Co. as auditors
for the 1996 fiscal year.
3. Transacting such other business as may properly come before the
meeting.
The Board of Directors has fixed the close of business on December 27,
1995, as the record date for determination of stockholders entitled to notice of
and to vote at the meeting.
The holders of a majority of the Corporation's issued and outstanding
stock, present in person or represented by proxy, will constitute a quorum.
All stockholders are cordially invited to attend the meeting, but whether
or not you expect to attend the meeting in person, please sign and date the
enclosed proxy and return it promptly so that your stock may be voted. If you
attend the meeting, you may revoke your proxy and vote in person.
By Order of the Board of Directors
Joseph G. Hill
Vice President, Finance; Chief Financial
Officer; Treasurer and Secretary
Louisville, Kentucky
December 29, 1995
<PAGE>
DMI FURNITURE, INC.
One Oxmoor Place
101 Bullitt Lane
Louisville, Kentucky 40222
-----------------------------------------
PROXY STATEMENT FOR ANNUAL MEETING OF
STOCKHOLDERS TO BE HELD FEBRUARY 21, 1996
-----------------------------------------
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of DMI Furniture, Inc., a Delaware corporation (the
"Corporation"), of proxies in the accompanying form for use at the Annual
Meeting of Stockholders to be held on February 21, 1996, and at any adjournment
thereof (the "Annual Meeting").
All expenses of preparing, printing, mailing, and delivering the proxy and
all materials used in the solicitation of proxies will be borne by the
Corporation. In addition to the use of the mails, proxies may be solicited by
personal interview, telephone and telegraph by directors, officers and other
employees of the Corporation, none of whom will receive additional remuneration.
The Corporation will also request brokerage houses, custodians, and nominees to
forward soliciting materials to the beneficial owners of the Corporation's
common and preferred stock held of record by them and will pay reasonable
expenses of these persons for forwarding these soliciting materials.
This Proxy Statement and accompanying form of proxy were first sent or
given to stockholders on or about December 29, 1995.
VOTING
The close of business on December 27, 1995, has been fixed as the record
date for the determination of stockholders entitled to notice of and to vote at
the Annual Meeting (the "Record Date"). On the Record Date, the Corporation had
outstanding 2,991,358 shares of common stock, $.10 par value per share ("Common
Stock"). Each share of Common Stock is entitled to one vote on all matters
coming before the Annual Meeting. Stockholders are not permitted to vote
cumulatively for the election of directors. A majority of the outstanding
shares of Common Stock taken as a whole will constitute a quorum.
The Corporation's Certificate of Incorporation provides that at the 1996
Annual Meeting holders of the Corporation's Series C Preferred Stock, par value
$2.00 per share ("Series C Preferred"), are entitled to elect up to two Class II
directors to serve a one-year term on the Board of Directors. For the past
eleven years, holders of the Series C Preferred have chosen to elect one Class
II director at each annual meeting. The incumbent Class II director has
resigned effective as of the 1996 Annual Meeting, and as of the Record Date the
Series C Preferred Stockholders had not nominated any candidates to serve as
Class II directors.
Shares of Common Stock represented by properly executed proxies received
before the closing of the polls at the Annual Meeting will be voted as directed
by the stockholders, unless revoked as described below. Under Delaware law,
proxies marked as abstentions are not counted as votes cast. In
<PAGE>
addition, shares held in street name that have been designated by brokers on
proxy cards as not voted will not be counted as votes cast. If no instructions
are given, shares represented by executed but unmarked proxies will be voted FOR
election of the individuals nominated as Class I directors and FOR approval of
the Corporation's auditors. If any other matter is brought before the Annual
Meeting, shares represented by proxies will be voted by the proxy holders as
directed by a majority of the Board of Directors.
Stockholders who execute proxies in the form solicited hereby retain the
right to revoke those proxies at any time before the closing of the polls at the
Annual Meeting. A stockholder may revoke a proxy by filing a written notice of
revocation with, or by delivering a duly executed proxy bearing a later date to,
the Secretary of the Corporation at the Corporation's main office address at any
time before the Annual Meeting. Stockholders may also revoke proxies (i) by
delivering a duly executed proxy bearing a later date to the Inspector of
Election at the Annual Meeting before the closing of the polls or by (ii)
attending the Annual Meeting and voting in person. The presence of a
stockholder at the Annual Meeting will not automatically revoke the
stockholder's proxy.
PRINCIPAL HOLDERS OF VOTING SECURITIES
The following are the only persons (other than executive officers of the
Corporation) who, to the knowledge of the Board of Directors, are beneficial
owners of more than five percent of any class of the Corporation's voting stock
as of the Record Date. Footnote references are to the notes that follow the
second table below.
<TABLE>
<CAPTION>
Shares
Name & Address of Beneficially Percentage
Beneficial Owner Title of Class Owned of Class (1)
---------------- -------------- ------------ ------------
<S> <C> <C> <C>
The Prudential Ins.
Co. of America Series C Preferred 172,623 8.5%
100 Mulberry Street Common Stock 0(2) --(2)
Gateway Four
Newark, NJ 07102
Allied Capital Corp. Series C Preferred 199,920(3) 9.9%
1666 K St., N.W. Common Stock 0(3) --(3)
(Suite 901)
Washington, D.C. 20006
BT Capital Corp.
280 Park Avenue Series C Preferred 1,048,930 51.9%
(9th Fl. West) Common Stock 280,169(4) 9.4%(4)
New York, NY 10015
Chemical Venture
Capital Associates, L.P. Series C Preferred 383,026 19.0%
277 Park Avenue Common Stock 131,858(5) 4.4%(5)
New York, NY 10172
Fostin Securities, Inc. Series C Preferred 149,847 7.4%
200 W. Ninth St. Plaza Common Stock 22,433(6) * (6)
(Suite 409)
Wilmington, DE 19801
Phillip D. Miller Common Stock 199,266 6.7%
140 East 29th St.
Holland, MI 49423
</TABLE>
-2-
<PAGE>
As of the Record Date, the executive officers and directors of the
Corporation beneficially owned the shares of the Corporation's Common Stock
shown in the table below. None of the executive officers or directors
beneficially owned shares of the Series C Preferred as of the Record Date.
<TABLE>
<CAPTION>
Shares of Common Stock Percentage
Beneficial Owner Beneficially Owned of Class (1)
---------------- ---------------------- -------------
<S> <C> <C>
Donald D. Dreher 519,093(7) 15.1%
One Oxmoor Place
101 Bullitt Lane
Louisville, KY 40222
Joseph G. Hill 165,260(8) 5.2%
One Oxmoor Place
101 Bullitt Lane
Louisville, KY 40222
Thomas M. Levine 0 --
Joseph L. Ponce 77,981(9) 2.6%
Alexander N. Rubin, Jr. 49,642(10) 1.6%
William L. Schubert 27,933(11) *
James W. McCallister 48,700(12) 1.5%
All directors and 888,609(13) 24.0%
executive officers as a
group (7 persons)
</TABLE>
- -------------------------------
* Indicates less than 1% of class.
(1) In determining the percentage of class, Common Stock and Series C
Preferred are considered as separate classes. Shares of Common Stock subject to
currently exercisable options are deemed outstanding for computing the
percentage of class of the person holding such options but are not deemed
outstanding for computing the percentage of class of any other person.
Percentages of class of Common Stock assume shares of Series C Preferred will
not be converted into Common Stock. Percentages resulting from such conversion
by a holder of Series C Preferred are included in footnotes.
(2) Does not include 211,807 shares issuable upon the conversion of the
Series C Preferred at a purchase price of $1.63 per common share, which would
represent 6.6% of the class.
(3) Does not include 399,840 shares of Common Stock issuable upon
conversion of the Series C Preferred at a purchase price of $1.00 per common
share, which would represent 11.8% of the class.
(4) Does not include 1,287,031 shares issuable upon the conversion of
the Series C Preferred at a purchase price of $1.63 per common share, which
would increase the percentage of class to 36.8%.
(5) Does not include 469,971 shares issuable upon the conversion of the
Series C Preferred at a purchase price of $1.63 per common share, which would
increase the percentage of class to 17.5%.
(6) Includes exercisable stock options for 15,500 shares. Does not
include 183,861 shares of Common Stock issuable upon the conversion of Series C
Preferred at a purchase price of $1.63 per common share, which would increase
the percentage of class to 6.5%.
(7) Includes exercisable stock options for 445,093 shares.
(8) Includes exercisable stock options for 157,968 shares.
(9) Includes exercisable stock options for 22,500 shares.
(10) Includes exercisable stock options for 27,500 shares.
(11) Includes exercisable stock options for 19,500 shares.
-3-
<PAGE>
(12) Includes exercisable stock options for 38,700 shares.
(13) Includes exercisable stock options for an aggregate of 721,761
shares.
ELECTION OF DIRECTORS
The Corporation's Board of Directors currently consists of six
directors, divided into two "classes" (Class I and Class II). The Board has
fixed at five the number of Class 1 directors to be elected at the Annual
Meeting. The Class I directors are elected by holders of Common Stock for a
one-year term. Class I directors are elected by a plurality of the votes
cast.
Class II directors are elected by holders of Series C Preferred for a one-
year term. The Corporation's Certificate of Incorporation provides that the
number of Class II directors will be the greatest integral number of directors
not exceeding one-fifth of the total number of directors, or two directors,
whichever is greater. Holders of the Series C Preferred have chosen not to
nominate any candidates for election as Class II directors at the Annual
Meeting. The Class II directors would be elected by a plurality of the votes
cast.
The Board of Directors knows of no reason why the nominees might be
unwilling or unable to serve. However, if a nominee becomes unavailable or
unable to serve before the election of directors, the Board of Directors
reserves the right to make a substitution for that nominee, and the Board's
proxy holders will vote the shares presented by the proxies they hold for the
election of the substitute nominee unless authority to do so is withheld.
Holders of Series C Preferred have the right to elect a majority of the
Board of Directors, upon request by holders of ten percent of the Series C
Preferred, if (i) unpaid dividends of at least $269,500 on the Series C
Preferred accrue, (ii) the Corporation fails to earn annual Consolidated Net
Income of at least $769,500, (iii) an Event of Noncompliance (as defined in the
Corporation's Restated Certificate of Incorporation) occurs during the preceding
fiscal year. If the holders of Series C Preferred become entitled to exercise
this conditional right and choose to do so, certain of the Class I directors
would cease to be directors in accordance with the Corporation's by-laws. The
Corporation earned Consolidated Net Income of more than $769,500 in fiscal 1995
and is current with respect to dividends payable on the Series C Preferred.
CLASS I DIRECTOR NOMINEES
William Schubert, a director since 1980, is retiring at the Annual Meeting
from service on the Board of Directors. The Board wishes to express its
appreciation to Mr. Schubert for his many years of service to the Corporation.
The following persons have been nominated to serve as Class I directors:
DONALD D. DREHER (age 46) has served as President and Chief Executive
Officer of the Corporation since 1986 and as a director since 1980. Mr.
Dreher is a director and President of the American Furniture Manufacturers
Association and a director and Past President of the American Furniture Hall
of Fame. Mr. Dreher has served in various executive capacities with the
Corporation since 1977. Before joining the Corporation, he was Corporate
Systems Manager for Filtrol Corporation, which produces products for the
mining and oil and gas industries.
-4-
<PAGE>
JOSEPH G. HILL (age 45), Vice President-Finance, Chief Financial Officer,
Treasurer, and Secretary of the Company since 1986, was elected to the Board of
Directors in September 1993. Mr. Hill has served in various executive
capacities with the Company since 1984. He is also Vice President and a
director of the Financial Executives Institute and Past President of the
American Furniture Manufacturers Association Finance Division. Before joining
the Company, Mr. Hill was employed by Meidinger, Inc., now William M. Mercer,
Incorporated, a subsidiary of Marsh McLennan, Inc., a national management
consulting firm, where he held the positions of Vice President, Treasurer, and
Consultant.
THOMAS M. LEVINE (age 46), a Class II director since February 1984, has
been nominated for election as a Class I director at the Annual Meeting. For
more than the past five years, he has held the position of Executive Vice
President of Fostin Capital Corp., which is active in originating and
participating in venture capital ventures and leveraged buy-outs on behalf of
itself, its clients, and affiliates.
JOSEPH L. PONCE (age 68), a director of the Corporation since 1977, has
been a financial consultant since 1991 to, and a director since 1987 of Laser
Technology, a manufacturer of non-destructive test equipment. From 1986 to
1991, he was Chairman of the Board of Plastech International, Inc., a
manufacturer of plastic products. Previously, Mr. Ponce was Managing Director
of Philadelphia First Group, Inc., an investment banking firm, from 1987 to
1988. From 1979 through 1987, he was Managing Director of Wm. Sword & Co.,
Incorporated, an investment banking firm. Mr. Ponce is also a director of
Science Management Corporation, a management consulting and engineering firm.
ALEXANDER N. RUBIN, JR. (age 70), a director of the Corporation since 1977,
has been of counsel to the law firm of Montgomery, McCracken, Walker & Rhoads,
Philadelphia, Pennsylvania, since November 1993. Previously, he had been a
partner in the law firm of Rubin Quinn Moss Heaney & Patterson and its
predecessor firm since 1951.
EXECUTIVE OFFICERS
JAMES W. MCCALLISTER (age 64), Vice President-Manufacturing since 1987, has
been responsible for the Corporation's manufacturing operations since 1981. Mr.
McCallister has been employed by the Corporation for the past 45 years.
Mr. Dreher and Mr. Hill, members of the Board of Directors, are also
executive officers of the Corporation.
BOARD COMMITTEES AND MEETINGS
The Audit Committee, comprised of nonemployee directors Levine, Rubin and
Schubert, met five times during fiscal 1995. The principal duties of the
Committee are to recommend independent public accountants to the Board of
Directors and to review with the independent accountants matters relating to
internal auditing and the Corporation's system of internal controls.
The Compensation/Stock Option Committee, consisting of nonemployee
directors Rubin, Levine and Ponce, has as its principal duties the review and
negotiation of employment and compensation terms with the executive officers of
the Corporation and the administration of the Corporation's incentive stock
compensation plans for employees. It met three times during fiscal 1995.
-5-
<PAGE>
The Long Range Planning Committee, comprised of directors Dreher, Hill,
Ponce and Schubert, met once during fiscal 1995. The principal duties of the
Long Range Planning Committee are to study and make recommendations to the Board
of Directors with respect to strategic marketing, manufacturing, and financial
issues as they relate to the long range direction of the Corporation.
The Corporation does not have a standing nominating committee. Functions of
such a committee are carried out by the Board of Directors as a whole.
During fiscal 1995, the Board of Directors met five times. All directors
attended 100% of the Board and applicable committee meetings.
REPORT OF THE COMPENSATION/STOCK OPTION COMMITTEE
OVERVIEW
The Compensation/Stock Option Committee of the Corporation's Board of
Directors (the "Committee") exercises broad oversight responsibilities regarding
executive compensation, and it determines the total compensation of executive
officers and other key employees, including the Chief Executive Officer and the
other executive officers. The Committee is composed of three independent,
nonemployee directors who are not eligible to participate in any of the
Corporation's compensation programs for its executive officers.
The purposes of the Corporation's executive compensation policy are to
attract and retain individuals of high caliber to serve as executive officers,
to motivate their performance to achieve the Corporation's strategic objectives,
and to align the interests of executive officers with the long-term interests of
the Corporation's stockholders. A primary element of the Corporation's
compensation policy is to pay for performance, so that each executive's total
compensation relates directly to the Corporation's performance. The policy also
recognizes that the Corporation operates with a small team of three executive
officers, who are responsible not only for setting the Corporation's overall
strategic policies, but also are expected to have direct day-to-day involvement
in sales, customer communications, product development, and marketing.
From 1977 through 1986, the Corporation recorded cumulative losses of more
than $18 million. Donald D. Dreher and Joseph G. Hill were appointed to their
present positions as Chief Executive Officer and Chief Financial Officer,
respectively, in April 1986 and immediately instituted a strategy to return the
Corporation to profitability. In 1986, the Corporation (i) restructured its
preferred stock to restore a positive net worth; (ii) liquidated nonprofitable
subsidiaries acquired in prior years; (iii) eliminated significant contingent
liabilities by settling costly litigation arising from acquisitions; and (iv)
focused the Corporation's operations on manufacturing and marketing wood office
and residential furniture for distribution by large, fast-growing furniture
retailers.
Since fiscal 1987, Mr. Dreher's first full year as the Corporation's chief
executive officer, the Corporation has enjoyed 36 consecutive profitable fiscal
quarters as a result of this strategy and the performance of its key employees.
This period of steady profitability included the 1990-91 recession, which
industry analysts regard as one of the most severe and prolonged for the
furniture industry as a whole in several decades. During the last nine fiscal
years, the Corporation has established new records for annual sales eight times
and has recorded increases in annual earnings five times. Stockholders' equity
per share has increased from $(2.42) per share at the end of fiscal 1986 to
$1.86 per share at the
-6-
<PAGE>
end of fiscal 1995. The trading price for the Common Stock during this period
has ranged from $3.50 per share in 1989 and 1995 to $.50 in the recessionary
year of 1991. The trading price of the Common Stock was $1.125 at the end of
fiscal 1995.
In years after fiscal 1986, in light of the Corporation's tenuous financial
position early in that period, the Committee structured executive compensation
packages to pay incentives in cash for achievement of earnings and cash
management goals. As the Corporation's financial condition improved, the
Committee has increased the emphasis of its compensation policies on providing
senior management with a significant equity interest in the Corporation and
paying a greater portion of incentive compensation in the form of stock-based
awards. The Committee believes that compensation policies designed to encourage
stock ownership by its executive officers will provide an incentive to maximize
long-term performance by the Corporation and thereby increase the commonality of
the interests of the Corporation's executive officers and the interests of
stockholders.
COMPENSATION
Executive compensation consists of three components: base salary, bonuses,
and long-term incentive compensation. The overall structure of each executive's
compensation package is set forth in an employment agreement with the
Corporation, generally for a term of two years. See "Employment Agreements."
BASE SALARIES
At the beginning of each fiscal year, the Committee reviews each
executive's base salary for the prior fiscal year in light of the Corporation's
overall earnings and sales performance for the fiscal year, furniture industry
conditions generally, changes in the cost of living, and the Committee's
evaluation of the individual executive's responsibilities. The Committee then
may increase or make no change in the executive's base salary for the new fiscal
year, based on its subjective evaluation of the foregoing factors. Annual
increases in base salary generally range from six to ten percent. Mr. Dreher's
base salary for fiscal 1994 was set at $242,000 and remained the same for fiscal
1995.
In fiscal 1995, the Corporation recorded sales of $67.8 million, a new
record and an increase of 11.3% over the record sales of fiscal 1994. The
Corporation's fully diluted earnings per share were $.14 in fiscal 1995, $.49 in
fiscal 1994, and $.29 in fiscal 1993. Earnings per share in fiscal 1994
included $.31 for the cumulative effect of a change in accounting for income
taxes. In fiscal 1994, income before the provision for income taxes, the
cumulative effect of the change in accounting for income taxes, and an
extraordinary item was comparable to that for fiscal 1993.
BONUSES
The Corporation's employment agreements with each of its three executive
officers provide for a percentage of the Corporation's "adjusted pre-tax income"
to be paid to each executive officer as a cash bonus. "Adjusted pre-tax income"
excludes from the amount available for bonuses extraordinary gains on asset
sales, dividends on the Series C Preferred, and interest expense as a result of
redemption payments to the Corporation's Series C Preferred stockholders. The
cash bonus is determined according to a linear regression formula, which
allocates a higher percentage of the Corporation's earnings to the cash bonus as
the Corporation's overall earnings increase. Use of the formula creates a
consistent incentive for the executive to maximize corporate earnings. The cash
bonuses to the executive officers represented approximately 8.8% of the
Corporation's adjusted pre-tax income for fiscal 1995. Mr.
-7-
<PAGE>
Dreher earned a cash bonus of $88,155, representing 6.1% of the Corporation's
adjusted pre-tax income for fiscal 1995.
Under the terms of his employment agreement, Mr. Dreher is entitled to a
stock bonus calculated as a percentage of his cash bonus. The value so
calculated is to be paid in the form of newly issued shares of Common Stock,
based on the closing bid price reported for the Common Stock on the last trading
day of the fiscal year. The stock bonus provides an additional incentive to
maximize annual earnings while increasing his ownership interest in the
Corporation and commonality of interest with stockholders. The stock bonus is
also intended to recognize that Mr. Dreher is directly involved in a wide range
of day-to-day operational activities in addition to his responsibility for
developing the Corporation's overall strategic policies. The Committee
generally has not recommended awards of stock options to executives whose
employment contracts provide for a potential stock bonus. For fiscal 1995, Mr.
Dreher earned a stock bonus of $52,276, equal to 59.3% of his cash bonus, which
was waived.
The stock bonuses earned by Mr. Dreher for fiscal 1993 and 1994 were, by
mutual agreement, paid in the form of stock options having an exercise price per
share equal to 75% of the closing bid price reported for the Common Stock on the
last trading day of the fiscal year. The number of shares issuable upon
exercise of the option was calculated so that the difference between the
aggregate exercise price of the options and the fiscal year-end market value of
the option shares equaled the amount of the stock bonus earned for the fiscal
year. The Committee believes that paying the stock bonus in the form of
discounted options rather than newly issued shares increases the performance
incentive. As a holder of discounted stock options, Mr. Dreher bears more
financial risk from declines in the trading price of the Common Stock, and could
also earn a greater reward from increases in the trading price, than if the
stock bonus had been paid solely in shares of stock.
LONG-TERM INCENTIVE COMPENSATION
The Corporation's primary incentive for long-term performance has been
stock options granted under its employee stock incentive plans. The Committee
believes that stock options are an excellent means of aligning the interests of
its key employees with those of shareholders by providing awards intended to
reward option recipients for the Corporation's long-term growth. The
Corporation's 1993 Long Term Incentive Stock Plan for Employees, which was
approved by stockholders at the 1994 Annual Meeting, gives the Compensation
Committee greater flexibility in structuring other forms of stock-based
incentive compensation than did prior plans.
ALEXANDER N. RUBIN, JR.
THOMAS M. LEVINE
JOSEPH L. PONCE
-8-
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth all cash compensation paid by the
Corporation for the fiscal years ended September 2, 1995, August 27, 1994, and
August 28, 1993, to the Corporation's Chief Executive Officer and the most
highly compensated executive officers as to whom total cash and cash-equivalent
remuneration exceeded $100,000 during fiscal 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
-------------------------------------------- --------------
Awards
------------
Securities
Name and Principal Fiscal Other Annual Underlying All Other
Position Year Salary Bonus Compensation(1) Options/SARS (#) Compensation(2)
- ----------------- ------ ------ ----- --------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Donald D. Dreher 1995 $242,000 $ 88,155 $ -0- -0- $2,901
President and Chief 1994 242,000 119,810 -0- 151,164 2,901
Executive Officer 1993 220,000 130,251 -0- 143,929(3) 2,902
Joseph G. Hill 1995 $150,917 $39,435 -0- -0- $3,018
Vice President - Finance, 1994 143,333 36,772 -0- 35,560 2,866
Chief Financial Officer, 1993 131,250 40,000 -0- 92,408(4) 2,600
Treasurer & Secretary
James L. McCallister 1995 $132,000 $12,231 -0- -0- $2,633
Vice President - 1994 127,083 16,589 -0- -0- 2,530
Manufacturing 1993 121,125 18,035 -0- 42,000(5) 2,410
- ------------------------------------
</TABLE>
(1) Certain perquisites provided to each of the named executive officers
totaled less than 10 percent of each officer's total salary and bonus.
(2) All amounts represent the Corporation's contributions to its defined
contribution plan.
(3) Includes repriced options for 6,000 shares. During fiscal 1993, each
of the Corporation's 14 employees who held unexercised stock options
granted under the Corporation's 1978 and 1988 Option Plans, including
the three executive officers, was offered the opportunity to convert
all unexercised options into a new option for 80% of the number of
shares subject to the holder's options outstanding as of November 17,
1992. The new options have a uniform exercise price of $1.375 per
share, the closing bid price of the Common Stock on that date and a
ten-year term.
(4) Includes repriced options for 59,960 shares.
(5) Includes repriced options for 32,000 shares.
STOCK OPTION GRANTS
The following table sets forth information concerning the grants of
stock options to the Chief Executive Officer and the other named executive
officers during the last fiscal year, as well as the value of the stock
options held by those persons at the end of the fiscal year.
-9-
<PAGE>
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
Percentage
of Total
Options/ Potential Realizable
Number SARs Value at Assumed Annual
of Securities Granted to Rate of Stock Price
Underlying Employees Exercise Appreciation for Option Term(1)
Options in Fiscal or Base Expiration -------------------------------
Name Granted 1995 Price($/sh) Date 0%($) 5%($) 10%($)
---- ------- --------- ----------- ---------- ----- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Donald D. 151,164(2) 81.0% $1.405 10/5/2004 71,047 $149,354 $249,296
Dreher
Joseph G. Hill 35,560(2) 19.0% $1.405 10/5/2004 16,713 35,134 58,645
James L. 0 0 -- -- -- -- --
McCallister
- -----------------------------
</TABLE>
(1) The actual value realized may be greater or less than the amounts
indicated. For example, the options granted on October 5, 1994 have an exercise
price equal to approximately 75% of the $1.875 market price of the Common Stock
on the last trading day of fiscal 1994. See footnote 2 below. If the market
price increased by 5% per year during the ten years after October 5, 1994, the
total increase in stockholder value would be $3,527,342. If the market value
increased by 10% per year during the ten-year period, the total increase in
stockholder value would be $8,938,977.
(2) Under their employment agreements, Messrs. Dreher and Hill each earned a
stock bonus with respect to fiscal 1994 payable in Common Stock valued at the
market price of the Common Stock on the last day of fiscal 1994. In lieu of
their stock bonuses, Mr. Dreher and Mr. Hill received stock options having an
exercise price per share approximately 25% less than the market price of the
Common Stock on that date. See "Report of the Compensation/Stock Option
Committee."
The following table sets forth certain information regarding options
exercised by the Chief Executive Officer and the named executive officers during
fiscal 1995 and unexercised stock options held by them as of September 2, 1995.
AGGREGATED OPTION EXERCISES IN FISCAL 1995 AND YEAR-END STOCK OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Shares Underlying Unexercised In-the-Money
Acquired Value Options/SARs at 9/2/95 Options/SARs at 9/2/95
on Exercise Realized ------------------------ -----------------------------
Name (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable (1)
---- ----------- -------- ------------------------- -----------------------------
<S> <C> <C> <C> <C>
Donald D. Dreher -0- $-0- 445,903/-0- $0/$0
Joseph G. Hill -0- -0- 157,968/-0- 0/0
James L. -0- -0- 38,700/3,300 0/0
McCallister
_______________________
</TABLE>
(1) Market value of underlying securities at year-end, minus the exercise or
base price.
At September 2, 1995, the Corporation had options for 873,299 shares of
Common Stock outstanding at an average exercise price of $1.81 per share.
-10-
<PAGE>
EMPLOYMENT AGREEMENTS
The Corporation currently has employment agreements with Messrs. Dreher,
Hill and McCallister (the "Employment Agreements"). The Employment Agreements
generally have one- or two-year terms and may be extended by the Board of
Directors. The Employment Agreements provide for base salary, a bonus related
to the Corporation's performance (as more fully described below), certain
perquisites, and other benefits generally available to the Corporation's
employees. If the executive officer's employment with the Corporation terminates
for any reason other than expiration of the Employment Agreement, death, illness
or disability, for cause (as defined), or voluntary cessation by the officer,
the Employment Agreement entitles the officer to the balance of his base salary
plus a pro rata portion of the cash bonus the officer would have earned during
the year of termination. The Employment Agreements also contain a noncompetition
covenant for one year if employment terminates for any of the reasons listed in
the preceding sentence.
The Employment Agreement with Mr. Dreher expires December 31, 1995 and
provides for an initial annual salary of $242,000, which will be reviewed
annually. Mr. Dreher can earn an annual cash bonus under a formula based on the
Corporation's adjusted net pre-tax income (as defined). Mr. Dreher also earns a
stock bonus equal to 59.3% of his cash bonus. The stock bonus is payable in
shares of Common Stock having an aggregate market value equal to the closing bid
price for the Common Stock reported on NASDAQ on the last trading day of the
Corporation's fiscal year.
The Employment Agreement with Mr. Hill expires on March 31, 1997, and
provides for an initial annual salary of $155,000, which is reviewed annually.
Mr. Hill can earn an annual cash bonus under a formula based on the
Corporation's adjusted net pre-tax income (as defined). Mr. Hill also earns a
stock bonus equal to 45.45% of his cash bonus. The stock bonus is payable in
shares of Common Stock having an aggregate market value equal to the closing bid
price of the Corporation's stock reported on NASDAQ on the last trading day of
the fiscal year.
The Employment Agreement with Mr. McCallister expires on May 31, 1996 and
provides for an annual salary of $134,000, which is reviewed annually. In
addition, Mr. McCallister can earn an annual cash bonus under a formula based on
the Corporation's adjusted net pre-tax income (as defined).
SEVERANCE AGREEMENTS
The Corporation has entered into contracts (the "Severance Agreements")
with Donald D. Dreher and Joseph G. Hill (the "Covered Officers") to provide an
additional incentive for Messrs. Dreher and Hill to remain in the employ of the
Corporation in the event of a change in control of the Corporation or the
possibility thereof. These Severance Agreements were not entered into because
of any belief by management that a change in control of the Corporation was
imminent.
The Severance Agreements had an initial three-year term beginning January
1, 1988 and automatically renew for additional three-year periods unless the
Corporation gives notice not later than September 30th of the year preceding
expiration that it does not wish to extend the Severance Agreement. The
Severance Agreements have been automatically renewed through December 31, 1997.
The Severance Agreements provide for the payment of compensation to the
Covered Officers (a) upon the termination of a Covered Officer's employment
other than for cause after a change in control of the Corporation, as defined in
the Severance Agreement, occurs; (b) if a change in control of the
-11-
<PAGE>
Corporation occurs within nine months after such termination; or (c) if the
Covered Officer terminates his employment after the 60-day period immediately
following a change in control.
Compensation to be paid under the Severance Agreements includes (a) the
unpaid balance of the Covered Officer's base salary through the date of
termination; (b) an amount equal to three times the Covered Officer's annual
base salary (present valued to a lump sum) plus the most recent cash bonus paid
to the Covered Officer; and (c) all legal fees and expenses incurred by the
Covered Officer resulting from termination. However, the amount of compensation
to be paid under the Severance Agreement will be reduced, if necessary, to $1.00
below the amount of benefits that the Corporation can properly deduct under
Section 280G(a) of the Internal Revenue Code of 1986, as amended. If the
Covered Officer dies or terminates his own employment for any reason within the
60-day period immediately following a change in control, the Corporation will
pay the Covered Officer his full base salary through the date of termination
plus all other compensation to which he is entitled under any plan, agreement or
arrangement of the Corporation, and the Corporation will have no further
obligations to the Covered Officer under the Severance Agreement. The Covered
Officers will not be required to seek other employment, and compensation will
not be reduced by any income received from other sources.
The Corporation's Employment Agreement with Mr. McCallister provides that
if his employment is terminated following a change in effective control of the
Corporation, he will receive, in settlement of the Corporation's obligation
under the agreement, a payment equal to the greater of the balance of his base
salary or the full amount of twelve months' salary reduced to present value
using a factor equal to 8% per annum. In addition, he would be entitled to his
pro rata share of the bonus he would have earned had he been employed until the
end of the fiscal year of termination, based on the number of months employed
prior to such termination.
COMPENSATION OF DIRECTORS
The Corporation's four nonemployee directors receive a retainer of $1,500
per month and $1,350 for each board meeting attended ($200 for a telephonic
board meeting). In addition, nonemployee directors who attend an Audit or
Compensation/Stock Option Committee meeting receive $200 per meeting, and each
committee chairman receives an additional $200 per meeting. Nonemployee members
of the Long Range Planning Committee receive $850 per meeting attended. All
directors were reimbursed for travel expenses to attend Board or committee
meetings.
Under the Corporation's Compensation and Deferral Plan for Outside
Directors (which was approved by stockholders at the 1994 Annual Meeting), a
minimum of one-third of the total monthly retainer for the year (or more at the
director's option) is paid at the end of the fiscal year in the form of shares
of Common Stock, valued at the closing bid price for the Common Stock on the
last trading day of the fiscal year. For fiscal 1995, each of the Corporation's
four nonemployee directors was paid 5,333 shares of Common Stock, valued at
$1.125 per share, as the stock portion of the monthly retainer.
The Corporation maintains a Nonemployee Directors Stock Option Program (the
"Program") that provides for an automatic grant of options for 1,000 shares of
Common Stock per year to each of the Corporation's nonemployee directors. The
Board of Directors has no discretion with respect to awards under the Program.
A maximum of 160,000 shares may be issued under the Program. Each option has a
term of 10 years.
Under the Program, each of the four current Nonemployee Directors was
initially granted an option for 5,000 shares plus options for 1,000 shares for
each calendar year, commencing with 1977,
-12-
<PAGE>
during any part of which he served as a nonemployee director. The Program also
provides that each person elected for the first time as a nonemployee director
thereafter will automatically be granted an option for 5,000 shares on the March
15th next following election, and that each nonemployee director in office on
March 15 of any year thereafter will automatically be granted an option for
1,000 shares on that date.
All options granted under the Program have an exercise price equal to the
closing bid price for the Common Stock on NASDAQ on the date of the grant of the
options. The exercise price for the options granted on March 15, 1995, was
$1.625 per share. Options become exercisable with respect to one-half of the
shares on the first anniversary of the grant and fully exercisable on the second
anniversary of the grant.
-13-
<PAGE>
COMMON STOCK PERFORMANCE
The following graph illustrates the cumulative total return to stockholders
for the five-year period ended August 31, 1995 for the Corporation's Common
Stock, the NASDAQ Stock Market (U.S.) Index, and a peer group of eight
comparable furniture manufacturers.
<TABLE>
<CAPTION>
Cumulative Total Return
----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
8/90 8/91 8/92 8/93 8/94 8/95
DMI FURNITURE INC. 100 100 150 225 188 125
PEER GROUP 100 132 155 205 205 181
NASDAQ STOCK MARKET-US 100 142 154 203 211 284
</TABLE>
The graph above assumes $100 was invested on August 31, 1990 in the
Corporation's Common Stock, the NASDAQ Stock Market (U.S.) Index and the stock
of the peer group companies (on a market-capitalization-weighted basis), and
assumes reinvestment of dividends. Figures shown are for years ended August 31.
The peer group companies are Bassett Furniture Industries, Inc., Bush
Industries, Inc., Chromcraft Revington, Inc., Ladd Furniture, Inc., La-Z-Boy
Chair Co., Pulaski Furniture Corporation, Rowe Furniture Corporation, and
Stanley Furniture, Inc.
-14-
<PAGE>
PROPOSAL TO APPOINT AUDITORS
In the absence of designation to the contrary, shares of Common Stock
represented by proxies of the accompanying form will be voted in favor of the
appointment of Arthur Andersen LLP as auditors of the Corporation for its 1996
fiscal year. The approval of auditors by the stockholders is not required by
law or by the Corporation's by-laws. The Board of Directors is submitting this
matter to the stockholders in the belief that it is good practice to do so.
Approval of the proposal requires the affirmative vote of a majority of the
shares of Common Stock present and voting on the proposal. Abstentions will
have the same effect as a vote against the proposal. Broker nonvotes will not
be counted for purposes of whether the proposal is approved. If the proposal is
not approved, the Board will appoint other auditors as soon as it is practicable
to do so. Representatives of Arthur Andersen LLP are expected to be present at
the Annual Meeting, will have an opportunity to make a statement if they desire
to do so, and will be available to answer questions that might be presented at
the meeting.
GENERAL
STOCKHOLDER PROPOSALS FOR 1997 ANNUAL MEETING
If a proposal of a security holder for the 1997 Annual Meeting of
Stockholders is to be included in the Corporation's proxy statement for that
year, it must be received by the Corporation no later than August 31, 1996.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Corporation's executive
officers and directors and persons who own more than 10% of the Corporation's
Common Stock (collectively, "Reporting Persons") to file reports of ownership
and changes in ownership of the Common Stock with the Securities and Exchange
Commission. Reporting Persons are required by SEC regulations to furnish the
Corporation with copies of all Section 16(a) forms that they file. Based solely
on its review of the copies of such forms received or written representations
from certain Reporting Persons, the Corporation believes that during fiscal
1995, all the Reporting Persons complied with all applicable filing
requirements.
OTHER BUSINESS
Management knows of no business that will be presented at the Annual
Meeting other than the election of Directors. However, if other matters come
before the Annual Meeting, it is the intention of the proxy holders to vote upon
the matters in accordance with their judgment on such matters.
You are urged to complete, sign and return the enclosed proxy promptly.
For your convenience, a return envelope is enclosed which requires no postage if
mailed in the United States.
BY ORDER OF THE BOARD OF DIRECTORS
Joseph G. Hill, Secretary
Louisville, Kentucky
December 29, 1995
<PAGE>
DMI FURNITURE, INC. ("DMI")
Proxy for 1996 Annual Meeting of Stockholders
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints Donald D. Dreher and Joseph G. Hill, or either
of them (with full power to act alone), my proxy, with full power of
substitution, to represent me and vote all of the stock of DMI held of record or
which I am otherwise entitled to vote, at the close of business on December 27,
1995, at the 1996 Annual Meeting of its Stockholders to be held at the Brown
Hotel, Fourth Street and Broadway, Louisville, Kentucky on Wednesday, February
21, 1996, at 10:00 a.m., local time, and at any adjournments thereof, with all
the powers the undersigned would possess if personally present, as indicated
herein.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS AND WILL BE VOTED AS
SPECIFIED AND IN ACCORDANCE WITH THE ACCOMPANYING PROXY STATEMENT. IF NO
INSTRUCTION IS INDICATED, THIS PROXY WILL BE VOTED "FOR" THE NOMINEES LISTED IN
ITEM 1 AND "FOR" ITEM 2.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
(To be Signed on Reverse Side)
<PAGE>
/X/ PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEES LISTED IN 1 AND
"FOR" ITEM 2.
FOR WITHHELD
1. ELECTION OF / / / /
CLASS I DIRECTORS
[by Common
Stockholders only]:
NOMINEES: Donald D. Dreher, Joseph G. Hill, Thomas M. Levine,
Joseph L. Ponce and Alexander N. Rubin, Jr.,
the nominees (except as listed below)
(INSTRUCTION: To withhold authority to vote for any individual
nominee, write the nominee's name on the line below.)
- -------------------------
FOR AGAINST ABSTAIN
2. AUDITORS. Appointment of Arthur Andersen / / / / / /
LLP as auditors for the 1996 fiscal year
[by Common Stockholders only]:
3. OTHER BUSINESS. In their discretion, the
proxies are authorized to act upon such
other matters as may properly be brought
before the Annual Meeting or any adjournment
thereof.
NOTE: Please sign exactly as name appears at left. When shares are held by joint
tenants, both should sign. When signing as attorney, as executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
SIGNATURE(S) DATED
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SIGNATURE(S) DATED
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