SCHEDULE 14A
(Rule 14a-101)
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 Rule 14a-11(c) or Rule 14a-12
DMI FURNITURE, INC.
__________________________________________________________________
(Name of Registrant as Specified in Its Charter)
DMI FURNITURE, INC.
_________________________________________________________________
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
(1) Title of each class of securities to which transactions
applies:
__________________________________________________________________
(2) Aggregate number of securities to which transaction
applies:
_________________________________________________________________
(3) Per unit price of other underlying value of transaction
computer 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:
____________________________________________________________________
DMI FURNITURE, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD DECEMBER 20, 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 Friday, December 20, 1996, at 10:00
a.m. local time, for the purpose of:
1. Electing six Class I directors to serve until the 1998 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. Electing two Class II directors to serve until the 1998 Annual
Meeting of Stockholders and until their successors have been
elected and qualified. Series C Preferred Stockholders will
be entitled to vote for the Class II directors.
3. Acting upon a proposal to appoint Arthur Andersen LLP as
auditors for the 1997 fiscal year.
4. Transacting such other business as may properly come before
the meeting.
The Board of Directors has fixed the close of business on November
6, 1996, 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
/s/ Joseph G. Hill
Joseph G. Hill
Vice President, Finance;
Chief Financial Officer;
Treasurer and Secretary
Louisville, Kentucky
November 8, 1996
DMI FURNITURE, INC.
One Oxmoor Place
101 Bullitt Lane
Louisville, Kentucky 40222
________________________________________
PROXY STATEMENT FOR ANNUAL MEETING OF
STOCKHOLDERS TO BE HELD DECEMBER 20, 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 December 20, 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 November 8, 1996.
VOTING
The close of business on November 6, 1996, 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, there were 3,052,212 shares of the
Corporation's common stock, $.10 par value per share ("Common
Stock") issued and outstanding. 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 Class I directors. A majority of the outstanding
shares of Common Stock will constitute a quorum.
The Corporation's Certificate of Incorporation provides that
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. On the Record Date, there were 1,995,050 shares of
Series C Preferred issued and outstanding. Holders of Series C
Preferred are entitled to one vote per share in the election of
Class II directors. A majority of the outstanding shares of Series
C Preferred will constitute a quorum.
Shares of Common Stock and Series C Preferred 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 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 or Class II directors, as applicable, 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 (ii) by 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 table sets forth certain information as of the
Record Date relating to the shares of Series C Preferred and Common
Stock beneficially owned by the Corporation's directors and
executive officers and by beneficial owners of more than five
percent of any class of the Corporation's voting stock.
<TABLE>
<CAPTION>
Shares
Name & Address of Beneficially Percentage
Beneficial Owner Title of Class Owned of Class(1)
<S> <C> <C> <C>
Pattco, Inc. Series C Preferred 910,616 45.6%
James F. Patterson Common Stock 260,956(2) 8.5%
10000 Shelbyville Road
Louisville, KY 40222
C. Edward Glasscock Series C Preferred 332,858 16.7%
3200 Providian Center Common Stock 100,387(3) 3.3%
Louisville, KY 40202
The Prudential Ins. Series C Preferred 172,623 8.7%
Co. of America Common Stock 0(4) --(4)
100 Mulberry Street
Gateway Four
Newark, NJ 07102
Allied Capital Corp. Series C Preferred 199,920 10.0%
1666 K St., N.W. Common Stock 0(5) --(5)
(Suite 901)
Washington, D.C. 20006
Fostin Securities, Inc. Series C Preferred 149,847 7.5%
200 W. Ninth St. Plaza Common Stock 23,433(6) *(6)
(Suite 409)
Wilmington, DE 19801
Phillip D. Miller Common Stock 199,266 6.5%
140 East 29th St.
Holland, MI 49423
Donald D. Dreher Series C Preferred 45,531 2.3%
One Oxmoor Place Common Stock 532,141(7) 15.2%
101 Bullitt Lane
Louisville, KY 40222
Joseph G. Hill Series C Preferred 45,531 2.3%
One Oxmoor Place Common Stock 189,262(8) 5.9%
101 Bullitt Lane
Louisville, KY 40222
Thomas M. Levine Common Stock 3,429 *
Joseph L. Ponce Common Stock 97,981(9) 2.6%
Alexander N. Rubin, Jr. Common Stock 45,642(10) 1.5%
Thomas A. Dieruf -- -- --
Mary F. Glasscock Series C Preferred 332,858(11) 16.7%
Common Stock 100,387(11) 3.3%
Mark E. Pulliam -- -- --
All directors and Series C. Preferred 423,920 21.2%
executive officers as Common Stock 968,842(12) 26.1%(12)
a group (7 persons)
________________________________
<FN>
* 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 1,129,413 shares issuable upon the conversion of 894,972 shares of
Series C Preferred at a purchase price of $1.63 per share and 15,644 shares of Series C Preferred
at a purchase price of $1.00 per share, which would increase the percentage of class to 33.7%. As
controlling shareholder of Pattco, Inc., Mr. Patterson is deemed to be the beneficial owner of shares
owned by Pattco, Inc.
(3) Does not include 412,836 shares issuable upon the conversion of 327,139 shares of
Series C Preferred at a purchase price of $1.63 per share and 5,719 shares of Series C Preferred at
a purchase price of $1.00 per share, which would increase the percentage of class to 15.0%.
(4) 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.
(5) 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.
(6) Includes exercisable stock options for 16,500 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. Does not include 56,471 shares
issuable upon the conversion of 44,749 shares of Series C Preferred at a purchase price of $1.63 per
share and 782 shares of Series C Preferred at a purchase price of $1.00 per share, which would
increase the percentage of class to 16.6%.
(8) Includes exercisable stock options for 157,968 shares. Does not include 56,471 shares
issuable upon the conversion of 44,749 shares of Series C Preferred at a purchase price of $1.63 per
share and 782 shares of Series C Preferred at a purchase price of $1.00 per share, which would
increase the percentage of class to 7.5%.
(9) Includes exercisable stock options for 22,500 shares.
(10) Includes exercisable stock options for 27,500 shares.
(11) Represents shares owned by Mrs. Glasscock's husband, C. Edward Glasscock. See
footnote 3 above.
(12) Includes exercisable stock options for an aggregate of 650,061 shares. Does not
include 525,778 shares issuable upon the conversion of 416,637 shares of Series C Preferred at a
purchase price of $1.63 per share and 7,283 shares of Series C Preferred at a purchase price of $1.00
per share.
</FN>
</TABLE>
ELECTION OF DIRECTORS
The Corporation's Board of Directors currently consists of seven
directors, divided into two "classes" (Class I and Class II). The Board
has increased the number of Class I directors from five to six effective
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 to nominate two candidates for election as Class
II directors at the Annual Meeting. Class II directors are 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 represented 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, or (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 less than $769,500 in fiscal 1996, and
holders of more than a majority of the shares of Series C Preferred have
agreed not to exercise the right to elect a majority of the Board of
Directors during fiscal 1997.
The following persons have been nominated for election as directors:
Class I Directors
Donald D. Dreher (age 47) 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.
Joseph G. Hill (age 46), 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 47), a Class II director from 1984 to 1996,
was elected as a Class I director in 1996. 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 69) has been a director of the Corporation
since 1977. Since 1991 Mr. Ponce has been a financial consultant to
Laser Technology, a manufacturer of non-destructive test equipment, for
whom he has served as a director since 1987. 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 71), 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.
Thomas A. Dieruf (age 51), has been nominated for election as a
Class I director at the Annual Meeting. Since 1976 Mr. Dieruf has been
associated with Pattco, Inc., a venture capital and management firm with
interests in the restaurant, telecommunications, medical services and
other industries, where he has served as Vice President since 1980. Mr.
Dieruf also serves in various management capacities with affiliates of
Pattco, Inc., including as Chairman, Chief Executive Officer and a
director of Lexon Medical National, Inc., a medical management services
firm; as Chairman and a director of Resource America, Inc., a medical
information systems firm; and as Vice President of Western Restaurants,
Inc., which operates restaurants in Kentucky and surrounding states. Mr.
Dieruf is a certified public accountant.
Class II Directors
Mary F. Glasscock (age 54), was elected as a Class II director in
September 1996. Mrs. Glasscock has been President of Glasscock, Inc.,
a women's apparel and antique retailer located in Louisville, Kentucky,
since its inception in 1977.
Mark E. Pulliam (age 38), was elected as a Class II director in
September 1996. Mr. Pulliam is Vice President of Pattco, Inc. and since
1992 has served in various capacities with Pattco, Inc. and its
affiliates. Mr. Pulliam serves as Vice President of Lexon Medical
National, Inc. and as Vice President of Global Trading Company, an
import/export firm. Prior to joining Pattco, Mr. Pulliam served as
Senior Vice President, Director of Development for David Hocker &
Associates, a regional real estate firm specializing in retail
development. He has also served as a Financial Analyst with Hospital
Corporation of America, and as a Health Care Investment Analyst with HCA
Capital, the venture capital subsidiary of Hospital Corporation of
America.
BOARD COMMITTEES AND MEETINGS
The Audit Committee, comprised of nonemployee directors Levine,
Rubin and Ponce, met four times during fiscal 1996. 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 four times
during fiscal 1996.
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 1996, the Board of Directors met nine 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 two 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. In April 1986, Donald D. Dreher and Joseph G.
Hill were appointed to their present positions as Chief Executive Officer
and Chief Financial Officer, respectively, and immediately instituted a
strategy to return the Corporation to profitability by liquidating
unprofitable subsidiaries and focusing the Corporation's operations on
manufacturing and marketing wood office and residential furniture for
distribution by large, fast-growing retailers. From fiscal 1987, Mr.
Dreher's first full year as the Corporation's chief executive officer,
through fiscal 1995, the Corporation enjoyed 36 consecutive profitable
fiscal quarters as a result of this strategy and the performance of its
key employees.
At the beginning of fiscal 1996, the Company initiated a program to
reduce the cost of sales and improve the margins on its products. As
part of this strategy, the Company incurred a loss for the first quarter
of fiscal 1996, the result of a one-time $868,000 charge for costs
associated with the closing of its Gettysburg, Pennsylvania manufacturing
plant. Operating margins have improved significantly during fiscal 1996,
and the Company returned to profitability beginning with the third
quarter of the year, earning net income of $376,000 for fiscal 1996.
During the last ten fiscal years, stockholders' equity per share has
increased from $(2.42) per share at the end of fiscal 1986 to $1.94 per
share at the end of fiscal 1996. 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 $1.75 at the end of fiscal 1996.
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 multi-year term. 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 and 1995 was set at $242,000 and increased to $275,000
during fiscal 1996.
For fiscal 1996, the Corporation's fully diluted earnings per share
were $.07 per share after establishing the reserve for the Pennsylvania
plant closing, compared to $.14 in fiscal 1995. The trading price of the
Common Stock increased from $1.125 at the end of fiscal 1995 to $1.75 at
the end of fiscal 1996.
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, the reserve for closing the Pennsylvania plant, 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 8.2% of the Corporation's
adjusted pre-tax income for fiscal 1996. Mr. Dreher earned a cash bonus
of $98,075, representing 6.3% of the Corporation's adjusted pre-tax
income for fiscal 1996.
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 1996, Mr.
Dreher earned a stock bonus of $58,158, equal to 59.3% of his cash bonus.
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
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the
Corporation for the fiscal years ended August 31, 1996, September 2,
1995, and August 27, 1994, 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 1996.
<TABLE>
Summary Compensation 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 1996 $264,000 $156,233 $ -0- -0- $3,734
President and Chief 1995 242,000 88,155 -0- -0- 2,901
1994 242,000 119,810 -0- 151,164 2,901
Joseph G. Hill 1996 $155,000 $43,891 -0- -0- $3,305
Vice President - Finance, 1995 150,917 39,435 -0- -0- 3,018
Chief Financial Officer, 1994 143,333 36,772 -0- 35,560 2,866
Treasurer & Secretary
<FN>
(1) Certain perquisites provided to each of the named executive officers totaled less than 10
percent of each officer's total salary and bonus.
(2) All amounts represent the Corporation's contributions to its defined contribution plan.
</FN>
</TABLE>
Stock Option Grants
No stock options were awarded to the Chief Executive Officer and the
other named executive officers during fiscal 1996.
The following table sets forth certain information regarding options
exercised by the Chief Executive Officer and the named executive officers
during fiscal 1996 and unexercised stock options held by them as of
August 31, 1996.
<TABLE>
Aggregated Option Exercises in Fiscal 1996 and Year-End Stock Option Values
<CAPTION>
Shares Number of Securities Value of Unexecised
Acquired Value Underlying Unexercised In-the-Money
on Exercise Realized Options/SARs at 9/2/95 Options/SARs at 9/2/95
Name (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable(1)
<S> <C> <C> <C> <C>
Donald D. Dreher -0- $-0- 445,903/-0- $81,427/$0
Joseph G. Hill -0- -0- 157,968/-0- 36,700/0
_______________________
<FN>
(1) Market value of underlying securities at year-end, minus the exercise or
base price.
</FN>
</TABLE>
At August 31, 1996, the Corporation had options for 925,299 shares
of Common Stock outstanding at an average exercise price of $1.81 per
share.
Employment Agreements
The Corporation currently has employment agreements with Messrs.
Dreher and Hill (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, 1998
and provides for an initial annual salary of $275,000, 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 December 31, 1998,
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.
Severance Agreements
The Corporation has entered into contracts (the "Severance Agree-
ments") 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, 1999.
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 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.
Compensation of Directors
The Corporation's 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 1996, each of the Corporation's three nonemployee directors
was paid 3,429 shares of Common Stock, valued at $1.75 per share, as the
stock portion of the monthly retainer.
The Corporation maintains a Nonemployee Directors Stock Option
Program (the "Program") that provides that each person elected for the
first time as a nonemployee director 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 there-
after will automatically be granted an option for 1,000 shares on that
date. 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.
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, 1996, was $1.5625 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.
Common Stock Performance
The following graph illustrates the cumulative total return to
stockholders for the five-year period ended August 31, 1996 for the
Corporation's Common Stock, the NASDAQ Stock Market (U.S.) Index, and a
peer group of eight comparable furniture manufacturers.
[Performance Graph]
Cumulative Total Return
_____________________________________
8/91 8/92 8/93 8/94 8/95 8/96
DMI FURNITURE, INC. 100 150 225 188 125 175
PEER GROUP 100 117 157 156 137 154
NASDAQ STOCK MARKET-US 100 108 143 149 201 226
The graph above assumes $100 was invested on August 31, 1991 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.
PROPOSAL TO APPOINT AUDITORS
In the absence of designation to the contrary, shares of Common
Stock represented by proxies on the accompanying form will be voted in
favor of the appointment of Arthur Andersen LLP as auditors of the
Corporation for its 1997 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 1998 Annual Meeting
If a proposal of a security holder for the 1998 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 July 11,
1997.
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, other than as
described in the following sentence, all the Reporting Persons complied
with all applicable filing requirements. Pattco, Inc., C. Edward
Glasscock and James F. Patterson filed their initial Section 16(a) forms
more than ten days after acquiring Series C Preferred shares representing
beneficial ownership of more than 10% of the Common Stock.
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
November 8, 1996
DMI FURNITURE, INC. ("DMI")
Proxy for December 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 November 6, 1996, at the December 1996 Annual Meeting of its
Stockholders to be held at the Brown Hotel, Fourth Street and Broadway,
Louisville, Kentucky on Friday, December 20, 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 follows:
1. ELECTION OF CLASS I DIRECTORS [by Common Stockholders only]:
_____ FOR Donald D. Dreher, Joseph G. Hill, Thomas M.
Levine, Joseph L. Ponce, Alexander N. Rubin, Jr. and
Thomas A. Dieruf, the nominees (except as listed below)
_____ WITHHOLD AUTHORITY to vote for the nominees.
(INSTRUCTION: To withhold authority to vote for any
individual nominee, write the nominee's name on the line
below.)
2. ELECTION OF CLASS II DIRECTORS [by Series C Preferred
Stockholders only]:
_____ FOR Mary F. Glassock and Mark E. Pulliam
_____ WITHHOLD AUTHORITY to vote for the nominees.
(INSTRUCTION: To withhold authority to vote for any
individual nominee, write the nominee's name on the line
below.)
3. AUDITORS. Appointment of Arthur Andersen LLP as auditors for
the 1997 fiscal year [by Common Stockholders only]:
_____ FOR _____ AGAINST _____ ABSTAIN
4. 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.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEES LISTED IN
ITEMS 1 AND 2 AND "FOR" ITEM 3.
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 ITEMS 1 AND 2 AND "FOR" ITEM 3.
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.
Dated____________________, 1996 ______________________________________
Signature
PLEASE MARK, SIGN, DATE
AND RETURN THIS PROXY ______________________________________
CARD PROMPTLY USING THE Additional signature, if held
ENCLOSED ENVELOPE. jointly
