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 APRIL 2, 1998
The Annual Meeting of Stockholders of DMI Furniture, Inc. (the
"Corporation"), will be held at the Seelbach Hotel, 500 South 4th
Avenue, Louisville, Kentucky on Thursday, April 2, 1998, at 10:00 a.m.
local time, for the purpose of:
1. Electing six Class I directors to serve until the 1999
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 1999
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 on a proposal to approve the 1998 Stock Option Plan
for Independent Directors.
4. Acting on a proposal to appoint Arthur Andersen LLP as
auditors for the 1998 fiscal year.
5. Transacting such other business as may properly come before
the meeting.
The Board of Directors has fixed the close of business on
February 18, 1997, 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
February 18, 1998
DMI FURNITURE, INC.
One Oxmoor Place
101 Bullitt Lane
Louisville, Kentucky 40222
________________________________________
PROXY STATEMENT FOR ANNUAL MEETING OF
STOCKHOLDERS TO BE HELD APRIL 2, 1998
________________________________________
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 April 2, 1998, 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 February 20, 1998.
VOTING
The close of business on February 18, 1998, 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 3,164,251 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 other than the election
of Class II directors. Stockholders are not permitted to vote cumu-
latively in 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
two proposals being submitted to the Corporation's stockholders at the
Annual Meeting. 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 264,434 (2) 8.4%
10000 Shelbyville Road
Louisville, KY 40222
C. Edward and Mary F. Series C Preferred 332,858 16.7%
Glasscock Common Stock 102,416(3) 3.2%
3200 Providian Center
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
LBR&M Associates, L.P. Series C Preferred 149,847 7.5%
David M. Martin (6) Common Stock --(7) -- (7)
681 Andersen Drive
Foster Plaza 6
Pittsburgh, PA 15220
Phillip D. Miller Common Stock 199,266 6.3%
140 East 29th St.
Holland, MI 49423
Donald D. Dreher Series C Preferred 45,531 2.3%
One Oxmoor Place Common Stock 536,040(8) 14.9%(8)
101 Bullitt Lane
Louisville, KY 40222
Joseph G. Hill Series C Preferred 45,531 2.3%
One Oxmoor Place Common Stock 197,099(9) 5.9%(9)
101 Bullitt Lane
Louisville, KY 40222
Thomas M. Levine Common Stock 9,016(10) *
Joseph L. Ponce Common Stock 78,497(11) 2.5%
Alexander N. Rubin, Jr. Common Stock 24,158(12) *
Thomas A. Dieruf -- -- --
Mark E. Pulliam -- -- --
All directors and Series C Preferred 423,920 21.2%
executive officers Common Stock 947,226(13) 25.0%(13)
as a group (8 persons)
________________________________
* 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 Com-
mon 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 32.5%. 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
14.4%.
(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 6.3% 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 11.2% of the class.
(6) Mr. Martin, who has been nominated for election as a Class I
director, is a general partner of LBR&M Associates, L.P.
(7) 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 represent 5.5% of the class.
(8) 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 16.2%.
(9) 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%.
(10) Includes exercisable stock options for 3,500 shares.
(11) Includes exercisable stock options for 8,500 shares.
(12) Includes exercisable stock options for 8,500 shares.
(13) Includes exercisable stock options for an aggregate of
623,561 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, which would increase the percentage
of class to 34.1%.
ELECTION OF DIRECTORS
The Corporation's Board of Directors currently consists of eight
directors, divided into two "classes" (Class I and Class II). 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 sub-
stitute 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 more than $769,500 in fiscal 1997 and is current with respect to
dividends payable on the Series C Preferred.
Alexander N. Rubin, Jr., a director of the Corporation since
1977, is retiring at the Annual Meeting from service on the Board of
Directors. The Board wishes to express its appreciation to Mr. Rubin
for his many years of service to the Corporation.
Class I Directors
The following persons have been nominated for election as Class I
Directors:
Donald D. Dreher (age 48) 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 Past President of the
American Furniture Manufacturers Association and 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 47), 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 a director 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 48), a Class II director from 1984 to 1996,
was elected as a Class I director in 1996. Mr. Levine is an
independent management consultant. 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 70) 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 Scott Specialty Gases, Inc., a
specialty chemical company, and Science Management Corporation, a
management consulting and engineering firm.
Thomas A. Dieruf (age 52) has been a director of the Corporation
since December 1996. 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 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.
David M. Martin (age 42) has been nominated for election as a
Class I director at the Annual Meeting. Mr. Martin is President of
Foster Holdings, Inc. which manages a private investment partnership
owned by the Foster family, located in Pittsburgh, Pennsylvania.
Foster Holdings, Inc. holds a diversified portfolio and invests in
both traditional and non-traditional investments. Mr. Martin is also
the general partner of a related partnership, which owns 149,847
shares of Series C Preferred.
Class II Directors
Mary F. Glasscock (age 55) has been a Class II director since
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 39) has been a Class II director since
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 Global Trading
Company, a related 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 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 Ponce,
Rubin and Dieruf, met four times during fiscal 1997. 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 Levine, Rubin and Glasscock, 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 1997.
The Corporation does not have a standing nominating committee.
Functions of such a committee are conducted by the Board of Directors
as a whole.
During fiscal 1997, 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 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. Beginning with fiscal 1987, Mr. Dreher's first full year as
the Corporation's chief executive officer, the Corporation has reported
11 consecutive years of profitable results and net income totaling more
than $16 million.
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 one-time $868,000
charge for costs associated with the closing of its Gettysburg,
Pennsylvania manufacturing plant. Operating profit increased to a
record level in fiscal 1997, and the Company reported fully taxed
earnings per share of $.40 for fiscal 1997. During the last eleven
fiscal years, stockholders' equity per share has increased from
$(2.42) per share at the end of fiscal 1986 to $2.21 per share at the
end of fiscal 1997. 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 $2.875 at the end of fiscal 1997.
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 increased
the emphasis on providing senior management with a significant equity
interest in the Corporation through awards of stock-based incentive
compensation. The Committee believes that compensation policies
designed to encourage stock ownership by its executive officers
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 was set at $275,000 on January 1, 1996, and remained at
that level through fiscal 1997.
For fiscal 1997, the Corporation's fully diluted earnings per
share increased to $.40 per share from $.07 in fiscal 1996, when the
Corporation established the reserve for the Pennsylvania plant
closing. The trading price of the Common Stock increased from $1.75 at
the end of fiscal 1996 to $2.875 at the end of fiscal 1997.
Bonuses
The Corporation's employment agreements with each of its two
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 13.7% of the Corporation's adjusted pre-tax income for
fiscal 1997. Mr. Dreher earned a cash bonus of $389,500, representing
10.5% of the Corporation's adjusted pre-tax income for fiscal 1997.
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 1997, Mr. Dreher earned a stock
bonus of $230,974, equal to 59.3% of his cash bonus, which was waived.
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.
THOMAS M. LEVINE
JOSEPH L. PONCE
MARY F. GLASSCOCK
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the
Corporation for the fiscal years ended August 30, 1997, August 31,
1996, and September 2, 1995, 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 1997.
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 1997 $275,000 $389,500 $ -0- -0- $3,509
President and Chief 1996 264,000 156,233 -0- -0- 3,734
Executive Officer 1995 242,000 88,155 -0- -0- 2,901
Joseph G. Hill 1997 $161,250 $119,843 $ -0- -0- $3,109
Vice President - Finance, 1996 155,000 43,891 -0- -0- 3,305
Chief Financial Officer, 1995 150,917 39,435 -0- -0- 3,018
Treasurer & Secretary
<FN>
(1) Certain perquisites provided to each of the named executive
officers totaled less than 10 percent of each officer's total
salary and bonus.
(2) All amounts represent the Corporation's contributions to its
defined contribution plan.
</TABLE>
Stock Option Grants
No stock options were awarded to the Chief Executive Officer and
the other named executive officers during fiscal 1997.
The following table sets forth certain information regarding
options exercised by the Chief Executive Officer and the named
executive officers during fiscal 1997 and unexercised stock options
held by them as of August 30, 1997.
<TABLE>
Aggregated Option Exercises in Fiscal 1997 and
Year-End Stock Option Values
<CAPTION>
Shares Number of Securities Value of Unexecised
Acquired Value Underlying Unexercised In-the-Money
on Exercise Realized Options/SARs at 8/30/97 Options/SARs at 8/30/97
Name (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable(1)
<S> <C> <C> <C> <C>
Donald D. Dreher -0- $-0- 445,903/-0- $507,157/$0
Joseph G. Hill -0- -0- 157,968/-0- 195,664/0
_______________________
<FN>
(1) Market value of underlying securities at year-end, minus the
exercise or base price.
</TABLE>
At August 30, 1997, the Corporation had options for 939,099
shares of Common Stock outstanding at an average exercise price of
$1.90 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 August 31, 2000
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, which was waived for fiscal 1997. 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 the
Nasdaq SmallCap Market on the last trading day of the Corporation's
fiscal year.
The Employment Agreement with Mr. Hill expires on August 31,
1999, and provides for an initial annual salary of $170,000, 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, up to a maximum of 25% of his annual salary. Mr. Hill's
stock bonus was waived for fiscal 1997. 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
SmallCap Market 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 compen-
sation 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, 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 1997, the stock portion of
the monthly retainer was valued at $2.875 per share. Each of the
Corporation's three nonemployee directors who served for the entire
year received 2,087 shares of Common Stock. The three nonemployee
directors who served less than the entire year received a
proportionally smaller number of shares, based on the number of months
they held office.
Under the Corporation's Nonemployee Directors Stock Option
Program (the "Program"), each nonemployee director automatically
received an option for 6,000 shares on the March 15th next following
initial election and an option for 1,000 shares on the March 15
following election in each subsequent year. Nonemployee directors in
office on May 5, 1987 received an initial option for 5,000 shares plus
1,000 shares for each year in office before 1987. The Board of Direc-
tors had no discretion with respect to awards under the Program.
All options granted under the Program have an exercise price
equal to the closing bid price for the Common Stock on the Nasdag
SmallCap Market on the date of the grant of the options. The exercise
price for the options granted on March 15, 1997, was $2.81 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.
The Program expired in 1997, and the Board is submitting a new
plan providing for automatic grants of options to nonemployee
directors for stockholder approval at the Annual Meeting. See
"Proposal to Approve 1998 Stock Option Plan for Independent
Directors."
Common Stock Performance
The following graph illustrates the cumulative total return to
stockholders for the five-year period ended August 31, 1997 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
_____________________________________
8/92 8/93 8/94 8/95 8/96 8/97
DMI FURNITURE, INC. 100 150 125 83 117 192
PEER GROUP 100 133 133 117 131 168
NASDAQ STOCK MARKET-US 100 132 137 185 209 291
The graph above assumes $100 was invested on August 31, 1992 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 APPROVE 1998 STOCK OPTION PLAN FOR INDEPENDENT DIRECTORS
On December 10, 1997, the Board of Directors adopted the 1998
Stock Option Plan for Independent Directors (the "Plan") and directed
that the Plan be submitted for stockholder approval at the 1998 Annual
Meeting. The Plan provides that each year options to purchase a fixed
number of shares of Common Stock will be granted automatically to each
director of the Corporation who is not an employee of the Corporation
(and therefore is not eligible to receive options or other stock-based
grants under the 1993 Long Term Incentive Stock Plan for Employees). A
maximum of 100,000 shares of Common Stock, or 3.2% of the number of
shares issued and outstanding as of the Record Date, has been
authorized for issuance under the Plan.
The purpose of the Plan is to foster a common interest between
the Corporation's directors and stockholders by providing compensation
that will reward long-term growth in stockholder value. The Plan was
adopted to replace the Corporation's 1987 Stock Option Program for
Nonemployee Directors (the "1987" Plan), which expired in 1997. The
terms of the proposed Plan are substantially similar to the 1987 Plan.
The following description of provisions of the Plan is only a
summary. Before voting, stockholders should also carefully read the
complete text of the Plan, which is attached as Appendix A to this
Proxy Statement.
Summary of the Program
The Plan is effective as of December 10, 1997, but is subject to
the approval of stockholders at the 1998 Annual Meeting. Options can
be granted under the Plan until April 2, 2008. Options granted before
April 2, 2008 may extend beyond that date in accordance with the terms
and provisions of the Plan.
All directors who have been elected by the Corporation's
stockholders and who are not employees of the Corporation
("Independent Directors") will be entitled to receive grants of
options under the Plan. Of the nominees for election as directors at
the Annual Meeting, Mrs. Glasscock and Messrs. Levine, Ponce, Dieruf,
Martin and Pulliam will be eligible to receive options under the Plan.
The Plan will be administered by the Board of Directors, but the Board
has no discretion to determine who will receive grants of options, the
number of shares of Common Stock subject to options, or the terms or
conditions upon which options may be granted or exercised.
A maximum of 100,000 shares of Common Stock can be issued under
the Plan. These shares may be either authorized and unissued shares
or issued shares reacquired by the Corporation. If a reorganization,
recapitalization, stock split, stock dividend, combination of shares,
merger, consolidation, rights offering or any other similar event
occurs that would change the Common Stock, the number of shares
subject to any option and the exercise price per share will be
automatically adjusted in proportion to any resulting increase or
decrease in the number of outstanding shares of Common Stock. When
options terminate before exercise for any reason, the shares
underlying the terminated options will again be available for the
grant of options under the Plan.
The Plan provides that each Independent Director in office on
March 15 of any year during the term of the Plan will automatically
receive an option for 1,000 shares on that date. The Plan
specifically grants an option for 1,000 shares to each of the
Corporation's six Independent Directors in office as of March 15,
1998, subject to stockholder approval of the Plan at the Annual
Meeting. An Independent Director who joins the Board for the first
time also will automatically receive an option for 5,000 shares on the
March 15th immediately following his or her initial election by the
Corporation's stockholders. Each option granted under the Plan has a
term of ten years.
All options granted under the Plan have an exercise price equal
to the closing bid price of Common Stock reported on the NASDAQ Small
Cap Market as of the date of grant. If the Common Stock is listed on
the Nasdaq National Market or an exchange in the future, the exercise
price would be based on the closing sales price of the Common Stock on
the date of grant. An Independent Director may pay the exercise price
in cash or in shares of Common Stock owned for at least six months,
which will be valued at market value on the date of exercise.
An Independent Director may transfer options only to (i) the
Independent Director's spouse or lineal descendants, (ii) trusts for
the exclusive benefit of the Independent Director and/or his or her
immediate family members, or (iii) a partnership or limited liability
company in which the Independent Director and/or his or her immediate
family members hold all ownership interests. Options may be
transferred only if no consideration is paid for any such transfer.
Once transferred, subsequent transfers of the option are prohibited
other than upon the death of the holder. Otherwise, the terms and
conditions of the Plan continue to apply to an option after it is
transferred to transferee.
The Plan may be amended by the Board of Directors in certain
limited circumstances. Stockholders must approve any amendment that
would change (i) the total number of shares that can be issued under
the Plan, (ii) the persons eligible to receive option grants, (iii)
the exercise price, (iv) the period when options may be granted or
exercised, or (v) the requirement that the Plan be administered by the
Board of Directors.
Tax Information
All options granted under the Plan will be non-qualified stock
options ("NSO's"). The holder of NSO's will not recognize taxable
income as a result of an option grant because the options have no
readily ascertainable fair market value. However, upon the exercise
of an NSO, the optionee will recognize ordinary income in an amount
equal to the difference between (i) the fair market value of the
shares subject to the NSO on the date of exercise, and (ii) the
exercise or purchase price. Such amount is subject to applicable
withholding requirements and is deductible for tax purposes by the
Corporation.
Independent Directors who receive shares of Common Stock upon the
exercise of an option received under the Plan will not recognize
ordinary income at that time unless (i) the Independent Director makes
an election under Section 83(b) of the Internal Revenue Code or (ii)
any profit earned upon the sale of the shares by the Independent
Director is no longer subject to forfeiture as a prohibited short
swing profit under Section 16(b) of the Exchange Act. Instead, the
Independent Director will recognize ordinary income equal to the fair
market value of the shares received on exercise (less the exercise
price paid for the shares, if any) on the first day that the sale of
the shares is no longer subject to forfeiture under Section 16(b) of
the Exchange Act. The Corporation will generally become entitled to a
deduction of an equal amount for federal income tax purposes at that
time, provided that applicable tax withholding requirements have been
satisfied.
An Independent Director may choose to elect under Section 83(b)
of the Code to recognize income at the time the Independent Director
receives the shares upon exercise of an option. The amount so
recognized will be taxed as ordinary income to the Independent
Director, and will be equal to the difference between the option price
and any higher fair market value of the shares of the Common Stock,
generally on the date of exercise. The Corporation will generally be
entitled to a deduction of an equal amount for federal income tax
purposes at that time, provided that applicable tax withholding
requirements have been satisfied. The Independent Director must make a
Section 83(b) election no later than thirty days after receipt of the
shares.
Any gain or loss realized upon the sale of shares acquired upon
the exercise of an option generally will be taxed as capital gain or
loss. Whether the gain or loss is long-term or short-term will depend
on the period the option recipient has held the shares. For
determining gain or loss, an Independent Director's basis in the
shares will generally be the fair market value of such shares
determined under either of the procedures set forth above.
Approval of the Plan requires the affirmative vote by holders of
a majority of the shares of Common Stock present or represented by
proxy at the Annual Meeting. Abstentions will have the same effect as
votes cast against the proposal. Broker nonvotes will not be counted
for purposes of whether the proposal is approved.
The Board of Directors recommends that stockholders vote FOR the
proposal to approve the 1998 Stock Option Plan for Independent
Directors.
NEW PLAN BENEFITS
The following table sets forth the number of shares that would be
payable to the Corporation's non-executive directors in fiscal 1998
under the proposed 1998 Stock Option Plan for Independent Directors.
1998 Stock Option Plan for Independent Directors
Name and Position
Dollar Value ($) Number of Units
Donald D. Dreher,
Chief Executive Officer
and Director NA NA
Joseph G. Hill,
Chief Financial Officer
and Director NA NA
Executive Officer Group
(2 persons) NA NA
Non-Executive Director Group
(6 persons) * 6,000
Non-Executive Officer Employee
Group (11 persons) NA NA
_________________________
* The exercise price of the options to be granted would be equal to
the closing bid price of the Common Stock on March 13, 1998.
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 1998 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 1999 Annual Meeting
If a proposal of a security holder for the 1999 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
September 4, 1998.
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
1997, 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
February 18, 1998
Appendix A
DMI FURNITURE, INC.
(the "Company")
1998 Stock Option Plan for Independent Directors
1. Purpose.
The purpose of the 1998 Stock Option Plan for Independent
Directors (the "Plan") is to foster a common interest between the
Company's independent directors and stockholders by providing
compensation intended to reward long-term growth in stockholder value
through automatic grants of stock options to its independent
directors.
2. Shares Subject to the Plan.
The aggregate number of shares of the Company's common stock, par
value $.10 per share ("Shares"), that may be issued under the Plan
shall not exceed 100,000 Shares, subject to adjustment pursuant to
Section 6 of the Plan. Shares to be issued under the Plan shall be
made available either from authorized but unissued Shares or from
Shares issued and reacquired by the Company. If options are for any
reason cancelled, or expire or terminate unexercised, the Shares
covered by such options shall again be available for the grant of
options within the limits provided by the preceding sentence.
3. Eligibility.
All directors who have been elected by the Company's stockholders
and who are not employees of the Company ("Independent Directors") are
entitled to receive grants of options under the Plan.
4. Grant of Options.
Subject to the approval of this Plan by the Company's
stockholders and the other terms and conditions of this Plan:
a. Each Independent Director elected for the first time after
approval of the Plan by the Company's stockholders shall automatically
be granted an option for 5,000 Shares on the March 15th immediately
following initial election.
b. Each Independent Director in office on March 15 of any year
during the term of the Plan shall automatically be granted an option
for 1,000 Shares on such date.
c. Each Independent Director in office on March 15, 1998 shall
automatically be granted an option for 1,000 Shares as of that date,
subject to the approval of the Plan by the Corporation's stockholders,
which approval shall also constitute approval of the options granted
as of March 15, 1998.
5. Terms and Conditions of Options.
As soon as practicable after each grant of options pursuant to
the Plan, the Company and the Independent Director shall enter into an
option agreement evidencing the options granted. Any provision of an
option agreement between the Company and an Independent Director that
conflicts directly with the terms and conditions of this Plan shall be
of no force or effect
a. Option Price. The option price for options granted under
the Plan shall be the Fair Market Value of the Common Stock on the
date of the grant of such options. If the date of grant is not a
trading day, the option price shall be the Fair Market Value of the
Common Stock as of the last trading day before the date of the grant.
The Fair Market Value of the Common Stock shall mean the closing bid
price of Common Stock reported on the Nasdaq SmallCap Market, or the
closing sales price for the Common Stock reported on the Nasdaq
National Market or the principal exchange on which the Common Stock
may then be listed.
b. Payment. The option price shall be payable in cash or in
shares of Common Stock owned by the Independent Director for at least
six months before the date the option is exercised, which shall be
valued at the Fair Market Value of the Common Stock on the date of
exercise. No Shares shall be issued until full payment has been made.
A holder of an option shall have none of the rights of a stockholder
until certificates for the Shares are issued.
c. Period of Options. Each option shall expire ten years from
the date of the grant of the option and shall be void and
unexercisable thereafter, unless earlier terminated as provided
herein.
d. Exercise of Options.
(i) No option may be exercised before the later of the date
of approval of the Plan by the Company's stockholders and the first
anniversary of the grant. Options for no more than 50% of the Shares
subject to the options may be exercised before the second anniversary
of the grant. Options for 100% of the Shares subject to the options
may be exercised on or after the second anniversary of the grant.
(ii) No option shall be exercised for fewer than 25 Shares
unless the total number of Shares remaining unpurchased under the
option is fewer than 25.
e. Transfer of Options.
(i) Except as provided in subsection (ii), an option
granted under the Plan may not be transferred except by will or the
laws of descent and distribution and, during the lifetime of the
Independent Director to whom granted, may be exercised only by such
Independent Director.
(ii) Subject to any restrictions under Section 16(b) of the
Securities Exchange Act of 1934 (the "Exchange Act") or under the form
appropriate for the registration of employee stock options under the
Securities Act of 1933, the Independent Director may transfer the
options to (i) the Independent Director's spouse or lineal descendants
("Immediate Family Members"), (ii) trusts for the exclusive benefit of
the Independent Director and/or his or her Immediate Family Members,
or (iii) a partnership or limited liability company in which the
Independent Director and/or his or her Immediate Family Members are
the only partners or members, as applicable; provided that (a) there
may be no consideration for any such transfer and (b) subsequent
transfers of any transferred option shall be prohibited other than by
bequest or the laws of descent and distribution. Following transfer,
an option shall continue to be subject to the terms and conditions of
this Plan that were applicable immediately before transfer, except
that for purposes of Section 5(f), after the Independent Director who
transfers the options ceases to serve as a director of the
Corporation, the transferee may exercise the transferred option after
the death or retirement of the Independent Director only to the extent
that the option could have been exercised by such Independent Director
or his legal representatives or beneficiaries if the option had not
been transferred.
f. Termination of Service.
(i) If an Independent Director ceases to serve as a
director, other than by reason of death or retirement with the permis-
sion of the Board or in accordance with any age qualifications
contained in the Company's by-laws, the Independent Director may exer-
cise only those options that were exercisable by him at the date of
his termination of service as a director. Any option held by such
Independent Director shall expire unless exercised within six months
from the date of termination of the Independent Director's service.
(ii) If an Independent Director retires from service as a
director with the permission of the Board or in accordance with any
age qualifications contained in the Company's by-laws, his options
will become immediately exercisable for all of the Shares subject to
the option whether or not the options would otherwise have been fully
exercisable on the date of his retirement. The retired Independent
Director may exercise the options at any time during their remaining
term.
(iii) If an Independent Director dies while serving as a
director of the Company or after retirement with the permission of the
Board or in accordance with any age qualifications contained in the
Company's by-laws, his legal representatives or beneficiaries may
exercise his options for all of the Shares subject to the options at
any time during the remaining term of the options.
(iv) If an Independent Director dies during the six months
after the date of his termination of service as a director other than
by reason of retirement with the permission of the Board or in
accordance with any age qualifications contained in the Company's by-laws,
his options may be exercised by his legal representatives or
beneficiaries at any time within one year after the date of his death,
for the number of Shares for which the options were exercisable at the
date of termination of his service as a director.
6. Adjustment in the Event of Recapitalization of the Company.
In the event of a reorganization, recapitalization, stock split,
stock dividend, combination of shares, merger, consolidation, rights
offering, or any other change in the corporate structure of the
Company that results in an increase or decrease in the number of
Shares outstanding without receipt of consideration by the Company,
the number of Shares subject to any option and the option price will
be automatically adjusted in proportion to any increase or decrease in
the number of outstanding Shares. If the stated par value of the
Shares is changed or eliminated, the class of shares resulting from
such event will be deemed to be the Shares within the meaning of the
Plan.
The Company's issuance of shares of its capital stock for
consideration will not affect the number of Shares subject to an
option or the option price, and neither the number of Shares subject
to an option nor the option price under this Plan will be adjusted
upon such issuance.
7. Change in Control.
Upon a Change in Control in the Company, all options previously
granted and not exercised shall become immediately exercisable to the
same extent and in the same manner as if they had become exercisable
in accordance with the provisions of the Plan relating to the period
of options and to termination of service.
For purposes of the Plan, a "Change in Control" of the Company
shall be deemed to have occurred if:
a. Any "person" (as that term is used in Sections 13(d) and
14(b) of the Exchange Act) becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 20% or more of the combined
voting power of the Company's then outstanding capital stock after the
date this Plan is approved by the Company's stockholders through the
acquisition of additional shares of the Company's capital stock other
than as a result of the issuance of shares by the Company in
connection with any stock compensation plan for the benefit of the
Company's directors or employees, or any stock split, stock dividend,
or other event described in Section 6;
b. During any period of two consecutive years individuals who
at the beginning of such period constitute the Board cease for any
reason to constitute a majority of the Board, unless the nomination of
each new director for election by the Company's stockholders was
approved by a vote of at least two-thirds of the directors then still
in office who were directors at the beginning of the period;
c. Upon the consummation of (a) any merger or consolidation of
the Company in which the Company would not be the surviving
corporation, or pursuant to which Shares are converted to cash,
securities or other property, other than a merger of the Company in
which holders of Shares have the same proportionate ownership of
common stock of the surviving corporation immediately after the
merger, or (b) any sale, lease, exchange or transfer (in one
transaction or series of related transactions) of all, or
substantially all, of the assets of the Company, provided the Company
shall deliver written notice of the date of consummation of any
transaction described in (a) or (b) to each Independent Director at
least ten days prior to consummation;
d. Any person (other than the Company or any Independent
Director) publicly announces an intention to take or to consider
taking actions which, if consummated, would constitute a Change in
Control of the Company.
8. Administration of the Plan.
The program will be administered by the Board of Directors.
Under no circumstances, however, will the Board of Directors have
discretion to determine which Independent Directors will receive
grants of options, the number of Shares subject to such options, or
the terms or conditions upon which options may be granted or
exercised.
9. Amendment of the Plan.
The Plan may be amended by the Board of Directors, except that
stockholder approval is required for any amendment that would change
(i) the total number of Shares as to which options may be granted,
(ii) persons eligible to receive grants of options under the Plan,
(iii) the option price, (iv) the period during which options may be
granted or exercised, or (v) the requirement that the Plan be
administered by the Board of Directors. The Board of Directors shall
not amend the Plan to confer any discretion on the Board as to persons
eligible to receive grants of options, the number of Shares subject to
such options, or the terms and conditions upon which such options may
be granted or exercised.
10. Approval of Stockholders; Termination.
The Plan will not take effect until adopted by the Board and
approved by holders of a majority of the outstanding Shares. The Plan
shall terminate on the tenth anniversary of approval of the Plan by
the Company's stockholders, but the termination of the Plan shall not
affect the period of any option that has not been exercised.
DMI FURNITURE, INC. ("DMI")
Proxy for 1998 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 February 18, 1998, at the Annual Meeting of its
Stockholders to be held at the Seelbach Hotel, 500 South 4th Avenue,
Louisville, Kentucky on Thursday, April 2, 1998, 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, Thomas A. Dieruf and David M.
Martin, 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. Glasscock 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. DIRECTORS OPTION PLAN. Approval of 1998 Stock Option Plan
for Independent Directors [by Common Stockholders only].
_____ FOR _____ AGAINST _____ ABSTAIN
4. AUDITORS. Appointment of Arthur Andersen LLP as auditors
for the 1998 fiscal year [by Common Stockholders only]:
_____ FOR _____ AGAINST _____ ABSTAIN
5. 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" ITEMS 3 AND 4.
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" ITEMS 3 AND 4.
Please sign exactly as name
appears at left. When shares
are held by joint tenants,
both should sign. When
signing as attorney, as exec-
utor, 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____________________, 1998 _____________________________________
Signature
PLEASE MARK, SIGN, DATE
AND RETURN THIS PROXY _____________________________________
CARD PROMPTLY USING THE Additional signature, if held
ENCLOSED ENVELOPE. jointly
