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)
_________________________________________________________________
(Name of Person(s) Filing Proxy Statement, if Other Than the
Registrant)
Payment of filing fee (Check the appropriate box):
[X ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-
6(i)(1) and 0-11.
(1) Title of each class of securities to which transactions
applies:
_________________________________________________________________
(2) Aggregate number of securities to which transaction
applies:
_________________________________________________________________
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the amount
on which the filing fee is calculated and state how it was
determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] 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:
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(4) Date Filed:
_________________________________________________________________
DMI FURNITURE, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD FEBRUARY 3, 1999
The Annual Meeting of Stockholders of DMI Furniture, Inc.
(the "Corporation"), will be held at The Brown Hotel, Fourth and
Broadway, Louisville, Kentucky on Wednesday, February 3, 1999, at
10:00 a.m. local time, for the purpose of:
1. Electing five directors to serve until the 2000 Annual
Meeting of Stockholders and until their successors have
been elected and qualified.
2. Acting on a proposal to appoint Arthur Andersen LLP as
auditors for the 1999 fiscal year.
3. Transacting such other business as may properly come
before the meeting.
The Board of Directors has fixed the close of business on
December 18, 1998, 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. 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
December 21, 1998
DMI FURNITURE, INC.
One Oxmoor Place
101 Bullitt Lane
Louisville, Kentucky 40222
________________________________________
PROXY STATEMENT FOR ANNUAL MEETING OF
STOCKHOLDERS TO BE HELD FEBRUARY 3, 1999
________________________________________
This Proxy Statement is furnished in connection with the
solicitation by the Board of Directors of DMI Furniture, Inc., a
Delaware corporation (the "Corporation"), of proxies in the
accompanying form for use at the Annual Meeting of Stockholders
to be held on February 3, 1999, 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 stock held of record by them
and will pay reasonable expenses of these persons for forwarding
these soliciting materials.
This Proxy Statement and accompanying form of proxy were
first sent or given to stockholders on or about December 21,
1998.
VOTING
The close of business on December 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 3,909,429 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 in
the election of directors. A majority of the outstanding shares
of Common Stock will constitute a quorum.
Shares of Common Stock represented by properly executed
proxies received before the closing of the polls at the Annual
Meeting will be voted as directed by the stockholders, unless
revoked as described below. Under Delaware law, proxies marked
as abstentions are not counted as votes cast. In 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 directors and FOR approval of the proposal 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.
A stockholder who completes and returns the proxy that
accompanies this Proxy Statement may revoke that proxy 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 information as of the Record
Date relating to the Common Stock beneficially owned by the
Corporation's directors and executive officers and by the
beneficial owners of more than five percent of the Common Stock,
the Corporation's only class of outstanding stock.
Shares
Name & Address of Beneficially Percentage
Beneficial Owner Owned of Class (1)
Donald D. Dreher 586,483(2) 13.3%
One Oxmoor Place
101 Bullitt Lane
Louisville, KY 40222
Pattco, Inc. 299,806 7.7%
James F. Patterson
10000 Shelbyville Road
Louisville, KY 40222
Hillson Partners Limited 269,300 6.9%
Partnership
6900 Wisconsin Avenue
Suite 501
Bethesda, MD 20815
LBR&M Associates, L.P. 219,054(3) 5.5%
David M. Martin
681 Andersen Drive
Foster Plaza 6
Pittsburgh, PA 15220
Joseph G. Hill 213,491(4) 5.2%
One Oxmoor Place
101 Bullitt Lane
Louisville, KY 40222
Phillip D. Miller 199,266 5.1%
140 East 29th St.
Holland, MI 49423
Joseph L. Ponce 86,039(5) 2.2%
Thomas M. Levine 16,558(6) *
All directors and 1,119,280(7) 24.3%
executive officers as a
group (5 persons)
________________________________
* Indicates less than 1% of class.
(1) In determining the percentage of class, 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.
(2) Includes exercisable stock options for 445,093 shares
and 62,879 shares issuable as a stock bonus.
(3) Includes 215,209 shares held by LBR&M Associates, L.P for which
Mr. Martin is general partner, and exercisable stock options for 3,000
shares and 845 shares held by other entities for which Mr. Martin has
sole or shared voting and investment power.
(4) Includes exercisable stock options for 157,968 shares
and 14,828 shares issuable as a stock bonus.
(5) Includes exercisable stock options for 8,500 shares.
(6) Includes exercisable stock options for 1,500 shares.
(7) Includes exercisable stock options for an aggregate of
613,061 shares and 77,707 shares issuable as stock bonuses.
ELECTION OF DIRECTORS
The Corporation's Board of Directors currently consists of
five directors. Directors are elected by holders of Common Stock
for a one-year term. To be elected, a nominee must receive a
plurality of the votes cast in the election at the Annual
Meeting.
All of the outstanding shares of the Corporation's Series C
Preferred Stock were redeemed at the end of fiscal 1998. As a
result, the right of holders of Series C Preferred to elect two
directors each year terminated. In connection with the
redemption, Mary F. Glasscock, and Mark E. Pulliam, the two
directors elected by the Series C Preferred Stockholders, and
Thomas A. Dieruf resigned as directors of the Corporation. The
Board of Directors wishes to express its appreciation to Mrs.
Glasscock, Mr. Pulliam, and Mr. Dieruf for their service to the
Corporation.
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.
Nominees
The following persons have been nominated for election as
directors:
Donald D. Dreher (age 49) has served as President and Chief
Executive Officer of the Corporation since 1986 and as a director
since 1980. Mr. Dreher is 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 48), 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 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 49) has been a director since 1984.
Mr. Levine is an independent management consultant. For more
than the past five years, he held the position of Executive Vice
President of Fostin Capital Corp., which originated and
participated in venture capital ventures and leveraged buy-outs
on behalf of itself, its clients, and affiliates.
Joseph L. Ponce (age 71) 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.
David M. Martin (age 43) has been a director since 1998.
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 LBR&M Associates, L.P., a private investment partnership, and
is a member and manager of Fostin Capital Company LLC, which is
active in originating and participating in venture capital
ventures and leveraged buy-outs on behalf of itself, its clients
and affiliates.
BOARD COMMITTEES AND MEETINGS
The Audit Committee, comprised of nonemployee directors
Ponce, Levine and Martin, met four times during fiscal 1998 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, Martin and Ponce, has as its
principal duties the review and negotiation of employment and
compensation terms with the executive officers of the Corporation
and the administration of the Corporation's incentive stock
compensation plans for employees. It met three times during
fiscal 1998.
The Corporation does not have a standing nominating
committee. The functions of such a committee are conducted by
the Board of Directors as a whole.
During fiscal 1998, the Board of Directors met eight 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. They 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 12 consecutive years of profitable results and net
income totaling more than $18 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. The Company reported earnings per share of $.07 for
fiscal 1998, when the Company incurred a one-time $1,666,000
charge to net income applicable to Common Stock as a result of
the redemption of its Series C Preferred Stock. During the last
twelve fiscal years, stockholders' equity per share has increased
from $(2.42) per share at the end of fiscal 1986 to $2.43 per
share at the end of fiscal 1998. The trading price for the
Common Stock during this period has ranged from $.50 in the
recessionary year of 1991 to $3.75 per share in April 1998. The
trading price of the Common Stock was $2.938 at the end of fiscal
1998. The trading price of the Common Stock at the close of
business on December 4, 1998 was $3.69.
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 1998.
For fiscal 1998, the Corporation's fully diluted earnings
per share were $.07 compared to $.40 per share for fiscal 1997.
As noted above, the Corporation incurred a $1,666,000 charge to
net income in fiscal 1998 as a result of the redemption of its
preferred stock. The trading price of the Common Stock increased
from $2.875 at the end of fiscal 1997 to $2.938 at the end of
fiscal 1998.
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 incurred to finance
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 12.5% of the Corporation's adjusted pre-tax income
for fiscal 1998. Mr. Dreher earned a cash bonus of $311,531,
representing 9.6% of the Corporation's adjusted pre-tax income
for fiscal 1998.
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 1998, Mr. Dreher earned a stock bonus of
$184,738, equal to 59.3% of his cash bonus for the year.
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
DAVID M. MARTIN
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the
Corporation for the fiscal years ended August 29, 1998, August
30, 1997, and August 31, 1996, 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 1998.
<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 1998 $275,000 $496,269(3) $ -0- -0- $3,167
President and Chief 1997 275,000 389,500 -0- -0- 3,509
Executive Officer 1996 264,000 156,233 -0- -0- 3,734
Joseph G. Hill 1998 $172,083 $139,418(4) $ -0- -0- $3,275
Vice President - Finance, 1997 161,250 119,843 -0- -0- 3,109
Chief Financial Officer, 1996 155,000 43,891 -0- -0- 3,305
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.
(3) Includes a cash bonus of $311,531 and a stock bonus of 62,879 shares of Common Stock
valued at $184,738. See "Employment Agreement."
(4) Includes a cash bonus of $95,853 and a stock bonus of 14,828 shares of Common Stock
valued at $43,565. See "Employment Agreements."
</TABLE>
Stock Option Grants
No stock options were awarded to the Chief Executive Officer
and the other named executive officers during fiscal 1998.
The following table sets forth certain information regarding
options exercised by the Chief Executive Officer and the named
executive officers during fiscal 1998 and unexercised stock
options held by them as of August 29, 1998.
Aggregated Option Exercises in Fiscal 1998 and Year-End Stock
Option Values
<TABLE>
Aggregated Option Exercises in Fiscal 1997 and
Year-End Stock Option Values
<CAPTION>
Shares Number of Securities Value of Unexecised
Acquired Value Underlying Unexercised In-the-Money
on Exercise Realized Options/SARs at 8/29/98 Options/SARs at 8/30/98
Name (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable(1)
<S> <C> <C> <C> <C>
Donald D. Dreher -0- $-0- 445,093/-0- $535,198/$0
Joseph G. Hill -0- -0- 157,968/-0- 205,616/0
_______________________
<FN>
(1) Market value of underlying securities at year-end, minus the
exercise or base price.
</TABLE>
At August 29, 1998, 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. The stock bonus is payable in
shares of Common Stock valued at 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. The stock bonus is payable in shares of Common
Stock valued at 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
Agreements") with Donald D. Dreher and Joseph G. Hill (the
"Covered Officers") to provide an additional incentive for
Messrs. Dreher and Hill to remain in the employ of the
Corporation in the event of a change in control of the
Corporation or the possibility thereof. These Severance
Agreements were not entered into because of any belief by
management that a change in control of the Corporation was
imminent.
The Severance Agreements had an initial three-year term
beginning January 1, 1988 and automatically renew for additional
three-year periods unless the Corporation gives notice not later
than September 30th of the year preceding expiration that it does
not wish to extend the Severance Agreement. The Severance
Agreements have been automatically renewed through December 31,
2002.
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 plus $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 1998, the
stock portion of the monthly retainer was valued at $2.938 per
share. Each of the Corporation's five nonemployee directors who
served for the entire year received 2,042 shares of Common Stock.
The nonemployee director who served less than the entire year
received a proportionally smaller number of shares, based on the
number of months he 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 Directors 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.
Common Stock Performance
The following graph illustrates the cumulative total return
to stockholders for the five-year period ended August 31, 1998
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
______________________________________________
8/93 8/94 8/95 8/96 8/97 8/98
DMI FURNITURE, INC. 100.00 83.33 55.56 77.78 127.78 127.78
PEER GROUP 100.00 99.46 87.68 98.50 125.96 147.48
NASDAQ STOCK MARKET-US 100.00 104.10 140.21 158.07 220.54 209.71
The graph above assumes $100 was invested on August 31, 1993
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
Stockholders are being asked to approve the appointment of
Arthur Andersen LLP as auditors of the Corporation for its 1999
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 2000 Annual Meeting
If a proposal of a security holder for the 2000 Annual
Meeting of Stockholders is to be included in the Corporation's
proxy statement for that year, it must be received by the
Corporation no later than August 23, 1999.
Section 16(a) Beneficial Ownership Reporting Compliance
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 1998, 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 as
directed by a majority of the Board of Directors.
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
/s/Joseph G. Hill
Joseph G. Hill, Secretary
Louisville, Kentucky
December 21, 1998
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 December 18, 1998, at the Annual
Meeting of its Stockholders to be held at The Brown Hotel, Fourth
and Broadway, Louisville, Kentucky on Wednesday, February 3, 1999,
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:
_____ FOR Donald D. Dreher, Joseph G. Hill, Thomas
M. Levine, Joseph L. Ponce, 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. AUDITORS. Appointment of Arthur Andersen LLP as
auditors for the 1999 fiscal year:
_____ FOR _____ AGAINST _____ ABSTAIN
3. OTHER BUSINESS. In their discretion, the proxies are
authorized to act upon such other matters as may properly
be brought before the Annual Meeting or any adjournment
thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEES LISTED
IN ITEM 1 AND "FOR" ITEM 2.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS AND WILL BE VOTED
AS SPECIFIED AND IN ACCORDANCE WITH THE ACCOMPANYING PROXY
STATEMENT. IF NO INSTRUCTION IS INDICATED, THIS PROXY WILL BE
VOTED "FOR" THE NOMINEES LISTED IN ITEM 1 AND "FOR" ITEM 2.
Please 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____________________, 199__ _________________________________
Signature
PLEASE MARK, SIGN, DATE
AND RETURN THIS PROXY _________________________________
CARD PROMPTLY USING THE Additional signature, if held
ENCLOSED ENVELOPE. jointly
