<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED NOVEMBER 2, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM ----- TO -----
COMMISSION FILE NUMBER 1-11577
------------------------
FALCON PRODUCTS, INC.
DELAWARE 43-0730877
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9387 DIELMAN INDUSTRIAL DRIVE, ST. LOUIS, MISSOURI 63132
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (314) 991-9200
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
COMMON STOCK, PAR VALUE $.02 PER SHARE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports); and (2) has been subject to
such filing requirements for the past 90 days: Yes [X] No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K: [ ]
As of January 21, 1997, the Registrant had 9,689,086 shares of Common
Stock outstanding. The aggregate market value of the shares of Common Stock
held by nonaffiliates of the Registrant as of January 21, 1997, was
approximately $95.4 million, based upon the closing stock price as reported
on the New York Stock Exchange on such date.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Stockholders for the
fiscal year ended November 2, 1996, are incorporated by reference into Parts
II and IV of this Report.
Portions of the Registrant's Proxy Statement for the 1997 Annual Meeting
of Stockholders to be held March 18, 1997, are incorporated by reference into
Part III of this Report.
<PAGE> 2
<TABLE>
TABLE OF CONTENTS
<CAPTION>
PAGE
----
<C> <S> <C>
PART I
- - - - ------
ITEM 1. Business 3
ITEM 2. Properties 9
ITEM 3. Legal Proceedings 10
ITEM 4. Submission of Matters to a Vote of Security Holders 10
ITEM 4A. Executive Officers of the Registrant 10
PART II
- - - - -------
ITEM 5. Market for the Registrant's Common Equity and
Related Stockholder Matters 11
ITEM 6. Selected Financial Data 11
ITEM 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
ITEM 8. Financial Statements and Supplementary Data 12
ITEM 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 12
PART III
- - - - --------
ITEM 10. Directors and Executive Officers of the Registrant 12
ITEM 11. Executive and Director Compensation 12
ITEM 12. Security Ownership of Certain Beneficial Owners
and Management 12
ITEM 13. Certain Relationships and Related Transactions 12
PART IV
- - - - -------
ITEM 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 13
SIGNATURES 16
- - - - ----------
</TABLE>
<PAGE> 3
FALCON PRODUCTS, INC.
FORM 10-K
When used herein, the term "Company" refers to the Registrant, Falcon
Products, Inc. and its subsidiaries.
This Report on Form 10-K contains certain forward-looking statements
within the meaning of the federal securities laws which, while reflective of
management's beliefs or expectations, involve certain risks and
uncertainties, many of which are beyond the control of the Company.
Accordingly, the Company's actual results and the timing of certain events
could differ materially from those discussed herein.
PART I
ITEM 1. BUSINESS.
GENERAL
The Company designs, manufactures and markets an extensive line of
furniture and related products for the foodservice, office, hospitality,
healthcare and retail markets, including table bases, table tops, metal and
wood chairs, booths, interior decor systems and wire shelving. The Company
manufactures most of its products to customer order from basic raw materials.
The Company markets its products to a wide variety of customers, including
wholesale distributors, buying groups, architectural design firms, office
furniture dealers and end users, through a combination of its own direct
factory sales force and independent manufacturer's representatives.
PRODUCTS
Furniture Products. The Company's principal products consist of table
bases, table tops, wood and metal chairs and booths. The Company's table
bases are produced in a variety of sizes, styles and finishes and are
utilized by restaurants, hotels, offices, cafeterias, hospitals, airports,
universities, country clubs and other commercial locations where food is
served. Thirty-three styles of table bases are finished to order in one of
the Company's 59 standard catalog powder coat paint finishes or seven
designer plated finishes and also may be painted to match a customer's custom
finish requirements. Table bases either may be combined with table tops
produced by the Company to create complete tables for sale to customers or
may be used by a customer in connection with other table tops. The Company
also has a number of original equipment manufacturer customers who purchase
its table bases for use with their own table tops.
Table tops are manufactured by the Company in a number of standard
sizes and shapes and in a variety of finishes, including wood veneers,
fiberglass, high-pressure laminate patterns and solid wood. Edge treatments
for the table tops are available in vinyl, laminate, wood or metal. Wood
edges are machined to one of 30 standard catalog edge treatments on machinery
especially designed for the production of custom contract quality products.
Wood edge, veneer and butcher block tops are stained with one of the
Company's 79 standard color finishes and sealed and sprayed with a durable
catalyzed top coat. The Company also has the capability of manufacturing
custom table tops in a wide variety of customer-specified sizes, shapes and
finishes. Table tops are typically sold with a base produced by the Company
but may be purchased separately.
The Company produces wood chairs in many styles from a variety of wood
types and in many standard upholstery fabric and vinyl coverings. The
majority of these chairs are assembled from machined parts purchased in
Europe. For upholstered products, the customer may select one of the
Company's 77 standard catalog vinyls or 369 contract-quality fabrics or may
specify or supply its choice of materials. Wood chairs are finished with one
of the Company's 37 standard colors or the customer may specify or supply its
choice of finish material. A durable seal coat and top coat finish are also
applied to all wood chairs.
The Company's metal stacking chairs are available in a wide variety of
styles and are used primarily in multi-use room situations where it is
necessary to store the chairs for certain functions, such as in training and
banquet facilities. Metal chairs may be upholstered in one of the Company's
standard catalog vinyls or fabrics or in customer-furnished or
customer-specified materials and may be plated or powder coat painted in one
of 59 standard catalog finishes or in a customer-designated custom finish.
3
<PAGE> 4
Booths manufactured by the Company are available in 37 standard catalog
styles and numerous customer-specified styles, some of which are suitable for
outdoor applications. Booths can be manufactured in wood, metal or
fiberglass and may be upholstered in one of the Company's standard catalog
vinyls or fabrics or in customer-designated or supplied coverings. Exposed
wood is color matched to customer specifications and top coated with the same
durable catalyzed finish used on the Company's table tops and other wood
products.
The combination of the Company's broad line of furniture products and
its vertical manufacturing capabilities enable it to offer a complete
commercial interior decor package to its customers with significant design
flexibility and short lead times. The Company integrates certain of its
products into complete interior decor systems, which include all furniture,
booths, walls, wood trim and casegoods components. These turnkey decor
packages include casegood components such as counters, bars, divider walls,
planter units, salad bars and stands produced in a variety of high-pressure
laminates which are manufactured by the Company, delivered to the customer
site and installed by employees or Company-trained subcontractors. These
packages are suitable for either new foodservice installations or remodeling
existing facilities.
Wire Shelving and Kitchen Equipment. The Company's wire shelving
systems are manufactured by the Company's William Hodges division for use in
the foodservice industry for the storage of food products, including
in-freezer storage of perishable foods. These shelving systems are comprised
of steel wire, which forms the horizontal surface of the shelf, steel strips,
which form the perimeter of the shelf, steel posts, which support the shelf,
and plastic supports, which affix the shelf to the posts, and are available
in zinc, chrome and epoxy finishes. Wire shelving is also produced in
stainless steel for use in extremely harsh environments. Among the other
items of metal kitchen equipment produced by the Company are fry baskets,
strainers and whips.
MARKETING AND DISTRIBUTION
Domestic Sales of Furniture and Wire Shelving Products. The Company
sells its furniture products throughout the United States to a wide variety
of customers, including restaurant supply dealers, architectural design
firms, office furniture dealers, mass merchandisers, OEM's and chain
restaurants. These products are marketed through a combination of 28 direct
factory sales representatives employed by the Company and 9 independent
manufacturer's representatives organizations. Most sales representatives are
assigned to geographical territories. The efforts of these factory and
independent sales representatives are directed by the Company's Senior Vice
President-Sales, Vice President-Office and Hospitality, Vice President-Sales,
the hospitality sales manager and the Company's three regional sales managers.
The Company's William Hodges division sells its product to the
foodservice, healthcare and material handling markets throughout the United
States through 44 independent manufacturer's representatives organizations
which are directed by the Company's Vice President-Hodges and two regional
sales managers.
Each factory and independent sales representative (i) is assigned a
territory in which to promote and sell the Company's products, (ii) assists
in the collection of receivables and resolution of any complaints with regard
to his or her sales, and (iii) receives commissions based on the net sales
made in his or her territory. The Company determines the prices at which its
products will be sold and may refuse to accept any orders submitted by a
sales representative for credit-worthiness or other reasons. The Company's
independent sales representatives do not carry competing lines.
The Company's marketing programs assist its representatives in various
ways. The Company (i) conducts extensive training programs to better educate
its sales representatives with respect to the design, manufacture, variety
and decor applications of the Company's products, (ii) provides restaurant
supply and office furniture dealers, mass merchandisers, architectural
designers, OEM's and other customers with catalog materials, samples and
brochures, (iii) maintains a 37-person customer service department that
ensures that the Company promptly responds to the needs and orders of its
customers, (iv) exhibits its products at national and regional furniture
shows and leases a showroom in the Merchandise Mart in Chicago, (v) maintains
regular contact with key customers, and (vi) conducts ongoing surveys to
determine customer satisfaction.
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<PAGE> 5
Flight. The Company's office and other furniture products are also
marketed through the Company's "Flight" network of approximately 290
independent office furniture dealers and 210 secondary dealers. Flight
dealers distribute the Company's furniture products to a wide variety of
commercial users and office furniture retailers and provide the Company with
access to incremental sales opportunities. The Flight network is designed to
both distribute the Company's office furniture products and cross-sell its
foodservice furniture products. The Company utilizes its direct factory
sales force and independent sales representatives, under the supervision of
the Company's Vice President - Office and Hospitality, to call upon existing
and prospective Flight dealers.
International Sales. The Company's products are marketed throughout
Europe through an exclusive distribution agreement with an European
distributor. The Company acquired Falcon Mimon, a.s., a furniture manufacturer
located in Mimon, Czech Republic ("Falcon Mimon") in September 1994. Management
believes that the manufacturing capabilities of Falcon Mimon will complement the
distribution network and will position the Company to take advantage of
opportunities in Europe.
Distribution of the Company's products in Asia and the Pacific Rim is
achieved through exclusive distribution arrangements in Japan, Hong Kong, and
South Korea. The Company plans to augment its existing distribution
agreements during 1997 with additional distribution arrangements in
other countries in the Pacific Rim. The Company's international sales
efforts are supported by three dedicated customer service personnel. During
1996, 1995 and 1994, foreign operations and export sales were $10.9, $9.7
million, and $4.8 million, respectively. Of these amounts, $3.8 million
and $4.0 million of sales in 1996 and 1995, respectively, were made directly
from the Company's Mimon location.
National Accounts. The Company's National Accounts program targets
the major restaurant chains in the United States. The Company's National
Accounts sales force consists of 12 employee sales representatives and 13
independent sales representatives that are directed by the Company's Vice
President-National Accounts and two regional sales managers. The Company
believes that its vertically integrated manufacturing capabilities allow it
to better serve these customers than most of its competitors and that its
design, installation and service capability are particularly suited for many
of these customers. The National Accounts sales force develops original
design concepts, including seating layouts and product specifications for
each customer based on the customer's requirements. The Company's National
Accounts sales force is supported by 18 customer service representatives, 25
quotation and design services personnel and eight product engineers, located
at the Company's Newport, Tennessee and City of Industry, California
manufacturing facilities.
PRODUCT DESIGN AND DEVELOPMENT
The Company's design and engineering group consists of three designers
and seven engineers. The designers work primarily with sales and marketing
personnel in support of the Company's complete decor systems for its National
Accounts program. The Company's engineering staff utilizes the Company's
computer aided design system to provide layout and configuration advice to
customers who are integrating the Company's furniture products into their
facilities and to design casegoods and other components. The design and
engineering group also assists the Company's product design engineers in the
development of new products.
The Company's Product Development team, which is comprised of sales,
marketing, purchasing, engineering and financial personnel, strives to
produce customer satisfaction and competitively priced products by constantly
improving the Company's product lines. The Product Development team has a
formalized charter and a plan that not only will account for new product
introductions, but has identified market trends and includes product
development to accommodate those trends. The Company has three full-time
product design engineers who report to the Product Development team and are
responsible for the design of new product introductions. Product designs are
also purchased from time to time from outside sources to supplement the
Company's internal design capabilities.
5
<PAGE> 6
MANUFACTURING
The Company's manufacturing facility in Newport, Tennessee, produces
table bases, table tops, millwork, casegoods and booths. Table bases are
produced from iron castings and from wood. Cast iron table bases are sent
to the Newport facility in truck load quantities from the Company's gray iron
foundry in Juarez, Mexico, and are finished to meet customer requirements.
Table tops, which may be combined with the Company's table bases to produce a
complete table, are produced from solid wood or particle board core with a
laminate or wood veneer surface, receive various edge treatments and finishes,
and are sealed and sprayed with a durable top coat. Millwork and casegoods,
which are produced primarily to support the National Accounts program, are
manufactured at the Newport facility from lumber that is purchased in truck
load quantities, dry-kilned and rough-planed. The lumber is then planed to a
finish dimension, cut to the appropriate length and width and profiled with
special edge treatments. The product is then assembled to engineering
specifications and finished with a durable catalyzed finish. Booths are
produced from rough lumber that is cut and prepared in a millroom at the
facility, covered or color-matched to customer specifications and top coated
with the same durable catalyzed finish used on the Company's table tops and
other wood products.
The Company's facility in Lewisville, Arkansas, produces wood chairs.
Approximately 20% of the facility's wood chairs are produced entirely in
house, with the balance assembled from machined parts imported from Falcon
Mimon or other European suppliers. The Company purchases these parts in
container loads and then assembles and finishes the chairs to customer order.
To provide consistency and speed to the finishing process, a conveyorized
paint line is utilized with spray booths and drying ovens positioned to allow
proper flash off and curing times between finishing steps.
The Company's facility in Belmont, Mississippi, produces metal chairs
that are marketed to the restaurant, banquet, retail distribution, office,
and healthcare markets. Most chairs are manufactured totally in-house
through a process of metal bending, fabrication, semi-automatic welding and
upholstering. All metal chairs, including the Company's line of metal office
chairs imported from Italy, are then finished to customer requirements
through plating or powder coat painting.
The Company's facility in Belding, Michigan, acquired as part of the
acquisition of the assets of Charlotte Company, Inc., produces metal, wood
and upholstered chairs and tables, which are principally marketed into the
office environment and upscale dining areas. The facility's high quality
woodworking, wood finishing and upholstery operations combine to produce
fully finished furniture to customer specifications.
The Company's facility in City of Industry, California, acquired as
part of the acquisition of the assets of Decor Concepts, produces fiberglass
booths, table tops, millwork and casegoods, metal chairs, wood chairs and fully
upholstered seating; finishes raw table bases received from the Company's Juarez
facility; and upholsters finished wood chair frames received from the Company's
Tijuana facility. In addition to manufacturing these additional products, this
facility also serves as a central distribution center for products manufactured
at other Falcon locations destined for the western United States.
The Company's facility in Anaheim, California, produces wood chairs
and fully upholstered seating suited for guest rooms, public areas and dining
areas of hotels, resorts and country clubs. These products are manufactured
from rough lumber that is planed to a finish dimension, cut to the appropriate
dimensions and profiled to meet engineering specifications. The chair frames
are then finished and upholstered to customer order.
The Company's facility in Tijuana, Mexico, manufactures casegoods and wood
chairs that are primarily suited for the lodging and hospitality markets. Most
of the chair frames manufactured and finished in this factory are shipped to the
City of Industry plant for upholstering or consolidation with other Falcon
products before the products are shipped to customers.
The Company's facility in Juarez, Mexico, produces iron castings which
are finished into table bases at other Falcon facilities. Molds for the
table bases are produced by packing sand around an aluminum match plate.
Many of the raw materials used at the facility are readily available in the
Juarez area. The bases are finished and painted with a powder coat paint in
Juarez prior to shipment or if the bases are to be chrome plated, they are
polished in Juarez prior to shipment to other Falcon factories. A small
portion of this facility's production is shipped, generally in truck-load
quantities, directly to the Company's customers. The Company's foundry utilizes
an emission-free electric furnace and has a melting capacity of 110,000 pounds
per day.
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The Company's facility in Mimon, Czech Republic, produces wood chairs
and wood chair parts for export and sale within the Czech Republic.
Approximately 30% of this facility's production is for chair parts shipped to
the Company's facility in Lewisville, Arkansas, for assembly and final
finishing. This facility also exports finished chairs and chair parts to
customers in Europe, the Pacific Rim and North America. This facility has wood
drying, machining and bending capabilities to produce chair frames from raw
lumber and finishing and upholstery capabilities to complete fully finished
chairs to customer specifications.
The Company's facility in St. Louis, Missouri, produces wire shelving
systems and metal kitchen equipment. The production of wire shelving systems
begins with the receipt by the Company of unprocessed coiled steel wire and
stripping which are straightened, cut to length and welded into the shelving
systems. Much of the cutting and welding process is performed by numerically
controlled automated equipment. Raw steel tubing is purchased in appropriate
lengths and shelf support grooves are pressed into the tubing. Other steel
products for the foodservice industry, such as fry baskets, strainers and
whips, are produced at the facility from raw wire and wire mesh through a
manual cutting and welding process.
RAW MATERIALS
The Company manufactures most of its products to customer order from
basic raw materials. The Company utilizes a variety of raw materials in the
manufacture of its products, including rough lumber, laminates, particle
board, metal tubing, steel wire, scrap iron and various plastic components,
all of which the Company believes are in abundant supply and available from a
variety of sources. The Company has no long-term supply contracts with any
of its suppliers and it has experienced no significant problems in obtaining
raw materials for its operations.
Certain products sold by the Company, including unfinished wood chair
frames and frame components and tubular steel stacking chair components, are
purchased by the Company from other sources. The Company has not experienced
difficulty in obtaining sources to produce these products and believes that
alternative arrangements could be made to obtain these products should the
need arise. The Company subcontracts for all of its metal plating functions,
and the epoxy coating functions for its Williams Hodges division, with
companies located in the local area where the particular product is produced.
BACKLOG
As of November 2, 1996, the Company's backlog of orders for its
products believed to be firm was approximately $17.7 million, as compared to
$10.5 million at October 28, 1995. Due to the Company's short delivery time,
backlog of orders is typically not considered a significant measure of future
sales.
COMPETITION
The foodservice, office furniture and hospitality segments of the
furniture industry are fragmented and highly competitive with respect to each of
the products manufactured by the Company. The Company believes its competitive
strengths are its vertically integrated manufacturing, its emphasis on
customer service and support, its reputation for quality and responsiveness
to its customers, the one-stop shopping advantage made possible by the wide
variety of products offered by the Company and its ability to design,
manufacture and install turnkey interior decor systems. The Company competes
for sales of each of its products with numerous domestic and foreign
manufacturers, many of which have financial and other resources greater than
the Company.
EMPLOYEES
As of December 31, 1996, the Company employed approximately 1,303
persons in its seven domestic operations, 385 in its manufacturing facilities
in Mexico, and 272 in its manufacturing facility in Mimon, Czech Republic.
Approximately 50 persons were employed in sales, 271 persons in
administration and 1,639 in manufacturing.
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TRADEMARKS AND PATENTS
The Company has registered the "FALCON", "CHARLOTTE", "FLIGHT" and
"GENESIS" trademarks with the United States Patent and Trademark Office.
Management believes that the Company's trademark position is adequately
protected in all markets in which the Company does business. The Company
has received mechanical patents on certain of its furniture mechanisms and
components. The Company believes that while its patents and trademarks
have value, it is not dependent upon patents, trademarks, servicemarks or
copyrights.
GOVERNMENTAL REGULATIONS AND ENVIRONMENTAL MATTERS
The Company's operations must meet extensive federal, state, and local
regulatory standards in the areas of safety, health and environmental
pollution controls. Historically, these standards have not had any material
adverse effect on the Company's sales or operations. Management believes
that its plants are in compliance in all material respects with all
applicable federal, state, and local laws and regulations concerned with
safety, health and environmental protection.
ACQUISITIONS
In October 1996, the Company acquired the assets and assumed
certain liabilities of The Chair Source. The Chair Source manufactures wood
and upholstered seating in Anaheim, California and distributes these products
primarily to the hospitality, lodging and foodservice markets. Falcon purchased
the net assets for 241,400, newly issued shares of common stock valued at $3.3
million, subject to working capital level adjustments, plus a total of 75,000
shares of common stock to be issued over a three-year period, subject to certain
contingencies.
In February 1996, the Company acquired substantially all of the assets
and assumed certain liabilities of a manufacturing facility located in
Tijuana, Mexico. This facility specializes in manufacturing upscale wood and
upholstered seating primarily for the lodging and hospitality industries.
The total purchase price for this facility was approximately $500,000 and was
funded by the Company with its available cash reserves.
In September 1995, the Company acquired the interior decor business and
related assets, and assumed certain liabilities, relating to that business
from Omni Inc. The Company operates this business under the tradename Decor
Concepts, which was a tradename used by Omni Inc. for a substantial portion
of that business. Decor Concepts is a manufacturer of interior decor
products, including seating, tables and casegoods for restaurant chains. The
total purchase price for the transaction was approximately $1,540,000.
Approximately $1,095,000 of this price was paid at closing with the remainder
paid after the final valuation of certain assets was determined. This
transaction was funded by the Company with available cash reserves.
In September 1994, the Company acquired a 67% controlling interest in
Falcon Mimon, a furniture manufacturer in the Czech Republic, pursuant to an
agreement with the government of the Czech Republic. The total cost to
acquire the 67% interest in Falcon Mimon was approximately $2.3 million and
was funded from the Company's available cash reserves. Under terms of the
purchase agreement, the Company invested an additional $2.5 million in Falcon
Mimon during 1995 and 1996 to acquire equipment and make certain plant
improvements. This additional investment increased the Company's ownership
interest in Falcon Mimon to approximately 84%.
In January 1994, the Company acquired substantially all of the assets
and assumed certain liabilities of Charlotte Company, Inc. located in
Belding, Michigan. Charlotte is an 82 year old company that specializes in
the production and distribution of high quality wood and metal seating and
tables geared toward the office and upper end restaurant and lodging
applications. The total purchase price for this transaction was
approximately $3.4 million and was funded by the Company from its available
cash reserves.
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ITEM 2. PROPERTIES.
The following table provides information with respect to each of the
Company's manufacturing facilities:
<TABLE>
<CAPTION>
BUILDING AREA
LOCATION (SQUARE FEET) PRODUCTS LEASE/OWNERSHIP TERMS
-------- ------------- -------- ---------------------
<S> <C> <C> <C>
Newport, Tennessee 370,000 Table bases, table tops, Leases expiring in
millwork, casegoods December 2001, with
and booths two five-year renewals.
Belmont, Mississippi 227,000 Metal chairs Own 176,000 square feet
in four contiguous
buildings; Lease 51,000
square feet expiring in
November 2003.
Lewisville, Arkansas 159,000 Wood chairs Leases expiring in
February 1999, with a
five-year renewal
option.
City of Industry, 177,000 Table bases, table tops, Lease expiring in April
California millwork, casegoods and 2006, with three five-
fully upholstered seating year renewal options.
St. Louis, Missouri 142,000 Wire shelving and metal Owned
kitchen equipment
Belding, Michigan 89,000 Wood and metal chairs Owned
and tables
Anaheim, California 46,000 Wood chairs Lease expiring in
October 2001.
Irwindale, California 34,000 Fiberglass booths Leases expiring in
October 1999.
Mimon, Czech Republic 700,000 Wood chairs Owned
Juarez, Mexico 51,000 Iron castings for table bases Owned
Tijuana, Mexico 44,000 Casegoods and wood chairs Leases expiring in
December 1997, with
five one-year renewal
options.
</TABLE>
Management of the Company believes that its manufacturing and
warehousing facilities are in good condition and are adequate for the
purposes for which they are currently used. The capacity of the Company's
current facilities is considered by the Company to be adequate to meet
current needs and anticipated increases in sales volume for the foreseeable
future.
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ITEM 3. LEGAL PROCEEDINGS.
From time to time, the Company is subject to legal proceedings and
other claims arising in the ordinary course of its business. The Company
maintains insurance coverage against potential claims in an amount which it
believes to be adequate. The Company is a defendant in a lawsuit filed
on May 8, 1996, in the United States District Court for the Northern
District of California that alleges certain business tort claims including
trade dress and copyright infringement, antitrust violation and unfair
business practices by the Company concerning new products that the Company
introduced for the lodging industry. The complaint seeks actual damages in
excess of $1.0 million and unspecified punitive and other damages. The
Company's management believes the suit is without merit and intends to
vigorously defend its position. While the final outcome of the lawsuit
cannot be determined, the Company believes that it will not have a material
adverse effect on the Company's results of operations or its financial
position.
There are no other material pending legal proceedings, other than
routine litigation incidental to the business, to which the Company is a
party or of which any of the Company's property is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of stockholders during the last
quarter of the Company's fiscal year ended November 2, 1996.
<TABLE>
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT<F*>.
The Executive Officers of the Company are:
<CAPTION>
NAME POSITION AGE
- - - - ---- -------- ---
<C> <S> <C>
Franklin A. Jacobs Chairman of the Board since 1971; President from 1957 to May 64
1981 and again from January 1984 to December 1995.
Darryl C. Rosser President and Chief Operating Officer since December 1995; 45
Executive Vice President-Operations since May 1995;
Senior Vice President-Operations since December 1993; and
Vice President-Operations since January 1988.
Michael J. Dreller Vice President-Finance and Chief Financial Officer, 35
Secretary and Treasurer since January 1996; prior to joining
the Company, Vice President and Chief Financial Officer of
JDI Group, Inc., a distributor of residential furniture.
Richard Hnatek Senior Vice President-Sales since December 1993; 52
Vice President-Sales since November 1986.
Michael J. Kula Vice President-Operations since July 1996; prior to joining 47
the Company, Senior Vice President-Operations of The Gunlocke
Company, a subsidiary of HON Industries, Inc., a manufacturer
of office furniture.
Each officer is elected annually by the Board of Directors.
<FN>
- - - - -----------
<F*> This information is included in PART I as a separate item in accordance
with General Instruction G of Form 10-K under the Securities Exchange Act of
1934.
</TABLE>
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
(a) Principal Market
On December 6, 1995, the Company's common stock, par value $.02 per
share, was listed and began trading on the New York Stock Exchange under the
symbol FCP. Prior to that date, the Company's common stock was traded on the
NASDAQ National Market.
(b) Stock Price and Dividend Information
The following table sets forth the high and low closing sales prices
per share for the Company's common stock and dividends paid per share for the
periods indicated. All per share price and shares outstanding information
set forth in this Report have been adjusted to reflect a 10% stock dividend
paid to stockholders of record on December 13, 1995.
<TABLE>
<CAPTION>
MARKET PRICE
---------------- DIVIDENDS
HIGH LOW PER SHARE
---- --- ---------
<S> <C> <C> <C>
Year ended November 2, 1996:
First Quarter $13.25 $12.05 $.025
Second Quarter 16.63 13.00 .025
Third Quarter 16.75 14.13 .025
Fourth Quarter 15.13 13.13 .025
Year ended October 28, 1995:
First Quarter $10.75 $9.55 $.02
Second Quarter 11.36 10.23 .02
Third Quarter 13.30 10.68 .02
Fourth Quarter 12.95 11.36 .02
</TABLE>
Although the payment of future dividends is in the discretion of the Board of
Directors, the Company expects to pay a regular quarterly dividend for the
foreseeable future. During the first quarter of 1996, the Company increased
its cash dividend to $.025 per share from $.02 per share. The Company again
increased its dividend in the first quarter of 1997, raising it to $.035 per
share.
(c) Approximate Number of Holders of Common Stock
The approximate number of holders of record of the Company's common
stock as of January 21, 1997, was 964.
(d) Recent Sales of Unregistered Securities
On October 28, 1996, the Company issued 241,400 shares of common stock,
and incurred a contingent obligation to issue an additional 75,000 shares of
common stock over the next three years (the 241,000 issued shares and the
additional 75,000 are hereafter referred to as the "Acquisition Shares") in
connection with its acquisition of the assets of The Chair Source from The
T.L. Spriggs Corporation. The Company believes that the value of the
acquired assets is commensurate with the total value of the Acquisition
Shares, which were valued at approximately $4.35 million as of October 28,
1996. The Acquisition Shares were exempt from registration under Section
4(2) of the Securities Act of 1933, as amended, and Regulation D promulgated
thereunder.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data included on page 28 of the Registrant's
Annual Report for the fiscal year ended on November 2, 1996 (the "1996 Annual
Report" ) is incorporated herein by reference and contained herein as Exhibit
13.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The information regarding management's discussion and analysis of
financial condition and results of operations included on pages 15 and 16 of
the Registrant's 1996 Annual Report is incorporated herein by reference and
contained herein as Exhibit 13.
11
<PAGE> 12
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and notes included on
pages 17 to 26 of the Registrant's 1996 Annual Report, the report of
independent auditors on page 27 of the Registrant's 1996 Annual Report and
the quarterly financial information included on page 26 of the Registrant's
1996 Annual Report are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information contained under the caption "INFORMATION ABOUT THE
NOMINEES" in the Registrant's Proxy Statement for the 1997 annual meeting of
stockholders to be held March 18, 1997 (the "Proxy Statement"), is incorporated
herein by reference.
Information regarding executive officers of the Company is contained in
Part I, Item 4A hereof under the caption "Executive Officers of the
Registrant."
Information regarding compliance with Section 16(a) of the Securities
Exchange Act of 1934 in the Proxy Statement under the caption "COMPLIANCE WITH
SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934" is incorporated herein
by reference.
ITEM 11. EXECUTIVE AND DIRECTOR COMPENSATION.
The information contained under the captions "EXECUTIVE COMPENSATION,"
"COMPENSATION OF DIRECTORS" and "INFORMATION AS TO STOCK OPTIONS" in the Proxy
Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information contained under the captions "VOTING SECURITIES, PRINCIPAL
HOLDERS THEREOF AND CUMULATIVE VOTING RIGHTS" and "SECURITY OWNERSHIP OF
MANAGEMENT" in the Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information contained under the caption "TRANSACTIONS WITH ISSUER AND
OTHERS" in the Proxy Statement is incorporated herein by reference.
12
<PAGE> 13
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements
The following Consolidated Financial Statements of the Company
included in the 1996 Annual Report are incorporated by reference in Part II,
Item 8:
<TABLE>
<CAPTION>
ANNUAL REPORT
PAGE REFERENCE
--------------
<S> <C>
Consolidated Statements of Earnings for the years ended November 2, 1996, October 28, 1995,
and October 29, 1994 17
Consolidated Balance Sheets as of November 2, 1996, and October 28, 1995 18
Consolidated Statements of Stockholders' Equity for the years ended November 2, 1996,
October 28, 1995, and October 29, 1994 19
Consolidated Statements of Cash Flows for the years ended November 2, 1996,
October 28, 1995, and October 29, 1994 20
Notes to Consolidated Financial Statements 21
Report of Independent Public Accountants 27
</TABLE>
(a) 2. Financial Statement Schedules
The following financial statement schedule is included in Item 14
on page 15:
Schedule II-Valuation and Qualifying Accounts for the years ended
November 2, 1996, October 28, 1995, and October 29, 1994
(a) 3. Exhibits:
See Exhibit Index on pages 17 through 19 of this Report.
b) Reports on Form 8-K:
None.
13
<PAGE> 14
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
TO FALCON PRODUCTS, INC.:
We have audited in accordance with generally accepted auditing standards, the
financial statements included in Falcon Products, Inc. 1996 Annual Report to
Shareholders incorporated by reference in this Form 10-K, and have issued our
report thereon dated December 16, 1996. Our audit was made for the purpose
of forming an opinion as those financial statements taken as a whole.
Schedule II included in this Form 10-K is presented for purposes of complying
with the Securities and Exchange Commission's rules and is not part of the
basic financial statements. This schedule has been subjected to the auditing
procedures applied in our audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required
to be set forth therein in relation to the basic financial statements taken
as a whole.
ARTHUR ANDERSEN LLP
St. Louis, Missouri,
December 16, 1996
14
<PAGE> 15
<TABLE>
FALCON PRODUCTS, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED NOVEMBER 2, 1996, OCTOBER 28, 1995, AND OCTOBER 29, 1994
<CAPTION>
ADDITIONS ACQUISI-
BALANCE AT CHARGED TO TIONS FROM DEDUCTIONS BALANCE AT
(In thousands) BEGINNING COSTS AND ACQUIRED FROM END OF
OF PERIOD EXPENSES COMPANIES RESERVES PERIOD
--------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts
and anticipated returns:
Year ended November 2, 1996 $ 369 $1,162 $ -- $1,092<FA> $ 439
===== ====== ====== ====== =====
Year ended October 28, 1995 $ 503 $ 708 $ -- $ 842<FA> $ 369
===== ====== ====== ====== =====
Year ended October 29, 1994 $ 243 $ 618 $ 85 $ 443<FA> $ 503
===== ====== ====== ====== =====
<FN>
- - - - ------------
<FA> Accounts charged off less recoveries and returns.
</TABLE>
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FALCON PRODUCTS, INC.
Date: January 27, 1997 By /s/ Franklin A. Jacobs
-------------------------------------
Franklin A. Jacobs,
Chairman of the Board
and Chief Executive Officer
Date: January 27, 1997 By /s/ Michael J. Dreller
-------------------------------------
Michael J. Dreller
Vice President, Chief Financial
Officer, Secretary and Treasurer
(Principal Financial Officer
and Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated:
<TABLE>
<S> <C>
Date: January 27, 1997 /s/ Raynor E. Baldwin
------------------------------------------
Raynor E. Baldwin, Director
Date: January 27, 1997 /s/ Donald P. Gallop
------------------------------------------
Donald P. Gallop, Director
Date: January 27, 1997 /s/ James L. Hoagland
------------------------------------------
James L. Hoagland, Director
Date: January 27, 1997 /s/ Franklin A. Jacobs
------------------------------------------
Franklin A. Jacobs, Director
Date: January 27, 1997 /s/ S. Lee Kling
------------------------------------------
S. Lee Kling, Director
Date: January 27, 1997 /s/ Lee M. Liberman
------------------------------------------
Lee M. Liberman, Director
Date: January 27, 1997 /s/ Alan Peters
------------------------------------------
Alan Peters, Director
Date: January 27, 1997 /s/ Darryl Rosser
------------------------------------------
Darryl Rosser, Director
Date: January 27, 1997 /s/ James Schneider
------------------------------------------
James Schneider, Director
</TABLE>
16
<PAGE> 17
<TABLE>
EXHIBIT INDEX
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- - - - ------- -----------
<C> <S>
3.1 Restated Certificate of Incorporation of the Company, filed as Exhibit 3.1
to the Company's Quarterly Report on Form 10-Q for the quarterly period
ended April 27, 1996.
3.2 Restated Bylaws, filed as Exhibit 3.2 to the Company's Quarterly Report
on Form 10-Q for the quarterly period ended April 27, 1996.
3.3 Amendment to Restated By-Laws, effective January 16, 1997, filed
herewith.
4 Form of Stock Certificate for Common Stock, incorporated herein by
reference to Exhibit 4.1 to the Company's Registration Statement on Form
S-1, Reg. No. 33-61706.
10.1 Lease Agreement dated February 1, 1980, between Lafayette County,
Arkansas and the Company, incorporated herein by reference to Exhibit 10(e)
to the Company's Annual Report on Form 10-K for the year ended
October 31, 1980.
10.2 Bond Guaranty Agreement dated February 1, 1980, pursuant to which the
Company has guaranteed payment of $800,000 principal amount of Industrial
Development Revenue Bonds (Falcon Project), Series 1980, incorporated
herein by reference to Exhibit 10(f) to the Company's Annual Report on
Form 10-K for the year ended October 31, 1980.
10.3 Loan Agreement dated as of February 1, 1985, between the City of Newport,
Tennessee and the Company, incorporated herein by reference to Exhibit 4(m)
to the Company's Annual Report on Form 10-K for the year ended November 2,
1985.
10.4 Loan and Security Agreement dated as of August 1, 1989, between the City of
Newport, Tennessee and the Company and related Note, incorporated herein by
reference to Exhibit 4(p) to the Company's Annual Report on Form 10-K
for the year ended October 28, 1989.
10.5 Assignment and Assumption Agreement dated January 30, 1980, and the lease
thereunder, incorporated herein by reference to Exhibit 10(g) to the Company's
Annual Report on Form 10-K for the year ended October 31, 1980.
10.6 Lease Agreement dated as of June 1, 1988, among Burley Builders, Inc. and
Tennessee Tobacco Sales, Incorporated, as lessors, and the Company, as lessee,
incorporated herein by reference to Exhibit 10(m) to the Company's Annual
Report on Form 10-K for the year ended October 29, 1988.
10.7 First Amendment to Lease Agreement dated as of November 21, 1991, among
Burley Builders, Inc. and Tennessee Tobacco Sales, Incorporated, as lessors,
and the Company, as lessee, incorporated herein by reference to Exhibit 10.9
to the Company's Annual Report on Form 10-K for the year ended November 2,
1991.
17
<PAGE> 18
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- - - - ------- -----------
10.8<Fa> Falcon Products, Inc. 1981 Employee Incentive Stock Option Plan ("ISOP"),
incorporated herein by reference to Exhibit 4(h) to the Company's Registration
Statement on Form S-8, Reg. No. 33-15698.
10.9<Fa> Form of Stock Option Agreement dated June 9, 1986, regarding options issued
to Directors, incorporated herein by reference to Exhibit 10(i) to the Company's
Annual Report on Form 10-K for the year ended November 1, 1986.
10.10<Fa> Stock Option Agreement dated June 9, 1986, regarding options issued to
Franklin A. Jacobs, incorporated herein by reference to Exhibit 10(i) to the Company's
Annual Report on Form 10-K for the year ended November 1, 1986.
10.11<Fa> First Amendment to the ISOP, adopted June 16, 1987, incorporated herein
by reference to Exhibit 10(1) to the Company's Annual Report on Form 10-K
for the year ended October 31, 1987.
10.12<Fa> Falcon Products, Inc. Amended and Restated 1991 Stock Option Plan, incor-
porated herein by reference to Exhibit 4.1 to the Company's Registration State-
ment on Form S-8, Reg. No. 33-46997.
10.13<Fa> Falcon Products, Inc. Amended and Restated Stock Purchase Plan, incorporated
herein by reference to Exhibit 10.15 to the Company's Annual Report on Form 10-K for
the year ended November 2, 1991.
10.14<Fa> Minutes of Meeting of Board of Directors of the Company dated March 14, 1991
(the "Non-Employee Director Plan"), incorporated herein by reference to Exhibit 4.1
to the Company's Registration Statement on Form S-8, Reg. No. 33-46998.
10.15 Debt Agreement dated August 3, 1992 (the "Debt Agreement"), between the
Company and Boatmen's Bank ("Boatmen's") entered into with respect to a
$10,000,000 revolving line of credit from Boatmen's to the Company, incorporated
herein by reference to Exhibit 10.15 to the Company's Annual Report on
Form 10-K for the year ended October 31, 1992 (the "1992 10-K").
10.16 Asset Purchase Agreement dated as of August 3, 1992, by and among Falcon
Acquisition Subsidiary, Inc., the Company and Kaydee Metal Products Corporation,
incorporated herein by reference to Exhibit 2 to the Company's Current Report on
Form 8-K dated August 3, 1992.
10.17<Fa> Minutes of Meeting of Board of Directors of the Company dated September 15, 1992,
amending the Non-Employee Director Plan, incorporated herein by reference to Exhibit
10.17 to the 1992 10-K.
10.18<Fa> Amendment to the Falcon Products, Inc. Amended and Restated 1991 Stock Option Plan
incorporated herein by reference to Exhibit 10.18 to the Company's Annual Report on
Form 10-K for the year ended October 30, 1993 (the "1993 10-K").
10.19<Fa> Consulting Agreement dated August 1, 1993, by and between the Company and AJR
Enterprises, Inc., incorporated herein by reference to Exhibit 10.19 to the 1993 10-K.
<FN>
- - - - ----------------
<Fa> Management contract or compensatory plan or arrangement required to be filed pursuant to
Item 14(c) of Form 10-K.
18
<PAGE> 19
<CAPTION>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- - - - ------- -----------
<C> <S>
10.20 Amendment to the Debt Agreement dated as of September 24, 1993, incorporated
herein by reference to Exhibit 10.20 to the 1993 10-K.
10.21 Second Amendment to the Debt Agreement dated as of August 30, 1994, incorporated
herein by reference to Exhibit 10.21 to the Company's Annual Report on Form 10-K for
the year ended October 29, 1994 (the "1994 10-K").
10.22 Third Amendment to the Debt Agreement dated as of September 8, 1994, incorporated
herein by reference to Exhibit 10.22 to the 1994 10-K.
10.23<Fa> Amendment No. 2 to the Falcon Products, Inc. Amended and Restated 1991 Stock
Option Plan, incorporated herein by reference to Exhibit 10.23 to the 1994 10-K.
10.24 Agreement of Purchase and Sale of Assets dated September 26, 1995, by and between
Falcon Products, Inc. and DPD Manufacturing, Inc., incorporated herein by reference
to Exhibit 10.24 to the Company's Annual Report on Form 10-K for the year ended
October 28, 1995 (the "1995 10-K").
10.25 Agreement of Purchase and Sale of Assets dated September 26, 1995, by and between
Falcon Products, Inc. and Decor Concepts, Inc., incorporated herein by reference to
Exhibit 10.25 to the 1995 10-K.
10.26 Amendment to the Non-Employee Director Stock Option Plan, filed as Exhibit 10.26
to the Company's Quarterly Report on Form 10-Q for the quarterly period ended April 27, 1996.
10.27 Asset Purchase Agreement dated as of October 28, 1996, by and among Falcon Acquisition
Subsidiary, Inc., the Company and The T. L. Spriggs Corporation, filed herewith.
11 Computation of Net Earnings Per Share, filed herewith.
13 Selected Portions of the Annual Report to Stockholders for the year ended November 2, 1996,
filed herewith.
21 Subsidiaries of the Company, filed herewith.
23 Consent of Independent Public Accountants, filed herewith.
27 Financial Data Schedule (filed in EDGAR version only).
<FN>
- - - - ----------------
<Fa> Management contract or compensatory plan or arrangement required to be
filed pursuant to Item 14(c) of Form 10-K.
</TABLE>
19
<PAGE> 1
EXHIBIT 3.3
Amendment of Bylaws
- - - - -------------------
RESOLVED, that, effective as of the date hereof, Section 1 of Article III of
the Company's By-Laws is hereby deleted in its entirety and the following
substituted in lieu thereof:
"Section 1. A. Number and Classification of
--------------------------------
Directors.
----------
The number of directors of the corporation
which shall constitute the Board of Directors shall be
nine, but such number may thereafter be changed from time
to time by resolution of the Board of Directors; provided,
--------
however, that the number of the directors of the corporation
-------
shall not be less than three. The Board of Directors shall be
divided into three classes, as nearly equal in number as
possible, which shall be designated Class A, Class B and Class
C. The class of each of the directors elected at the 1996
annual meeting of stockholders (the "1996 Meeting") shall be
designated by the Board. The term of office of each member
then designated as a Class A director shall expire at the
annual meeting of stockholders next ensuing the 1996 Meeting,
that of each member then designated as a Class B director at
the annual meeting of stockholders one year thereafter, and
that of each member then designated as a Class C director
at the annual meeting of stockholders two years thereafter.
At each annual meeting of stockholders held after the
election and classification of the Board of Directors at
the 1996 Meeting, directors elected to succeed those whose
terms then expire shall be elected for a term of three
years expiring at the third succeeding annual meeting
thereafter and until their respective successors are
elected and have qualified or until their earlier
displacement from office by resignation, removal or
otherwise.
B. Changes in the Number of Directors; Election by
--------------------------------------------------
Plurality. If the number of directors has changes, any
----------
increase or decrease in the number of directors shall be
apportioned among the classes so that the number of
directors in each class remain as nearly equal as possible;
provided, however, that no decrease in the number of
directors shall shorten the term of any incumbent director.
Directors shall, except as otherwise required by law, the
Certificate of Incorporation or Section 2 of this Article,
be elected by a plurality of the votes cast at a meeting of
stockholders by the holders of shares entitled to vote in
the election.
C. Eligibility of Persons to Serve as Directors. No
------------------------------------------------
person shall be eligible to be elected, reelected or
appointed as a director of the corporation who has reached
the age of 73; provided, however, that the board of directors
-------- -------
<PAGE> 2
of the corporation will have the authority to waive this
retirement provision with respect to any director if, in the
judgement of the board of directors, the retention of any such
director would be in the best interests of the corporation. A
person does not have to be a stockholder of the corporation to
eligible for election, reelection or appointment to the board
of directors of the corporation.
D. Nominations of Persons to Serve as Directors.
------------------------------------------------
The board of directors may designate a committee to
evaluate and recommend to the board of directors qualified
nominees for election or appointment as directors. The
board of directors, or such committee as so designated,
will give appropriate consideration to a written
recommendation by a stockholder of the corporation for the
nomination of a qualified person to serve as a director of
the corporation, provided that such recommendation, in the
judgement of the board of directors or the designated
committee, contains sufficient information regarding the
proposed nominee necessary for the board of directors or
the designated committee to properly evaluate such
nominee's qualifications to serve as a director of the
corporation."
<PAGE> 1
AGREEMENT AND PLAN OF REORGANIZATION
Among
FALCON PRODUCTS, INC.
as Acquiror
and
THE T.L. SPRIGGS CORPORATION
as Transferor
TONY L. SPRIGGS
as the Sole Shareholder of Transferor
October 28, 1996
<PAGE> 2
<TABLE>
Table of Contents
-----------------
<CAPTION>
Page
----
<C> <S> <C>
I. DEFINITIONS 1
II. TRANSFER OF ASSETS 5
2.01 Transfer of Assets 5
2.02 Transfer of Falcon Shares 5
2.03 Assumption of Liabilities 5
2.04 Transactions at Closing 7
2.05 Plan of Reorganization 7
2.06 Employees 7
III. ADJUSTMENT; CONTINGENT STOCK; HOLDBACK 8
3.01 Closing Adjustment 8
3.02 Contingent Stock 8
3.03 Closing Adjustment Holdback 9
3.04 Mortgage Lien Holdback 9
IV. WARRANTIES AND REPRESENTATIONS OF SPRIGGS 9
4.01 Organization and Standing of Spriggs 9
4.02 Authority 10
4.03 Good Title and Condition of Assets 10
4.04 Financial Statements 10
4.05 Absence of Changes 11
4.06 Payment of All Debts and Liabilities 11
4.07 No Conflicting Agreements or Orders 12
4.08 Compliance 12
4.09 Litigation 12
4.10 Condition of Spriggs 13
4.11 Employment Agreements 13
4.12 Labor Relations 13
4.13 Taxes 14
4.14 Name of Company 14
4.15 Inventory 14
4.16 Leases 14
4.17 Insurance 14
4.18 Other Contracts 15
4.19 Documents 15
4.20 Suppliers 15
4.21 Real Property 15
4.22 Customers; Accounts Receivable 15
4.23 ERISA 16
4.24 Environmental Matters 16
4.25 No Misrepresentation 18
V. REPRESENTATIONS AND WARRANTIES OF FALCON 18
5.01 Organization and Standing of Falcon 18
5.02 Binding Agreement 18
5.03 Agreement Within Authority 18
5.04 No Conflicting Agreements or Orders 18
5.05 Corporate Action 18
<PAGE> 3
5.06 No Conflict 18
5.07 No Misrepresentation 19
5.08 Valid Issuance 19
VI. COVENANTS OF FALCON 19
6.01 Information 19
6.02 Satisfaction of Assumed Liabilities 19
6.03 Execution of Facility Lease 19
VII. COVENANTS OF SPRIGGS AND SHAREHOLDER 19
7.01 Access to Information 19
7.02 Maintain Properties 20
7.03 Maintain Organization 20
7.04 Regular Course of Business 20
7.05 Insurance 20
7.06 Employees 20
7.07 Business Changes 20
7.08 Consents 20
7.09 Execution of Facility Lease 21
7.10 Exclusive Dealing 21
VIII. CONDITIONS PRECEDENT TO OBLIGATIONS OF FALCON 21
8.01 No Adverse Change 21
8.02 Representations, Warranties and Agreements of Spriggs 21
8.03 Opinion of Counsel 21
8.04 Absence of Litigation 22
8.05 Corporate Approval 22
8.06 Consents 22
8.07 Officers' Certificate 22
8.08 Approval of Documents 22
8.09 Casualty Loss 22
8.10 Satisfactory Review of Spriggs' Business and the Assets;
Inspections 22
8.11 Facility Lease 23
8.12 Certificates, Permits and Approvals 23
8.13 Employment and Non-Competition Agreement 23
8.14 Mortgage Lien Holdback Agreement 23
IX. CONDITIONS PRECEDENT TO OBLIGATIONS OF SPRIGGS AND SHAREHOLDER 23
9.01 Representations, Warranties and Agreements of Falcon 23
9.02 Performance of Assumed Liabilities 23
9.03 Corporate Approval 23
9.04 Consents 24
9.05 Falcon's Certificate 24
9.06 Approval of Documents 24
9.07 Employment 24
9.08 Facility Lease 24
9.09 Opinion of Counsel 24
9.10 Mortgage Lien Holdback Agreement 24
X. INDEMNIFICATION 24
10.01 Indemnification of Falcon by Spriggs and Shareholder 25
10.02 Indemnification of Spriggs by Falcon 26
<PAGE> 4
10.03 Notice to Indemnifying Party 27
XI. REGISTRATION STATEMENT 27
11.01 Preparation and Filing of Registration Statement 27
11.02 Blue Sky Requirements 27
XII. CLOSING AND RISK OF LOSS. 27
12.01 Place and Time 27
12.02 Risk of Loss 27
12.03 Simultaneous Performance 27
12.04 Transfer of Possession 28
XIII. MISCELLANEOUS 28
13.01 No Commission 28
13.02 Survival of Representations and Warranties 28
13.03 Change of Name; Liquidation 28
13.04 Incorporation of Schedules 28
13.05 Further Assurances 28
13.06 No Assumption of Spriggs' Liabilities 28
13.07 Transfer Taxes 28
13.08 Notices 28
13.09 Entire Agreement 29
13.10 Designation of Falcon as Agent 29
13.11 Binding Effect 30
13.12 Third Parties 30
13.13 Expenses of the Parties 30
13.14 Counterparts 30
13.15 Missouri Law to Govern; Venue 30
13.16 Headings 30
13.17 Publicity 31
13.18 Mail and Communications 31
13.19 Determination of Net Working Capital 31
13.20 Acquisition Subsidiary 32
13.21 Right of Set Off 32
<PAGE> 5
AGREEMENT AND PLAN OF REORGANIZATION
------------------------------------
This Agreement and Plan of Reorganization (the "Agreement")
is made as of the 28th day of October, 1996, by and among FALCON PRODUCTS,
INC., a Delaware corporation ("Falcon"), THE T.L. SPRIGGS CORPORATION, a
California corporation ("Spriggs") and TONY L. SPRIGGS, sole shareholder of
Spriggs ("Shareholder").
WHEREAS, Spriggs owns all of the assets, rights and property
necessary for, and operates a business which is engaged in, the design,
manufacture, sale and distribution of wood chairs and upholstered furniture
for the restaurant and hospitality industries (the "Business"); and
WHEREAS, the sole director and the sole shareholder of
Spriggs have authorized and approved this Agreement and have determined that
it is in the best interests of Spriggs to transfer the Business to Falcon, in
exchange for the Shares and the assumption by Falcon of the Assumed
Liabilities as provided for herein, all upon the terms and conditions and
subject to the provisions of this Agreement; and
WHEREAS, it is intended that the Transaction qualify as a
tax-free reorganization under Section 368(a)(1)(C) of the Code, it being
understood by Falcon that as an integral part of the Transaction, that
Spriggs will distribute the Shares in complete liquidation of Spriggs and
dissolve.
NOW, THEREFORE, in consideration of the premises and of the
agreements and provisions set forth herein, and subject to the conditions
herein contained, it is mutually agreed as follows:
I. DEFINITIONS.
-----------
For purposes of this Agreement, the following words and
phrases have the following meanings:
1.01 "Accounting Firm" means the firm of Robert E.
McCorkle, certified public accountant.
1.02 "Arbitrator" means the firm of independent certified
auditors, other than the Accounting Firm, mutually agreed upon by Falcon and
Spriggs to review the Closing Balance Sheet and issue its report pursuant to
Section 13.19.
1.03 "Accounts Receivables Schedule" is defined in
Section 4.22.
<PAGE> 6
1.04 "Assigned Contracts" means all of Spriggs'
contracts, leases and other agreements, a true copy of each of which has been
attached hereto by Spriggs in Schedule 1.04, which Assigned Contracts will be
-------------
assigned by Spriggs to Falcon at the Closing, and the performance of which
shall be assumed by Falcon at the Closing.
1.05 "Assumed Liabilities" means (i) all current
liabilities and obligations of Spriggs arising in the regular and ordinary
course of the Business as existing on the Closing Date, to the extent that
the same remain unpaid and undischarged on the Closing Date and are accrued
or reserved for on the Closing Balance Sheet (excluding, however those
--------- --------
liabilities and obligations referred to in Section 2.03 or as otherwise
provided herein) and (ii) all liabilities and obligations arising after the
Closing Date in connection with the performance by Falcon of the Assigned
Contracts.
1.06 "Assets" means all of the right, title and interest
of Spriggs in and to the property, leasehold interests, personal and mixed,
tangible or intangible, of whatever kind or character and wherever located,
which Assets shall include (but not be limited to) the following:
(a) All inventory, stock in trade, merchandise,
goods, supplies and other products owned by Spriggs or
otherwise under the control of Spriggs as of the Closing
Date, including the rights and payment obligations of
Spriggs under the orders for the purchase of goods set
forth in Schedule 1.06(a), complete copies of which have
----------------
been provided to Falcon by Spriggs, but not including any
commitment of Spriggs for the purchase of goods which is
not set forth in Schedule 1.06(a);
----------------
(b) The Closing Accounts Receivable;
(c) All pre-paid expenses;
(d) All machinery, equipment, tools, vehicles,
furniture, fixtures, goods and other items of tangible
personal property owned by Spriggs set forth and described
in Schedule 1.06(d);
----------------
(e) All technologies, methods, formulations, data
bases, trade secrets, know-how, inventions and intangible
property rights, including the name and all other trade
names;
(f) All contract rights, including the Assigned
Contracts;
(g) All rights, privileges, claims, demands and
choses in action, including, without limitation, all rights
under express or implied warranties; and
<PAGE> 7
(h) All records, files, books of account, customer
and supplier lists and other books and records of Spriggs
relating to the Business, including those relating to the
Transferred Assets and Assumed Liabilities.
1.07 "Balance Sheet Date" means the date upon which the
Closing occurs.
1.08 "Closing" means the consummation of the Transaction
contemplated by this Agreement.
1.09 "Closing Accounts Receivable" is defined in Section
4.22.
1.10 "Closing Balance Sheet" means the balance sheet of
Spriggs as of the Balance Sheet Date.
1.11 "Closing Customer List" is defined in Section 4.22.
1.12 "Closing Date" means 10:00 a.m. on October ---,
1996, or such other date and time as are mutually agreed upon in writing by
Falcon and the Spriggs; provided, however, that if all of the conditions to
-------- -------
Closing have not been met, then Falcon shall have the option to extend the
Closing Date once, to a date not later than December 31, 1996.
1.13 "Closing Inventory Count" means a physical count and
valuation to be taken by Falcon and Spriggs, of the inventory of goods and
supplies included in the Transferred Assets, determined in accordance with
the provisions of Section 4.15 as of the Balance Sheet Date and included in
the Closing Balance Sheet.
1.14 "Code" means the Internal Revenue Code of 1986, as
amended.
1.15 "Contingency Period" means each consecutive three
month period commencing on the first day of the calendar month first
succeeding the Closing Date and ending on the third anniversary date thereof.
1.16 "Contingent Stock" means those shares of Falcon
$0.02 par value common stock, to be issued and delivered by Falcon pursuant
to Section 3.02.
1.17 "Employment Agreement" is defined in Section 8.13.
1.18 "Environmental Laws and Regulations" means all
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules and timetables contained in any Laws relating to
pollution, nuisance, or the environment including, without, (i) the Federal
Clean Air Act, 42 U.S.C. Sec.Sec. 7401 et sec.; (ii) the Comprehensive
-- ---
Environmental Response, Compensation, and Liability Act, 42 U.S.C. Sec.Sec. 9601
et sec.; (iii)
- - - - -- ---
<PAGE> 8
the Federal Emergency Planning and Community Right-to-Know Act, 42 U.S.C.
Sec.Sec. 1101 et sec.; (iv) the Federal Insecticide, Fungicide and Rodenticide
-- ---
Act, 7 U.S.C. Sec.Sec. 136 et sec.; (v) the Federal Water Pollution Control Act,
-- ---
33 U.S.C. Sec.Sec. 1251 et sec.; (vi) the Solid Waste Disposal Act, 42 8.S.C.
-- ---
Sec.Sec. 6901 et sec.; (vii) the Toxic Substances Control Act, 15 U.S.C.
-- ---
Sec.Sec. 2601 et sec.; (viii) laws relating in whole or part to emissions,
-- ---
discharges, releases, or threatened releases of any Hazardous Material; and (ix)
Laws relating in whole or part to the manufacture, processing, distribution,
use, coverage, disposal, transportation, storage or handling of any Hazardous
Material.
1.19 "ERISA" means the Employee Retirement Income
Security Act of 1974, as amended, and the rules and regulations thereunder.
1.20 "Excluded Assets" means all cash and cash
equivalents and those other Assets listed in Schedule 1.20, which the parties
-------------
hereby expressly agree shall not be included in the Transferred Assets.
1.20A "Facility" is defined in Section 8.11.
1.21 "Facility Lease" is defined in Section 8.11.
1.22 "Financial Statements" are defined in Section 4.04.
1.23 "Hazardous Materials" means any hazardous,
infectious or toxic substance, chemical, pollutant, contaminant, emission or
waste which is or becomes regulated by any local, state, federal or foreign
authority. Hazardous Materials include, without limitation, anything which
is (i) defined as a "pollutant" pursuant to 33 U.S.C. Sec. 1362(6); (ii) defined
as a "hazardous waste" pursuant to 42 U.S.C. Sec. 6921; (iii) defined as a
"regulated substance" pursuant to 42 U.S.C. Sec.6991; (iv) defined as a
"hazardous substance" pursuant to 42 U.S.C. Sec. 9601(14); (v) defined as a
"pollutant or contaminant" pursuant to 42 U.S.C. Sec. 9601(33); (vi) petroleum;
(vii) asbestos; (viii) polychlorinated biphenyl.
1.24 "Mortgage Liens" means those liens against the
Assets granted by Spriggs to Imperial Thrift and Loan Association, as
successor in interest to [FOOTHILL], as collateral for certain loans made
to Shareholder by Imperial Thrift and Loan Association with respect to the
Facility.
1.25 "Net Working Capital" means (a) the total current
assets of Spriggs other than Excluded Assets, minus (b) the total current
liabilities of Spriggs, determined in accordance with generally accepted
accounting principles, consistently applied and consistent with Spriggs' past
accounting practices.
1.26 "1996 Balance Sheet" means the balance sheet of at
and for the year ended June 30, 1996, reviewed and reported upon by the
Accounting Firm.
<PAGE> 9
1.27 "Registration Statement" is defined in Section
11.01.
1.28 "Securities Act" means the Securities Act of 1933,
as amended.
1.29 "Shares" means those shares of Falcon $0.02 par
value common stock, to be issued and delivered by Falcon pursuant to Section
2.02, subject to the closing adjustment provided in Section 3.01.
1.30 "Transaction" means the acquisition by Falcon or a
subsidiary of Falcon of the Transferred Assets in exchange for the Shares and
the assumption by Falcon of the Assumed Liabilities pursuant to this
Agreement.
1.31 "Transferred Assets" means all of the Assets except
the Excluded Assets.
II. TRANSFER OF ASSETS.
------------------
2.01 Transfer of Assets. At the Closing, and subject to
------------------
the terms, provisions and conditions of this Agreement, and in reliance on
the representations, warranties and covenants contained herein, Spriggs shall
transfer, convey and assign to Falcon, and Falcon shall acquire, the
Transferred Assets in exchange for the Shares (subject to Sections 3.01, 3.03
and 3.04) and the assumption by Falcon of the Assumed Liabilities.
2.02 Transfer of Falcon Shares. At the Closing, Falcon
-------------------------
shall deliver to Spriggs certificates representing 241,400 Shares subject to
adjustment as set forth in Section 3.01 and further subject to Sections 3.03
and 3.04. Such certificates shall be issued in the name of Tony L. Spriggs,
Falcon having been advised by Spriggs that Spriggs has authorized the
distribution of the Shares, as received, to Shareholder, as its sole
shareholder pursuant to Spriggs' plan of liquidation.
2.03 Assumption of Liabilities. At the Closing, Falcon
-------------------------
shall assume and agree to pay, discharge or perform, as appropriate, the
Assumed Liabilities of Spriggs. Such agreement by Falcon shall be evidenced
by an assumption agreement in the form attached hereto as Schedule 2.03 (the
-------------
"Assumption Agreement"). In no event shall Falcon assume or incur any
liability or obligation under this Section 2.03 or under any other provision
of the Agreement in respect of any liability of Spriggs not expressly assumed
hereunder, including without limitation any of the following:
(a) any liability or obligation under or in
connection with any Excluded Asset;
(b) liabilities or obligations arising out of any
<PAGE> 10
breach by Spriggs of any provision of any
agreement, contract, commitment or lease,
including but not limited to liabilities or
obligations arising out of Spriggs' failure to
perform any agreement, contract, commitment or
lease in accordance with its terms prior to the
Closing;
(c) any product liability or similar claim for
injury to person or property, regardless of when
made or asserted, which arises out of or is
based upon any express or implied representation,
warranty, agreement or guarantee made by Spriggs,
or alleged to have been made by Spriggs, or which
is imposed or asserted to be imposed by operation
of law, in connection with any service performed
or product sold or leased by or on behalf of
Spriggs on or prior to the Closing, including
without limitation any claim related to damages or
personal injury caused as a result of any
defective product, the return or replacement of
defective products or any claim seeking recovery
for consequential damage, lost revenue or income;
(d) any claims for service under any warranty in
excess of $50,000 in the aggregate (other than
claims for product liability or similar injury
claims) made by Spriggs in connection with any
product sold by or on behalf of Spriggs prior to
the Closing (such claims being limited to the
actual cost to replace or repair).
(e) any federal, state or local income or other tax
(i) payable with respect to the Business,
Assets, properties or operations of Spriggs for
any period prior to the Closing Date; or (ii)
incident to or arising as a consequence of the
negotiation or consummation by Spriggs and the
transactions contemplated hereby;
(f) any liability or obligation arising prior to or
as a result of the Closing to any employee,
agent or independent contractor of Spriggs,
whether or not employed by Falcon after the
Closing, or under any benefit arrangement with
respect thereto; or
(g) any liability or obligation of Spriggs arising
prior to the Closing related to any violation of
any Environmental Law, whether or not disclosed
in any Schedule hereto;
(h) any liability, damages, costs or expenses
arising from or in connection with those matters
described in Schedule 4.09; or
-------------
<PAGE> 11
(i) any liability listed on Schedule 2.03(h) hereof.
----------------
2.04 Transactions at Closing. At the Closing:
-----------------------
(a) Spriggs will deliver to Falcon full possession
of the Transferred Assets and such bill(s) of
sale, endorsements, assignments and other good
and sufficient instruments of sale, conveyance,
transfer and assignment, all containing
covenants of general warranty, in form and
substance satisfactory to Falcon (including,
without limitation, a Bill of Sale and
Assignment in the form of Schedule 2.04(a)), as
----------------
will be required or as may be desirable in the
opinion of Falcon's counsel in order to
effectively vest in Falcon full, indefeasible,
merchantable, legal, equitable and beneficial
title to the Transferred Assets with full
substitution and subrogation to all rights and
actions of warranty, free and clear of all
debts, claims, security interests, liens,
encumbrances and other title retention
agreements, pledges, assessments, covenants,
restrictions and charges of every nature, except
for those shown on Schedule 4.03(a), and will
----------------
assign the Assigned Contracts to Falcon;
(b) Falcon will deliver the Shares to Shareholder,
as the sole shareholder of Spriggs, in
furtherance of the liquidation and dissolution
of Spriggs;
(c) Falcon will assume the Assumed Liabilities
pursuant to the Assumption Agreement; and
(d) the parties shall perform all of the other
obligations required to be performed by them
hereunder on or before the Closing.
2.05 Plan of Reorganization. Consistent with their
----------------------
intention that the Transaction qualify as a tax-free reorganization under
Section 368(a)(1)(C) of the Code, the parties agree that this Agreement,
together with the resolutions adopted in connection herewith by the Boards of
Directors of Falcon and Spriggs shall constitute the Plan of Reorganization
of Falcon and Spriggs.
2.06 Employees. Falcon shall not be obligated to hire
---------
any employees of the Business. Falcon shall notify Spriggs at least three
(3) days prior to the Closing Date of those of Spriggs' employees which
Falcon intends to hire, provided, however, that such notification shall not
-------- -------
be deemed to alter the employment at will nature of the relationship between
Falcon and such individuals.
<PAGE> 12
III. ADJUSTMENT; CONTINGENT STOCK; HOLDBACK.
--------------------------------------
3.01 Closing Adjustment. The number of Shares to be
------------------
delivered by Falcon at Closing shall be adjusted if, and to the extent that
the Net Working Capital of Spriggs shown on the Closing Balance Sheet either
(i) is greater than the sum of $140,000 (the "Excess Amount") or (ii) is less
than the sum of $90,000 (the "Deficiency Amount"). If an Excess Amount is
indicated on the Closing Balance Sheet, then the Shares issued and delivered
to Spriggs in the name of Shareholder at Closing shall be increased by the
number of Shares determined by dividing the Excess Amount by 14.50.
Conversely, if a Deficiency Amount is indicated on the Closing Balance Sheet,
then the number of Shares delivered to Spriggs in the name of Shareholder at
the Closing shall be reduced by that number of Shares determined by dividing
the Deficiency Amount by 14.50.
3.02 Contingent Stock. On account of various factors
----------------
contributing to the difficulty in currently valuing the Business for purposes
of the Transaction and in ascertaining the proper number of Shares to be
delivered by Falcon as the purchase price in the Transaction and in
determining the future level of earnings of the Business, all of which
collectively depend, in part, on the continued participation by Shareholder
in the Business, Falcon will issue a portion of the Shares that could be
delivered hereunder as Contingent Stock during each Contingency Period,
subject to the terms and conditions set forth in this Section 3.02.
Accordingly, within ten days following the completion of each Contingency
Period, Falcon shall issue and deliver to Shareholder 6,250 shares of
Contingent Stock; provided, however, that the total amount of Contingent
-------- -------
Stock delivered to Shareholder shall not exceed in the aggregate 75,000
shares of Contingent Stock; and, provided, further, that no Contingent Stock
-------- -------
shall be issued and delivered to Shareholder from and after (i) the
termination by Falcon "for cause" of the employment of Shareholder with
Falcon or any subsidiary of Falcon (as such term is defined in the Employment
Agreement) prior to the occurrence of a Change of Control (as defined below)
or (ii) the voluntary termination by Shareholder of his employment with
Falcon or any subsidiary of Falcon at any time. In the case of the issuance
of any shares of stock as a dividend upon the shares of Falcon $0.02 par
value common stock (the "Common Stock") or in the case of any subdivision
stock split or reverse stock split whose only effect is either to increase or
decrease in the same proportion the outstanding number of shares of Common
Stock then held, the number of shares of Contingent Stock to be issued and
delivered to Shareholder shall be appropriately adjusted to ensure that the
right of Shareholder will not be diluted as a result of such stock dividend,
subdivision, stock split or reverse stock split. Neither the right to
receive Contingent Stock nor any interest therein shall be transferable or
assignable by Shareholder other than by will or the laws of descent and
distribution. For purposes of this Section 3.02 "Change of Control" shall
mean (x)
<PAGE> 13
acquisition by an individual or entity that is not currently a shareholder of
Falcon of more than fifty percent (50%) of the Common Stock of Falcon or (y) the
termination of the employment of Franklin A. Jacobs as an executive officer of
Falcon for reasons other than death or disability.
3.03 Closing Adjustment Holdback. If, on the Closing
---------------------------
Date (i) the Closing Balance Sheet has not been delivered, (ii) the period
for raising disputes with respect thereto has not been completed or (iii)
there exists an unresolved dispute with respect to the Closing Balance Sheet,
Falcon shall retain shares equal to ten percent (10%) of the aggregate number
of Shares otherwise deliverable to Spriggs at the Closing. Upon delivery of
the Closing Balance Sheet, the completion of the period for raising disputes
and the resolution of outstanding disputes, if any, Falcon shall promptly
deliver to Shareholder any remaining Shares due and owing to Spriggs.
3.04 Mortgage Lien Holdback. For so long as the Mortgage
----------------------
Liens shall remain outstanding, Falcon shall retain 50,000 Shares otherwise
deliverable to Spriggs at the Closing. Such Shares shall be held by Falcon
pursuant to a mortgage lien holdback agreement in the form attached hereto as
Schedule 3.04 (the "Mortgage Lien Holdback Agreement"). Upon the delivery to
- - - - -------------
Falcon by Shareholder of evidence, in form and substance satisfactory to
Falcon, that the Mortgage Liens have been terminated and released, Falcon
shall promptly deliver to Shareholder the Shares held pursuant to the
Mortgage Lien Holdback Agreement, subject to any indemnification or set off
rights of Falcon.
IV. WARRANTIES AND REPRESENTATIONS OF SPRIGGS.
-----------------------------------------
Spriggs and Shareholder, jointly and severally, hereby
represent and warrant to, and covenant and agree with, Falcon as follows:
4.01 Organization and Standing of Spriggs. Spriggs is a
------------------------------------
corporation duly organized, validly existing and is in good standing with
respect to the conduct of the Business under the corporate and other laws of
the State of California and has all necessary power and authority to own its
assets as now owned and to carry on its Business as now being conducted.
Spriggs is duly qualified to transact business and is in good standing in
each jurisdiction in which the conduct of its Business or the ownership of
its property requires Spriggs to be so qualified. A list of such states is
attached hereto as Schedule 4.01.
-------------
4.02 Authority. Spriggs has full power and authority to
---------
enter into this Agreement and to consummate the transactions contemplated
hereby, which have been duly authorized by all proper and necessary corporate
and other action on the part of Spriggs and Shareholder, and, no further
authorization, consent or approval of Spriggs, its board of directors,
Shareholder, or of any regulatory body or third party is required as a
condition to
<PAGE> 14
the validity of this Agreement or to give effect to the transactions
contemplated hereby. This Agreement constitutes a valid and binding agreement
of each of Spriggs and Shareholder and is enforceable against them in accordance
with its terms.
4.03 Good Title and Condition of Assets. Except for the
----------------------------------
Mortgage Liens, Spriggs has good and marketable title to and interest in all
of the Transferred Assets. The unpaid balance of the mortgage debt to
Imperial Thrift and Loan Association secured by the Mortgage Liens is
approximately $729,000, as of October 18, 1996. Except for those liens
shown in Schedule 4.03(a), the Transferred Assets are free and clear of
----------------
restrictions on or conditions to transfer or assignment, and free and clear
of all mortgages, conditional sales agreements, liens, pledges, charges,
encumbrances, claims, security interests, easements, covenants, conditions or
restrictions. At Closing, Spriggs shall convey to Falcon good and marketable
title to and interests in the Transferred Assets, free and clear of all
restrictions on or conditions to transfer or assignment, mortgages,
conditional sales agreements, liens, pledges, charges, encumbrances, claims,
security interests, easements, covenants, conditions and restrictions, except
for the those liens shown on Schedule 4.03(a), including the Mortgage Liens.
----------------
Except as listed on Schedule 4.03(a), all of the tangible personal property
----------------
constituting a part of the Transferred Assets is in good operating condition
and repair, ordinary wear and tear excepted, and conforms to all applicable
laws, ordinances and regulations.
4.04 Financial Statements. The balance sheet of Spriggs
--------------------
at June 30, 1996, and the income and expense statement for the year then
ended, reviewed and reported upon the Accounting Firm, are attached hereto as
Schedule 4.04 (the "Financial Statements"). Spriggs has provided and will
- - - - -------------
continue to provide Falcon with comparable financial statements for each
calendar month concluding with the financial statement for the calendar month
immediately preceding the Closing Date (the "Operating Reports"). Except as
expressly stated on Schedule 4.04, the Financial Statements and Operating
-------------
Reports have been and will continue to be prepared in accordance with
generally accepted accounting principles and practices consistently applied,
are, and will continue to be, accurate and complete, and fairly represent and
will continue to fairly represent the financial condition of Spriggs and the
income, expenses and results of operations of Spriggs, for the time period(s)
covered thereby, and do not, and will not, omit to state or reflect any
material fact concerning Spriggs or the Business required to be stated or
reflected therein or necessary to make the statements therein not misleading.
Spriggs has no outstanding or potential unasserted claims, contingent
obligations (whether as a guarantor, indemnitor, surety, accommodation party
or otherwise), liability for taxes or forward or long-term commitments or
obligations, except as set forth in the Financial Statements, the Operating
Statements or as set forth in the Schedules to this Agreement.
<PAGE> 15
4.05 Absence of Changes.
------------------
(a) Since June 30, 1996, there has not been any:
(i) transaction by Spriggs except in the
ordinary course of business as theretofore
conducted;
(ii) adverse change in the financial condition,
Assets, Business or prospects of Spriggs;
(iii) amendment or termination of any contract,
agreement or license to which Spriggs is a party,
except for the termination of contracts and
agreements in the ordinary course of business, none
of which are material, individually or in the
aggregate, to the continued conduct of the Business
of Spriggs as heretofore conducted;
(iv) mortgage, pledge or other encumbrance of, or
the granting of any security interest or lien with
respect to, any of the Assets; or
(v) any other event or condition of any character
that has had or in the future may have a materially
adverse affect on the financial condition, Business,
Assets or prospects of Spriggs or the Business as
heretofore conducted.
(b) Except as shown in Schedule 4.05(b), since June
----------------
30, 1996, Spriggs has not had any customer account to which
Spriggs had sales in the Business in excess of $50,000
during the year then ended which ceased doing business with
Spriggs or advised Spriggs that it intended to cease doing
business with Spriggs or substantially reduce the amount of
business it does or proposes to do with Spriggs. There are
no bids currently outstanding to customers or proposed
customers of Spriggs.
4.06 Payment of All Debts and Liabilities. On or prior
------------------------------------
to the Closing Date, Spriggs shall have paid or provided for the payment of
all accounts, debts, bills and liabilities of Spriggs which are or subsequent
to the Closing could become a lien or encumbrance on or result in a security
interest in the Transferred Assets or otherwise affect the use of the
Transferred Assets subsequent to the Closing.
4.07 No Conflicting Agreements or Orders. There is no
-----------------------------------
provision of the Articles of Incorporation or By-laws of Spriggs, or of any
mortgage, indenture, lease, contract, security agreement, document,
instrument, license or agreement binding on Spriggs or affecting its
properties, or of any federal, state or local law, rule or regulation, which
conflicts with or in any way prevents or will be violated by the execution,
delivery or carrying out of the terms of this Agreement, the consummation of
<PAGE> 16
the Transaction, nor will such execution, delivery or consummation constitute
a default, or an event which with the giving of notice or the passage of
time, or both, would constitute a default, under any of the foregoing, nor be
the grounds for the suspension, revocation, impairment, forfeiture,
nonrenewal or termination of any license, permit, franchise, certificate,
consent or authorization. The execution, delivery or consummation of this
Agreement will not constitute or result in: (a) the creation or imposition
of a security interest in or any lien, charge or encumbrance on, or give to
others any interest or right in or with respect to, any of the Transferred
Assets, or (b) a complete or partial withdrawal from any employer or
multi-employer/employee benefit plan under ERISA or any funding deficiency or
lien under ERISA or any other law, rule or regulation against the Transferred
Assets. Neither of Spriggs or Shareholder is subject to any order, writ,
injunction, decree, judgment, award, determination, direction or demand of
any court, arbitrator, or federal, state, municipal or other governmental
department, bureau, agency or instrumentality which would be violated by the
execution, delivery or carrying out of the terms of this Agreement, or the
consummation of the Transaction.
4.08 Compliance. Except as set forth in Schedule 4.08,
---------- -------------
Spriggs has conducted its Business and maintained its properties, including
all owned real property and the real property covered by leases, in
compliance with, and is not in violation of, applicable laws, rules,
regulations and orders of federal, state and local governments and regulatory
bodies (including, without limitation, any and all applicable building,
zoning and licensing laws, ordinances, regulations or orders affecting the
location, size and function of the Assets and all Environmental Laws).
Spriggs has not received any claim or notice that Spriggs has not complied in
all respects in the operation of its Business and related properties with
such laws, rules and regulations. Spriggs has all licenses, permits and
consents required to be obtained from federal, state, county or municipal
authorities with respect to the ownership or use of the Assets or the
operation of the Business or otherwise, a complete list of which is set forth
in Schedule 4.08.
-------------
4.09 Litigation. Except as set forth in Schedule 4.09,
---------- -------------
no suit, action, decree, arbitration or legal, administrative or other
proceeding, controversy or investigation is pending or threatened against
Spriggs, or which otherwise might materially affect the Business or financial
condition of Spriggs or any of the Assets, Spriggs' right to transfer the
same, the possession and use thereof or the operation by Falcon of a business
similar to that heretofore conducted by Spriggs. To the knowledge of Spriggs
and Shareholder, and without notice to the contrary, there is no basis for
any such litigation, proceeding, controversy or investigation. Spriggs is
not in default with respect to any order, writ, injunction or decree of any
federal, state, local or foreign court, department, agency or instrumentality,
nor has the time period of Spriggs' compliance with respect to any of the same
<PAGE> 17
been extended or stayed. Spriggs is not presently a party to any legal action
to recover moneys due to Spriggs or damages sustained by Spriggs.
4.10 Condition of Spriggs. Since June 30, 1996, Spriggs
--------------------
has kept its Business and its organization intact; has kept available the
services of its principal managerial and supervisory employees and agents;
has maintained the good will of its customers; and has conducted its Business
in the same manner as it had been conducted prior to that date.
4.11 Employment Agreements. Except as disclosed on
---------------------
Schedule 4.11 hereof, Spriggs has not entered into, and has no obligation or
- - - - -------------
liability with respect to, any employment or consulting agreement, executive
compensation plan, collective bargaining agreement, deferred compensation
agreement, bonus plan, employee pension plan or retirement plan, employee
profit sharing plan, employee stock purchase or stock option plan, severance
agreement or any other agreement or arrangement providing for remuneration or
benefits to employees or their dependents.
4.12 Labor Relations. Spriggs is not a party to any
---------------
collective bargaining agreement. Spriggs has complied with all applicable
laws, rules and regulations relating to the employment of labor, including
those relating to wages (including overtime), benefits (including vacation),
hours, employee safety or other conditions of employment, collective
bargaining and the withholding and payment of taxes. Spriggs has withheld
all amounts required by law or agreement to be withheld from the wages or
salaries of its employees, and is not liable for any arrears of wages or any
tax or penalties for failure to comply with the foregoing. Spriggs has paid
over, and will pay over, to the appropriate governmental agencies or
depositories, at the time or times required by law (without any extensions or
stays), all "employment taxes" and "withholding taxes." There are no labor
disputes, controversies, grievances, strikes, work slowdowns or stoppages,
nor are there any proceedings before any court, governmental agency or
arbitrator relating to such matters, including unfair labor practice claims,
existing, pending or threatened against Spriggs or between Spriggs and any of
its employees or any union representing or claiming to represent any such
employees, and except as described in Schedule 4.12, no discharge has
-------------
occurred which forms the basis for any claim of discrimination against
Spriggs.
4.13 Taxes. Except as set forth in Schedule 4.13,
----- -------------
Spriggs has filed all federal, state and local tax returns and estimates
required to be filed by Spriggs, which returns were filed within the times
and in the manner prescribed by law. Spriggs has delivered to Falcon true
and complete copies of the federal income tax returns of Spriggs for the
three (3) years ended June 30, 1993, 1994 and 1995 and the results of the
most recent audit of Spriggs' tax returns, if any, by the Internal Revenue
Service and the State of California. There are no pending audits with respect
<PAGE> 18
to such returns. No waiver or extension of any filing or payment date or of any
statute of limitations with respect to taxes has been requested of or given by
Spriggs. No claims have been asserted or threatened for taxes against Spriggs
or the Transferred Assets. Spriggs has accrued on their books and records
all taxes, charges and assessments accruing on the Assets, the Business or
the operation thereof which are presently payable. Except as set forth in
Schedule 4.13, all taxes which are due and payable or will become due and
- - - - -------------
payable by Spriggs prior to the Closing Date have been, or prior to the Closing
Date will be, paid in full or fully provided for and will be paid by Spriggs.
4.14 Name of Company. Spriggs is the sole legal owner
---------------
of, and uses, those trade names listed on Schedule 4.14 (collectively, the
-------------
"Names"), and the use of the Names does not conflict with the rights of
others. At Closing, Spriggs will assign each of the Names to Falcon.
4.15 Inventory. The inventories contained in the
---------
Transferred Assets consist of items of a quality and quantity currently
usable and saleable in the ordinary course of business. None of Spriggs'
inventories are held by Spriggs on consignment from others.
4.16 Leases. Except as set forth on Schedule 4.16, no
------ -------------
personal or real property used by Spriggs in connection with the Business is
held under any lease. Each of the leases identified on Schedule 4.16 is
-------------
currently in full force and effect. Neither Spriggs nor, to the knowledge of
Spriggs and without notice to the contrary, any other party to such lease is
in default, nor to the knowledge of Spriggs and without notice to the
contrary has any event occurred, nor does any condition exist, which with the
giving of notice or the passage of time, or both, would constitute a default
thereunder.
4.17 Insurance. Spriggs has maintained and now maintains
---------
(a) "all risk" insurance on the full fair market value of all of the Assets
and on its Business, covering property damage by fire or other casualties,
and (b) adequate insurance protection against all other liabilities, claims
and risks against which it is customary to insure. Spriggs has included a
true and correct copy of all such insurance policies in Schedule 4.17. All
-------------
such policies of insurance shall be in form and substance satisfactory to
Falcon with insurers reasonably recognized as adequate by Falcon and all such
policies shall be in such amounts as may be reasonably satisfactory to
Falcon.
4.18 Other Contracts. Except as listed on Schedule 4.18,
--------------- -------------
Spriggs is not a party to, nor is the property of Spriggs bound by, any
agreement not entered into in the ordinary course of business, any indenture,
mortgage, deed of trust, lease or any other agreement between Spriggs and any
third party relating to the Transferred Assets or the Business of Spriggs.
There is no default of Spriggs or event that with notice or lapse of time, or
<PAGE> 19
both, would constitute a default nor, to the knowledge of Spriggs any default
or threatened default by any other party thereto, existing with respect to
any of such agreements. Spriggs has received no notice that any party to any
of such agreements intends to cancel or terminate any of such agreements or
to exercise or not exercise any options under any of such agreements.
Spriggs is not a party to, nor is Spriggs or the Assets bound by, any
agreement that is materially adverse to the Assets or the business of
Spriggs.
4.19 Documents. Spriggs has furnished to Falcon for its
---------
examination: (a) copies of all agreements, policies, leases, and other
instruments and documents listed on the Schedules attached hereto and (b)
copies of all tax receipts (including receipts for the payment of sales
taxes) for all taxes required to be paid by Spriggs for three (3) years prior
to the Closing Date, each of which shall be in form and substance reasonably
acceptable to Falcon.
4.20 Suppliers. Attached hereto as Schedule 4.20 is a
--------- -------------
list of the suppliers of goods and services to Spriggs as of the date of this
Agreement and for the year ended June 30, 1996.
4.21 Real Property. Schedule 4.21 contains a complete
------------- -------------
and accurate legal description of each parcel of real property owned by or
leased to Spriggs. Spriggs does not own or lease any real property nor use
any real property in the conduct of its Business other than the real property
described in Schedule 4.21. The use of such property in Spriggs' Business as
-------------
heretofore used does not violate or encroach upon the rights of any other
party.
4.22 Customers; Accounts Receivable.
------------------------------
(a) Except as shown in Schedule 4.22(a), no customer
----------------
of Spriggs accounted for more than 10% of Spriggs' sales
during the 12 month period ended June 30, 1996. Spriggs
has provided Falcon with a list of Spriggs' customers (the
"Closing Customer List") and the amount of purchases of
each of them for such period.
(b) Spriggs has delivered to Falcon a current aged
list of unpaid accounts receivable owing to Spriggs (the
"Accounts Receivable Schedule"), and will deliver to
Falcon, as of the close of business on the Balance Sheet
Date (the "Closing Accounts Receivable") and as of the
Closing Date, such updates of the Accounts Receivable
Schedule and other information pertaining to the accounts
receivable of Spriggs, certified as correct by Spriggs.
The Accounts Receivable Schedule and any such updates
thereto or other related information provided to Falcon set
forth or will set forth a true and correct list of all
Accounts Receivable as of the respective dates thereof.
The Accounts Receivable are, and the Closing Accounts
Receivable will be, legal, valid and binding claims, do not
reflect any goods placed on a
<PAGE> 20
consignment or other basis whereby payment is conditional, and
are and will be fully collectible in the ordinary course of
business in accordance with their terms, without litigation or
other collection expenses, within 120 days of the Closing Date
at the full face value thereof, and are not subject to any
counterclaim or right of set off.
4.23 ERISA. Spriggs has not established, and does not
-----
maintain or contribute to any employee benefit plan within the meaning of
Section 3(3) of ERISA or to which ERISA otherwise applies.
4.24 Environmental Matters.
---------------------
(a) The operations and activities of Spriggs comply,
and have in the past complied, in all respects, with all
Environmental Laws and Regulations. There are no pending
or currently proposed changes to any Environmental Laws and
Regulations which, when implemented or effective, would
have a material adverse effect on the operations of Spriggs
or the Business.
(b) Spriggs has obtained and is and has been in full
compliance with all requirements, permits, licenses and
other authorizations which are required with respect to
Spriggs' operations, as well as the transactions
contemplated hereby under all Environmental Laws and
Regulations. Schedule 4.24 lists each such permit, license
-------------
or other authorization. There are no other such permits,
licenses or other authorizations which are required by any
Environmental Laws and Regulations to be obtained after the
Closing or will be needed for the operation of the business
contemplated by Falcon post-closing.
(c) There is no civil, criminal, administrative or
other action, suit, demand, claim, hearing, notice of
violation, proceeding, investigation, notice or demand
pending, received, or, to the knowledge of Spriggs,
threatened against Spriggs relating in any way to any
Environmental Laws and Regulations except as shown in
Schedule 4.24.
-------------
(d) Except as shown in Schedule 4.24, Spriggs has
-------------
not caused, and neither Spriggs nor any of its owned or
leased real property has experienced any past or present
events, conditions, circumstances, plans or other matters
which: (i) are not in compliance with all Environmental
Laws and Regulations; (ii) may give rise to any statutory,
common law, or other legal liability, or otherwise form the
basis of any material claim, action, demand, suit,
proceeding, hearing, notice of violation or investigation
based on or relating to Hazardous Materials including,
without limitation, such matters relating to any property
owned, leased or utilized by Spriggs; (iii) arise from
inventory of or waste from
<PAGE> 21
Hazardous Materials; or (iv) arise from any off-site disposal,
release or threatened release of Hazardous Materials.
(e) No asbestos, polychlorinated biphenyls or
ead-based paints are on any real property or in any
building owned, operated, leased or utilized by Spriggs
except as shown in Schedule 4.24.
-------------
(f) No past or present employee of Spriggs has been
exposed to any Hazardous Material owned, produced or
utilized except as is anticipated in the normal operation
of the Spriggs.
(g) Except as shown in Schedule 4.24, Spriggs, has
-------------
not received any notice or indication from any governmental
agency or private or public entity advising it that it is
or may be responsible for any investigation or response
costs with respect to a release, threatened release or
cleanup of chemicals or materials produced by, used,
stored, treated, or resulting from any business, commercial
or industrial activities, operations or processes,
including, without limitation, any Hazardous Materials.
Spriggs is not aware of any facts which might give rise to
such notice.
(h) Except as shown in Schedule 4.24, no underground
-------------
tanks, piping or subsurface structures of any type exist or
have existed on any real property now or previously owned,
operated, leased or utilized by Spriggs.
(i) Schedule 4.24 contains a complete description of
-------------
all environmental investigations, assessments, audits,
studies, tests and related materials in possession of
Spriggs, or known to Spriggs to exist, which relate to the
current or prior operations of Spriggs or any real property
now or previously owned, operated or utilized by Spriggs
and Spriggs has delivered to Falcon copies of all of the
above.
4.25 No Misrepresentation. No representation or warranty
--------------------
made by either Spriggs or Shareholder in this Agreement or any Schedule
hereto contains or will contain any untrue statement of a material fact or
omits or will omit to state a material fact necessary to make the statements
contained herein and therein not misleading.
V. REPRESENTATIONS AND WARRANTIES OF FALCON.
----------------------------------------
Falcon hereby represents and warrants to, and covenants and
agrees with, each of Spriggs and Shareholder as follows:
5.01 Organization and Standing of Falcon. Falcon is a
-----------------------------------
Delaware corporation, validly existing and in good standing under the laws of
the State of Delaware and is duly qualified to transact business in the State
of California.
<PAGE> 22
5.02 Binding Agreement. This Agreement constitutes, and
-----------------
each other instrument to be executed and delivered by Falcon in accordance
herewith will constitute, when executed and delivered pursuant hereto, the
valid and legally binding obligations of Falcon.
5.03 Agreement Within Authority. The execution and
--------------------------
delivery of this Agreement by Falcon, the consummation of the transactions
contemplated hereunder and the performance by Falcon of this Agreement and
the agreements and instruments which are executed and delivered in connection
herewith in accordance with each of their terms will not (a) violate the
Articles of Incorporation or Bylaws of Falcon, or (b) violate any judgment,
order, writ, injunction, decree or demand against Falcon of any court or
federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality.
5.04 No Conflicting Agreements or Orders. No approval or
-----------------------------------
consent of any foreign, federal, state, county, local or other governmental
or regulatory body is required as a condition to the validity of this
Agreement or to give effect to the transactions contemplated hereby.
5.05 Corporate Action. The execution and delivery of
----------------
this Agreement by Falcon and the performance of all acts contemplated to be
performed by it hereunder have been duly authorized by all necessary
corporate action. Falcon has duly executed and delivered this Agreement and
the agreements or instruments which are executed in connection herewith.
5.06 No Conflict. The execution and delivery of this
-----------
Agreement and each other instrument to be executed by Falcon in accordance
herewith and the consummation of the transactions contemplated herein by
Falcon will not conflict or be inconsistent with or result in the termination
of or constitute a breach of or default under the terms of any indenture,
mortgage, deed of trust, covenant, agreement or other instrument to which
Falcon is a party or to which its property is subject.
5.07 No Misrepresentation. No representation or warranty
--------------------
made by Falcon in this Agreement or any Exhibit or Schedule hereto contains
or will contain any untrue statement of a material fact or omits or will omit
to state a material fact necessary to make the statements contained herein
and therein not misleading.
5.08 Valid Issuance. Each of the Shares, when issued
--------------
pursuant to and as contemplated by this Agreement, and the Contingent Stock,
when issued pursuant to and as contemplated by this Agreement and the
Employment Agreement, will be validly issued, fully paid and nonassessable,
and free and clear of all liens, encumbrances and restrictions, except as
contemplated herein.
<PAGE> 23
VI. COVENANTS OF FALCON.
-------------------
6.01 Information. In the event the Transaction is not
-----------
consummated for any reason, all copies of non-public proprietary documents
and information provided to Falcon by Spriggs hereunder shall be returned to
Spriggs by Falcon, and Falcon shall maintain the same in confidence and shall
not disclose or utilize the same except with the consent, or for the benefit,
of Spriggs.
6.02 Satisfaction of Assumed Liabilities. After Closing,
-----------------------------------
Falcon shall pay, perform and discharge, and shall indemnify Spriggs with
respect to, the Assumed Liabilities and shall promptly pay any amount thereof
determined to be due. Falcon, however, shall have the right to contest in
good faith any of such Assumed Liabilities, and Spriggs shall cooperate fully
with Falcon in connection with any such contest.
6.03 Execution of Facility Lease. Falcon covenants and
---------------------------
agrees to enter into the Facility Lease with Shareholder at the Closing of
the Transaction.
VII. COVENANTS OF SPRIGGS AND SHAREHOLDER.
------------------------------------
Pending Closing, each of Spriggs and Shareholder, jointly
and severally, covenant and agree as follows:
7.01 Access to Information. Falcon and its counsel,
---------------------
accountants and other representatives shall have full access during normal
business hours to all properties, books, accounts, records, agreements and
documents of or relating to the Business. Spriggs shall furnish or cause to
be furnished to Falcon and its counsel, accountants and representatives all
data and information concerning the operations, finances and assets of
Spriggs requested by Falcon, including, without limitation, the updating of
any of the Schedules attached hereto.
7.02 Maintain Properties. Spriggs shall maintain the
-------------------
Assets on a current basis and in customary repair, order and condition.
7.03 Maintain Organization. Spriggs shall keep its
---------------------
organization intact, keep available the services of its employees and
maintain the relationship and goodwill of its customers.
7.04 Regular Course of Business. Spriggs shall continue
--------------------------
to operate the Business consistent with its past practices and shall not,
without the prior written consent of Falcon, purchase, sell or otherwise
dispose of any property or assets, or incur any liability, obligation or
commitment or engage in any activity or transaction, except in the regular
and customary course of business.
7.05 Insurance. Spriggs shall cause its policies of
---------
<PAGE> 24
insurance relating to the Business and the Assets of Spriggs to continue to
be kept in full force and effect and will refrain from taking any action
which impairs the continued insurability of the Transferred Assets or the
Business.
7.06 Employees. Without the prior written consent of
---------
Falcon, Spriggs will not, and will not agree to, enter into or amend any
representation, employment or compensation agreement or grant any increase or
change in the salaries or other compensation or benefits payable or to become
payable by Spriggs to any officer, employee, sales agent or representative of
Spriggs.
7.07 Business Changes. Spriggs will not do or agree to
----------------
do any of the following without the prior written consent of Falcon:
(a) Enter into any contract, commitment or
transaction not in the usual and ordinary course of
Spriggs' Business as heretofore conducted;
(b) Make any material capital expenditure;
(c) Agree to, modify, amend, cancel or terminate any
of its existing contracts or agreements; or
(d) Cause its aggregate receivables and inventory to
decrease or trade payables to increase over the existing
amount as of the date of this Agreement to any significant
extent.
7.08 Consents. As soon as reasonably practical after the
--------
execution and delivery of this Agreement, and in any event on or before the
Closing Date, Spriggs will obtain the written consent of all persons whose
consent to the execution of, and closing of the transactions contemplated by,
this Agreement is required, in form and substance acceptable to Falcon; and
Spriggs will furnish Falcon original executed copies of such consents as they
are obtained.
7.09 Execution of Facility Lease. Shareholder covenants
---------------------------
and agrees to enter into the Facility Lease with Falcon at the Closing of the
Transaction.
7.10 Exclusive Dealing. Spriggs will not enter into any
-----------------
agreement, discussion or negotiation with, or provide information to, any
other corporation, firm or other person, or solicit, encourage, entertain or
consider any inquiries or proposals, with respect to (i) the possible
disposition of a material portion of the Business, or (ii) any business
combination involving the Business, whether by way of merger, consolidation,
share exchange or other transaction.
7.11 No Future Advances. Spriggs and Shareholder
------------------
covenant and agree that neither of them will incur any additional
indebtedness or make any additional draws under or with respect to
<PAGE> 25
the loans to Shareholder from Imperial Thrift and Loan Association secured by
the Mortgage Liens or in any way increase the amount of indebtedness secured
by the Mortgage Liens.
VIII. CONDITIONS PRECEDENT TO OBLIGATIONS OF FALCON.
---------------------------------------------
The obligations of Falcon hereunder are subject to
fulfillment (or waiver by Falcon), prior to or on the Closing Date, of the
following conditions:
8.01 No Adverse Change. There shall have been no adverse
-----------------
change in or loss or damage to the Transferred Assets or the Business of
Spriggs as heretofore conducted.
8.02 Representations, Warranties and Agreements of
---------------------------------------------
Spriggs. The representations, warranties, covenants and agreements of
- - - - -------
Spriggs and Shareholder herein shall be true and not breached as of the
Closing Date, with the same effect as though such representations,
warranties, covenants and agreements had been repeated by Spriggs and
Shareholder as of the Closing Date, and all of the obligations of Spriggs and
Shareholder hereunder shall have been duly performed.
8.03 Opinion of Counsel. Falcon shall have received the
------------------
favorable opinion of counsel for Spriggs and Shareholder, dated as of the
Closing Date, in the form of Schedule 8.03 and otherwise in form and
-------------
substance reasonably satisfactory to Falcon and Falcon's counsel. In
rendering such opinion, counsel for Spriggs and Shareholder may rely on
written certificates of the chief executive officer or the chief financial
officer of Spriggs and appropriate public officials as to factual matters,
provided a copy thereof is attached to and forms a part of the opinion of
counsel with the knowledge and consent of the chief executive officer or the
chief financial officer of Spriggs.
8.04 Absence of Litigation. No action, suit or
---------------------
proceeding before any court or any governmental body or authority pertaining
to the Transaction or to its consummation or to the Assets or the Business of
Spriggs shall have been instituted or threatened on or before the Closing
Date except as detailed in Schedule 4.09.
-------------
8.05 Corporate Approval. The execution and delivery of
------------------
this Agreement by Spriggs and the performance of its covenants and
obligations under it, shall have been duly authorized by all necessary
corporate and other action of Spriggs, and Falcon shall have received copies
of all resolutions pertaining to such authorization and approval, certified
by the Secretary of Spriggs.
8.06 Consents. All necessary agreements, approvals and
--------
consents of any parties to the consummation of the Transaction and other
transactions by Spriggs and Shareholder contemplated by this Agreement or
otherwise pertaining to the related matters covered by this Agreement related
to Spriggs and/or Shareholder, shall have been obtained by Spriggs and
Shareholder and delivered to Falcon.
<PAGE> 26
8.07 Officers' Certificate. Falcon shall have received a
---------------------
certificate, dated the Closing Date, signed and verified by the Chief
Executive Officer and Chief Financial Officer of Spriggs certifying, in the
form of Schedule 8.07 hereto, that the conditions specified in this Article
-------------
VIII have been fulfilled.
8.08 Approval of Documents. The form and substance of
---------------------
all certificates, instruments, opinions and other documents delivered to
Falcon under this Agreement shall be satisfactory to Falcon and its counsel.
8.09 Casualty Loss. The Business shall not have been
-------------
curtailed or interrupted by, and the Transferred Assets shall not have been
affected by, any loss, destruction or damage due to fire or other casualty
unless, if any such destruction or damage shall have occurred, Falcon shall
have determined that such loss, destruction or damage is not of such nature
as to curtail or interrupt the Business of Spriggs or determined that
available insurance proceeds are sufficient to repair or replace any damaged
or lost Transferred Assets and Spriggs shall have assigned the proceeds of
any such insurance to Falcon, which Spriggs agrees to do upon the request of
Falcon.
8.10 Satisfactory Review of Spriggs' Business and the
------------------------------------------------
Assets; Inspections. Falcon shall have been given access to and been
- - - - -------------------
permitted to review the Assets, the Business of Spriggs and such other
information as shall have been requested by Falcon, and Falcon shall be
satisfied, in its sole discretion, with the physical, operating and financial
condition of the Assets and the Business of Spriggs.
8.11 Facility Lease. Falcon shall have entered into a
--------------
lease agreement (the "Facility Lease") with Shareholder for the occupancy by
Falcon of the facility housing the Business, commonly known and numbered as
411 East Juliana, Anaheim, California, 92801 (the "Facility"), which Facility
Lease (a) shall be for an initial term of five (5) years, (b) provide for
three renewal options on the part of Falcon, each for a period of five years,
(c) shall otherwise provide for rental payments on the basis of $.295 per
square foot, triple net, and (d) shall be in the form of Schedule 8.11.
-------------
8.12 Certificates, Permits and Approvals. Falcon, at its
-----------------------------------
own expense, shall have obtained all certificates, permits and approvals
required in connection with the operation of the Business by Falcon.
8.13 Employment and Non-Competition Agreement.
----------------------------------------
Shareholder shall have executed and delivered an Employment and
Non-Competition Agreement with Falcon or a subsidiary of Falcon in the form
of Schedule 8.15 (the "Employment Agreement").
-------------
8.14 Mortgage Lien Holdback Agreement. Spriggs and
--------------------------------
<PAGE> 27
Shareholder shall have executed and delivered the Mortgage Lien Holdback
Agreement, together with a stock executed in blank by Shareholder.
IX. CONDITIONS PRECEDENT TO OBLIGATIONS OF SPRIGGS AND
--------------------------------------------------
SHAREHOLDER.
-----------
The obligations of Spriggs and Shareholder hereunder are
conditioned upon the fulfillment (or waiver by Spriggs), prior to or at the
Closing Date, of the following:
9.01 Representations, Warranties and Agreements of Falcon.
----------------------------------------------------
The representations, warranties, covenants and agreements of Falcon contained
herein shall be true and not breached at and as of the Closing Date, with the
same effect as though such representations, warranties, covenants and
agreements had been repeated by Falcon at and as of such time, and all of the
obligations of Falcon hereunder shall have been duly performed.
9.02 Performance of Assumed Liabilities. Falcon shall
----------------------------------
have assumed and agreed to perform the Assumed Liabilities from and after the
Closing Date, as provided in Sections 2.03, 2.04 and 6.02.
9.03 Corporate Approval. The execution and delivery of
------------------
this Agreement by Falcon and the performance of Falcon's respective covenants
and obligations under it, shall have been duly authorized by all necessary
corporate and other action of Falcon, and Spriggs shall have received copies
of all resolutions pertaining to such authorization, certified by the
Secretary of Falcon.
9.04 Consents. All necessary agreements and consents of
--------
any parties to the consummation of the transactions by Falcon contemplated by
this Agreement, or otherwise pertaining to the matters covered by it, shall
have been obtained by Falcon and delivered to Spriggs.
9.05 Falcon's Certificate. Spriggs shall have received a
--------------------
certificate, dated the Closing Date, signed and verified by Falcon's chief
executive officer and chief financial officer certifying, in the form of
Schedule 9.05 hereto, that the conditions specified in this Article IX have
- - - - -------------
been fulfilled.
9.06 Approval of Documents. The form and substance of
---------------------
all certificates, instruments, opinions and other documents delivered to
Spriggs under this Agreement shall be satisfactory to Spriggs and its
counsel.
9.07 Employment Agreement. Falcon shall have executed
--------------------
and delivered to Shareholder the Employment Agreement.
9.08 Facility Lease. Falcon and Shareholder shall have
--------------
entered into the Facility Lease.
<PAGE> 28
9.09 Opinion of Counsel. Spriggs shall have received the
------------------
favorable opinion of counsel for Falcon, dated as of the Closing Date, in the
form of Schedule 9.09 and otherwise in form and substance satisfactory to
-------------
Spriggs and Spriggs' counsel. In rendering their opinion, counsel for Falcon
may rely on written certificates of the officers of Falcon and appropriate
public officials as to factual matters, provided a copy thereof is attached
to and forms part of the opinion of Falcon's counsel with the knowledge and
consent of such officers.
9.10 Mortgage Lien Holdback Agreement. Falcon shall have
--------------------------------
executed and delivered the Mortgage Lien Holdback Agreement.
X. INDEMNIFICATION
---------------
This Article sets forth the respects in which Falcon shall
be indemnified by Spriggs and Shareholder in the event Falcon shall become
obligated or liable for, or shall discharge, obligations or liabilities of
Spriggs and/or in the event of any misrepresentation or breach of warranty or
agreement on the part of either of Spriggs or Shareholder hereunder, and the
respects in which Spriggs shall be indemnified by Falcon in the event Spriggs
shall become obligated for, or shall discharge, any liabilities of Falcon in
the event of any misrepresentations or breach of warranty or agreement on the
part of Falcon hereunder.
10.01 Indemnification of Falcon by Spriggs and Shareholder.
----------------------------------------------------
(a) Representations, Warranties, Covenants and
------------------------------------------
Agreements. Each of Spriggs and Shareholder, jointly and
----------
severally, agree to indemnify Falcon and hold Falcon
harmless against any and all loss, liability, damage,
claim, cost and expense of any nature whatsoever,
including, without limitation, attorneys' fees, arising
from or in connection with any representation or warranty
made by either of Spriggs or Shareholder not being
complete, accurate and true at the date of this Agreement
and on the Closing Date or the failure by either of Spriggs
or Shareholder to fulfill and fully perform each covenant
or agreement on the part of either of Spriggs or
Shareholder under this Agreement or under any other
instrument or document executed and delivered by either
Spriggs or Shareholder in connection with the transactions
contemplated hereby, as any of the same may be amended from
time to time.
(b) Failure to Discharge Liabilities. Each of
--------------------------------
Spriggs and Shareholder, jointly and severally, agree to
indemnify Falcon and hold Falcon harmless against any and
all loss, liability, damage, claim, cost and expense of any
nature whatsoever, including, without limitation,
attorneys' fees, arising from or in connection with: (i)
any transferee liability law (other than the unemployment
compensation
<PAGE> 29
experience rating of former employees of Spriggs), (ii) any
payment or performance made by Falcon to any third party in
order to perform or discharge fully or partially any liability
or obligation of Spriggs (except for the Assumed Liabilities),
which Falcon shall have the option or be required to do, (iii)
any judgment or other circumstances pursuant to which Falcon
may be held liable or accountable for, or the Transferred
Assets to be acquired hereunder may be charged in respect of,
any liability or obligation of Spriggs other than the Assumed
Liabilities, (iv) the presence of contaminants, pollutants
and other harmful substances in, on under or emanating from
the premises subject to any lease or occupancy assumed by
Falcon hereunder, (v) the non-compliance by Spriggs with
any Environmental Laws, (vi) any liability in connection
with the consummation of the Transaction to any third party
with whom Spriggs, or its agents, engaged in discussion
regarding the disposition of the Business; (vii) any
services provided by Falcon in excess of $50,000 in the
aggregate under any warranty in connection with any product
sold by or on behalf of Spriggs prior to the Closing; and
(viii) any payment or performance made by Falcon to
Imperial Thrift and Loan Association or any other third
party in order to perform or discharge fully or partially
any liability or obligation of Spriggs or Shareholder with
respect to the Mortgage Liens or the debt secured thereby.
(c) Remedies Not Exclusive. The rights and remedies
----------------------
of Falcon provided for in this Article or otherwise in this
Agreement shall be deemed to be cumulative and in addition
to and not in limitation or exclusion of all other rights
and remedies, whether by terms of other provisions of this
Agreement or at law or in equity or otherwise, which may
exist on the part of Falcon by reason of any
misrepresentation or breach of warranty, covenant or
agreement on the part of Spriggs or Shareholder. Such
rights and remedies shall be cumulative and may be
exercised at any time or from time to time, and any failure
or delay of Falcon in exercising any right or remedy at any
time shall not constitute a waiver thereof or restrict its
subsequent enforcement or the enforcement of any other
right or remedy of Falcon. In addition to any other rights
and remedies of Falcon hereunder or otherwise, any amounts
due and payable to Falcon by reason of the obligations of
Spriggs and/or Shareholder to indemnify Falcon and hold
Falcon harmless hereunder shall be subject to a right of
setoff and reduction on the part of Falcon against any
amounts due and payable by Falcon to Spriggs or Shareholder
hereunder or under any other agreement, at the discretion
and designation of Falcon, in whole or in part.
10.02 Indemnification of Spriggs by Falcon.
------------------------------------
(a) Representations, Warranties, Covenants and
-------------------------------------------
Agreements. Falcon agrees to indemnify Spriggs and hold
----------
<PAGE> 30
Spriggs harmless against any and all loss, liability,
damage, claim, cost and expense of any nature whatsoever,
including, without limitation, attorneys' fees, arising
from or in connection with any representation or warranty
made by Falcon not being complete, accurate and true at the
date of this Agreement and on the Closing Date or the
failure by Falcon to fulfill and fully perform each
covenant or agreement on the part of Falcon under this
Agreement (including, but not limited to, Falcon's failure
to discharge the Assumed Liabilities as and when they
become due) or under any other instrument or document
executed and delivered by Falcon in connection with the
transactions contemplated hereby, as any of the same may be
amended from time to time.
(b) Remedies Not Exclusive. The rights and remedies
----------------------
of Spriggs provided for in this Article or otherwise in
this Agreement shall be cumulative and in addition to and
not in limitation or exclusion of all other rights and
remedies, whether by the terms of other provisions of this
agreement or at law or in equity or otherwise, which may
exist on the part of Spriggs by reason of any
misrepresentation or breach of warranty, covenant or
agreement on the part of Falcon hereunder. Such rights or
remedies may be exercised at any time or from time to time,
and any failure or delay of Spriggs in exercising any right
or remedy at any time shall not constitute a waiver thereof
or restrict its subsequent enforcement or the enforcement
of any other right or remedy of Spriggs.
10.03 Notice to Indemnifying Party. In the event that any
----------------------------
party may be entitled to, or intends to assert a claim for, indemnification
hereunder, not later than thirty (30) days after actual notice of any claim
or the filing of any action giving rise to such claim for indemnification,
the indemnified party will, if a claim in respect thereof is to be made
against another party or parties hereto, notify the indemnifying party or
parties thereof. In case any action is threatened or brought against any
indemnified party, and it notifies the indemnifying party or parties thereof,
the indemnifying party or parties will be entitled to participate in or
assume the defense thereof with counsel reasonably satisfactory to such
indemnified party and, after notice of its election to assume the defense
thereof, the indemnifying party or parties will no longer be liable for any
legal or other expense subsequently incurred by the indemnified party in
connection with the defense thereof; provided, however, that the indemnified
party shall be entitled at all times to participate in the defense of any
such action at its own cost.
XI. REGISTRATION STATEMENT.
----------------------
11.01 Preparation and Filing of Registration Statement.
------------------------------------------------
Promptly after the Closing Date, Falcon shall prepare and file as soon as
reasonably practicable with the Securities and Exchange Commission ("SEC") a
Registration Statement on Form S-4 (the
<PAGE> 31
"Registration Statement") for the registration of the Shares and the Contingent
Stock under the Securities Act in connection with the Transaction, and shall use
all reasonable efforts to cause the Registration Statement to be declared
effective by the SEC and to keep the Registration Statement effective for a
period of two years following the Closing Date.
11.02 Blue Sky Requirements. Falcon shall take any action
---------------------
required to be taken under any applicable state Blue Sky or securities laws
in connection with the issuance of the Shares and the Contingent Stock.
XII. CLOSING AND RISK OF LOSS.
------------------------
12.01 Place and Time. The Closing shall take place on the
--------------
Closing Date at the offices of Gallop, Johnson & Neuman, L.C., 101 So. Hanley
Road, 16th Floor, St. Louis, Missouri 63105, or at such other place as may be
agreed upon by Falcon and Spriggs.
12.02 Risk of Loss. The entire risk of loss with respect
------------
to the Transferred Assets will remain on Spriggs until the transactions
contemplated hereby are closed.
12.03 Simultaneous Performance. None of the transactions
------------------------
described herein will occur unless all such transactions occur.
12.04 Transfer of Possession. Possession of the
----------------------
Transferred Assets shall be delivered to Falcon at Closing.
XIII. MISCELLANEOUS.
-------------
13.01 No Commission. All negotiations on behalf of
-------------
Spriggs and Falcon, respectively, relative to this Agreement and the
transactions contemplated hereby have been carried on by Spriggs and Falcon
directly between Spriggs and Falcon and without the intervention of any third
party, either as the result of any action of Spriggs or Falcon, or otherwise,
to the knowledge of Spriggs or Falcon, in such manner as to give rise to any
valid claim against Spriggs or Falcon for a finders' fee, brokerage
commission or other like payment.
13.02 Survival of Representations and Warranties. The
------------------------------------------
representations and warranties of Falcon and Spriggs and Shareholder,
respectively, contained herein shall survive the Closing, regardless of any
investigations made by or on behalf of or any disclosure to Falcon or
Spriggs, for two (2) years following the Closing Date.
13.03 Change of Name; Liquidation. Immediately following
---------------------------
the Closing, Spriggs shall change its name to a name other than The T.L.
Spriggs Corporation or any portion thereof or any name similar thereto. From
and after the Closing Date, Spriggs will not engage in any business and will
promptly liquidate and dissolve as a corporation.
<PAGE> 32
13.04 Incorporation of Schedules. The Schedules hereto
--------------------------
shall be deemed to be incorporated in and form a part of this Agreement.
13.05 Further Assurances. Each of the parties agrees to
------------------
do, execute, acknowledge and deliver, and cause to be done, executed,
acknowledged and delivered, all such further acts, assignments, transfers,
instruments, documents, deeds and assurances as shall be required in order to
carry out this Agreement and give effect hereto.
13.06 No Assumption of Spriggs' Liabilities. EXCEPT FOR
-------------------------------------
THE ASSUMED LIABILITIES, FALCON DOES NOT HEREBY, OR OTHERWISE, ASSUME OR
AGREE TO DISCHARGE OR PERFORM ANY LIABILITY OR OBLIGATION OF SPRIGGS, AND NO
SUCH ASSUMPTION OF ANY LIABILITY OF SPRIGGS SHALL ACCRUE TO FALCON BY
OPERATION OF LAW OR OTHERWISE.
13.07 Transfer Taxes. All sales, transfer, excise and
--------------
other taxes, if any, payable by reason of the transactions contemplated
hereunder shall be paid by Spriggs.
13.08 Notices. Any notice, consent, request, claim or
-------
other communication hereunder shall be in writing and shall be deemed to have
been duly given at the time of mailing by United States Certified, Registered
or Express mail, or by next business day courier (for example, Federal
Express) postage or charges prepaid, addressed as follows:
If to Falcon:
Michael J. Dreller
Vice President-Finance
Falcon Products, Inc.
9387 Dielman Industrial Drive
St. Louis, Missouri 63132
Fax: (314) 991-9295
with a copy to:
Robert H. Wexler, Esq.
Gallop, Johnson & Neuman, L.C.
16th Floor
101 South Hanley Road
St. Louis, Missouri 63105
Fax: (314) 862-1219
If to Spriggs:
Tony L. Spriggs
President
The T.L. Spriggs Corporation
411 East Juliana
Anaheim, California 92801
<PAGE> 33
Fax: (714) 778-5098
with a copy to:
Richard S. Price, II, Esq.
1235 N. Harbor Blvd., Suite 200
Fullerton, California 92832
Fax: (714) 871-5620
or to such other address as any party may designate by written notice
hereunder.
13.09 Entire Agreement. This Agreement embodies the
----------------
entire Agreement between the parties, and no representations, inducements,
promises or other agreements, oral or otherwise, not embodied herein, shall
be of any force or effect. This Agreement may not be modified or terminated
except in writing signed by the parties hereto.
13.10 Designation of Falcon as Agent. Spriggs hereby
------------------------------
designates and constitutes Falcon, its officers and agents, as agents and
attorneys-in-fact of Spriggs, with power (for the purposes of collecting sums
due to the Falcon hereunder, or for sales made by Falcon subsequent to
Closing) to sign and endorse the name of Spriggs and transfer all checks,
drafts, notes, money orders and other instruments that may come into the
possession of Falcon, granting to Falcon, its officers and agents, full power
to do any and all things necessary to be done as fully and effectively as
Spriggs might or could do, in order to give effect to this Agreement
subsequent to the Closing, hereby ratifying all that Falcon, its officers and
agents, shall lawfully do or cause to be done by virtue hereof. This power
of attorney shall be deemed to be coupled with an interest and shall be
irrevocable.
13.11 Binding Effect. This Agreement shall be binding
--------------
upon and inure to the benefit of the parties and their respective successors
and assigns.
13.12 Third Parties. Nothing contained in this Agreement
-------------
or in any instrument or document executed by any party hereto in connection
with the transactions contemplated hereby shall create any rights in, or be
deemed to have been executed for the benefit of, any person, firm or
corporation that is not a party hereto.
13.13 Expenses of the Parties. All expenses involved in
-----------------------
the preparation, authorization and consummation of this Agreement, including,
without limitation, all fees and expenses of agents, representatives, counsel
and accountants in connection therewith, shall be borne solely by the party
who shall have incurred the same, and no other party shall have any liability
in respect thereof.
13.14 Counterparts. This Agreement may be executed
------------
simultaneously in two or more counterparts, each of which shall be
<PAGE> 34
deemed an original, but all of which taken together shall constitute one and the
same instrument.
13.15 Missouri Law to Govern; Venue. This Agreement shall
-----------------------------
be governed by and interpreted and enforced in accordance with the internal
laws of the State of Missouri, without regard to its conflicts of law
provisions or interpretations. With respect to any suit, action or
proceeding relating to this Agreement ("Proceeding"), each party irrevocably
(i) submits to the jurisdiction of the Missouri state court located in St.
Louis County, Missouri, and the United States District Court for the Eastern
District of Missouri, and (ii) waives any objections which it may have at any
time to the laying of venue of any Proceedings brought in any such court,
waives any claim that such Proceedings have been brought in an inconvenient
forum, and further waives the right to object, with respect to such
Proceedings, that such court did not have jurisdiction over such party.
13.16 Headings. The headings in the Articles and Sections
--------
of this Agreement are inserted for convenience only and shall not constitute
a part hereof.
13.17 Publicity. Contemporaneously with the execution of
---------
this Agreement, or as soon thereafter as practicable, Falcon may, in its sole
discretion, issue a press release with respect to the execution of this
Agreement and the Transaction contemplated hereby. Nothing contained herein
shall prevent any party to this Agreement from furnishing any required
information to any governmental entity or complying with its legal or
contractual obligations, in each case in the opinion of counsel to such
party. Falcon and Spriggs shall, as soon as practicable following the
execution hereof, prepare a joint press release regarding this transaction to
be delivered to the news media.
13.18 Mail and Communications. After the Closing, each
-----------------------
party will promptly deliver to the other party the original of any mail or
other communication received by that party but pertaining to the business of
the other party.
13.19 Determination of Net Working Capital. In order to
------------------------------------
determine the Net Working Capital of Spriggs, not later than ten days
following the Balance Sheet Date, Spriggs shall prepare the Closing Balance
Sheet in accordance with generally accepted accounting principles,
consistently applied. In preparing such Closing Balance Sheet, Spriggs shall
consult with Falcon and shall permit Falcon to participate in and review the
preparation thereof, including all work papers, schedules and calculations
related thereto, prior to the issuance thereof. Falcon shall commence its
review of said work papers, schedules and calculations as soon as
practicable. Any dispute which may arise between Spriggs on the one hand and
Falcon on the other hand as to the Closing Balance Sheet shall be resolved in
the following manner:
(a) Falcon, if it disputes the Closing Balance
Sheet,
<PAGE> 35
shall notify Spriggs in writing within ten days
after its receipt of Closing Balance Sheet that Falcon
disputes the Closing Balance Sheet, specifying in
reasonable detail the nature of the dispute;
(b) During the five day period following the date of
such notice, Spriggs and Falcon shall attempt to resolve
such dispute and determine the appropriateness of the
Closing Balance Sheet; and
(c) If at the end of such five day period, the
parties shall have failed to reach an agreement with
respect to such dispute, the matter shall be referred to an
Arbitrator mutually agreed upon by Falcon and Spriggs. The
Arbitrator shall issue its report as to the Closing Balance
Sheet within ten days after such dispute is referred to the
Arbitrator. Each of the parties shall bear all costs and
expenses incurred by it in connection with such arbitration
except for the fees and expenses of the Arbitrator which
shall be borne equally by Spriggs on the one hand and
Falcon, on the other hand. This provision for arbitration
shall be specifically enforceable by the parties and the
decision of the Arbitrator in accordance with the
provisions hereof shall be final and binding and there
shall be no right of appeal therefrom.
13.20 Acquisition Subsidiary. Falcon may, in its sole
----------------------
discretion, establish a subsidiary wholly owned by Falcon for the purpose of
acquiring the Transferred Assets and assuming the Assumed Liabilities and, if
such subsidiary is so established, all references to Falcon hereunder, where
applicable, shall be deemed to be reference to such subsidiary; provided,
--------
however, that nothing contained in this Section 13.20 shall affect the
- - - - -------
indemnification obligations of Falcon set forth in Section 10.02.
13.21 Right of Set Off. Spriggs and Shareholder agree
----------------
that in the event of a breach of this Agreement by either or both of them,
Falcon shall have the right to set off against any Contingent Stock
deliverable to Shareholder on behalf of Spriggs hereunder, to the extent of
Falcon's claim for damages and any cost incurred by Falcon in the bringing of
(or defense against a counterclaim by Employee) such claim.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the date first set forth above.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION CLAUSE WHICH MAY BE ENFORCED BY
THE PARTIES.
FALCON PRODUCTS, INC.,
a Delaware corporation
By:
--
Title:
--
<PAGE> 36
THE T.L. SPRIGGS CORPORATION,
a California corporation
By:
--
Title:
--
--
TONY L. SPRIGGS
</TABLE>
<PAGE> 1
<TABLE>
EXHIBIT 11
----------
Falcon Products, Inc. and Subsidiaries
COMPUTATION OF EARNINGS PER SHARE
For the years ended November 2, 1996, October 28, 1995, and October 29, 1994
<CAPTION>
Primary Earnings Per Share:
- - - - --------------------------- 1996<F1> 1995<F1> 1994<F1>
---------- ---------- ----------
<S> <C> <C> <C>
Average number of common
shares outstanding 9,591,065 9,497,104 9,368,212
Assumed exercise of options
(treasury stock method) 201,889 247,408 220,926
---------- ---------- ----------
Shares for primary
computation 9,792,954 9,744,512 9,589,138
========== ========== ==========
Net earnings $8,432,974 $7,456,679 $6,176,158
========== ========== ==========
Primary earnings per share $.86 $.77 $.64
==== ==== ====
Fully Diluted Earnings Per Share:
- - - - ---------------------------------
Average number of common
shares outstanding 9,657,202 9,497,104 9,368,212
Assumed exercise of options
(treasury stock method) 201,889 301,615 233,025
---------- ---------- ----------
Shares for fully diluted
computation 9,859,091 9,798,719 9,601,237
========== ========== ==========
Net earnings $8,432,974 $7,456,679 $6,176,158
========== ========== ==========
Fully diluted earnings per share $.86 $.76 $.64
==== ==== ====
<FN>
<F1> Per share data reflects adjustments related to December 1995, 10% stock
dividend.
</TABLE>
20
<PAGE> 1
<TABLE>
Selected Financial Data
- - - - -----------------------
<CAPTION>
FISCAL YEAR
--------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991
--------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales $111,040 $90,036 $77,834 $62,957 $48,990 $39,446
Cost of sales 75,455 59,159 51,935 42,774 33,050 26,419
-------- ------- ------- ------- ------- -------
Gross margin 35,585 30,877 25,899 20,183 15,940 13,027
Selling, general and administrative
expenses 22,168 19,059 16,244 12,930 9,974 8,608
-------- ------- ------- ------- ------- -------
Operating profit 13,417 11,818 9,655 7,253 5,966 4,419
Other income (expense):
Interest, net 95 141 145 (223) (137) (381)
Minority interest 89 (44) 4 -- --
Other income -- -- -- -- -- 196
-------- ------- ------- ------- ------- -------
Earnings before income taxes 13,601 11,915 9,804 7,030 5,829 4,234
Income tax expense 5,168 4,458 3,628 2,583 2,094 1,567
-------- ------- ------- ------- ------- -------
Net earnings $ 8,433 $ 7,457 $ 6,176 $ 4,447 $ 3,735 $ 2,667
======== ======= ======= ======= ======= =======
Earnings per share<F*> $ .86 $ .77 $ .64 $ .50 $ .48 $ .42
======== ======= ======= ======= ======= =======
Cash Dividends per share<F*> $ .10 $ .07 $ .04 $ -- $ -- $ --
======== ======= ======= ======= ======= =======
FINANCIAL POSITION:
Working capital $33,307 $29,927 $25,658 $25,129 $13,327 7,767
Property, plant and equipment, net 25,382 22,187 19,117 11,644 11,334 6,860
Capital expenditures 4,449 4,969 4,608 1,506 1,131 1,187
Total assets 84,989 74,884 64,905 53,228 40,555 22,650
Long-term obligations 3,451 3,424 3,550 1,648 10,272 4,369
Stockholders' equity 68,476 58,307 50,556 44,147 23,404 11,561
<FN>
- - - - ----------
<F*> Per share data reflects adjustments related to the December 1995, 10%
stock dividend and the January 1993, 50% stock dividend.
</TABLE>
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
RESULTS OF OPERATIONS
General
During the last several years, the Company has devoted substantial
resources to its sales and marketing efforts, developed new markets and
distribution networks for its products, and implemented an aggressive program
of new product introductions. Significant resources have also been devoted
to developing and enlarging the Company's direct factory sales force.
The following table sets forth, for the periods presented, certain
information relating to the operations of the Company, expressed as a
percentage of net sales:
<TABLE>
<CAPTION>
NOVEMBER 2, OCTOBER 28, OCTOBER 29,
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 68.0 65.7 66.7
Gross margin 32.0 34.3 33.3
Selling, general and administrative expenses 20.0 21.2 20.9
Operating profit 12.0 13.1 12.4
Interest income, net .1 .2 .2
Minority interest in consolidated subsidiary .1 (.1) --
Earnings before income taxes 12.2 13.2 12.6
Income tax expense 4.6 5.0 4.7
Net earnings 7.6 8.2 7.9
</TABLE>
Fiscal 1996 compared to Fiscal 1995
Net earnings totaled $8.4 million in 1996, compared to $7.5 million in
1995, an increase of 13.1%. Earnings per share reached $.86 in 1996,
compared with $.77 in 1995, an 11.7% increase.
Net sales in 1996 were $111.0 million, an increase of 23.3% over 1995
net sales of $90.0 million. The sales increase over the prior year
primarily resulted from increased sales from the Company's National Accounts
program, strong sales of office furniture products through the Company's
Flight network of office furniture dealers and to end users and also
incremental sales from the acquisitions of Decor Concepts in 1995. The 1996
fiscal year included 53 weeks compared with 52 weeks in 1995, which also
contributed to the increase in sales. Net sales for 1996 and 1995, excluding
sales resulting from acquisitions, were approximately $101.0 million and
$88.5 million, respectively. The strong sales results were favorably
impacted by the Company's continued concentration of resources on sales and
marketing programs and new product introductions. During 1996, the Company
increased the number of sales representatives that are selling its products
from 37 to 40 representatives.
The Company's gross margin increased to $35.6 million in 1996 from
$30.9 million in 1995, a 15.2% increase primarily due to the increased sales
volume. Gross margin as a percentage of sales decreased to 32.0% in 1996
from 34.3% in 1995. The decrease is primarily due to product mix and
incremental sales from the Decor Concepts acquisition which maintained a
lower gross margin percentage than the Company's historical base of
<PAGE> 3
business. This was due to certain production inefficiencies at the facilities
acquired in connection with this acquisition. To address the inefficiencies,
the Company moved manufacturing and warehousing operations previously performed
in three separate buildings to a single newly leased building. Production
was interrupted due to this move which also contributed to the lower gross
margin in 1996.
Selling, general and administrative expenses were $22.2 million in
1996, compared to $19.1 million in 1995, a 16.3% increase. The overall
increase is principally related to the higher level of business and increased
sales and marketing programs including salaries, commissions, travel and
literature. As a percentage of net sales, selling, general and
administrative expenses were 20.0% in 1996 compared to 21.2% in 1995. The
decrease in the expense rate in 1996 is primarily the result of efficiencies
from higher sales volume and the impact of the Company's cost reduction
measures.
Net interest income was $95,000 in 1996, compared to net interest
income of $141,000 in 1995. The decrease in interest income is due to
spending invested funds for business acquisitions during 1996 and at the end
of 1995.
Income tax expense increased $710,000, or 15.9% in 1996 compared to
1995, due to higher earnings and a slight increase in the effective tax rate
in 1996.
Fiscal 1995 compared to Fiscal 1994
Net earnings totaled $7.5 million in 1995, compared to $6.2 million in
1994, an increase of 20.7%. Earnings per share were $.77 in 1995, compared
with $.64 in 1994, a 20.3% increase.
Net sales in 1995 were $90.0 million, an increase of 15.7% over 1994
net sales of $77.8 million. The sales increase over the prior year
primarily resulted from increased sales from the Company's National Accounts
program, increased sales of office furniture products, primarily from the
Company's network of Flight dealers, sales increases through international
distribution channels and incremental sales from the acquisitions of Decor
Concepts in 1995, and Charlotte and Falcon Mimon during 1994. Net sales for
1995 and 1994, excluding sales resulting from acquisitions, were
approximately $79.1 million and $72.9 million, respectively. The increase in
sales was also affected by an increase in the number of sales persons selling
the Company's furniture products. During 1995, the Company increased the
number of sales representatives that are selling its furniture products from
26 to 37 representatives.
The Company's gross margin increased from $25.9 million in 1994 to
$30.9 million in 1995, a 19.2% increase primarily due to the increased sales
volume. Gross margin as a percentage of sales increased to 34.3% in 1995
from 33.3% in 1994. The increase is primarily due to product mix and certain
production efficiencies at the Company's manufacturing facilities as a result
of the increased production volumes.
Selling, general and administrative expenses were $19.1 million in
1995, compared to $16.2 million in 1994, a 17.3% increase. The overall
increase is principally related to the higher level of business and the
acquisitions discussed above. As a percentage of net sales, selling, general
and administrative expenses were 21.2% in 1995 compared to 20.9% in 1994.
The increase in the expense rate in 1995 is primarily the result of the
Company's investment in new product development, sales and marketing
programs, including sales promotion costs, salaries, commissions and travel
expenses.
Net interest income was $141,000 in 1995, compared to net interest
income of $145,000 in 1994. The interest income earned in 1995 and 1994
resulted from the investment of the Company's excess operating funds.
Income tax expense increased $830,000 or 22.9% in 1995 compared to
1994, due to higher earnings and a slight increase in the effective tax rate
in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital at November 2, 1996, was $33.3 million
and its ratio of current assets to current liabilities was 3.5 to 1.0.
During 1996 and 1995, cash provided by operating activities was $7.4 million
and $5.7 million, respectively. Cash generated from operations in 1996
increased primarily due to increased earnings and improved accounts
receivable collections offset partially by higher inventory levels.
<PAGE> 4
Net cash used in investing activities in 1996 was $5.6 million, a
slight decrease from $5.7 million in 1995. The Company invested $4.4 million
in 1996 and $4.6 million in 1995 in capital additions primarily to increase
manufacturing capacities and to improve operating efficiencies, as well as
normal recurring capital replacements. The capital expenditures in 1996
include the acquisition of new equipment and leasehold improvements to the
Company's facility in City of Industry, California where the Company
relocated manufacturing operations during 1996. The Company's capital budget
for 1997 is approximately $4.5 million, which will used primarily to acquire
new equipment.
The cash portion of the cost of businesses acquired was $1.2 million in
1996 and $1.1 million in 1995. In addition, the acquisition of The Chair
Source during 1996 was funded by the issuance of 241,400 shares of common
stock, plus an additional 75,000 shares of common stock to be issued during
1997 through 1999 based upon certain contingencies.
Net cash used in financing activities was $3.1 million in 1996, and $.3
million in 1995. The increase in 1996 is due primarily to the Company
implementing a stock repurchase program. During the year ended November 2,
1996, the Company acquired approximately 208,000 shares of its common stock
at a total cost of approximately $2.8 million. The Company is authorized to
purchase up to 575,000 shares of its common stock under the stock repurchase
plan approved by the Board of Directors. Also during 1996, the Company
increased its cash dividend by 37.5% as the regular quarterly cash dividend
was raised to $.025 per share from $.02 per share after the 10% stock
dividend in December 1995.
The Company has a $2.0 million unsecured revolving line of credit
agreement with a commercial bank. The revolving line of credit bears annual
interest at LIBOR plus 1.25% and expires on July 1, 1997. As of November 2,
1996, there were no amounts outstanding under the revolving line of credit.
The Company expects that it will meet its ongoing working capital and
capital requirements from a combination of internally generated funds,
available cash reserves and available borrowings under its revolving credit
facility. The Company's operating cash flows constitute its primary internal
source of liquidity.
Generally, inflation has not had a material effect on the Company in
the past, and no such effect is expected in the near future. Historically,
the Company has been able to increase prices to offset increases in the cost
of manufacturing its products, and management presently believes that the
Company will continue to be able to do so.
<PAGE> 5
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO FALCON PRODUCTS, INC.:
We have audited the accompanying consolidated balance sheets of FALCON
PRODUCTS, INC. (a Delaware corporation) and subsidiaries as of November 2,
1996, and October 28, 1995, and the related consolidated statements of
earnings, stockholders' equity and cash flows for each of the three fiscal
years in the period ended November 2, 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Falcon Products,
Inc. and subsidiaries as of November 2, 1996, and October 28, 1995, and the
results of their operations and their cash flows for each of the three fiscal
years in the period ended November 2, 1996, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
St. Louis, Missouri,
December 16, 1996
<PAGE> 6
<TABLE>
Consolidated Statements of Earnings
For The Years Ended November 2, 1996, October 28, 1995, and October 29, 1994
<CAPTION>
(In thousands, except per share data) 1996 1995 1994
---- ---- ----
<S> <S> <C> <C>
Net sales $111,040 $90,036 $77,834
Cost of sales 75,455 59,159 51,935
-------- ------- -------
Gross margin 35,585 30,877 25,899
Selling, general and administrative expenses 22,168 19,059 16,244
-------- ------- -------
Operating profit 13,417 11,818 9,655
Interest, net; including interest income
of $263, $316, and $240, respectively 95 141 145
Minority interest in consolidated subsidiary 89 (44) 4
-------- ------- -------
Earnings before income taxes 13,601 11,915 9,804
Income tax expense 5,168 4,458 3,628
-------- ------- -------
Net earnings $ 8,433 $ 7,457 $ 6,176
======== ======= =======
Earnings per share<F*> $ .86 $ .77 $ .64
======== ======= =======
See accompanying notes to consolidated financial statements.
<FN>
- - - - ------
<F*> Per share data has been adjusted to reflect the effects of the December
1995, 10% stock dividend.
</TABLE>
<PAGE> 7
<TABLE>
Consolidated Balance Sheets
November 2, 1996, and October 28, 1995
<CAPTION>
(In thousands, except share data)
1996 1995
---- ----
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,714 $ 6,970
Accounts receivable, less allowances of
$439 and $369 respectively 16,683 17,438
Inventories, net 21,725 16,706
Prepaid expenses and other current assets 2,247 1,967
------- -------
Total current assets 46,369 43,081
------- -------
Property, plant and equipment:
Land 2,842 2,842
Buildings and improvements 13,460 11,871
Machinery and equipment 25,403 21,276
------- -------
41,705 35,989
Less accumulated depreciation 16,323 13,802
------- -------
25,382 22,187
------- -------
Other assets, net of accumulated amortization:
Excess of cost over fair value of net assets acquired 9,706 6,858
Other 3,532 2,758
------- -------
Total other assets 13,238 9,616
------- -------
$84,989 $74,884
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,565 $ 7,158
Accrued liabilities 4,540 5,032
Current maturities of long-term debt 957 964
------- -------
Total current liabilities 13,062 13,154
Long-term obligations:
Long-term debt 448 925
Pension liability 239 303
Deferred income taxes 1,843 1,186
Minority interest in consolidated subsidiary 921 1,009
------- -------
Total liabilities 16,513 16,577
------- -------
Stockholders' equity:
Common stock, $.02 par value; Authorized 20,000,000
shares; Issued 9,915,117 and 9,539,737, respectively 198 191
Additional paid-in capital 47,260 42,761
Treasury stock, at cost
(109,516 and 11,000 shares, respectively) (1,529) (135)
Cumulative translation adjustments 274 182
Retained earnings 22,273 15,308
------- -------
Total stockholders' equity 68,476 58,307
------- -------
$84,989 $74,884
======= =======
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 8
<TABLE>
Consolidated Statements of Stockholders' Equity
For The Years Ended November 2, 1996, October 28, 1995 and October 29, 1994
<CAPTION>
Additional Cumulative Total
Common Paid-in Treasury Translation Retained Stockholders'
(In thousands, except share data) Stock Capital Stock Adjustments Earnings Equity
----- ------- ----- ----------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance, October 30,1993 $170 $29,936 $-- $(79) $14,121 $44,148
Net earnings -- -- 6,176 6,176
Cash dividends -- -- -- -- (384) (384)
Issuance of stock to Employee
Stock Purchase Plan 1 415 -- -- -- 416
Exercise of employee incentive
stock options 1 62 -- -- -- 63
Compensation expense under non-
qualified stock options -- 60 -- -- -- 60
Tax benefit of stock options -- 37 -- -- -- 37
Translation adjustments -- -- -- 40 -- 40
---- ------- ------- ---- ------- -------
Balance, October 29, 1994 $172 $30,510 $-- $(39) $19,913 $50,556
Net earnings -- -- -- -- 7,457 7,457
Cash dividends -- -- (691) (691)
Stock dividend 17 11,280 -- -- (11,300) (3)
Issuance of stock to Employee
Stock Purchase Plan 1 547 -- -- -- 548
Exercise of employee incentive
stock options 1 74 -- -- -- 75
Compensation expense under
non-qualified stock options -- 20 -- -- -- 20
Tax benefit of stock options -- 241 -- -- -- 241
Translation adjustments -- -- -- 221 -- 221
Issuance of restricted stock -- 89 -- -- (89) --
Amortization of restricted stock -- -- -- -- 18 18
Treasury stock purchases -- -- (135) -- -- (135)
---- ------- ------- ---- ------- -------
Balance, October 28, 1995 $191 $42,761 $(135) $182 $15,308 $58,307
Net earnings -- -- -- -- 8,433 8,433
Cash dividends -- -- -- (958) (958)
Issuance of stock to Employee
Stock Purchase Plan -- 195 533 -- -- 728
Exercise of employee incentive
stock options 2 355 864 -- (553) 668
Compensation expense under
non-qualified stock options -- 7 -- -- -- 7
Tax benefit of stock options -- 647 -- -- -- 647
Translation adjustments -- -- -- 92 -- 92
Cancellation of restricted stock -- (19) -- -- 19 --
Amortization of restricted stock -- -- -- -- 24 24
Treasury stock purchases -- -- (2,791) -- -- (2,791)
Issuance of Stock for acquisition 5 3,314 -- -- -- 3,319
---- ------- ------- ---- ------- -------
Balance, November 2, 1996 $198 $47,260 $(1,529) $274 $22,273 $68,476
==== ======= ======= ==== ======= =======
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 9
<TABLE>
Consolidated Statements of Cash Flow
For The Years Ended November 2, 1996, October 28, 1995, and October 29, 1994
<CAPTION>
(In thousands) 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 8,433 $ 7,457 $ 6,176
------- ------- -------
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation 2,703 2,130 1,537
Amortization of other assets 1,171 1,277 1,231
Translation adjustments during year 92 221 40
Tax benefit upon exercise of stock options 647 241 37
Compensation expense under
non-qualified stock options 7 20 60
Amortization of restricted stock awards 24 18 --
Change in deferred income taxes 819 (212) (97)
Minority interest in consolidated subsidiary (89) (10) (4)
Change in assets and liabilities:
Decrease (increase) in:
Accounts receivable, net 1,219 (3,120) (3,157)
Inventories (4,140) (2,029) (410)
Prepaid expenses and other current assets (592) (334) 536
Other assets, net (1,418) (1,328) (907)
Increase (decrease) in:
Accounts payable (219) 1,386 52
Accrued liabilities (1,224) (51) 849
------- ------- -------
Total adjustments (1,000) (1,791) (233)
Net cash provided by operating activities 7,433 5,666 5,943
Cash flows from investing activities:
Additions to property, plant and equipment, net (4,449) (4,570) (4,600)
Cost of businesses acquired (including working capital at
acquisition of $(165), $912 and $2,658, respectively) (1,189) (1,095) (4,524)
------- ------- -------
Net cash used in investing activities (5,638) (5,665) (9,124)
------- ------- -------
Cash flows from financing activities:
Common stock issuances 1,396 623 479
Treasury stock purchases (2,791) (135) --
Cash dividends (958) (694) (384)
Additions to long-term debt 785 627 --
Repayment of long-term debt (1,419) (525) (237)
Increase (decrease) in pension liability (64) (239) 9
------- ------- -------
Net cash used in financing activities (3,051) (343) (133)
------- ------- -------
Net decrease in cash and cash equivalents (1,256) (342) (3,314)
Cash and cash equivalents - beginning of period 6,970 7,312 10,626
------- ------- -------
Cash and cash equivalents - end of period $ 5,714 $ 6,970 $ 7,312
======= ======= =======
Supplemental Cash Flow Information:
Cash paid for interest $ 121 $ 160 $ 58
======= ======= =======
Cash paid for income taxes $ 3,809 $ 5,000 $ 3,062
======= ======= =======
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 10
FALCON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 2, 1996, OCTOBER 28, 1995, AND OCTOBER 29, 1994
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of Falcon Products, Inc. and its subsidiaries (the Company). All
significant intercompany balances and transactions are eliminated in
consolidation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
Fiscal Year
The Company's fiscal year ends on the Saturday closest to October 31.
Fiscal year 1996 ended on November 2, 1996 and included 53 weeks. Fiscal
years 1995 and 1994 ended October 28, 1995 and October 29, 1994,
respectively, and included 52 weeks. References to years relate to fiscal
years rather than calendar years.
Nature of Business
The principal products manufactured and sold by the Company are
pedestal table bases, table tops, metal and wood chairs, booths, millwork,
casegoods, wire shelving systems and other wire metal kitchen equipment. The
Company's sales are primarily to the foodservice equipment, contract
furniture, hospitality, healthcare and material handling markets. The
Company considers its operations a single industry segment.
The Company operates factories in Mexico through wholly-owned
subsidiaries which produce all of its table base casting requirements and
wood chair frames and casegood products for the hospitality industry.
Substantially all of the sales of these subsidiaries are to the parent
company and are eliminated in consolidation. The Company has a manufacturing
facility in the Czech Republic, Falcon Mimon, a.s. (Falcon Mimon), which
manufactures and sells chair frames and fully finished wood chairs throughout
Europe and in North America. Sales from foreign operations (primarily
Falcon Mimon) and export sales from domestic facilities were $10.9 million,
$9.7 million and $4.8 million in 1996, 1995 and 1994, respectively.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Inventories
Inventories are valued at the lower of cost or market. Cost is
determined by the first-in, first-out method. Inventories at November 2,
1996, and October 28, 1995 consist of the following:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
---- ----
<S> <C> <C>
Raw materials.................... $15,723 $11,790
Work in process.................. 4,123 3,409
Finished goods, net.............. 1,879 1,507
------- -------
$21,725 $16,706
======= =======
</TABLE>
<PAGE> 11
FALCON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 2, 1996, OCTOBER 28, 1995, AND OCTOBER 29, 1994
Property, Plant and Equipment
Investments in property, plant and equipment are recorded at cost.
Improvements are capitalized, while repair and maintenance costs are charged
to operations. When assets are retired or disposed of, the cost and
accumulated depreciation are removed from the accounts; gains or losses are
included in operations.
Depreciation, including the amortization of assets recorded under
capital leases, is computed by use of the straight-line method over
estimated service lives. Principal service lives are: buildings and
improvements - 5 to 40 years; machinery and equipment - 3 to 13 years.
Certain of the Company's assets were acquired through long-term lease
obligations financed principally by Industrial Development Revenue Bonds.
These leases represent installment purchases. Accordingly, the assets are
recorded at cost and the related obligations are included in long-term
obligations as mortgages payable.
Other Assets
Other assets consist of the following at November 2, 1996, and October
28, 1995:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
---- ----
<S> <C> <C>
Excess of cost over fair value of net assets acquired, net
of accumulated amortization of $1,472 and $1,195..................... $ 9,706 $6,858
Deferred catalog costs, net of accumulated amortization
of $2,226 and $1,684............................................... 1,243 1,135
Deferred debt issue costs, net of accumulated amortization
of $17 and $13..................................................... 11 15
Other, net of accumulated amortization of $1,582 and $1,234............. 2,278 1,608
------- ------
$13,238 $9,616
======= ======
</TABLE>
The excess of cost over fair value of net assets acquired is amortized
on a straight-line basis over thirty to forty years. Deferred debt issue
costs are amortized on a straight-line basis over the original life of the
respective debt issue, approximately seven years. The cost of the design,
production and distribution of sales catalogs is being amortized on a
straight-line basis over six years.
Pension Plans
The Company has a noncontributory defined benefit pension plan covering
certain hourly and substantially all domestic salaried personnel. The
Company's policy is to fund pension benefits to the extent contributions are
deductible for tax purposes and in compliance with federal laws and
regulations. The Company also contributes to a defined contribution pension
plan for its St. Louis, Missouri, union employees.
Stock Dividends
On November 21, 1995, the Board of Directors of the Company declared a
10% stock dividend. The record date of this transaction was December 13,
1995, with a distribution date of January 2, 1996. All information contained
in the accompanying Consolidated Financial Statements and these Notes to
Consolidated Financial Statements relating to the Company's common stock,
including shares outstanding, stock option plans and per share data, has been
restated to give effect to the stock dividend discussed above.
<PAGE> 12
Foreign Currency Translation
The Financial Statements of the Company's non-U.S. subsidiaries are
translated into U.S. dollars in accordance with Statement of Financial
Accounting Standards No. 52. The functional currency for Falcon Mimon has
been determined to be the subsidiary's local currency. As a result, the gain
or loss resulting from the translation of its financial statements to U.S.
dollars is included as a separate component of stockholders' equity.
For the Company's Mexican subsidiaries, inventory, prepayments and
property are translated at historical exchange rates while other assets and
liabilities are translated at current exchange rates. Revenues and expenses
are translated at average exchange rates during the year. The resulting
translation adjustment is included in selling, general and administrative
expenses.
The net foreign currency translation and transaction losses included in
earnings for 1996, 1995 and 1994, were $235, $271, and $61 thousand,
respectively.
NOTE 2 -- RENTAL EXPENSE AND LEASE COMMITMENTS
The Company leases certain manufacturing facilities and certain office
and transportation equipment under non-cancelable lease agreements having an
initial term of more than one year and expiring at various dates through the
year 2006.
The future minimum rental commitments due under lease agreements are as
follows at November 2, 1996:
<TABLE>
<CAPTION>
Capital Operating
(In thousands) Leases Leases
------ ------
<S> <C> <C>
1997 $ 61 $1,269
1998 61 1,288
1999 61 1,329
2000 61 1,291
2001 61 1,263
Later years 185 3,168
----- ------
Total minimum lease payments 490 $9,608
Less-amount representing interest (78) ======
-----
Present value of minimum lease payments $ 412
=====
</TABLE>
Total operating lease and rental expense was approximately $960, $641,
and $589 thousand in 1996, 1995 and 1994, respectively.
NOTE 3 -- LONG-TERM DEBT
Long-term debt consists of the following at November 2, 1996, and
October 28, 1995:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
-------- --------
<S> <C> <C>
Revolving line of credit expiring July 1, 1997,
interest at LIBOR plus 1.25% $ -- $ --
Notes payable to a foreign bank, secured by certain assets of Falcon
Mimon due in varying quarterly installments through 1998, interest
ranging from 13.0% to 14.9% 848 874
<PAGE> 13
Note payable to a bank, due in quarterly installments through May
1996, interest at the bank's 90 day French Franc rate plus 1.25%
(7.4% at October 28, 1995) -- 488
Obligations under capital leases, due in annual installments
through November 16, 2003, interest at 4.0% 412 455
Community Development loan, secured by machinery and equipment
due in monthly installments through 1997, interest at 7.5% 20 72
Notes payable to individuals 125 --
------ ------
1,405 1,889
Less current maturities 957 964
------ ------
$ 448 $ 925
====== ======
</TABLE>
At November 2, 1996, the Company had letters of credit outstanding of
approximately $67 thousand relating to certain foreign purchases.
Under the loan agreements, the Company must comply with certain
covenants including, but not limited to, the maintenance of specific ratios
and net worth. The Company has complied with the terms of the loan agreements.
The minimum annual maturities of long-term debt, including capital
lease obligations, are: $957, $79, $80, $66 and $52 thousand in 1997 through
2001, respectively, and $171 thousand thereafter.
<PAGE> 14
FALCON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 2, 1996, OCTOBER 28, 1995, AND OCTOBER 29, 1994
NOTE 4 -- INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
No. 109). SFAS No. 109 requires income taxes to be accounted for using a
balance sheet approach known as the liability method. The liability
method accounts for deferred income taxes by applying statutory tax rates
in effect at the date of the balance sheet to differences between the book
and tax basis of assets and liabilities. Adjustments to deferred income
taxes resulting from statutory rate changes flow through the tax provision
in the year of the change.
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $3,892 $4,180 $3,314
State 457 501 404
Foreign -- (11) 7
Deferred 819 (212) (97)
------ ------ ------
$5,168 $4,458 $3,628
====== ====== ======
</TABLE>
The following is a reconciliation between statutory federal income tax
expense and actual income tax expense:
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Computed "expected" federal income tax expense $4,660 $4,051 $3,333
Increase (decrease) resulting from:
State income taxes 544 477 393
Other, net (36) (70) (98)
------ ------- ------
$5,168 $4,458 $3,628
====== ====== ======
</TABLE>
<PAGE> 15
FALCON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 2, 1996, OCTOBER 28, 1995, AND OCTOBER 29, 1994
The significant components of deferred income tax assets and liabilities are
as follows:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
------ ------
<S> <C> <C>
Deferred tax assets:
Inventories $ 548 $ 505
Reserves and accruals 708 785
--- ---
1,256 1,290
Deferred tax liabilities: ----- -----
Depreciation and other property basis differences (1,474) (878)
Other (662) (308)
------ -------
(2,136) (1,186)
------- -------
Net deferred income tax asset (liability) $ (880) $ 104
======= =======
</TABLE>
Net current deferred income tax assets are included in prepaid expenses
and other current assets in the accompanying Consolidated Balance Sheets.
The Company's income tax returns have been examined by the Internal Revenue
Service for fiscal years through 1994.
NOTE 5 -- STOCK OPTION AND STOCK PURCHASE PLANS
The Company had an employee incentive stock option plan which expired
in 1991. As of November 2, 1996, there were outstanding options to purchase
11,326 shares of the Company's common stock under this plan, expiring at
various dates through December 2000.
In 1991, the Company created a new stock option plan (the "1991 Plan"),
which, as amended, allows the Company to grant key employees incentive and
non-qualified stock options to purchase up to 1,100,000 shares of the
Company's common stock at not less than the market price on the date of
grant. Options not exercised accumulate and are exercisable, in whole or in
part, in any subsequent period but not later than ten years from the date of
grant. As of November 2, 1996, options to purchase 490,891 shares of the
Company's common stock were outstanding under the 1991 Plan.
<PAGE> 16
FALCON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 2, 1996, OCTOBER 28, 1995, AND OCTOBER 29, 1994
Stock option transactions under the expired plan and the 1991 Plan are
summarized below:
<TABLE>
<CAPTION>
1996 1995
-------------------------- --------------------------
AVERAGE NUMBER AVERAGE NUMBER
PRICE OF SHARES PRICE OF SHARES
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Options outstanding at beginning of year $ 8.81 599,426 $ 8.07 495,211
Options granted $13.02 56,600 $10.19 151,250
Options canceled $10.07 60,721 $ 9.66 22,627
Options exercised $ 5.69 93,088 $ 1.77 24,408
------- -------
Options outstanding at end of year $ 9.70 502,217 $ 8.81 599,426
======= =======
Exercisable at end of year 186,217 171,339
======= =======
</TABLE>
The Company has a Non-Employee Director stock option plan, approved by
the stockholders, under which the Company annually grants an option to
purchase 1,650 shares of common stock to each director who is neither an
officer of the Company nor compensated under any employment or consulting
arrangements ("Non-Employee Director"). Under the plan, the option exercise
price is the fair market value of the Company's common stock on the date of
the grant and the options are exercisable, on a cumulative basis, at 20% per
year commencing on the date of the grant.
The Company has a Stock Purchase Plan under which eligible employees
may elect to invest up to 10% of salary earned during each pay period.
Directors who are not employees may also elect to invest up to 10% of
director fees. The Company contributes an amount equal to 40% of each
participant's contributions and pays all administrative expenses of the plan.
In 1995, the Company awarded 2,750 shares of restricted common stock of
the Company to each of three executive officers. The shares will vest and
the related expense will be recorded over three years.
<PAGE> 17
FALCON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 2, 1996, OCTOBER 28, 1995, AND OCTOBER 29, 1994
NOTE 6 -- PENSION PLANS
The Company has a noncontributory defined benefit pension plan
covering certain hourly and substantially all salaried domestic personnel.
Normal retirement age is 65, but provision is made for earlier retirement.
Benefits are based on 1.5% of average annual compensation for each year of
service. Full vesting occurs upon completion of five years of service. Assets
of the plan consist entirely of an investment in a group annuity contract with
an insurance company.
The following actuarial assumptions were used in determining the
Company's net periodic pension cost and projected benefit obligation:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Discount rate 7.25% 7.50% 7.50%
Rate of salary increase 5.50% 5.50% 5.50%
Expected long-term rate of return on plan assets 9.00% 9.00% 9.00%
</TABLE>
The funded status of the defined benefit pension plan is as follows:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
---- ----
<S> <C> <C>
Vested benefit obligation $(3,287) $(2,683)
Non-vested benefits (276) (324)
------- -------
Accumulated benefit obligation (3,563) (3,007)
Effect of projected future compensation levels (351) (423)
------- -------
Projected benefit obligation (3,914) (3,430)
Plan assets at fair value 3,152 2,640
------- -------
Plan assets less than projected benefit obligation (762) (790)
Unrecognized net loss due to past experience different
from assumptions 236 193
Unrecognized prior service cost 414 462
Unrecognized net asset being recognized over 13.21 years (127) (168)
------- -------
Accrued pension cost $ (239) $ (303)
======= =======
</TABLE>
<PAGE> 18
FALCON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 2, 1996, OCTOBER 28, 1995, AND OCTOBER 29, 1994
Net periodic pension cost was as follows:
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 421 $ 335 $ 284
Interest cost on projected benefit obligation 257 212 180
Return on plan assets (389) (332) 13
Net total of other components 137 136 (180)
----- ----- -----
Net periodic pension cost $ 426 $ 351 $ 297
===== ===== =====
</TABLE>
The Company also contributes to a defined contribution pension plan for
its St. Louis, Missouri, union employees. Pension expense under this plan
was $37, $32, and $22 thousand in 1996, 1995 and 1994, respectively.
NOTE 7 -- BUSINESS ACQUISITIONS
In October 1996, the Company acquired certain assets and assumed
certain liabilities of The Chair Source for 241,400 newly issued shares of
common stock valued at approximately $3.3 million plus 75,000 shares of
common stock to be issued over a three-year period, subject to certain
contingencies. The purchase price is subject to working capital level
adjustments. The Chair Source manufactures wood and upholstered seating in
Anaheim, California and distributes them primarily to the hospitality,
lodging and foodservice markets.
In February 1996, the Company acquired substantially all of the assets
and assumed certain liabilities of a manufacturing facility located in
Tijuana, Mexico. This facility specializes in manufacturing upscale wood and
upholstered seating and case goods primarily for the lodging and hospitality
markets. The total purchase price for this facility was approximately $500
thousand and was funded by the Company with its available cash reserves.
During September 1995, the Company acquired the interior decor business
and related assets, and assumed certain liabilities, relating to that
business from Omni Inc. The Company operates this business under the
tradename Decor Concepts, which was a tradename used by Omni Inc. for a
substantial portion of that business. Decor Concepts is a manufacturer of
interior decor products such as seating, tables, and casegoods for restaurant
chains. The total purchase price for the transaction was approximately $1.5
million. This purchase was funded by the Company with its available cash
reserves.
During September 1994, the Company acquired a 67% controlling interest
in Falcon Mimon for approximately $2.3 million in cash. Falcon Mimon is a
furniture manufacturer located in the Czech Republic that makes complete wood
chairs and wood chair components for sale throughout Europe and North
America. Under terms of the purchase agreement, during 1996 and 1995 the
Company invested an additional $2.5 million in Falcon Mimon which increased
the Company's ownership interest in Falcon Mimon to approximately 84%.
During January 1994, the Company acquired substantially all of the
assets and assumed certain liabilities of Charlotte Company, Inc. located in
Belding, Michigan, a manufacturer of high quality wood and metal seating and
tables for the office furniture, foodservice, hospitality and healthcare
markets. The total purchase price for the transaction was approximately $3.4
million and was funded by the Company with its available cash reserves.
<PAGE> 19
FALCON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 2, 1996, OCTOBER 28, 1995, AND OCTOBER 29, 1994
NOTE 8 -- TRANSACTIONS WITH RELATED PARTIES
Certain of the Company's directors or their affiliates provide various
consulting and other professional services to the Company or receive
commissions as sales representatives. During 1996, 1995 and 1994, the
Company incurred expenses of approximately $220, $138, and $280 thousand,
respectively, for such services.
NOTE 9 -- QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
(In thousands, except per share amounts)
FIRST SECOND THIRD FOURTH
----- ------ ----- ------
<S> <C> <C> <C> <C>
1996
- - - - ----
Net sales $25,433 $25,832 $27,587 $32,188
Gross margin 7,606 8,727 8,480 10,772
Net earnings 1,623 2,127 2,045 2,638
Earnings per share $.17 $.22 $.21 $.27
1995
- - - - ----
Net sales $18,820 $21,129 $23,377 $26,710
Gross margin 5,825 7,506 7,947 9,599
Net earnings 1,279 1,743 1,917 2,518
Earnings per share $.13 $.18 $.20 $.26
</TABLE>
<PAGE> 1
EXHIBIT 21
Falcon Products, Inc. and Subsidiaries
SUBSIDIARIES OF THE COMPANY
---------------------------
The following are wholly-owned subsidiaries of the Company: Kaydee
Metal Products Corporation; Falcon Mexican Holdings, Inc.; Falcon
International, E.U.R.L. (a French corporation); Falcon De Juarez, S.A. de
C.V., Fundiciones Tecnicas, S.A., and Falcon De Baja California, S.A. de C.V.
(Mexican corporations). Falcon Mimon, a.s. (a Czech Republic corporation) is
an 84%-owned subsidiary of the Company.
21
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
TO FALCON PRODUCTS, INC.:
As independent public accountants, we hereby consent to the incorporation of
our report included in this Form 10-K, into the Company's previously filed
Registration Statements File Nos. 2-98469, 33-15698, 33-46997, 33-46998 and
333-18671.
ARTHUR ANDERSEN LLP
St. Louis, Missouri,
January 24, 1997
22
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from SEC
Form 10-K for the year ended November 2, 1996, and is qualified in its
entirety by reference to such statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-02-1996
<PERIOD-START> OCT-29-1995
<PERIOD-END> NOV-02-1996
<CASH> 5,714
<SECURITIES> 0
<RECEIVABLES> 16,683
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0
0
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