HON INDUSTRIES INC, 424B1, 1997-10-24

HON INDUSTRIES INC
424B1, 1997-10-24
OFFICE FURNITURE (NO WOOD)

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<PAGE>

Filed Pursuant to Rule 424(b)(1)
Registration Number 333-36433

PROSPECTUS

3,395,000 SHARES

HON INDUSTRIES INC.

COMMON STOCK

---------------

Of the 3,395,000 shares of Common Stock of HON INDUSTRIES Inc., an Iowa
corporation (the "Company"), offered hereby, 1,000,000 shares are being
offered by the Company and 2,395,000 shares are being offered by a certain
shareholder (the "Selling Shareholder"). The Company will not receive any of
the proceeds of shares sold by the Selling Shareholder. See "Selling
Shareholder."

Of the 3,395,000 shares of Common Stock of the Company offered, 2,716,000
shares are being offered inside the United States and Canada by the U.S.
Underwriters (the "U.S. Offering") and 679,000 shares are being offered in a
concurrent international offering outside the United States and Canada by the
International Managers (the "International Offering" and together with the
U.S. Offering, the "Offerings"). The price to the public and the aggregate
underwriting discount per share will be identical for both offerings. See
"Underwriting."

The Common Stock is quoted on the Nasdaq National Market under the symbol
"HONI." On October 23, 1997, the last reported sale price of the Common Stock
on the Nasdaq National Market was $53 1/4 per share. See "Market Price of and
Dividends on Common Stock."

SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK
OFFERED HEREBY.

---------------

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROCEEDS TO
SELLING
PRICE TO UNDERWRITING PROCEEDS TO SHAREHOLDER
PUBLIC DISCOUNT (1) COMPANY (2) (2)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share $52.00 $2.08 $49.92 $49.92
- ---------------------------------------------------------------------------------------------
Total (3) $176,540,000 $7,061,600 $49,920,000 $119,558,400
- ---------------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
(1) The Company, the Selling Shareholder and Bandag, Incorporated have agreed
to indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deduction of expenses, estimated at $500,000, which are payable by
the Company. The Selling Shareholder will not be paying any of the
expenses of the Offerings, other than the expenses of its counsel.
(3) The Company has granted the U.S. Underwriters and the International
Managers options, exercisable within 30 days of the date hereof, to
purchase up to an aggregate of 407,400 and 101,850, respectively,
additional shares of Common Stock on the same terms set forth above, to
cover over-allotments, if any. If the over-allotment options are exercised
in full, the total Price to Public, Underwriting Discount and Proceeds to
Company will be $203,021,000, $8,120,840 and $75,341,760, respectively.
See "Underwriting."

---------------

The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by them, subject to
approval of certain legal matters by counsel for the Company, counsel for the
Selling Shareholder and Bandag, Incorporated and counsel for the Underwriters
and certain other conditions. The Underwriters reserve the right to withdraw,
cancel or modify such offer and to reject orders in whole or in part. It is
expected that delivery of the Common Stock will be made against payment
therefor in New York, New York on or about October 29, 1997.

---------------

MERRILL LYNCH & CO. WILLIAM BLAIR & COMPANY
ROBERT W. BAIRD & CO. MCDONALD & COMPANY
INCORPORATED SECURITIES, INC.

---------------

The date of this Prospectus is October 23, 1997.
<PAGE>

[Pictures of filing cabinets, seating and office systems appear here.]

CERTAIN PERSONS PARTICIPATING IN THE OFFERINGS MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SUCH TRANSACTIONS MAY INCLUDE STABILIZING, THE PURCHASE OF SHARES OF COMMON
STOCK TO COVER SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF PENALTY BIDS.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."

IN CONNECTION WITH THE OFFERINGS, THE UNDERWRITERS MAY ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE SHARES OF COMMON STOCK OF THE COMPANY ON THE
NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M. SEE
"UNDERWRITING."

HON(R), Concensys(R), Every-Day(R), Regent(R) and Solutions Seating(R) are
registered trademarks of the Company.

2
<PAGE>

PROSPECTUS SUMMARY

The following is a summary of certain information in this Prospectus. This
summary is not intended to be complete and should be read in conjunction with,
and is qualified in its entirety by, the more detailed information and
financial statements appearing elsewhere in this Prospectus or incorporated
herein by reference. Investors should consider carefully the information set
forth in "Risk Factors" before making any decision to invest in the Common
Stock. Except as otherwise noted, all information in this Prospectus assumes
that the Underwriters' over-allotment options are not exercised. Unless the
context otherwise requires, the term "Company" means HON INDUSTRIES Inc. and
its subsidiaries and "fiscal 1992," "fiscal 1993," "fiscal 1994," "fiscal
1995," and "fiscal 1996" mean the fiscal years ended January 2, 1993, January
1, 1994, December 31, 1994, December 30, 1995 and December 28, 1996,
respectively, and "fiscal 1997" means the fiscal year ending January 3, 1998.

THE COMPANY

The Company is a leading designer and manufacturer of value-priced office
furniture and furniture systems in the United States. The Company's products
are marketed through multiple distribution channels primarily to small- and
medium-sized businesses and home offices on the basis of price, quality,
selection and quick delivery. The Company maintains its leadership position by
offering "compelling value" to its customers through a broad line of quality
office furniture, including filing cabinets, seating, office systems, desks and
related products, at attractive price points, with quick delivery. The
Company's low-cost manufacturing capabilities, extensive distribution network,
innovative product development and unique employee ("member") culture enable it
to provide compelling value to its customers. In addition to its core office
furniture business, the Company, through its Hearth Technologies Inc.
subsidiary ("Hearth Technologies"), is the leading manufacturer of wood- and
gas-burning fireplaces, stoves and related accessories in the United States.
The Company markets its hearth products through the widely-recognized
"Heatilator" and "Heat-N-Glo" brand names. In fiscal 1996, the Company had net
sales of $998.1 million, of which $887.3 million was attributable to office
furniture products and $110.8 million was attributable to hearth products.

A key driver of the Company's success has been its highly-efficient and low-
cost manufacturing operations. Since its inception, the Company has been
committed to constant improvement in manufacturing and in 1992 introduced its
process improvement approach known as Rapid Continuous Improvement ("RCI")
which focuses on streamlining design, manufacturing and administrative
processes. The Company's RCI program, in which most members participate, has
significantly contributed to increased productivity, lower manufacturing costs,
and improved product quality and workplace safety. As a result of RCI,
productivity, as measured by annual revenue per member, has increased 50% over
the last five years. In addition, the Company's RCI efforts enable it to offer
short average lead times of two to four weeks, from receipt of order to
shipment, for most of its products.

The Company distributes its products through an extensive network of
independent office furniture dealers, office products dealers, wholesalers and
retailers. The Company is one of the top two suppliers of office furniture to
each of the largest national office products dealers, which are Boise Cascade
Corporation, BT Office Products International, Inc., U.S. Office Products
Company, Corporate Express Inc., Office Depot Inc.--Business Services Division
and Staples Commercial Advantage ("mega-dealers"), and to the Office Depot and
Office Max superstores. The Company offers reduced freight costs and complete
order delivery, regardless of the order size or combination of products, by
manufacturing at multiple locations and cross-docking products throughout the
United States. The Company believes that more of its products are available for
immediate delivery, through over 135 nationwide wholesaler customer locations,
than those of any of its competitors.

The Company's product development efforts are primarily focused on reducing
the cost to manufacture existing products and designing new products that
provide additional features and better quality. The Company's ability to apply
RCI techniques to reduce manufacturing costs and enhance value allows its
products to be sold

3
<PAGE>

at prices lower than those offered for competing products. For example, in 1996
the Company redesigned its leading line of file cabinets to add features while
lowering the Company's costs and maintaining prices. As a result of the
Company's aggressive product development efforts, approximately 45% of the
Company's 1996 sales volume consisted of products introduced within the last
three fiscal years.

An important element of the Company's success has been its ability to
attract, develop and retain skilled, experienced and efficient members. Each of
the Company's eligible members owns stock in the Company through a number of
stock-based plans, including a member stock ownership plan, and participates in
the Company's qualified profit sharing plan. In addition, most production
members are eligible for incentive bonuses.

According to industry sources, U.S. office furniture shipments, which totaled
approximately $10 billion in 1996, have grown at a compound annual growth rate
of approximately 7% over the three-year period ended December 31, 1996. The
U.S. office furniture market consists of two primary segments--the contract
segment and the transactional segment. The contract segment has traditionally
been characterized by one-time sales of large quantities of office furniture to
large corporations, such as for new office facilities, relocations or
department or office redesigns, which are frequently customized to meet
specific client and designer preferences. The transactional segment of the
market, in which the Company is a leader, primarily represents smaller orders
of office furniture purchased by businesses and home office users on the basis
of price, quality, selection and quick delivery.

Over the last several years, as competition in the contract segment has
intensified, dealers have sought to provide their clients with moderately-
priced alternatives to premium-priced contract furniture. In addition, small-
and medium-sized businesses with less complex needs have sought out affordable
office furniture that can be delivered quickly. In response to these trends,
the Company, as well as some of its competitors, have developed value-priced
alternatives to contract furniture lines. The Company believes that this
portion of the contract segment will continue to expand with the proliferation
of small- and medium-sized businesses, growth in home offices, commoditization
of office furniture and consolidation in the office furniture distribution
network.

GROWTH STRATEGY

The Company's strategy is to build on its position as a leading manufacturer
of value-priced office furniture and hearth products in North America. The
components of this growth strategy are to:

Introduce New Value-Priced Products. The Company has been increasingly
successful in developing compelling value alternatives to premium-priced office
furniture and intends to expand and further enhance its product offerings by
developing new products. The Company's development efforts emphasize the design
of products that are easily manufactured, and the use and development of
alternative materials that enhance quality and reduce product development
cycles and manufacturing costs. The Company conducts market research of end-
users to assess evolving customer demands. The Company offers its products in
many new models, sizes, alternative materials, designs, fabrics and finishes.
Areas in which the Company intends to expand its product offerings include
computer furniture, ready-to-assemble furniture, folding chairs and tables,
fire-proof files and school furniture.

Continually Improve Productivity. The Company intends to strengthen its low-
cost manufacturing position by continuing to apply RCI, designing special
machines and tooling to enhance proprietary processes, evaluating vertical
integration opportunities and improving information systems. Lower costs allow
the Company to enhance product features at no additional cost to the customer.
As successfully demonstrated in 1996 and the first half of 1997, lower
manufacturing costs also allow the Company to reduce prices on certain existing
products in order to increase volume and market share while maintaining
operating margins. The Company intends to implement proven RCI tools to realize
productivity gains in acquired operations.

4
<PAGE>

Leverage Distribution Network. The changing dynamics of distribution in the
office furniture industry present an opportunity for the Company to benefit
from its extensive distributor network and its flexible operating structure.
Due to consolidation among office furniture distributors, fewer and larger
distributors exist and these distributors, such as office products and
furniture dealers, wholesalers and large, national retail chains, are reducing
their vendor bases and seeking stronger suppliers who offer more complete
product lines. As one of the top two suppliers of office furniture to each of
the mega-dealers and the Office Depot and Office Max superstores, the Company
believes that it is well-positioned to capitalize on this consolidation trend
due to its excellent reputation for price, quality, quick delivery and broad
product lines. In addition, the Company's commitment to providing distributors
with excellent customer service has helped to strengthen existing relationships
as well as develop new distribution channels.

Pursue Complementary Strategic Acquisitions. The Company continues to
evaluate potential acquisitions of complementary businesses that provide
opportunities for increased market penetration, innovative new products,
increased distribution capabilities, enhanced industry expertise and expanded
geographical presence in North America. Acquisition candidates must present
profitable growth opportunities within the Company's core businesses, must be
well managed and must be well respected by its customers. For example, in June
1997, the Company acquired Allsteel Inc. ("Allsteel"), a manufacturer of mid-
priced office furniture with 1996 sales of approximately $150 million.
Allsteel, which has a strong distribution network and modern, strategically-
located manufacturing facilities, enables the Company to broaden its customer
base by increasing its market penetration in the value-priced segment of the
office furniture industry.

Further Penetrate Hearth Products Market. The Company's recognized innovation
in direct-vent gas fireplace design and manufacturing coupled with its premier
position in wood-burning products provides it with the most comprehensive
product line and extensive distribution network in the hearth products market.
The Company plans to further enhance its competitive position in the hearth
products market by leveraging synergies with the office furniture business,
such as purchasing, manufacturing and product development.

The Company's principal executive offices are located at 414 East Third
Street, P.O. Box 1109, Muscatine, Iowa 52761-7109. Its telephone number is
(319) 264-7400. The Company's World Wide Web site address is
http://www.honi.com.

THE OFFERINGS

The offering hereby of 2,716,000 shares of common stock, $1.00 par value per
share, of the Company (the "Common Stock"), in the United States and Canada
(the "U.S. Offering") and the concurrent offering of 679,000 shares of common
stock outside of the United States and Canada (the "International Offering")
are collectively referred to as the "Offerings." The closing of each of the
U.S. Offering and the International Offering is conditioned upon the closing of
the other.

<TABLE>
<S> <C>
Common Stock Offered by the Company........... 1,000,000 shares
Common Stock Offered by the Selling 2,395,000 shares
Shareholder..................................
Total....................................... 3,395,000 shares
Common Stock to be Outstanding after the 30,670,610 shares(1)
Offerings....................................
Use of Proceeds............................... General corporate purposes, including the
repayment of indebtedness. See "Use of
Proceeds."
Nasdaq National Market Symbol................. HONI
</TABLE>
- --------
(1) As of September 22, 1997 and excluding shares of Common Stock reserved for
issuance upon the exercise of options under the Company's stock option
plan, of which options to purchase 78,000 shares were outstanding at a
weighted average exercise price of $49.48 per share.

5
<PAGE>

SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)

<TABLE>
<CAPTION>
FIRST HALF OF
FISCAL FISCAL
---------------------------------------------- -----------------
1992 1993 1994 1995 1996(A)(B) 1996(A) 1997(B)
-------- -------- -------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............... $706,550 $780,326 $845,998 $893,119 $998,135 $452,737 $579,426
Gross profit............ 227,371 242,498 272,606 268,419 318,639 142,504 184,263
Operating income........ 62,296 71,450 87,116 66,728 106,193 46,351 59,507
Interest expense (net).. 403 596 778 1,211 926 127 2,283
Income before income
taxes.................. 61,893 70,854 86,338 65,517 105,267 46,224 57,224
Income taxes............ 23,210 26,216 31,945 24,419 37,173 17,103 21,459
Net income.............. 38,683 45,127 54,156 41,098 68,094 29,121 35,765
Net income per common
share.................. $ 1.18 $ 1.41 $ 1.73 $ 1.35 $ 2.26 $ 0.96 $ 1.20
Weighted average shares
outstanding............ 32,759 32,091 31,218 30,496 30,114 30,258 29,696
OPERATING DATA:
Net sales per member
(c).................... $119,229 $124,712 $137,987 $150,534 $163,097 $160,945 $165,456
</TABLE>

<TABLE>
<CAPTION>
JUNE 28, 1997
--------------------
AS
ACTUAL ADJUSTED(D)
-------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital............................................ $ 94,251 $ 94,251
Total assets............................................... 635,392 635,392
Total debt (e)............................................. 151,610 102,190
Shareholders' equity....................................... 278,819 328,239
</TABLE>
- --------
(a) Includes a $3,200,000 pre-tax gain on the sale of Ring King Visibles, Inc.,
a wholly-owned subsidiary of the Company ("Ring King") (after-tax gain of
$2,000,000 or $.07 per share).
(b) Includes the results of Heat-N-Glo Fireplace Products, Inc. ("Heat-N-Glo")
from October 2, 1996, the date it was acquired.
(c) Net sales per member is equal to net sales for the year divided by the
number of members at year end. First half data are based on annualized net
sales divided by the number of members at the end of the period. The data
for fiscal 1996 does not give effect to the acquisition of Heat-N-Glo in
the fourth quarter of 1996.
(d) Adjusted to reflect the sale by the Company of 1,000,000 shares of the
Common Stock offered hereby at the initial public offering price and the
application of the estimated net proceeds therefrom. See "Use of Proceeds."
(e) Includes current and non-current long-term debt. Also includes current and
non-current capital lease obligations of $7,169,000.

6
<PAGE>

RISK FACTORS

Prospective purchasers of the Common Stock offered hereby should consider
carefully all of the information set forth in this Prospectus, and in
particular, should evaluate the following risks in connection with an
investment in the Common Stock. Statements in this Prospectus that are not
strictly historical, including statements as to plans, objectives and future
performance, are "forward-looking" statements that are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Forward-looking statements involve known and unknown risks, which may
cause the Company's actual results in the future to differ materially from
expected results. These risks include, among others, competition within the
office furniture and hearth products industries, the relationship between
supply and demand for value-priced office furniture, and gas- and wood-burning
hearth products, the effects of economic conditions, the issues associated
with the acquisition and integration of recently acquired operations,
including Heat-N-Glo and Allsteel, operating risks, the ability of the
Company's distributors to successfully market and sell the Company's products,
the availability of capital to finance planned growth, and the effect of
consolidation in the office furniture industry, as well as the risks,
uncertainties and other factors described in this Prospectus and from time to
time in the Company's other filings with the Securities and Exchange
Commission.

STRONG COMPETITION

The office furniture industry is highly competitive, with a significant
number of competitors offering similar products. The Company's competitors
include Global Furniture Inc.; Anderson-Hickey Co., Globe Business Furniture
and United Chair, Inc., divisions of Haworth, Inc.; National Office Furniture,
a division of Kimball Office Furniture Co.; and High Point Furniture
Industries, Inc. In addition, the Company competes with certain office
furniture manufacturers which control a substantial portion of the market
share in the contract office furniture market, such as Steelcase Inc., Herman
Miller, Inc., Haworth, Inc. and Knoll, Inc. Products and brands offered by
contract office furniture market participants have strong acceptance in the
marketplace, and such competitors have developed and may continue to develop
value-priced product designs to compete with the Company. The Company also
faces significant price competition from its competitors and may encounter
competition from new market entrants. There can be no assurance that the
Company will be able to compete successfully in its market in the future. See
"Business--Competition."

CONCENTRATION OF CUSTOMER BASE

The Company sells its products through multiple distribution channels,
including through dealers, wholesalers and retailers. These distribution
channels have been consolidating in the past several years and may continue to
consolidate in the future. Such consolidation may result in a greater
proportion of the Company's sales being concentrated in fewer customers. In
1996, the Company's ten largest customers represented approximately 40% of its
consolidated net sales. One customer, United Stationers Inc. ("United
Stationers"), accounted for approximately 12%, 12%, 13% and 13% of the
Company's consolidated net sales in the six months ended June 28, 1997, and in
fiscal 1996, 1995 and 1994, respectively. The increased purchasing power
exercised by larger customers may adversely affect the prices at which the
Company can successfully offer its products. As a result of this
consolidation, changes in the purchase patterns or the loss of a single
customer may have a greater impact on the Company's financial results than
such events would have had prior to such consolidation. In addition, there can
be no assurance that the Company will be able to maintain its customer
relationships as consolidation of its customers occurs. See "Business--Sales,
Marketing and Distribution."

RISKS ASSOCIATED WITH MANAGING GROWTH

As a part of its growth strategy, the Company seeks to increase sales and
market share by introducing innovative new products, further enhancing its
existing line of value-priced products and through complementary acquisitions.
Part of this strategy depends on the Company's ability to increase sales
through its existing customer network, principally office products dealers,
wholesalers and retailers. There can be no assurance that

7
<PAGE>

the Company's distribution facilities will have the capacity to manage and
coordinate the delivery of increased amounts of the Company's products
consistent with current levels of customer service. Furthermore, the ability
to effectuate and manage any growth profitably will depend on the Company's
ability to contain costs, including costs associated with increased sales and
marketing efforts, freight utilization, warehouse capacity, product
development and acquisition efforts.

RISK OF ENVIRONMENTAL LIABILITIES

The past and present operation and ownership by the Company of manufacturing
plants and real property are subject to extensive and changing federal, state
and local environmental laws and regulations, including those relating to
discharges in air, water and land, the handling and disposal of solid and
hazardous waste and the remediation of contamination associated with releases
of hazardous substances. Compliance with environmental regulations has not had
a material effect on the Company's capital expenditures, earnings or
competitive position to date; however, compliance with current laws or more
stringent laws or regulations which may be imposed on the Company in the
future, or stricter interpretation of existing laws, may require additional
expenditures by the Company in the future, some of which may be material.
These risks and uncertainties are referenced in the "Contingencies" note
included in the notes to consolidated financial statements.

ECONOMIC FACTORS AFFECTING THE OFFICE FURNITURE INDUSTRY

Fluctuations in office furniture industry revenues may be driven by a
variety of macroeconomic factors, such as white collar employment levels,
corporate cash flows and commercial construction, as well as industry factors,
such as corporate reengineering and restructuring, technology demands,
ergonomic, health and safety concerns and corporate relocations. There can be
no assurance that current or future economic or industry trends will not
adversely affect the business of the Company. See "Business--Industry."

RECENT DEVELOPMENTS

On October 6, 1997, the Company, AHC Inc., a wholly-owned subsidiary of the
Company ("AHC"), Hunt Manufacturing Co. ("Hunt") and BEVIS Custom Furniture,
Inc., a wholly-owned subsidiary of Hunt ("BEVIS"), entered into an Asset
Purchase Agreement pursuant to which AHC agreed to purchase substantially all
of the assets of BEVIS, including its manufacturing facility located in
Florence, Alabama. Consummation of the transaction is subject to customary
closing conditions, including the expiration of the waiting periods under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976. BEVIS designs,
manufactures and markets a broad line of commercial, high-quality, mid-priced
office furniture, panels, conference and training room tables, computer
furniture, folding tables, utility and reception area tables, bookcases and
seating. For its fiscal year ended December 1, 1996, BEVIS had net sales of
$62 million.

The Company's net sales for the three- and nine-month periods ended October
4, 1997 increased 53% and 37% to $391.3 million and $970.8, respectively, as
compared to the three- and nine-month periods ended September 28, 1996. The
increases were attributable to Company and industry growth and acquisitions.
The Company's operating income for the three- and nine-month periods ended
October 4, 1997 was $42.6 million and $102.1 million, respectively, compared
to $25.2 million and $71.6 million for the three- and nine-month periods ended
September 28, 1996. However, operating income for the nine-month period ended
September 28, 1996 included a $3.2 million ($2.0 million after-tax) gain on
the sale of a subsidiary. The Company's net income for the three- and nine-
month periods ended October 4, 1997 was $25.2 million and $61.0 million,
respectively, compared to $17.9 million and $47.0 million for the three- and
nine-month periods ended September 28, 1996. For the three- and nine-month
periods ended September 28, 1996, net income included one time tax credits of
$2.1 million and the nine-month period also included a $3.2 million ($2.0
million after-tax) gain on the sale of the subsidiary previously mentioned.

8
<PAGE>

USE OF PROCEEDS

The net proceeds to the Company from the sale of 1,000,000 shares of Common
Stock offered hereby are estimated to be approximately $49.4 million ($74.8
million if the Underwriters' over-allotment options are exercised in full),
after deducting the underwriting discount and estimated offering expenses
payable by the Company. The Company will not receive any proceeds from the
sale of Common Stock by the Selling Shareholder. The Company will pay all
offering expenses incurred in the offering, except that the Selling
Shareholder will pay the expenses of its counsel.

The Company expects to use the net proceeds of this offering for general
corporate purposes, including the repayment of indebtedness incurred to
finance acquisitions in fiscal 1996 and fiscal 1997, which indebtedness
matures on June 11, 2002 and bears interest at a variable rate (5.9% as of
October 3, 1997). The Company intends to use the remaining credit under its
revolving credit line to finance capital expenditures and any future
acquisitions. See "Capitalization."

MARKET PRICE OF AND DIVIDENDS ON COMMON STOCK

The Company's Common Stock is currently traded on the Nasdaq National Market
("Nasdaq") under the symbol "HONI." The following table sets forth, for the
fiscal periods indicated, the high and low sale prices for the Common Stock as
reported by Nasdaq.

<TABLE>
<CAPTION>
COMMON STOCK
------------- DIVIDENDS
HIGH LOW PER SHARE
------ ------ ---------
<S> <C> <C> <C>
1995
First Quarter................................... 30 1/2 23 $.12
Second Quarter.................................. 30 25 3/4 .12
Third Quarter................................... 31 1/4 25 1/2 .12
Fourth Quarter.................................. 29 3/4 23 1/4 .12
1996
First Quarter................................... 24 1/4 18 1/2 .12
Second Quarter.................................. 30 1/2 22 .12
Third Quarter................................... 40 3/4 27 3/4 .12
Fourth Quarter.................................. 42 3/4 30 1/2 .14
1997
First Quarter................................... 43 31 3/4 .14
Second Quarter.................................. 54 1/4 35 .14
Third Quarter................................... 64 1/4 44 1/4 .14
Fourth Quarter (through October 23, 1997)....... 62 51 1/2 --
</TABLE>

On October 23, 1997, the closing sale price of the Common Stock on Nasdaq,
was $53.25 per share. As of September 22, 1997, there were 5,315 record
holders of the Common Stock.

9
<PAGE>

CAPITALIZATION

The following table sets forth the capitalization of the Company as of June
28, 1997, and as adjusted to reflect the sale by the Company of 1,000,000
shares of the Common Stock offered hereby and the application of the estimated
net proceeds therefrom (at the initial offering price). See "Use of Proceeds."
This table should be read in conjunction with the consolidated financial
statements of the Company and notes thereto included elsewhere in this
Prospectus.

<TABLE>
<CAPTION>
JUNE 28, 1997
------------------
AS
ACTUAL ADJUSTED
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Note payable and current maturities of long-term debt...... $ 575 $ 575
======== ========
Long-term debt............................................. $143,866 $ 94,446
Shareholders' equity:
Preferred, $1 par value; 1,000,000 shares authorized; no
shares outstanding...................................... -- --
Common, $1 par value; 100,000,000 shares authorized;
29,689,707 shares issued and outstanding; 30,689,707
shares issued and outstanding as adjusted (a)........... 29,689 30,689
Additional paid-in capital............................... 91 48,511
Retained earnings........................................ 254,080 254,080
Receivable from HON Members Company Ownership Plan....... (5,041) (5,041)
-------- --------
Total shareholders' equity............................. 278,819 328,239
-------- --------
Total capitalization................................... $422,685 $422,685
======== ========
</TABLE>
- --------
(a) Excludes shares of Common Stock reserved for issuance upon the exercise of
options under the Company's stock option plan, of which options to
purchase 78,000 shares were outstanding as of September 22, 1997 at a
weighted average exercise price of $49.48 per share.

10
<PAGE>

SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)

The following selected financial data for, and as of the end of, the six
months ended June 29, 1996 and June 28, 1997 are derived from the unaudited
condensed consolidated financial statements of the Company and, in the opinion
of management, reflect all adjustments (which include only normal recurring
adjustments) necessary for a fair presentation of the results for such
periods. The interim results of operations are not necessarily indicative of
results for the entire fiscal year. The selected financial data of the Company
presented below for, and as of the end of, fiscal 1996 are derived from the
consolidated financial statements of the Company, which have been audited by
Arthur Andersen LLP and for, and as of the end of, fiscal 1992, fiscal 1993,
fiscal 1994 and fiscal 1995, are derived from the consolidated financial
statements of the Company, which have been audited by Ernst & Young LLP. The
selected financial data should be read in conjunction with, and are qualified
in their entirety by reference to, the consolidated financial statements and
the notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operation" included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
FIRST HALF OF
FISCAL FISCAL
----------------------------------------------- -----------------
1992 1993 1994 1995 1996(A)(B) 1996(A) 1997(B)
-------- -------- -------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............... $706,550 $780,326 $845,998 $893,119 $998,135 $452,737 $579,426
Cost of products sold... 479,179 537,828 573,392 624,700 679,496 310,233 395,163
-------- -------- -------- -------- -------- -------- --------
Gross profit............ 227,371 242,498 272,606 268,419 318,639 142,504 184,263
Selling and
administrative
expenses............... 165,075 171,048 185,490 201,691 215,646 99,353 124,756
Gain on sale of
subsidiary............. -- -- -- -- 3,200 3,200 --
-------- -------- -------- -------- -------- -------- --------
Operating income........ 62,296 71,450 87,116 66,728 106,193 46,351 59,507
Interest expense (net).. 403 596 778 1,211 926 127 2,283
-------- -------- -------- -------- -------- -------- --------
Income before income
taxes.................. 61,893 70,854 86,338 65,517 105,267 46,224 57,224
Income taxes............ 23,210 26,216 31,945 24,419 37,173 17,103 21,459
-------- -------- -------- -------- -------- -------- --------
Income before cumulative
effect of accounting
changes................ 38,683 44,638 54,393 41,098 68,094 29,121 35,765
Cumulative effect of
accounting changes..... -- 489 (237) -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income.............. $ 38,683 $ 45,127 $ 54,156 $ 41,098 $ 68,094 $ 29,121 $ 35,765
======== ======== ======== ======== ======== ======== ========
Net income per common
share.................. $ 1.18 $ 1.41 $ 1.73 $ 1.35 $ 2.26 $ 0.96 $ 1.20
======== ======== ======== ======== ======== ======== ========
Weighted average number
of common shares
outstanding............ 32,759 32,091 31,218 30,496 30,114 30,258 29,696
OPERATING DATA
(UNAUDITED):
Net sales per member
(c).................... $119,229 $124,712 $137,987 $150,534 $163,097 $160,945 $165,456
BALANCE SHEET DATA:
Working capital......... $ 79,529 $ 77,660 $ 77,717 $ 65,268 $ 52,974 $ 65,735 $ 94,251
Total assets............ 322,746 352,405 372,568 409,518 513,514 409,850 635,392
Total debt (d).......... 56,329 49,840 49,545 46,393 93,849 44,539 151,610
Shareholders' equity.... 163,009 179,553 194,640 216,235 252,397 231,117 278,819
</TABLE>
- --------
(a) Includes a $3,200,000 pre-tax gain on the sale of Ring King (after-tax
gain of $2,000,000 or $.07 per share).
(b) Includes the results of Heat-N-Glo from October 2, 1996, the date it was
acquired.
(c) Net sales per member is equal to net sales for the year divided by the
number of members at year end. First half data are based on annualized net
sales divided by the number of members at the end of the period. The data
for fiscal 1996 does not give effect to the acquisition of Heat-N-Glo in
the fourth quarter of 1996.
(d) Includes current and non-current long-term debt. Also includes current and
non-current capital lease obligations of $7,169,000.

11
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of the Company's historical results of operations
and of its liquidity and capital resources should be read in conjunction with
the Selected Consolidated Financial and Operating Data and the financial
statements of the Company and related notes thereto appearing elsewhere in
this Prospectus.

RESULTS OF OPERATIONS

The following table sets forth for the periods indicated the percentage of
net sales represented by certain items reflected in the Company's statements
of income.

<TABLE>
<CAPTION>
FIRST HALF
FISCAL OF FISCAL
------------------- ------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of products sold..................... 67.8 69.9 68.1 68.5 68.2
----- ----- ----- ----- -----
Gross profit.............................. 32.2 30.1 31.9 31.5 31.8
Selling and administrative
expenses................................. 21.9 22.6 21.6 21.9 21.5
Gain on sale of subsidiary................ 0.0 0.0 0.3 0.7 0.0
----- ----- ----- ----- -----
Operating income.......................... 10.3 7.5 10.6 10.3 10.3
Interest expense (net).................... 0.1 0.1 0.1 0.1 0.4
----- ----- ----- ----- -----
Income before income taxes................ 10.2 7.4 10.5 10.2 9.9
Income taxes.............................. 3.8 2.8 3.7 3.8 3.7
----- ----- ----- ----- -----
Net income................................ 6.4% 4.6% 6.8% 6.4% 6.2%
===== ===== ===== ===== =====
</TABLE>

As a result of the Company's October 1996 acquisition of Heat-N-Glo, it now
has two reportable core business segments: office furniture and hearth
products.

SIX MONTHS ENDED JUNE 28, 1997 COMPARED TO SIX MONTHS ENDED JUNE 29, 1996

Net Sales. Net sales increased by 28% to $579.4 million for the six months
ended June 28, 1997 from $452.7 million for the six months ended June 29,
1996, reflecting continued strong demand for office furniture products and
hearth products.

Office furniture products net sales increased by 16% to $484.4 million in
the 1997 period from $417.0 million in the 1996 period as a result of
increased sales volume driven by industry growth and market share gains.
Management believes the Company's market share gain in the office furniture
segment is being driven by its leading position in the faster growing value-
priced office furniture segment, expanding distribution, particularly as a
result of gaining more page count in customer catalog merchandising, and a
steady stream of new product offerings.

Hearth products net sales increased by 166% to $95.0 million in the 1997
period from $35.7 million in the 1996 period primarily as a result of the
Company's October 1996 acquisition of Heat-N-Glo. The Company believes the
market share gain in the hearth products segment can be attributed to the
Company's leadership position in this expanding industry, strong customer
acceptance of its existing fireplace and stove products, especially gas-
burning fireplaces and stoves, and innovative new products.

Gross Profit. Gross profit increased by 29% to $184.3 million for the six
months ended June 28, 1997 from $142.5 million for the six months ended June
29, 1996. Gross profit margin increased to 31.8% for the six months ended June
28, 1997 from 31.5% for the same period in the prior year, due to increased
production unit volume, productivity improvements, and effective cost control
efforts, partially offset by price reductions on many of the Company's
products.

12
<PAGE>

Selling and Administrative Expenses. Selling and administrative expenses
increased by 26% to $124.8 million for the six months ended June 28, 1997 from
$99.4 million for the six months ended June 29, 1996. As a percentage of net
sales, selling and administrative expenses decreased to 21.5% for the six
months ended June 28, 1997 as compared to 21.9% for the same period in the
prior year. This decrease was a result of continued commitment to developing
more efficient business processes, which has improved member productivity,
coupled with stringent control of expenses and increased efficiencies
associated with higher net sales. However, these results were partially offset
by increased freight costs due to growth of unit volume, increased
distribution costs for new warehouse capacity and product handling
technologies that facilitate providing higher level of service to customers,
and the ongoing commitment to developing and marketing new products.

Operating Income. Operating income from continuing operations increased 38%
to $59.5 million for the six months ended June 28, 1997 compared to $43.2
million (excluding a nonrecurring pre-tax gain of $3.2 million) for the six
months ended June 29, 1996. The increase is attributable to increased gross
profit and lower selling and administrative expenses as a percentage of net
sales. In the six months ended June 29, 1996, the Company recognized a pre-tax
gain of $3.2 million on the sale of a subsidiary, Ring King.

Net Income. Net income increased by 32% to $35.8 million for the six months
ended June 28, 1997 compared to $27.1 million (excluding a nonrecurring after-
tax gain of $2.0 million) for the six months ended June 29, 1996. This
increase is a result of the increase in operating income offset partially by
an increase in interest expense and an increase in the Company's effective tax
rate to 37.5% for the six months ended June 28, 1997 compared to 37.0% for the
six months ended June 29, 1996. Interest expense increased to $3.1 million for
the six months ended June 28, 1997 from $1.6 million for the same period in
the prior year due to the additional debt assumed to fund the Heat-N-Glo
acquisition in October 1996.

Net income per common share increased by 35% to $1.20 per share for the six
months ended June 28, 1997 from $0.89 earned from ongoing operations last year
(excluding a nonrecurring after-tax gain of $0.07 per share). Average shares
outstanding decreased to 29.7 million for the six months ended June 28, 1997
from 30.3 million for the six months ended June 29, 1996 due to share
repurchases.

FISCAL YEAR ENDED DECEMBER 28, 1996 COMPARED TO FISCAL YEAR ENDED DECEMBER 30,
1995

Net Sales. Net sales increased by 12% to $998.1 million in 1996 from $893.1
million in the prior year. The increase in net sales for both core business
segments was due to continued gains in market share, which management believes
resulted from the Company's offering of an ongoing stream of innovative and
quality new products and a commitment to manufacturing excellence. Office
furniture products net sales increased 8% in 1996 to $887.3 million from
$818.9 million in 1995. Hearth products net sales increased 49% in 1996 to
$110.8 million from $74.2 million in 1995 due in part to the Company's October
1996 acquisition of Heat-N-Glo.

Gross Profit. Gross profit increased by 19% to $318.6 million in 1996 from
$268.4 million in the prior year. The increase in gross profit is primarily
attributable to the Company's sales growth in both business segments, which
has been driven by unit sales growth as opposed to pricing growth. Gross
profit margin increased to 31.9% for 1996 compared to 30.1% for 1995. This
increase was a result of the elimination of production inefficiencies
associated with two operations closed during 1995 and increased production
unit volume, productivity improvements, and effective cost control efforts,
partially offset by continued price reductions on many of the Company's
products.

Selling and Administrative Expenses. Selling and administrative expenses
increased by 7% to $215.6 million in 1996 from $201.7 million in the prior
year. Selling and administrative expenses as a percentage of net sales
decreased to 21.6% in 1996 from 22.6% in 1995. This decrease was a result of
continued implementation of the Company's RCI process, which led to more
efficient business processes and increased efficiencies associated with higher
net sales. These decreases were partially offset by more aggressive marketing
programs, greater use of cooperative advertising programs, freight costs
escalating at a more rapid rate than product price increases and additional
costs of pursuing a proactive acquisition strategy.

13
<PAGE>

Operating Income. Operating income increased by 54% to $103.0 million
(excluding a nonrecurring pre-tax gain on the sale of a subsidiary of $3.2
million) in 1996 from $66.7 million in 1995. The increase is a result of the
increase in gross profit and lower selling and administrative expenses as a
percentage of net sales.

Net Income. Net income, excluding the $2.0 million nonrecurring after-tax
gain on the sale of a subsidiary, increased by 61% to $66.1 million in 1996
from $41.1 million in the prior year. This increase is primarily attributable
to increased operating income, lower net interest expense and a lower
effective income tax rate. The effective tax rate was 35.3% for 1996 compared
to 37.3% for 1995. The rate for 1996 was favorably impacted by non-recurring
income tax credits of $2.1 million, or $0.07 per share, recorded in the third
quarter of 1996.

Net income per common share increased by 62% to $2.19 (excluding a
nonrecurring after-tax gain of $0.07 per share) in 1996 from $1.35 for 1995.
The Company's net income per share performance for 1996 benefited from the
Company's common stock repurchase program.

The Company has closed, consolidated, and sold several operations over the
past two years in an effort to concentrate further on its core strengths. In
addition, the Company resolved several litigation uncertainties, reduced its
work force, addressed several asset realization concerns, and benefited from
special tax credits. The net effect of these unusual business events was to
reduce annual net income by $3.3 million, or $0.11 per share, in 1996, and
$4.8 million, or $0.16 per share, in 1995.

FISCAL YEAR ENDED DECEMBER 30, 1995 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1994

Net Sales. Net sales increased by 6% to $893.1 million in 1995 from $846.0
million in the prior year. Sales growth in 1995 was impacted by a difficult
market environment which resulted in aggressive product pricing and inventory
adjustments related to some major customers. Office furniture products net
sales increased 6% in 1995 to $818.9 million from $772.3 million in 1994.
Hearth products net sales increased by less than 1% in 1995 to $74.2 million
from $73.7 million in 1994.

Gross Profit. Gross profit decreased by 2% to $268.4 million in 1995 from
$272.6 million in the prior year. The gross profit margin decreased to 30.1%
in 1995 from 32.2% in 1994. This decrease in margin was primarily attributable
to competitive price decreases, inventory adjustments, and production
inefficiencies of two financially marginal operations which were closed or
consolidated during the year. These decreases were partially offset by the
Company's on-going RCI efforts.

Selling and Administrative Expenses. Selling and administrative expenses
increased by 9% to $201.7 million in 1995 from $185.5 million in the prior
year. Selling and administrative expenses as a percentage of net sales
increased to 22.6% in 1995 from 21.9% in 1994. These expenses were adversely
impacted in 1995 by increased sales support and freight costs, acquisition
exploration expenses, temporary business disruption costs resulting from
increasing warehouse capacity, increased investment in new product
development, and nonrecurring expenses of $7.6 million associated with closing
marginal operations and severance payments.

Operating Income. Operating income decreased by 23% to $66.7 million in 1995
from $87.1 million for 1994. The decrease is a result of lower gross profit
and higher selling and administrative expenses.

Net Income. Net income decreased by 24% to $41.1 million in 1995 from $54.4
million in the prior year (excluding a charge for the cumulative effect of an
accounting change). This decrease is primarily attributable to reduced
operating income.

Net income per common share decreased by 22% to $1.35 in 1995 from $1.74 for
1994 (excluding a charge for the cumulative effect of an accounting change).
The Company's net income per share performance for 1996 benefitted from the
Company's common stock repurchase program.

14
<PAGE>

SEASONALITY; QUARTERLY RESULTS OF OPERATIONS

The Company's office furniture business is seasonal with the third (July-
September) and fourth (October-December) fiscal quarters historically having
higher sales than the prior quarters. Hearth products sales tend to have an
even larger concentration of sales in the third and fourth fiscal quarters. In
fiscal 1996, 53% of the Company's consolidated net sales of office furniture
were generated in the third and fourth quarters and 57% of consolidated net
sales of hearth products (pro forma to reflect the Heat-N-Glo acquisition)
were generated in the third and fourth quarters.

The following table presents certain unaudited quarterly financial
information for each of the past ten quarters. In the opinion of the Company's
management, this information has been prepared on the same basis as the
consolidated financial statements appearing elsewhere in this Prospectus and
includes all adjustments (consisting only of normal recurring accruals)
necessary to present fairly the financial results set forth herein. Results of
operations for any previous quarter are not necessarily indicative of results
for any future period.

<TABLE>
<CAPTION>
FISCAL 1995 FISCAL 1996(A) FISCAL 1997(A)
--------------------------------------- ---------------------------------------- ------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH FIRST SECOND
QUARTER QUARTER QUARTER QUARTER(B) QUARTER(C) QUARTER QUARTER(D) QUARTER QUARTER QUARTER
-------- -------- -------- --------- --------- -------- ---------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.............. $216,498 $206,604 $228,195 $241,822 $233,477 $219,260 $255,254 $290,144 $282,859 $296,567
Cost of products sold.. 147,556 146,246 160,319 170,579 160,006 150,227 176,403 192,860 194,194 200,969
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Gross profit........... 68,942 60,358 67,876 71,243 73,471 69,033 78,851 97,284 88,665 95,598
Selling and
administrative
expenses.............. 48,565 47,688 48,084 57,354 49,846 49,507 53,605 62,688 60,453 64,303
Gain on sale of
subsidiary............ -- -- -- -- 3,200 -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Operating income....... 20,377 12,670 19,792 13,889 26,825 19,526 25,246 34,596 28,212 31,295
Interest income
(expense) (net)....... (258) (304) (344) (305) (119) ( 8) 91 (890) (1,142) (1,141)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Income before income
taxes................. 20,119 12,366 19,448 13,584 26,706 19,518 25,337 33,706 27,070 30,154
Income taxes........... 7,544 4,638 7,209 5,028 9,881 7,222 7,430 12,640 10,152 11,307
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net income............. $ 12,575 $ 7,728 $ 12,239 $ 8,556 $ 16,825 $ 12,296 $ 17,907 $ 21,066 $ 16,918 $ 18,847
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Net income per common
share................. $ 0.41 $ 0.25 $ 0.41 $ 0.28 $ 0.55 $ 0.41 $ 0.60 $ 0.70 $ 0.57 $ 0.63
Weighted average common
shares outstanding.... 30,644 30,543 30,416 30,379 30,345 30,170 30,063 29,879 29,700 29,692
<CAPTION>
AS A PERCENTAGE OF NET SALES
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.............. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit........... 31.8 29.2 29.7 29.5 31.5 31.5 30.9 33.5 31.3 32.2
Selling and
administrative
expenses.............. 22.4 23.1 21.1 23.7 21.3 22.6 21.0 21.6 21.4 21.7
Operating income....... 9.4 6.1 8.7 5.7 11.5 8.9 9.9 11.9 10.0 10.6
Income taxes........... 3.5 2.2 3.2 2.1 4.2 3.3 2.9 4.4 3.6 3.8
Net income............. 5.8% 3.7% 5.4% 3.5% 7.2% 5.6% 7.0% 7.3% 6.0% 6.4%
</TABLE>
- -------
(a) Includes the results of operation of Heat-N-Glo from October 2, 1996, the
date it was acquired.
(b) Includes various pre-tax charges totaling $5,575,000 (after-tax effect of
$3,512,000, or $.12 per share) for nonrecurring costs primarily associated
with closing several leased facilities and severance arrangements from
eliminating certain administrative positions.
(c) Includes a $3,200,000 pre-tax gain on the sale of Ring King (after-tax
gain of $2,000,000, or $.07 per share).
(d) Includes one-time federal and state income tax credits of $2,100,000, or
$.07 per share.

15
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

For the six months ended June 28, 1997, cash from operations was $43.8
million. During 1996, cash from operations was $93.3 million, which provided
the funds necessary to meet working capital needs, help finance an
acquisition, invest in capital improvements, repay long-term debt, pay
increased dividends and repurchase Company stock.

Cash Management. Cash, cash equivalents, and short-term investments totaled
$24.4 million at June 28, 1997, compared to $32.7 million at the end of 1996,
$46.9 million at the end of 1995, and $30.7 million at year-end 1994. These
funds, coupled with future cash from operations and additional long-term debt,
if needed, are expected to be adequate to finance operations, planned
improvements, and internal growth.

Another major element in maintaining a strong balance sheet is managing the
investment in receivables and inventories. The Company's success in managing
receivables is in large part due to maintaining close communications with its
customers and utilizing prudent risk assessment techniques. Inventory levels
and turns continue to improve as a function of reducing production cycle
times. Trade receivables turns have approximated 10 times for the past several
years, including 1996, and inventory turns have been in the 14 to 16 range,
with 1996 reaching 17 turns.

Capital Expenditure Investments. Capital expenditures, net of disposals,
were $34.2 million for the six months ended June 28, 1997, $44.7 million in
1996, $53.9 million in 1995, and $35.0 million in 1994. Expenditures for the
six months ended June 28, 1997 were principally for machinery, equipment,
process improvements, support for new products, production and warehouse
capacity, and information technology. Expenditures in 1996 were principally
for machinery, equipment, process improvements and tooling for new products.
Approximately $11.0 million of the expenditures in 1995 were for facility
capacity expansion and improvements, with the remainder invested in more
productive machinery, equipment, process improvements and tooling of new
products. Expenditures for 1994 were also principally for machinery, equipment
and process improvements. Looking forward, the projected capital expenditure
level for 1997 will be at a higher level than in 1996 and will include some
facility capacity expansion, but the bulk of the investment will be for new
product tooling and more productive and flexible machinery, equipment and
processes as in the past.

Long-Term Debt. Long-term debt, including capital lease obligations, was 35%
of total capitalization at June 28, 1997. Long-term debt, including capital
lease obligations, was 23.5% of total capitalization at December 28, 1996,
after recording the debt associated with the Heat-N-Glo acquisition. The
Company does not expect future capital resources to be a concern. The Company
has significant additional borrowing capacity and treasury stock available in
the event cash generated from operations should be inadequate to meet future
capital needs.

Cash Dividends. Cash dividends were $0.28 per common share for the six
months ended June 28, 1997, $0.50 for 1996, $0.48 for 1995, and $0.44 for
1994. The Board of Directors announced a 17% increase in the quarterly
dividend rate, from $0.12 to $0.14 per common share, in November 1996,
effective with the December 1, 1996, dividend payment. The previous quarterly
dividend increase was from $0.11 to $0.12, effective with the March 1, 1995,
dividend payment. A cash dividend has been paid every quarter since April 15,
1955, and quarterly dividends are expected to continue. The dividend payout
percentage has ranged from approximately 22% to 33% of prior year earnings.

Common Share Repurchases. In August 1996, the Board of Directors authorized
an additional $20.0 million to acquire the Company's Common Stock. During the
first six months of 1997, 63,648 shares were reacquired at a cost of
approximately $2.5 million, or an average price of $40.10 per share. During
1996, 753,800 shares were reacquired at a cost of approximately $21.9 million,
or an average price of $29.07 per share. During 1995, 367,317 shares were
reacquired at a cost of approximately $9.8 million, and 1,078,835 shares were
purchased in 1994 at a cost of approximately $29.6 million. The Company
purchases its own shares in open market transactions. The stock repurchase
strategy was initiated in 1985. Approximately 16.0 million shares have been
repurchased since the program's inception at a cost of approximately $231.3
million. As of June 28, 1997, approximately $6.2 million of the Board's last
$20.0 million purchase authorization remained available.

Litigation and Uncertainties. The Company is involved in various legal
action arising in the course of business, including certain environmental
matters. These uncertainties are referenced in the "Contingencies" note
included in the notes to consolidated financial statements.

16
<PAGE>

BUSINESS

The Company is a leading designer and manufacturer of value-priced office
furniture and furniture systems in the United States. The Company's products
are marketed through multiple distribution channels primarily to small- and
medium-sized businesses and home offices on the basis of price, quality,
selection and quick delivery. The Company maintains its leadership position by
offering "compelling value" to its customers through a broad line of quality
office furniture, including filing cabinets, seating, office systems, desks
and related products, at attractive price points, with quick delivery. The
Company's low-cost manufacturing capabilities, extensive distribution network,
innovative product development and unique employee ("member") culture enable
it to provide compelling value to its customers. In addition to its core
office furniture business, the Company, through its Hearth Technologies Inc.
subsidiary ("Hearth Technologies"), is the leading manufacturer of wood- and
gas-burning fireplaces, stoves and related accessories in the United States.
The Company markets its hearth products through the widely-recognized
"Heatilator" and "Heat-N-Glo" brand names. In fiscal 1996, the Company had net
sales of $998.1 million, of which $887.3 million was attributable to office
furniture products and $110.8 million was attributable to hearth products.

A key driver of the Company's success has been its highly-efficient and low-
cost manufacturing operations. Since its inception, the Company has been
committed to constant improvement in manufacturing and in 1992 introduced its
process improvement approach known as Rapid Continuous Improvement ("RCI")
which focuses on streamlining design, manufacturing and administrative
processes. The Company's RCI program, in which most members participate, has
significantly contributed to increased productivity, lower manufacturing
costs, and improved product quality and workplace safety. As a result of RCI,
productivity, as measured by annual revenue per member, has increased 50% over
the last five years. In addition, the Company's RCI efforts enable it to offer
short average lead times of two to four weeks, from receipt of order to
shipment, for most of its products.

The Company distributes its products through an extensive network of
independent office furniture dealers, office products dealers, wholesalers and
retailers. The Company is one of the top two suppliers of office furniture to
each of the largest national office products dealers, which are Boise Cascade
Corporation, BT Office Products International, Inc., U.S. Office Products
Company, Corporate Express Inc., Office Depot Inc.--Business Services Division
and Staples Commercial Advantage ("mega-dealers"), and to the Office Depot and
Office Max superstores. The Company offers reduced freight costs and complete
order delivery, regardless of the order size or combination of products, by
manufacturing at multiple locations and cross-docking products throughout the
United States. The Company believes that more of its products are available
for immediate delivery, through over 135 nationwide wholesaler customer
locations, than those of any of its competitors.

The Company's product development efforts are primarily focused on reducing
the cost to manufacture existing products and designing new products that
provide additional features and better quality. The Company's ability to apply
RCI techniques to reduce manufacturing costs and enhance value allows its
products to be sold at prices lower than those offered for competing products.
For example, in 1996 the Company redesigned its leading line of file cabinets
to add features while lowering the Company's costs and maintaining prices. As
a result of the Company's aggressive product development efforts,
approximately 45% of the Company's 1996 sales volume consisted of products
introduced within the last three fiscal years.

An important element of the Company's success has been its ability to
attract, develop and retain skilled, experienced and efficient members. Each
of the Company's eligible members owns stock in the Company through a number
of stock-based plans, including a member stock ownership plan, and
participates in the Company's qualified profit sharing plan. In addition, most
production members are eligible for incentive bonuses.

INDUSTRY

According to the Business and Institutional Furniture Manufacturer's
Association ("BIFMA"), U.S. office furniture industry shipments, which totaled
approximately $10 billion in 1996, have grown at a compound annual

17
<PAGE>

growth rate of approximately 7% over the three-year period ended December 31,
1996. The Company believes that growth in the office furniture industry is
being driven by changing customer needs due to the emergence of open office
floor plans to support team work environments, shared and multi-purpose office
spaces for flexible work arrangements, new office technology which requires
furniture systems that support the use of hardware and software, and an
increased focus on ergonomics and employee comfort.

The U.S. office furniture market consists of two primary segments--the
contract segment and the transactional segment. The contract segment has
traditionally been characterized by one-time sales of large quantities of
office furniture to large corporations, such as for new office facilities,
relocations or department or office redesigns, which are frequently customized
to meet specific client and designer preferences. Contract furniture is
generally purchased through office furniture dealers who typically prepare a
custom-designed office layout emphasizing image and design. The process is
often lengthy and generally has several manufacturers competing for the same
projects. Overhead and support associated with the sales and customization
efforts in this segment are major reasons why the prices for contract office
furniture have traditionally been relatively high.

The transactional segment of the market, in which the Company is a leader,
primarily represents smaller orders of office furniture purchased by
businesses and home office users on the basis of price, quality, selection and
quick delivery. Office products dealers, wholesalers and retailers, such as
office products superstores, are the primary distribution channels in this
market segment. Office products dealers (many of whom also participate in the
contract segment of the market) publish periodic catalogs that display office
furniture and products from various manufacturers.

Over the last several years, as competition in the contract segment has
intensified, dealers have sought to provide their clients with moderately-
priced alternatives to premium-priced contract furniture. In addition, small-
and medium-sized businesses with less complex needs have sought out affordable
office furniture that can be delivered quickly. In response to these trends,
the Company, as well as some of its competitors, have developed value-priced
alternatives to contract furniture lines--standard selections of quality
office furniture offered at attractive price points with quick and convenient
delivery. The Company believes that this portion of the contract segment will
continue to expand with the proliferation of small- and medium-sized
businesses, growth in home offices, commoditization of office furniture and
consolidation in the office furniture distribution network.

GROWTH STRATEGY

The Company's strategy is to build on its position as a leading manufacturer
of value-priced office furniture and hearth products in North America. The
components of this growth strategy are to:

Introduce New Value-Priced Products. The Company has been increasingly
successful in developing compelling value alternatives to premium-priced
office furniture and intends to expand and further enhance its product
offerings by developing new products. The Company's development efforts
emphasize the design of products that are easily manufactured, and the use and
development of alternative materials that enhance quality and reduce product
development cycles and manufacturing costs. The Company conducts market
research of end-users to assess evolving customer demands. The Company offers
its products in many new models, sizes, alternative materials, designs,
fabrics and finishes. Areas in which the Company intends to expand its product
offerings include computer furniture, ready-to-assemble furniture, folding
chairs and tables, fire-proof files and school furniture.

Continually Improve Productivity. The Company intends to strengthen its low-
cost manufacturing position by continuing to apply RCI, designing special
machines and tooling to enhance proprietary processes, evaluating vertical
integration opportunities and improving information systems. Lower costs allow
the Company to enhance product features at no additional cost to the customer.
As successfully demonstrated in 1996 and the first half of 1997, lower
manufacturing costs also allow the Company to reduce prices on existing
products in order to increase volume and market share while maintaining
operating margins. The Company intends to implement proven RCI tools to
realize productivity gains in acquired operations.

18
<PAGE>

Leverage Distribution Network. The changing dynamics of distribution in the
office furniture industry present an opportunity for the Company to benefit
from its extensive distributor network and its flexible operating structure.
Due to consolidation among office furniture distributors, fewer and larger
distributors exist and these distributors, such as office products and
furniture dealers, wholesalers and large, national retail chains, are reducing
their vendor bases and seeking stronger suppliers who offer more complete
product lines. As one of the top two suppliers of office furniture to each of
the mega-dealers and the Office Depot and Office Max superstores, the Company
believes that it is well-positioned to capitalize on this consolidation trend
due to its excellent reputation for price, quality, quick delivery and broad
product lines. In addition, the Company's commitment to providing distributors
with excellent customer service has helped to strengthen existing
relationships as well as develop new distribution channels.

Further Penetrate Hearth Products Market. The Company's recognized
innovation in direct-vent gas fireplace design and manufacturing coupled with
its premier position in wood-burning products provides it with the most
comprehensive product line and extensive distribution network in the hearth
products market. The Company plans to further enhance its competitive position
in the hearth products market by leveraging synergies with the office
furniture business, such as purchasing, manufacturing and product development.

PRODUCTS

The Company designs, manufactures and markets a broad range of office
furniture in four basic categories: (i) filing cabinets; (ii) seating,
including task chairs, executive desk chairs and side chairs; (iii) office
systems (typically modular and moveable workspaces with integrated work
surfaces, space dividers and lighting); and (iv) desks and related products,
including tables, bookcases and credenzas. The Company's products are sold
through the Company's HON Company Division ("The HON Company") and the
Company's wholly-owned subsidiaries--BPI Inc. ("BPI"), Holga Inc. ("Holga")
and The Gunlocke Company ("Gunlocke").

The Company's office furniture products are generally available in
contemporary as well as traditional styles, and are priced to sell in
different channels of distribution and at different price points. The
Company's products are offered in many models, sizes, designs and finishes and
are constructed from both wood and non-wood materials.

The following is a description of the Company's major product categories and
product lines:

Filing Cabinets

The Company offers a variety of filing options designed either to be
integrated into and support the Company's office systems products, or to
function as free-standing furniture in commercial and home offices. The
Company believes it is the largest manufacturer and marketer of mid-priced
steel filing cabinets in the United States.

The Company sells most of its free-standing files--such as The HON Company's
310 and 510 Series vertical files and 600, 700 and 800 Series lateral files--
through mega-dealers, wholesalers, office products

19
<PAGE>

superstores, warehouse clubs and mail order distributors. Higher priced files,
such as The HON Company's 9000 Series lateral files and Allsteel's lateral
file line, both of which have drawer fronts designed to complement systems
furniture, are sold through contract office furniture dealers.

In 1996, the Company redesigned its industry-leading line of vertical filing
cabinets to make it even more attractive to customers. Drawer sides were
raised to a height that allows users to hang suspension file folders directly
on them, thus eliminating the need to purchase separate file folder suspension
frames at $2 to $3 per drawer. At the same time, the Company reduced the cost
of the cabinets using its RCI process and was able to sell the feature-
enriched units at the same price as the previous models.

Seating

The Company's seating line includes task chairs designed for different kinds
of office work, such as secretarial, computer, clerical, laboratory and
executive, guest chairs, conference and reception room seating, and stackable
chairs. The chairs are available in a variety of frame colors, a multitude of
fabrics and a wide range of price points. Key customer criteria in seating
includes superior ergonomics, aesthetics, comfort and quality. The Company
submits each of its chair models to customer surveys to assure that it is
among the best in its price range for design, comfort and ergonomic
adjustability to further build "compelling value" into its products.

The Company has high volume sellers throughout the range of value price
points. HON's Every-Day(R) chair and Solutions Seating(R) task chair are top
sellers with mega-dealers, wholesalers and superstores, while the HON 6000 and
5900 chairs and Allsteel's Tolleson chair are widely used by contract dealers
as key components in systems-based furniture projects.

Gunlocke is one of the few remaining companies that continues to make wood
curved legs, arms and backs through the steambending process, which produces
strong and attractive seating components. In the last year, Gunlocke
introduced two new contemporary wood seating lines, Serra(TM) and Miles, which
have been well-received by the market.

Office Systems

The Company offers a complete line of office systems products in order to
meet the needs of a variety of organizations. Systems may be used for team
work settings, private offices and open floor plans, and are typically modular
and movable workspaces composed of adjustable partitions, work surfaces, desk
extensions, storage cabinets and electrical lighting systems which can be
moved, reconfigured and reused within the office. Systems offer a cost-
effective and flexible alternative to traditional drywall office construction.
The Company has experienced increased demand for panel systems able to
accommodate new work arrangements such as team work spaces and work spaces
shared by several employees who are frequently out of the office. According to
BIFMA, panel systems comprise the largest product segment in the office
furniture industry with 1996 sales from this segment amounting to $3.4
billion. Importantly, a typical installation of office panels often includes
associated sales of seating, case goods, files and accessories.

The Company offers whole office solutions, movable panels, storage units and
work surfaces that can be installed easily and reconfigured to accommodate
growth and change in organizations. The Company also offers consultative
selling and design services for certain of its office system products. The
compelling value of the Company's systems lines is that these products are
styled and featured similar to those of premium-priced contract systems
manufacturers but are offered at substantially lower prices. As a result of
this, the Company's system lines have grown considerably faster than industry
system sales over the past four years.

Leading products and brands include HON's Concensys(R) (solid panel) and
Terrace(TM) (tiled panel) systems lines, and its complementary line of
Regent(R) case goods and seating, which are sold through selected contract
furniture dealers in key markets throughout North America. BPI's People
Furniture is popular with smaller companies because of its entry level price
point and ease of assembly and reconfigurability. Echelon(TM) is a new and
more fully featured BPI systems line which is growing rapidly.

20
<PAGE>

Desks and Related Products

The Company's collection of desks and related products include stand-alone
steel and wood furniture items, such as desks, bookshelves and credenzas, and
are available in a range of designs and price points. The Company offers these
products in both contemporary and traditional styles. The Company's desks and
related products are sold to a wide variety of customers from those designing
large office configurations to small retail and home office purchasers.

The Company offers a variety of contemporary and traditional tables designed
for use in conference rooms, private offices, training areas, teamwork
settings and open floor plans. Tables are produced in wood veneer and laminate
and are available in numerous sizes, shapes and base styles.

HEARTH TECHNOLOGIES

The Company is the largest U.S. manufacturer and marketer of metal
prefabricated fireplace and related products, primarily for the home, which it
sells under the widely-recognized Heatilator and Heat-N-Glo brand names. The
Company's line of hearth products includes wood- and gas-burning fireplaces
and stoves, fireplace inserts, chimney systems and related accessories. In
October 1996, the Company acquired Heat-N-Glo and combined it with its
existing Heatilator operations to form Hearth Technologies, through which it
sells all its hearth products.

The Company believes that shipments for the North American segment of the
building products industry in which Hearth Technologies directly participates,
representing the wood fireplace, hearth stove, gas- and wood-fireplace insert
and gas log set product lines were $1 billion for 1996, representing an
increase of approximately 15% over the prior year. Heatilator and Heat-N-Glo
are leaders in the two largest segments of the home fireplace market: vented-
gas and wood fireplaces.

Historically, the hearth products industry has consisted primarily of low-
cost builders' box fireplaces sold through builder distributors and wood
stoves and high efficiency fireplaces sold through dealer showrooms. With the
acquisition of Heat-N-Glo in October 1996, Hearth Technologies began marketing
a "direct vent" fireplace, which replaces the top-venting chimney system used
in traditional fireplaces. See "Business--Intellectual Property." The Company
believes that the introduction of the direct vent fireplace, together with the
introduction of fireplace inserts and accessories such as remote controls, and
more sophisticated marketing, will lead to rapid industry growth in the
future. Sales of home fireplaces are largely dependent on new housing starts
while sales of heating stoves and fireplace inserts are largely dependent upon
home remodeling expenditures. Management believes that this complementary
diversity and Hearth Technologies' broad national distribution afford
potential for growth for the Company's products.

As of December 28, 1996, the Company's hearth products sales organization
consisted of 9 regional sales managers supervising 22 salespersons and 15
independent manufacturers' representatives.

MANUFACTURING

Since its inception, the Company has focused on making its manufacturing
facilities and processes more flexible while at the same time reducing costs
and improving product quality. In 1992, the Company adopted the principles of
RCI, which focus on developing flexible and efficient design, manufacturing
and administrative processes that remove excess cost. To achieve flexibility
and attain efficiency goals, the Company has adopted a variety of production
techniques including cell manufacturing, focused factories, just-in-time
inventory management and value engineering. The application of the RCI process
has increased productivity by reducing set-up and processing times, square
footage, inventory levels, product costs and delivery times, while improving
quality and enhancing member safety. The Company's RCI process involves
production and administrative employees, management, customers and suppliers.
The Company has over 100 facilitators, coaches and consultants dedicated to
the RCI process and strives to involve all members in the RCI process. In
addition, the Company has organized a group that designs, fabricates, tests
and installs proprietary manufacturing equipment.

21
<PAGE>

Manufacturing also plays a key role in the Company's concurrent product
development process that primarily seeks to design new products for ease of
manufacturability.

PRODUCT DEVELOPMENT

The Company's product development efforts are primarily focused on reducing
the cost to manufacture existing products and designing new products that
provide additional features and quality. The Company accomplishes this through
improving existing products, extending product lines, applying ergonomic
research, improving manufacturing processes, applying alternative materials
and providing engineering support and training to its operating units. The
Company conducts its product development efforts at both the corporate and
operating unit level. At the corporate level, the staff at the Company's
Stanley Howe Technical Center, working in conjunction with operating staff,
seeks breakthrough developments in product design, manufacturability and
materials usage. At the operating unit level, development efforts are focused
on achieving incremental improvements in product features and manufacturing
processes. As a result of the Company's aggressive product development
efforts, approximately 45% of the Company's 1996 sales volume consisted of
products introduced within the last three fiscal years. The Company invested
approximately $10.4 million, $11.6 million, and $10.1 million in product
development during fiscal 1996, 1995 and 1994, respectively, and has budgeted
$15 million for product development in fiscal 1997.

BIFMA and the American National Standards Institute ("ANSI") have
promulgated a variety of voluntary standards governing the construction and
design of office furniture. The ANSI/BIFMA standards include tests for
strength, stability and durability. The Company's products undergo internal
testing in the Company's product testing laboratory to confirm that such
products meet or exceed applicable ANSI/BIFMA standards. All HON branded
products meet or exceed applicable ANSI/BIFMA standards. HON is a member of
the BIFMA task force working to develop standards for ready-to-assemble
furniture.

SALES, MARKETING AND DISTRIBUTION

Over the last ten years, the office products and office furniture industries
have experienced substantial consolidation as larger dealers have acquired
smaller local and regional dealers. Consolidation permits large dealers to
benefit from economies of scale, increased purchasing power and the
elimination of redundant management and overhead expenses. Larger dealers have
also been able to take advantage of more sophisticated management techniques
designed to enhance customer service, lower costs and increase operating
efficiency. According to The Dun and Bradstreet Corporation, the number of
office products dealers has decreased from approximately 12,000 in 1986 to
approximately 6,000 in 1996. At the same time, office products superstores
have emerged and replaced local, retail office supply stores. The Company
believes that these trends may continue to result in fewer, larger dealers and
retailers as customers for the Company's products.

As a result of these trends, the Company today sells its products through
five principal distribution channels. The first channel, independent, local
office furniture and office products dealers, specialize in the sale of a
broad range of office furniture and office furniture systems, mostly to small-
and medium-sized businesses, branch offices of large corporations and home
office owners. The second distribution channel comprises the mega-dealers,
including Boise Cascade Corporation, BT Office Products International, Inc.,
U.S. Office Products Company, Corporate Express Inc., Office Depot Inc.--
Business Services Division and Staples Commercial Advantage. Many of the
independent dealers and mega-dealer locations assist their customers with the
evaluation of office space requirements, systems lay-out and product
selection, and design and office solution services provided by professional
designers.

The third distribution channel, wholesalers, serve as distributors of the
Company's products to independent dealers, mega-dealers and superstores. The
Company sells to the nation's largest wholesalers, United Stationers and S.P.
Richards, as well as to smaller, regional wholesalers. Wholesalers maintain
stocks of standard product lines for resale to dealers. They also special
order products from the Company in customer-selected models and colors. The
Company's wholesalers maintain over 135 warehouse locations throughout the
United States, which enable the Company to make its products available for
rapid delivery to dealers anywhere in the country.

22
<PAGE>

The fourth distribution channel is retail stores, which include office
products superstores such as Office Depot, Office Max and Staples, and
warehouse clubs like Sam's Club and Costco.

The fifth distribution channel consists of government-focused dealers that
sell the Company's products to federal, state and local government offices in
accordance with contract terms to which the Company has agreed.

As of December 28, 1996, the Company's office furniture sales force
consisted of 16 regional sales managers supervising 70 salespersons, plus
approximately 150 independent manufacturers' representatives, who collectively
provided national sales coverage. Approximately 25 salespersons were added in
June 1997 as a result of the Allsteel acquisition.

Office products dealers, national wholesalers and retailers market their
products through catalogs published periodically and distributed to existing
and potential customers. The Company's marketing objective is to gain share in
its customers' catalogs. The Company believes that the inclusion of the
Company's product lines in customer catalogs offers strong potential for
increased sales of the listed product items due to the exposure provided by
these publications. The Company measures its sales potential and ranking
relative to its competitors on the basis of the Company's percentage share in
its customers' catalogs. The Company's average percentage share of pages in
the office furniture section of catalogs published for 1996 and 1997 and
estimated for 1998 by the six megadealers was approximately 39%, 48% and 64%,
respectively. The Company's average percentage share of pages in the office
furniture section of catalogs published for 1996 and 1997 and estimated for
1998 by SP Richards and United Stationers, two of the nation's largest
wholesalers, was approximately 34%, 38% and 53%, respectively. Catalog page
share is calculated on the basis of the total catalog page space featuring the
Company's products as a percentage of total catalog pages devoted to
comparable office furniture products from all suppliers.

The Company also makes export sales through HON Export Limited to
approximately 75 office furniture dealers and wholesale distributors serving
select foreign markets. Distributors are principally located in Latin America
and the Caribbean. The Company has an international field sales organization
consisting of a Vice President of Sales and Marketing and four regional
managers. Sales outside of the United States and Canada represented less than
1% of net sales in fiscal 1996.

COMPETITION

The office furniture industry is highly competitive, with a significant
number of competitors offering similar products. The Company competes by
emphasizing its ability to deliver compelling value products. In executing
this strategy, the Company has two significant classes of competitors. First,
the Company competes with numerous small- and medium-sized office furniture
manufacturers that focus on more limited product lines and/or end-user
segments and include Global Furniture Inc.; Anderson-Hickey Co., Globe
Business Furniture and United Chair, Inc., divisions of Haworth, Inc.;
National Office Furniture, a division of Kimball Office Furniture Co.; and
High Point Furniture Industries, Inc. Second, the Company competes with a
small number of large office furniture manufacturers which control a
substantial portion of the market share in the contract office furniture
market, such as Steelcase Inc., Haworth, Inc., Herman Miller, Inc. and Knoll,
Inc. Some of these large competitors have substantially greater assets,
resources and capabilities in the traditional contract market than the
Company.

Hearth products, consisting of prefabricated metal fireplaces and related
products, are manufactured by a number of national and regional competitors. A
limited number of manufacturers, however, are predominant in the relatively
small industry.

Both office furniture and hearth products compete on the basis of price,
product performance, product quality, complete and on-time delivery to the
customer and customer service and support. The Company believes that it
competes principally by providing compelling value products designed to be
among the best in their price range for product quality and performance,
superior customer service and short lead-times. This is made possible, in
part, by the Company's significant on-going investment in product development,
highly-efficient and low cost manufacturing operations, and an extensive
distribution network.

23
<PAGE>

The Company is the fourth largest office furniture manufacturer in the
United States, and believes that it is the largest manufacturer of value-
priced furniture. The Company is also the largest manufacturer and marketer of
fireplaces in the United States.

PROPERTIES

The Company maintains its corporate headquarters in Muscatine, Iowa, and
conducts its operations at locations throughout the United States and Canada
which house manufacturing and distribution operations and offices totaling an
aggregate of approximately 7.3 million square feet. Of this total,
approximately 2 million square feet are leased, including approximately 0.3
million square feet under a capital lease.

Although the plants are of varying ages, the Company believes they are well
maintained, are equipped with modern and efficient equipment, and are in good
operating condition and suitable for the purposes for which they are being
used. The Company has sufficient capacity to increase output at most locations
by increasing the use of overtime and/or number of production shifts employed.

24
<PAGE>

The Company's principal manufacturing and distribution facilities (100,000
square feet in size or larger) are as follows:

<TABLE>
<CAPTION>
OWNED
APPROXIMATE OR DESCRIPTION
LOCATION SQUARE FEET LEASED OF USE
-------- ----------- ------ -----------
<C> <C> <C> <S>
Cedartown, Georgia 443,334 Owned Manufacturing non-wood
case goods office furni-
ture(1)
Chester, Virginia 283,040 Leased(2) Manufacturing non-wood
case goods office furni-
ture(1)
Jackson, Tennessee 303,000 Leased Manufacturing parts for
office furniture(1)
Jackson, Tennessee 170,000 Leased Manufacturing non-wood
office seating
Lake City, Minnesota 235,000 Leased Manufacturing metal pre-
fabricated fireplaces
Louisburg, North Carolina 176,354 Owned Manufacturing wood case
goods office furniture
Milan, Tennessee 358,000 Leased Manufacturing systems of-
fice furniture
Mt. Joy, Iowa 159,500 Leased Distributing office furni-
ture
Mt. Pleasant, Iowa 288,006 Owned Manufacturing metal pre-
fabricated fireplaces
Muscatine, Iowa 231,444 Owned Manufacturing non-wood
office seating
Muscatine, Iowa 612,713 Owned Manufacturing non-wood
case goods office furni-
ture(1)
Muscatine, Iowa 177,000 Owned Manufacturing wood case
goods office furniture
Muscatine, Iowa 209,100 Owned Manufacturing systems of-
fice furniture
Owensboro, Kentucky 311,575 Owned Manufacturing wood office
seating
South Gate, California 520,270 Owned Manufacturing non-wood
case goods and seating of-
fice furniture(1)
Sulphur Springs, Texas 155,690 Owned Manufacturing non-wood
case goods office furni-
ture
Wayland, New York 692,226 Owned Manufacturing wood case
goods and seating office
furniture
West Hazelton, Pennsylvania 268,800 Owned Manufacturing non-wood
case goods office furni-
ture
Williamsport, Pennsylvania 238,326 Owned Manufacturing wood office
seating
Winnsboro, South Carolina 180,093 Owned Manufacturing non-wood
office seating
Verona, Mississippi 257,000 Owned Manufacturing systems of-
fice furniture
</TABLE>
- --------
(1) Also includes a regional warehouse/distribution center.
(2) A capital lease.

25
<PAGE>

Other Company manufacturing and distribution facilities, under 100,000
square feet in size, are located in Muscatine and Mt. Pleasant, Iowa; Van
Nuys, California; Kent, Washington; Salisbury, North Carolina; Richmond,
Virginia; Rome, Georgia; Cedartown, Georgia; and Calgary, Alberta, Canada.
These facilities total approximately 980,000 square feet with approximately
900,000 square feet used for the manufacture and distribution of office
furniture and approximately 80,000 square feet for hearth products. Of this
total, approximately 500,000 square feet are leased. The Company also leases
sales showroom space in office furniture market centers in several major
metropolitan areas. The Company is in the process of expanding its Cedartown
and Chester facilities to add an aggregate of approximately 150,000 square
feet of manufacturing and distribution capacity.

The Company also has two facility changes in progress. It recently moved the
manufacturing being performed at a approximately 104,000 square foot leased
plant in Savage, Minnesota to its Lake City, Minnesota plant. This plant had
been used for the manufacture of metal prefabricated fireplaces. The Savage
plant is in the process of being subleased. In addition, the Company is in the
process of renovating approximately 165,000 square feet of owned space in
Muscatine, Iowa to use for manufacturing systems office furniture. This space
was previously leased to a third party.

INTELLECTUAL PROPERTY

The Company owns 141 U.S. and 143 foreign patents and has applications
pending for 64 U.S. and 79 foreign patents. In addition, the Company holds
registrations for 77 U.S. and 132 foreign trademarks, and has applications
pending for 18 U.S. and 48 foreign trademarks.

The Company's principal office furniture products do not require frequent
technical changes. The majority of the Company's patents are design patents
which expire at various times depending on the patent's date of issuance. The
Company believes that neither any individual patents nor the Company's patents
in the aggregate are material to the Company's business as a whole.

When Hearth Technologies acquired Heat-N-Glo in October 1996, it also
acquired its patent for the design of a zero-clearance direct vent gas
fireplace (the "direct vent patent"). The direct vent design replaces the
traditional top-venting chimney system by permitting the exhaust pipe to
traverse a structure's exterior wall. The sealed combustion chamber of the
direct vent gas fireplace increases indoor air quality by using outside rather
than inside air for combustion and the direct vent design achieves 70% heating
efficiency, which means that the patented direct vent gas fireplaces are an
efficient alternative heat source in individual rooms. The direct vent gas
fireplaces are highly versatile for use in home design because the direct vent
design eliminates the need for a traditional chimney system with top venting,
thus opening the space above the fireplace up for use. The Company currently
offers numerous product designs that would not be possible without the direct
vent technology. Additionally, since a chimney is not employed in the direct
vent design, the cost of adding a new fireplace to a home is greatly reduced.

The direct vent patent has been successfully enforced against numerous
infringers. Hearth Technologies presently is engaged as a plaintiff in two
patent infringement cases involving this patent. Final disposition of these
cases is not likely for several years. Although the Company believes that the
protection afforded by the direct vent patent is not vital to sustaining
Hearth Technologies' gross profit margins on its direct vent gas fireplaces
due to other technological innovations that support the direct vent design,
the technology that underlies the patent is a significant distinguishing
feature for the Company's products.

The Company applies for patent protection when it believes the expense of
doing so is justified, and believes that the duration of its registered
patents is adequate to protect these rights. The Company also pays royalties
in certain instances for the use of patents on products and processes owned by
others.

The Company actively protects its trademarks which it believes have
significant goodwill value.

26
<PAGE>

EMPLOYEES/MEMBERS

As of June 28, 1997, the Company employed approximately 6,900 persons, 6,300
of whom were members and 600 of whom were temporary personnel. Of the
approximately 6,900 persons employed by the Company, 4,300 were in the
Company's manufacturing operations. The Company employed approximately 300
members who were members of unions. The Company believes that its labor
relations are good. As a result of the Allsteel acquisition, approximately
1,100 employees have been added subsequent to June 28, 1997.

27
<PAGE>

MANAGEMENT

The current executive officers and directors of the Company are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- ------------------------------------
<S> <C> <C>
Jack D. Michaels................. 60 Chairman, President and Chief
Executive Officer; Director
George J. Koenigsaecker III...... 52 President, The HON Company
David C. Stuebe.................. 57 Vice President and Chief Financial
Officer
Jeffrey D. Fick.................. 36 Vice President, Member and Community
Relations
Melvin L. McMains................ 56 Controller
James I. Johnson................. 48 Vice President, General Counsel and
Secretary
Robert W. Cox.................... 60 Director
Stanley M. Howe.................. 73 Director
Lee Liu.......................... 64 Director
Lorne R. Waxlax.................. 64 Director
W. James Farrell................. 55 Director
Michael S. Plunkett.............. 59 Director
Herman J. Schmidt................ 80 Director
Robert L. Katz................... 71 Director
Celeste C. Michalski............. 55 Director
Richard H. Stanley............... 64 Director
</TABLE>

Set forth below is certain information with respect to the Company's
executive officers and directors:

Jack D. Michaels. Mr. Michaels has served as the Company's Chairman of the
Board since 1996, the Company's Chief Executive Officer since 1991, and the
Company's President since March 1990. He has been a director since 1990. Prior
to joining the Company, Mr. Michaels served as President and Chief Executive
Officer of Hussmann Corporation, a manufacturer and marketer of food store
refrigerated display equipment, from 1987 to January 1990. Mr. Michaels is
also a director of Huffy Corporation.

George J. Koenigsaecker III. Mr. Koenigsaecker has served as President of
The HON Company since November 1995. From February 1995 to November 1995, he
served as Senior Vice President of the Company. From August 1992 through
October 1995, Mr. Koenigsaecker served as Executive Vice President,
Operations, The HON Company. Prior to joining the Company, Mr. Koenigsaecker
was Group Executive, Danaher Corporation, a manufacturer of automotive,
instrumentation and precision components products from 1990 to 1992.

David C. Stuebe. Mr. Stuebe has served as Vice President and Chief Financial
Officer of the Company since October 1994. Prior to joining the Company, he
was President, Chief Executive Officer and a director of Diversified
Industries, Inc., a processor and trader of precious and semi-precious metals
from January 1990 to September 1994.

Jeffrey D. Fick. Mr. Fick has served as the Company's Vice President, Member
and Community Relations since May 1997 and the Company's Secretary from March
1997 to September 1997. From March 1994 to April 1997, Mr. Fick served as
Senior Counsel. Prior to joining the Company, Mr. Fick was an attorney with
Gray, Plant, Mooty, Mooty & Bennett from May 1986 to February 1994.

28
<PAGE>

Melvin L. McMains. Mr. McMains has served as the Company's Controller since
1980.

James I. Johnson. Mr. Johnson has served as Vice President, General Counsel
and Secretary of the Company since September 1997. From May 1990 to August
1997, Mr. Johnson served as General Counsel and Secretary of Norand
Corporation.

Robert W. Cox. Mr. Cox has served as a Director of the Company since 1994.
He is currently of counsel to Baker & McKenzie, an international law firm.
From 1992 to 1994, Mr. Cox was Chairman of Baker & McKenzie's Policy Committee
and from 1984 to 1992, he was its Managing Partner and Chairman of its
Executive Committee and Strategic Planning Committee. Mr. Cox is also a
director of Carey International, Inc.

Stanley M. Howe. Mr. Howe has served as Chairman Emeritus of the Company
since 1996 and a Director since 1958. He has served the Company since 1948,
serving as Chairman from 1984 to 1996, President from 1964 to 1990 and Chief
Executive Officer from 1979 to 1991.

Lee Liu. Mr. Liu has served as a Director of the Company since 1990. He has
served as an officer of IES Industries Inc. ("IESI"), IES Utilities ("IESU")
and various affiliates or predecessor companies, in the energy, transportation
and telecommunications industries, since 1990, serving IESI as Chairman and
Chief Executive Officer since 1993 and President from 1993 to November 1996
and serving IESU as Chairman and Chief Executive Officer since 1993 and as
President in 1996, 1994 and 1993. From 1990 to 1993, Mr. Liu served as an
officer to various affiliates to IESI and IESU. Mr. Liu is also a director of
Eastman Chemical Company, Principal Financial Group and McLeod USA.

Lorne R. Waxlax. Mr. Waxlax has served as a Director of the Company since
1994. He served as Executive Vice President, Diversified Group of The Gillette
Company, a marketer and manufacturer of personal care and use products from
1985 to 1993. Mr. Waxlax is also a director of Clean Harbors, Inc., Quaker
State Corporation, B.J's Wholesale Club Inc. and Homebase Inc.

W. James Farrell. Mr. Farrell has been a Director of the Company since 1988.
He has served Illinois Tool Works Inc., a manufacturer of highly engineered
products and systems, since 1965, serving as Chairman since May 1996, Chief
Executive Officer since September 1995, President from 1994 to 1995 and as
Executive Vice President and President of the Specialty Mechanical and
Adhesive Products Group from 1983 to 1994. Mr. Farrell is also a director of
Morton International, Inc. and Premark International, Inc.

Michael S. Plunkett. Mr. Plunkett has served as a Director of the Company
since 1980. He has been the Senior Vice President, Engineering, Technology and
Human Resources since 1986 and a Director from 1986 to 1993 of Deere &
Company, a manufacturer of mobile power machinery. Mr. Plunkett is also a
director of Bank One, Quad Cities, NA.

Herman J. Schmidt. Mr. Schmidt has been a Director of the Company since
1980. He served as Vice Chairman of Mobil Oil Corporation from 1974 to 1978.
Mr. Schmidt is also a director of H.J. Heinz Co.

Robert L. Katz. Dr. Katz has served as a Director of the Company since 1995.
He has been President of Robert L. Katz and Associates, consultants on
corporate strategy, since 1953 and President of Caltex Investment Management
Co., a venture capital firm since 1975. Dr. Katz is also a director of Newell
Co., a manufacturer of window shades, hardware, cookware and school supplies.

Celeste C. Michalski. Ms. Michalski has served as a Director of the Company
since 1993. She served the Telecommunications Group of NYNEX, in the
telecommunications, directory publishing and information delivery services
industries, from July 1995 to April 1997, serving as Managing Director,
Finance from December 1996 to April 1997, Vice President--Collections--
Residence and Business from November 1995 to November 1996 and Managing
Director, Productivity and Process Improvement from July to November 1995.
From 1994 to June 1995, Ms. Michalski served as Assistant Comptroller of NYNEX
and from 1993 to 1994 she

29
<PAGE>

served as Comptroller of New York Telephone, the largest operating subsidiary
of NYNEX. From 1988 to 1993, she was the Vice President and Controller of
GenCorp, Inc.

Richard H. Stanley. Mr. Stanley has served as Vice Chairman of the Company
since 1979 and as a Director since 1964. He has been the President of SC
Companies, Inc. since 1986, Chairman of Stanley Consultants, Inc., an
international engineering, architecture, planning and management firm, since
1984 and President since 1984 and Chairman since 1995 of The Stanley
Foundation, a private operating foundation. Mr. Stanley also serves as a
director of Dover Resources, Inc., a subsidiary of Dover Corporation, a
diversified manufacturer of industrial products.

SELLING SHAREHOLDER

The following table sets forth certain information regarding the Selling
Shareholder's beneficial ownership of the Company's Common Stock as of October
23, 1997, and as adjusted to reflect the sale of the shares of Common Stock
offered hereby.

<TABLE>
<CAPTION>
BEFORE THIS OFFERING AFTER THIS OFFERING
------------------------ ------------------------
SHARES TO
SHARES PERCENT BE SOLD SHARES PERCENT
NAME AND ADDRESS OF BENEFICIALLY OF SHARES IN BENEFICIALLY OF SHARES
BENEFICIAL OWNER OWNED OUTSTANDING OFFERING OWNED OUTSTANDING
- ------------------- ------------ ----------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C>
BTC, Inc................ 2,395,000 8.1% 2,395,000 0 0%
1105 N. Market St.,
Suite 1300
Wilmington, Delaware,
19899
</TABLE>

BTC, Inc. is a Delaware corporation and a newly-formed, wholly-owned
subsidiary of Bandag, Incorporated ("Bandag"). Bandag, headquartered in
Muscatine, Iowa, manufactures retreading materials and equipment for its
worldwide network of 1,300 independent franchised dealers who produce and
market retread tires.

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 100 million shares
of Common Stock, par value $1.00 per share, and one million shares of
preferred stock, par value $1.00 per share (the "Preferred Stock"). At
September 22, 1997, the Company had 29,670,610 shares of Common Stock issued
and outstanding, held of record by approximately 5,315 shareholders, and no
shares of Preferred Stock issued and outstanding. No series of Preferred Stock
has been designated other than 200,000 shares of Series A Junior Participating
Preferred Stock, par value $1.00 per share (the "Series A Preferred Stock").

The following summarizes the capital stock of the Company and certain
provisions of the Company's Articles of Incorporation, as amended (the
"Articles of Incorporation"), and its By-laws, as amended (the "By-laws") and
is qualified in its entirety by reference to the provisions of the Company's
Articles of Incorporation and By-laws and the Company's Rights Agreement.

COMMON STOCK

Except as required by law, holders of Common Stock are entitled to one vote
for each share held of record on all matters submitted to a vote of the
holders of Common Stock. The holders of Common Stock are not entitled to
cumulative voting rights with respect to the election of directors. Subject to
preferences that may be applicable to any then outstanding Preferred Stock,
holders of Common Stock are entitled to receive ratably such dividends as may
be declared by the Board of Directors out of funds legally available therefor.
In the event of a liquidation, dissolution, or winding up of the Company,
holders of the Common Stock are entitled to share ratably in all assets
remaining after payment of liabilities and the liquidation preference of any
then outstanding Preferred Stock. Holders of Common Stock have no preemptive
rights. There are no redemption or sinking fund

30
<PAGE>

provisions applicable to the Common Stock. All outstanding shares of Common
Stock are, and the Common Stock to be outstanding upon consummation of the
Offerings will be, fully paid and nonassessable. The Board of Directors may
issue additional authorized shares of Common Stock without further action by
the shareholders.

The Articles of Incorporation provide that the affirmative vote of the
holders of two-thirds of the total number of outstanding shares of Common
Stock entitled to vote shall be required and shall be sufficient to take any
action at any meeting of shareholders. Notwithstanding the foregoing, the
affirmative vote of the holders of a majority of the total number of
outstanding shares of Common Stock entitled to vote shall be required and
shall be sufficient to approve (i) any amendment to the Articles of
Incorporation which has been approved or recommended by the Board of Directors
of the Company (other than the provisions of the Articles of Incorporation
relating to voting requirements and election or removal of directors), (ii)
the election of a class of directors at any annual meeting of the shareholders
if (A) at the annual meeting of the shareholders in the third preceding year,
an election of such class of directors was held or attempted, but no director
of such class was elected at such meeting because no candidate received a two-
thirds majority vote and (B) the term of such class of directors was extended
for an additional three-year term pursuant to the Articles of Incorporation,
and (iii) any other motion, resolution or action which has been approved or
recommended by the Board of Directors of the Company (provided, that this
provision shall not apply to any motion, resolution or action regarding the
election or removal of directors, any amendment of the Articles of
Incorporation, any Corporate Combination (as defined below), any liquidating
dividend or distribution, or any dissolution of the Company).

PREFERRED STOCK

The Board of Directors has the authority, without further action by the
shareholders, to issue up to one million shares of Preferred Stock in one or
more series and, except as to those shares of Series A Preferred Stock
designated by the Board, to fix the rights and preferences thereof, including
dividend rights, conversion rights, voting rights, terms of redemption,
liquidation preferences, and the number of shares constituting any series or
the designation of such series. Except as required by Iowa law, holders of
Preferred Stock have no voting rights. Holders of Preferred Stock shall have
no preemptive rights. The issuance of Preferred Stock could adversely affect
the voting power of holders of Common Stock and could have the effect of
delaying, deferring, or preventing a change in control of the Company. The
Company has no present plan to issue any shares of Preferred Stock other than
the issuance of shares of Series A Preferred Stock in connection with the
Company's shareholder rights plan.

SHAREHOLDER RIGHTS AGREEMENT

Pursuant to the Company's Rights Agreement, each share of Common Stock
carries with it one right entitling a shareholder to buy one two-hundredth of
a share of Series A Preferred Stock at an exercise price of $75. For a
description of the Company's Rights Agreement, see notes to the Company's
consolidated financial statements.

ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE COMPANY'S ARTICLES OF
INCORPORATION, BY-LAWS AND IOWA CORPORATE LAW

The Company's Articles of Incorporation and By-laws and the Iowa Business
Corporation Act contain provisions that could make more difficult or delay the
acquisition of control of the Company by various means, such as a tender
offer, open market purchases, a merger, a proxy contest or otherwise. The
purposes of these provisions are to discourage certain types of transactions
which may involve an actual or threatened change of control of the Company and
encourage persons seeking to acquire control of the Company to consult first
with the Board of Directors to negotiate the terms of any proposed business
combination or offer. The provisions are designed to reduce the vulnerability
of the Company to an unsolicited proposal for a takeover that does not
contemplate the acquisition of all outstanding shares or is otherwise unfair
to shareholders of the Company, or an unsolicited proposal for the
restructuring or sale of all or part of the Company.

Supermajority Vote Requirement. The Company's Articles of Incorporation
provide that the affirmative vote of the holders of that fraction of the total
outstanding shares of Common Stock entitled to vote, but not less than two-
thirds, determined by using as the numerator a number equal to the sum of (i)
the outstanding shares of Common Stock entitled to vote which are owned by a
Related Person (as defined below), plus (ii) two-thirds of

31
<PAGE>

the remaining number of outstanding shares of Common Stock entitled to vote,
and using as the denominator a number equal to the total number of outstanding
shares of Common Stock entitled to vote, shall be required for any act of the
shareholders of the Company relating to adoption of a Corporate Combination or
any amendment of such provision of the Articles of Incorporation. For purposes
of the Articles of Incorporation, "Corporate Combination" is defined as (a)
any merger or consolidation of the Company or any majority-owned subsidiary
with (i) any Related Person other than a majority-owned subsidiary or (ii) any
other corporation other than a majority-owned subsidiary which is, or after
such merger or consolidation would be, an affiliate of a Related Person, (b)
any sale, lease, exchange, mortgage, pledge, transfer, or other disposition in
one transaction or a series of transactions to or with any Transaction Person
(as defined below) of any assets of the Company or any majority-owned
subsidiary having an aggregate fair market value of $1,000,000 or more; (c)
the issuance or transfer by the Company or any majority-owned subsidiary in
one transaction or a series of transactions of any securities of the Company
or any majority-owned subsidiary to any Transaction Person in exchange for
cash, securities, other property, or a combination thereof, having an
aggregate fair market value of $1,000,000 or more; (d) the adoption of any
plan or proposal for the liquidation or dissolution of the Company proposed by
or on behalf of a Related Person or any affiliate of any Related Person; (e)
any reclassification of securities, including any reverse stock split or
recapitalization of the Company, or any merger or consolidation of the Company
with any of its majority-owned subsidiary, or any other transaction (whether
or not with, into, or otherwise involving a Related Person) which has the
effect, directly or indirectly, of increasing the proportionate share of the
outstanding shares of any class of capital stock or any securities which are
convertible (with or without consideration) into shares of capital stock or
into other securities convertible into shares of capital stock or convertible
securities of the Company or any majority-owned subsidiary which is directly
or indirectly owned by any Related Person or any affiliate of any Related
Person. "Related Person" is defined as any person which, together with its
affiliates, associates and the associates of its affiliates, owns 10% or more
of the outstanding Common Stock.

Notwithstanding the foregoing, the affirmative vote of two-thirds of the
outstanding shares of Common Stock entitled to vote shall be sufficient for
the adoption and authorization of a Corporate Combination when (i) the
Corporate Combination will result in an involuntary sale, redemption,
cancellation, or other termination of ownership of all shares of Common Stock
owned by shareholders who do not vote in favor of or consent in writing to the
Corporate Combination; (ii) the cash or fair market value (as determined in
good faith by the Board of Directors) of other readily marketable
consideration to be received by all holders of Common Stock for their shares
will be (A) at least equal to the highest gross price per share paid or agreed
to be paid to acquire any shares of Common Stock by any Related Person within
two years of the record date for determining the shareholders entitled to vote
on the Corporate Combination, and (B) in cash or in the same form as the
Related Person, any person who would become a Related Person as a result of
the Corporate Combination or any affiliate, associate or affiliate of an
associate of such a person ("Transaction Person") has previously paid for
shares of Common Stock (if the Transaction Person has paid for shares of
Common Stock with varying forms of consideration, the form of consideration
for such Common Stock shall be either cash or the form used to acquire the
largest number of shares of such class of stock of the Company previously
acquired by it); (iii) during the period from the earlier of the date that a
person becomes a Transaction Person or a Transaction Person becomes a Related
Person until the date of consummation of such Corporate Combination (A) there
shall have been no failure to declare and pay at the regular date therefor any
full dividends, whether or not cumulative, on any outstanding preferred stock
of the Company; (B) there shall have been no reduction in the annual rate of
dividends paid on the Common Stock, except as necessary to reflect any
subdivision of such stock, and all increases in such annual rate of dividends
necessary to reflect any reclassification, including any reverse stock split,
recapitalization, reorganization, or any similar transaction which has the
effect of reducing the number of outstanding shares of the Common Stock; (C)
the Transaction Person shall not have become the beneficial owner of any
additional shares of stock of the Company except as part of the transaction
which results in the Transaction Person's becoming a Related Person; and (D)
the Transaction Person shall not have received the benefit, directly or
indirectly, except proportionately as a shareholder, of any loans, advances,
guaranties, pledges, other financial assistance, tax credits, or tax
advantages provided by the Company, whether in anticipation of or in
connection with such Corporate Combination or otherwise; and (iv) a proxy
statement

32
<PAGE>

responsive to the requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), shall be mailed to the shareholders of the
Company at least 30 days prior to the proposed consummation of a Corporate
Combination (whether or not such proxy statement is required to be mailed
pursuant to the Exchange Act or subsequent provisions) for the purpose of
soliciting shareholder approval of the proposed Corporate Combination.

Classified Board of Directors. The Company's Board of Directors is divided
into three classes, as nearly equal in number as is reasonably possible,
serving staggered terms. One class of directors is elected at each annual
meeting to serve a term of three years. Amendments to the staggered board
provisions require a two-thirds vote of shareholders. In addition, special
meetings of shareholders may only be called by a majority of the Board of
Directors or by the holders of at least 10% of the outstanding shares entitled
to vote at the meeting.

Section 490.1109 of the Iowa Business Corporation Act. The Company is
subject to the provisions of Section 490.1109 of the Iowa Business Corporation
Act (the "Business Combination Statute"). Under the Business Combination
Statute, certain "business combinations" between an Iowa corporation whose
stock is publicly traded or held by more than 2,000 shareholders and an
"interested shareholder" are prohibited for a three-year period following the
date that such a shareholder became an interested shareholder, unless (i)
prior to the time the shareholder became an interested shareholder, the board
of directors of the corporation approved either the business combination or
the transaction which resulted in the shareholder becoming an interested
shareholder; (ii) at or subsequent to the time the shareholder became an
interested shareholder, the business combination is approved by the board of
directors and authorized at an annual or special meeting of shareholders (such
approval shall not be by written consent) by the affirmative vote of at least
sixty-six and two-thirds percent of the outstanding voting stock which is not
owned by the interested shareholder; or (iii) upon consummation of the
transaction that made it an interested stockholder, the interested stockholder
owned at least 85% of the voting stock of the corporation outstanding at the
commencement of the transaction (excluding voting stock owned by directors who
are also officers or held in employee benefit plans in which the employees do
not have a confidential right to tender or vote stock held by the plan). The
three-year prohibition also does not apply to certain business combinations
proposed by an interested shareholder following the announcement or
notification of certain extraordinary transactions involving the corporation
and a person who had not been an interested shareholder during the previous
three years. The term "business combination" is defined generally to include
mergers or consolidations between an Iowa corporation and an "interested
shareholder," transactions with an "interested shareholder" involving the
assets or stock of the corporation or its majority-owned subsidiaries and
transactions which increase an interested shareholder's percentage ownership
of stock. The term "interested shareholder" is defined generally as a
shareholder who, together with affiliates and associates, owns (or, within
three years prior, did own) 10% or more of an Iowa corporation's voting stock.

33
<PAGE>

UNDERWRITING

Subject to the terms and conditions set forth in a purchase agreement (the
"U.S. Purchase Agreement"), among the Company, the Selling Shareholder, Bandag
and each of the underwriters named below (the "U.S. Underwriters"), and
concurrently with the sale of 679,000 shares of Common Stock to the
International Managers (as defined below), the Company and the Selling
Shareholder have agreed to sell to each of the U.S. Underwriters, and each of
the U.S. Underwriters severally has agreed to purchase from the Company and
the Selling Shareholder the number of shares of Common Stock set forth
opposite its name below.

<TABLE>
<CAPTION>
NUMBER
U.S. UNDERWRITER OF SHARES
---------------- ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated........................................... 879,750
William Blair & Company, L.L.C.................................. 879,750
Robert W. Baird & Co. Incorporated.............................. 299,750
McDonald & Company Securities, Inc.............................. 299,750
BT Alex. Brown Incorporated..................................... 119,000
Morgan Stanley & Co. Incorporated............................... 119,000
Wheat, First Securities, Inc.................................... 119,000
---------
Total...................................................... 2,716,000
=========
</TABLE>

Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"),
William Blair & Company, L.L.C., Robert W. Baird & Co. Incorporated and
McDonald & Company Securities, Inc. are acting as representatives (the "U.S.
Representatives") for the U.S. Underwriters.

The Company, the Selling Shareholder and Bandag have also entered into a
purchase agreement (the "International Purchase Agreement" and, together with
the U.S. Purchase Agreement, the "Purchase Agreements") with certain
underwriters outside the United States and Canada (collectively, the
"International Managers," and together with the U.S. Underwriters, the
"Underwriters"), for whom Merrill Lynch International, William Blair &
Company, L.L.C., Robert W. Baird & Co. Incorporated and McDonald & Company
Securities, Inc. are acting as representatives (the "International
Representatives" and, together with the U.S. Representatives, the
"Representatives"). Subject to the terms and conditions set forth in the
International Purchase Agreement, and concurrently with the sale of 2,716,000
shares of Common Stock to the U.S. Underwriters pursuant to the U.S. Purchase
Agreement, the Company and the Selling Shareholder have agreed to sell to the
International Managers, and the International Managers have severally agreed
to purchase from the Company and the Selling Shareholder, an aggregate of
679,000 shares of Common Stock. The public offering price per share of Common
Stock and the underwriting discount per share of Common Stock are identical
under the U.S. Purchase Agreement and the International Purchase Agreement.
The respective percentages of the Common Stock to be sold by each of the
Company and the Selling Shareholder will be identical in the U.S. Offering and
the International Offering.

In the U.S. Purchase Agreement and the International Purchase Agreement, the
several U.S. Underwriters and the several International Managers,
respectively, have agreed, subject to the terms and conditions set forth
therein, to purchase all of the shares of Common Stock being sold pursuant to
each such agreement if any of the shares of Common Stock being sold pursuant
to such agreement are purchased. Under certain circumstances involving a
default by an Underwriter, the commitments of non-defaulting U.S. Underwriters
or International Managers (as the case may be) may be increased or the U.S.
Purchase Agreement or the International Purchase Agreement (as the case may
be) may be terminated. The sale of Common Stock to the U.S. Underwriters is
conditioned upon the sale of Common Stock to the International Managers and
vice versa.

The U.S. Underwriters and the International Managers have entered into an
intersyndicate agreement (the "Intersyndicate Agreement") providing for the
coordination of their activities. The Underwriters are permitted to sell
shares of Common Stock to each other for purposes of resale at the initial
public offering price, less an

34
<PAGE>

amount not greater than the selling concession. Under the terms of the
Intersyndicate Agreement, the U.S. Underwriters and any dealer to whom they
sell shares of Common Stock will not offer to sell or sell shares of Common
Stock to persons who are non-U.S. or non-Canadian persons or to persons they
believe intend to resell to persons who are non-U.S. or non-Canadian persons,
and the International Managers and any dealer to whom they sell shares of
Common Stock will not offer to sell or sell shares of Common Stock to U.S.
persons or to Canadian persons or to persons they believe intend to resell to
U.S. persons or Canadian persons, except in the case of transactions pursuant
to the Intersyndicate Agreement.

The U.S. Representatives have advised the Company and the Selling
Shareholder that the U.S. Underwriters propose initially to offer the shares
of Common Stock to the public at the offering price set forth on the cover
page of this Prospectus and to certain dealers at such price less a concession
not in excess of $1.24 per share. The U.S. Underwriters may allow, and such
dealers may reallow, a discount not in excess of $.10 per share to certain
other dealers. After the initial public offering, the public offering price,
concession and discount may be changed.

The Company has granted to the U.S. Underwriters an option, exercisable
within 30 days after the date of this Prospectus, to purchase up to an
aggregate of 407,400 additional shares of Common Stock at the public offering
price set forth on the cover page of this Prospectus, less the underwriting
discount. The U.S. Underwriters may exercise this option only to cover over-
allotments, if any, made on the sale of Common Stock offered hereby. To the
extent that the U.S. Underwriters exercise this option, each U.S. Underwriter
will be obligated, subject to certain conditions, to purchase a number of
additional shares of Common Stock proportionate to such U.S. Underwriters'
initial amount reflected in the foregoing table. If purchased, the
Underwriters will offer such additional shares on the same terms as those on
which the 3,395,000 shares are being offered.

The Company has, subject to certain exceptions, agreed not to, directly or
indirectly, offer, pledge, sell, contract to sell or otherwise transfer or
dispose of any shares of Common Stock or any securities convertible into or
exchangeable or exercisable for Common Stock without the prior written consent
of Merrill Lynch for a period of 90 days from the date of this Prospectus,
except that the Company may, without such consent, issue shares of Common
Stock upon the exercise or conversion of any outstanding options, rights,
warrants or other convertible securities, or issue shares of Common Stock or
grant options to purchase shares of Common Stock pursuant to the Company's
existing employee benefit plans, director stock plan, or dividend reinvestment
plan. In addition, the Company's executive officers and directors have agreed
not to effect any sales of Common Stock in open market transactions without
the prior written consent of Merrill Lynch for a period of 90 days from the
date of this Prospectus.

In connection with the Offerings, the Underwriters or their respective
affiliates and selling group members (if any) who are qualified market makers
on Nasdaq may engage in "passive market making" in the Common Stock on the
Nasdaq National Market in accordance with Rule 103 of Regulation M under the
Exchange Act. Rule 103 permits, upon the satisfaction of certain conditions,
underwriters and selling group members participating in a distribution that
are also Nasdaq market makers in the security being distributed (or a related
security) to engage in limited market making transactions during the period
when Regulation M under the Exchange Act would otherwise prohibit such
activity. Rule 103 prohibits underwriters and selling group members engaged in
passive market making generally from entering a bid or affecting a purchase at
a price that exceeds the highest bid for those securities displayed on the
Nasdaq National Market by a market maker that is not participating in the
distribution. Under Rule 103, each underwriter or selling group member engaged
in passive market making is subject to a daily net purchase limitation equal
to 30% of such entity's average daily trading volume during the two full
consecutive calendar months immediately preceding the date of the filing of
the registration statement under the Securities Act of 1933, as amended (the
"Securities Act") pertaining to the security to be distributed (or such
related security).

35
<PAGE>

stabilize the price of the Common Stock. Such transactions consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
Common Stock.

If the Underwriters create a short position in the Common Stock in
connection with the offering, i.e., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus, the Representatives
may reduce that short position by purchasing Common Stock in the open market.
The Representatives may also elect to reduce any short position by exercising
all or part of the over-allotment option described above.

The Representatives may also impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
shares of Common Stock in the open market to reduce the Underwriters' short
position or to stabilize the price of the Common Stock, they may reclaim the
amount of the selling concession from the Underwriters and selling group
members who sold those shares as part of the offering.

In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases. The imposition of a penalty
bid might also have an effect on the price of a security to the extent that it
were to discourage resales of the security.

The Company, the Selling Shareholder and Bandag have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act or to contribute to payments initially the Underwriters may be
required to make in respect thereof.

Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the Common Stock. In
addition, neither the Company nor any of the Underwriters makes any
representation that the Representatives will engage in such transactions or
that such transactions, once commenced, will not be discontinued without
notice.

Edgar D. Jannotta, a director of the Selling Shareholder, is Senior Director
of William Blair & Company, L.L.C.

36
<PAGE>

LEGAL MATTERS

The legality of the Common Stock offered hereby has been passed upon for the
Company by Stanley, Lande & Hunter, P.C., Muscatine, Iowa. Certain other legal
matters will be passed upon for the Company by Jones, Day, Reavis & Pogue,
Chicago, Illinois and Stanley, Lande & Hunter, P.C., for the Selling
Shareholder and Bandag by Foley & Lardner, Milwaukee, Wisconsin and for the
Underwriters by Sidley & Austin, Chicago, Illinois. Members of Stanley, Lande
& Hunter, P.C., own of record and beneficially a total of 96,987 shares of
Common Stock.

EXPERTS
The audited consolidated financial statements and schedules of HON
INDUSTRIES Inc. and Subsidiaries as of and for the fiscal year ended December
28, 1996 included in this Prospectus and elsewhere in the Registration
Statement have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in its reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
giving said reports.

The consolidated balance sheets of HON INDUSTRIES Inc. and its subsidiaries
as of December 30, 1995 and December 31, 1994, and the related consolidated
statements of income, shareholders' equity and cash flows for the years then
ended included in this Prospectus and the related financial statement schedule
listed in Item 14 of HON INDUSTRIES Inc.'s Annual Report on Form 10-K for the
fiscal year ended December 28, 1996, incorporated by reference into this
Registration Statement, have been audited by Ernst & Young LLP, as stated in
its reports appearing herein and incorporated by reference into this
Registration Statement. Such financial statements and financial statement
schedule have been so included and incorporated by reference in reliance upon
such reports given upon the authority of such firms as experts in accounting
and auditing.

AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-3 (of which this Prospectus
is a part) under the Securities Act, with respect to the securities offered
hereby. This Prospectus does not contain all information set forth in the
Registration Statement, certain portions of which have been omitted in
accordance with the rules and regulations of the Commission. For further
information about the Company and the securities offered hereby, reference is
made to the Registration Statement, including the exhibits filed as a part
thereof and otherwise incorporated therein. Statements made in this Prospectus
as to the contents of any document referred to are not necessarily complete,
and in each instance reference is made to such exhibit for a more complete
description and each such statement is qualified in its entirety by such
reference.

The Company is subject to the informational requirements of the Exchange Act
and in accordance therewith files periodic reports, proxy statements and other
information with the Commission. The Registration Statement, including
exhibits thereto, as well as such reports, proxy statements and other
information filed by the Company with the Commission can be inspected, without
charge, and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, 7
World Trade Center, 13th Floor, New York, New York 10048 and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
materials can also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, at
prescribed rates. The Commission maintains a Web site that contains reports,
proxy and information statements and other information regarding registrants,
including the Company, that file electronically with the Commission and that
is located at http://www.sec.gov. The Registration Statement was filed
electronically with the Commission.

37
<PAGE>

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission by the Company
(File No. 0-2648) pursuant to the Exchange Act are incorporated by reference
in this Prospectus and made a part hereof: the Company's Annual Report on Form
10-K for the fiscal year ended December 28, 1996; the Company's Quarterly
Reports on Form 10-Q for the fiscal quarters ended March 29, 1997 and June 28,
1997; the Company's Current Reports on Form 8-K dated June 30, 1997, October
8, 1997 and October 22, 1997; and the descriptions of the Company's Common
Stock set forth in Item 1 of the Company's Registration Statement on Form 8-A
filed May 1, 1967 and Series A Junior Participating Preferred Stock and Rights
Agreement set forth in Item 1 of the Company's Registration Statement on Form
8-A filed July 12, 1988, and all amendments and reports filed for the purpose
of updating such descriptions.

All documents filed by the Company with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Prospectus and prior to the termination of this offering shall be deemed to be
incorporated by reference into this Prospectus and to be a part hereof from
their respective dates of filing. Any statement contained in a document
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained
herein modifies, supersedes or replaces such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.

THE COMPANY WILL PROVIDE WITHOUT CHARGE TO ANY PERSON TO WHOM THIS
PROSPECTUS IS DELIVERED, UPON WRITTEN OR ORAL REQUEST OF SUCH PERSON, A COPY
OF ANY OR ALL OF THE DOCUMENTS WHICH HAVE BEEN INCORPORATED BY REFERENCE IN
THIS PROSPECTUS, OTHER THAN EXHIBITS TO SUCH DOCUMENTS, UNLESS SUCH EXHIBITS
ARE SPECIFICALLY INCORPORATED BY REFERENCE INTO THE DOCUMENTS SO INCORPORATED.
REQUESTS FOR SUCH COPIES SHOULD BE DIRECTED TO HON INDUSTRIES INC., OFFICE OF
THE SECRETARY, 414 EAST THIRD STREET, P.O. BOX 1109, MUSCATINE, IOWA 52761-
7109 (TELEPHONE NUMBER (319) 264-7400).

38
<PAGE>

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
HON INDUSTRIES Inc. and Subsidiaries:
Audited Financial Statements
Report of Independent Public Accountants................................ F-2
Report of Independent Auditors.......................................... F-3
Consolidated Statements of Income for the Years Ended December 28, 1996,
December 30, 1995 and December 31, 1994................................ F-4
Consolidated Balance Sheets as of December 28, 1996, December 30, 1995
and December 31, 1994.................................................. F-5
Consolidated Statements of Shareholders' Equity for the Years Ended
December 28, 1996, December 30, 1995 and December 31, 1994............. F-6
Consolidated Statements of Cash Flows for the Years Ended December 28,
1996,
December 30, 1995 and December 31, 1994................................ F-7
Notes to Consolidated Financial Statements.............................. F-8
Unaudited Financial Statements
Condensed Consolidated Statements of Income for the Quarters Ended June
28, 1997
and June 29, 1996...................................................... F-20
Condensed Consolidated Statements of Income for the Six Months Ended
June 28, 1997
and June 29, 1996...................................................... F-21
Condensed Consolidated Balance Sheets at June 28, 1997 and December 28,
1996................................................................... F-22
Condensed Consolidated Statements of Cash Flows for the Six Months Ended
June 28, 1997 and June 29, 1996........................................ F-23
Notes to Condensed Consolidated Financial Statements.................... F-24
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

Board of Directors and Shareholders
HON INDUSTRIES Inc.

We have audited the accompanying consolidated balance sheet of HON
INDUSTRIES Inc. and subsidiaries as of December 28, 1996, and the related
consolidated statement of income, shareholders' equity, and cash flows for the
fiscal year then ended. 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 audit 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 audit provides a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of HON INDUSTRIES Inc. and subsidiaries as of December 28, 1996, and the
consolidated results of its operations and its cash flows for the year then
ended, in conformity with generally accepted accounting principles.

Arthur Andersen LLP

Chicago, Illinois
January 30, 1997

F-2
<PAGE>

REPORT OF INDEPENDENT AUDITORS

Board of Directors and Shareholders
HON INDUSTRIES Inc.

We have audited the accompanying consolidated balance sheets of HON
INDUSTRIES Inc. and subsidiaries as of December 30, 1995, and December 31,
1994, and the related consolidated statements of income, shareholders' equity,
and cash flows for the years then ended. 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of HON INDUSTRIES Inc. and subsidiaries as of December 30, 1995, and December
31, 1994, and the consolidated results of their operations and their cash
flows for the years then ended, in conformity with generally accepted
accounting principles.

As discussed in the Notes to Consolidated Financial Statements, the Company
changed its method of accounting for postemployment benefits in 1994.

Ernst & Young LLP

Chicago, Illinois
January 30, 1996

F-3
<PAGE>

HON INDUSTRIES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
FOR THE YEARS
--------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net sales.............................. $998,135,000 $893,119,000 $845,998,000
Cost of products sold.................. 679,496,000 624,700,000 573,392,000
------------ ------------ ------------
Gross Profit....................... 318,639,000 268,419,000 272,606,000
Selling and administrative expenses.... 215,646,000 201,691,000 185,490,000
Gain on sale of subsidiary............. 3,200,000 -- --
------------ ------------ ------------
Operating Income................... 106,193,000 66,728,000 87,116,000
------------ ------------ ------------
Interest income........................ 3,247,000 2,358,000 2,470,000
Interest expense....................... 4,173,000 3,569,000 3,248,000
------------ ------------ ------------
Income Before Income Taxes......... 105,267,000 65,517,000 86,338,000
Income taxes........................... 37,173,000 24,419,000 31,945,000
------------ ------------ ------------
Income Before Cumulative Effect of
Accounting Changes................ 68,094,000 41,098,000 54,393,000
Cumulative effect of accounting
changes............................... -- -- (237,000)
------------ ------------ ------------
Net Income......................... $ 68,094,000 $ 41,098,000 $ 54,156,000
============ ============ ============
Net Income Per Common Share:
Income before cumulative effect of
accounting changes.................. $2.26 $1.35 $1.74
Cumulative effect of accounting
changes............................. -- -- (.01)
------------ ------------ ------------
Net Income......................... $2.26 $1.35 $1.73
============ ============ ============
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-4
<PAGE>

HON INDUSTRIES INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF YEAR-END
----------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents.......... $ 31,196,000 $ 32,231,000 $ 27,659,000
Short-term investments............. 1,502,000 14,694,000 3,083,000
Receivables........................ 109,095,000 88,178,000 94,269,000
Inventories........................ 43,550,000 36,601,000 43,259,000
Deferred income taxes.............. 9,046,000 14,180,000 11,565,000
Prepaid expenses and other current
assets............................ 11,138,000 8,299,000 8,975,000
------------ ------------ ------------
Total Current Assets............. 205,527,000 194,183,000 188,810,000
Property, Plant, and Equipment....... 234,616,000 210,033,000 177,844,000
Goodwill............................. 51,213,000 908,000 1,247,000
Other Assets......................... 22,158,000 4,394,000 4,667,000
------------ ------------ ------------
Total Assets..................... $513,514,000 $409,518,000 $372,568,000
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued
expenses.......................... $127,910,000 $117,273,000 $ 99,898,000
Income taxes....................... 2,574,000 5,361,000 4,949,000
Note payable and current maturities
of long-term obligations.......... 22,069,000 6,281,000 6,246,000
------------ ------------ ------------
Total Current Liabilities........ 152,553,000 128,915,000 111,093,000
Long-Term Debt and Other Liabilities. 91,468,000 45,911,000 46,080,000
Capital Lease Obligations............ 6,320,000 7,700,000 8,661,000
Deferred Income Taxes................ 10,726,000 10,757,000 12,094,000
Minority Interest in Subsidiary...... 50,000 -- --
Commitments and Contingencies........
Shareholders' Equity
Common stock....................... 29,713,000 30,394,000 30,675,000
Paid-in capital.................... 360,000 550,000 434,000
Retained earnings.................. 227,365,000 193,505,000 174,642,000
Receivable from HON Members Company
Ownership Plan.................... (5,041,000) (8,214,000) (11,111,000)
------------ ------------ ------------
Total Shareholders' Equity....... 252,397,000 216,235,000 194,640,000
------------ ------------ ------------
Total Liabilities and
Shareholders' Equity............ $513,514,000 $409,518,000 $372,568,000
============ ============ ============
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-5
<PAGE>

HON INDUSTRIES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
FOR THE YEARS
----------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Common Stock
Balance, beginning of year......... $ 30,394,000 $ 30,675,000 $ 31,676,000
Purchase of shares................. (742,000) (367,000) (1,078,000)
Shares issued under Members Stock
Purchase Plan and restricted stock
awards............................ 61,000 86,000 77,000
------------ ------------ ------------
Balance, end of year............. $ 29,713,000 $ 30,394,000 $ 30,675,000
------------ ------------ ------------
Paid-In Capital
Balance, beginning of year......... $ 550,000 $ 434,000 $ 281,000
Purchase of shares................. (1,654,000) (1,725,000) (1,567,000)
Shares issued under Members Stock
Purchase Plan and restricted stock
awards............................ 1,464,000 1,841,000 1,720,000
------------ ------------ ------------
Balance, end of year............. $ 360,000 $ 550,000 $ 434,000
------------ ------------ ------------
Retained Earnings
Balance, beginning of year......... $193,505,000 $174,642,000 $161,079,000
Net income......................... 68,094,000 41,098,000 54,156,000
Purchase of shares................. (19,264,000) (7,699,000) (26,992,000)
Dividends paid..................... (14,970,000) (14,536,000) (13,601,000)
------------ ------------ ------------
Balance, end of year............. $227,365,000 $193,505,000 $174,642,000
------------ ------------ ------------
Receivable from HON Members Company
Ownership Plan
Balance, beginning of year......... $ (8,214,000) $(11,111,000) $(13,483,000)
Principal repaid by HON Members
Company Ownership Plan............ 3,173,000 2,897,000 2,372,000
------------ ------------ ------------
Balance, end of year............. $ (5,041,000) $ (8,214,000) $(11,111,000)
------------ ------------ ------------
Shareholders' Equity
Balance, end of year............... $252,397,000 $216,235,000 $194,640,000
============ ============ ============
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-6
<PAGE>

HON INDUSTRIES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE YEARS
-----------------------------------------
1996 1995 1994
------------- ------------ ------------
<S> <C> <C> <C>
Net Cash Flows From (To) Operating
Activities:
Net income........................ $ 68,094,000 $ 41,098,000 $ 54,156,000
Noncash items included in net
income:
Depreciation and amortization... 25,252,000 21,416,000 19,042,000
Gain on sale of subsidiary, net
of tax......................... (2,016,000) -- --
Other postretirement and
postemployment benefits........ 1,398,000 2,273,000 2,104,000
Deferred income taxes........... 5,103,000 (3,952,000) 854,000
Cumulative effect of accounting
changes........................ -- -- 237,000
Other--net...................... 252,000 1,185,000 54,000
Changes in working capital,
excluding acquisition and
disposition:
Receivables..................... (5,085,000) 6,091,000 (10,619,000)
Inventories..................... 184,000 6,658,000 (4,629,000)
Prepaid expenses and other
current assets................. (2,613,000) 676,000 1,484,000
Accounts payable and accrued
expenses....................... 998,000 17,009,000 4,619,000
Accrued facilities closing and
reorganization expenses........ (1,147,000) 366,000 (1,885,000)
Income taxes.................... (3,971,000) 412,000 (1,847,000)
Increase in other liabilities..... 6,860,000 (216,000) 1,077,000
------------- ------------ ------------
Net cash flows from (to)
operating activities......... 93,309,000 93,016,000 64,647,000
------------- ------------ ------------
Net Cash Flows From (To) Investing
Activities:
Capital expenditures--net......... (44,684,000) (53,879,000) (35,005,000)
Acquisition spending, net of cash
acquired......................... (79,136,000) -- --
Net proceeds from sale of
subsidiary....................... 7,336,000 -- --
Principal repaid by HON Members
Company Ownership Plan........... 3,173,000 2,897,000 2,372,000
Short-term investments--net....... 12,392,000 (11,611,000) 8,515,000
Other--net........................ (976,000) (205,000) (291,000)
------------- ------------ ------------
Net cash flows from (to)
investing activities......... (101,895,000) (62,798,000) (24,409,000)
------------- ------------ ------------
Net Cash Flows From (To) Financing
Activities:
Purchase of HON INDUSTRIES common
stock............................ (21,912,000) (9,791,000) (29,637,000)
Proceeds from long-term debt...... 51,072,000 104,000 --
Payments of note and long-term
debt............................. (8,416,000) (3,350,000) (3,916,000)
Proceeds from sale of HON
INDUSTRIES common stock to
members.......................... 1,777,000 1,927,000 1,797,000
Dividends paid.................... (14,970,000) (14,536,000) (13,601,000)
------------- ------------ ------------
Net cash flows from (to)
financing activities......... 7,551,000 (25,646,000) (45,357,000)
------------- ------------ ------------
Net increase (decrease) in cash and
cash equivalents................... (1,035,000) 4,572,000 (5,119,000)
------------- ------------ ------------
Cash and cash equivalents at
beginning of year.................. 32,231,000 27,659,000 32,778,000
------------- ------------ ------------
Cash and cash equivalents at end of
year............................... $ 31,196,000 $ 32,231,000 $ 27,659,000
------------- ------------ ------------
Supplemental Disclosures of Cash
Flow Information:
Cash paid during the year for:
Interest........................ $ 3,334,000 $ 3,401,000 $ 3,234,000
Income taxes.................... $ 36,318,000 $ 27,560,000 $ 32,534,000
============= ============ ============
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-7
<PAGE>

HON INDUSTRIES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NATURE OF OPERATIONS

HON INDUSTRIES Inc. and subsidiaries (the Company) are a national
manufacturer and marketer of office furniture and hearth products. Both
industries are reportable segments; however, the Company's office furniture
business is its principal line of business. Refer to the "Business Segment
Information" note for further information. Office furniture products are sold
through a national system of dealers, wholesalers, mass merchandisers,
warehouse clubs, and retail superstores and to end-user customers and federal
and state governments. Dealer, wholesaler, and retail superstores are the
major channels based on sales. Hearth products include wood- and gas-burning
factory-built fireplaces, fireplace inserts, gas logs, and stoves. These
products are sold through a national system of dealers, wholesalers, and large
regional contractors. The Company's products are marketed predominately in the
United States and Canada. The Company exports select products to a limited
number of markets outside North America, principally Latin America and the
Caribbean, through its export subsidiary; however, based on sales, it is not
significant.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and Fiscal Year-End

The consolidated financial statements include the accounts and transactions
of the Company and its subsidiaries. Intercompany accounts and transactions
have been eliminated in consolidation.

The Company's fiscal year ends on the Saturday nearest December 31. Fiscal
year 1996 ended on December 28, 1996; 1995 ended on December 30, 1995; and
1994 ended on December 31, 1994.

Cash and Cash Equivalents

Cash and cash equivalents generally consist of cash and commercial paper.
These securities have original maturity dates not exceeding three months from
date of purchase.

Short-Term Investments

Short-term investments are classified as available-for-sale and are highly
liquid debt and equity securities. These investments are stated at cost which
approximates market value.

Receivables

Accounts receivable are presented net of an allowance for doubtful accounts
of $1,830,000; $1,867,000; and $1,654,000 for 1996, 1995, and 1994,
respectively.

Inventories

Inventories are valued at the lower of cost or market, determined
principally by the last-in, first-out (LIFO) method.

Property, Plant, and Equipment

Property, plant, and equipment are carried at cost. Depreciation has been
computed by the straight-line method over estimated useful lives: land
improvements, 10-20 years; buildings, 10-40 years; and machinery and
equipment, 3-12 years. The Company capitalized interest costs of $95,000 and
$256,000 in 1996 and 1995, respectively.

F-8
<PAGE>

HON INDUSTRIES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Goodwill and Patents

Goodwill represents the excess of cost over the fair value of net
identifiable assets of acquired companies. Goodwill is being amortized on a
straight-line basis predominately over 40 years. Patents are being amortized
on a straight-line basis over their estimated useful lives which range from 7
to 16 years. Patents are reported by the Company as "Other Assets."

The carrying value of goodwill and patents is reviewed by the Company
whenever significant events or changes occur which might impair recovery of
recorded costs. Based on its most recent analysis, the Company believes no
material impairment of these intangible assets exists at December 28, 1996.

<TABLE>
<CAPTION>
1996 1995 1994
------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Goodwill........................................... $52,051 $2,865 $2,865
Patents............................................ 16,060 -- --
Less accumulated amortization...................... 838 1,957 1,618
------- ------ ------
$67,273 $ 908 $1,247
======= ====== ======
</TABLE>

Product Development Costs

Product development costs relating to the development of new products and
processes, including significant improvements and refinements to existing
products, are expensed as incurred. The amounts charged against income were
$10,423,000 in 1996, $11,591,000 in 1995, and $10,081,000 in 1994.

Use of Estimates

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 financial statements and
accompanying notes. Actual results could differ from those estimates.

New Accounting Policies

The Company adopted Financial Accounting Standards Board Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of," in the first quarter of 1996. The adoption had no material
effect on results of operations.

BUSINESS COMBINATIONS

On October 2, 1996, the Company acquired all of the outstanding stock of
Heat-N-Glo Fireplace Products, Inc., located in Savage, Minnesota, for a
combination of cash and debt totaling approximately $79 million. The Company
merged Heat-N-Glo into Heatilator Inc., a wholly owned subsidiary, which
changed its name to Hearth Technologies Inc. Both Heatilator and Heat-N-Glo
are engaged in the manufacture and marketing of quality hearth products and
operate as divisions of Hearth Technologies Inc.

The Company paid approximately $62.0 million in cash, a $5.0 million long-
term note, and $12.0 million as a convertible debenture for Heat-N-Glo. In
connection with the merger, the Company entered into a $34.0 million five-year
term loan with LaSalle National Bank.

This transaction has been accounted for under the purchase method.
Accordingly, the accounts and transactions of the acquired company have been
included in the consolidated financial statements from the date of
acquisition.

F-9
<PAGE>

HON INDUSTRIES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Assuming the acquisition had occurred as of the beginning of fiscal year
1995, the Company's pro forma consolidated net sales would have been
approximately $1.07 billion and $971.6 million for 1996 and 1995,
respectively. Pro forma consolidated net income and net income per common
share would not have been materially different than reported amounts.

The net purchase price was preliminarily allocated as follows: (In
thousands)

<TABLE>
<S> <C>
Working capital, other than cash................................. $10,702
Property, plant, and equipment................................... 6,441
Other assets..................................................... 548
Patents.......................................................... 16,060
Goodwill......................................................... 52,051
Other liabilities................................................ (6,666)
-------
Purchase price, net of cash received........................... $79,136
=======
</TABLE>

BUSINESS DISPOSITION

On January 24, 1996, the Company sold the outstanding stock of Ring King
Visibles, Inc., a wholly owned subsidiary, for $8.0 million in cash and the
forgiveness of intercompany receivables of approximately $2.0 million. The
sale resulted in an approximate $3.2 million pretax gain for the Company (an
after-tax gain of $2.0 million, or $0.07 per share) which was recorded in the
first quarter of fiscal year 1996.

INVENTORIES

<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Finished products................................ $15,793 $11,265 $13,554
Materials and work in process.................... 27,757 25,336 29,705
------- ------- -------
$43,550 $36,601 $43,259
======= ======= =======
</TABLE>

Current replacement cost exceeded the amount stated for inventories valued
by the LIFO method by approximately $12,337,000; $13,594,000; and $12,983,000
as of year-end 1996, 1995, and 1994, respectively.

PROPERTY, PLANT, AND EQUIPMENT
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Land and land improvements.................... $ 9,114 $ 9,701 $ 8,832
Buildings..................................... 92,509 95,310 84,801
Machinery and equipment....................... 231,780 208,707 185,421
Construction and equipment installation in
progress..................................... 42,507 30,036 17,915
-------- -------- --------
375,910 343,754 296,969
Less allowances for depreciation.............. 141,294 133,721 119,125
-------- -------- --------
$234,616 $210,033 $177,844
======== ======== ========
</TABLE>

F-10
<PAGE>

HON INDUSTRIES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

ACCOUNTS PAYABLE AND ACCRUED EXPENSES

<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Trade accounts payable......................... $ 44,762 $ 47,617 $40,939
Compensation................................... 6,331 4,855 3,343
Profit sharing and retirement expense.......... 11,736 11,490 11,066
Vacation pay................................... 8,064 8,492 8,579
Marketing expenses............................. 36,550 23,930 17,443
Workers' compensation, general, and product
liability expenses............................ 3,787 4,032 4,700
Other accrued expenses......................... 16,680 16,857 13,828
-------- -------- -------
$127,910 $117,273 $99,898
======== ======== =======
</TABLE>

LONG-TERM DEBT AND OTHER LIABILITIES

<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Industrial development revenue bonds, various
issues, payable through 2013 with interest at
4.50-8.50% per annum............................ $24,063 $24,542 $24,928
Note payable to bank, term loan payable in 2001
with interest at 7.11% per annum*............... 27,200 -- --
Note payable to bank, payable quarterly through
1997 with interest at a variable rate (6.03% at
year-end 1996).................................. -- 7,750 9,700
Convertible debenture payable to individuals, due
in 1999 with interest at 7.0% per annum......... 12,000 -- --
Accrued employee health care costs............... 7,901 6,503 4,230
Other notes and amounts.......................... 20,304 7,116 7,222
------- ------- -------
$91,468 $45,911 $46,080
======= ======= =======
</TABLE>
- --------
* The Company has entered into an interest rate swap agreement on a notional
amount of $34 million, which is equivalent to the amount of the term loan,
to obtain a fixed rate of interest in lieu of a floating rate. The interest
rate swap agreement matures at the time the related note matures. The
Company is exposed to credit loss in the event of nonperformance by the
bank making the loan who is the other party to the agreement. However, the
Company does not anticipate nonperformance by the counterparty.

Aggregate maturities of long-term debt are as follows (in thousands):

<TABLE>
<S> <C>
1997...................................... $15,107
1998...................................... 7,459
1999...................................... 19,486
2000...................................... 10,104
2001...................................... 10,026
Thereafter................................ 24,209
</TABLE>

The note and convertible debenture payable to individuals are payable to the
former owners of a business acquired by the Company in 1996. These individuals
continue as officers of a subsidiary of the business

F-11
<PAGE>

HON INDUSTRIES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

following the merger. The convertible debenture is convertible into shares of
common stock of Hearth Technologies Inc., a subsidiary of the Company,
representing 10% of the current issued and outstanding stock of Hearth
Technologies Inc.

Certain of the above borrowing arrangements include covenants which require
the maintenance of a minimum level of working capital, place restrictions on
the payment of cash dividends, and limit the assumption of additional debt and
lease obligations. Approximately $198,176,000 of retained earnings were
unrestricted at the end of 1996.

The fair value of the Company's outstanding long-term debt obligations at
year-end 1996 approximates the recorded aggregate amount.

Property, plant, and equipment, with net carrying values of approximately
$33,451,000 at the end of 1996, are mortgaged.

INCOME TAXES

Significant components of the provision for income taxes are as follows:

<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal........................................ $27,958 $25,360 $27,504
State.......................................... 3,932 3,011 3,587
------- ------- -------
31,890 28,371 31,091
Deferred......................................... 5,283 (3,952) 854
------- ------- -------
$37,173 $24,419 $31,945
======= ======= =======
</TABLE>

A reconciliation of the statutory federal income tax rate to the Company's
effective income tax rate is as follows:

<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Federal statutory tax rate.............................. 35.0% 35.0% 35.0%
State taxes, net of federal tax effect.................. 2.7 2.6 2.8
Federal and state tax credits........................... (2.2) -- --
Other, net.............................................. (.2) (.3) (.8)
---- ---- ----
Effective tax rate...................................... 35.3% 37.3% 37.0%
==== ==== ====
</TABLE>

The Company recognized one-time federal and state research and development
and new jobs tax credits totaling $2.1 million, or $0.07 per share, in 1996
related to prior tax years.

F-12
<PAGE>

HON INDUSTRIES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax liabilities and assets are as follows:

<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Net long-term deferred tax liabilities:
Tax over book depreciation............ $(17,584) $(16,358) $(13,630)
OPEB obligations...................... 2,947 2,048 1,301
Other--net............................ 3,911 3,553 235
-------- -------- --------
Total net long-term deferred tax
liabilities........................ (10,726) (10,757) (12,094)
Net current deferred tax assets:
Workers' compensation, general, and
product liability accruals........... 1,548 1,670 2,029
Vacation accrual...................... 1,855 3,167 3,180
Other--net............................ 5,643 9,343 6,356
-------- -------- --------
Total net current deferred tax
assets............................. 9,046 14,180 11,565
-------- -------- --------
Net deferred tax (liabilities)
assets............................. $ (1,680) $ 3,423 $ (529)
======== ======== ========
</TABLE>

SHAREHOLDERS' EQUITY AND EARNINGS PER SHARE

<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Common Stock, $1 Par Value
Authorized........................ 100,000,000 100,000,000 100,000,000
Issued and outstanding............ 29,713,265 30,394,337 30,674,603
Preferred Stock
Authorized........................ 1,000,000 1,000,000 1,000,000
Issued and outstanding............ -- -- --
</TABLE>

The Company purchased 753,800; 367,317; and 1,078,835 shares of its common
stock during 1996, 1995, and 1994, respectively.

Cash dividends declared and paid per share for each year are:

<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Common shares.............................................. $.50 $.48 $.44
</TABLE>

Net income per common share is based on the weighted average number of shares
of common stock outstanding during each year including allocated and
unallocated ESOP shares.

Shares of common stock were issued in 1996, 1995, and 1994 pursuant to a
members' stock purchase plan as follows:

<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Shares issued....................................... 61,370 86,049 77,302
Average price per share............................. $24.90 $22.39 $23.25
</TABLE>

F-13
<PAGE>

HON INDUSTRIES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The Company uses the par value method of accounting for common stock
repurchases. The excess of the cost of shares acquired over their par value is
allocated to Paid-In Capital to the extent appropriate, with the excess
charged to Retained Earnings.

During 1994, shareholders approved the 1994 Members' Stock Purchase Plan.
Under the new plan, 500,000 shares of common stock were registered for
issuance to participating members. Beginning on July 3, 1994, rights to
purchase stock are granted on a quarterly basis to all members who have one
year of employment eligibility and work a minimum of 20 hours per week. The
price of the stock purchased under the plan is 85% of the closing price on the
applicable purchase date. No member may purchase stock under the plan in an
amount which exceeds the lesser of 20% of his or her gross earnings or 2,000
shares, with a maximum fair market value of $25,000 in any calendar year. An
additional 275,279 shares were available for issuance under the plan at
December 28, 1996. The effect of the application of adopting Financial
Accounting Standards Board Statement No. 123, "Accounting for Stock-Based
Compensation," was not material to the Company.

The Company has granted restricted stock awards aggregating 75,500 shares of
common stock to officers. The officers were entitled to dividends and had
voting rights on all shares awarded. Unearned compensation expense,
representing the fair market value of the shares at the date of grant, was
charged to income over the vesting period. Approximately $37,000 were charged
to income as a result of the awards for the years 1995 and 1994. All of the
awarded shares were vested as of year-end 1995.

Pursuant to the Company's Shareholder Rights Plan, each share of common
stock carries with it one Right. Each Right entitles a shareholder to buy one
two-hundredth of a share of a new series of preferred stock at an exercise
price of $75.00. Each one two-hundredth of a share of the new preferred stock
has terms designed to make it the economic equivalent of one share of common
stock. Rights will be exercisable only if a person or group acquires 20% or
more of the Company's common stock or announces a tender offer, the
consummation of which would result in ownership by a person or group of 20% or
more of the common stock. If the Company is acquired in a merger or other
business combination transaction, each Right will entitle its holder to
purchase, at the then current exercise price of the Right, a number of the
acquiring company's common shares having a market value at that time of twice
the exercise price of the Right.

The Company has entered into change in control employment agreements with
corporate officers and certain other key employees. According to the
agreements, a change in control occurs when a third person or entity becomes
the beneficial owner of 20% or more of the Company's common stock or when more
than one-third of the Company's Board of Directors is composed of persons not
recommended by at least three-fourths of the incumbent Board of Directors.
Upon a change in control, a key employee is deemed to have a two-year
employment with the Company, and all his or her benefits are vested under
Company plans. If, at any time within two years of the change in control, the
employee's employment is terminated by the Company for any reason other than
cause or by the key employee for good reason, as such terms are defined in the
agreement, then the key employee is entitled to receive a severance payment
equal to two times salary and the average of the prior two years' bonuses.

RETIREMENT BENEFITS

The Company has defined contribution profit-sharing plans covering
substantially all employees who are not participants in certain defined
benefit plans. The Company's annual contribution to the defined contribution
plans is based on employee eligible earnings and results of operations and
amounted to $11,118,000; $10,955,000; and $10,849,000 in 1996, 1995, and 1994,
respectively.

The Company sponsors defined benefit plans which include a limited number of
salaried and hourly employees at certain subsidiaries. The Company's funding
policy is generally to contribute annually the minimum actuarially computed
amount. Net pension costs relating to these plans were $146,000; $256,000; and

F-14
<PAGE>

HON INDUSTRIES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

$228,000 for 1996, 1995, and 1994, respectively. The actuarial present value
of benefit obligations, less related plan assets at fair value, is not
significant.

In 1992, the Company established a trust to administer a leveraged employee
stock ownership plan (ESOP), the HON Members Company Ownership Plan. Company
contributions based on employee eligible earnings and dividends on the shares
are used to make loan interest and principal payments. As the loan is repaid,
shares are distributed to the ESOP trust for allocation to participants.
Selected financial data pertaining to the ESOP is as follows:

<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
(IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C> <C>
Company contribution to ESOP..................... $ 3,348 $ 3,302 $ 2,977
Dividend income of ESOP.......................... 446 436 403
Company interest expense on ESOP loan............ 555 749 656
Shares of common stock allocated to ESOP
participant accounts............................ 152,733 149,749 133,945
Shares held in suspense (unallocated)
by ESOP as of year-end.......................... 223,939 376,672 526,421
Fair value of shares held in suspense by ESOP as
of year-end..................................... $ 7,264 $ 8,758 $14,082
Closing market price of common stock as of year-
end............................................. $ 32.44 $ 23.25 $ 26.75
</TABLE>

In 1994, the Company adopted Statement of Financial Accounting Standards No.
112, "Employers' Accounting for Postemployment Benefits." The cumulative
effect of adoption was to reduce net income by $237,000 after tax, or $.01 a
share.

POSTRETIREMENT HEALTH CARE

The Company adopted Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions," as of
January 3, 1993, and recorded the cumulative effect of the accounting change
on the deferred recognition basis.

The following table sets forth the funded status of the plan, reconciled to
the accrued postretirement benefits cost recognized in the Company's balance
sheet at:

<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Accumulated postretirement benefit
obligation (APBO):
Retirees............................... $ 6,535 $ 8,138 $ 6,947
Fully eligible active plan
participants.......................... 3,916 5,612 3,816
Other active plan participants......... 4,808 7,809 6,397
Unrecognized net (loss)/gain............. 6,919 (933) (713)
Unrecognized prior service cost.......... (2,776) (2,922) --
Unrecognized transition obligation....... (11,501) (12,214) (12,932)
-------- -------- --------
Accrued postretirement benefit cost...... $ 7,901 $ 5,490 $ 3,515
======== ======== ========

Net periodic postretirement benefits costs include:

Service cost............................. $ 810 $ 685 $ 687
Interest cost............................ 1,629 1,344 1,242
Amortization of transition obligation
over 20 years........................... 713 718 718
Amortization of prior service cost....... 146 -- --
-------- -------- --------
Net periodic postretirement benefits
cost.................................... $ 3,298 $ 2,747 $ 2,647
======== ======== ========
</TABLE>

F-15
<PAGE>

HON INDUSTRIES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The discount rates at fiscal year-end 1996, 1995, and 1994 were 7.5%, 7.75%,
and 8.0%, respectively. The pre-65 1997 gross trend rates begin at 11.0% for
the medical and prescription drug coverages and grade down to 5.0% in 2006 and
remain at this level for all future years. The post-64 gross trend rates begin
at 9.0% for the medical coverage and decrease until the maximum Company
subsidy (cap) is reached in 2003. For the prescription drug coverage, the 1997
gross trend rates begin at 11.0% and decrease until the cap is reached in
2003. If the health care cost trend rates were increased by 1.0% for each
year, the accumulated postretirement benefit obligation as of December 28,
1996, would increase by $493,520; and, the sum of the service and interest
cost components of the net periodic postretirement benefit cost for fiscal
year 1996 would increase by $45,000. The Company's postretirement health care
plans are not funded.

LEASES

The Company leases certain warehouse and plant facilities and equipment.
Commitments for minimum rentals under noncancellable leases at the end of 1996
are as follows:

<TABLE>
<CAPTION>
CAPITALIZED OPERATING
LEASES LEASES
----------- ---------
(IN THOUSANDS)
<S> <C> <C>
1997............................................... $2,024 $ 5,532
1998............................................... 2,024 4,941
1999............................................... 2,024 3,975
2000............................................... 2,024 2,897
2001............................................... 664 2,113
Thereafter......................................... 2,069 883
------ -------
Total minimum lease payments....................... 10,829 $20,341
=======
Less amount representing interest.................. 3,377
------
Present value of net minimum lease payments,
including current maturities of $1,133,000........ $7,452
======
</TABLE>

Property, plant, and equipment at year-end include the following amounts for
capitalized leases:

<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Buildings........................................... $3,299 $3,299 $3,709
Machinery and equipment............................. 8,419 8,419 8,419
------ ------ ------
11,718 11,718 12,128
Less allowances for depreciation.................... 4,854 3,569 2,507
------ ------ ------
$6,864 $8,149 $9,621
====== ====== ======
</TABLE>

Rent expense for the years 1996, 1995, and 1994 amounted to approximately
$6,788,000; $7,439,000; and $6,572,000, respectively. The Company has
operating leases for office and production facilities with annual rentals
totaling $578,000 with the former owners of a business acquired in 1996. These
individuals continue as officers of a subsidiary of the Company following the
merger. Contingent rent expense under both capitalized and operating leases
(generally based on mileage of transportation equipment) amounted to $353,000;
$608,000; and $525,000 for the years 1996, 1995, and 1994, respectively.

CONTINGENCIES

The Company is involved in various legal actions arising in the course of
business. Although management cannot predict the ultimate outcome of these
matters with certainty, it believes, after taking into consideration

F-16
<PAGE>

HON INDUSTRIES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

legal counsel's evaluation of such actions, that the outcome of these matters
will not have a material effect on the financial position or results of
operations of the Company.

The Company and certain subsidiaries are party to three environmental
actions which have arisen in the ordinary course of business. These include
possible obligations to investigate and mitigate the effects on the
environment of the disposal or release of certain chemical substances at
various sites, such as Superfund sites and other operating or closed
facilities. The effect of these actions on the Company's financial position
and operations to date has not been significant. The Company is participating
in environmental assessments and monitoring, and liabilities have been accrued
reflecting management's best estimate of the eventual future cost of the
Company's anticipated share (based upon estimated ranges of remediation costs,
the existence of many other larger "potentially responsible parties" who are
financially viable to share in such costs, the Company's experience to date in
relation to the determination of its allocable share, the volume and type of
waste the Company is believed to have contributed to each site, and the
anticipated periods of time over which such costs may be paid) of remediation
costs. Potential insurance reimbursements are not anticipated. The Company is
also reviewing available defenses and claims it may have against third
parties. Due to such factors as the wide discretion of regulatory authorities
regarding clean-up levels and uncertain allocation of liability at multiple
party sites, estimates made prior to the approval of a formal plan of action
represent management's best judgment as to estimates of reasonably foreseeable
expenses based upon average remediation costs at comparable sites. While the
final resolution of these contingencies could result in expenses in excess of
current accruals and therefore have an impact on the Company's consolidated
financial results in a future reporting period, management believes that the
ultimate outcome will not have a material effect on the Company's financial
position or results of operations.

BUSINESS SEGMENT INFORMATION

The Company has two reportable business segments: office furniture and
hearth products. However, the manufacture and marketing of office furniture is
the Company's principal business segment.

The office furniture segment manufactures and markets a broad line of metal
and wood commercial and home office furniture which includes file cabinets,
desks, credenzas, chairs, storage cabinets, tables, bookcases, freestanding
office partitions and panel systems, and other related products. The hearth
products segment manufactures and markets a broad line of manufactured gas-
and wood-burning fireplaces and stoves, fireplace inserts, and chimney systems
principally for the home.

The Company's October 2, 1996, acquisition of Heat-N-Glo Fireplace Products,
Inc., resulted in hearth products becoming a reportable segment. Prior to this
acquisition, the Company had only one reportable segment, office furniture.
Refer to the "Business Combinations" note for additional information regarding
this acquisition.

For purposes of segment reporting, intercompany sales transfers between
segments are not material, and operating profit is income before income taxes
exclusive of certain unallocated corporate expenses. Identifiable assets by
segment are those assets applicable to the respective industry segments.
Corporate assets consist principally of cash and cash equivalents, short-term
investments, and corporate office real estate and related equipment.

F-17
<PAGE>

HON INDUSTRIES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Reportable segment data reconciled to the consolidated financial statements
for the years ended 1996, 1995, and 1994 is as follows:

<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales:
Office furniture............................ $887,299 $818,907 $772,299
Hearth products............................. 110,836 74,212 73,699
-------- -------- --------
$998,135 $893,119 $845,998
======== ======== ========
Operating profit:
Office furniture............................ $106,824 $ 79,085 $ 96,813
Hearth products............................. 14,155 6,395 6,373
-------- -------- --------
Total operating profit.................. 120,979 85,480 103,186
Unallocated corporate expenses.............. (15,712) (19,963) (16,848)
-------- -------- --------
Income before income taxes.............. $105,267 $ 65,517 $ 86,338
======== ======== ========
Identifiable assets:
Office furniture.......................... $330,575 $308,783 $288,436
Hearth products........................... 122,037 25,811 25,791
General corporate......................... 60,902 74,924 58,341
-------- -------- --------
$513,514 $409,518 $372,568
======== ======== ========
Depreciation and amortization expense:
Office furniture.......................... $ 21,140 $ 18,328 $ 16,264
Hearth products........................... 2,813 1,424 1,191
General corporate......................... 1,299 1,664 1,587
-------- -------- --------
$ 25,252 $ 21,416 $ 19,042
======== ======== ========
Capital expenditures, net:
Office furniture.......................... $ 41,186 $ 50,816 $ 29,987
Hearth products........................... 4,060 2,857 3,763
General corporate......................... (562) 206 1,255
-------- -------- --------
$ 44,684 $ 53,879 $ 35,005
======== ======== ========
</TABLE>

One office furniture customer accounted for approximately 12%, 13%, and 13%
of consolidated net sales in 1996, 1995, and 1994, respectively.

F-18
<PAGE>

HON INDUSTRIES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

SUMMARY OF UNAUDITED QUARTERLY RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH TOTAL
QUARTER QUARTER QUARTER QUARTER YEAR
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
YEAR-END 1996:*
Net sales..................... $233,477 $219,260 $255,254 $290,144 $998,135
Gross profit.................. 73,471 69,033 78,851 97,284 318,639
Income before income taxes.... 26,706 19,518 25,337 33,706 105,267
Income taxes.................. 9,881 7,222 7,430 12,640 37,173
Net income**.................. 16,825 12,296 17,907 21,066 68,094
Net income per common share**. .55 .41 .60 .70 2.26
YEAR-END 1995:
Net sales..................... $216,498 $206,604 $228,195 $241,822 $893,119
Gross profit.................. 68,942 60,358 67,876 71,243 268,419
Income before income taxes.... 20,119 12,366 19,448 13,584 65,517
Income taxes.................. 7,544 4,638 7,209 5,028 24,419
Net income***................. 12,575 7,728 12,239 8,556 41,098
Net income per common
share***..................... .41 .25 .41 .28 1.35
YEAR-END 1994:
Net sales..................... $200,693 $193,045 $222,112 $230,148 $845,998
Gross profit.................. 63,374 59,713 71,005 78,514 272,606
Income before income taxes.... 18,458 14,637 24,659 28,584 86,338
Income taxes.................. 6,830 5,415 9,124 10,576 31,945
Income before cumulative
effect of accounting change.. 11,628 9,222 15,535 18,008 54,393
Cumulative effect of
accounting change............ (237) -- -- -- (237)
Net income.................... 11,391 9,222 15,535 18,008 54,156
Net income per common share:
Income before cumulative
effect of accounting change.. .37 .30 .49 .58 1.74
Cumulative effect of
accounting change............ (.01) -- -- -- (.01)
Net income per common share... .36 .30 .49 .58 1.73
</TABLE>
- --------
*Includes the results of operation of Heat-N-Glo Fireplace Products, Inc.,
acquired October 2, 1996.
**First quarter 1996 includes a $3,200,000 pretax gain on the sale of Ring
King Visibles, Inc., a wholly owned subsidiary (after-tax gain of
$2,000,000, or $.07 per share), and third quarter includes one-time federal
and state income tax credits of $2,100,000, or $.07 per share.
***Fourth quarter 1995 includes various pretax charges totaling $5,575,000
(after-tax effect of $3,512,000, or $.12 per share) for nonrecurring costs
primarily associated with closing several leased facilities and severance
arrangements from eliminating certain administrative positions.

F-19
<PAGE>

HON INDUSTRIES INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------
JUNE 28, JUNE 29,
1997 1996
---------- ----------
(IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C>
Net sales (Note E)....................................... $ 296,567 $ 219,260
Cost of products sold.................................... 200,969 150,227
---------- ----------
Gross Profit........................................... 95,598 69,033
Selling and administrative expenses...................... 64,303 49,507
---------- ----------
Operating Income....................................... 31,295 19,526
Interest income.......................................... 441 759
Interest expense......................................... 1,582 767
---------- ----------
Income Before Income Taxes............................. 30,154 19,518
Income taxes............................................. 11,307 7,222
---------- ----------
Net Income............................................. $ 18,847 $ 12,296
========== ==========
Net income per common share (Note D)..................... $ 0.63 $ 0.41
========== ==========
Average number of common shares outstanding.............. 29,692,077 30,170,014
========== ==========
Cash dividends per common share.......................... $ 0.14 $ 0.12
========== ==========
</TABLE>

See accompanying notes to condensed consolidated financial statements.

F-20
<PAGE>

HON INDUSTRIES INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------
JUNE 28, JUNE 29,
1997 1996
---------- ----------
(IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C>
Net sales (Note E)....................................... $ 579,426 $ 452,737
Cost of products sold.................................... 395,163 310,233
---------- ----------
Gross Profit........................................... 184,263 142,504
Selling and administrative expenses...................... 124,756 99,353
Gain on sale of subsidiary (Note C)...................... -- 3,200
---------- ----------
Operating Income....................................... 59,507 46,351
Interest income.......................................... 852 1,500
Interest expense......................................... 3,135 1,627
---------- ----------
Income Before Income Taxes............................. 57,224 46,224
Income taxes............................................. 21,459 17,103
---------- ----------
Net Income............................................. $ 35,765 $ 29,121
========== ==========
Net income per common share (Note D)..................... $ 1.20 $ 0.96
========== ==========
Average number of common shares outstanding.............. 29,695,994 30,257,593
========== ==========
Cash dividends per common share.......................... $ 0.28 $ 0.24
========== ==========
</TABLE>

See accompanying notes to condensed consolidated financial statements.

F-21
<PAGE>

HON INDUSTRIES INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
JUNE 28,
1997 DECEMBER 28,
(UNAUDITED) 1996
----------- ------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents........................... $ 24,137 $ 31,196
Short-term investments.............................. 256 1,502
Receivables......................................... 142,019 109,095
Inventories (Note B)................................ 61,156 43,550
Deferred income taxes............................... 19,746 9,046
Prepaid expenses and other current assets........... 15,927 11,138
-------- --------
Total Current Assets.............................. 263,241 205,527
PROPERTY, PLANT, AND EQUIPMENT, at cost
Land and land improvements.......................... 8,969 9,114
Buildings........................................... 132,154 92,509
Machinery and equipment............................. 256,146 231,780
Construction in progress............................ 45,903 42,507
-------- --------
443,172 375,910
Less accumulated depreciation....................... 149,661 141,294
-------- --------
Net Property, Plant, and Equipment.................. 293,511 234,616
GOODWILL.............................................. 58,020 51,213
OTHER ASSETS.......................................... 20,620 22,158
-------- --------
Total Assets...................................... $635,392 $513,514
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses............... $160,432 $127,910
Income taxes........................................ 3,714 2,574
Note payable and current maturities of long-term
obligations........................................ 4,844 22,069
-------- --------
Total Current Liabilities......................... 168,990 152,553
LONG-TERM DEBT AND OTHER LIABILITIES.................. 162,889 91,468
CAPITAL LEASE OBLIGATIONS............................. 6,036 6,320
DEFERRED INCOME TAXES................................. 18,602 10,726
MINORITY INTEREST IN SUBSIDIARY....................... 56 50
SHAREHOLDERS' EQUITY
Capital Stock:
Preferred, $1 par value; authorized 1,000,000
shares; no shares outstanding.................... -- --
Common, $1 par value; authorized 100,000,000
shares; outstanding--1997--29,689,707 shares;
1996--29,713,265 shares.......................... 29,689 29,713
Paid-in capital..................................... 91 360
Retained earnings................................... 254,080 227,365
Receivable from HON Members Company Ownership Plan.. (5,041) (5,041)
-------- --------
Total Shareholders' Equity...................... 278,819 252,397
-------- --------
Total Liabilities and Shareholders' Equity...... $635,392 $513,514
======== ========
</TABLE>

See accompanying notes to condensed consolidated financial statements.

F-22
<PAGE>

HON INDUSTRIES INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------
JUNE 28, JUNE 29,
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Net Cash Flows From (To) Operating Activities:
Net income............................................... $ 35,765 $ 29,121
Noncash items included in net income:
Depreciation and amortization.......................... 15,084 11,392
Gain on sale of subsidiary, net of tax (Note C)........ -- (2,016)
Other postretirement and postemployment benefits....... 686 1,205
Deferred income taxes.................................. 1,234 (113)
Other--net............................................. 12 248
Net increase (decrease) in noncash operating assets and
liabilities............................................. (6,674) (6,281)
Increase in other liabilities............................ (2,356) (519)
-------- --------
Net cash flows from operating activities............... 43,751 33,037
Net Cash Flows From (To) Investing Activities:
Capital expenditures--net................................ (34,222) (20,928)
Acquisition spending, net of cash acquired............... (66,292) --
Net proceeds from sale of subsidiary (Note C)............ -- 7,336
Short-term investments--net.............................. 446 (604)
Long-term investments.................................... 1,045 (95)
Other--net............................................... (194) --
-------- --------
Net cash flows (to) investing activities............... (99,217) (14,291)
Net Cash Flows From (To) Financing Activities:
Purchase of HON INDUSTRIES common stock.................. (2,535) (7,971)
Proceeds from long-term debt............................. 100,000 --
Payments of note and long-term debt...................... (42,249) (1,883)
Proceeds from sales of HON INDUSTRIES common stock to
members and stock-based compensation.................... 1,505 991
Dividends paid........................................... (8,314) (7,258)
-------- --------
Net cash flows from (to) financing activities.......... 48,407 (16,121)
Net increase (decrease) in cash and cash equivalents....... (7,059) 2,625
Cash and cash equivalents at beginning of period........... 31,196 32,231
-------- --------
Cash and cash equivalents at end of period................. $ 24,137 $ 34,856
======== ========
</TABLE>

See accompanying notes to condensed consolidated financial statements.

F-23
<PAGE>

HON INDUSTRIES INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

JUNE 28, 1997

NOTE A. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the six-month
period ended June 28, 1997, are not necessarily indicative of the results that
may be expected for the year ending January 3, 1998. For further information,
refer to the consolidated financial statements and footnotes included in the
Company's annual report on Form 10-K for the year ended December 28, 1996.

NOTE B. INVENTORIES

Inventories of the Company and its subsidiaries are summarized as follows:

<TABLE>
<CAPTION>
JUNE 28, DECEMBER 28,
1997 1996
---------- ------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Finished products................................ $20,583 $15,793
Materials and work in process.................... 40,573 27,757
------- -------
$61,156 $43,550
======= =======
</TABLE>

NOTE C. GAIN ON SALE OF SUBSIDIARY

During the first quarter of 1996, the Company sold all outstanding shares of
its subsidiary, Ring King Visibles, Inc., for a sale price of $8,000,000 in
cash and the forgiveness of intercompany receivables of approximately
$2,000,000. The sale resulted in an approximate $3,200,000 pre-tax gain.

NOTE D. NET INCOME PER COMMON SHARE

In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (FAS) No. 128, "Earnings per Share." The
Statement requires the current primary earnings per share calculation to be
replaced with a new basic earnings per share calculation. The Statement will
become effective for public companies for financial statements issued after
December 15, 1997, and early adoption is not permitted. Management estimates
the impact of adopting FAS 128 will have no effect on the calculation of the
Company's reported year-end 1997 earnings per share given its current capital
structure of common stock and no potentially dilutive securities.

NOTE E. BUSINESS COMBINATIONS

Assuming the acquisition of Heat-N-Glo Fireplace Products, Inc., had
occurred on December 31, 1995, the beginning of the Company's 1996 fiscal
year, instead of on October 2, 1996, when it actually occurred, the Company's
pro forma consolidated net sales for the second quarter ended June 29, 1996,
would have been approximately $242.5 million instead of the reported $219.3
million. Pro forma consolidated net sales for the six months ended June 29,
1996, would have been approximately $495.6 million instead of the reported
$452.7 million. Pro forma consolidated net income and net income per share for
the second quarter and first six months of 1996 would not have been materially
different from the reported amounts.

F-24
<PAGE>

HON INDUSTRIES INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The Company acquired Allsteel Inc. on June 17, 1997. The transaction has
been accounted for under the purchase method. Accordingly, Allsteel's opening
balance has been included in the Company's consolidated balance sheet as of
June 28, 1997, and its purchase in the Consolidated Statement of Cash Flows
for the six months ended June 28, 1997. The purchase price of Allsteel was
$66.0 million which has been preliminarily allocated as follows:

<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Working capital, other than cash........................... $29.4
Property, plant, and equipment............................. 38.4
Goodwill................................................... 6.1
Other liabilities.......................................... (7.9)
</TABLE>

Allsteel had no impact on the Company's reported consolidated statements of
income for the second fiscal quarter and six months ended June 28, 1997.
Further information regarding the transaction is set forth in the Company's
Form 8-K, filed June 30, 1997.

F-25
<PAGE>

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCOR-
PORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING COV-
ERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING
SHAREHOLDER OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON STOCK IN ANY JURIS-
DICTION WHERE, OR TO ANY PERSON WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SO-
LICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUN-
DER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS NOT
BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF
THE COMPANY OR THE SELLING SHAREHOLDER SINCE THE DATE HEREOF.

----------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 7
Recent Developments....................................................... 8
Use of Proceeds........................................................... 9
Market Price of and Dividends on
Common Stock............................................................. 9
Capitalization............................................................ 10
Selected Consolidated Financial and Operating Data........................ 11
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 12
Business.................................................................. 17
Management................................................................ 28
Selling Shareholder....................................................... 30
Description of Capital Stock.............................................. 30
Underwriting.............................................................. 34
Legal Matters............................................................. 37
Experts................................................................... 37
Available Information..................................................... 37
Incorporation of Certain Documents by Reference........................... 38
Index to Consolidated Financial
Statements............................................................... F-1
</TABLE>

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

3,395,000 SHARES

HON INDUSTRIES INC.

COMMON STOCK

--------------

PROSPECTUS

--------------

MERRILL LYNCH & CO.

WILLIAM BLAIR & COMPANY

ROBERT W. BAIRD & CO.
INCORPORATED

MCDONALD & COMPANY
SECURITIES, INC.

OCTOBER 23, 1997

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>

Filed Pursuant to Rule 424(b)(1)
Registration Number 333-36433

PROSPECTUS
3,395,000 SHARES

HON INDUSTRIES INC.

COMMON STOCK

---------------

Of the 3,395,000 shares of Common Stock of HON INDUSTRIES Inc., an Iowa
corporation (the "Company"), offered hereby, 1,000,000 shares are being sold
by the Company and 2,395,000 shares are being sold by a certain shareholder
(the "Selling Shareholder"). The Company will not receive any of the proceeds
of shares sold by the Selling Shareholder. See "Selling Shareholder."

Of the 3,395,000 shares of Common Stock of the Company offered, 679,000
shares are being offered initially outside the United States and Canada by the
International Managers (the "International Offering") and 2,716,000 shares are
being offered in a concurrent offering inside the United States and Canada by
the U.S. Underwriters (the "U.S. Offering" and together with the International
Offering, the "Offerings"). The price to the public and the aggregate
underwriting discount per share will be identical for both offerings. See
"Underwriting."

The Common Stock is listed on the Nasdaq National Market under the symbol
"HONI." On October 23, 1997, the last reported sale price of the Common Stock
on the Nasdaq National Market was $53 1/4 per share. See "Market Price of and
Dividends on Common Stock."

SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK.

---------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROCEEDS TO
SELLING
PRICE TO UNDERWRITING PROCEEDS TO SHAREHOLDER
PUBLIC DISCOUNT (1) COMPANY (2) (2)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share................................. $52.00 $2.08 $49.92 $49.92
- ----------------------------------------------------------------------------------------------
Total (3)................................. $176,540,000 $7,061,600 $49,920,000 $119,558,400
- ----------------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
(1) The Company, the Selling Shareholder and Bandag, Incorporated have agreed
to indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting expenses, estimated at $500,000, which are payable by the
Company. The Selling Shareholder will not be paying any expenses of the
Offerings, other than the expenses of its counsel.
(3) The Company has granted the International Managers and the U.S.
Underwriters options, exercisable within 30 days of the date hereof, to
purchase up to an aggregate of 101,850 and 407,400, respectively,
additional shares of Common Stock on the same terms as set forth above, to
cover over-allotments, if any. If the over-allotment options are exercised
in full, the total Price to Public, Underwriting Discount, and Proceeds to
Company will be $203,021,000, $8,120,840 and $75,341,760, respectively.
See "Underwriting."

---------------

The shares of Common Stock are being offered by the several Underwriters
subject to prior sale, when, as and if issued to and accepted by them and
subject to approval of certain legal matters by counsel for the Company,
counsel for the Selling Shareholder and Bandag, Incorporated and counsel for
the Underwriters and certain other conditions. The Underwriters reserve the
right to withdraw, cancel or modify such offer and to reject orders in whole
or in part. It is expected that delivery of the Common Stock will be made
against payment therefor in New York, New York on or about October 29, 1997.

---------------

MERRILL LYNCH INTERNATIONAL WILLIAM BLAIR & COMPANY
ROBERT W. BAIRD & CO. MCDONALD & COMPANY
INCORPORATED SECURITIES, INC.

---------------

The date of this Prospectus is October 23, 1997.
<PAGE>

UNITED STATES TAXATION OF FOREIGN SHAREHOLDERS

The following is a general discussion of certain United States federal
income and estate tax consequences of the ownership and disposition of Common
Stock that may be relevant to Non-United States Holders of such Common Stock.
For purposes of this discussion, a "Non-United States Holder" is any
corporation, individual, partnership, estate or trust that is, as to the
United States, a foreign corporation, a non-resident alien individual, a
foreign partnership or a foreign estate or trust as such terms are defined in
Section 7701 of the United States Internal Revenue Code of 1986, as amended
(the "Code"). In general, a "Non-United States Holder" is any holder of Common
Stock that is not (i) a citizen or resident alien individual of the United
States, (ii) a corporation, partnership or other entity created or organized
in or under the laws of the United States or any State thereof, (iii) an
estate the income of which is subject to United States federal income taxation
regardless of its source, or (iv) a trust with respect to which a court within
the United States is able to exercise primary supervision over its
administration, and one or more United States persons have the authority to
control all of its substantial decisions. Resident alien individuals will be
subject to United States federal income taxation with respect to the Common
Stock in the same manner as if they were United States citizens.

The following discussion does not deal with all aspects of United States
federal income and estate taxation and does not consider specific facts and
circumstances that may be relevant to a particular Non-United States Holder in
light of such holder's personal investment or tax position. Furthermore, the
discussion does not address tax consequences that may be relevant to certain
Non-United States Holders subject to special treatment under the United States
federal income tax laws, such as insurance companies, tax-exempt
organizations, financial institutions or broker-dealers. The discussion does
not discuss any aspects of non-United States or United States state and local
tax consequences that may be relevant to Non-United States Holders. Finally,
the discussion is based on the current provisions of the Code, the final,
temporary and proposed Treasury Regulations promulgated thereunder, and
administrative and judicial interpretations of the foregoing, all as in effect
on the date of this Prospectus and all of which are subject to change,
possibly with retroactive effect.

PROSPECTIVE NON-UNITED STATES HOLDERS ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS REGARDING THE SPECIFIC UNITED STATES FEDERAL, STATE AND LOCAL AND
NON-UNITED STATES INCOME, ESTATE AND OTHER TAX CONSEQUENCES TO THEM OF THE
OWNERSHIP AND DISPOSITION OF COMMON STOCK (INCLUDING SUCH HOLDER'S STATUS AS A
NON-UNITED STATES HOLDER).

DIVIDENDS

Dividends paid by the Company to a Non-United States Holder will generally
be subject to United States federal income tax withholding at the rate of 30
percent of the gross amount of the dividends, or at such lower rate as may be
specified by an applicable United States income tax treaty. Under the United
States Treasury Regulations currently in effect and published Revenue Rulings,
dividends paid to an address in a foreign country generally are presumed to be
paid to a resident of such country (unless the payor has actual knowledge to
the contrary) for purposes of both applying the withholding tax and
determining the applicability of a reduced treaty rate of withholding, if any.
Under newly issued United States Treasury Regulations, which will become
effective for payments made after December 31, 1998, however, a Non-United
States Holder who wishes to claim the benefit of an applicable reduced treaty
rate of withholding will be required to satisfy certain certification and
other requirements, including the requirement generally to file a properly
completed IRS Form W-8 with the Company, the paying agent or such other entity
as may be required to withhold tax. The new Treasury Regulations also provide
special rules for dividends paid to foreign intermediaries, United States or
foreign wholly-owned entities that are disregarded as entities separate from
their owners for United States federal income tax purposes, and flow-through
entities or arrangements that are treated as fiscally transparent for United
States federal income tax purposes or under the laws of an applicable income
tax treaty jurisdiction or both. For example, in the case of Common Stock held
by a foreign partnership, the certification requirement will be applied to the
partners of the partnership, rather than the partnership itself, although the
partnership will also be required to provide certain information, and a look-
through rule is provided for tiered partnership structures.

34
<PAGE>

A Non-United States Holder eligible for a reduced rate of United States
withholding tax pursuant to a tax treaty may obtain a refund of any excess
amounts currently withheld by filing an appropriate claim for refund with the
United States Internal Revenue Service (the "IRS"). To the extent that a
distribution with respect to the Common Stock represents a return of basis for
United States federal income tax purposes, a Non-United States Holder may
apply for a refund of any amounts currently withheld with respect to such
return of basis by filing an appropriate claim for refund with the IRS.

Dividends received by a Non-United States Holder that are effectively
connected with the conduct by the Non-United States Holder of a trade or
business within the United States (or, if certain income tax treaties apply,
that are attributable to a permanent establishment maintained by such Non-
United States Holder in the United
States) are exempt from United States federal income tax withholding provided
that such Non-United States Holder files with the Company, its paying agent or
such other entity as may be required to withhold tax, a properly completed IRS
Form 4224 (or, in the case of an applicable tax treaty, IRS Form 1001), or,
after the newly issued United States Treasury Regulations become effective on
January 1, 1999, a properly completed IRS Form W-8. In general, a Non-United
States Holder will not be considered to be engaged in a trade or business
within the United States solely as a result of ownership of Common Stock. If
the dividends are effectively connected with a United States trade or business
(or are attributable to a United States permanent establishment), the
dividends will be subject to United States federal income tax (on a net income
basis) at the same graduated rates applicable to United States persons. In the
case of a Non-United States Holder that is a corporation, such effectively
connected dividends may also be subject to the branch profits tax (which is
generally imposed at a 30 percent rate (or a lower applicable treaty rate) on
repatriated effectively connected earnings and profits).

DISPOSITION OF COMMON STOCK

A Non-United States Holder generally will not be subject to United States
federal income tax (and no tax generally will be withheld) on any gain
realized upon the sale or other disposition of Common Stock unless (i) such
gain is effectively connected with a United States trade or business of the
Non-United States Holder (or, if certain income tax treaties apply, such gain
is attributable to a permanent establishment maintained by such Non-United
States Holder in the United States), (ii) the gain is not described in clause
(i) above and the Non-United States Holder is a non-resident alien individual
who holds the Common Stock as a capital asset and who is present in the United
States for a period or periods aggregating 183 days or more during the
calendar year (or taxable year if one has been established) in which such
disposition occurs, and either (a) such individual's "tax home," within the
meaning of Section 911(d)(3) of the Code, is in the United States or (b) the
gain is attributable to an office or other fixed place of business in the
United States, (iii) the Non-United States Holder is an individual who is a
former citizen or long-term resident alien of the United States and who is
subject to tax pursuant to the provisions of the United States federal income
tax laws applicable to certain United States expatriates, or (iv) the Company
is, or has been at any time during the five-year period preceding the
disposition (or such shorter period during which such Non-United States Holder
has owned such Common Stock), a "United States real property holding
corporation" for United States federal income tax purposes and, so long as the
Common Stock continues to be "regularly traded on an established securities
market" for tax purposes, the Non-United States Holder disposing of the Common
Stock directly or indirectly owned more than five percent in value of the
Common Stock at any time during such five-year (or shorter) period.

A corporation is generally a "United States real property holding
corporation" if the fair market value of its United States real property
interests equals or exceeds 50 percent of the sum of the fair market value of
its worldwide real property interests plus its other assets used or held for
use in a trade or business both within and without the United States. The
Company believes it is not currently, and does not expect that it will become,
a United States real property holding corporation for United States federal
income tax purposes. There can be no assurance, however, that the Company will
not become, or be determined to be, such a corporation.

Gain that is effectively connected with the conduct of a trade or business
by a Non-United States Holder within the United States (or that is
attributable to a United States permanent establishment maintained by such

35
<PAGE>

Non-United States Holder in the United States) will be subject to United
States federal income tax (on a net income basis) at the same graduated rates
applicable to United States persons, but will not be subject to withholding.
In the case of a Non-United States Holder that is a corporation, such gain may
also be subject to the branch profits tax. An individual Non-United States
Holder that is described under clause (ii) above will be subject to a flat 30
percent tax on the gain derived from the sale, which gain may be offset by
certain U.S.-source capital losses (notwithstanding the fact that such
individual is not considered to be a resident of the United States for United
States federal income tax purposes).

BACKUP WITHHOLDING AND INFORMATION REPORTING

The Company must report annually to the IRS and to each Non-United States
Holder the amount of dividends paid, and the tax withheld, with respect to
shares of Common Stock held by such holder. These information reporting
requirements apply regardless of whether the withholding tax was reduced or
eliminated
by an applicable tax treaty. This information may also be made available
(under the provisions of an applicable income tax treaty or other
international agreement) to the tax authorities of the country in which the
Non-United States Holder resides. United States federal income tax backup
withholding (imposed at a rate of 31 percent on dividends paid to certain
holders who fail to provide in the required manner certain identifying
information, such as the holder's name, address and taxpayer identification
number, or under certain other circumstances) generally does not apply to
dividends that are subject to United States federal income tax withholding at
the 30 percent statutory rate or at a reduced tax treaty rate, dividends that
are effectively connected with a United States trade or business of the Non-
United States Holder, or dividends paid to a Non-United States Holder at an
address outside the United States or otherwise to a Non-United States Holder
who is an "exempt recipient" (such as a corporation). Under the newly issued
United States Treasury Regulations, certain Non-United States Holders who are
not currently subject to backup withholding on dividend payments will have to
certify as to their non-United States status to avoid backup withholding on
dividends paid after December 31, 1998.

If a Non-United States Holder sells or otherwise disposes of shares of
Common Stock to or through a United States office of a broker, the broker is
required to file an information return and is required to apply backup
withholding at the rate of 31 percent unless the Non-United States Holder has
provided the broker with a certification, under penalties of perjury, as to
its non-United States status or has otherwise established its entitlement to
an exemption from backup withholding. If payment of the proceeds from the sale
or other disposition of Common Stock by a Non-United States Holder is made to
or through an office of a broker outside the United States, the broker
generally will not be required to apply backup withholding or to file
information returns, except as provided below. Under the Treasury Regulations
currently in effect, information reporting (but not backup withholding) is
required with respect to the payment of proceeds from the sale or other
disposition of Common Stock to or through a foreign office of a broker that is
(a) a United States person, (b) a controlled foreign corporation for United
States federal income tax purposes, or (c) a foreign person 50 percent or more
of whose gross income for the three-year period ending with the close of the
taxable year preceding the year of payment (or for the part of that period
that the broker has been in existence) is effectively connected with the
conduct of a trade or business in the United States, unless that broker has
documentary evidence in its files that the payee is not a United States person
(and the broker has no actual knowledge to the contrary) and certain other
conditions are met, or the payee has otherwise established its entitlement to
an exemption. The newly issued United States Treasury Regulations, which will
become effective for payments made after December 31, 1998, expand the
categories of brokers that will be required to comply with the information
reporting requirements with respect to the payment of proceeds from the sale
or other disposition of Common Stock effected at an office outside the United
States. As a result, information reporting may apply to certain payments of
proceeds from the sale or other disposition of Common Stock made after
December 31, 1998 by or through foreign offices of brokers that were
previously exempt. Under the new Treasury Regulations, however, backup
withholding will not be required with respect to the payment of proceeds from
the sale or other disposition of Common Stock effected at a foreign office of
a broker unless the broker has actual knowledge that the payee is a United
States person.

36
<PAGE>

Backup withholding is not an additional tax. Amounts withheld under the
backup withholding rules are generally allowable as a refund or credit against
a Non-United States Holder's United States federal income tax liability, if
any, provided that the required information is furnished to the IRS.

As previously noted above, the procedures for United States federal income
tax withholding on dividend payments and some of the associated backup
withholding and information reporting rules are the subject of new United
States Treasury Regulations, which were issued on October 6, 1997, and become
effective for payments made after December 31, 1998, subject to certain
transition rules. These new Treasury Regulations modify the procedures for
establishing an exemption from or a reduced rate of withholding tax as
described above, as well as the certification procedures and forms for
purposes of backup withholding and information reporting, and also clarify and
modify reliance standards. Prospective Non-United States Holders should
consult their own tax advisors concerning these new Treasury Regulations and
the effect of such Treasury Regulations on their ownership of Common Stock.

ESTATE TAX

Common Stock owned, or treated as owned, by an individual who is neither a
citizen or a resident (as specially defined for United States federal estate
tax purposes) of the United States at the time of such individual's death will
be included in such individual's gross estate for United States federal estate
tax purposes and thus will be subject to United States federal estate tax,
subject to certain credits, at graduated rates of up to 55 percent, unless an
applicable estate tax treaty provides otherwise.

37
<PAGE>

UNDERWRITING

Subject to the terms and conditions set forth in an international purchase
agreement (the "International Purchase Agreement") among the Company, the
Selling Shareholder, Bandag and each of the underwriters named below (the
"International Managers") and concurrently with the sale of 2,716,000 shares
of Common Stock to the U.S. Underwriters (as defined below), the Company and
the Selling Shareholder have agreed to sell to the International Managers, and
each of the International Managers severally has agreed to purchase from the
Company and the Selling Shareholder the number of shares of Common Stock set
forth opposite its name below.

<TABLE>
<CAPTION>
NUMBER
OF
INTERNATIONAL UNDERWRITER SHARES
------------------------- -------
<S> <C>
Merrill Lynch International...................................... 257,197
William Blair & Company, L.L.C................................... 257,197
Robert W. Baird & Co. Incorporated............................... 82,303
McDonald & Company Securities, Inc............................... 82,303
-------
Total........................................................ 679,000
=======
</TABLE>

Merrill Lynch International ("Merrill Lynch"), William Blair & Co., L.L.C.,
Robert W. Baird & Co. Incorporated and McDonald & Company Securities, Inc. are
acting as representatives (the "International Representatives") of the
International Managers.

The Company, the Selling Shareholder and Bandag have also entered into a
purchase agreement (the "U.S. Purchase Agreement" and, together with the
International Purchase Agreement, the "Purchase Agreements") with certain
underwriters in the United States and Canada (collectively, the "U.S.
Underwriters," and together with the International Managers, the
"Underwriters"), for whom Merrill Lynch, Pierce Fenner & Smith Incorporated,
William Blair & Company, L.L.C., Robert W. Baird & Co. Incorporated and
McDonald & Company Securities, Inc. are acting as representatives (the "U.S.
Representatives") and, together with the International Representatives, the
"Representatives"). Subject to the terms and conditions set forth in the U.S.
Purchase Agreement, and concurrently with the sale of 679,000 shares of Common
Stock to the International Managers pursuant to the International Purchase
Agreement, the Company and the Selling Shareholder have agreed to sell to the
U.S. Underwriters, and the U.S. Underwriters have severally agreed to purchase
from the Company and the Selling Shareholder, an aggregate of 2,716,000 shares
of Common Stock. The public offering price per share of Common Stock and the
underwriting discount per share of Common Stock are identical under the
International Purchase Agreement and the U.S. Purchase Agreement. The
respective percentages of the Common Stock to be sold by each of the Company
and the Selling Shareholder will be identical in the U.S. Offering and the
International Offering.

In the International Purchase Agreement and the U.S. Purchase Agreement, the
several International Managers and the several U.S. Underwriters,
respectively, have agreed, subject to the terms and conditions set forth
therein, to purchase all of the shares of Common Stock being sold pursuant to
each such agreement if any of the shares of Common Stock being sold pursuant
to such agreement are purchased. Under certain circumstances involving a
default by an Underwriter, the commitments of non-defaulting International
Managers
or U.S. Underwriters (as the case may be) may be increased or the
International Purchase Agreement or the U.S. Purchase Agreement (as the case
may be) may be terminated. The sale of Common Stock to the International
Managers is conditioned upon the sale of Common Stock to the U.S. Underwriters
and vice versa.

The International Underwriters and the U.S. Underwriters have entered into
an intersyndicate agreement (the "Intersyndicate Agreement") providing for the
coordination of their activities. The Underwriters are permitted to sell
shares of Common Stock to each other for purposes of resale at the initial
public offering price, less an amount not greater than the selling concession.
Under the terms of the Intersyndicate Agreement, the International
Underwriters and any dealer to whom they sell shares of Common Stock will not
offer to sell or sell shares of Common Stock to persons who are United States
or Canadian persons or to persons they believe intend to resell to persons who
are United States or Canadian persons, and the U.S. Underwriters and any
dealer

38
<PAGE>

to whom they sell shares of Common Stock will not offer to sell or sell shares
of Common Stock to non-United States persons or to non-Canadian persons or to
persons they believe intend to resell to non-United States persons or non-
Canadian persons, except in the case of transactions pursuant to the
Intersyndicate Agreement.

The International Representatives have advised the Company and the Selling
Shareholder that the International Managers propose initially to offer the
shares of Common Stock to the public at the public offering price set forth on
the cover page of this Prospectus, and to certain selected dealers at such
price less a concession not in excess of $1.24 per share. The International
Managers may allow, and such dealers may reallow, a discount not in excess of
$.10 per share on sales to certain other dealers. After the initial public
offering, the public offering price, concession and discount may be changed.

Each International Manager has agreed that (i) it has not offered or sold,
and will not for a period of six months following consummation of the Offerings
offer or sell, in the United Kingdom by means of any document, any shares of
Common Stock offered hereby, other than to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise in
circumstances that do not constitute an offer to the public within the meaning
of the Public Offers to Securities Regulations of 1995; (ii) it has complied
with and will comply with all applicable provisions of the Financial Services
Act of 1986 with respect to anything done by it in relation to the Common Stock
in, from or otherwise involving the United Kingdom and (iii) it has only issued
or passed on and will only issue or pass on to any person in the United Kingdom
any document received by it in connection with the issue of the Common Stock if
that person is of a kind described in Article 11(3) of the Financial Services
Act of 1986 (Investment Advertisements) (Exemptions) Order 1996, as amended, or
is a person to whom the document may otherwise lawfully be issued or passed on.

The Company has granted to the International Managers an option, exercisable
within 30 days after the date of this Prospectus, to purchase up to an
aggregate of 101,850 additional shares of Common Stock at the public offering
price set forth on the cover page of this Prospectus, less the underwriting
discount. The International Managers may exercise this option only to cover
over-allotments, if any, made on the sale of Common Stock offered hereby. To
the extent that the International Managers exercise this option, each
International Manager will be obligated, subject to certain conditions, to
purchase a number of additional shares of Common Stock proportionate to such
International Manager's initial amount reflected in the foregoing table. If
purchased, the Underwriters will offer such additional shares on the same terms
as those on which the 3,395,000 shares are being offered.

Purchasers of the shares of Common Stock offered hereby may be required to
pay stamp taxes and other charges in accordance with the laws and practices of
the country of purchase, in addition to the offering price set forth on the
cover page hereof.

The Company has, subject to certain exceptions, agreed not to, directly or
indirectly, offer, pledge, sell, contract to sell or otherwise transfer or
dispose of any shares of Common Stock or any securities convertible into or
exchangeable or exercisable for Common Stock without the prior written consent
of Merrill Lynch for a period of 90 days from the date of this Prospectus,
except that the Company may, without such consent, issue
shares of Common Stock upon the exercise or conversion of any outstanding
options, rights, warrants or other convertible securities, or issue shares of
Common Stock or grant options to purchase shares of Common Stock pursuant to
the Company's employee benefit plans, director stock plan or dividend
reinvestment plan. In addition, the Company's executive officers and directors
have agreed not to effect any sales of Common Stock in open market transactions
without the prior written consent of Merrill Lynch for a period of 90 days from
the date of this Prospectus.

In connection with this Offering, the Underwriters or their respective
affiliates and selling group members (if any) who are qualified market makers
on Nasdaq may engage in "passive market making" in the Common Stock on the
Nasdaq National Market in accordance with Rule 103 of Regulation M under the
Exchange Act. Rule 103 permits, upon the satisfaction of certain conditions,
underwriters and selling group members participating in a distribution that are
also Nasdaq market makers in the security being distributed (or a related

39
<PAGE>

security) to engage in limited market making transactions during the period
when Regulation M under the Exchange Act would otherwise prohibit such
activity. Rule 103 prohibits underwriters and selling group members engaged in
passive market making generally from entering a bid or affecting a purchase at
a price that exceeds the highest bid for those securities displayed on the
Nasdaq National Market by a market maker that is not participating in the
distribution. Under Rule 103, each underwriter or selling group member engaged
in passive market making is subject to a daily net purchase limitation equal to
30% of such entity's average daily trading volume during the two full
consecutive calendar months immediately preceding the date of the filing of the
registration statement under the Securities Act of 1933, as amended (the
"Securities Act") pertaining to the security to be distributed (or such related
security).

In the International Purchase Agreement and the U.S. Purchase Agreement, the
several International Managers and the several U.S. Underwriters, respectively,
have agreed, subject to the terms and conditions set forth therein, to purchase
all of the shares of Common Stock being sold pursuant to each such agreement if
any of the shares of Common Stock being sold pursuant to such agreement are
purchased. Under certain circumstances involving a default by an Underwriter,
the commitments of non-defaulting International Underwriters or U.S.
Underwriters (as the case may be) may be increased or the International
Purchase Agreement or the U.S. Purchase Agreement (as the case may be) may be
terminated. The sale of Common Stock to the International Managers is
conditioned upon the sale of Common Stock to the U.S. Underwriters and vice
versa.

Until the distribution of the Common Stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriters
and certain selling group members to bid for and purchase Common Stock. As the
exception to these rules, the Representatives are permitted to engage in
certain transactions that stabilize the price of the Common Stock. Such
transactions consist of bids or purchases for the purpose of pegging, fixing or
maintaining the price of the Common Stock.

If the Underwriters create a short position in the Common Stock in connection
with the offering, i.e., if they sell more shares of Common Stock than are set
forth on the cover page of this Prospectus, the Representatives may reduce that
short position by purchasing Common Stock in the open market. The
Representatives may also elect to reduce any short position by exercising all
or part of the over-allotment option described above.

The Representatives may also impose a penalty bid on certain Underwriters and
selling group members. This means that if the Representatives purchase shares
of Common Stock in the open market to reduce the Underwriters' short position
or to stabilize the price of the Common Stock, they may reclaim the amount of
the selling concession from the Underwriters and selling group members who sold
those shares as part of the offering.

In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security.

The Company, the Selling Shareholder and Bandag have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended, or to contribute to payments initially the
Underwriters may be required to make in respect thereof.

Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Stock. In addition, neither
the Company nor any of the Underwriters makes any representation that the
Representatives will engage in such transactions or that such transactions,
once commenced, will not be discontinued without notice.

Edgar D. Jannotta, a director of the Selling Shareholder, is Senior Director
of William Blair & Company, L.L.C.

40
<PAGE>

LEGAL MATTERS

The legality of the Common Stock offered hereby has been passed upon for the
Company by Stanley, Lande & Hunter, P.C., Muscatine, Iowa. Certain other legal
matters will be passed upon for the Company by Jones, Day, Reavis & Pogue,
Chicago, Illinois and Stanley, Lande & Hunter, P.C., for the Selling
Shareholder and Bandag by Foley & Lardner, Milwaukee, Wisconsin and for the
Underwriters by Sidley & Austin, Chicago, Illinois. Members of Stanley, Lande &
Hunter, P.C., own of record and beneficially a total of 96,987 shares of Common
Stock.

EXPERTS
The audited consolidated financial statements and schedules of HON INDUSTRIES
Inc. and Subsidiaries as of and for the fiscal year ended December 28, 1996
included in this Prospectus and elsewhere in the Registration Statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in its reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.

AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-3 (of which this Prospectus is
a part) under the Securities Act, with respect to the securities offered
hereby. This Prospectus does not contain all information set forth in the
Registration Statement, certain portions of which have been omitted in
accordance with the rules and regulations of the Commission. For further
information about the Company and the securities offered hereby, reference is
made to the Registration Statement, including the exhibits filed as a part
thereof and otherwise incorporated therein. Statements made in this Prospectus
as to the contents of any document referred to are not necessarily complete,
and in each instance reference is made to such exhibit for a more complete
description and each such statement is qualified in its entirety by such
reference.

The Company is subject to the informational requirements of the Exchange Act
and in accordance therewith files periodic reports, proxy statements and other
information with the Commission. The Registration Statement, including exhibits
thereto, as well as such reports, proxy statements and other information filed
by the Company with the Commission can be inspected, without charge, and copied
at the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549, 7 World Trade Center, 13th
Floor, New York, New York 10048 and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such materials can also be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549, at prescribed rates. The
Commission maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants, including the Company,
that file electronically with the Commission and that is located at
http://www.sec.gov. The Registration Statement was filed electronically with
the Commission.

41
<PAGE>

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission by the Company
(File No. 0-2648) pursuant to the Exchange Act are incorporated by reference in
this Prospectus and made a part hereof: the Company's Annual Report on Form 10-
K for the fiscal year ended December 28, 1996; the Company's Quarterly Reports
on Form 10-Q for the fiscal quarters ended March 29, 1997 and June 28, 1997;
the Company's Current Reports on Form 8-K dated June 30, 1997, October 8, 1997
and October 22, 1997; and the descriptions of the Company's Common Stock set
forth in Item 1 of the Company's Registration Statement on Form 8-A filed May
1, 1967 and Series A Junior Participating Preferred Stock and Rights Agreement
set forth in Item 1 of the Company's Registration Statement on Form 8-A filed
July 12, 1988, and all amendments and reports filed for the purpose of updating
such descriptions.

All documents filed by the Company with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus
and prior to the termination of this offering shall be deemed to be
incorporated by reference into this Prospectus and to be a part hereof from
their respective dates of filing. Any statement contained in a document
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
modifies, supersedes or replaces such statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.

THE COMPANY WILL PROVIDE WITHOUT CHARGE TO ANY PERSON TO WHOM THIS PROSPECTUS
IS DELIVERED, UPON WRITTEN OR ORAL REQUEST OF SUCH PERSON, A COPY OF ANY OR ALL
OF THE DOCUMENTS WHICH HAVE BEEN INCORPORATED BY REFERENCE IN THIS PROSPECTUS,
OTHER THAN EXHIBITS TO SUCH DOCUMENTS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY
INCORPORATED BY REFERENCE INTO THE DOCUMENTS SO INCORPORATED. REQUESTS FOR SUCH
COPIES SHOULD BE DIRECTED TO HON INDUSTRIES INC., OFFICE OF THE SECRETARY, 414
EAST THIRD STREET, P.O. BOX 1109, MUSCATINE, IOWA 52761-7109 (TELEPHONE NUMBER
(319) 264-7400).

42
<PAGE>

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NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY, THE SELLING SHAREHOLDER OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON
STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON WHOM, IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS
OR IN THE AFFAIRS OF THE COMPANY OR THE SELLING SHAREHOLDER SINCE THE DATE
HEREOF.

----------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 7
Recent Developments....................................................... 8
Use of Proceeds........................................................... 9
Market Price of and Dividends on Common Stock............................. 9
Capitalization............................................................ 10
Selected Consolidated Financial and Operating Data........................ 11
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 12
Business.................................................................. 17
Management................................................................ 28
Selling Shareholder....................................................... 30
Description of Capital Stock.............................................. 30
United States Taxation of Foreign Shareholders............................ 34
Underwriting.............................................................. 38
Legal Matters............................................................. 41
Experts................................................................... 41
Available Information..................................................... 41
Incorporation of Certain Documents by Reference........................... 42
Index to Consolidated Financial Statements................................ F-1
</TABLE>

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

3,395,000 SHARES

HON INDUSTRIES INC.

COMMON STOCK

----------------

PROSPECTUS

----------------

MERRILL LYNCH INTERNATIONAL

WILLIAM BLAIR & COMPANY

ROBERT W. BAIRD & CO.
INCORPORATED

MCDONALD & COMPANY
SECURITIES, INC.

OCTOBER 23, 1997

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