REUNION INDUSTRIES INC, POS AM, 1999-11-05

REUNION INDUSTRIES INC
POS AM, 1999-11-05
PLASTICS PRODUCTS, NEC

Previous: ALLIANCE GLOBAL STRATEGIC INCOME TRUST INC, 497, 1999-11-05

Next: AAVID THERMAL TECHNOLOGIES INC, 8-K, 1999-11-05

<PAGE>

As filed with the Securities and Exchange Commission on November 5, 1999

Registration No. 333-56153

- - - --------------------------------------------------------------------------------
- - - --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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

Post-Effective Amendment No. 5
FORM S-4
REGISTRATION STATEMENT
Under
The Securities Act of 1933

----------------
REUNION INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)

----------------
Delaware 3089 06-1439715
(State or Other (Primary Standard Industrial (I.R.S. Employer
Jurisdiction Classification Code Number) Identification No.)
of Incorporation or
Organization)

One Stamford Landing
62 Southfield Avenue
Stamford, Connecticut 06902
(203) 324-8858
(Address, including ZIP code, and telephone number, including area code, of
Registrant's Principal Executive Offices)

----------------
Name, address, including ZIP code, and telephone number, including area code,
of Agent for Service:

Richard L. Evans Copies to:
Reunion Industries, Inc. Herbert B. Conner, Esq.
One Stamford Landing Stephen W. Johnson, Esq.
62 Southfield Avenue Buchanan Ingersoll
Stamford, Connecticut 06902 Professional Corporation
(203) 324-8858 One Oxford Centre
301 Grant Street, 20th Floor
Pittsburgh, Pennsylvania 15219
(412) 562-8800

----------------
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after the effective time of the merger described
in this Registration Statement.

If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]

If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]

If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
----------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT, AS AMENDED, ON
SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY THEIR EFFECTIVE DATE UNTIL THE
REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THESE
REGISTRATION STATEMENTS SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THESE REGISTRATION
STATEMENTS SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.

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

REUNION INDUSTRIES, INC.
One Stamford Landing
62 Southfield Avenue
Stamford, CT 06902

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD DECEMBER 15, 1999

To the Stockholders of Reunion
Industries, Inc.:

NOTICE IS HEREBY GIVEN that the annual meeting of stockholders of REUNION
INDUSTRIES, INC., a Delaware corporation, will be held at the Holiday Inn
Select Stamford, 700 Main Street, Stamford, Connecticut, at 10:00 a.m., local
time, on December 15, 1999, for the following purposes:

1. To consider and act upon a proposal to approve the amended and
restated merger agreement, dated as of July 28, 1999 between Reunion
Industries and Chatwins Group, Inc., a Delaware corporation that currently
owns approximately 36.8% of Reunion Industries' outstanding common stock.
The amended and restated merger agreement provides, among other things, for
(i) Chatwins Group to be merged with and into Reunion Industries, (ii) the
conversion of the common stock of Chatwins Group outstanding immediately
prior to the merger into the right to receive an aggregate of 9,500,000
million shares of Reunion Industries common stock at the effective time
plus up to an additional 500,000 shares of Reunion Industries common stock
if the Chatwins Group divisions, including Kingway Material Handling System
and NAPTech Pressure Systems, achieve specified performance levels in 2000,
and (iii) the conversion of the outstanding preferred stock of Chatwins
Group, plus accumulated dividends thereon, into preferred stock of Reunion
Industries;

2. To elect six directors to the board of directors of Reunion
Industries; and

3. To transact such other business as may properly come before the
meeting.

The board of directors of Reunion Industries has fixed the close of business
on October 22, 1999, as the record date for the determination of stockholders
of Reunion Industries entitled to notice of and to vote at the annual meeting
and at any adjournment thereof. Only holders of record on such date will be
entitled to vote at the annual meeting. A copy of the proxy
statement/prospectus relating to the annual meeting and a form of proxy is
being provided to you along with this notice. The proxy statement/prospectus
also describes the manner in which the shares of Reunion Industries' common
stock will be issued to the stockholders of Chatwins Group in connection with
the merger.

You are urged to read the attached material carefully. It is important that
your shares be represented at the Reunion Industries annual meeting. Whether or
not you plan to attend the annual meeting, you are requested to complete, date,
sign and return the enclosed proxy card promptly in the enclosed pre-addressed
and postage-paid envelope so that it will be received no later than December
14, 1999. If you attend the annual meeting, you may vote in person if you wish,
even though you have previously returned your proxy. Action may be taken on any
of the above items at the annual meeting or on any date to which the annual
meeting has been adjourned or postponed.

PLEASE COMPLETE, DATE, SIGN AND MAIL THE ENCLOSED PROXY IN THE ACCOMPANYING
RETURN ADDRESSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED
STATES. IF YOU LATER DESIRE TO REVOKE OR CHANGE YOUR PROXY FOR ANY REASON, YOU
MAY DO SO AT ANY TIME BEFORE THE ANNUAL MEETING BY DELIVERING TO REUNION
INDUSTRIES A WRITTEN NOTICE OF REVOCATION OR A DULY EXECUTED PROXY BEARING A
LATER DATE OR BY ATTENDING THE ANNUAL MEETING AND VOTING IN PERSON.

By Order of the Board of Directors,

Richard L. Evans
Secretary

Stamford, Connecticut

November , 1999
<PAGE>

REUNION INDUSTRIES, INC.
One Stamford Landing
62 Southfield Avenue
Stamford, CT 06902

PROXY STATEMENT/PROSPECTUS
for the annual meeting of stockholders of Reunion Industries, Inc.

to be held December 15, 1999
and

for the issuance to non-affiliates of Chatwins Group, Inc. of up to

1,800,000 shares of Reunion Industries, Inc. common stock, par value $.01 per
share,
in the merger of
Chatwins Group, Inc. into Reunion Industries, Inc.

This proxy statement/prospectus constitutes all of the following:

. a proxy statement, by which the board of directors of Reunion Industries
is soliciting proxies for the Reunion Industries annual meeting of
stockholders to be held at the Holiday Inn Select Stamford, 700 Main
Street, Stamford, Connecticut, at 10:00 a.m., local time, on December 15,
1999

. notice to Chatwins Group stockholders of their appraisal rights in the
merger pursuant to Section 262 of the Delaware General Corporation Law

. a prospectus for the issuance of up to 1,800,000 shares of Reunion
Industries common stock to non-affiliates of Chatwins Group in the
merger of Chatwins Group into Reunion Industries

After the merger, current Chatwins Group stockholders will own 79.2% of the
common stock of Reunion Industries.

This proxy statement/prospectus is first being mailed to stockholders of
Reunion Industries on or about November 10, 1999.

The information in this proxy statement/prospectus is not complete and may
be changed. Reunion Industries may not issue the Reunion Industries common
stock in the merger until the registration statement filed with the Securities
and Exchange Commission, of which this proxy statement/prospectus is a part, is
effective. This proxy statement/prospectus is not an offer to sell such
securities and it is not soliciting an offer to buy such securities in any
state where the offer or sale is not permitted.

The common stock of Reunion Industries is listed for quotation on the NASDAQ
Small-Cap Market under the symbol "RUNI" and traded on the Pacific Exchange,
Inc. under the symbol "RUN."

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved the Reunion Industries common stock to
be issued in the merger or determined if this proxy statement/prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.

Consider carefully the risk factors beginning on page 17 in this proxy
statement/prospectus.

The date of this proxy statement/prospectus is , 1999.
<PAGE>

PROXY STATEMENT/PROSPECTUS

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
Description Number
- - - ----------- ------
<S> <C>
SUMMARY................................................................. 1

RISK FACTORS............................................................ 17

THE REUNION INDUSTRIES ANNUAL MEETING................................... 24

PROPOSAL 1: THE MERGER.................................................. 27

OTHER MERGER-RELATED MATTERS............................................ 67

DESCRIPTION OF CAPITAL STOCK; DIVIDENDS; TRANSFER AGENT................. 72

COMPARATIVE RIGHTS OF SECURITY HOLDERS.................................. 74

MERGER-RELATED TRANSACTIONS............................................. 76

INTERESTS OF CERTAIN PERSONS IN THE MERGER.............................. 81

LEGAL MATTERS........................................................... 84

REUNION INDUSTRIES, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS............................ 84

REUNION INDUSTRIES, INC. NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS......................................... 90

INFORMATION ABOUT REUNION INDUSTRIES.................................... 95

INFORMATION ABOUT CHATWINS GROUP........................................ 113

OWNERSHIP INFORMATION................................................... 131

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND MATERIAL
CONTACTS WITH THE COMPANY BEING ACQUIRED............................... 133

PROPOSAL 2: THE ELECTION OF DIRECTORS................................... 140

EXPERTS................................................................. 148

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS.............................. F-1

REPORT OF INDEPENDENT ACCOUNTANTS....................................... F-2

REUNION INDUSTRIES, INC. FINANCIAL STATEMENTS AND NOTES................. F-3

REPORT OF INDEPENDENT ACCOUNTANTS....................................... F-43

CHATWINS GROUP, INC. FINANCIAL STATEMENTS AND NOTES..................... F-44

REPORT OF INDEPENDENT ACCOUNTANTS....................................... F-79

KINGWAY MATERIAL HANDLING COMPANY FINANCIAL STATEMENTS AND NOTES........ F-80

ANNEX A--AMENDED AND RESTATED MERGER AGREEMENT DATED AS OF JULY 28, 1999
BETWEEN REUNION INDUSTRIES, INC. AND CHATWINS GROUP, INC............... A-1

ANNEX B--OPINION DATED JULY 30, 1999 OF LEGG MASON WOOD WALKER,
INCORPORATED, TO THE BOARD OF DIRECTORS OF REUNION INDUSTRIES, INC..... B-1

ANNEX C--DELAWARE GENERAL CORPORATION LAW SECTION 262:
APPRAISAL RIGHTS....................................................... C-1

ANNEX D--FINANCIAL PROJECTIONS.......................................... D-1

PART II--INFORMATION NOT REQUIRED IN PROSPECTUS......................... II-1
</TABLE>

<PAGE>

SUMMARY

This summary highlights selected information from this proxy
statement/prospectus, and may not contain all of the information that is
important to you. The following discussions and pro forma calculations assume
the sale of the Klemp division by Chatwins Group. Historical data has been
restated to reflect the classification of Klemp as a discontinued operation. To
better understand the merger and to obtain a more complete description of the
legal terms of this transaction, you should read this entire document
carefully. See also "Where You Can Find More Information" on page 21.

The Reunion Industries Annual Meeting

(see page 24)

The annual meeting of the Reunion Industries stockholders will be held on
December 15, 1999, at 10:00 a.m. local time at the Holiday Inn Select Stamford,
Stamford, Connecticut.

The record date for the Reunion Industries stockholders entitled to receive
notice of and to vote at the Reunion Industries annual meeting is the close of
business on October 22, 1999. On that date, there were 3,940,100 shares of
Reunion Industries common stock outstanding.

The purpose of the annual meeting is:

. to approve the amended and restated merger agreement

. to elect six directors to the board of directors

. to take action on any other matters properly brought before the meeting

The Companies

Reunion Industries, Inc.
One Stamford Landing
62 Southfield Avenue
Stamford, Connecticut 06902
(203) 324-8858

Reunion Industries manufactures high volume, precision plastic products and
provides engineered plastics services through its wholly-owned subsidiary,
Oneida Rostone Corp. Oneida Rostone designs and produces injection molded parts
and provides secondary services such as hot stamping, welding, printing,
painting and assembly of such products. In addition, Oneida Rostone designs and
builds custom molds at its tool shops to produce component parts for specific
customers. Oneida Rostone also compounds and molds thermoset polyester resins.
Oneida Rostone's products are primarily sold to original equipment
manufacturers.

Reunion Industries is also engaged in wine grape agricultural operations in
Napa County, California.

Chatwins Group, Inc.
300 Weyman Plaza
Suite 340
Pittsburgh, Pennsylvania 15236
(412) 885-5501

Chatwins Group designs, manufactures and markets a broad range of fabricated
and machined metal industrial parts and products through its five manufacturing
divisions:

. "CP Industries" produces large, seamless pressure vessels for highly
pressurized gases

. "Hanna" produces industrial hydraulic and pneumatic cylinders

. "Alliance" produces industrial cranes and large mill equipment

. "Steelcraft" produces cold-rolled steel leaf springs

. "Auto-Lok" produces high quality roll formed storage racks

These products are primarily sold to original equipment manufacturers and
end-users in a variety of industries.

1
<PAGE>

The Merger (see page 27)

The proposed merger involves the following:

. Chatwins Group will merge with and into Reunion Industries and its
independent corporate existence will cease

. the common stock of Chatwins Group outstanding prior to the merger will
be converted into the right to receive a total of 9,500,000 shares of
Reunion Industries common stock plus up to an additional 500,000 shares
of Reunion Industries common stock if Chatwins Group and two business
units being acquired by Reunion Industries, Kingway and NAPTech, achieve
specified performance levels in 2000

. shares of Chatwins Group preferred stock outstanding immediately prior to
the merger will be converted into the right to receive new Reunion
Industries 10% Series A preferred stock, having an aggregate initial
redemption price of $8.9 million assuming the merger occurs on December
31, 1999

. the Reunion Industries common stock currently held by Chatwins Group will
be retired

. after the merger, the former stockholders of Chatwins Group will own
approximately 79.2% of Reunion Industries common stock

Reunion Industries expects to complete the merger in the fourth quarter of
1999. However, Reunion Industries cannot predict the exact timing of the merger
because it is subject to a number of conditions.

If you have any questions about the merger or the annual meeting, please
call Richard L. Evans, Secretary, Reunion Industries, at (203) 324-8858.

Reunion Industries' Reasons for the Merger (see page 32)

The board of directors of Reunion Industries has determined that the merger
provides Reunion Industries with the opportunity to combine with Chatwins Group
on terms that are fair from a financial point of view to Reunion Industries and
its stockholders other than Chatwins Group. The board believes that the merger
will, among other things:

. strengthen Reunion Industries' financial condition and make additional
financing more feasible

. be accretive to Reunion Industries' earnings on a pro forma and projected
basis

. permit Reunion Industries to broaden its strategic focus

. increase the net operating loss carryforwards that Reunion Industries
will be able to use before they expire

Opinion of Reunion Industries' Financial Advisor (see page 33)

Reunion Industries' financial advisor with respect to the merger, Legg Mason
Wood Walker, Incorporated, has given a written opinion to Reunion Industries'
board of directors that, as of July 22, 1999, the consideration to be paid in
the merger is fair from a financial point of view to Reunion Industries and its
stockholders other than Chatwins Group. The opinion is subject to the
qualifications and limitations referred to in the opinion. The opinion does not
cover the acquisitions of Kingway and NAPTech. This opinion is attached to this
proxy statement/prospectus as Annex B and Reunion Industries encourages you to
read it carefully.

Chatwins Group's Reasons for the Merger (see page 50)

The board of directors of Chatwins Group has determined that the merger is
in the best interests of Chatwins Group. The board believes that the merger
will, among other things:

. make borrowing less expensive and less restrictive

. provide Chatwins Group stockholders with the liquidity of a publicly-
traded stock

. give Chatwins Group the opportunity to enhance its future earnings by
using Reunion Industries' net operating loss carryforwards

The Chatwins Group's board determined that the terms of the merger by which
these benefits will be realized are fair to and in the best interests of
Chatwins Group and its stockholders.

2
<PAGE>

Federal Income Tax Consequences (see page 67)

Reunion Industries expects the merger to qualify as a tax-free
reorganization for federal income tax purposes. Therefore, no gain or loss will
be recognized by Chatwins Group stockholders or Reunion Industries stockholders
in the merger, except to the extent that Chatwins Group stockholders receive
cash for fractional share interests. Neither Reunion Industries nor Chatwins
Group has requested a ruling from the Internal Revenue Service with respect to
the federal income tax consequences of the merger.

Appraisal Rights (see page 57)

Under Delaware law:

. holders of Reunion Industries common stock will not have appraisal rights
arising from the merger

. holders of Chatwins Group common stock and preferred stock who have not
consented to the approval of the amended and restated

merger agreement have appraisal rights and may demand payment of fair
value for their shares, in cash, as determined by a court, in lieu of the
Reunion Industries common stock they are entitled to receive in the merger

Chatwins Group stockholders who desire to exercise their appraisal rights
must carefully follow the procedures described in this proxy
statement/prospectus.

Merger-Related Transactions

Refinancing Transaction (see page 76)

Reunion Industries currently anticipates that on or about the effective time
of the merger, it will enter into senior secured credit facilities totaling up
to $82 million with Bank of America Business Credit. These credit facilities
are expected to have the following three components:

. a $45.0 million revolving credit facility

. a $27.0 million term loan facility amortizing in 28 quarterly principal
payments

. a $10.0 million capital expenditure term facility amortizing in 20
quarterly principal payments

These three facilities are expected to have a three-year initial term and
automatically renew for additional one-year increments unless either party
gives the other notice of termination 60 days prior to the beginning of the
next one-year term.

Reunion Industries will be required to pay closing, commitment and agent
fees if it enters into these credit facilities. These credit facilities will be
secured by a first priority lien on substantially all of the assets of Reunion
Industries which, after the merger, will include the assets of Chatwins Group.

These credit facilities are contingent upon Reunion Industries securing
$35.0 million in subordinated debt from additional lenders. Reunion Industries
and Chatwins Group have provided information to and had discussions with
several potential lenders for financing to satisfy this condition, but have not
yet received any proposals or indications that financing is available on
acceptable terms.

While continuing to pursue these discussions, Reunion Industries and
Chatwins Group have also been considering alternatives, including:

. retiring only a portion of the Chatwins Group 13% senior notes

. retiring only a portion of the debt assumed in the Kingway and NAPTech
acquisitions

. deferring the Kingway and/or NAPTech acquisitions

Some of these alternatives would require the consent of or modification of
agreements with third parties and/or modification of terms in the merger
agreement. Reunion Industries and Chatwins Group have not yet taken any steps
to obtain these consents or modifications of agreements.

There is no assurance that Reunion Industries will be able to complete this
refinancing transaction on favorable terms or at all.

Kingway Acquisition (see page 79)

Reunion Industries entered into a merger agreement dated as of March 30,
1999 providing for the acquisition of Stanwich Acquisition Corp., which does
business as Kingway Material Handling

3
<PAGE>

Company. Kingway is expected to be combined with Auto-Lok, the materials
handling division of Chatwins Group, after the merger. The Kingway acquisition
is conditioned upon completion of the merger.

NAPTech Acquisition (see page 80)

Reunion Industries entered into a merger agreement dated as of March 30,
1999 providing for the acquisition of NPS Acquisition Corp., which does
business as NAPTech Pressure Systems. NAPTech is expected to be combined with
the CP Industries division of Chatwins Group after the merger. The NAPTech
acquisition is conditioned upon completion of the merger.

Sale of Klemp (see page 76)

On September 30, 1999, Chatwins Group completed the sale of substantially
all of the business and assets of the U.S. domestic operations of its Klemp
division to Alabama Metal Industries Corporation for $32,100,000 in cash,
subject to post-closing adjustments, and the assumption of liabilities. The
cash proceeds from the sale were used to pay down existing indebtedness of
Chatwins Group.
Sources and Uses of Funds
(dollars in thousands)

Pro forma sources and uses of funds as of June 30, 1999 are set forth below.
See "Reunion Industries, Inc. and Subsidiaries Unaudited Pro Forma Consolidated
Condensed Financial Statements" beginning on page 84.

<TABLE>
<CAPTION>
Sources
- - - -------
<S> <C>
Sale of Klemp $ 31,500
New revolving credit facility 33,636
New term loan A 27,000
New subordinated term loan B 35,000
--------
Total $127,136
========
</TABLE>
<TABLE>
<CAPTION>
Uses
- - - ----
<S> <C>
Redemption of Chatwins Group
13% Senior Notes $ 53,222
Refinance Chatwins Group Bank
Debt 31,417
Refinance Reunion Industries
Bank Debt 14,489
Bargo Settlement 5,000
Acquisitions of Kingway and
NAPTech 21,508
Transaction Costs 1,500
--------
Total $127,136
========
</TABLE>

4
<PAGE>

Stock Ownership
The following charts illustrate the stock ownership of Reunion Industries,
Chatwins Group, Kingway and NAPTech by the principal officers and directors of
Reunion Industries and Chatwins Group prior to the merger and the acquisitions,
and the post-merger stock ownership of Reunion Industries.

Pre-Merger Stock Ownership of:

A. Reunion Industries(1)

Bradley
FLP
47.4%(2)

Chatwins Charles E. John Other Richard Stanwich Public
Group Bradley, Sr. Poole Directors Evans Financial 52.0%
36.8% 0.0% 0.0% 4.0% 0.3% Services
6.9%(3)

Reunion Industries
100%

(1) Percentages do not include currently exercisable options for 154,600 shares
of stock. Mr. Bradley, Sr. owns options for 27,600 shares, Mr. Amonett, Mr.
Cassidy, Mr. Clerihue, Mr. Myers and Mr. Poole each own options for 15,000
shares and Mr. Evans owns options for 52,000 shares.
(2) The Bradley Family Limited Partnership owns 47.4% of Chatwins Group stock.
Charles E. Bradley, Sr. owns 1% of the Bradley Family Limited Partnership
as its general partner and 55% as a limited partner. John G. Poole
currently has voting rights over the shares of Chatwins Group owned by the
Bradley Family Limited Partnership. After the merger, the voting rights
will be held instead by Mr. Bradley's son, Kimball J. Bradley.
(3) Stanwich Financial Services Corp. is indirectly owned 42.5% by Charles E.
Bradley, Sr., 42.5% by Mr. Bradley's son, Charles E. Bradley, Jr., and 7.5%
by John G. Poole.

B. Chatwins Group(1,2)

Kimball Charles E. Bradley Poole Poole Joseph Other Public
Bradley Bradley, Sr. FLP FLP Family Lawyer Chatwins 17.3%
8.2% 0.7% 47.4% 15.2% 3.6% 6.2% Group
affiliates
1.4%

Chatwins Group
100%

(1) Chart shows ownership of common stock only. See also note 2 above. Charles
E. Bradley, Sr. and John G. Poole beneficially own 100% of the Chatwins
Group preferred stock, which will be converted at the effective time of the
merger into newly issued Reunion Industries Series A Preferred Stock.

(2) Percentages include currently exercisable warrants for 2,675 shares of
common stock.

C. Kingway Material Handling Company(1)

Charles E. Kimball Richard
Bradley, Sr. Bradley Evans
42.5% 42.5% 15.0%

Kingway Material Handling Company
100%

(1) Chart shows ownership of common stock only. Stanwich Financial Services
owns 100% of the Kingway preferred stock, which will be converted into
shares of newly issued Reunion Industries Series B Preferred Stock upon the
merger.

5
<PAGE>

D. NAPTech Pressure Systems

Charles E.
Bradley, Sr.
100%
NAPTech Pressure Systems
100%
</TABLE>

Post-Merger Stock Ownership of Reunion Industries

Common Stock

Charles E. John Other Chatwins Reunion
Bradley, Sr. Poole & Other Joseph Richard Chatwins Group Industries
& Family Family Directors Lawyer Evans Group Public Public
46.5% (1,2) 15.1% (1,3) 1.3% (4) 4.9% 0.1% affiliates 13.7% 17.3%
1.1%

Reunion Industries
100%

(1) Includes shares owned by Stanwich Financial Services in proportion to their
respective ownership percentages in Stanwich Financial Services.
(2) Includes stock held by Kimball J. Bradley and the Bradley Family Limited
Partnership.
(3) Includes shares owned by Poole Family Limited Partnership and other members
of his family.
(4) Shares owned by the post-merger board of directors, excluding Messrs.
Charles E. Bradley, Sr., Kimball J. Bradley, John G. Poole and Joseph C.
Lawyer.

Preferred Stock

Series A Preferred Series B Preferred Stock
Stock

Charles E. Bradley, Sr. Charles E. John Third
and John Poole Bradley, Sr. Poole Party
100%(1) & Family 7.5%(2) 7.5%(2)
85.0%(2)
Reunion Industries Reunion Industries
100% 100%

(1) Charles E. Bradley, Sr. and John G. Poole will beneficially own 100% of the
Reunion Industries Series A Preferred Stock upon conversion of their
Chatwins Group preferred stock. The individual ownership percentages will
be determined based on a formula which varies depending on time and value
received.
(2) Shares of Reunion Industries Series B Preferred Stock owned by Stanwich
Financial Services upon conversion of the Kingway preferred stock, in
proportion to their respective ownership percentages in Stanwich Financial
Services.

Interests of Certain Persons in the Merger (see page 81)

Some relationships among the directors, officers and stockholders of Reunion
Industries and Chatwins Group give rise to conflicts of interest between the
parties in the negotiation of the terms and conditions of the merger. Those
relationships include the following:

. Mr. Charles E. Bradley, Sr., a director and the President and Chief
Executive Officer

6
<PAGE>

of Reunion Industries, is the Chairman and a director of Chatwins Group
and a beneficial owner of approximately 48% of the outstanding common
stock of Chatwins Group

. Mr. Poole, a director of Reunion Industries, is a director of Chatwins
Group and a beneficial owner of approximately 67% of the outstanding
common stock of Chatwins Group

. Thomas L. Cassidy, a director of Reunion Industries, was a director of
Chatwins Group until June 1997 and beneficially owns 100 shares of
Chatwins Group common stock, which represents less than 1% of the
outstanding shares of Chatwins Group common stock

. Mr. Bradley, Mr. Poole and Mr. Cassidy are holders of approximately
$4.35 million of Chatwins Group's 13% Senior Notes

. Mr. Bradley and Mr. Poole are beneficial owners of the Chatwins Group
preferred stock

Because of these conflicts of interest, the independent directors of
Reunion Industries negotiated and separately considered and approved the
amended and restated merger agreement between Reunion Industries and Chatwins
Group and the merger.

Aggregate Consideration and Benefits to be received by Related Persons

As a result of the merger and the acquisitions of Kingway and NAPTech,
these individuals will receive aggregate consideration and benefits as
follows:

<TABLE>
<CAPTION>
Shares of Reunion Industries
--------------------------------
Series A Series B
Name Common(1) Preferred Preferred Cash Other benefits
- - - ---- --------- --------- --------- -------- --------------
<S> <C> <C> <C> <C> <C>
Charles E. Bradley,
Sr..................... 4,571,698(2) (3) 2,125(4) $142,500 (5)(6)
Charles E. Bradley,
Jr..................... -- -- 2,125(4) -- (5)
Kimball J. Bradley...... 5,285,283(2) -- -- $ 42,500 --
Richard L. Evans........ -- -- -- $ 15,000 --
John G. Poole........... 1,446,605(7) (3) 375(4) -- (5)
</TABLE>
- - - -------
(1) Based on 9,500,000 shares to be issued at the effective time.

(2) Including 4,506,827 shares to be received by the Bradley Family Limited
Partnership, of which Mr. Bradley, Sr. is the general partner. Mr. Kimball
Bradley will have voting control of these shares.

(3) Mr. Bradley, Sr. and Mr. Poole will be beneficial owners of 100% of the
Series A preferred stock which will have an aggregate initial redemption
price of $8.9 million assuming the merger occurs on December 31, 1999. The
individual ownership percentages will be determined based on a formula
which varies depending on time and value received.

(4) The Series B preferred stock will be owned by Stanwich Financial Services.
The consideration shown is in proportion to the individual's ownership of
Stanwich Financial Services. See Note 5.

(5) Repayment of debt to Stanwich Financial Services: $7.6 million by Kingway;
and $0.1 million by NAPTech. Stanwich Financial Services is indirectly
owned 42.5% by Mr. Bradley, Sr., 42.5% by Mr. Bradley, Jr., and 7.5% by
Mr. Poole.

(6) Releases of personal guarantees: $21.5 million of Oneida Rostone debt to
The CIT Group/Business Credit, Inc.; $6.2 million of Kingway debt to a
third party; and $7.4 million of NAPTech debt to a third party.

(7) Including 1,446,605 shares to be received by the Poole Family Limited
Partnership, of which Mr. Poole is the general partner.

7
<PAGE>

Post-Merger Board of Directors (see page 63)

The amended and restated merger agreement provides that, upon completion of
the merger, Reunion Industries will add two directors to its board of directors
and Chatwins Group will designate the persons to fill these positions.

Market for Common Stock (see page 101)

Reunion Industries common stock is listed for quotation on the NASDAQ Small-
Cap Market under the symbol "RUNI" and is traded on the Pacific Exchange under
the symbol "RUN." Under NASDAQ and Pacific Exchange rules, the merger
constitutes a "reverse merger" because of the number of shares to be issued in
the merger to Chatwins Group stockholders. As a result, Reunion Industries is
required to apply for listing of the common stock to be issued in the merger on
the NASDAQ Small-Cap Market and on the Pacific Exchange and it intends to do
so. However, at this time, Reunion Industries does not satisfy all of the
requirements for listing on the NASDAQ Small-Cap Market on a post-merger, pro
forma basis. Reunion Industries intends to seek a waiver of those requirements,
but there can be no assurance that the shares of Reunion Industries common
stock will continue to be listed for quotation on the NASDAQ Small-Cap Market
after the merger. In addition, Reunion Industries is considering filing an
application for listing of its shares on the American Stock Exchange.

The table below reflects the high and low prices of the common stock on the
NASDAQ Small-Cap Market for the periods presented. The 1999 periods separately
present the high and low prices through February 25, 1999, the last day
preceding the announcement that Reunion Industries had entered into
negotiations regarding a possible merger with Chatwins Group, and the period
after that announcement. The closing price of the common stock as reported by
the NASDAQ Small-Cap Market on February 25, 1999, was $3.8125 per share. On
March 29, 1999, the day preceding the date the merger agreement was entered
into, the closing price of the common stock was $4.875 per share. On July 29,
1999, the day preceding the date the amended and restated merger agreement was
entered into, the closing price of the common stock was $3.25 per share. On
November 4, 1999, the last trading date prior to the date of this proxy
statement/prospectus, the closing price of the common stock was $2.375 per
share.

<TABLE>
<CAPTION>
Period High Low
------ ------ ------
<S> <C> <C>
February 26 through November 4, 1999....................... $5.250 $2.250
January 1 through February 25, 1999........................ $4.375 $2.625
Calendar Year 1998......................................... $7.625 $2.406
Calendar Year 1997......................................... $5.250 $3.125
</TABLE>

There is no active trading market for Chatwins Group common stock. Assuming
that 9,500,000 shares of Reunion Industries common stock are issued in the
merger and that 292,887.4 shares of Chatwins Group common stock are outstanding
at the time of the merger, which assumes that all outstanding warrants are
exercised prior to the merger, each share of Chatwins Group common stock will
be converted into 32.4 shares of Reunion Industries common stock in the merger.
The equivalent per share value of the Chatwins Group common stock as of October
22, 1999, which is calculated by multiplying 32.4 times the closing market
price of Reunion Industries common stock on that date, was $75.95 per share.

Selected Financial Data

The following tables set forth selected historical consolidated financial
data of Reunion Industries and Chatwins Group. Reunion Industries and Chatwins
Group derived the consolidated income statement data for the years ended
December 31, 1998, 1997 and 1996 from financial statements audited by
PricewaterhouseCoopers LLP, independent accountants, whose report on Reunion
Industries states that

8
<PAGE>

historical cash flows generated by Reunion Industries may not be sufficient to
enable it to meet its obligations when they become due, which raises
substantial doubt about its ability to continue as a going concern. Reunion
Industries and Chatwins Group derived the consolidated balance sheet data as of
June 30, 1999 and the consolidated income statements data for the six months
then ended from unaudited interim financial statements. All data are reported
in thousands, except for per-share data.

Reunion Industries

For a more complete discussion of the financial information presented in the
table below, including liquidity issues and going concern matters, see
"Information About Reunion Industries--Selected Financial Data" and "Reunion
Industries, Inc. Financial Statements and Notes."

Information for 1999 and 1998 includes Juliana Vineyards as a consolidated
subsidiary after the September 1998 purchase of its joint venture partner's
interest. From October 1994 to September 1998, the agricultural operations were
accounted for on the equity method. See "Information About Reunion Industries--
Business--Agricultural Operations." The results of operations and balance sheet
information for Quality Molded Plastics and Data Packaging Limited are included
for all periods after their acquisitions on November 18, 1996. The results of
operations and balance sheet information for the Rostone division of Oneida
Rostone are included for all periods subsequent to its acquisition on February
2, 1996. The results of operations and balance sheet information for the Oneida
division of Oneida Rostone are included for all periods after its acquisition
on September 14, 1995. See "Reunion Industries, Inc. Notes to the Consolidated
Financial Statements--Note 2."

At March 31, 1999 and June 30, 1999, Oneida Rostone was not in compliance
with a financial covenant to maintain a specified level of earnings before
interest, taxes, depreciation and amortization each quarter as required in the
financing agreements with The CIT Group/Business Credit, Inc. The CIT Group has
agreed to waive compliance with this covenant for the quarters ended March 31
and June 30, 1999. In connection with the negotiations for a supplemental term
loan described in "Information about Reunion Industries--Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Factors Affecting Future Liquidity," the financial covenants in the loan
agreement have been amended to levels that management believes can be met in
future periods. However, this debt is expected to be repaid from the proceeds
of the refinancing transactions.

<TABLE>
<CAPTION>
Six Months Year Ended December 31,
Ended --------------------------------------------
June 30, 1999 1998 1997 1996 1995 1994
------------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Continuing Operations
Data:
Operating Revenue..... $38,327 $ 97,318 $93,378 $60,305 $10,855 $ 1,619
Loss From Continuing
Operations(1)........ $ (175) $(10,440) $ (981) $(2,694) $(3,581) $ (660)
Income (Loss) Per
Share--Continuing
Operations--Diluted.. $ (0.04) $ (2.69) $ (0.25) $ (0.70) $ (0.93) $ (0.17)
Balance Sheet Data:
Total Assets.......... $69,436 $ 74,874 $72,059 $75,176 $51,935 $51,639
Long-term Obligations
and Redeemable
Preferred Stock...... $17,682 $ 17,237 $12,654 $15,575 $ 7,947 $ 2,693
Cash Dividends per
Common Share......... $ -0- $ -0- $ -0- $ -0- $ -0- $ -0-
</TABLE>
- - - --------
(1) Loss from Continuing Operations includes the following items which might
affect comparability:

Six months ended June 30, 1999: a $1.6 million charge for interest
and costs related to the company's litigation with Bargo Energy Company
and a $3.6 million gain from the settlement of this litigation. See
"Information About Reunion Industries--Legal Proceedings;"

9
<PAGE>

1998: a $9.2 million charge to record entry of the judgment and
related costs in the company's litigation with Bargo;

1997: a $1.0 million charge for writedown of excess equipment and a
$0.9 million charge for equity in the write-off of joint venture
development costs;

1996: a $1.3 million charge for equity in the write-off of joint
venture development costs;

1994: a $2.1 million gain on the sale of mineral properties.

Chatwins Group

For a more complete discussion of the financial information presented in the
table below, see "Information About Chatwins Group--Selected Financial Data of
Chatwins Group" and "Chatwins Group, Inc. Financial Statements and Notes."

<TABLE>
<CAPTION>
Six Months
Ended Year Ended December 31,
June 30, ----------------------------------------------
1999 1998 1997 1996 1995 1994
---------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Earnings Data(1):
Net Sales............. $ 61,667 $134,583 $136,419 $103,837 $134,205 $113,189
Income (Loss) from
continuing
operations........... $ 41 $ 48 $ 2,455 $ (1,240) $ 3,062 $ (26)
Income (Loss) from
continuing operations
per common share-
basic................ $ (0.65) $ (1.54) $ 8.23 $ (6.98) $ 10.73 $ (1.96)
per common share-
diluted(2).......... $ (0.65) $ (1.54) $ 6.83 $ (6.98) $ 8.90 $ (1.96)
Balance Sheet Data:
Total assets......... $100,186 $108,496 $103,330 $ 95,239 $101,020 $ 90,311
Total long-term
debt(3)............. $ 49,959 $ 50,019 $ 50,043 $ 50,066 $ 50,090 $ 50,966
Cash dividends per
Common Share........ $ -0- $ -0- $ -0- $ -0- $ -0- $ -0-
</TABLE>
- - - --------
(1) Historical data has been restated for the classification of the Klemp
division as a discontinued operation. Chatwins Group holds a minority
voting interest in Reunion Industries which it accounts for under the
equity method. Income from continuing operations is presented excluding
Chatwins Group's equity in the results of operations of Reunion Industries.
On September 14, 1995, Chatwins Group sold Oneida to Reunion Industries.
This transaction was treated as the disposal of a portion of a line of
business with Oneida's historical operating results through September 14,
1995 and resulting gain on sale of $1.2 million classified within
continuing operations.
(2) Includes the dilutive effect of the Chatwins Group warrants.
(3) Excludes borrowings under revolving credit facilities and includes current
maturities of the 13% Senior Notes.

10
<PAGE>

RECENT DEVELOPMENTS

Reunion Industries. Reunion Industries' results of operations for the three
months and nine months ended September 30, 1999 were as follows (in thousands,
except per share amounts):

<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- -------------------
1999 1998 1999 1998
--------- --------- -------- ---------
<S> <C> <C> <C> <C>
Net Sales.......................... $ 19,440 $ 22,957 $ 57,767 $ 74,029
Loss from Continuing Operations.... $ (84) $ (962) $ (259) $ (10,018)
Net Income (Loss).................. $ 375 $ (962) $ (170) $ (11,218)
Income (Loss) Per Share--Basic and
Diluted:
Continuing Operations............ $ (0.02) $ (0.25) $ (0.07) $ (2.59)
Net Income (Loss)................ $ 0.10 $ (0.25) $ (0.04) $ (2.90)
</TABLE>

There have been no significant changes in trends. Oneida Rostone revenues
and operating income were $17.6 million and $0.7 million, respectively, for the
three months ended September 1999. Juliana Vineyards revenues and operating
income were $1.9 million and $0.3 million, respectively, for the three month
period. Corporate expenses were $0.3 million.

Chatwins Group. Chatwins Group's preliminary results of operations for the
three and nine months ended September 30, 1999 were as follows (in thousands,
except per share amounts):

<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- ------------------
1999 1998 1999 1998
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Net Sales............................ $ 26,512 $ 35,946 $ 88,125 $ 98,950
Income (Loss) from Continuing
Operations.......................... $ (117) $ 122 $ (125) $ (424)
Net Income (Loss).................... $ 2,077 $ 243 $ 2,421 $ (1,126)
Income (Loss) Per Share--Basic:
Continuing Operations.............. $ (0.80) $ 0.03 $ (1.61) $ (2.64)
Net Income (Loss).................. $ 6.77 $ 0.45 $ 7.18 $ (5.07)
Income (Loss) Per Share--Diluted:
Continuing Operations.............. $ (0.80) $ 0.03 $ (1.61) $ (2.64)
Net Income (Loss).................. $ 6.77 $ 0.44 $ 7.18 $ (5.07)
</TABLE>

There were no significant non-seasonal changes in trends during the quarter
for the Chatwins Group continuing businesses.

During the third quarter of 1999, the Company's management adopted a plan to
exit the oil and gas business through the sale of substantially all of the oil
and gas assets of its Europa division. Upon adoption of such plan, the Company
classified and began accounting for Europa as a discontinued operation in
accordance with Accounting Principles Board Opinion No. 30, "Reporting the
Results of Operations--Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions", which requires discontinued operations to be reported separately
from continuing operations. Europa had revenues of $27,000 and $81,000 for the
three and nine months ended September 30, 1999 and had zero operating income in
both periods.

11
<PAGE>

Unaudited Selected Pro Forma Consolidated Condensed Financial Information (see
page 79)

The table below sets forth unaudited selected historical financial data as
of and for the year ended December 31, 1998 and the six-month period ended June
30, 1999, and pro forma financial information as of December 31, 1998 and June
30, 1999 for Reunion Industries assuming that the merger, the sale of Klemp,
the refinancing transaction and the acquisitions of Kingway and NAPTech had
occurred on January 1, 1998.

The pro forma presentation depends upon the assumptions set forth in the
notes to the unaudited pro forma consolidated financial information appearing
elsewhere in this proxy statement/prospectus. You should read the information
presented in conjunction with the unaudited pro forma consolidated financial
information and notes thereto and the financial statements and corresponding
notes thereto for Reunion Industries and Chatwins Group contained elsewhere in
this proxy statement/prospectus. The pro forma data are not necessarily
indicative of the actual or future operating results or financial position that
would have occurred or will occur upon consummation of these transactions. All
data are reported in thousands, except for per share data.

<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1999 December 31, 1998
------------------ -------------------
Pro Forma Pro Forma
Actual Combined Actual Combined
------- --------- -------- ---------
<S> <C> <C> <C> <C>
Operations Data
Net Sales............................. $38,327 $109,080 $ 97,318 $255,595
Income (Loss) From Continuing
Operations........................... $ (175) $ 286 $(10,440) $ (3,796)
Income (Loss) From Continuing
Operations Available to Common
Stockholders......................... $ (175) $ (490) $(10,440) $ (5,349)
Income (Loss) From Continuing Ops--Per
Share................................
Basic............................... $ (0.04) $ (0.04) $ (2.69) $ (0.45)
Diluted............................. $ (0.04) $ (0.04) $ (2.69) $ (0.45)
Balance Sheet Data
Total Assets.......................... $69,436 $169,517
Long-Term Indebtedness and Redeemable
Preferred Stock...................... $17,682 $ 75,112
Cash Dividends Per Common Share....... 0.00 $ 0.00
</TABLE>

12
<PAGE>

Comparative Per Common Share Data

The table below sets forth historical and pro forma per share financial
information for the year ended December 31, 1998 and the six-month period ended
June 30, 1999 for Reunion Industries and Chatwins Group assuming that the
merger, the sale of Klemp, the refinancing transaction and the acquisitions of
Kingway and NAPTech had occurred on January 1, 1998. The pro forma data are not
necessarily indicative of the actual or future operating results or financial
position that would have occurred or will occur upon consummation of these
transactions.

<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1999 December 31, 1998
---------------------------------- ----------------------------------
Reunion Chatwins Reunion Chatwins
Industries Group Pro Forma Industries Group Pro Forma
Historical Historical(1) Combined Historical Historical(1) Combined
---------- ------------- --------- ---------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Income (Loss) Per Share
From Continuing
Operations
Basic................. $(0.04) $(0.02) $ (0.04) $(2.69) $(0.04) $ (0.45)
Diluted............... $(0.04) $(0.02) $ (0.04) $(2.69) $(0.04) $ (0.45)
Weighted Average Number
of Common Shares
(Thousands)
Basic................. 3,908 9,500 11,958 3,881 9,500 11,931
Diluted............... 3,908 9,500 11,958 3,881 9,500 11,931
Cash Dividends Per
Common Share........... $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
Book Value Per Common
Share.................. $ 3.83 $(0.89) $ 0.00
</TABLE>
- - - --------
(1) Assuming 9,500,000 shares outstanding to give pro forma effect to the
recapitalization of Chatwins Group in connection with the merger.

Voting of Directors, Executive Officers and Affiliate Shares

Reunion Industries. Under Delaware law, adoption of the amended and restated
merger agreement requires the affirmative vote of the holders of at least a
majority of the shares of common stock of Reunion Industries entitled to vote.
Directors and executive officers of Reunion Industries, and their respective
affiliates, including Chatwins Group, have the power to vote approximately
48.0% of the outstanding Reunion Industries common stock. Reunion Industries
believes that these persons will vote for approval of the amended and restated
merger agreement.

Chatwins Group. Under Delaware law, adoption of the amended and restated
merger agreement requires the affirmative vote of the holders of at least a
majority of the shares of common stock of Chatwins Group entitled to vote.
Directors and executive officers of Chatwins Group, and their respective
affiliates, have the power to vote approximately 83% of the outstanding
Chatwins Group common stock. On November , 1999, a majority of the
stockholders of Chatwins Group approved and adopted the amended and restated
merger agreement by written consent in accordance with Delaware law. Therefore,
the consent of the other Chatwins Group stockholders to the approval of the
amended and restated merger agreement is not required and is not being
solicited.

13
<PAGE>

The Amended and Restated Merger Agreement (see page A-1)

The amended and restated merger agreement between Reunion Industries and
Chatwins Group, is attached as Annex A. Reunion Industries encourages you to
read this document. Reunion Industries has also filed with the Securities and
Exchange Commission other related documents as exhibits to its registration
statement. Please see the section titled "Where You Can Find More Information"
on page 21 for instructions on how to obtain copies of those exhibits.

Conditions to Consummation of the Merger (see page 54)

Reunion Industries and Chatwins Group will complete the merger only if a
number of conditions are satisfied or waived, including the following:

. approval of the amended and restated merger agreement by the stockholders
of Reunion Industries and Chatwins Group, a condition which has been
satisfied with respect to Chatwins Group stockholders

. no more than 5.0% of the holders of Chatwins Group common stock exercise
their appraisal rights

. receipt of a fairness opinion by the board of Reunion Industries, a
condition which has been satisfied

. the listing of the Reunion Industries common stock issued in the merger
on the NASDAQ Small-Cap Market and the Pacific Exchange

. there having occurred no material adverse change in the business,
financial condition or results of operations of Reunion Industries or
Chatwins Group

. Chatwins Group having caused all of its outstanding warrants either to be
converted into common stock or to be terminated

. Reunion Industries having obtained financing sufficient to retire $50
million of outstanding senior notes of Chatwins Group and to provide
adequate working capital after the merger

. the sale of the domestic operations of the Klemp division of Chatwins
Group

Reunion Industries and Chatwins Group may waive the condition that all of
the Chatwins Group senior notes be refinanced and Chatwins Group may waive the
condition that the Reunion Industries common stock issued in the merger be
listed in the NASDAQ Small-Cap Market.

By the terms of the amended and restated merger agreement, the merger is not
conditioned upon the acquisitions of Kingway and NAPTech.

Termination (see page 55)

The amended and restated merger agreement may be terminated in the following
circumstances:

. by mutual consent of Reunion Industries and Chatwins Group

. by Reunion Industries or Chatwins Group at any time if for any reason the
merger shall not have been consummated within 120 days after the date of
the amended and restated merger agreement and the failure to consummate
the merger is not caused by a breach of the amended and restated merger
agreement by the terminating party

. by Reunion Industries if there has been a misrepresentation or breach on
the part of Chatwins Group in its representations, warranties and
covenants which has not been cured or waived

. by Chatwins Group if there has been a misrepresentation or breach on the
part of Reunion Industries in its representations, warranties and
covenants which has not been cured or waived

. by either party if any court of competent jurisdiction or other competent
governmental or regulatory authority shall have issued a nonappealable
order restricting, preventing or otherwise prohibiting the merger

Amendment or Extension (see page 55)

The amended and restated merger agreement provides that Reunion Industries
and Chatwins Group may, by mutual agreement, amend, modify, supplement, extend
or abandon the agreement at any time prior to the effective time of the merger,
even following stockholder approval. The merger

14
<PAGE>

agreement permits the boards of directors of Reunion Industries and Chatwins
Group to amend the merger agreement after stockholder approval if the amendment
does not do any of the following:

. alter or change the amount or kind of merger consideration received

. alter or change any term of the certificate of incorporation of Reunion
Industries

. alter or change any of the terms and conditions of the agreement in a way
that would adversely affect the holders of any class or series of
securities held by stockholders

Reunion Industries will recirculate a revised proxy statement/prospectus and
resolicit proxies for approval of the merger if any material terms of the
merger agreement are amended prior to stockholder approval of the merger
agreement.

Accounting Treatment (see page 70)

Reunion Industries will account for the merger as a purchase under APB
Opinion No. 16, "Business Combinations." Chatwins Group will be the acquirer
for purposes of applying purchase accounting to the merger. Therefore, Chatwins
Group's assets and liabilities will continue to be carried at their historical
book values after the merger, and 63.2% of Reunion Industries' assets and
liabilities, representing the percentage of Reunion Industries common stock not
currently owned by Chatwins Group, will be revalued at the time of the merger.
The excess of the "purchase price" of the merger over the fair value of 63.2%
of Reunion Industries' assets and liabilities will be designated as goodwill to
be amortized by Reunion Industries over fifteen years.

Shares Eligible for Future Sale (see page 71)

The shares of Reunion Industries common stock that stockholders of Chatwins
Group who are not affiliates of Chatwins Group receive in the merger will be
registered under the Securities Act of 1933 and may be freely traded in the
market without restriction, subject to the transfer restrictions in the Reunion
Industries certificate of incorporation. Approximately 17.3% of Chatwins Group
common stock is held by persons who were not affiliates of Chatwins Group at
the time the amended and restated merger agreement was submitted to Chatwins
Group stockholders for approval. These stockholders will own approximately
13.7% of Reunion Industries common stock after the merger assuming that none of
them exercises appraisal rights with respect to their shares.

Chatwins Group stockholders who, at the time the amended and restated merger
agreement was submitted to Chatwins Group stockholders for approval, were
affiliates of Chatwins Group, will receive "restricted stock" in the merger, as
defined in Rule 144 under the Securities Act of 1933. Under Rule 144, the
Chatwins Group affiliates effectively cannot sell the restricted stock they
receive in the merger in the market for a period of one year after the merger
unless the shares are registered under the Securities Act of 1933. After one
year, Rule 144 limits for a period of at least one more year the number of
shares that the former Chatwins Group affiliates can sell during any three-
month period. Reunion Industries presently intends to file a registration
statement with the Securities and Exchange Commission after the merger to
register the shares of Reunion Industries common stock that affiliates of
Chatwins Group will receive in the merger. Assuming that all of the contingent
shares are issued and that none of the Chatwins Group stockholders exercises
their appraisal rights, the number of shares that will be covered by such
registration statement will be 8,270,000. If the registration statement is
declared effective by the Securities and Exchange Commission, the Chatwins
Group affiliates will be able to sell the Reunion Industries common stock they
receive in the merger without any timing or volume restrictions that would
otherwise apply to them under Rule 144.

15
<PAGE>

Exemption of Merger from and Extension of Transfer Restrictions; Preservation
of Tax Benefits (see page 68)

Under the Internal Revenue Code of 1986, as currently in effect, net
operating loss carryforwards for federal tax purposes offset taxable income in
future years and generally eliminate income taxes otherwise payable on such
taxable income. As of December 31, 1998, Reunion Industries' net operating loss
carryforwards were approximately $258.1 million.

Reunion Industries has established restrictions on the transfer of its
shares because, if there is an ownership change, Reunion Industries might not
be able to use all of its net operating loss carryforwards. The board of
directors has exempted the issuance of shares in the merger from the transfer
restrictions because it has concluded that the merger will not result in an
adverse ownership change. To protect against future adverse changes, the board
of directors has also extended the transfer restrictions generally until at
least the day after the third anniversary of the date of the merger.

16
<PAGE>

RISK FACTORS

In addition to the other information contained in this proxy
statement/prospectus, you should carefully consider the following risk factors
in connection with the merger. Management believes that the risks and
uncertainties described below comprise all of the material risks and
uncertainties facing Reunion Industries and Chatwins Group. However, additional
risks and uncertainties may also harm our business operations.

Reunion Industries' viability as a going concern is in doubt if the merger does
not occur.

Reunion Industries' independent accountants' report included in our December
31, 1998 financial statements contains a statement that historical cash flows
generated by Reunion Industries may not be sufficient to enable it to meet its
obligations when they become due, which raises substantial doubt about its
ability to continue as a going concern. This opinion results from the fact that
at the time the financial statements were issued, Reunion Industries did not
have sufficient liquidity to meet its projected cash obligations for the next
12 months. The projected cash obligations were comprised of the following:

. Normal recurring corporate expenses, including salaries and benefits,
professional fees and other public company costs of approximately $1.5
million

. California tax assessment settlement of $0.9 million

. Bargo litigation settlement of $8.4 million accrued at December 31, 1998
and $5.0 million accrued at June 30, 1999

. A significant portion of the $1.5 million accrued for environmental
remediation of the Louisiana properties

Reunion Industries believes that, without additional financing, Reunion
Industries will not have sufficient liquidity to meet its cash obligations as
they become due over the next 12 months. See "Information About Reunion
Industries--Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."

The merger may not be completed, and therefore the continued viability of
Reunion Industries may be in doubt even if Reunion Industries stockholders
approve the amended and restated merger agreement.

Even if the Reunion Industries stockholders approve the amended and restated
merger agreement, the merger is still subject to a number of conditions. Since
neither Reunion Industries nor Chatwins Group can assure you that these
conditions will be satisfied or waived, the merger may not occur or may be
delayed, and therefore Reunion Industries and Chatwins Group may lose some or
all of the intended benefits of the merger and the continued viability of
Reunion Industries may be in doubt.

Reunion Industries' post-merger increased debt obligations may adversely affect
its ability to do business.

Reunion Industries' indebtedness at June 30, 1999 totaled $33.5 million,
including $5.0 million for the Bargo litigation settlement accrued at June 30
and funded July 15. Reunion Industries' pro forma indebtedness at June 30, 1999
is $88.4 million assuming the merger and $109.9 million also assuming the
Kingway and NAPTech acquisitions. As a result of the increase in debt,
significant demands on Reunion Industries' cash resources will continue after
the merger, which could have important effects on your investment in Reunion
Industries common stock. Reunion Industries' increased levels of indebtedness,
for example:

. will require Reunion Industries to dedicate a substantial portion of its
cash flow from operations to payments on its indebtedness, thereby
reducing the amount of its cash flow available for working capital,
capital expenditures, acquisitions and other general corporate purposes

17
<PAGE>

. may limit Reunion Industries' flexibility in planning for, or reacting
to, changes in its industry including the pursuit of its growth strategy

. will place Reunion Industries at a competitive disadvantage compared to
its competitors that have fewer debts and significantly greater operating
and financing flexibility than Reunion Industries does

. will limit, along with the financial and other restrictive covenants
applicable to Reunion Industries' indebtedness, among other things, its
ability to borrow additional funds even when necessary to maintain
adequate liquidity

. will result in an event of default upon a failure to comply with these
covenants which, if not cured or waived, could have a material adverse
effect on Reunion Industries' business, financial condition or results of
operations

. will increase Reunion Industries' vulnerability to general adverse
economic and industry conditions

If Reunion Industries is unable to service its indebtedness and fund its
business, Reunion Industries will be forced to adopt an alternative strategy
that may include any or all of the following:

. reducing or delaying necessary capital expenditures

. seeking additional debt financing or equity capital

. selling assets

. restructuring or refinancing its indebtedness

Reunion Industries cannot assure you that any of these alternative
strategies could be implemented on satisfactory terms or at all.

Issuance of stock will dilute Reunion Industries' current stockholders'
interest.

The issuance of common stock and preferred stock in the merger will have
the effect, among other things, of:

. diluting the common stock interest of the current stockholders of Reunion
Industries other than Chatwins Group from approximately 63.2% to
approximately 20.8%

. subjecting the rights of the holders of Reunion Industries common stock
to the prior rights of the Reunion Industries preferred stock to be
issued in the merger and in the acquisition of Kingway

. reducing the aggregate voting power of Reunion Industries' current
stockholders other than Chatwins Group

. reducing the interests in the assets of Reunion Industries in the event
of liquidation of Reunion Industries' current stockholders other than
Chatwins Group

. preventing or discouraging an attempt by another person or entity to
acquire control of Reunion Industries following effectiveness of the
merger without the approval of its board of directors

Reunion Industries common stock may not be listed on the NASDAQ Small-Cap
Market after the merger and, as a result, Reunion Industries common stock may
be less liquid.

NASDAQ has notified Reunion Industries that, based on the pro forma
financial information in this proxy statement/prospectus, the current market
price for Reunion Industries common stock and other information submitted by
Reunion Industries, Reunion Industries will not satisfy the following
requirements for listing on the NASDAQ Small-Cap Market after the merger:

. satisfy any one of the following:

. net tangible assets of at least $4 million

. market capitalization of at least $50 million

18
<PAGE>

. net income in latest fiscal year or two of the last three fiscal years
of at least $750,000

. minimum bid price for Reunion Industries common stock of at least $4.00

Reunion Industries has requested a hearing to obtain a waiver of the listing
requirements.

In the event NASDAQ does not waive these requirements, you may not be able
to sell your Reunion Industries common stock as quickly and efficiently as you
could before the merger. Reunion Industries expects its common stock to
continue to be listed on the Pacific Exchange, but the Pacific Exchange has not
historically been an active trading market for Reunion Industries' common
stock.

The relationship between Reunion Industries and Chatwins Group poses conflicts
of interest in the negotiation and approval of the amended and restated merger
agreement.

Family, stock ownership and business relationships among the directors,
officers and stockholders of Reunion Industries and Chatwins Group inherently
created conflicts of interest in the negotiation of the terms and conditions of
the merger.

These directors, officers and stockholders will benefit directly from the
merger and could be more likely to vote to approve the amended and restated
merger agreement than if they did not have these conflicts of interest. You
should consider whether these conflicts of interest may have influenced these
directors, officers and stockholders to support or recommend the merger. See
"Interests of Certain Persons in the Merger."

Mr. Charles E. Bradley, Sr. and Mr. John G. Poole and their respective families
will control Reunion Industries after the merger, thereby reducing the ability
of independent stockholders to impact the election of directors and other
corporate governance and fundamental transaction decisions affecting the
company.

As a result of the Reunion Industries common stock they will receive in the
merger, Mr. Charles E. Bradley, Sr. and Mr. John G. Poole and their respective
families will beneficially own approximately 61.6% of the shares of Reunion
Industries common stock outstanding. As a result, they will control the
election of directors and the appointment of officers of Reunion Industries,
and will thus have the ability to control the business strategy of Reunion
Industries. They will also have the ability to approve important corporate
matters, such as amendments to the certificate of incorporation and bylaws,
mergers, business acquisitions, dispositions and share issuances, without the
approval of our other stockholders. See "The Merger--Pre-Merger and Post-Merger
Security Ownership of Certain Beneficial Owners and Management."

The merger could make a takeover or sale of the company, which might provide
Reunion Industries' independent stockholders with substantial economic
benefits, less likely.

After the merger, Mr. Charles E. Bradley, Sr. and Mr. John G. Poole and
members of their respective families will control Reunion Industries. This
ownership structure may prevent or discourage an attempt by another person or
entity to acquire control of Reunion Industries and may make it more difficult
for a third party to purchase the company or to effect a merger or similar
transaction with it, even if a third-party merger, sale or similar transaction
is favored by a majority of the independent stockholders. Thus, the merger may
have the effect of discouraging or defeating mergers, proxy contests or
management changes that the independent stockholders may determine to be in
their best interests and may also prevent a party from acquiring an interest
large enough to effect a change in management.

Reunion Industries may not be able to use its net operating loss carryforwards
as expected.

If Reunion Industries is not able to use its net operating loss
carryforwards as expected, one of the intended benefits of the merger will not
be fully realized. Reunion Industries may be unable to use these net

19
<PAGE>

operating loss carryforwards if, among other things, Reunion Industries is
unable to prevent the occurrence of an "ownership change," as defined in the
tax laws. See "The Merger--Reunion Industries' Reasons for the Merger" and
"Other Merger-Related Matters--Extension of Transfer Restrictions, Preservation
of Tax Benefits."

Chatwins Group stockholders have appraisal rights in the merger which, if
exercised, could prevent the merger from occurring or place a strain on our
financial resources.

If any Chatwins Group stockholders exercise their appraisal rights under
Section 262 of the Delaware General Corporation Law and the merger is
completed, Reunion Industries will be required to pay cash to those
stockholders for their shares of Chatwins Group common stock. The amount and
timing of any payment due to the exercise of appraisal rights is not certain,
but in any event could place a strain on our financial resources. If more than
5.0% of Chatwins Group common stockholders exercise their appraisal rights, the
merger may not occur at all.

The registration for sale or the sale of the Reunion Industries common stock
that Chatwins Group affiliates receive in the merger may adversely impact the
price of Reunion Industries common stock.

Reunion Industries presently intends to file a registration statement under
the Securities Act after the merger to register the shares of Reunion
Industries common stock that affiliates of Chatwins Group will receive in the
merger. Assuming that all of the contingent shares are issued and that none of
the Chatwins Group stockholders exercises their appraisal rights, the number of
shares that will be covered by such registration statement will be 8,270,000.
If declared effective, the registration statement will permit the Chatwins
Group affiliates to sell those shares without any timing or volume restrictions
that would otherwise apply under Rule 144. The sale of substantial amounts of
those shares in the public market or even the availability of those shares for
future sale could adversely affect the market price of Reunion Industries
common stock.

Transaction-related costs are difficult to estimate, may be higher than
expected and may harm the financial results of the combined companies.

If the total cost of the transactions exceeds estimates, then the financial
results of the combined company could be adversely affected. Reunion Industries
estimates that it, along with Chatwins Group, will incur aggregate direct
expenses related to the merger, the sale of Klemp, the acquisitions of Kingway
and NAPTech and the refinancing transactions totaling approximately $3.7
million. These expenses and charges are difficult to estimate because the fees
associated with the various transactions are not capped and accrue over time.
The longer the transactions take to complete, the greater the probability that
our expenses will exceed the above estimates.

Failure to comply with the numerous environmental regulations to which Reunion
Industries and Chatwins Group are subject could have a material adverse effect
on our financial condition.

Reunion Industries' and Chatwins Group's operations involve and, after the
merger, will continue to involve, the handling and use of substances that are
subject to federal, state and local environmental laws and regulations that
impose limitations on the discharge of pollutants into the soil, air and water
and establish standards for their discharge and disposal. The violation of
these laws could have a material adverse effect on our business, financial
condition, results of operations or prospects.

Some environmental laws provide for strict, joint and several liability for
investigation and remediation of spills and other releases of hazardous
materials. These laws typically impose liability whether or not the owner or
operator knew of, or was responsible for, the presence of any hazardous
materials. Persons who arrange for the disposal or treatment of hazardous
materials also may be liable for the costs of investigation, removal or
remediation of such materials at the disposal or treatment site, regardless of
whether the affected site is owned or operated by them.

Because we own and operate a number of facilities, and because we arrange
for the disposal of hazardous materials at many disposal sites, we may incur
costs for investigation, removal and remediation, as well as

20
<PAGE>

capital costs associated with compliance with environmental laws and
regulations. Changes in environmental laws and regulations or unexpected
investigations and clean-up costs could have a material adverse effect on our
business, financial condition or results of operations.

We cannot assure you of any of the following:

. that additional environmental or remediation obligations will not be
incurred in the future

. that existing or future environmental liabilities could not have a
material adverse effect on our business, financial condition, results
of operations or prospects, or on our ability to make payments on our
indebtedness when due

. that currently unknown matters, new laws and regulations or stricter
interpretations of existing laws or regulations will not have a
material adverse effect on our business, financial condition, results
of operation or prospects or on our ability to make payments on our
indebtedness

See "Information about Reunion Industries--Business--Environmental Regulation"
and "Information about Chatwins Group--Business--Environmental."

Reunion Industries and Chatwins Group potentially have exposure to the Year
2000 problem.

Reunion Industries and Chatwins Group utilize electronic technology which
includes computer hardware and software systems that process information and
perform calculations that are date- and time-dependent. The coming of the year
2000, the so-called Year 2000 problem, poses pervasive and complex problems.
Virtually every computer operation, including manufacturing equipment and other
non-information systems equipment, unless it is Year 2000 compliant, will be
affected in some way by the rollover of the two-digit year value from "99" to
"00" and the recognition by some electronic technology of "00" as the year 1900
rather than 2000. We may not only be negatively affected by the failure of our
own systems to be Year 2000 compliant, but may also be negatively affected by
the Year 2000 non-compliance of our vendors, customers, lenders and any other
party with which we transact business.

Our failure or the failure of any party with which we conduct business to be
Year 2000 compliant in a timely manner could have a material adverse impact on
our operations. If our systems or the systems of our significant vendors,
customers, lenders and other outside parties with which we transact business
were to fail because they were not Year 2000 compliant, we would incur
significant costs and inefficiencies. Due to general uncertainty inherent in
the Year 2000 problem, resulting in part from the uncertainty of the Year 2000
readiness of third parties, we cannot be sure that we will be able to resolve
problems associated with the Year 2000 issue in a timely and cost effective
manner. Our inability to do so may adversely affect our operations and
business, or expose us to third-party liability.

See "Information About Reunion Industries--Management's Discussion and
Analysis of Financial Condition and Results of Operations--Year 2000 Computer
Compliance" and "Information About Chatwins Group--Management's Discussion and
Analysis of Financial Condition and Results of Operations of Chatwins Group--
The Year 2000."

Where You Can Find More Information

Reunion Industries and Chatwins Group file annual, quarterly and special
reports, proxy statements and other information with the SEC. Chatwins Group
also files annual, quarterly and special reports with the SEC. You may read and
copy any reports, statements or other information Reunion Industries and
Chatwins Group file at the SEC's public reference rooms in Washington, D.C.,
New York, New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330
for further information about the public reference rooms. Our SEC filings are
also available to the public from commercial document retrieval services and at
the Internet world wide web site maintained by the SEC at www.sec.gov.

Reunion Industries' registration statement on Form S-4, of which this proxy
statement/prospectus is a part, had previously registered under the Securities
Act 9,000,000 shares of the Reunion Industries common stock to

21
<PAGE>

be issued to the Chatwins Group stockholders in the merger. This proxy
statement/prospectus relates only to the up to 1,800,000 shares of Reunion
Industries common stock that will be issued to non-affiliates of Chatwins Group
in the merger. Reunion Industries intends to terminate the Form S-4 with
respect to the balance of the shares. This proxy statement/prospectus
constitutes a prospectus of Reunion Industries, as well as being a proxy
statement of Reunion Industries for its annual meeting of stockholders.

As allowed by SEC rules, this proxy statement/prospectus does not contain
all the information you can find in this registration statement or the earlier-
filed registration statement or the exhibits to this registration statement or
the earlier-filed registration statement.

Reunion Industries has supplied all information contained in this proxy
statement/prospectus relating to Reunion Industries and Chatwins Group has
supplied all such information relating to Chatwins Group.

You should rely only on the information contained in this proxy
statement/prospectus. Neither Reunion Industries nor Chatwins Group has
authorized anyone to provide you with information that is different from what
is contained in this proxy statement/prospectus. This proxy
statement/prospectus is dated November , 1999.

State Securities Law Filings

Reunion Industries has filed or expects to file registration statements
relating to the common stock to be issued in the merger with the appropriate
state administrative agencies in Connecticut, Maryland and New Jersey.

Cautionary Statement Regarding Forward-Looking Statements

This proxy statement/prospectus contains forward-looking statements within
the "safe harbor" provisions of the Private Securities Litigation Reform Act of
1995 with respect to Reunion Industries' and Chatwins Group's financial
condition, results of operations and businesses, the merger and related
transactions. These statements include:

. statements regarding the impact of the merger on Reunion Industries, with
or without the sale of Klemp by Chatwins Group and the refinancing
transaction having been consummated

. forecasts, projections and descriptions of anticipated benefits of the
merger

. statements regarding the markets for the products and services,
anticipated capital expenditures, regulatory or legal developments and
competition

. statements regarding projected growth and penetrations of new markets,
mergers and joint ventures, financings and/or refinancings, and
transactions with affiliates

. statements regarding the effects of the Year 2000 problem on electronic
technology on which Reunion Industries and Chatwins Group are directly or
indirectly dependent

. any statements preceded by, followed by or that include the words
"believes," "expects," "anticipates," "intends," or similar expressions

. other statements contained in this proxy statement/prospectus regarding
matters that are not historical facts

These forward-looking statements are not guarantees of future performance
and are subject to risks and uncertainties that could cause actual results to
differ materially from the results contemplated by the forward-looking
statements. These risks and uncertainties include, without limitation, the
"Risk Factors" beginning on page 15, domestic and international economic
conditions which affect the volume and pricing of sales of business and
consumer goods, the cost and availability of materials, labor and other goods
and services used in the operations of Reunion Industries and Chatwins Group,
the availability of credit on reasonable terms, and

22
<PAGE>

the cost of interest on Reunion Industries' and Chatwins Group's debt. All
forward-looking statements are expressly qualified in their entirety by these
factors and all related cautionary statements. You are cautioned not to place
undue reliance on these forward-looking statements. These statements speak only
as of the date of this proxy statement/prospectus and neither Reunion
Industries nor Chatwins Group undertakes any obligation to update any forward-
looking statement to reflect events or circumstances after this date or to
reflect the occurrence of unanticipated events. All subsequent written and oral
forward-looking statements attributable to Reunion Industries or Chatwins Group
or persons acting on their behalf are expressly qualified in their entirety by
the cautionary statements contained or referred to in this section.

23
<PAGE>

THE REUNION INDUSTRIES ANNUAL MEETING

Date, Time and Place of the Annual Meeting

Reunion Industries will hold its annual meeting at 10:00 a.m., local time,
on December 15, 1999, at the Holiday Inn Select Stamford, 700 Main Street,
Stamford, Connecticut. Reunion Industries is furnishing its stockholders with a
copy of this proxy statement/prospectus and a proxy card so that they can vote
their shares if they do not attend the annual meeting.

Matters to be Considered at the Annual Meeting

At the annual meeting, Reunion Industries stockholders will:

1. Consider and act upon a proposal to approve the amended and restated
merger agreement dated as of July 28, 1999 between Reunion Industries
and Chatwins Group, which provides, among other things, for the
following:
. Chatwins Group to merge into Reunion Industries
. the conversion of the common stock of Chatwins Group outstanding
immediately prior to the merger into the right to receive an
aggregate of 9,500,000 shares of Reunion Industries' common stock,
plus up to an additional 500,000 shares of Reunion Industries
common stock if Chatwins Group, Kingway and NAPTech achieve
specified performance levels in 2000, plus cash in lieu of the
issuance of fractional shares
. the conversion of the outstanding preferred stock of Chatwins
Group into preferred stock of Reunion Industries

2. Elect six directors to the board of directors of Reunion Industries; and

3. Transact such other business as may properly come before the meeting or
any adjournment thereof.

Voting at the Annual Meeting; Record Date; Quorum

The board of directors has fixed the close of business on October 22, 1999,
as the record date for the determination of stockholders of Reunion Industries
entitled to notice of and to vote at the annual meeting and at any adjournment
or postponement thereof. Only holders of record on the record date will be
entitled to vote at the annual meeting. As of October 22, 1999, Reunion
Industries had 3,940,100 shares of common stock outstanding. In connection with
the annual meeting please note the following:

. each stockholder of record on October 22, 1999 is entitled to cast one
vote per share

. stockholders do not have cumulative voting rights in the election of
directors

. stockholders may vote their shares at the annual meeting either in person
or by proxy

. the presence, in person or by proxy, of the holders of a majority of our
outstanding common stock entitled to vote at the annual meeting is
necessary to constitute a quorum at the annual meeting. If a quorum is
not present or represented at the annual meeting, the stockholders
entitled to vote who are present in person or by proxy, may, by majority
vote, adjourn the annual meeting from time to time until a quorum is
present or represented

. the amended and restated merger agreement must be adopted by the
affirmative vote of the holders of a majority of the shares of Reunion
Industries common stock entitled to vote

. directors will be elected by a plurality of the votes cast at the meeting
at which a quorum is present

. management believes that all of the shares of common stock held by
directors and executive officers of Reunion Industries and their
affiliates, including Chatwins Group, aggregating 1,889,990 shares as of
the record date, or approximately 48.0% of the issued and outstanding
Reunion Industries common stock, will be voted in favor of the amended
and restated merger agreement and the election of each of the nominees
for the board of directors named in this proxy statement/prospectus

24
<PAGE>

Proxies

Who is Soliciting Proxies? Reunion Industries is furnishing you with this
proxy statement/prospectus in connection with the solicitation of proxies by
and on behalf of the Reunion Industries board of directors for use at the
annual meeting.

How will the Proxies be Voted? Proxies in the form enclosed, which are
properly executed and returned and not subsequently revoked, will be voted at
the annual meeting. These proxies will be voted in accordance with the
directions specified on the proxies. If no directions are indicated on a
properly executed proxy, such proxy will be voted for approval of the amended
and restated merger agreement and for the election of the nominees for director
named in this proxy statement/prospectus.

If any other matters are properly presented at the annual meeting for
consideration, the persons named in the enclosed forms of proxy will have
discretion to vote on such matters in accordance with their best judgment.
However, proxies voting against a specific proposal may not be used by the
persons named in the proxies to vote for adjournment of the meeting for the
purpose of giving management additional time to solicit votes to approve such
proposal.

How do I Revoke My Proxy? The grant of a proxy on the enclosed form does not
preclude a Reunion Industries stockholder from attending the annual meeting and
voting in person. Reunion Industries' stockholders may revoke a proxy at any
time before it is voted by:

. delivering a written notice of revocation bearing a later date than the
proxy before the vote is taken at the annual meeting

. duly executing a later-dated proxy relating to the same shares of common
stock and delivering it as indicated below before the vote is taken at
the annual meeting

. attending the annual meeting and voting in person

Attendance at the annual meeting will not in and of itself constitute a
revocation of a proxy. Any written notice of revocation or subsequent proxy
must be delivered to Reunion Industries, Inc., 62 Southfield Avenue, One
Stamford Landing, Stamford, CT 06902, Attention: Richard L. Evans, Secretary,
before the vote is taken at the annual meeting.

Who is Paying for the Solicitation? Reunion Industries will bear all
expenses of our solicitation of proxies for the annual meeting. In addition to
solicitation by use of the mails, proxies may be solicited from stockholders by
our directors, officers and employees. Solicitation may take place in person or
by telephone, facsimile or other means of communication. Reunion Industries'
directors, officers and employees will not be additionally compensated, but may
be reimbursed for reasonable out-of-pocket expenses they incur in connection
with any solicitation. Additionally, Reunion Industries has retained the
services of Morrow & Co., a professional soliciting organization, to assist in
soliciting proxies from brokerage houses, custodians, nominees and fiduciaries.
Management anticipates the fees and expenses of that firm's services to be
between $5,000 and $10,000.

How are Broker Non-votes and Abstentions Treated? Brokers who hold shares in
street name for customers who are the beneficial owners of those shares are
permitted to vote their customers' shares on certain routine matters, such as
the uncontested election of directors, even if they do not receive specific
voting instructions from such customers. However, brokers are prohibited from
giving a proxy to vote their customers' shares with respect to certain non-
routine matters, such as approval of the amended and restated merger agreement,
in the absence of specific instructions from such customers. Proxies which are
voted by a broker with respect to a routine matter but which are not voted on a
non-routine matter at the same meeting are known as broker non-votes with
respect to the non-routine matter. Broker non-votes and abstentions will be
tabulated separately and will be counted as present at the meeting for purposes
of determining whether a quorum is present at the annual meeting. Because the
agreement requires the approval of the holders of at least

25
<PAGE>

a majority of the outstanding shares of Reunion Industries common stock, broker
non-votes and abstentions will have the effect of votes against the agreement.
Broker non-votes and abstentions will have no effect on the election
of directors.

26
<PAGE>

PROPOSAL 1:
THE MERGER

At the annual meeting, Reunion Industries' stockholders will be asked to
approve the amended and restated merger agreement, pursuant to which Chatwins
Group will merge with and into Reunion Industries. The amended and restated
merger agreement has been unanimously approved by each of Reunion Industries'
and Chatwins Group's board of directors. The amended and restated merger
agreement is attached as Annex A to this proxy statement/prospectus.

Background of the Merger

Over the past several years, Reunion Industries has been engaged in a
process of implementing a change in its strategic focus from oil and gas to
manufacturing operations. Reunion Industries accomplished this through several
acquisitions which eventually became the basis of Oneida Rostone, a wholly-
owned subsidiary of Reunion Industries. While Oneida Rostone's operations were
profitable and generated cash flow for Reunion Industries, Oneida Rostone's
financial arrangements, particularly Oneida Rostone's credit facility with The
CIT Group/Business Credit, Inc., restricted Reunion Industries' ability to take
advantage of this cash flow. Reunion Industries also has sizable net operating
loss carryforwards from its reorganization and its oil and gas operations. This
merger continues the implementation of Reunion Industries' new strategic focus.
This focus includes, but is not necessarily limited to, increasing Reunion
Industries' manufacturing assets and revenues through strategic acquisitions
and de-emphasizing its non-manufacturing operations, possibly through asset
sales at prices which management believes represent the fair value of those
assets.

In June 1995, Chatwins Group acquired 1,450,000 shares of Reunion
Industries' common stock which at that time represented approximately 38% of
the outstanding Reunion Industries common stock. When it first invested in
Reunion Industries, Chatwins Group declared its intention to strongly influence
the management and affairs of Reunion Industries and that it might consider a
merger of itself into Reunion Industries after June 1998 if the transfer
restrictions put into place by Reunion Industries to preserve its net operating
loss carryforwards would then permit it.

In May 1997, the board of directors of Reunion Industries began to explore
whether there was an opportunity after June 1998 for Reunion Industries to
effect a series of transactions that would strengthen its financial condition,
allow a refinancing of its existing indebtedness and broaden its strategic
focus, without jeopardizing its ability to use its net operating loss
carryforwards. A principal focus of this exploration was a possible combination
of Chatwins Group and Reunion Industries. Such a combination would allow
Reunion Industries to take advantage of the greater size and financial
resources of Chatwins Group, refinance certain existing debt, diversify into
other industries and simplify its capital structure without jeopardizing its
ability to utilize its net operating loss carryforwards.

Specifically, a combination with Chatwins Group would expand Reunion
Industries' business lines to include the production of large, seamless
pressure vessels, hydraulic and pneumatic cylinders, industrial cranes, cold-
rolled steel leaf springs and high-quality roll formed storage racks.
Management believes that diversifying from Reunion Industries' existing
business lines will strengthen its overall financial position by providing it
with additional sources of revenue which will make Reunion Industries less
susceptible to cyclical downturns in any one particular industry, or the
economy as a whole, and minimize the impact of the loss of any one particular
client.

In June 1997, Reunion Industries hired Legg Mason Wood Walker, Incorporated
to serve as a financial advisor in connection with its consideration of a
merger with Chatwins Group.

In November 1997, Legg Mason reported to the board on its initial valuations
of Reunion Industries and Chatwins Group. The board of directors judged these
relative valuations to be in ranges that made it feasible to

27
<PAGE>

consider a tax-free transaction in which Reunion Industries and Chatwins Group
would merge, with Reunion Industries being the surviving company. The board of
directors authorized management to begin preparing a proposal for such a
transaction.

Thereafter management began preparing such a proposal. On May 19, 1998 the
board met to consider the proposal. It heard a presentation from Richard L.
Evans, Executive Vice President, Chief Financial Officer and Secretary, an
updated analysis from Legg Mason and a presentation from Charles E. Bradley,
Sr. and John G. Poole, directors and principal stockholders of Chatwins Group,
regarding the terms of the proposed transaction. Because Mr. Bradley and Mr.
Poole are also directors of Reunion Industries, and Mr. Bradley is also
President and Chief Executive Officer of Reunion Industries, Messrs. Thomas N.
Amonett, Thomas L. Cassidy, W.R. Clerihue and Franklin Myers, the directors who
did not also serve on the Chatwins Group board, met separately with Legg Mason,
Reunion Industries' counsel and Mr. Bradley and Mr. Poole on behalf of Chatwins
Group to develop the proposal. These directors proposed to Mr. Bradley and Mr.
Poole a plan of merger that would involve the issuance of 8,500,000 shares of
Reunion Industries common stock to Chatwins Group stockholders based on the
relative valuation of the two companies which was supported, in part, by the
presentation by Legg Mason. The currently outstanding preferred stock of
Chatwins Group would be converted into Reunion Industries notes for a principal
amount equal to their then-current redemption value. Mr. Bradley and Mr. Poole
asserted that 9,000,000 shares would be the minimum acceptable consideration.
Mr. Bradley and Mr. Poole then informed Reunion Industries of Chatwin Group's
discussions with respect to the possible acquisition of Kingway, and their
expectation that the Kingway acquisition would increase the value of Chatwins
Group.

The independent directors then reported to the full board of directors that
they believed it was appropriate to issue 9,000,000 shares of Reunion
Industries' common stock if Chatwins Group concluded the Kingway acquisition
prior to the merger for an amount not in excess of the present owners' cost to
acquire Kingway, including fees and expenses, plus interest or dividends on
these amounts. Mr. Charles E. Bradley, Sr., Mr. Kimball J. Bradley and Mr.
Evans are the owners of Kingway. The full board of directors adopted this
recommendation, subject to receiving an opinion from Legg Mason that the
payment of such consideration by Reunion Industries was fair from a financial
point of view to Reunion Industries and its stockholders, other than Chatwins
Group, and subject to the negotiation of a definitive merger agreement.

Following this meeting, counsel to Chatwins Group advised that, based on its
review of the terms of Chatwins Group's credit facilities, it did not believe
that Chatwins Group could agree definitively to an acquisition of Kingway prior
to refinancing its existing indebtedness, and thus the acquisition of Kingway
could not be assured. Mr. Bradley, on behalf of Chatwins Group, and Mr. Evans,
on behalf of Reunion Industries, then discussed setting alternative terms of
the merger, and agreed to bring to their respective boards a proposal that
contemplated the issuance of 9,000,000 shares of Reunion Industries' common
stock to Chatwins Group stockholders, assuming that Chatwins Group consummated,
or had the unconditional right to consummate the Kingway acquisition at or
prior to the merger, or 8,500,000 shares if the acquisition of Kingway was not
accomplished, or such unconditional right to consummate the acquisition not
secured, prior to the merger.

Reunion Industries' board of directors met by telephone on June 1, 1998 to
consider the revised proposal and a definitive merger agreement detailing it.
The board of directors heard further presentations from Legg Mason with respect
to the proposed transactions. Messrs. Amonett, Cassidy, Clerihue and Myers
discussed the transaction and, voting separately, unanimously resolved that the
merger agreement and the transactions contemplated by the merger agreement were
in the best interests of the stockholders of Reunion Industries and approved
the merger agreement and the transactions contemplated by the merger agreement,
subject to the receipt of a definitive opinion from Legg Mason to the effect
that the consideration to be paid by Reunion Industries in the merger was fair
to Reunion Industries and its stockholders, other than Chatwins Group, from a
financial point of view. A committee of Messrs. Amonett, Cassidy, Clerihue and
Myers was appointed to receive and evaluate the definitive opinion of Legg
Mason. The full board of directors then considered the proposal, and after
further discussion and upon further consideration of the reasons for the
merger, concluded that the merger agreement and the transactions contemplated
by the merger agreement were in the best interests

28
<PAGE>

of the stockholders of Reunion Industries and approved the merger agreement and
the transactions contemplated by the merger agreement, subject to receipt of
Legg Mason's opinion.

On June 3, 1998, the committee consisting of Messrs. Amonett, Cassidy,
Clerihue and Myers met to receive the definitive Legg Mason opinion. Voting
unanimously, these directors concluded that the definitive opinion was
satisfactory to support the determination of the board of directors with
respect to the amount of consideration to be paid in the merger. At the same
time, because of the small Chatwins Group equity interest held by Mr. Cassidy,
Messrs. Amonett, Clerihue and Myers voted separately to confirm the earlier
conclusions reached on May 19 and June 1, 1998 and earlier that day. Mr.
Cassidy did not participate in that vote.

Reunion Industries and Chatwins Group executed a merger agreement on June 3,
1998. The respective boards of directors of Chatwins Group and Reunion
Industries subsequently authorized the amendment of the merger agreement on
June 25, 1998, to provide that the Chatwins Group preferred stock would be
converted at the effective time of the merger into Reunion Industries preferred
stock rather than notes of Reunion Industries. This change was made to reduce
the amount of debt on Reunion Industries' post merger balance sheet to improve
its ability to remain in compliance with the financial covenants of the
anticipated new credit facility. On July 1, 1998, Reunion Industries mailed
proxy materials for an annual meeting of stockholders of Reunion Industries to
address the contemplated merger and other matters.

On August 4, 1998, after concluding that negotiations on the financing
arrangements which were a condition to the merger were not proceeding as
rapidly as expected and were likely to change from those contemplated in the
proxy materials circulated in advance of the annual meeting, Reunion Industries
determined that action on the merger agreement should be deferred, and the
meeting was therefore adjourned to September 1, 1998.

Two purported class action lawsuits were filed in the Court of Chancery of
the State of Delaware against Reunion Industries and its directors and Chatwins
Group on July 9, 1998 and July 22, 1998. These lawsuits, which were
consolidated and were purportedly filed on behalf of all the public
stockholders of Reunion Industries, sought to enjoin the merger and/or obtain
damages from the defendants. The lawsuits alleged that the public stockholders
of Reunion Industries would be excessively diluted in the merger as compared to
the Chatwins Group stockholders and that the defendant directors breached their
fiduciary duties in arriving at the exchange ratio in the merger.

Subsequent to the decision to adjourn the special stockholders meeting to
consider the merger, market conditions for Reunion Industries' proposed debt
offering became unattractive to Reunion Industries. As a result, on October 20,
1998, Reunion Industries announced that it intended to discontinue pursuit of
the debt offering and Reunion Industries and Chatwins Group had agreed to
abandon the proposed merger. Subsequently, the purported class action lawsuits
that had been filed with respect to the merger were dismissed without prejudice
to the plaintiffs to bring an action in the future.

On January 28, 1999, Reunion Industries' board of directors decided to
resume negotiations with Chatwins Group regarding a possible business
combination. This decision was made after consulting with Reunion Industries'
financial advisor for the proposed high-yield debt offering, which advised,
among other things, that market conditions had improved since the fall of 1998
so that a high-yield debt offering on terms acceptable to Reunion Industries
was again possible and that a merger of Chatwins Group and Reunion Industries,
as well as the acquisition by Reunion Industries of Kingway and NAPTech, would
make such an offering more feasible. Mr. Bradley, on behalf of Chatwins Group,
Kingway and NAPTech, and the independent directors of Reunion Industries then
proceeded to negotiate the terms of the merger and the acquisitions of Kingway
and NAPTech, including a reevaluation of the consideration to be paid in the
merger as a result of the possible acquisitions of Kingway and NAPTech.

Reunion Industries decided at this time to acquire Kingway directly due to
the expiration of the exclusive right of Chatwins Group to negotiate such an
acquisition coupled with Chatwins Group's counsel's previous

29
<PAGE>

opinion that the terms of Chatwins Group's credit facilities and outstanding
indebtedness would make it difficult for Chatwins Group to acquire Kingway
prior to refinancing its existing indebtedness. The acquisition of NAPTech by
Chatwins Group, which was a new business opportunity that had developed since
the cancellation of the 1998 transaction, was similarly hindered by the terms
of Chatwins Group's existing indebtedness and therefore was most likely to be
accomplished as a direct acquisition by Reunion Industries.

On February 26, 1999, Reunion Industries publicly announced that it had
resumed discussions with Chatwins Group regarding a possible merger
transaction.

At a meeting of the board of directors of Reunion Industries on March 24,
1999, Mr. Bradley, on behalf of Chatwins Group, Kingway and NAPTech, and Mr.
Evans, on behalf of Reunion Industries, reviewed with the board of directors,
including Messrs. Amonett, Clerihue and Myers, the terms of the proposed merger
with Chatwins Group and the terms for the proposed acquisitions of Kingway and
NAPTech. Mr. Evans recommended that the board of directors approve the proposed
transactions on the basis that the transactions would make a refinancing
transaction more feasible, would be accretive to Reunion Industries' earnings,
would enhance the use of Reunion Industries' current net operating loss
carryforwards and would provide Reunion Industries with a strategic opportunity
to diversify its product lines. At the meeting, Legg Mason also made a detailed
presentation regarding the relative values of Reunion Industries, Chatwins
Group, Kingway and NAPTech, and an analysis of the financial impact of the
merger on Reunion Industries and its stockholders other than Chatwins Group.

The independent directors of Reunion Industries then met alone with their
counsel and with Legg Mason to discuss the proposed merger. Legg Mason then
rendered its oral opinion that, subject to the completion of its due diligence,
as of March 19, 1999, the consideration to be paid by Reunion Industries in the
merger was fair, from a financial point of view, to Reunion Industries and its
stockholders other than Chatwins Group. After further discussion of the merger,
each director, including each independent director, expressed his support for
the proposed merger and the proposed acquisitions of Kingway and NAPTech
subject to their further consideration of Legg Mason's analysis and the
material legal documents and to the receipt of a written opinion from Legg
Mason to the effect that the consideration to be paid by Reunion Industries in
the merger is fair from a financial point of view to Reunion Industries and its
stockholders other than Chatwins Group.

The Reunion Industries board of directors met again on March 30, 1999. At
that meeting, Mr. Bradley and Mr. Evans again reviewed with the directors the
terms of the proposed merger and indicated that further negotiations had
resulted in a revision to the performance targets required for the payment of
the contingent shares proposed to be issued in the merger. As discussed at the
March 24, 1999 board meeting, the Chatwins Group common stock would have been
converted into the right to receive an aggregate of 8,500,000 shares of Reunion
Industries common stock plus an additional 0.4 shares for each dollar by which
the earnings before interest expense, taxes, depreciation and amortization
("EBITDA") of Chatwins Group in 1999 exceeded Chatwins Group's budgeted EBITDA
for 1999, up to 400,000 shares, and an additional 100,000 shares if Chatwins
Group's 1999 EBITDA exceeded the budgeted amount by more than $1,000,000. As
proposed to be revised at the March 30, 1999 meeting, 200,000 shares would be
issued if Chatwins Group achieved its 1999 budgeted EBITDA as defined in the
agreement and 0.3 shares would be issued for each dollar by which Chatwins
Group exceeded its 1999 budgeted EBITDA up to an additional 300,000 shares. The
directors discussed the reasons for and impact of this proposed change with Mr.
Bradley, Mr. Evans and with Legg Mason. Legg Mason then delivered its written
opinion that the consideration to be paid by Reunion Industries in the merger
was fair from a financial point of view to Reunion Industries and its
stockholders other than Chatwins Group.

At the same time, the board of directors approved the Kingway and NAPTech
acquisitions and authorized management to pursue the refinancing transaction.
The independent directors voted separately with respect to the acquisitions of
Kingway and NAPTech.

In May 1999, Reunion Industries' investment bankers once again informed
management that current market conditions made a high-yield debt offering by
Reunion Industries under the proposed terms highly

30
<PAGE>

unlikely. As a result, Reunion Industries and Chatwins Group began discussions
regarding alternate means of consummating the merger and providing adequate
financing to redeem Chatwins Group's 13% Senior Notes, acquire Kingway and
NAPTech, refinance the two companies' existing indebtedness and to provide
adequate liquidity to the post-merger Reunion Industries, including Kingway and
NAPTech.

After consultation with their respective financial advisers, the managements
of Reunion Industries and Chatwins Group decided to recommend to their
respective boards of directors that they proceed with the transaction under the
following terms. First, Chatwins Group would explore the possible sale of its
Klemp division. The proceeds of the sale, along with the proceeds from a senior
secured loan and subordinated debt, would be used to pay down existing Chatwins
Group indebtedness prior to the merger. Second, the merger agreement would be
amended to reflect the following:

. an increase in the merger consideration due to the sale of the Klemp
division

. an extension of the date by which the merger must be completed

. a change in or waiver of any other material terms or conditions in the
merger agreement deemed necessary by the managements of both Reunion
Industries and Chatwins Group

Finally, Reunion Industries would pursue additional financing in the form of
senior secured debt and subordinated debt to refinance all or a part of both
companies' pre-merger existing indebtedness and to consummate the acquisitions
of Kingway and NAPTech.

On June 28, 1999, the board of directors of Reunion Industries, including
Mr. Bradley and Mr. Poole, met to discuss, among other things, the status of
the merger with Chatwins Group. At that meeting, representatives from Legg
Mason made an oral report to the board as to the fairness of the proposed
transaction from a financial point of view to the stockholders of Reunion
Industries, excluding Chatwins Group, taking into consideration the proposed
sale of the Klemp division by Chatwins Group. Based on Legg Mason's review of
the May 28, 1999 letter of intent for the sale of the Klemp division for
approximately $35.0 million and the settlement of the Bargo litigation by
Reunion Industries for approximately $5.0 million, Legg Mason expressed an oral
opinion that the issuance of up to 9,000,000 shares of Reunion Industries
common stock in the merger continued to be fair to the stockholders of Reunion
Industries, excluding Chatwins Group, from a financial point of view. This
opinion was subject to further analysis and the delivery of Legg Mason's final
written opinion.

Subsequent to the June 28, 1999 meeting, Mr. Bradley, on behalf of Chatwins
Group, submitted to Reunion Industries a revised proposal calling for an
increase in the merger consideration from 8,500,000 shares of Reunion
Industries common stock, plus 500,000 contingent shares if certain performance
targets were met, to 10,000,000 shares. The reason advanced for the increase
was the anticipated sale of the Klemp division and the positive impact that the
sale would have on Chatwins Group's liquidity and debt.

On July 28, 1999, the board of directors of Reunion Industries, including
Mr. Bradley and Mr. Poole, met again to discuss the proposal by Chatwins Group
to increase the merger consideration. The board of directors considered the
rationale for the increased consideration, including the impact on the value of
Chatwins Group from the proposed sale of its Klemp division, the sale price for
which had been negotiated to $32.6 million, and the recent financial
performance of both Reunion Industries and Chatwins Group. The board of
directors also received an updated report from Legg Mason as to the fairness of
the transaction at 10,000,000 shares. Legg Mason stated that, based on its
review of the terms of the updated proposal by Chatwins Group and its
preliminary financial analysis of the pro forma impact of the merger pursuant
to those proposed terms, the transaction at a consideration of 10,000,000
shares would be fair to the stockholders of Reunion Industries, excluding
Chatwins Group, from a financial point of view. A discussion ensued, initiated
by the independent directors, concerning a counter proposal to Chatwins Group
of 8,500,000 shares with an adjustment to the performance targets for the
contingent shares. After a brief discussion of the merits of the two proposals,
including the presentation by Legg Mason as to the fairness of the transaction
at 10,000,000 shares, the meeting was adjourned at the request of the directors
so that they could further consider the terms.

31
<PAGE>

On the morning of July 30, 1999, the board of directors of Reunion
Industries, excluding Mr. Myers who was unable to attend, met to consider the
amended and restated merger agreement, including the proposed increase in the
merger consideration to 10,000,000 shares, and the oral opinion by Legg Mason
that the transaction at 10,000,000 shares would be fair to the stockholders of
Reunion Industries, excluding Chatwins Group, from a financial point of view.
At that meeting Mr. Bradley proposed on behalf of Chatwins Group that, although
the management of Chatwins Group felt that 10,000,000 shares continued to be
fair, Chatwins Group would accept a change in the merger consideration to
9,500,000 shares of Reunion Industries common stock plus 500,000 contingent
shares if performance targets were met by the Chatwins divisions including
Kingway and NAPTech. Legg Mason again confirmed that this would be fair, from a
financial point of view. Because Mr. Myers was not present, the board meeting
was adjourned until later in the day when Mr. Myers could be present.

After the meeting was reconvened, with all directors present, and after
further discussion and consideration of the reasons for the merger described
below and a review of the fairness opinion issued by Legg Mason, Messrs.
Amonett, Clerihue and Myers, as the independent directors of Reunion
Industries, concluded that 9,500,000 shares plus the 500,000 contingent shares
to be paid by Reunion Industries in the merger is fair to and in the best
interests of Reunion Industries and its stockholders. The independent directors
then voted unanimously to approve the amended and restated merger agreement and
the transactions contemplated by the amended and restated merger agreement,
including the merger, and to recommend the agreement to the Reunion Industries
stockholders for approval. The full board of directors then considered the
proposed merger and, after further discussion, including a discussion of the
risk factors associated with the merger presented in the Registration Statement
on Form S-4 and previously reviewed by the board of directors, and a review of
the fairness opinion issued by Legg Mason, concluded that the amended and
restated merger agreement and the transactions contemplated by the agreement,
including the merger, are fair to and in the best interests of Reunion
Industries and its stockholders. The full board then voted unanimously to
approve the amended and restated merger agreement and the transactions
contemplated by the agreement, including the merger, and to recommend the
agreement to the Reunion Industries stockholders for approval.

On September 13, 1999, in accordance with the amended and restated merger
agreement, the Reunion Industries board of directors met to consider the terms
of the Klemp transaction as negotiated by Chatwins Group. After discussion,
including consideration of the $31.5 million sale price and the fact that the
sale did not include Klemp's Mexican assets, the Board approved the Klemp
transaction as presented.

Reunion Industries' Reasons for the Merger

In reaching its decisions to approve the amended and restated merger
agreement and the transactions contemplated by the agreement and to recommend
that Reunion Industries' stockholders approve and adopt the agreement, the
board of directors considered a number of factors including, among others:

. the current and prospective liquidity situation at Reunion Industries and
the difficulty Reunion Industries would have in obtaining additional
financing in the absence of the merger

. the dilution to current Reunion Industries stockholders from the fact
that 20.8% of the combined company would be owned by stockholders of
Reunion Industries other than the former stockholders of Chatwins Group

. the merger is accretive to earnings on a pro forma historical basis by
$2.30 per share for the year ended December 31, 1998 and $0.10 per share
for the six months ended June 30, 1999, and is expected to be accretive
to Reunion Industries' earnings on a pro forma projected basis by $0.41
per share in 1999, $0.94 per share in 2000 and $1.39 per share in 2001,
assuming each company achieves its projected results, as contrasted with
the results that might be achieved through the continued implementation
of Reunion Industries' business plan

. the relative financial condition and earnings histories of Chatwins Group
and Reunion Industries

. the increased debt resulting from the merger

. the recommendation of the proposed merger by the management of Reunion
Industries

32
<PAGE>

. the presentations made by Legg Mason at the meetings of the board of
directors held on March 24, 1999, March 30, 1999, June 28, 1999, July 28,
1999 and July 30, 1999 and Legg Mason's opinion dated July 30, 1999 that
the consideration to be paid by Reunion Industries in the merger is fair
to Reunion Industries and the stockholders of Reunion Industries other
than Chatwins Group from a financial point of view (See "--Opinion of
Reunion Industries' Financial Advisor")

. the fact that the merger will significantly expand Reunion Industries'
business through the acquisition of Chatwins Group's business lines,
thereby making it less susceptible to downturns in a single line of
business

. the opportunity to acquire Kingway and NAPTech as enhancements to the
business lines of Chatwins Group

. the terms and conditions of the amended and restated merger agreement,
including the number of shares to be issued to Chatwins Group
stockholders, the parties' representations, warranties and covenants and
the conditions to their respective obligations

. the expiration dates of Reunion Industries' net operating loss
carryforwards, the small likelihood that Reunion Industries' stand-alone
earnings would use them fully prior to their expiration, the fact that
the consummation of the merger would require the extension of the
transfer restrictions in order to better assure that Reunion Industries
would be able to continue to use its net operating loss carryforwards and
the likelihood that Reunion Industries would be able to more fully use
its net operating loss carryforwards after the merger

. the historical market prices of Reunion Industries' common stock

. the fact that the merger would not be a taxable transaction to the
stockholders of Reunion Industries

. the cost of the transaction, including accounting, legal, financial
advisor, printing and other fees

While the increased debt resulting from the merger and the cost of the
transaction are factors that weigh against the merger, the board concluded that
the benefits of the merger outweigh those negative factors.

On July 30, 1999, following consideration of the information and factors
described above which constituted all of the material information and factors
known to the board at that time, the board of directors concluded that the
merger is in the best interests of Reunion Industries and its stockholders
other than Chatwins Group. In reaching this conclusion, the board of directors
did not assign relative or specific weights to the above information and
factors or determine that any particular information or factor was of unique
importance. Instead, the board of directors based its recommendation upon the
totality of the information and factors presented to it or otherwise known to
its members.

For the reasons set forth above and elsewhere in this proxy
statement/prospectus, the Reunion Industries board of directors recommends that
stockholders vote FOR approval of the amended and restated merger agreement.

Opinion of Reunion Industries' Financial Advisor

Legg Mason was retained by Reunion Industries to deliver to the board of
directors a fairness opinion to assist Reunion Industries' board of directors
in evaluating a merger between Reunion Industries and Chatwins Group.

At the July 30, 1999 Reunion Industries board meeting, Legg Mason delivered
a written opinion that, as of July 22, 1999, the amount of consideration to be
paid by Reunion Industries under the terms of the amended and restated merger
agreement is fair to Reunion Industries and its stockholders, other than
Chatwins Group, from a financial point of view. The Legg Mason opinion does not
cover the acquisitions of Kingway and NAPTech. There is no current intention to
update the Legg Mason opinion.

The full text of the Legg Mason opinion, which sets forth the assumptions
made, matters considered, scope and limitations of the review undertaken and
procedures followed by Legg Mason in rendering its

33
<PAGE>

opinion, is attached to this proxy statement/prospectus as Annex B and is
incorporated herein by reference. Reunion Industries stockholders are urged to
read the opinion carefully and in its entirety. The Legg Mason opinion is
directed only to the fairness from a financial point of view to Reunion
Industries and its stockholders, other than Chatwins Group, of the
consideration to be paid by Reunion Industries in the merger with Chatwins
Group and does not constitute a recommendation to any Reunion Industries
stockholder as to how such stockholder should vote at the annual meeting. The
summary of the Legg Mason opinion set forth in this document is qualified in
its entirety by reference to the full text of the opinion.

In arriving at its opinion, Legg Mason has, among other things:

. reviewed the amended and restated merger agreement

. reviewed certain publicly available audited and unaudited financial
statements of Reunion Industries and Chatwins Group

. reviewed certain other publicly available information of Reunion
Industries and Chatwins Group

. reviewed certain internal information, primarily financial in nature,
concerning Reunion Industries and Chatwins Group prepared by their
respective managements

. discussed the past and current operations and financial condition and
prospects of Reunion Industries with the senior management of Reunion
Industries

. discussed the past and current operations and financial condition and
prospects of Chatwins Group with the senior management of Chatwins Group

. reviewed forecast financial statements of Reunion Industries prepared and
furnished to Legg Mason by the senior management of Reunion Industries

. reviewed forecast financial statements of Chatwins Group prepared and
furnished to Legg Mason by the senior management of Chatwins Group

. held meetings and discussions with certain officers and employees of
Reunion Industries and Chatwins Group, concerning the operations,
financial condition and future prospects of the combined company

. reviewed certain publicly available financial and stock market data
relating to selected public companies that Legg Mason considered relevant
to its inquiry

. considered the pro forma financial effects of the merger on Reunion
Industries

. conducted such other financial studies, analyses and investigations and
considered such other information as Legg Mason deemed necessary or
appropriate

In connection with its review, Legg Mason assumed and relied upon the
accuracy and completeness of all financial and other information supplied to it
by the managements of Reunion Industries and Chatwins Group and all publicly
available information. Legg Mason did not independently verify such
information. Legg Mason also relied upon the managements of Reunion Industries
and Chatwins Group as to the reasonableness and achievability of the financial
projections (and the assumptions and bases therein) provided to Legg Mason for
Reunion Industries and Chatwins Group, respectively. Legg Mason assumed that
such projections were reasonably prepared on bases reflecting the best
currently available estimates and judgments of management as to the future
operating performance of each respective entity, including, without limitation,
the tax benefits available to the combined company as well as to Reunion
Industries on a stand alone basis. The financial projections provided to Legg
Mason are attached to this proxy statement/prospectus as Annex D.

Legg Mason was informed by the management of Reunion Industries that Reunion
Industries will not meet its 1999 projections. While the management of Reunion
Industries has not commented on other years' projections, given that Reunion
Industries will not meet its 1999 projections, Legg Mason considered it
possible that Reunion will not meet projections beyond 1999. However, Reunion
Industries has not updated its projections and has not provided any revised
projections to Legg Mason. Therefore, due to the inherent uncertain nature of
the projections and Reunion Industries' and Chatwins Group's failure to meet
1998 projections and the indication from Reunion"s management that it will not
meet its 1999 projections, Legg

34
<PAGE>

Mason gave less weight to valuation analyses which utilize projections. Legg
Mason focused primarily on the latest twelve months results in the valuation
analyses. In arriving at the Legg Mason opinion, Legg Mason relied upon the
financial data for 1999, 2000, 2001 and 2002 presented to the Reunion
Industries board at the meeting on July 30, 1999, which data were the latest
available projections for Reunion Industries, Chatwins Group and the combined
company provided to Legg Mason by the managements of Reunion Industries and
Chatwins Group as of the date of the Legg Mason opinion. Neither Reunion
Industries nor Chatwins Group customarily discloses internal management
projections of the type provided to Legg Mason in connection with Legg Mason's
review of the merger. Such projections were not prepared with the expectation
of public disclosure. The projections were based on numerous variables and
assumptions that are inherently uncertain, including, without limitation,
factors related to general economic and competitive conditions. Accordingly,
actual results could vary significantly from those set forth in such
projections.

Legg Mason was not requested to make, and did not make, an independent
appraisal or evaluation of the assets, properties, facilities or liabilities of
either Reunion Industries or Chatwins Group and, with the exception of certain
appraisals related to the Juliana Preserve, was not furnished with any such
appraisal or evaluation.

The Legg Mason opinion is necessarily based on stock prices and economic and
other conditions and circumstances as existed or were in effect on, and the
information made available to it as of, the date set forth in its opinion. Legg
Mason expressed no opinion as to what the value of Reunion Industries common
stock actually will be when issued to the stockholders of Chatwins Group
pursuant to the amended and restated merger agreement or as to the price or
trading range at which Reunion Industries common stock may trade following the
merger.

In connection with rendering its opinion, Legg Mason performed a variety of
financial analyses. While all of the material analyses performed are summarized
below, the summary does not purport to be a complete description of the
analyses performed and factors considered by Legg Mason in arriving at its
opinion. Legg Mason believes that its analysis must be considered as a whole
and that selecting portions of its analyses and of the factors considered by
it, without considering all analyses and factors, would create a misleading
view of the processes underlying its opinion. The preparation of a fairness
opinion is a complex process and is not necessarily susceptible to a partial
analysis or summary description. Legg Mason was not authorized to solicit, and
did not solicit, indications of interest from any third party with respect to
an acquisition of Reunion Industries, its assets, or any part thereof. Legg
Mason assumed that the merger and related transactions described elsewhere in
this proxy statement/prospectus will be consummated according to the terms and
conditions described in the forms of the agreements reviewed by Legg Mason,
without any waiver of material terms or conditions by Reunion Industries or
Chatwins Group, and that obtaining any necessary regulatory approvals or
satisfying any other conditions for consummation of the merger would not have
an adverse effect on the combined company.

The following is a summary of the material financial and valuation analyses
performed by Legg Mason in connection with the preparation of the Legg Mason
opinion. These analyses were presented to the Reunion Industries board at its
meeting on July 28, 1999, and were based on stock price information through the
close of the market on July 22, 1999.

Summary Of Legg Mason's Valuation Approach

Analysis of Consideration to be Paid for Chatwins Group. Legg Mason analyzed
the value of the consideration to be paid by Reunion Industries for Chatwins
Group according to the terms of the amended and restated merger agreement dated
July 30, 1999. The consideration analyzed included:

. the purchase price for the equity of Chatwins Group based on Reunion
Industries' current share price as of July 22, 1999, assuming Reunion
Industries issues 9,500,000 shares to Chatwins Group

. the enterprise value of Chatwins Group based on the proposed merger terms

35
<PAGE>

Legg Mason then compared the implied transaction multiples to multiples that
Legg Mason calculated based on the valuation methodologies detailed below.

Relative Valuation Analysis. Legg Mason applied a series of valuation
methodologies to determine a value for Chatwins Group. In addition, Legg Mason
applied the same valuation methodologies to Reunion Industries. Then Legg Mason
compared the terms of the transaction to the relative equity values of both
Chatwins Group and Reunion Industries after deducting net debt and preferred
stock and adjusting for other non-operating assets and liabilities, as
described below. Under this methodology Legg Mason primarily relied upon
comparable companies and comparable transactions, focusing on latest twelve
months ("LTM") ended March 31, 1999.

Legg Mason performed comparable companies and comparable transaction
analyses, a discounted cash flow analysis and a leveraged buyout analysis, all
of which are described below. Legg Mason gave less weight to the discounted
cash flow and leveraged buyout analyses because:

. projections are inherently uncertain

. the projections included increases in revenue and operating margins in
excess of historical levels

. the management at Reunion Industries had informed Legg Mason that Reunion
Industries will not meet its 1999 projections.

Summary of Relative Values
(Chatwins Group %: Reunion Industries %):

<TABLE>
<S> <C>
Actual ratio assuming 9,500,000 shares issued........................... 79%:21%
</TABLE>

<TABLE>
<CAPTION>
Implied
Ratio
-------
<S> <C>
Comparable Companies Analysis
2000 Estimated Net Income............................................. 56%:44%
1999 Estimated Net Income............................................. 52%:48%
LTM Net Income........................................................ 79%:21%
LTM EBITDA............................................................ 74%:26%
LTM EBIT.............................................................. 99%:1%

Comparable Transactions Analysis
LTM EBITDA............................................................ 69%:31%
LTM EBIT.............................................................. 93%:7%
Discounted cash flow analysis........................................... 75%:25%
Leveraged buyout analysis............................................... 74%:26%
</TABLE>

Pro Forma Merger Analysis. Legg Mason performed a pro forma merger analysis
of the merged entity of Reunion Industries and Chatwins Group, including the
effects of the proposed transaction both on a historical and projected basis.
In this analysis, Legg Mason:

. focused on historical latest twelve months ended March 31, 1999 net
income from continuing operations available to common stockholders for
Reunion Industries, on a stand-alone basis

. calculated the combined entity's pro forma latest twelve months ended
March 31, 1999 net income from continuing operations available to common
stockholders

Legg Mason then compared Reunion Industries' latest twelve months net income
from continuing operations to the combined entity's pro forma latest twelve
months net income from continuing operations (actual net income adjusted for
one-time write-offs and charges and excluding the Juliana Vineyards
operations). Legg Mason determined the merger to be accretive based on
historical net income from continuing operations available to common
stockholders for the latest twelve months ended March 31, 1999.

36
<PAGE>

Analysis Of Consideration To Be Paid For Chatwins

Legg Mason calculated the amount of consideration being paid for Chatwins
Group.

<TABLE>
<CAPTION>
(millions)
----------
<S> <C>
Shares to be paid for Chatwins Group Inc............................. 9.5
Reunion Industries, Inc. Stock Price (7/22/99)....................... $ 3.4
-----
Consideration to be Paid for equity value(a)......................... $32.7
Plus:
Assumed Debt(b).................................................... 86.6
Preferred Stock(b)................................................. 8.6
Less:
Cash(b)............................................................ 32.8
-----
Enterprise Value(a).................................................. $95.1
Minus: Value of Reunion Industries Owned(c).......................... 5.0
-----
Equity Value(d)...................................................... $27.7
=====
Enterprise Value(d).................................................. $90.1
=====
</TABLE>
- - - --------
(a) Including Chatwins Group Inc.'s ownership of Reunion Industries, Inc.
(1.45 million shares).

(b) Provided by management as of March 31, 1999.

(c) Calculated as 1.45 million shares of Reunion Industries that are owned by
Chatwins Group valued at Reunion Industries' stock price of $3.44 as of
July 22, 1999.

(d) Excluding Chatwins Group's ownership of Reunion Industries.

Chatwins Group's net debt would be $62.4 million after adjusting for the
sale of Klemp (calculated as Chatwins Group's debt of $86.6 million, including
its unfunded pension liability of $0.6 million and its accumulated
postretirement benefit obligation of $0.9 million, and preferred stock of $8.6
million, offset by Chatwins Group's cash of $32.8 million, assuming proceeds of
$32.6 million from the Klemp sale).

Legg Mason then calculated the implied multiples that Reunion Industries is
paying for Chatwins Group based on Chatwins Group's equity value and enterprise
value as shown below.

<TABLE>
<CAPTION>
2000E 1999E LTM LTM LTM LTM
Net Income Net Income Net Income Revenues EBITDA EBIT
---------- ---------- ---------- -------- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Chatwins Group's
financial information
(millions)............. $3.3 $1.1 $1.3 $141.3 $15.7 $12.2
Multiple................ 8.4x(a) 25.4x(a) 21.9x(a) 0.64x(b) 5.7x(b) 7.4x(b)
</TABLE>
- - - --------
(a) Multiple based on equity purchase price.
(b) Multiple based on enterprise value purchase price.

These multiples that were calculated based on the purchase price of Chatwins
Group were then compared to the multiples that were calculated in the
comparable companies and comparable transactions analyses as well as the
implied multiples based on the discounted cash flow and leveraged buyout
analyses that were conducted. For further information related to these
valuation analyses see the detailed information below.

Legg Mason noted that the merger terms state that the stockholders of
Chatwins Group may also get paid up to an additional 500,000 shares based on
its satisfaction of 2000 performance goals. If the Chatwins Group divisions
including Kingway and NAPTech exceed their 2000 aggregate EBITDA projection by
$1.0 million then the Chatwins Group stockholders receive the full 500,000
shares. Otherwise, if Chatwins Group exceeds its 2000 EBITDA projection by less
than the full $1.0 million, the Chatwins Group stockholders receive a pro rata
portion of the 500,000 shares. Legg Mason reviewed the merger consideration
based on the stockholders of Chatwins Group receiving the 9,500,000 non-
contingent shares. However, if the additional 500,000 contingent

37
<PAGE>

shares were issued to the stockholders of Chatwins Group, the amount of
consideration would still be fair from a financial point of view. The full
500,000 additional shares would represent approximately $1.7 million of
additional consideration based on a share price of $3.44 as of July 22, 1999.
However, all additional 500,000 shares would be issued only if Chatwins Group
exceeds its 2000 EBITDA projections by $1.0 million. This additional $1.0
million of EBITDA would represent incremental value of $7.3 million based on
Chatwins Group's comparable companies LTM mean EBITDA multiple or $8.8 million
based on Chatwins Group's comparable transactions LTM mean EBITDA multiple.

Adjustments made to all Valuation Analyses

Legg Mason analyzed the following non-operating assets and liabilities of
Reunion Industries. The overall net value of Reunion Industries' non-operating
assets and liabilities, as detailed below, was an addition to the value of
Reunion Industries of $10.6 million. This net addition in the value of Reunion
Industries was added to Reunion Industries' equity value as calculated based on
the comparable companies, comparable transactions, discounted cash flow and
leveraged buyout analyses.

Summary of Non-Operating Asset and Liabilities
(Dollars in Millions)

<TABLE>
<S> <C>
Plus:
Present Value of Notes Receivable...................................... $ 0.2
Restricted Cash........................................................ 0.1
Juliana Vineyard Operations............................................ 14.8
Book Value of Potash Mineral Rights and Oil and Gas Properties......... 0.3
Present Value of Net Operating Loss Carryforward....................... 4.8
-----
Total Additions.......................................................... $20.2
-----

Less:
Bargo Energy Company Legal Liability................................... $ 5.0
Environmental Liability................................................ 1.5
California State Franchise Tax Settlement.............................. 1.0
Unfunded Pension Liability............................................. 0.7
Accumulated Postretirement Benefit Obligation.......................... 1.4
-----
Total Deductions......................................................... $ 9.6
-----
Net Addition............................................................. $10.6
=====
</TABLE>

. Present Value of Notes Receivable. Reunion Industries sold its interest
in certain California farm property and as part of the consideration,
Reunion Industries received notes receivable due in year 2000 with
interest payments of approximately 8%-9%. Management believes the
recorded value of $0.2 million approximates the cash value of this
receivable. In Legg Mason's analysis, the present value of the notes
receivable is an addition of $0.2 million to Reunion Industries' equity
value.

. Restricted Cash. Restricted cash balances have been included in Other
Assets and Other Assets Held for Sale based on the nature of the
underlying obligation collateralized. Such balances primarily relate to
regulatory operating deposits and performance bonds. The two restricted
cash balances include collateral for a Potash Bond, of $51,000, which
will become unrestricted when Reunion Industries sells its Potash
operations and collateral for its Chevron agreement, of $20,000, which is
in conjunction with the cleanup of the Louisiana properties and will be
unrestricted when the cleanup is finished. Per discussion with Reunion
Industries' management, these two restricted cash amounts represent their
net

38
<PAGE>

realizable values. In Legg Mason's analysis, the restricted cash is an
addition of $0.1 million to Reunion Industries' equity value.

. Juliana Vineyards Operations. Reunion Industries, through its subsidiary
Juliana Vineyards, is engaged in wine grape development and the growing
and harvesting of wine grapes for the premium table wine market. Juliana
Vineyards' wine grape agricultural operations consist of approximately
3,800 acres, of which approximately 1,200 acres are suitable for wine
grape production and, of which approximately 325 acres are currently in
production. Legg Mason evaluated Juliana Vineyards, on a stand alone
basis, by reviewing summaries of the appraisals conducted in June 1998 on
the parcels of property that comprise Juliana Vineyards and which
appraisals were given to Legg Mason by the management of Reunion
Industries. Legg Mason valued Juliana Vineyards on the assumption that
this property is to be sold and it is assumed that the sale process would
take approximately one year to complete. Therefore, Legg Mason discounted
back the value to Reunion Industries, calculated as the aggregate value
of the appraisal summaries, based on Reunion Industries' weighted average
cost of capital of 15.0%. This analysis resulted in Juliana Vineyards'
present value to Reunion Industries to be approximately $14.8 million.
This valuation, which is based on the assumption that Juliana Vineyards
is sold, may overvalue Juliana Vineyards as this analysis does not
consider the losses and capital expenditure requirements that Reunion
Industries projects for Juliana Vineyards over the next several years. In
Legg Mason's analysis, the Juliana Vineyards operations is an addition of
$14.8 million to Reunion Industries' equity value.

. Book Value of Potash Mineral Rights and Oil and Gas Properties. Reunion
Industries holds interests in federal and state leases totaling
approximately 55,000 acres near Moab, Utah, known as Ten Mile Potash.
Sylvanite, a potash mineral, is the principal mineral of interest and
occurrence in the Ten Mile Potash property. To date, Ten Mile Potash has
not yielded any significant revenues from mining operations or any other
significant revenues, and Reunion Industries is pursuing the sale or
farmout of these interests. Reunion Industries is attempting to sell its
mineral interests. It has been and is currently in discussions with a
potential buyer. Management has advised Legg Mason that the selling price
that has been discussed with this potential buyer has been higher than
the carrying amount of $0.1 million. Reunion Industries' interest in its
oil and gas properties relates to Reunion Industries' discontinued oil
and gas operations. Reunion Industries believes that the carrying amount
of these oil and gas properties of $0.2 million is a conservative
estimate and reflects its cash value. In Legg Mason's analysis, the book
value of Reunion Industries' Potash Mineral Rights and its oil and gas
properties is an addition of $0.3 million to Reunion Industries' equity
value.

. Present Value of Net Operating Loss Carryforward. Legg Mason utilized
Reunion Industries management's earnings projections to calculate Reunion
Industries' after tax savings resulting from its net operating loss
carryforwards. Each year's saving was discounted back at Reunion
Industries' weighted average cost of capital, calculated to be 15.0%, to
arrive at a present value of the net operating loss carryforwards. This
analysis provided an implied present value of the net operating loss
carryforwards to Reunion Industries, on a stand alone basis, of $4.8
million. This analysis calculated the present value of the net operating
loss carryforwards based on projections that were provided to Legg Mason
by Reunion Industries. In Legg Mason's analysis, the present value of the
net operating loss carryforwards is an addition of $4.8 million to
Reunion Industries' equity value.

In addition to the above mentioned analysis of the present value of
Reunion Industries' net operating loss carryforwards on a stand alone
basis, Legg Mason also calculated the value of the projected, unused
portion of the net operating loss carryforwards by Reunion Industries on a
stand alone basis. In performing this analysis, Legg Mason also utilized
projections provided by Reunion Industries' management. Legg Mason was
informed by the management of Reunion Industries that Reunion Industries
will not meet its projections. However, to date, Legg Mason has not been
provided with updated projections. As a result, the value of Reunion
Industries' net operating loss may be overstated. The amount of the unused
portion of the net operating loss carryforwards that expired each year was
calculated and then discounted back at Reunion Industries' weighted
average cost of capital of 15.0%.

39
<PAGE>

This resulted in a present value of the unused portion of Reunion
Industries' net operating loss carryforwards of approximately $61.3
million. This amount was calculated only to provide information for the
board of directors' consideration. It was not included in the adjustments
made to all valuation analyses because, absent the merger or other
transaction to increase future earnings, it would expire unused and,
therefore, has no value.

. Bargo Energy Company Legal Liability. Reunion Industries filed suit
against Bargo Energy Company and its general partners, Chisos
Corporation, Austin Resources Corporation, Shearwave, Inc., Brazos Oil &
Gas Corporation, and Schroder Oil Financing & Investment Company, on
January 16, 1996 for damages and relief arising out of Bargo's
repudiation of its agreement to purchase all outstanding shares of the
capital stock of Reunion Energy Company. Bargo had agreed to pay Reunion
Industries $15.1 million for Reunion Energy Company's capital stock. A
jury found that Bargo had a right to terminate the agreement because
Reunion Industries had fraudulently induced Bargo to enter into the
agreement. In July 1999, Reunion Industries settled this suit with Bargo
for $5.0 million. In Legg Mason's analysis, the Bargo Energy Company
settlement of $5.0 million is a deduction to Reunion Industries' equity
value.

. Environmental Liability. In connection with the sale of Reunion
Industries' wholly-owned subsidiary, Reunion Energy Company, Reunion
Industries retained certain oil and gas properties in Louisiana because
of litigation concerning environmental matters. Reunion Industries is in
the process of environmental remediation under a plan approved by the
Louisiana Office of Conservation. Reunion Industries has made an accrual
for $1.5 million for remaining cleanup charges. In Legg Mason's analysis,
the environmental liability is a deduction of $1.5 million to Reunion
Industries' equity value.

. California State Franchise Tax Settlement. Based on audits for 1991 to
1993, Reunion Industries has been assessed an aggregate amount of $0.7
million, plus interest, by the State of California Franchise Tax board
related to the sales of certain Canadian assets in 1991. Reunion
Industries classified these asset sales as non-business income. The State
of California is stating that these sales should be classified as
business income. In June 1999, the management of Reunion Industries
reached an agreement with the California Franchise Tax board and settled
this liability for approximately $1.0 million. In Legg Mason's analysis,
the California State Franchise Tax Settlement is a deduction of $1.0
million to Reunion Industries' equity value.

. Unfunded Pension Liability. Reunion Industries currently has an unfunded
pension liability of $0.7 million as of December 31, 1998, the most
recent date for which this liability has been calculated. In Legg Mason's
analysis, the unfunded pension liability is a deduction of $0.7 million
to Reunion Industries' equity value.

. Accumulated Postretirement Benefit Obligation. Reunion Industries
currently has an accumulated postretirement benefit obligation of $1.4
million as of December 31, 1998, the most recent date for which this
liability has been calculated. In Legg Mason's analysis, the accumulated
postretirement benefit obligation is a deduction of $1.4 million to
Reunion Industries' equity value.

Relative Valuations Analysis

Reunion Industries. Reunion Industries was valued on a fully taxed operating
basis utilizing each of the analyses described below. Then the value of Reunion
Industries' non-operating assets and liabilities, as previously detailed, was
added to the value of Reunion Industries.

Chatwins Group. Chatwins Group was valued on a fully taxed operating basis
utilizing each of the analyses described below. In addition, the value of
Chatwins Group's 36.8% ownership in Reunion Industries was added, post-
valuation, to the derived value of Chatwins Group. The value of Reunion
Industries that was utilized to calculate the value of Chatwins Group ownership
of Reunion Industries was calculated utilizing a methodology consistent with
each methodology utilized to value Chatwins Group.

40
<PAGE>

Legg Mason noted the advice of Reunion's tax counsel that because the merger
of Reunion Industries and Chatwins Group will not constitute a change of
control of Reunion Industries, the combined entity can fully benefit from the
utilization of Reunion Industries' net operating loss carryforwards subject to
the combined company's operating performance.

In addition, Legg Mason noted the advice of Reunion's tax counsel that no
other potential buyer of Reunion Industries would be able to utilize Reunion
Industries' net operating loss carryforwards because a merger of Reunion
Industries and any other company would result in a change in control issue
which would reduce the amount of net operating loss carryforwards that could be
utilized. Therefore, the value of Reunion Industries' net operating loss
carryforwards to its stockholders would be significantly less if Reunion
Industries merged with another company.

Comparable Companies Analysis

Legg Mason compared the relevant historical, current and projected financial
and operating results of both Reunion Industries and Chatwins Group with the
operating results of selected publicly traded companies that in Legg Mason's
judgment are and would be comparable to Reunion Industries and Chatwins Group.
The comparable companies were chosen by Legg Mason based on general business,
operating and financial characteristics representative of companies in the
industries in which Reunion Industries and Chatwins Group do and would operate.
No company or business used in the comparable companies analysis is identical
to Reunion Industries or Chatwins Group. Accordingly, an analysis of the
results of the following is not entirely mathematical; rather, it involved
complex considerations and judgments concerning differences in financial and
operating characteristics and other factors that could affect the public
trading value of either the comparable companies or the company to which they
are being compared; therefore, the resulting multiples relied upon for this
analysis are subject to interpretation. Legg Mason recognized that each of the
comparable companies is and would be distinguishable from both Reunion
Industries and Chatwins Group in certain respects.

In performing its analyses, Legg Mason examined both the aggregate equity
value of the outstanding common equity (defined as the number of outstanding
shares times the current price per share as of July 22, 1999), and the
enterprise value (defined as the equity value plus preferred equity (if any) at
liquidation value and total debt net of cash and cash equivalents) of the
comparable companies. Using each comparable company's enterprise value, Legg
Mason calculated multiples of, among other things, each comparable company's
LTM EBIT and last twelve months earnings before income taxes, depreciation and
amortization ("LTM EBITDA").

Using each comparable company's equity value, and based on published
security analysts' estimates, Legg Mason also calculated multiples of, among
other things, each company's LTM net income, projected 1999 net income and
projected 2000 net income.

The multiples that Legg Mason applied to Reunion Industries and Chatwins
Group are described in detail below.

Using the foregoing information, Legg Mason derived a range of estimated
values based upon implied enterprise values and equity values derived by
applying the aforementioned mean enterprise value multiples and equity value
multiples of the comparable companies to the appropriate financial statistics
of Reunion Industries and Chatwins Group. In cases where Legg Mason's analysis
indicated that the multiple for a particular comparable company was not
meaningful (e.g. because of recently depressed financial and operating
performance), Legg Mason excluded that multiple and relied upon the mean
multiples of the other comparable companies. Legg Mason has advised that such
exclusions did not affect the reliability of its analysis.

41
<PAGE>

Relative Valuation. Legg Mason calculated the relative value of each entity,
using the comparable companies' multiples in turn, and including the value of
Reunion Industries' non-operating assets and liabilities and Chatwins Group's
ownership in Reunion Industries.

<TABLE>
<CAPTION>
Relative Valuation Based On:
---------------------------------------------------
2000P 1999P LTM LTM LTM
Ownership Percentage Net Income Net Income Net Income EBITDA EBIT
-------------------- ---------- ---------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
Chatwins Group % :
Reunion Industries %... 56% : 44% 52% : 48% 79% : 21% 74% : 26% 99% : 1%
</TABLE>

<TABLE>
<CAPTION>
Actual Values Implied by Comparable Companies Analysis
(Dollars in Millions)
-------------------------------------------------------------------
2000P 1999P LTM LTM
Net Income Net Income Net Income LTM EBITDA EBIT
------------- ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Chatwin Group $ :
Reunion Industries $... $41.7 : $33.0 $18.4 : $16.7 $18.3 : $5.0 $59.2 : $21.2 $92.2 : $1.4
</TABLE>

Reunion Industries. In using the comparable companies analysis to value
Reunion Industries on a stand alone basis, Legg Mason analyzed financial
information which included, among other things:

. operating performance

. growth rates

. capitalization ratios

. ratios of equity value to LTM, 1999 projected and 2000 projected earnings

. ratios of enterprise value to LTM EBITDA and LTM EBIT

On an LTM basis, Reunion Industries was valued based on continuing
operations which have been adjusted to exclude non-recurring charges consisting
of a $10.2 million provision for the Bargo judgment and related costs. In
addition, all financial data related to Juliana Vineyards was excluded from
Reunion Industries' operations as the Juliana Vineyards operations were valued
based on the methodology previously mentioned and the present value of the net
consideration that Reunion Industries would receive upon the sale of Juliana
Vineyards was then added to the values of Reunion Industries as calculated
based on the comparable companies.

For the purposes of this analysis, the comparable companies selected by Legg
Mason for Reunion Industries were the following companies that operate in the
plastics manufacturing industry:

. Advanced Technical Products, Inc.

. Deswell Industries, Inc.

. Furon Co.

. Triple S Plastics, Inc.

. Worthington Industries, Inc.

42
<PAGE>

Reunion Industries
Comparable Companies Analysis
(Dollars in Millions)

<TABLE>
<CAPTION>
Market Value Market Value Plus Net Debt
as a Multiple of: as a Multiple of:
---------------------------- -----------------------------
LTM
2000 Est. 1999 Est. Net LTM LTM LTM
Net Income Net Income Income Revenues EBITDA EBIT
---------- ---------- ------ ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Number of Data points... 2 3 4 5 5 4
Mean.................... 12.0x 12.9x 12.0x 0.72x 5.9x 9.0x
Median.................. 12.0 13.5 12.9 0.69 6.6 9.8
Reunion................. $ 1.87 $ 0.48 $(0.47) $ 88.61 $ 6.23 $ 1.93
Implied enterprise value
Mean.................... $48.89 $32.62 $20.87 $ 64.20 $ 37.04 $ 17.28
Median.................. 48.89 32.87 20.41 61.18 40.95 18.83
Less Net Debt........... $26.48 $26.48 $26.48 $26.48 $26.48 $26.48
------ ------ ------ -------- -------- --------
Implied equity value
Mean.................... $22.42 $ 6.15 NMF $ 37.73 $ 10.56 NMF
Median.................. 22.42 6.40 NMF 34.71 14.48 NMF
</TABLE>

Chatwins Group. In using the comparable companies analysis to value Chatwins
Group on a stand alone basis, Legg Mason analyzed financial information which
included, among other things:

. operating performance

. growth rates

. capitalization ratios

. ratios of equity value to LTM, 1999 projected and 2000 projected earnings

. ratios of enterprise value to LTM EBITDA and EBIT

For the purposes of this analysis, the comparable companies selected by Legg
Mason for Chatwins Group were the following companies that operate in the
diversified industrial manufacturing industry:

. A.M. Castle & Co.

. Commercial Intertech Corporation

. Harnischfeger Industries, Inc.

. Harsco Corporation

. Katy Industries, Inc.

. Keystone Consolidated Industries, Inc.

. Owosso Corporation

. SIFCO Industries, Inc.

. Synalloy Corporation

. Trinity Industries

. Varlen Corporation

. Worthington Industries, Inc.

43
<PAGE>

Chatwins Group
Comparable Companies Analysis
(Dollars in Millions)

<TABLE>
<CAPTION>
Market Value Market Value Plus Net Debt
as a Multiple of: as a Multiple of:
-------------------------------- -----------------------------
2000 Est. 1999 Est. LTM LTM LTM LTM
Net Income Net Income Net Income Revenues EBITDA EBIT
---------- ---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Number of Data points... 10 10 9 12 11 10
Mean.................... 8.9x 11.2x 13.0x 0.70x 7.3x 12.6x
Median.................. 8.4 11.1 13.6 0.60 6.8 10.2
Chatwins................ $ 3.30 $ 1.09 $ 1.26 $ 141.30 $ 15.68 $ 12.23
Implied enterprise value
Mean.................... $91.81 $74.60 $78.88 $ 98.71 $ 113.77 $ 154.09
Median.................. 90.16 74.57 79.54 85.22 106.74 124.46
Less Net Debt........... $62.40 $62.40 $62.40 $ 62.40 $ 62.40 $ 62.40
------ ------ ------ -------- -------- --------
Implied equity value
Mean.................... $29.40 $12.20 $16.48 $ 36.30 $ 51.37 $ 91.68
Median.................. 27.76 12.16 17.14 22.81 44.34 62.06
</TABLE>

Comparable Transactions Analysis

Legg Mason conducted an analysis of comparable merger and acquisition
transactions as a method of valuing Reunion Industries and Chatwins Group. A
comparable transactions analysis reviews and analyzes transactions, and the
resulting implied multiples, involving companies in the same or similar
industries as the company under review. This analysis compares certain
financial and operating statistics of a company with certain financial and
operating statistics of selected similar companies immediately prior to their
being acquired.

In performing this analysis, Legg Mason analyzed the acquisition of publicly
traded and private plastics manufacturing companies for Reunion Industries and
diversified manufacturing companies for Chatwins Group. The range of multiples
of these transactions was then applied to Reunion Industries' and Chatwins
Group's financial results, respectively, to value Reunion Industries and
Chatwins Group, respectively. In this analysis, it was determined that there
were no acquisitions of companies that are directly comparable to Reunion
Industries and Chatwins Group. Therefore, in performing this analysis, Legg
Mason selected certain Standard Industrial Classification codes of plastics
manufacturing companies and diversified manufacturing companies and reviewed
recent acquisitions of these companies. Legg Mason then calculated the
acquisition multiples paid for these companies. These multiples included
enterprise value to LTM EBITDA and enterprise value to LTM EBIT. Legg Mason
calculated mean, median, high and low multiples for each of these categories
based on these comparable transactions.

Legg Mason then applied the mean comparable transactions multiples obtained
to Chatwins Group's and Reunion Industries' LTM EBITDA and LTM EBIT to
determine approximate enterprise valuations of each respective company. The
multiples that Legg Mason applied to Reunion Industries and Chatwins Group are
described in detail below.

Using the foregoing information, Legg Mason derived a range of estimated
values based upon implied enterprise values and equity values derived by
applying the aforementioned mean enterprise value Multiples of the comparable
transactions analysis to the appropriate financial statistics of Reunion
Industries and Chatwins Group. In cases where Legg Mason's analysis indicated
that the multiple for a particular comparable transaction was not meaningful
(e.g. because of insufficient financial and transaction data available), Legg

44
<PAGE>

Mason excluded that multiple and relied upon the mean multiples of the other
comparable transactions. Legg Mason has advised that such exclusions did not
affect the reliability of its analysis.

Relative Valuation. Legg Mason calculated the relative value of each entity,
using the comparable transactions' multiples, and including the value of
Reunion Industries' non-operating assets and liabilities and Chatwins Group's
ownership in Reunion Industries.

<TABLE>
<CAPTION>
Relative Valuation
Based on:
-------------------
LTM LTM
Ownership Percentage EBITDA EBIT
-------------------- ---------- --------
<S> <C> <C>
Chatwins Group %: Reunion Industries %............... 69% : 31% 93% : 7%
</TABLE>

<TABLE>
<CAPTION>
Actual Values Implied by
Comparable Transactions
Analysis
(Dollars in Millions)
---------------------------
LTM LTM
Ownership Percentage EBITDA EBIT
-------------------- ------------- -------------
<S> <C> <C>
Chatwins Group $ : Reunion Industries $...... $91.2 : $40.0 $101.9 : $8.0
</TABLE>

Reunion Industries. In using the comparable transactions analysis to value
Reunion Industries on a stand alone basis, Legg Mason analyzed financial
information which included, among other things:

. similar operating performance

. growth rates

. similar operating characteristics

. ratios of enterprise value to LTM EBITDA and LTM EBIT

On an LTM basis, Reunion Industries was valued based on continuing
operations which have been adjusted to exclude non-recurring charges consisting
of a $10.2 million provision for the Bargo judgment. In addition, all financial
data related to Juliana was excluded from Reunion Industries' operations as the
Juliana operations were valued based on the methodology previously mentioned
and the present value of the net consideration that Reunion Industries would
receive upon the sale of Juliana was then added to the values of Reunion
Industries as calculated based on the comparable transactions.

For the purposes of this analysis, the comparable transactions selected by
Legg Mason for Reunion Industries were the following acquisitions of plastic
manufacturing companies:

. Summa Industries, Inc. acquisition of Calnetics Corp.

. Tekni-Plex Inc.'s acquisition of PureTec Corp.

. PCD Inc.'s acquisition of Wells Electronics

. Kerr Group Inc.'s acquisition of Sun Coast Industries Inc.

. Synetic Inc.'s acquisition of Point Plastics Inc.

45
<PAGE>

Reunion Industries
Comparable Transaction Analysis
(Dollars in Millions)

<TABLE>
<CAPTION>
Market Value Plus Net Debt
as a Multiple of:
----------------------------
LTM LTM
EBITDA EBIT
-------------- -------------
<S> <C> <C>
Number of Data points........................ 5 5
Mean......................................... 9.0x 12.4x
Median....................................... 7.0 10.6
Reunion...................................... $ 6.23 $ 1.93
Implied enterprise value
Mean......................................... $ 55.91 $ 23.91
Median....................................... 43.42 20.41
Less Net Debt................................ $26.48 $26.48
------------- -------------
Implied equity value
Mean......................................... $ 29.43 NMF
Median....................................... 16.94 NMF
</TABLE>

Chatwins Group. In using the comparable transactions analysis to value
Chatwins Group on a stand alone basis, Legg Mason analyzed financial
information which included, among other things:

. similar operating performance

. growth rates

. similar operating characteristics

. ratios of enterprise value to EBITDA and EBIT

For the purposes of this analysis, the comparable transactions selected by
Legg Mason for Chatwins Group were the following acquisitions of diversified
manufacturing companies:

. R-B Capital Corp.'s acquisition of Peerless Industrial Group Inc.

. Chart Industries, Inc.'s acquisition of Cryenco Sciences Inc.

. Harsco Corp.'s acquisition of Chemi-Trol Chemical Co.

. J. Richard Industries Inc.'s acquisition of Portec Inc.

. Applied Power Inc.'s acquisition of Zero Corp.

. Chart Industries, Inc.'s acquisition of MVE Holdings, Inc.

46
<PAGE>

Chatwins Group
Comparable Transaction Analysis
(Dollars in Millions)

<TABLE>
<CAPTION>
Market Value Plus Net Debt
as a Multiple of:
----------------------------
LTM LTM
EBITDA EBIT
-------------- -------------
<S> <C> <C>
Number of Data points........................ 6 6
Mean......................................... 8.8x 13.2x
Median....................................... 8.8 12.3
Chatwins..................................... $ 15.68 $ 12.23
Implied enterprise value
Mean......................................... $ 138.69 $ 161.32
Median....................................... 138.72 150.06
Less Net Debt................................ $62.40 $62.40
------------- -------------
Implied equity value
Mean......................................... $ 76.29 $ 98.92
Median....................................... 76.32 87.66
</TABLE>

Discounted Cash Flow Analysis

Legg Mason reviewed a discounted cash flow analysis of Reunion Industries
and Chatwins Group premised upon the assumptions summarized below. The
discounted cash flow analysis was based upon the financial and operating
information relating to the business, operations and prospects of Reunion
Industries and Chatwins Group supplied by the management of Reunion Industries
and Chatwins Group and covering calendar years 1999 through 2003.

Relative Valuation. Legg Mason calculated the relative value of each entity
using the discounted cash flow values calculated using each entities' estimated
weighted average cost of capital as a discount rate and a 6.0x EBIT terminal
value, and including the value of Reunion Industries' non-operating assets and
liabilities and Chatwins Group's ownership in Reunion Industries.

<TABLE>
<CAPTION>
Ownership Percentage Relative Valuation
-------------------- ------------------
<S> <C>
Chatwins Group % : Reunion Industries % 75% : 25%
</TABLE>

<TABLE>
<CAPTION>
Actual Values Implied by
Discounted Cash Flow Analysis
(Dollars in Millions)
-----------------------------
<S> <C>
Chatwins Group $ : Reunion Industries $... $59.3 : $20.3
</TABLE>

Reunion Industries. Using discount rates ranging from 10.0% to 20.0%, Legg
Mason calculated the present value of the projected stream of net unleveraged
cash flow (as defined below) for calendar years 1999 through 2003 and the
present cash value of the terminal value of Reunion Industries at December 31,
2003. Legg Mason applied discount rates derived from Reunion Industries'
implied weighted average cost of capital (using a pricing model known as the
Capital Asset Pricing Model and based on general and systemic risk factors
reflected by the Comparable Companies) and developed a range of rates which
reflected the risk implied by Reunion Industries' recent and projected
operating performance. "Net unleveraged cash flow," as used in the analysis, is
defined, for each period, as projected EBIT, less taxes at an estimated rate of
40.0%, plus projected depreciation and amortization, less projected capital
expenditures, plus or minus projected changes in non-cash working capital. The
terminal value was computed by multiplying Reunion Industries' projected EBIT

47
<PAGE>

by terminal multiples of 4.0x to 8.0x. Legg Mason adjusted the calculated
present value of the net unleveraged cash flow and terminal value by
subtracting the debt on Reunion Industries' balance sheet, and adding cash and
cash equivalents, to calculate a range of equity values for Reunion Industries.
Legg Mason believes the ranges of discount rates and terminal multiples were
appropriate in view of Reunion Industries' current performance, projected
performance and Legg Mason's estimate of Reunion Industries' weighted average
cost of capital of 15.0%.

Based on the range of discount rates and terminal multiples referred to
above, Legg Mason calculated a range of equity values for Reunion Industries,
excluding the value of its non-operating assets and liabilities, of $-2.32
million to $26.7 million. The equity value calculated using Reunion Industries'
estimated weighted average cost of capital as a discount rate and a 6.0x EBIT
terminal value is calculated at $9.7 million. Including the value of Reunion
Industries' non-operating assets and liabilities resulted in an implied equity
value of Reunion Industries of $20.3 million.

Chatwins Group. Using discount rates ranging from 7.7% to 17.7%, Legg Mason
calculated the present value of the projected stream of net unleveraged cash
flow (as defined above) for calendar years 1999 through 2003 and the present
cash value of the terminal value of Chatwins Group at December 31, 2003. Legg
Mason applied discount rates derived from Chatwins Group's implied weighted
average cost of capital (using a pricing model known as the Capital Asset
Pricing Model and based on general and systemic risk factors reflected by the
comparable companies) and developed a range of rates which reflected the
additional risk implied by Chatwins Group's recent and projected operating
performance. The terminal value was computed by multiplying Chatwins Group's
projected EBIT by terminal multiples of 4.0x to 8.0x. Legg Mason adjusted the
calculated present value of the net unleveraged cash flow and terminal value by
subtracting the debt and preferred stock on Chatwins Group's balance sheet, and
adding cash and cash equivalents, to calculate a range of equity values for
Chatwins Group. Legg Mason believes the ranges of discount rates and terminal
multiples were appropriate in view of Chatwins Group's current performance,
projected performance and Legg Mason's estimate of Chatwins Group's weighted
average cost of capital of 12.7%.

Based on the range of discount rates and terminal multiples referred to
above, Legg Mason calculated a range of equity values for Chatwins Group,
excluding the value of its ownership in Reunion Industries, $11.2 million to
$108.9 million. The equity value calculated using Chatwins Group estimated
weighted average cost of capital as a discount rate and a 6.0x EBIT terminal
value is $51.5 million. Including the value of its ownership in Reunion
Industries resulted in an implied equity value of Chatwins Group of $59.0
million.

Leveraged Buyout Analysis

Legg Mason also reviewed a leveraged buyout analysis of Reunion Industries
and Chatwins Group as a means of establishing the value of each company
assuming that it was purchased by a financial buyer. A leveraged buyout
involves the acquisition or recapitalization of a company financed primarily by
incurring debt that is serviced by the post-LBO operating cash flow of the
company.

Relative Valuation. Legg Mason calculated the relative value of each entity
using the leveraged buyout analysis values, and including the value of Reunion
Industries' non-operating assets and liabilities and Chatwins Group's ownership
in Reunion Industries.

<TABLE>
<CAPTION>
Ownership Percentage Relative Valuation
-------------------- ------------------
<S> <C>
Chatwins Group % : Reunion Industries % 74% : 26%
</TABLE>

<TABLE>
<CAPTION>
Actual Values Implied by
Leveraged BuyoutAnalysis
(Dollars in Millions)
------------------------
<S> <C>
Chatwins Group $ : Reunion Industries $.......... $32.3 : $11.4
</TABLE>

48
<PAGE>

Reunion Industries. Based on this analysis, Legg Mason calculated an equity
value for Reunion Industries, excluding the value of its non-operating assets
and liabilities, of $0.8 million. Including the value of Reunion Industries'
non-operating assets and liabilities resulted in an implied equity value of
Reunion Industries of $11.4 million.

Chatwins Group. Based on this analysis, Legg Mason calculated an equity
value for Chatwins Group and excluding the value of its ownership in Reunion
Industries, of $28.1 million. Chatwins Group and including the value of its
ownership in Reunion Industries resulted in an implied equity value of Chatwins
Group of $32.3 million.

Asset Liquidation Analysis

Legg Mason also considered but did not perform an asset liquidation analysis
as a method of valuing Reunion Industries and Chatwins Group. An asset
liquidation assumes that a company is dissolved and its assets sold for cash
proceeds equal to estimated fair market values. Legg Mason advised the Reunion
Industries board that an asset liquidation tends to yield a lower value than
that derived from other analyses because a liquidation does not attribute any
value to the operation of the liquidated entity as a going concern. In the
course of considering this type of analysis, Legg Mason determined that an
asset liquidation analysis would not provide a reliable measure of the value of
either Reunion Industries or Chatwins Group, as the liquidation values of the
assets of operating companies in general represent only a small portion of such
entities' going concern value. Legg Mason noted that Reunion Industries has
more debt and non-operating liabilities to service than its projected cash
flow, and that it could sell assets to pay these liabilities.

Pro Forma Merger Analysis

In this analysis, Legg Mason calculated and Reunion Industries' management
confirmed the calculation of Reunion Industries' historical net income from
continuing operations, adjusted for one-time write-offs, available to common
stockholders for the latest twelve months ended March 31, 1999. Then Legg Mason
calculated pro forma latest twelve months ended March 31, 1999 net income
available to common stockholders from continuing operations for the combined
entity, Reunion Industries and Chatwins Group (net income adjusted for one-time
write-offs and charges and excluding the Juliana operations) to be $0.26 per
share, representing accretion for Reunion Industries' stockholders.

Legg Mason utilized management's projected earnings for the Reunion
Industries and Chatwins Group combined entity to calculate the present value of
the net operating loss carryforwards to the combined company. Each year's
saving was discounted back at Reunion Industries' weighted average cost of
capital, calculated to be 15.0%, to arrive at a present value of the net
operating loss carryforwards. This analysis provided an implied present value
of the net operating loss carryforwards to Reunion Industries and Chatwins
Group of $28.0 million. These analyses calculated the present value of the net
operating loss carryforwards based on projections that were provided to Legg
Mason by the managements of Reunion Industries and Chatwins Group.

Other Factors

In rendering its opinion, Legg Mason considered certain other factors,
including a review of the business and operations of and the industries in
which Reunion Industries or Chatwins Group operate, a review of Reunion
Industries' and Chatwins Group's historical operating results and the financial
and operating information with respect to the business, operations and
prospects of Reunion Industries and Chatwins Group, a review of the current and
historic stock price performance of Reunion Industries and other factors it
deemed relevant.

Legg Mason is a nationally recognized investment banking firm which has
substantial experience in, among other things, the valuation of businesses and
securities in connection with mergers, acquisitions,

49
<PAGE>

underwritings, sales and distributions of listed and unlisted securities,
private placements and valuations for estate, corporate and other purposes. In
the ordinary course of its business, Legg Mason may actively trade in the
securities of Reunion Industries for its own account and the accounts of its
customers, and accordingly, may at any time hold a long or short position in
such securities.

Pursuant to the terms of an engagement letter, Reunion Industries agreed to
pay Legg Mason $50,000 for acting as financial advisor in connection with
Reunion Industries' analysis of the financial terms of the merger. Of this
amount, $17,000 was due upon the engagement of Legg Mason and $17,000 was due
upon the presentation of findings to the Reunion Industries board of directors
in July 1999. The remaining $16,000 was due upon the rendering of the Legg
Mason opinion. Reunion Industries expects to pay the amounts due when financing
is available. Reunion Industries has agreed to reimburse Legg Mason for its
out-of-pocket expenses, and to indemnify Legg Mason and certain related parties
against certain liabilities, including liabilities under the federal securities
laws, arising out of or in connection with the services rendered by Legg Mason
under its engagement letter. Reunion Industries previously paid Legg Mason a
total of $450,000 in connection with the merger of Reunion Industries and
Chatwins Group that was proposed but abandoned prior to June 1999.

Chatwins Group's Reasons for Merger

In reaching its decision to enter into the amended and restated merger
agreement, Chatwins Group's management and board of directors considered a
number of factors including, among others:

. the potential reduction in its overall effective borrowing rate as a
result of the replacement of its existing credit facilities with new
credit facilities

. the potential reduction in restrictions on consummation of acquisitions
and incurrence of indebtedness as a result of the replacement of Chatwins
Group's existing credit facilities with the new credit facilities

. the ability for the Chatwins Group stockholders to achieve greater
liquidity through a merger into an already public company

. the possibility of enhancing Chatwins Group's future earnings through
utilization of Reunion Industries' net operating loss carryforwards

. the opportunity for possible operating synergies as a result of a
combined Reunion Industries/Chatwins Group entity

. the terms and conditions of the amended and restated merger agreement,
including the number of Reunion Industries shares to be issued to the
Chatwins Group stockholders

. the fact that the Chatwins Group preferred stock will be automatically
converted at its redemption value into Reunion Industries Series A
preferred stock

. the possibility that Reunion Industries' non-manufacturing assets might
be sold for cash that would improve the overall liquidity of the merged
company

. the fact that the merger will not be a taxable transaction to the common
stockholders of Chatwins Group

Following consideration of the information and factors described above,
Chatwins Group's board of directors concluded that the merger is in the best
interests of Chatwins Group and its stockholders and approved the amended and
restated merger agreement by unanimous written consent dated July 30, 1999, and
reaffirmed this conclusion and this approval by unanimous written consent dated
October 21, 1999. In reaching this conclusion, Chatwins Group's board of
directors did not assign relative or specific weights to the above factors or
determine that any particular factor was of unique importance. Instead,
Chatwins Group's board of directors based its decision upon the totality of the
information and factors presented to it or otherwise known to its members.

50
<PAGE>

Terms of the Merger

The description of the amended and restated merger agreement set forth below
describes the material terms of that agreement but does not purport to describe
all of the terms of the amended and restated merger agreement. All stockholders
are urged to read the amended and restated merger agreement, which is attached
as Annex A to this proxy statement/prospectus, in its entirety.

The merger will be accomplished under the Delaware General Corporation Law
pursuant to the amended and restated merger agreement by and between Reunion
Industries and Chatwins Group. Chatwins Group will be merged with and into
Reunion Industries and the independent corporate existence of Chatwins Group
shall cease as of the effective time of the merger.

Conversion or Cancellation of Chatwins Group Common Stock

At the effective time of the merger, the common stock of Chatwins Group that
is issued and outstanding and held by the stockholders of Chatwins Group shall
be automatically converted into the right to receive:

. an aggregate of 9,500,000 shares of Reunion Industries common stock

. plus up to an additional 500,000 shares of Reunion Industries common
stock in the event Chatwins Group, Kingway and NAPTech achieve specified
combined performance levels in 2000.

. plus cash in lieu of any fractional share interests

The 500,000 shares of Reunion Industries common stock, the issuance of which
is contingent on the performance of Chatwins Group, Kingway and NAPTech, as
described in the second bullet point above, will be issued as follows:

. no shares of Reunion Industries common stock if the aggregate EBITDA of
those business units during the year ending December 31, 2000 is not more
than $19.0 million

. 0.5 shares of Reunion Industries common stock for each dollar by which
the aggregate EBITDA of those business units exceeds $19.0 million for
the year ended December 31, 2000, up to an additional 500,000 shares

For purposes of this determination, EBITDA means earnings before interest
expense, taxes, depreciation and amortization of Chatwins Group's business
units, including Kingway and NAPTech, but excluding headquarters overhead
expense, determined in accordance with generally accepted accounting
principles, consistently applied.

Neither Reunion Industries nor Chatwins Group can predict whether EBITDA for
2000 will exceed $19.0 million or, if it does, the amount by which it will
exceed $19.0 million. Moreover, if Reunion Industries does not consummate the
Kingway or NAPTech transactions after the merger for any reason, their EBITDA
will not be included in Chatwin's Group's EBITDA, making it less likely that
Chatwins Group stockholders will receive any or all of the contingent shares.
Therefore, the precise number of shares of Reunion Industries common stock to
be issued in the merger to Chatwins Group stockholders cannot be predicted.

Assuming that 292,887.4 shares of Chatwins Group common stock are
outstanding at the time of the merger, which assumes that all outstanding
warrants are exercised prior to the merger, each share of Chatwins Group common
stock will be converted into 32.4 shares of Reunion Industries common stock in
the merger. The equivalent per share value of the Chatwins Group common stock
as of October 22, 1999, which is calculated by multiplying 32.4 times the
closing market price of Reunion Industries common stock on that date, was
$75.95 per share.

The shares of Reunion Industries common stock issued in the merger will be
allocated among the holders of Chatwins Group common stock pro rata, based on
their percentage ownership of Chatwins Group common stock at the effective time
of the merger. As of October 22, 1999, there were 290,212.4 shares of Chatwins
Group common stock outstanding, plus exercisable warrants to purchase an
additional 2,675 shares of Chatwins Group common stock, which must be exercised
or terminated prior to the merger.

51
<PAGE>

The shares of Reunion Industries' common stock currently owned by Chatwins
Group, representing approximately 36.8% of the issued and outstanding common
stock of Reunion Industries, will be retired in connection with the merger. All
shares of Chatwins Group common stock held by Chatwins Group as treasury shares
will be canceled and retired at the effective time of the merger and no shares
of Reunion Industries' common stock will be issuable in respect thereof.

Conversion of Chatwins Group Preferred Stock

Chatwins Group has three classes of issued and outstanding preferred stock.
At the effective time of the merger, each share of the Chatwins Group preferred
stock will be automatically converted into one share of Reunion Industries
Series A preferred stock. The Reunion Industries Series A preferred stock will
have the following material rights, preferences, privileges and restrictions:

. subject to any restrictions provided by law, Reunion Industries'
certificate of incorporation or the terms of any Reunion Industries
indebtedness, it will be redeemable at any time at the option of Reunion
Industries at the redemption price then in effect, plus accumulated but
unpaid dividends, so long as no shares of Series B preferred stock
expected to be issued in connection with the acquisition of Kingway are
outstanding

. the aggregate initial redemption price will be $8.9 million, assuming the
merger occurs on December 31, 1999

. it will carry a cumulative dividend of 10% of the redemption price per
annum, payable as and when declared by the board of directors of Reunion
Industries

. as to dividends, it will be senior in right of payment to dividends on
the Reunion Industries common stock but junior in right of payment to
dividends on the Reunion Industries Series B preferred stock

. except as required by law, it will not be entitled to any voting rights
and will not have any right of conversion into the common stock or any
other securities of Reunion Industries

. upon a liquidation of Reunion Industries, the holders will be entitled to
be paid, out of the assets of Reunion Industries available for payment to
the holders of its capital stock, an amount equal to the redemption price
plus accrued but unpaid dividends; their right to this payment being
senior to any payment on liquidation to holders of Reunion Industries
common stock and Series B preferred stock

Mr. Charles E. Bradley, Sr. and Mr. Poole are beneficial owners of all of
the Chatwins Group preferred stock presently outstanding.

Cash in Lieu of Fractional Shares

No certificate or scrip representing fractional shares of Reunion Industries
common stock will be issued in the merger upon the surrender for exchange of
Chatwins Group common stock, and any fractional share interests will not
entitle the owner to vote or to any rights as a stockholder of Reunion
Industries. In lieu of any such fractional shares, each person who would
otherwise have been entitled to a fraction of a share of Reunion Industries
common stock will receive a cash payment from Reunion Industries. The cash
payments for fractional interests received in the conversion of Chatwins Group
common stock held at the effective time of the merger will be determined by
multiplying (1) the market price per share of Reunion Industries' common stock
on the NASDAQ Small-Cap Market at the close of business on the date the merger
is effected by (2) the fractional share interest to which such holder would
otherwise be entitled.

Effective Time of Merger

The merger will be consummated on the earliest practicable date after all of
the conditions thereto have been satisfied or waived, including the approval of
the amended and restated merger agreement by Reunion Industries' stockholders
at the annual meeting.

52
<PAGE>

Reunion Industries and Chatwins Group have designated September 30, 1999 as the
date the merger is to be completed in the amended and restated merger
agreement. However, the merger is now expected to be completed on December 31,
1999. The merger will become effective immediately upon the filing of a
certificate of merger in accordance with Delaware law or such later date as may
be specified in the certificate of merger.

Representations and Covenants

The amended and restated merger agreement contains representations,
warranties and covenants by both Reunion Industries and Chatwins Group.

Chatwins Group has made representations and warranties to Reunion Industries
with respect to, among other things:

. its corporate organization

. its power and authority to enter into and consummate the merger

. its capitalization and voting rights

. the accuracy of its recent publicly filed financial information

. changes in its business since March 31, 1999

. litigation and other disputes

. the ownership of its intellectual property

. the existence of any conflicts with its charter documents and other
agreements that may be caused by the amended and restated merger
agreement or the merger

. violations or breaches that may occur or be caused by the amended and
restated merger agreement or the merger

. various contracts and agreements to which it is a party

. title to its property and assets

. labor and tax matters

. compliance with applicable laws

Reunion Industries has made representations and warranties to Chatwins Group
with respect to, among other things:

. its corporate organization

. its power and authority to enter into and consummate the merger

. the existence of any conflicts with its charter documents and other
agreements that may be caused by the amended and restated merger
agreement or the merger

. violations or breaches that may occur or be caused by the amended and
restated merger agreement or the merger

. the legality of the consideration being paid in the merger

. the accuracy of its recent publicly filed financial information

. changes in its business since March 31, 1999

. its capitalization

. certain legal proceedings involving Reunion Industries

. compliance with applicable laws

53
<PAGE>

Chatwins Group has covenanted to Reunion Industries that, among other
things:

. it will conduct its business in the regular course during the period
prior to the effective time of the merger

. it will not amend its corporate charter documents or enter into certain
types of transactions during the period prior to the effective time of
the merger

. it will afford Reunion Industries and its representatives access to
information about Chatwins Group

. it will use its best efforts to obtain all required approvals by
regulatory and governmental authorities as soon as possible

Chatwins Group also covenanted to Reunion Industries that it would promptly
solicit the approval of the amended and restated merger agreement by the
stockholders of Chatwins Group.

Reunion Industries has covenanted to Chatwins Group that, among other
things:

. it will conduct its business in the regular course during the period
prior to the effective time of the merger

. it will not amend its corporate charter documents, issue or sell any
capital stock or stock options, or enter into transactions to sell or
acquire significant assets without prior approval during the period prior
to the effective time of the merger

. it will afford Chatwins Group and its representatives access to
information about Reunion Industries

. it will use its best efforts to obtain all required approvals by
regulatory and governmental authorities as soon as possible

Reunion Industries also covenanted to Chatwins Group that it would promptly
seek the approval of the amended and restated merger agreement by the
stockholders of Reunion Industries.

Reunion Industries and Chatwins Group have agreed that each will bear its
own costs and expenses in connection with the merger, with Reunion Industries
being responsible for the costs of soliciting the approval of Reunion
Industries stockholders, Legg Mason's advisory fees, and for registering with
the SEC, and any required state authorities, the common stock to be issued in
connection with the merger. Reunion Industries and Chatwins Group have also
agreed to cooperate to complete the closing of the refinancing transaction and
to equally share related expenses.

Conditions to Consummation of the Merger; Regulatory Requirements

The obligation of each of Chatwins Group and Reunion Industries to
consummate the merger is subject to the prior fulfillment of the following
conditions:

. Reunion Industries and Chatwins Group receiving the requisite stockholder
approval under Delaware law and no more than 5.0% of the holders of the
Chatwins Group common stock exercising their appraisal rights under
Delaware law

. the representations and warranties of the other party remaining true in
all material respects

. the respective covenants of the other party having been performed in all
material respects

. the receipt of all orders, consents or approvals, governmental or
otherwise, that may be required

. there being an enforceable agreement for new credit facilities the
proceeds of which are sufficient to retire $50 million of outstanding
Chatwins Group senior notes and to provide adequate working capital after
the merger

. no material changes having occurred in the business, assets or financial
condition of the other party to the merger

54
<PAGE>

. the receipt by Reunion Industries from Legg Mason of an opinion that the
consideration to be paid for Chatwins Group is fair to Reunion Industries
and its stockholders, other than Chatwins Group, from a financial point
of view, which condition has been satisfied

. the sale of the Klemp division of Chatwins Group

. the exercise or termination of all outstanding warrants of Chatwins Group

Chatwins Group's obligation to consummate the merger is further conditioned
upon:

. the Registration Statement on Form S-4, of which this proxy
statement/prospectus is a part, having been filed with the SEC and
declared "effective" in accordance with Section 8(a) of the Securities
Act

. Reunion Industries having complied with all applicable "Blue Sky" state
securities regulatory obligations with respect to the merger

. Reunion Industries retaining its Pacific Exchange and NASDAQ Small-Cap
Market listings following the merger and causing the shares of common
stock to be issued as part of the merger to be listed thereon

Either party may waive conditions to the merger. In particular, the parties
may waive the condition that all of the Chatwins Group 13% senior notes be
refinanced if refinancing can be arranged on acceptable terms that include a
portion of the notes remaining outstanding. Additionally, Chatwins Group may
waive the condition that the Reunion Industries common stock issued in the
merger be listed on the NASDAQ Small-Cap Market.

Except for compliance with state and federal securities laws, and the filing
of the pre-merger notification form under Hart-Scott-Rodino Act, which was made
on August 27, 1999, Reunion Industries and Chatwins Group believe that no
material federal or state regulatory approvals are necessary for the
consummation of the merger. The Hart-Scott-Rodino filings were made on August
27, 1999, and early termination of the waiting period was granted on September
13, 1999.

Reunion Industries believes that all of the conditions precedent to the
merger will be satisfied on or prior to December 31, 1999, the date on which
the merger is anticipated to be effected.

No Solicitations

Reunion Industries and Chatwins Group have agreed in the amended and
restated merger agreement that, except as contemplated in the agreement or as
required by law, so long as the agreement is in effect, neither Reunion
Industries nor Chatwins Group will, or will permit its officers, directors or
other agents to, take any action to seek, initiate, negotiate, or encourage, or
enter into or participate in any discussions regarding, any offer from any
third party to acquire any securities of such party, or to sell securities of
Reunion Industries or Chatwins Group to any third party, to merge or
consolidate with any third party, or to otherwise acquire any significant
portion of the assets of any third party or to sell its assets to any third
party. The acquisitions of Kingway and NAPTech by Reunion Industries and the
sale of the Klemp division by Chatwins Group are expressly permitted by the
amended and restated merger agreement.

Amendment, Extension or Termination

The amended and restated merger agreement provides that Reunion Industries
and Chatwins Group may, by mutual agreement, amend, modify, supplement, extend,
terminate or abandon the agreement at any time prior to the effective time of
the merger even following stockholder approval. The amended and restated merger
agreement permits the boards of directors of Reunion Industries and Chatwins
Group to amend the agreement after stockholder approval, if the amendment does
not:

. alter or change the amount or kind of merger consideration received

. alter or change any term of the certificate of incorporation of Reunion
Industries

. alter or change any of the terms and conditions of the agreement if the
change would adversely affect the holders of any class or series of
securities held by stockholders of Reunion Industries or Chatwins Group

55
<PAGE>

In addition, either Reunion Industries or Chatwins Group can terminate the
amended and restated merger agreement:

. if the merger is not consummated within 120 days after the date of the
agreement, unless such failure to close was caused by a breach of the
agreement by the party seeking to terminate

. if the other party has breached certain representations, warranties and
covenants contained in the agreement and the breach has not been cured
within ten days

. if a court or governmental or regulatory authority has issued a final
order restricting or prohibiting the merger

Indemnification

Reunion Industries and Chatwins Group have agreed in the amended and
restated merger agreement to indemnify and hold one another harmless against
all losses, damages, or liabilities to which the other may become subject by
virtue of a breach of a representation, warranty, covenant or agreement
contained in the agreement, or certain liabilities which may arise under the
Securities Act of 1933, as amended. No actions for indemnity may be brought or
maintained after the effective time of the merger.

Exchange of Certificates

As soon as practicable after the effective date of the merger, Reunion
Industries will furnish a letter of transmittal to stockholders of Chatwins
Group for use in exchanging their stock certificates. This letter will contain
instructions with respect to the surrender of Chatwins Group stock certificates
and the distribution of Reunion Industries common stock certificates and
Reunion Industries Series A preferred stock certificates. Reunion Industries'
existing stockholders do not need to exchange any stock certificates at any
time before or after the merger.

Chatwins Group stockholders who fail to exchange their Chatwins Group stock
certificates on or after the effective date of the merger by surrendering such
certificates, together with a properly completed letter of transmittal, to the
exchange agent designated by Reunion Industries will not receive their Reunion
Industries common stock certificates or Reunion Industries Series A preferred
stock certificates until their Chatwins Group stock certificates are later
surrendered to the exchange agent for transfer, with instruments of transfer
and supporting evidence as Reunion Industries may reasonably require. Any
dividends declared or distributions made on shares of Reunion Industries common
stock or Reunion Industries Series A preferred stock which these holders have a
right to receive will be retained by Reunion Industries until these holders
surrender their Chatwins Group stock certificates in exchange for Reunion
Industries common stock certificates or Reunion Industries Series A preferred
stock certificates or until paid to a public official pursuant to applicable
abandoned property, escheat or similar laws. No interest will accrue or be
payable with respect to any dividends or distributions retained on unissued
Reunion Industries common stock certificates or Reunion Industries Series A
preferred stock certificates.

On the effective date of the merger, holders of certificates representing
Chatwins Group capital stock will cease to have any rights with respect to
their shares. Each certificate will be deemed for all corporate purposes to
evidence only the right to receive shares of Reunion Industries common stock,
plus cash for any fractional shares, or Reunion Industries Series A preferred
stock for which shares may be exchanged. The stock transfer books of Chatwins
Group will be closed from and after the closing of the transactions
contemplated by the agreement. The holders of record of Chatwins Group capital
stock as of the closing of the merger will be the stockholders entitled to
exchange their shares of Chatwins Group capital stock for shares of Reunion
Industries common stock or Reunion Industries Series A preferred stock as
provided in the agreement. No transfer or assignment of any shares of Chatwins
Group capital stock will take place after closing until the certificates for
the shares are exchanged pursuant to the merger agreement. In the event of a
transfer of ownership of any Chatwins Group shares which are not registered in
the stock transfer records of Chatwins Group, no shares of

56
<PAGE>

Reunion Industries common stock or Reunion Industries Series A preferred stock
exchangeable for the Chatwins Group shares will be issued to the transferee
until the certificate or certificates representing the transferred shares are
delivered to the exchange agent together with all documents required to
evidence and effect the transfer. In addition, it will be a condition to the
issuance of any certificate for any shares of Reunion Industries common stock
or Reunion Industries Series A preferred stock in a name other than the name in
which the surrendered Chatwins Group capital stock is registered that the
person requesting the issuance of such certificate or note either pay to the
exchange agent any transfer or other taxes required by reason of the issuance
of a certificate of Reunion Industries common stock or Reunion Industries
Series A preferred stock in a name other than the registered holder of the
certificate surrendered, or establish to the satisfaction of the exchange agent
that the tax has been paid or is not applicable.

In no event will the exchange agent or Reunion Industries be liable to any
holder of Chatwins Group capital stock for shares of Reunion Industries common
stock or Reunion Industries Series A preferred stock, or dividends or
distributions thereon, delivered in good faith to a public official pursuant to
any applicable abandoned property, escheat or similar law. All shares of
Reunion Industries common stock or Reunion Industries Series A preferred stock
issued upon the surrender of shares of Chatwins Group capital stock shall be
deemed to have been issued in full satisfaction of all rights pertaining to the
surrendered shares of Chatwins Group capital stock. However, Reunion
Industries' is obligated to pay any dividends or make any other distributions
with a record date prior to the effective date of the merger which may have
been declared or made by Chatwins Group on shares of Chatwins Group capital
stock prior to the effective date of the merger and that remain unpaid as of
the effective date of the merger.

Appraisal Rights

Reunion Industries Common Stock. Reunion Industries is a Delaware
corporation. Section 262 of the Delaware General Corporation Law provides
appraisal rights under certain circumstances to stockholders of a Delaware
corporation that is involved in a merger. However, Section 262 appraisal rights
are not available to stockholders of a corporation whose securities are listed
on a national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association of
Securities Dealers, Inc. Because Reunion Industries' common stock is traded on
the Pacific Exchange, a national securities exchange, stockholders of Reunion
Industries will not have appraisal rights with respect to the merger.

Chatwins Group Common Stock and Preferred Stock. Chatwins Group is also a
Delaware corporation. The common and preferred stockholders of Chatwins Group
who have not consented to the approval of the amended and restated merger
agreement have appraisal rights with respect to the merger. A majority of the
stockholders of Chatwins Group approved the amended and restated merger
agreement by written consent dated November , 1999 and, therefore, have
waived their appraisal rights. This proxy statement/prospectus constitutes the
notice required by Section 228 of the Delaware General Corporation Law of that
action by partial written consent.

The following discussion is not a complete statement of the law pertaining
to appraisal rights under the Delaware General Corporation Law and is qualified
in its entirety by the full text of Section 262, which is reprinted in its
entirety as Annex C to this proxy statement/prospectus. All references in
Section 262 to a "stockholder" and in this discussion to a "record holder" are
to the record holders of the shares of Chatwins Group immediately prior to the
effective time of the merger as to which appraisal rights are asserted. A
person wanting to exercise his appraisal rights who has a beneficial interest
in shares of Chatwins Group held of record in the name of another person, such
as a broker or nominee, must act promptly to cause the record holder to follow
the steps summarized below properly and in a timely manner to perfect appraisal
rights.

57
<PAGE>

Under the Delaware General Corporation Law, record holders of Chatwins Group
common stock and record holders of Chatwins Group preferred stock who follow
the procedures set forth in Section 262 will be entitled to have their shares
of Chatwins Group common stock appraised by the Delaware Court of Chancery and
to receive payment of the "fair value" of their shares, exclusive of any
element of value arising from the accomplishment or expectation of the merger,
together with a fair rate of interest, as determined by the Delaware Court of
Chancery.

Under Section 262, if the amended and restated merger agreement is approved
by partial written consent, either before the effective date of the merger or
within ten days thereafter, Chatwins Group must notify each of its stockholders
entitled to appraisal rights that appraisal rights are available and include in
each such notice a copy of Section 262. This proxy statement/prospectus
constitutes that notice. Any holder of Chatwins Group stock who wishes to
exercise appraisal rights or wishes to preserve their right to do so should
review the following discussion and Annex C carefully. Failure to timely and
properly comply with the procedures specified in Section 262 will result in the
loss of appraisal rights under the Delaware General Corporation Law.

A holder of Chatwins Group stock entitled to and wishing to exercise their
appraisal rights must, within 20 days after the date of mailing of the notice
of entitlement to appraisal rights, deliver to Chatwins Group a written demand
for appraisal of their Chatwins Group stock and must reasonably inform Chatwins
Group of the identity of the holder of record as well as the intention of the
holder to demand an appraisal of the fair value of the shares held. In
addition, a holder of Chatwins Group stock wishing to exercise appraisal rights
or wishing to preserve their right to do so must hold of record such shares on
the date the written demand for appraisal is made and must continue to hold
those shares through the effective time of the merger. Failure to deliver a
written demand for appraisal within 20 days after the date of mailing of this
notice to Chatwins Group stockholders of their entitlement to appraisal rights
will result in the loss of appraisal rights.

Only a holder of record of Chatwins Group common stock or preferred stock is
entitled to assert appraisal rights for Chatwins Group stock registered in
their name. A demand for appraisal should be executed by or on behalf of the
holder of record, fully and correctly, as their name appears on their stock
certificates, and must state that they intend thereby to demand appraisal of
their shares of Chatwins Group stock.

If the shares of Chatwins Group stock are owned of record in a fiduciary
capacity, such as by a trustee, guardian or custodian, execution of the demand
should be made in that capacity. If the shares of Chatwins Group stock are
owned of record by more than one person, as in a joint tenancy or tenancy in
common, the demand should be executed by or on behalf of all joint owners. An
authorized agent, including one or more joint owners, may execute a demand for
appraisal on behalf of a holder of record; however, the agent must identify the
record owner or owners and expressly disclose the fact that, in executing the
demand, the agent is agent for the owner or owners. A record holder, such as a
broker who holds Chatwins Group common stock as nominee for several beneficial
owners, may exercise appraisal rights with respect to the shares of Chatwins
Group stock held for one or more beneficial owners while not exercising
appraisal rights with respect to the Chatwins Group stock held for other
beneficial owners. In such case, however, the written demand should set forth
the number of shares of Chatwins Group stock as to which appraisal is sought.
If no number of shares of Chatwins Group stock is expressly mentioned, the
demand will be presumed to cover all Chatwins Group stock held in the name of
the record owner. Holders of Chatwins Group stock who hold their shares in
brokerage accounts or other nominee forms and who wish to exercise appraisal
rights are urged to consult with their brokers to determine the appropriate
procedures for the making of a demand for appraisal by their nominee.

58
<PAGE>

All written demands for appraisal of Chatwins Group common or preferred
stock should be faxed to (412) 885-5512 or mailed or otherwise delivered to
Chatwins Group at 300 Weyman Plaza, Suite 340, Pittsburgh, Pennsylvania 15236,
Attention: Russell S. Carolus, so as to be received no later than December 6,
1999.

Within 120 days after the effective time of the merger, but not thereafter,
Chatwins Group, or any holder of Chatwins Group stock who is entitled to
appraisal rights under Section 262 and who has complied with the foregoing
procedures, may file a petition in the Delaware Court of Chancery demanding a
determination of the fair value of such shares. Chatwins Group is not under any
obligation, and has no present intention, to file a petition with respect to
the appraisal of the fair value of the Chatwins Group stock. Accordingly, it is
the obligation of the holders of the shares of Chatwins Group common stock or
preferred stock to initiate all necessary action to perfect their appraisal
rights within the time prescribed in Section 262.

Within 120 days after the effective time of the merger, any record holder of
Chatwins Group common stock or preferred stock who has complied with the
requirements for exercise of appraisal rights will be entitled to request in
writing a statement from Chatwins Group setting forth the aggregate number of
shares of Chatwins Group stock for which demands for appraisal have been
received and the aggregate number of holders of those shares. This statement
must be mailed within 10 days after the written request has been received by
Chatwins Group or within 10 days after expiration of the period for delivery of
demands for appraisal, whichever is later.

If a holder of Chatwins Group common stock or preferred stock timely files a
petition for appraisal and serves a copy of the petition upon Chatwins Group,
Chatwins Group will then be obligated within 20 days to file with the Delaware
Register in Chancery a duly verified list containing the names and addresses of
all stockholders who have demanded an appraisal of their shares and with whom
agreements as to the value of their shares have not been reached. After notice
to the stockholders who have demanded appraisal as required by the Delaware
Court of Chancery, the Delaware Court of Chancery is empowered to conduct a
hearing on the petition to determine those stockholders who have complied with
Section 262 and who have become entitled to appraisal rights. The Delaware
Court of Chancery may require the holders of shares of Chatwins Group stock who
demanded payment for their shares to submit their stock certificates to the
Delaware Register in Chancery for notation of the pendency of the appraisal
proceeding. If any stockholder fails to comply with its direction, the Delaware
Court of Chancery may dismiss the proceedings as to that particular
stockholder.

After determining which holders of Chatwins Group stock are entitled to
appraisal, the Delaware Court of Chancery will appraise the fair value of their
shares of Chatwins Group common stock and preferred stock, without considering
any element of value arising from the accomplishment or expectation of the
merger, together with a fair rate of interest, if any, to be paid upon the
amount determined to be the fair value. Holders considering seeking appraisal
should be aware that the fair value of their Chatwins Group stock as determined
under Section 262 could be more than, the same as or less than the value of the
consideration that they would otherwise receive in the merger if they did not
seek appraisal of their Chatwins Group stock. Furthermore, investment banking
opinions as to fairness from a financial point of view are not necessarily
opinions as to fair value under Section 262. The Delaware Supreme Court has
stated that "proof of value by any techniques or methods which are generally
considered acceptable in the financial community and otherwise admissible in
court" should be considered in the appraisal proceedings. More specifically,
the Delaware Supreme Court has stated that: "Fair value, in an appraisal
context, measures that which has been taken from the stockholder, viz., his
proportionate interest in a going concern. In the appraisal process the
corporation is valued as an entity, not merely as a collection of assets or by
the sum of the market price of each share of its stock. Moreover, the
corporation must be viewed as an ongoing enterprise, occupying a particular
market position in the light of future prospects." In addition, Delaware courts
have decided that the statutory appraisal remedy, depending on factual
circumstances, may or may not be a stockholder's exclusive remedy. The Delaware
Court of Chancery will also determine the amount of interest, if any, to be
paid upon the amounts to be received by persons whose shares of Chatwins Group
stock have been appraised. The costs of the action may be determined by the
Delaware Court of Chancery and taxed upon the parties as the Delaware Court of
Chancery deems equitable.

59
<PAGE>

The Delaware Court of Chancery may also order that all or a portion of the
expenses incurred by any holder of Chatwins Group stock in connection with an
appraisal, including, without limitation, reasonable attorneys' fees and the
fees and expenses of experts utilized in the appraisal proceeding, be charged
pro rata against the value of all of the shares of Chatwins Group stock
entitled to appraisal.

Any holder of Chatwins Group common stock or preferred stock who has duly
demanded an appraisal in compliance with Section 262 will not, after the
effective time of the merger, be entitled to vote the shares of Chatwins Group
stock subject to their demand for any purpose. Additionally, the holder will
not be entitled to the payment of dividends or other distributions on those
shares except dividends or other distributions payable to holders of record of
Chatwins Group stock as of a date prior to the effective time of the merger.

If any holder of Chatwins Group common stock or preferred stock who demands
appraisal of their shares of Chatwins Group stock under Section 262 fails to
perfect, or effectively withdraws or loses such holder's right to appraisal the
Chatwins Group stock of such holder will remain the same number of pre-merger
shares of Chatwins Group stock subject to the amended and restated merger
agreement. A holder of Chatwins Group stock will lose the right to appraisal if
no petition for appraisal is filed within 120 days after the effective time of
the merger. A holder may withdraw a demand for appraisal by delivering to
Chatwins Group a written withdrawal of the demand for appraisal and an
acceptance of the merger. Any attempt to withdraw made more than 60 days after
the effective time of the merger will, however, require the written approval of
Chatwins Group. Further, once a petition for appraisal is filed, the appraisal
proceeding may not be dismissed absent court approval.

Failure to follow the steps required by Section 262 for perfecting appraisal
rights may result in the loss of such rights.

The foregoing is a summary of the material provisions of Section 262 and is
qualified in its entirety by reference to the full text of Section 262, a copy
of which is attached as Annex C to this proxy statement/prospectus.

Post-Merger Management

Effective upon the merger, it is expected that the following individuals
will serve as executive officers of Reunion Industries subject to their
appointment by the board of directors:

<TABLE>
<CAPTION>
Name Age Position
- - - ---- --- --------
<S> <C> <C>
Charles E. Bradley,
Sr..................... 70 Chairman of the Board and Chief Executive Officer

Joseph C. Lawyer........ 53 President and Chief Operating Officer

Richard L. Evans........ 47 Executive Vice President of Administration and Secretary

Kimball J. Bradley...... 34 Executive Vice President of Operations

John M. Froehlich....... 56 Executive Vice President of Finance and Chief Financial Officer
</TABLE>

JOSEPH C. LAWYER has been President, Chief Executive Officer and a director
of Chatwins Group since 1988. Prior to purchasing CP Industries, Inc., the
corporate predecessor of Chatwins Group's CP Industries division, with Stanwich
Partners, Inc. in 1986, Mr. Lawyer was General Manager of USX's Specialty Steel
Products division, where he was employed for over 17 years. Mr. Lawyer has been
a director of Respironics, Inc., a company engaged in design, manufacture and
sale of home and hospital respiratory medical products, since November 16,
1994.

KIMBALL J. BRADLEY has been a Senior Vice President of Chatwins Group since
August 1998 and a Vice President since January 1996. From November 1995 until
August 1998, Mr. Bradley was Division President of Auto-Lok, having served as
acting President of Auto-Lok beginning in August 1995. Prior to assuming that
position, Mr. Bradley managed various special projects at Chatwins Group's
corporate office beginning in November 1993 and at Chatwins Group's CP
Industries division from February 1993 to

60
<PAGE>

November 1993. Mr. Bradley was employed by Metalsource, a company engaged in
the steel service center business, from 1990 to 1993, completing the executive
training program and holding various sales and purchasing positions. Mr.
Bradley is the son of Charles E. Bradley, Sr. and the brother of Charles E.
Bradley, Jr.

JOHN M. FROEHLICH has been a Vice President of Chatwins Group since 1989 and
its Chief Financial Officer and Treasurer since 1988. Mr. Froehlich was
Assistant Treasurer and Director of Accounting for Incom International, Inc.
from 1975 to 1988.

The business experience of Charles E. Bradley, Sr. is described in "Proposal
2. The Election of Directors--Nominees" and the business experience of Richard
L. Evans is described in "Proposal 2. The Election of Directors--Executive
Officers of Reunion Industries."

61
<PAGE>

The following table reflects all forms of compensation for services to
Reunion Industries or Chatwins Group by the persons expected to be executive
officers of the combined company.

Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
----------------------
Long-Term
Compensation
Other Annual Stock Option All Other
Name and Principal Position Year Salary Bonus(1) Compensation (Shares) Compensation
- - - --------------------------- ---- -------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Charles E. Bradley, Sr... 1998 $250,000 $ 0 $ 0 75,000 $ 0
President and Chief
Executive 1997 200,000 0 0 0 300(2)
Officer of Reunion
Industries and 1996 200,000 0 0 0 312(2)
Chairman of Chatwins
Group

Joseph C. Lawyer......... 1998 427,316 65,000 0 0 75,363(3)
President and Chief
Executive 1997 388,404 65,000 0 0 52,777(3)
Officer of Chatwins
Group 1996 354,144 0 0 0 52,277(3)

Richard L. Evans......... 1998 165,000 15,000 0 20,000 7,411(2)
Executive Vice
President, Chief 1997 150,000 75,000 0 0 4,662(2)
Financial Officer and
Secretary of 1996 135,000 30,000 0 50,000 4,352(2)
Reunion Industries

Kimball J. Bradley....... 1998 141,661 25,000 0 0 9,208(4)
Senior Vice President of 1997 105,000 0 0 0 6,825(4)
Chatwins Group 1996 105,000 55,000 0 0 8,400(4)

John M. Froehlich........ 1998 145,184 50,000 0 0 12,210(5)
Vice President, Chief
Financial 1997 138,276 52,266 0 0 11,664(5)
Officer and Treasurer of 1996 132,960 20,043 0 0 11,398(5)
Chatwins Group
</TABLE>
- - - --------
(1) Amounts shown for bonuses are amounts earned for the period shown, although
such bonuses are generally paid in the subsequent year.
(2) Contributions under nondiscriminatory defined contribution plan and certain
health insurance plans maintained by Reunion Industries currently covering
Messrs. Charles E. Bradley, Sr. and Evans.
(3) Includes 401(k) matching payments of $4,950, $4,750 and $4,750 in 1998,
1997 and 1996, respectively; premiums paid by Chatwins Group for life
insurance for the benefit of Mr. Lawyer of $62,413 in 1998 and $40,027 in
each of 1997 and 1996, respectively; and payments under the Chatwins Group,
Inc. Money Purchase Pension Plan of $8,000 in each of 1998 and 1997 and
$7,500 in 1996. Regarding the premiums paid by Chatwins Group for life
insurance, Mr. Lawyer has agreed with Chatwins Group that if the policy
proceeds are insufficient to reimburse Chatwins Group for the full amount
of premiums paid, he will pay the shortfall to Chatwins Group. The policy
has a face value of $1.5 million.
(4) Includes 401(k) matching payments of $2,125, $1,575 and $3,150 in 1998,
1997 and 1996, respectively; and payments under the Chatwins Group, Inc.
Money Purchase Pension Plan of $7,083, $5,250 and $5,250 in 1998, 1997 and
1996, respectively.
(5) Includes 401(k) matching payments of $4,950, $4,750 and $4,750 in 1998,
1997 and 1996, respectively; and payments under the Chatwins Group, Inc.
Money Purchase Plan of $7,260, $6,914 and $6,648 in 1998, 1997 and 1996,
respectively.

Further compensation information with respect to Messrs. Charles E. Bradley,
Sr. and Evans is set forth in "Proposal 2. The Election of Directors--Executive
Compensation and Other Information."

62
<PAGE>

Executive Employment Agreements

Chatwins Group entered into an employment agreement, dated as of August 1,
1996, with Joseph C. Lawyer to serve as President and Chief Executive Officer
of Chatwins Group. The initial term of the employment agreement expired on July
31, 1999 but the agreement automatically renews annually thereafter if not
previously renegotiated. This employment agreement replaced an earlier
agreement between Mr. Lawyer and Chatwins Group that expired on July 31, 1996.
Pursuant to the employment agreement, Mr. Lawyer receives the following
compensation and benefits:

. an annual base salary, which was established at $354,144 for 1996,
$388,404 for 1997 and $427,316 for 1998

. an annual bonus of up to 65% of his base salary based on Chatwins Group's
performance relative to its annual projections

. a $600 per month automobile allowance

. two club memberships

. a $1.0 million life insurance policy and a $1.5 million split-dollar life
insurance policy

. coverage under Chatwins Group's other fringe benefit plans for executive
officers

The annual base salary for 1999 was determined by the board of directors. In
the event that the employment agreement is terminated due to Mr. Lawyer's death
or disability, Chatwins Group will continue to pay the base salary for not less
than a one-year period. In the event that Chatwins Group terminates the
employment agreement without cause or in the event that Mr. Lawyer resigns with
good reason or following a change of control approved by Chatwins Group's board
of directors and stockholders, Mr. Lawyer will be entitled to receive his base
salary, health coverage and life insurance coverage for one and one-half years
or for the balance of the term of the employment agreement, whichever is
greater. This employment agreement is expected to be replaced by a
substantially identical agreement between Mr. Lawyer and Reunion Industries
after the merger. Mr. Lawyer is currently employed under the terms of the
agreement which was automatically renewed to July 31, 2000 under the agreement.

Post-Merger Board of Directors

Following the consummation of the merger, two persons designated by Chatwins
Group will be appointed to serve on the board of directors of Reunion
Industries. It is currently anticipated that Mr. Lawyer and Mr. Kimball Bradley
will be the persons designated by Chatwins Group to serve on the Reunion
Industries board of directors. If the merger is consummated, the post-merger
board of directors will be comprised as follows:

<TABLE>
<CAPTION>
Name Age
---- ---
<S> <C>
Charles E. Bradley, Sr................................................ 70
John G. Poole......................................................... 56
Thomas N. Amonett..................................................... 56
Thomas L. Cassidy..................................................... 71
W.R. Clerihue......................................................... 76
Franklin Myers........................................................ 46
Joseph C. Lawyer...................................................... 53
Kimball J. Bradley.................................................... 34
</TABLE>

The business experience of Messrs. Charles E. Bradley, Sr., Poole, Amonett,
Cassidy, Clerihue and Myers are described in "Proposal 2. The Election of
Directors--Nominees."

The business experience of Messrs. Lawyer and Kimball Bradley are described
in "Post-Merger Management."

63
<PAGE>

Compensation of Directors

Information regarding the compensation of Messrs. Charles E. Bradley, Sr.,
Amonett, Cassidy, Clerihue, Myers and Poole by Reunion Industries is set forth
in "Proposal 2. The Election of Directors--Director Compensation."

Charles E. Bradley, Sr. is entitled to receive a stipend in his capacity as
Chairman of the Board of Chatwins Group at a rate of $100,000 per year.
Chatwins Group paid Mr. Bradley's $100,000 stipend in 1998. As of June 29,
1994, Chatwins Group and Mr. Bradley agreed to a split dollar life insurance
arrangement. Pursuant to this arrangement, Chatwins Group agreed to maintain
three universal type life policies on Mr. Bradley and his wife. Chatwins Group
will be reimbursed for the premiums it pays for such policies from either the
death benefit of the policies or their cash surrender value. Mr. Bradley has
agreed with Chatwins Group that if the policy proceeds are insufficient to
reimburse Chatwins Group for the full amount of premiums paid, Mr. Bradley will
pay the shortfall to Chatwins Group. The annual premiums paid by Chatwins Group
totaled $355,375 in 1998.

John G. Poole is entitled to receive a stipend in his capacity as a director
of Chatwins Group and liaison with investment banks of $42,000 per year.
Chatwins Group paid Mr. Poole's $42,000 stipend in 1998. As of December 12,
1995, Chatwins Group and Mr. Poole agreed to a split dollar life insurance
arrangement. Pursuant to this arrangement, Chatwins Group agreed to maintain
two universal type life policies on Mr. Poole. Chatwins Group will be
reimbursed for the premiums it pays for these policies from either the death
benefit of the policies or their cash surrender value. Mr. Poole has agreed
with Chatwins Group that if the policy proceeds are insufficient to reimburse
Chatwins Group for the full amount of premiums paid, Mr. Poole will pay the
shortfall to Chatwins Group. The annual premiums paid by Chatwins Group totaled
$116,453 in 1998.

Compensation Committee Interlocks

From 1994 through 1999, Charles E. Bradley, Sr. and Joseph C. Lawyer
participated in deliberations of Chatwins Group's board of directors concerning
executive officer compensation for 1994 through 1999. No other officer or
employee of Chatwins Group participated in deliberations regarding executive
officer compensation for these years.

64
<PAGE>

Pre-Merger and Post-Merger Security Ownership of Certain Beneficial Owners and
Management

As of October 22, 1999, Reunion Industries had outstanding 3,940,100 shares
of common stock. There will be approximately 11,990,100 shares of Reunion
Industries common stock outstanding immediately after the merger. The following
table sets forth information regarding the beneficial ownership of Reunion
Industries' common stock at October 22, 1999 and the expected beneficial
ownership of Reunion Industries common stock immediately after the merger, by
the following:

. each stockholder known to Reunion Industries to own 5% or more of
Reunion Industries common stock

. each director of Reunion Industries

. each of the chief executive officer and the other named executive
officers of Reunion Industries

. all current directors and executive officers of Reunion Industries as a
group

Except as set forth in the footnotes to the following table, each
stockholder has sole dispositive and voting power with respect to the shares of
Reunion Industries common stock shown as owned by him.

<TABLE>
<CAPTION>
Pre-Merger Post-Merger
------------------------- ----------------------------
Amount and Percent Amount and Percent
Name (and Address Nature of Nature of
of 5% of Beneficial Owners) of Ownership Class of Ownership Class
- - - --------------------------- ------------ ------- ------------ -------
<S> <C> <C> <C> <C>
Chatwins Group, Inc..... 1,450,000 36.8% -- (1) --
300 Weyman Plaza, Suite
340
Pittsburgh, PA 15236

Bradley Family Limited
Partnership............ 1,450,000(2) 36.8% 4,506,827(2) 37.6%
c/o Stanwich Partners,
Inc.
62 Southfield Avenue
One Stamford Landing
Stamford, CT 06902

Stanwich Partners,
Inc.................... 1,450,000(2) 36.8% -- (2) --
62 Southfield Avenue
One Stamford Landing
Stamford, CT 06902

Stanwich Financial Serv-
ices Corp. ............ 271,280(3) 6.9% 271,280(3) 2.3%
c/o Stanwich Partners,
Inc.
62 Southfield Avenue
One Stamford Landing
Stamford, CT 06902

Thomas N. Amonett....... 49,000(4) 1.2% 49,000(4) 0.4%

Charles E. Bradley,
Sr..................... 1,477,600(5) 37.2% 4,599,298(5) 38.3%

Kimball J. Bradley...... -- -- 5,285,283(2) 44.1%

Thomas L. Cassidy....... 30,000(4) 0.8% 33,243(4) 0.3%

W.R. Clerihue........... 20,000(4) 0.5% 20,000(4) 0.2%

Joseph C. Lawyer........ -- -- 586,890 4.9%

Franklin Myers.......... 118,710(4) 3.0% 118,710(4) 1.0%

John G. Poole........... 1,465,000(2)(4) 37.0% 1,596,459(2)(4)(6) 13.3%

Richard L. Evans........ 63,000(7) 1.6% 63,000(7) 0.5%

John M. Froehlich....... -- -- 973 0.0%

All current directors
and executive officers
as a group............. 1,773,310(8) 43.3% 7,846,029(8) 64.6%
</TABLE>

65
<PAGE>

- - - --------
(1) Pursuant to the amended and restated merger agreement, all shares of
Reunion Industries common stock held by Chatwins Group will be retired in
the merger.
(2) Includes all shares of common stock shown as beneficially owned by Chatwins
Group. The Bradley Family Limited Partnership was established by Mr.
Bradley in May 1998 for estate planning purposes and Mr. Bradley owns 1% as
general partner and 55% as a limited partner. The Bradley Family Limited
Partnership beneficially owns the shares owned by Chatwins Group due to its
ownership of Chatwins Group's common stock. The Bradley Family Limited
Partnership has designated Stanwich Partners, Inc. to vote these shares and
Stanwich Partners in turn has designated Mr. Poole, who is one of its
officers, as the person to vote these shares on its behalf. Pursuant to
Rule 13d-3, the Bradley Family Limited Partnership may be deemed to be the
beneficial owner of these shares with shared dispositive power with Charles
E. Bradley, Sr. with respect thereto (see note 5), and Stanwich Partners
and Mr. Poole may be deemed to be the beneficial owner of these shares with
voting power with respect thereto. Upon the effectiveness of the merger,
Mr. Kimball J. Bradley will replace Stanwich Partners as the person
designated by the Bradley Family Limited Partnership to vote these shares.
Therefore, as a result of the merger and the transfer of voting power to
Kimball J. Bradley, Stanwich Partners and Mr. Poole will no longer be
deemed to be beneficial owners of these shares and Mr. Kimball J. Bradley,
the Bradley Family Limited Partnership, and, perhaps, Mr. Charles E.
Bradley, Sr. (see note 5) will be deemed to be the beneficial owner of
these shares immediately after the merger.
(3) Acquired by Stanwich Financial Services Corp. from Parkdale Holdings
Corporation N.V. pursuant to a settlement agreement with respect to loans
secured by these shares. On January 28, 1999, Reunion Industries board of
directors resolved to permit this transaction notwithstanding the Transfer
Restrictions in Reunion Industries' Certificate of Incorporation after
determining that, based on the facts presently in existence, the
transaction will not jeopardize Reunion Industries' full utilization of its
tax benefits.
(4) Includes options to purchase 15,000 shares of common stock.
(5) Includes all shares of common stock shown as beneficially owned by Chatwins
Group. Mr. Charles E. Bradley, Sr. is Chairman of the Board of Chatwins
Group as well as the beneficial owner of more than 47% of the issued and
outstanding shares of Chatwins Group and may, under Rule 13d-3, be deemed
to be the beneficial owner of all shares of Reunion Industries common stock
beneficially owned by Chatwins Group. Mr. Bradley disclaims beneficial
ownership of these shares. Includes currently exercisable options to
purchase 27,600 shares of common stock. Post-merger figures include all
shares shown as beneficially owned by the Bradley Family Limited
Partnership. See note 2.
(6) Post-merger figures include 1,446,605 shares owned by the John Grier Poole
Family Limited Partnership established by Mr. Poole in 1995 for estate
planning purposes, and of which Mr. Poole owns 1% and is the sole general
partner. Pursuant to Rule 13d-3, Mr. Poole may be deemed to be the
beneficial owner of these shares, with sole voting and dispositive power
with respect thereto. Also includes 134,854 shares as to which Mr. Poole
has voting rights, but not dispositive rights. Pursuant to Rule 13d-3, Mr.
Poole may be deemed to be the beneficial owner of these shares, with sole
voting rights with respect thereto.
(7) Includes currently exercisable options to purchase 52,000 shares of common
stock.
(8) Includes currently exercisable options to purchase an aggregate of 154,600
shares of common stock.

66
<PAGE>

OTHER MERGER-RELATED MATTERS

Federal Income Tax Consequences of the Merger

The following discussion does not include any state, local and foreign tax
consequences, and does not specifically address the consequences to common
stockholders of Chatwins Group or Reunion Industries other than individual
United States citizens who hold their securities as a capital asset. Each
stockholder of Chatwins Group or Reunion Industries is urged to consult with
his or her own tax advisor as to the consequences of the merger.

Federal Income Tax Consequences to Chatwins Group's Common Stockholders

Consummation of the merger is not conditioned upon the receipt of a ruling
from the Internal Revenue Service as to the tax consequences of the
transactions, and no such ruling has been requested. The board of directors of
Reunion Industries believes that, and has received an opinion of Finn Dixon &
Herling LLP to the effect that:

. the merger will be treated as a tax-free reorganization under Section
368(a)(1)(A) of the Code

. no gain or loss will be recognized by Chatwins Group's common
stockholders on the receipt of shares of Reunion Industries common stock
solely in exchange for shares of Chatwins Group common stock

. the tax basis of shares of Reunion Industries common stock received
pursuant to the merger will equal the tax basis of the shares of Chatwins
Group common stock exchanged therefor

. provided that the shares of Chatwins Group common stock are held as
capital assets at the time of the merger, the holding period of the
shares of Reunion Industries common stock received in the merger will
include the holding period of the shares of Chatwins Group common stock
exchanged therefor

. no gain or loss will be recognized by the stockholders of Reunion
Industries solely as a result of the consummation of the merger

In rendering its opinion, Finn Dixon & Herling LLP considered the applicable
provisions of the Code, Treasury regulations, pertinent judicial authorities,
interpretive rulings of the Internal Revenue Service, and any other authorities
they considered relevant.

Finn Dixon & Herling LLP has not rendered an opinion on the prospective
effectiveness of the transfer restrictions imposed by the board of directors on
Reunion Industries common stock in preserving the net operating loss
carryforwards of Reunion Industries, and has not been requested to do so by
Reunion Industries. Although Reunion Industries believes that these transfer
restrictions can effectively preserve the net operating loss carryforwards,
future transactions cannot be predicted or addressed with the degree of
certainty necessary to support a legal opinion. Accordingly, no assurances of
counsel are or can be given to Reunion Industries and its stockholders that the
net operating loss carryforwards will not be severely limited under Section 382
of the Code by reason of any future transactions. See "Risk Factors--Reunion
Industries may not be able to utilize its net operating loss carryforwards as
expected."

Federal Income Tax Consequences to Reunion Industries and Current Stockholders

No gain or loss should be recognized by Reunion Industries or its
stockholders on the transfer of Chatwins Group assets to Reunion Industries or
Reunion Industries' accession to Chatwins Group's liabilities as a result of
the merger. The basis of Chatwins Group's assets acquired by Reunion Industries
in the merger should be the same as the basis of those assets in Chatwins
Group's hands immediately prior to the merger, and Reunion Industries' holding
period should include the Chatwins Group's holding period for these assets. The
tax basis of Reunion Industries' common stock held by existing stockholders of
Reunion Industries prior to the merger will remain the same after the merger.

67
<PAGE>

Chatwins Group's tax attributes generally will carry over to Reunion
Industries. Reunion Industries also should succeed to Chatwins Group's earnings
and profits. Reunion Industries should be treated as a continuation of Chatwins
Group for purposes of computing depreciation and for other specified purposes.

Extension of Transfer Restrictions; Preservation of Tax Benefits

Under the Code, net operating loss carryforwards for federal tax purposes
offset taxable income in future years and eliminate income taxes otherwise
payable on taxable income in future years, except for purposes of calculating
alternative minimum tax liability. As of December 31, 1998, Reunion Industries'
net operating loss carryforwards were approximately $258.1 million. Reunion
Industries' net operating loss carryforwards expire as follows: $44.1 million
in 1999, $87.3 million in 2000 and $126.7 million during the years 2001 through
2018.

On June 20, 1995 Chatwins Group acquired 1,450,000 shares of common stock,
at that time approximately 38% of Reunion Industries' outstanding common stock,
held by Parkdale Holdings Corporation, N.V. As a result, the availability of
Reunion Industries' net operating loss carryforwards might have been limited by
Section 382 of the Code and the Treasury regulations promulgated thereunder if
an "ownership change," as that term is defined in the Code, occurred in the
subsequent three-year period ending June 19, 1998.

The transfer restrictions described below were established by Reunion
Industries to prevent an ownership change from occurring. In view of the fact
that at least three years have passed since the Chatwins Group acquisition and
during this period there has been no material change in the percentage
ownership of Reunion Industries, except for the acquisition of approximately
6.9% of Reunion Industries common stock by Stanwich Financial from Parkdale, by
any direct or indirect holder whose changes must be taken into account for
purposes of determining whether or not an ownership change has occurred, the
board of directors has determined, based upon an opinion of Finn Dixon &
Herling LLP, that the merger itself will not result in an ownership change and
therefore will not jeopardize Reunion Industries' full utilization of its net
operating loss carryforwards. Accordingly, the board of directors' approval of
the merger required by the transfer restrictions has been granted.

Reunion Industries believes that the transfer restrictions were successful
in preventing an ownership change during the three years subsequent to the
Chatwins Group acquisition of Reunion Industries common stock described above,
but the transactions contemplated by the merger will again create a risk that,
absent the continuance of the transfer restrictions for at least three years
after the merger, an ownership change could result if any other person acquires
5% or more of Reunion Industries' common stock in the future. Accordingly, the
board of directors of Reunion Industries has determined to extend the transfer
restrictions until the day after the third anniversary of the effective date of
the merger as being necessary or desirable to preserve the net operating loss
carryforwards. The determination was based upon an opinion of Finn Dixon &
Herling LLP.

Accordingly, the common stock of Reunion Industries outstanding immediately
prior to the merger, the common stock to be issued by Reunion Industries to the
stockholders of Chatwins Group in connection with the merger, and any common
stock issuable upon exercise of options granted under any of Reunion
Industries' stock option plans, will be subject to the transfer restrictions,
which are set forth in Article V of the certificate of incorporation of Reunion
Industries. All Reunion Industries common stock certificates will contain a
legend informing holders and transferees of the transfer restrictions.

Section 382 of the Code provides that, if a corporation undergoes an
ownership change, its ability to use its net operating loss carryforwards in
the future may be limited. An ownership change occurs when the aggregate
cumulative increase in the percentage ownership of a corporation's capital
stock owned by persons holding 5% or more of the fair market value of such
stock is more than 50 percentage points within a three-year testing period. For
purposes of determining percentage ownership, Section 382 generally defines
stock to

68
<PAGE>

include all issued and outstanding stock, except certain preferred stock. In
addition, recent Treasury regulations provide that certain stock that may be
acquired pursuant to warrants, options, rights to purchase stock, rights to
convert other instruments into stock, and options or other rights to acquire
any such interest may under certain circumstances be deemed to have been
acquired prior to the actual issuance or transfer of such stock for purposes of
determining the existence of an ownership change under Section 382 of the Code.

In determining whether the aggregate cumulative increase in the percentage
ownership of capital stock by 5-percent stockholders is more than 50 percentage
points in any three-year testing period, special rules apply. All stockholders
who are not 5-percent stockholders individually are aggregated into one or more
public groups, each of which is considered to be a 5-percent stockholder.
Ownership of stock is generally attributed to the ultimate individual
beneficial owner, and ownership by nominees, corporations, partnerships, trusts
or other entities generally is disregarded except to the extent used to
identify different public groups or other 5-percent stockholders. When 5% or
more of a corporation's stock is owned by another entity such as a corporation,
trust or partnership at any time during the testing period, the owners of the
other entity may be treated as one or more separate, segregated groups of
stockholders that are 5-percent stockholders of the corporation, depending on
whether those owners indirectly own as much as 5% of the corporation's stock.
Similarly, the purchasers of any stock from the entity may be treated as a
separate, segregated group of stockholders that is a 5-percent stockholder.

The applicable Treasury regulations also provide that purchasers of stock
from the issuing corporation in a public offering may under certain
circumstances be considered a separate stockholder group that is treated as a
5-percent stockholder that previously owned no stock. The transfer
restrictions, accordingly, are generally designed to prohibit transfers to
persons holding or who thereafter hold sufficient Reunion Industries common
stock, either directly or constructively, such that they would be treated as 5-
percent stockholders under the applicable Treasury regulations and are intended
to prevent an ownership change and thereby preserve Reunion Industries' ability
to maximize use of the net operating loss carryforwards.

If an ownership change occurs within the meaning of Section 382 of the Code,
the amount of net operating loss carryforwards that a company may use to offset
income in any future taxable year is limited, in general, to an amount
determined by multiplying the fair market value of such company's outstanding
capital stock on the change date by the "long-term tax-exempt rate," which is
published monthly by the Internal Revenue Service. For purposes of this
calculation, the fair market value of a company's outstanding capital stock is
adjusted to exclude any capital infusions occurring during the prior two years.

The following is a summary of the transfer restrictions on Reunion
Industries common stock which are set forth in Article V of Reunion Industries'
certificate of incorporation. The transfer restrictions apply to transfers of
Reunion Industries common stock and any other instrument that would be treated
as "stock," as determined under applicable Treasury regulations. They are
intended to prevent any person or group of persons from becoming a 5-percent
stockholder of Reunion Industries and to prevent an increase in the percentage
Stock ownership of any existing person or group of persons that constitutes a
5-percent stockholder. Under the transfer restrictions, if a stockholder
transfers or agrees to transfer stock, the transfer will be prohibited and void
to the extent that it would cause the transferee to hold a prohibited ownership
percentage, which is defined under Reunion Industries certificate of
incorporation by reference to complex federal tax laws and regulations, but
generally means direct and indirect ownership of 5% or more of stock or any
other percentage that would cause a transferee to be considered a 5-percent
stockholder under applicable Treasury regulations. A transfer is also
prohibited and void if either it would result in the transferee's ownership
percentage increasing if the transferee was considered a 5-percent stockholder
within the three prior years or the transferee's ownership percentage already
exceeds 5-percent, unless otherwise agreed to by Reunion Industries. The
transfer restrictions do not prevent transfers of stock between persons who are
not considered a 5-percent stockholder.

The acquisition of stock from an individual or entity that owns directly 5%
of the stock would be deemed to result in the identification of a separate,
segregated "public group" which is a new 5-percent stockholder. Consequently,
the transfer restrictions will prohibit certain transfers of equity interests
by, and other actions

69
<PAGE>

involving, persons having a 5-percent stock ownership, unless the transfer or
other action is approved by Reunion Industries' board of directors in advance
or permitted by a resolution of the Reunion Industries board of directors.

The transfer restrictions do not apply to any transfer that has been
approved by Reunion Industries' board of directors if the approval is based
upon a determination by the board that the proposed transfer will not
jeopardize Reunion Industries' full utilization of the net operating loss
carryforwards. The board may or may not grant any the transfer requests based
upon existing facts and circumstances at the time. Board approval of any
prohibited transfer transactions must be based upon an opinion of counsel.

In addition to voiding prohibited transfers, the transfer restrictions
provide a method of nullifying the effect of certain prohibited transfers after
the transfers have purportedly occurred. If a purported transfer is made in
violation of the transfer restrictions, the transferee will not be recognized
as the owner of the stock. If Reunion Industries determines that a purported
transfer has violated the transfer restrictions, it shall require the
transferee to surrender the relevant stock and any dividends he or she has
received on them to an agent designated by Reunion Industries. The designated
agent will sell the stock in an arm's length transaction. If the transferee has
resold the stock before receiving Reunion Industries' demand to surrender the
stock, the transferee generally will be required to transfer to the designated
agent the proceeds of the sale and any distributions he or she has received on
the stock. After repaying its own expenses and reimbursing the transferee for
the price paid for the stock or the fair market value of the stock at the time
of the attempted transfer to the transferee by gift, inheritance or similar
transfer, the designated agent will pay any remaining amounts to the person who
sold the stock to the transferee. If the identity of the person who sold the
stock cannot be determined through inquiry of the transferee, the designated
agent or Reunion Industries shall hold the amounts pending the determination of
the identity of the seller and, if after 90 days, that identity cannot be
determined, then the sale proceeds may be paid over to a court or governmental
agency or to a tax-exempt entity designated under Section 501(c)(3) of the
Code.

While the transfer restrictions may have anti-takeover effects, management
believes that the tax benefits of the transfer restrictions outweigh any other
effects they may have on Reunion Industries or its stockholders.

Termination or Extension of Transfer Restrictions

On July 30, 1999, the board of directors extended the transfer restrictions
on the Reunion Industries common stock to terminate upon the earliest to occur
of:

. the day after the third anniversary of the effective date of the merger

. the repeal of Section 382 of the Code if Reunion Industries' board of
directors determines that the transfer restrictions are no longer
necessary

. the beginning of a taxable year as to which Reunion Industries' board of
directors determines prior to the beginning of that taxable year that no
net operating loss carryforwards or other tax benefits otherwise
available to Reunion Industries may be carried forward

In addition, the board of directors of Reunion Industries is authorized to
accelerate or extend the date that it determines that no net operating loss
carryforwards or other type benefit may be carried forward if the board
determines, based on an opinion of counsel, that such acceleration or extension
is reasonably necessary or desirable to preserve the net operating loss
carryforwards or other tax benefits or that the transfer restrictions are no
longer necessary for the preservation thereof.

Accounting Treatment

The merger will be accounted for as a purchase under APB Opinion No. 16
"Business Combinations". Chatwins Group will be the acquirer for purposes of
applying purchase accounting to the merger. Chatwins Group's assets and
liabilities will continue to be carried at their historical book values after
the merger, and

70
<PAGE>

63.2% of Reunion Industries' assets and liabilities, representing the
percentage of Reunion Industries' common stock not currently owned by Chatwins
Group, will be revalued at fair value at the time of the merger. The excess, if
any, of the "purchase price" of the merger over the fair value of 63.2% of
Reunion Industries' assets and liabilities will be designated as goodwill to be
amortized by Reunion Industries over fifteen years. The value of Reunion
Industries' common stock to be used for determining the "purchase price" will
be the quoted market value of the common stock owned by all stockholders of
Reunion Industries other than Chatwins Group at the time the terms of the
merger are announced. The resulting amount is the APB Opinion No. 16 purchase
price for the approximately 63.2% of Reunion Industries not currently owned by
Chatwins Group. This amount is compared to 63.2% of the fair value of Reunion
Industries' assets and liabilities to determine the amount of goodwill to be
recognized.

Shares of Reunion Industries Common Stock Eligible for Future Sale

All shares of Reunion Industries common stock that will be issued in the
merger to stockholders of Chatwins Group who were not affiliates of Chatwins
Group at the time the amended and restated merger agreement was submitted to
Chatwins Group stockholders will be registered under the Securities Act of 1933
and will be freely transferable, subject to the transfer restrictions in the
Reunion Industries certificate of incorporation. Approximately 17.3% of
Chatwins Group common stock is held by persons who were not affiliates of
Chatwins Group at such time. These stockholders will own approximately 13.7% of
Reunion Industries common stock after the merger assuming that none of them
exercises appraisal rights with respect to their shares.

Chatwins Group stockholders who, at the time the amended and restated merger
agreement was submitted to Chatwins Group stockholders for approval, were
affiliates of Chatwins Group, will receive "restricted stock" in the merger, as
defined in Rule 144 under the Securities Act of 1933. Chatwins Group affiliates
include directors, executive officers and significant stockholders of Chatwins
Group, and other persons whom they control, who are controlled by them or who
are under common control with them. Under Rule 144, the Chatwins Group
affiliates effectively cannot sell the restricted stock they receive in the
merger in the market for a period of one year after the merger unless the
shares are registered under the Securities Act of 1933. After one year, Rule
144 limits for a period of at least one more year the number of shares that the
former Chatwins Group affiliate could sell during any three-month period.
Reunion Industries presently intends to file a registration statement with the
Securities and Exchange Commission after the merger to register the shares of
Reunion Industries common stock that affiliates of Chatwins Group will receive
in the merger. Assuming that all of the contingent shares are issued and that
none of the Chatwins Group stockholders exercises their appraisal rights, the
number of shares that will be covered by the registration statement will be
approximately 8,270,000. If the registration statement is declared effective by
the Securities and Exchange Commission, the Chatwins Group affiliates will be
able to sell the Reunion Industries common stock they receive in the merger
without any timing or volume restrictions that would otherwise apply to them
under Rule 144.

This proxy statement/prospectus does not cover resales of Reunion Industries
common stock to be received by the stockholders of Chatwins Group in the
merger, and no person is authorized to make any use of this proxy
statement/prospectus in connection with any resale.

Anti-Takeover Effects

The transfer restrictions on the Reunion Industries common stock and the
consummation of the merger may prevent or discourage an attempt by another
person or entity to acquire control of Reunion Industries. In addition, the
transfer restrictions and new common stock issuance resulting in control of
Reunion Industries by Mr. Charles E. Bradley, Sr. and Mr. John G. Poole and
members of their families, who will own approximately 61.6% of the outstanding
common stock of Reunion Industries, may render it more difficult for a third
party to effect a merger or similar transaction, even if the merger or similar
transaction is favored by a majority of the independent stockholders. The
transfer restrictions and the consolidation of control may discourage or defeat
mergers, proxy contests, or management changes that stockholders may determine
to be in the best interests of Reunion Industries. The transfer restrictions
may also prevent a party from acquiring an interest in Reunion

71
<PAGE>

Industries large enough to effect a change in management of Reunion Industries.
Reunion Industries has proposed the merger for reasons set forth in this proxy
statement/prospectus and has extended the transfer restrictions in order to
protect the availability of Reunion Industries' significant net operating loss
carryforwards, and not as part of an anti-takeover plan or strategy. See
"Ownership Information--Security Ownership of Certain Beneficial Owners and
Management" and "--Extension of Transfer Restrictions; Preservation of Tax
Benefits."

No employment, credit or other agreements to which Reunion Industries is
party are likely to have any anti-takeover effects. No provisions of Reunion
Industries' certificate of incorporation or bylaws can be considered to have an
anti-takeover effect other than:

. the transfer restrictions,

. Article VI of the certificate of incorporation and Section 3.1 of the
bylaws of Reunion Industries, which establish a maximum number of
directors (12), and

. Article IX of the certificate of incorporation and Section 2.10 of the
bylaws, which abolish cumulative voting by stockholders in director
elections.

The merger has not been proposed to forestall or hinder any specific effort
to accumulate Reunion Industries' securities or to obtain control of Reunion
Industries by means of a merger, tender offer, solicitation in opposition to
management or otherwise. At the present time, the board of directors does not
have any plan or intention to propose any anti-takeover measures in the future.

Second-Step Merger Unlikely

Reunion Industries does not expect to propose a second-step merger
transaction to eliminate the post-merger minority stockholders of Reunion
Industries. One of the reasons that Chatwins Group is engaging in the merger is
to increase the liquidity available to its stockholders through a merger with a
public company. Another reason is to reduce its debt load. Both these goals
would be undermined if a second step merger were to occur. Reunion Industries
also expects that the terms of the refinancing will restrict payments in
respect of its capital stock. In addition, a second-step merger within three
years of the merger with Chatwins Group would likely restrict the availability
of Reunion Industries' net operating loss carryforwards.

DESCRIPTION OF CAPITAL STOCK; DIVIDENDS; TRANSFER AGENT

Reunion Industries is authorized to issue 20,000,000 shares of common stock,
$.01 par value per share, of which 3,940,100 were issued and outstanding as of
October 22, 1999. Each share of common stock has one vote on all matters
presented to the stockholders. Since the common stock does not have cumulative
voting rights, the holders of more than 50% of the shares may elect all of the
directors and, in that event, the holders of the remaining shares will not be
able to elect any directors. Subject to the rights and preferences of any
preferred stock which may be designated and issued, the holders of common stock
are entitled to dividends when and as declared by the board of directors and
are entitled on liquidation to all assets remaining after payment of
liabilities. The common stock has no preemptive or other subscription rights.
The common stock has no conversion rights or sinking fund provisions. The
common stock to be issued in connection with the merger will have the same
relative powers, designations, preferences, rights and qualifications as the
common stock outstanding immediately prior to the merger, and, like all of the
common stock, will be subject to the transfer restrictions described above
under "Other Merger-Related Matters--Extension of Transfer Restrictions;
Preservation of Tax Benefits."

72
<PAGE>

The effects of the issuance of additional common stock, and in some cases of
the Reunion Industries Series A and Series B preferred stock, upon the post-
merger rights of the existing stockholders of Reunion Industries will include:

. dilution of the aggregate equity interest of the stockholders

. dilution of the aggregate voting power of the stockholders

. a reduction of existing stockholders' interests in the assets of Reunion
Industries in the event of liquidation

. the prevention or discouraging of an attempt by another person or entity
to acquire control of Reunion Industries following effectiveness of the
merger without the approval of its board of directors

For many years, Reunion Industries has reinvested any earnings in its
business and, accordingly, has not paid any dividends on its common stock.
Although Reunion Industries intends to continue to invest any future earnings
in its business, it may determine at such future date that the payment of cash
dividends on its common stock would be desirable. The payment of any such
dividends would depend, among other things, upon the earnings and financial
condition of Reunion Industries.

Registrar and Transfer Company, Cranford, New Jersey, is the transfer agent
and registrar for the Reunion Industries common stock.

Reunion Industries is authorized to issue 10,000,000 shares of "blank check"
preferred stock, par value $.01 per share. The term "blank check" preferred
stock refers to stock for which the designations, preferences, conversion
rights, cumulative, relative, participating, optional or other rights,
including voting rights, qualifications, limitations or restrictions are
determined by a corporation's board of directors. Accordingly, the board of
directors of Reunion Industries is able to authorize the issuance of up to
10,000,000 shares of preferred stock in one or more series, with such rights,
qualifications, limitations and restrictions as may be determined in the
board's sole discretion, with no further authorization required of the
stockholders. The existence of the authorized and unissued preferred stock may
enable the board of directors of Reunion Industries to render more difficult or
to discourage an attempt to obtain control of Reunion Industries by means of a
merger, tender offer, proxy contest or otherwise.

The Reunion Industries Series A preferred stock to be issued in exchange for
the Chatwins Group preferred stock in the merger is a series of Reunion
Industries "blank check" preferred stock. See "The Merger--Terms of the
Merger--Conversion of Chatwins Group Preferred Stock" for a discussion of the
rights and preferences of Reunion Industries' Series A preferred stock which
will be issued in connection with the merger.

The Reunion Industries Series B preferred stock to be issued in the
acquisition of Kingway in exchange for the preferred stock of Kingway is a
series of Reunion Industries "blank check" preferred stock. The Reunion
Industries Series B preferred stock will have the following material rights,
preferences, privileges and restrictions:

. subject to any restrictions provided by law, Reunion Industries'
certificate of incorporation or the terms of any Reunion Industries
indebtedness, it will be redeemable at any time at the option of Reunion
Industries at the redemption price then in effect, plus accumulated but
unpaid dividends, and will be senior to Reunion Industries common stock
and Series A preferred stock in such voluntary redemption

. the aggregate initial redemption price will be $5.0 million, plus
approximately $1.5 million of accrued dividends assuming that the merger
closes on December 31, 1999

. it will carry a cumulative dividend of 15% of the redemption price per
annum from November 3, 1997, meaning that, assuming the Series B
preferred stock is issued on December 31, 1999, it will have accrued but
unpaid dividends of approximately $1.5 million on the date of issuance,
payable as and when declared the board of directors of Reunion Industries

73
<PAGE>

. as to dividends, it will be senior in right of payment to dividends on
the Reunion Industries common stock and the Reunion Industries Series A
preferred stock

. except as required by law, it will not be entitled to any voting rights
and will not have any right of conversion into the common stock or any
other securities of Reunion Industries

. upon a liquidation of Reunion Industries, the holders will be entitled to
be paid an amount equal to the redemption price plus accrued but unpaid
dividends; their right to such payment being junior to any payment to
holders of Reunion Industries Series A preferred stock, but senior to any
payment to holders of Reunion Industries common stock

The Reunion Industries Series A preferred stock and Series B preferred stock
will be privately held and Reunion Industries has no plans or obligations at
this time to register the Reunion Industries Series A or Series B preferred
stock under the Securities Act. The Reunion Industries Series A and Series B
preferred stock will not be subject to the transfer restrictions. Mr. Charles
E. Bradley, Sr. and Mr. John G. Poole are beneficial owners of all of the
Chatwins Group preferred stock presently outstanding and will be beneficial
owners of all the Reunion Industries Series A preferred stock upon consummation
of the merger and of 50% of the Reunion Industries Series B preferred stock
upon the acquisition of Kingway.

The number of shares of Reunion Industries' Series A preferred stock that
will be issued cannot yet be determined. Reunion Industries will issue 5,000
shares of Series B preferred stock if the Kingway acquisition is completed.
COMPARATIVE RIGHTS OF SECURITY HOLDERS

Stockholders' Rights. At the effective time of the merger, the stockholders
of Chatwins Group will become stockholders of Reunion Industries. As Reunion
Industries stockholders, their rights will be governed by Delaware General
Corporation Law and Reunion Industries' certificate of incorporation and bylaws
rather than by Chatwins Group's restated certificate of incorporation and
bylaws. Following are summaries of the material differences between the rights
of Reunion Industries' stockholders and the rights of Chatwins Group's
stockholders. For additional information regarding the rights of Reunion
Industries' stockholders, see "Description of the Capital Stock; Dividends;
Transfer Agent." The following summaries of provisions of Reunion Industries'
certificate of incorporation and bylaws are qualified in their entirety by
reference to the complete copies of those documents previously filed with the
SEC and available in the SEC's public reference rooms. See "Risk Factors--Where
You Can Find More Information".

Both Reunion Industries and Chatwins Group are organized under the laws of
the State of Delaware. Any differences, therefore, in the rights of holders of
Reunion Industries' capital stock and Chatwins Group's capital stock arise
solely from differences in their respective certificates of incorporation and
bylaws. The identification of specific differences is not meant to indicate
that other differences do not exist, but rather that those differences are not
currently viewed by management as being material to this proposed transaction.

Authorized Capital. Reunion Industries' authorized capital stock consists of
20 million shares of common stock, par value $.01 per share, and 10 million
shares of preferred stock, par value $.01 per share. Chatwins Group's
authorized capital stock consists of 400,000 shares of common stock, par value
$.01 per share; 2,249 shares of Class D, Series A preferred stock, par value
$.01 per share; 800 shares of Class D, Series B preferred stock, par value $.01
per share; 1,510 shares of Class D, Series C preferred stock, par value $.01
per share; and 1,500 shares of Class E preferred stock, par value $.01 per
share, which has been retired by Chatwins Group.

Reunion Industries and Chatwins Group Preferred Stock. The Delaware General
Corporation Law permits a corporation's certificate of incorporation to allow
its board of directors to issue, without stockholder approval, one or more
series of preferred stock and to designate their rights, preferences,
privileges and restrictions. Reunion Industries' certificate of incorporation
authorizes the issuance of preferred stock in one or more series. Reunion
Industries' board is authorized to fix the voting rights, designations, powers
and

74
<PAGE>

preferences and the relative, participating, optional or other rights, if any,
and the qualifications, limitations or restrictions of any series. Chatwins
Group's certificate of incorporation does not grant "blank check" power to the
Chatwins Group board; rather, all of the rights, designations, powers and
preferences of the Chatwins Group preferred stock are specifically set forth in
Chatwins Group's certificate of incorporation.

Payment of Dividends. The Delaware General Corporation Law permits the
payment of dividends out of a corporation's surplus. Dividends may, in some
cases, also be paid out of net profits for the fiscal year in which they were
declared or out of net profits for the preceding fiscal year. Reunion
Industries' certificate of incorporation and bylaws do not contain any
provisions limiting the payment of dividends within the parameters of the
Delaware General Corporation Law. Chatwins Group's certificate of incorporation
places limitations on the amount of dividends that may be paid in respect of
its preferred stock, but not its common stock so long as dividends on its
common stock are paid ratably.

Directors. The Delaware General Corporation Law permits the certificate of
incorporation or bylaws of a corporation to contain provisions governing the
number and qualification of directors. Reunion Industries' certificate of
incorporation provides for a board of directors of at least three and no more
than twelve directors, elected annually for a term of one year, or until their
respective successors shall be elected and qualify. Reunion Industries
currently has six directors. The Chatwins Group bylaws provide for the number
of directors to be fixed from time to time by resolution passed by a majority
of the Chatwins Group board or by its stockholders. Chatwins Group currently
has four directors.

Stockholder Meetings. The Delaware General Corporation Law provides that a
meeting of stockholders may be called by the board of directors or by such
person or persons as may be authorized by a corporation's certificate of
incorporation or bylaws. Reunion Industries' certificate of incorporation
provides that a meeting of stockholders may be called at any time by any of the
following:

. Reunion Industries' board of directors

. the Chairman of the Board

. the President

. the holders of at least 30% of the common stock entitled to vote for the
election of directors

Chatwins Group's bylaws provide that a meeting of stockholders may be called by
any of the following:

. any two directors of the board of directors

. the President

. any Vice President

. any stockholder owning a majority of the capital stock of Chatwins Group
entitled to vote

Indemnification of Officers and Directors. Under the Delaware General
Corporation Law, a corporation may indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil or criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that the person is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
including attorneys' fees, judgments, fines and amounts paid in settlement
actually and reasonably incurred by the person in connection with such action,
suit or proceeding if such person acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The Delaware General
Corporation Law permits similar indemnification in the case of derivative
actions, except that no indemnification may be made against any claim, issue or
matter as to which the person shall have been adjudicated to be liable to the
corporation unless and only to the extent that the Court of Chancery or the
court in which that action or suit was brought shall determine upon application
that, despite the adjudication of

75
<PAGE>

liability but in view of all of the circumstances of the case, that person is
fairly and reasonably entitled to indemnity for such expenses which the Court
of Chancery or any other court shall deem proper.

Reunion Industries' certificate of incorporation provides that the
corporation shall, to the fullest extent permitted by law, indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative derivative action by reason of the fact that he
is or was a director or officer of Reunion Industries, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses including attorneys' fees, judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. Reunion Industries'
certificate of incorporation also authorizes the advancement of expenses in
certain circumstances.

Chatwins Group's certificate of incorporation also provides that directors
and officers of Chatwins Group shall be indemnified by the corporation to the
fullest extent permitted by the Delaware General Corporation Law, but does not
address the issue of advancement of expenses.

Business Combinations with Interested Stockholder. Section 203 of the
Delaware General Corporation Law prohibits a corporation that does not opt out
of its provisions from entering into specified business combination
transactions with "interested stockholders," for a period of three years
following the date such person became an interested stockholder unless prior to
that date, the board of directors approved either the business combination or
the transaction that resulted in the stockholder becoming an interested
stockholder or unless super-majority votes are obtained from the stockholders.
An "interested stockholder" generally is defined to include persons
beneficially owning 15% or more of a corporation's outstanding capital stock.
Reunion Industries has opted not to be governed by Section 203, whereas
Chatwins Group has not opted out of Section 203.

Transfer Restrictions. The certificate of incorporation of Reunion
Industries contains the transfer restrictions (see "Other Merger Related
Issues--Extension of Transfer Restrictions; Preservation of Tax Benefits").
Chatwins Group's certificate of incorporation does not contain any provisions
restricting the transferability of its capital stock.

MERGER-RELATED TRANSACTIONS

Sale of Klemp

On May 28, 1999, Chatwins Group entered into a letter of intent with Alabama
Metal Industries Corporation, which was subsequently amended on July 12, 1999
and on August 17, 1999, for the sale of substantially all of the domestic
business and assets of its Klemp division for cash and the assumption of
certain liabilities. The sale did not include assets and liabilities related to
Shanghai Klemp Metal Products Co., Ltd. nor the assets and liabilities related
to Klemp de Mexico, S.A. de C.V. The transaction was completed on September 30,
1999. The cash proceeds from the sale were $32.1 million, subject to post-
closing adjustment, and were used to pay down existing Chatwins Group
indebtedness.

Refinancing Transaction

It is a condition to Reunion Industries' obligation to close the merger that
Reunion Industries have an enforceable agreement with one or more lenders for
refinancing sufficient to retire existing Chatwins Group and Reunion Industries
indebtedness and to provide adequate working capital to Reunion Industries
after giving effect to the merger.

Reunion Industries currently anticipates that on or about the effective time
of the merger, it will enter into senior secured facilities totaling up to
$82.0 million with Bank of America. These credit facilities are expected to
have three components:

. a $45.0 million revolving credit facility

76
<PAGE>

. a $27.0 million term loan facility amortizing in 28 quarterly principal
payments

. a $10.0 million capital expenditures facility amortizing in 20 quarterly
principal payments

These three facilities are expected to have a three-year initial term and
automatically renew for additional one-year increments unless either party
gives the other notice of termination at least 60 days prior to the beginning
of the next one-year term.

Interest will accrue on loans outstanding under the Bank of America
facilities at variable rates tied to either Bank of America's prime rate, as
that term would be defined in the financing agreements, or LIBOR, at the
option of Reunion Industries. The interest rate tied to the prime rate is
expected to initially be the prime rate plus .50% for the revolving credit
facility and the prime rate plus .75% for the term loan and capital
expenditures facilities. The interest rate tied to LIBOR is expected to
initially be LIBOR plus 2.50% for the revolving credit facility and LIBOR plus
2.75% for the term loan and capital expenditure facilities. These interest
rates will be subject to quarterly adjustment after the first year based on
the ratio of Reunion Industries' total funded debt to earnings before
interest, taxes, depreciation and amortization.

It is expected that any amounts borrowed by Reunion Industries under the
new Bank of America facilities will be secured by a first priority lien on
substantially all of the current and after-acquired assets of Reunion
Industries. After the merger, the lien will cover the assets of Chatwins
Group, including, without limitation, all accounts receivable, inventory and
proceeds, property, plant and equipment, chattel paper, documents,
instruments, deposit accounts, contract rights and general intangibles.

The new facilities will likely require Reunion Industries to comply with
financial covenants and other covenants, including cash flow coverage and
leverage tests. In addition, the new facilities will likely contain various
affirmative and negative covenants customarily found in credit agreements for
similar transactions, including limitations on stockholder and related party
distributions. The new facilities will likely require Reunion Industries to
pay the reasonable expenses incurred by the lenders in connection with the new
facilities. Available borrowings under the Bank of America revolving credit
facility is expected to be based upon a percentage of receivables, raw
materials, finished goods and work in process. Availability under the Bank of
America term loan is expected to be based upon a percentage of presently owned
real estate and a percentage of the appraised value of Reunion Industries'
machinery and equipment.

It is expected that Reunion Industries will be required to pay a closing
fee to Bank of America of $800,000.

The closing of the new facilities is expected to be conditioned upon, among
other things, Bank of America's completion of a satisfactory investigation of
Reunion Industries and Chatwins Group; there being no material adverse change,
in the opinion of Bank of America, in Reunion Industries' and Chatwins Group's
assets, liabilities, business, financial condition and results of operations;
and approval of the facilities by Bank of America.

As a precondition to the effectiveness of the above senior secured credit
facility, Reunion Industries will be required to enter into an agreement with
one or more lenders under which these lenders will provide Reunion Industries
with approximately $35.0 million in subordinated term debt. Reunion Industries
and Chatwins Group have provided information to several potential lenders for
financing to satisfy this condition, and have had discussions with some of
these potential lenders. However, none of these potential lenders have
submitted a proposal for financing on terms acceptable to Reunion Industries
and Chatwins Group.

Reunion Industries and Chatwins Group have proposed to Bank of America an
alternative financing structure to replace the $35.0 million subordinated debt
condition. Under the alternative approach, Chatwins Group would repurchase
$25.0 million of its 13% senior notes immediately prior to the merger. The
remaining $25.0 million of 13% senior notes would remain outstanding after the
merger. Under the indenture governing the 13% senior notes, these transactions
would require the consent of the note holders to the following:

. eliminate the indenture provision prohibiting the pledge of Chatwins
Group's property, plant and equipment as collateral for the Bank of
America senior secured facilities and the incurrence of new indebtedness

77
<PAGE>

. permit the merger by waiving indenture provisions relating to interest
coverage, continuing defaults and the incurrence of new indebtedness

. permit the acquisition of Kingway by waiving indenture provisions
relating to interest coverage, continuing defaults and the incurrence of
new indebtedness

The holders of more than 50% of the outstanding notes must approve these
changes to the terms of the indenture. Chatwins Group would seek this approval
by means of a consent solicitation. There is no assurance that Chatwins Group
would receive the required approval.

Repurchase of the $25.0 million of senior notes would be funded under an
amendment to Chatwins Group's existing senior secured credit facilities with
Bank of America. The amendment would add a $15.0 million term loan to the
facilities, secured by Chatwins Group's property, plant and equipment, and
would permit repurchase of the senior notes using proceeds from the term loan
and borrowings under the existing revolving credit line. The Chatwins Group
senior secured credit facilities will be refinanced upon completion of the
merger with the proceeds of the Reunion Industries senior secured credit
facilities described above.

Under the alternative financing structure, the merger agreement would be
amended to provide that the condition requiring retirement of the Chatwins
Group 13% notes would be fulfilled if:

. Reunion Industries and Chatwins Group have an enforceable agreement for
senior secured financing, on terms satisfactory to Reunion Industries and
Chatwins Group, the proceeds of which are sufficient to provide adequate
working capital to Reunion Industries after giving effect to the merger

. Chatwins Group obtains the required approvals of the holders of its 13%
senior notes to permit Chatwins Group to borrow additional secured debt
to purchase its 13% senior notes as described above, permit the merger,
permit Reunion Industries to enter into the senior secured credit
facilities with Bank of America, and permit the acquisition of Kingway

. Chatwins Group repurchases $25.0 million of the notes

If the refinancing and merger are completed under the terms of the
alternative structure, Reunion Industries will assume the obligations of
Chatwins Group under the indenture governing the remaining $25.0 million of 13%
senior notes. The Indenture provides that unless approximately $9 million of
the net proceeds from Chatwins Group's sale of its Klemp division are used to
acquire additional manufacturing-related assets, which may include the assets
of Kingway, by the end of March 2000, the company will be required to offer to
repurchase at par approximately $14 million principal amount of the 13% senior
notes. The Indenture also provides that $12.5 million principal amount of the
13% senior notes are subject to a put option on the part of the note holders in
June 2000 and $12.5 million is scheduled to be repaid in May 2001. Reunion
Industries may not have the cash resources after the merger to satisfy these
repayment obligations and may be required to seek alternative means of
refinancing this indebtedness. The indenture governing the 13% senior notes
also includes covenants which restrict or prohibit the following:

. incurrence of indebtedness outside its revolving credit facility unless
interest coverage tests are met

. dividends, stock repurchases, loans, investments and retirements of
junior debt

. liens and encumbrances on assets

. transactions with affiliates

. sales of assets at less than fair value and for less than 75% cash
consideration

. mergers, consolidations and the sale of substantially all assets

The indenture also requires that the company maintain EBITDA (as defined in
the indenture) of at least $7.2 million on a last twelve months basis at the
end of each fiscal quarter and that the company offer to repurchase some or all
of the 13% senior notes upon a change of control or the sale of a significant
amount of assets where the proceeds are not reinvested in other manufacturing
assets within 180 days of the sale.

78
<PAGE>

The alternative financing proposal also provides that, after the merger:

. the Kingway acquisition would be completed and Kingway's debt existing
upon the acquisition would be replaced as follows:

. $9.8 million would be repaid with proceeds from the Bank of America
senior secured facilities

. $3.9 million owing to Stanwich Financial Services would be assumed by
Reunion Industries, amended to extend the maturity and subordinated
to Bank of America

. The NAPTech acquisition would be deferred or the terms of the debt to be
assumed in the NAPTech acquisition would be modified to provide that the
debt would remain outstanding and be subordinated to the senior secured
facilities until the merged companies meet specified interest coverage
and debt ratio tests.

The pro forma financial information included in this proxy
statement/prospectus would not be materially different if the merger were
completed and the refinancing transaction effected under the alternative
financing proposal compared to the financing transaction first discussed above
and reflected in the unaudited Pro Forma Consolidated Condensed Financial
Statements beginning on page 84, except for the possible deferral of the
NAPTech acquisition.

Bank of America has not accepted this alternative financing proposal and
there can be no assurances that it will do so. NAPTech's debt to be assumed in
the acquisition has matured. It may not be possible to extend the maturity or
refinance the debt on acceptable terms or at all. As a result, Reunion
Industries could lose this acquisition opportunity. Reunion Industries and
Chatwins Group have not yet taken steps to obtain consents or negotiate
modifications of agreements with any third parties other than Bank of America.

There is no assurance that Reunion Industries will be able to complete this
refinancing transaction on the terms of either alternative described above or
at all.

Kingway Acquisition

On November 3, 1997, Stanwich Acquisition Corp. acquired Kingway from the
Kingston-Warren Corporation for a purchase price of $18.1 million. Stanwich
Acquisition is a privately-held company whose common stock is owned 42.5% by
Mr. Charles E. Bradley, Sr., 42.5% by Mr. Kimball J. Bradley and 15% by Mr.
Richard L. Evans. Similar to the Auto-Lok division of Chatwins Group, Kingway
is in the business of producing industrial and commercial storage racks and
materials handling systems.

At the time Kingway was available for purchase, Chatwins Group's management
wanted to acquire Kingway as a compatible business line to its Auto-Lok
division because Kingway's computerized systems were thought to be an important
line extension to Auto-Lok's storage and materials handling systems. Chatwins
Group was not, however, able to consummate the acquisition because of
restrictions under its existing financing documents. Mr. Charles E. Bradley,
Sr. therefore organized and capitalized Stanwich Acquisition to acquire and
hold Kingway until such time as it could be acquired by Chatwins Group.

Because Kingway had been operating as a division of Kingston-Warren
Corporation, it was necessary to establish Kingway's business in new facilities
with appropriate overhead support. Meanwhile, Auto-Lok possessed surplus floor
space, production workforce, administrative organization and equipment that
could be utilized to continue Kingway's operations. Accordingly, Stanwich
Acquisition and Auto-Lok entered into a service agreement pursuant to which
Kingway would utilize Auto-Lok's surplus capacity in exchange for fees
approximately equal to Auto-Lok's costs of providing the surplus capacity plus
a right of first negotiation to acquire Kingway from Stanwich Acquisition. This
right of first negotiation has since expired. The integration of Kingway's
business into Auto-Lok's facility took place primarily during the second
quarter of 1998. Through December 31, 1998, costs totaling $1,298,631 have been
charged to Kingway under this agreement.

79
<PAGE>

At December 31, 1998, Chatwins Group had receivables totaling $780,649 from
Kingway. See "Certain Relationships and Related Transactions and Material
Contacts with the Company Being Acquired--Kingway Service Agreement."

Upon the expiration of Chatwins Group's right of first negotiation for the
acquisition of Kingway, Reunion Industries decided to acquire Kingway directly
and entered into a merger agreement dated as of March 30, 1999, providing for
the acquisition of Kingway. For the year ended December 31, 1998, Kingway had
total sales of approximately $17.5 million. At December 31, 1998, Kingway had
total assets of approximately $20.8 million. In the acquisition, Reunion
Industries will:

. pay $100,000 in cash in exchange for the common stock of Kingway

. issue shares of new Reunion Industries Series B preferred stock in
exchange for shares of Kingway preferred stock

. assume approximately $13.8 million of Kingway indebtedness, which
indebtedness was incurred or replaces indebtedness that was incurred in
connection with the acquisition of Kingway by Mr. Charles E. Bradley,
Sr., Mr. Kimball J. Bradley and Mr. Evans

Completion of the merger between Reunion Industries and Chatwins Group and
the securing of adequate financing to operate the combined entities are
conditions to completion of the Kingway acquisition. Reunion Industries
stockholder approval is not required for the Kingway acquisition. There is no
assurance that Reunion Industries will be able to successfully complete the
Kingway acquisition.

Stanwich Financial Services is the holder of $7.6 million of debt and 100%
of the preferred stock of Kingway and will be the owner of the Reunion
Industries Series B preferred stock after the Kingway acquisition. Mr. Charles
E. Bradley, Sr. owns 42.5% of the common stock of Stanwich Holdings, Inc., the
parent of Stanwich Financial Services; Mr. Charles E. Bradley, Jr. owns 42.5%
of the common stock of Stanwich Holdings; and Mr. John G. Poole owns 7.5% of
the common stock of Stanwich Holdings. See also "Interests of Certain Persons
in the Merger."

Management of Reunion Industries believes the terms of the Kingway
acquisition are not materially less favorable to Reunion Industries than terms
it would likely negotiate with an unaffiliated third party in a similar
transaction.

Based on a number of factors, including:

. the belief that the Kingway acquisition is a strategic addition to the
Auto-Lok division,

. the fact that the proposed purchase price represents a premium of
$75,000 over the purchase price paid for Kingway by the current owners
plus their carrying costs, and

. the advice of an independent financial advisor,

the board of directors of Reunion Industries including, by separate vote, the
independent directors with respect to the transaction, determined the
transaction to be in the best interests of Reunion Industries and its
stockholders and unanimously approved the agreement providing for the Kingway
acquisition.

NAPTech Acquisition

On August 25, 1998, NPS Acquisition Corp. acquired NAPTech from the Shaw
Group for a purchase price of $8.4 million. NPS Acquisition is wholly owned by
Mr. Charles E. Bradley, Sr. Like Chatwins Group's CP Industries division,
NAPTech manufactures steel seamless pressure vessels. At the time NAPTech was
available for purchase, Chatwins Group's management wanted to acquire it as a
strategic acquisition by its CP Industries division. Chatwins Group was not,
however, able to consummate the acquisition because of restrictions under its
existing financing documents. Mr. Charles E. Bradley, Sr. therefore organized
and capitalized NPS Acquisition to acquire and hold NAPTech until such time as
it could be acquired by Chatwins Group.

80
<PAGE>

In August 1998, CP Industries and NPS Acquisition entered into a services
agreement pursuant to which CP Industries would provide certain administrative
services to NAPTech for cash fees which approximate $29,000 per month. The
NAPTech services agreement is for one year and may be renewed annually upon
agreement by both Chatwins Group and NAPTech. On August 25, 1998 Chatwins Group
purchased from NAPTech $1.0 million of inventory usable by its CP Industries
division in its normal course of business. At December 31, 1998, Chatwins Group
had receivables totaling $148,000 from NAPTech.

The acquisition of NAPTech continued to be hindered by the terms of Chatwins
Group's existing indebtedness, and Reunion Industries decided to acquire
NAPTech directly. Reunion Industries entered into a merger agreement dated as
of March 30, 1999, for the acquisition of NAPTech. For the year ended December
31, 1998, NAPTech had total sales of approximately $6.2 million. At December
31, 1998, NAPTech had total assets of approximately $9.0 million.

In the acquisition, Reunion Industries will:

. pay $10,000 in exchange for the common stock of NAPTech

. assume approximately $7.4 million of indebtedness of NAPTech incurred in
connection with the acquisition of NAPTech by Mr. Charles E. Bradley, Sr.

Completion of the merger between Reunion Industries and Chatwins Group and
the securing of adequate financing to operate the combined entity are
conditions to the completion of the NAPTech acquisition. Reunion Industries'
stockholder approval is not required for the NAPTech acquisition. There is no
assurance that Reunion Industries will be able to successfully complete the
NAPTech acquisition.

Mr. Charles E. Bradley, Sr. owns all of the common stock of NAPTech and is
the guarantor on the indebtedness that will be assumed by Reunion Industries in
the acquisition. Mr. Bradley will receive all of the consideration paid by
Reunion Industries for NAPTech plus a fee of $90,000 for the personal guaranty
he gave for the acquisition indebtedness. Stanwich Financial Services is the
holder of $100,000 of NAPTech debt. See also "Interests of Certain Persons in
the Merger."

Management of Reunion Industries believes the terms of the NAPTech
acquisition are not materially less favorable to Reunion Industries than terms
it would likely negotiate with an unaffiliated third party in a similar
transaction.

Based on a number of factors, including:

. the belief that the acquisition of NAPTech is a strategic addition to
the CP Industries division,

. the fact that the proposed purchase price represents a premium of $5,000
over the purchase price paid for NAPTech by Mr. Bradley, and

. the advice of an independent financial advisor,

INTERESTS OF CERTAIN PERSONS IN THE MERGER

In considering the recommendation of Reunion Industries board of directors
with respect to the merger and related transactions, you should be aware that
some stockholders, directors and members of the management of Reunion
Industries and some stockholders, directors and members of the management of
Chatwins Group have interests in the merger and related transactions which are
different from, and in addition to, the stockholders of Reunion Industries
generally.

81
<PAGE>

Except as provided below, Reunion Industries believes that the interest of
Reunion Industries' management and principal stockholders in the consummation
of the merger arises solely from their respective positions as fiduciaries of
Reunion Industries and/or their ownership of securities of Reunion Industries,
and that those persons will receive no extra or special benefit from the merger
that is not shared on a pro rata basis by all other stockholders. See also
"Certain Relationships and Related Transactions and Material Contacts with the
Company Being Acquired."

. Chatwins Group. Chatwins Group is the record owner of approximately 36.8%
of the outstanding common stock of Reunion Industries. Accordingly, the
beneficial owners of the common stock of Chatwins Group currently have
the right to vote up to approximately 36.8% of Reunion Industries' common
stock. In the merger, the stockholders of Chatwins Group will be issued
Reunion Industries common stock representing approximately 79.2% of
Reunion Industries' common stock outstanding after the merger.

. Charles E. Bradley, Sr. Mr. Charles E. Bradley, Sr. a director of Reunion
Industries since June 20, 1995, and the President and Chief Executive
Officer of Reunion Industries since October 26, 1995, is the Chairman and
a director of Chatwins Group and a beneficial owner of approximately 48%
of the outstanding common stock of Chatwins Group. This stock is owned of
record by the Bradley Family Limited Partnership. Mr. Bradley is the sole
general partner of the partnership. Following the merger, the Bradley
Family Limited Partnership will beneficially own approximately 38% of
Reunion Industries' common stock. The voting rights of the partnership
will be controlled after the merger by Mr. Bradley's son, Mr. Kimball J.
Bradley. In addition, on May 19, 1998, Mr. Charles E. Bradley, Sr. was
granted options to purchase an additional 75,000 shares of common stock
by the board of directors of Reunion Industries. See "The Merger--Pre-
Merger and Post-Merger Security Ownership of Certain Beneficial Owners
and Management."

. John G. Poole. Mr. Poole, a director of Reunion Industries since April
19, 1996, is a director of Chatwins Group and a beneficial owner of
approximately 67% of the outstanding common stock of Chatwins Group.
Approximately 48% of Mr. Poole's beneficial ownership arises by virtue of
his right to vote the Chatwins Group common stock held of record by the
Bradley Family Limited Partnership. After the merger, Mr. Poole will
beneficially own approximately 13% of Reunion Industries' common stock
because the right to vote the shares owned by the Bradley Family Limited
Partnership will be transferred to Mr. Kimball J. Bradley. In addition,
on February 13, 1998, Mr. Poole was granted options to purchase an
additional 15,000 shares of the common stock of Reunion Industries. See
"The Merger--Pre-Merger and Post-Merger Security Ownership of Certain
Beneficial Owners and Management."

. Controlling Interest. As a result of the merger, the former stockholders
of Chatwins Group in general, and Messrs. Charles E. Bradley, Sr. and
Poole and their respective families, in particular, will have the ability
to control the election of directors and the appointment of officers of
Reunion Industries, meaning that they will have the ability to direct the
business strategy of the company. They will also have the ability to
approve important corporate matters, such as amendments to the
certificate of incorporation and bylaws of Reunion Industries, mergers,
business acquisitions, dispositions and share issuances, without the
approval of the other stockholders of Reunion Industries.

. Thomas L. Cassidy. Thomas L. Cassidy, a director of Reunion Industries
since June 20, 1995, was a director of Chatwins Group until June 1997 and
currently beneficially owns 100 shares of Chatwins Group common stock,
which represents less than 1% of the outstanding and fully diluted common
stock of Chatwins Group.

. Compensation. After the merger, it is expected that Mr. Charles E.
Bradley, Sr. and Mr. Poole will become the Chairman and Vice Chairman,
respectively, of Reunion Industries. Upon completion of the merger and,
subject to the approval of the Reunion Industries board, the following is
expected:

. Mr. Charles E. Bradley, Sr.'s annual base compensation as an officer
of Reunion Industries and of Chatwins Group will be combined, for a
post-merger annual base compensation of $250,000

. Mr. Poole will be compensated at a base rate of $60,000 per annum,
and will no longer be compensated as a non-employee director of
Reunion Industries

82
<PAGE>

. Preferred Stock. Mr. Charles E. Bradley, Sr. and Mr. Poole beneficially
own 100% of the Chatwins Group preferred stock outstanding. In the
merger, the Chatwins Group preferred stock will be converted into new
Reunion Industries Series A preferred stock. See "The Merger--Terms of
the Merger--Conversion of Chatwins Group Preferred Stock."

. 13% Senior Notes. Mr. Charles E. Bradley, Sr., Mr. Poole and Mr. Cassidy
are holders of an aggregate of approximately $4.35 million principal
amount of Chatwins Group 13% Senior Notes. The redemption of the notes is
a condition to completion of the merger, meaning that if the merger
occurs, the notes held by Messrs. Charles E. Bradley, Sr., Poole and
Cassidy will be redeemed at a redemption price of 104.33% of the
principal amount thereof.

. Kingway. Mr. Charles E. Bradley, Sr. owns 42.5% of the common stock of
Kingway. His son, Mr. Kimball J. Bradley, who is expected to become
Executive Vice President of Reunion Industries after the merger and who
is currently Senior Vice President of Chatwins Group, owns 42.5% of the
common stock of Kingway. Mr. Evans, Executive Vice President, Chief
Financial Officer and Secretary of Reunion Industries, owns 15% of the
common stock of Kingway. As a result of this ownership structure,
Mr. Charles E. Bradley, Sr., Mr. Kimball J. Bradley and Mr. Evans will
receive 100% of the $100,000 cash consideration to be paid by Reunion
Industries for the acquisition of Kingway. See "Merger-Related
Transactions--Kingway Acquisition."

. Stanwich Holdings, Inc. Mr. Charles E. Bradley, Sr. owns 42.5% of the
common stock of Stanwich Holdings, Inc. Mr. Charles E. Bradley, Jr. owns
42.5% of the common stock of Stanwich Holdings, Inc. and Mr. Poole owns
7.5% of the common stock of Stanwich Holdings, Inc. Stanwich Holdings is
the parent of Stanwich Financial Services Corp., which is the holder of
$7.6 million of debt and $5.0 million of preferred stock of Kingway. As a
result of this ownership of Stanwich Financial Services, Mr. Charles E.
Bradley, Sr., Mr. Charles E. Bradley, Jr. and Mr. Poole will indirectly
receive 92.5% of the Reunion Industries Series B preferred stock issued
by Reunion Industries for the acquisition of Kingway and will indirectly
benefit from the repayment of the Kingway indebtedness assumed by Reunion
Industries in the acquisition of Kingway. See "Merger-Related
Transactions--Kingway Acquisition" and "Description of Capital Stock;
Dividends; Transfer Agent."

. Stanwich Financial Services Equity. Stanwich Financial Services owns
approximately 271,280 shares of Reunion Industries common stock. As a
result of their indirect ownership of 92.5% of Stanwich Financial
Services, Mr. Charles E. Bradley, Sr., Mr. Charles E. Bradley, Jr. and
Mr. Poole beneficially own 92.5% of the shares of Reunion Industries
common stock owned by Stanwich Financial Services.

. Personal Guarantee. Mr. Charles E. Bradley, Sr. personally guarantees the
obligations of Oneida Rostone and Reunion Industries under Oneida
Rostone's credit facility with The CIT Group. The maximum amount subject
to Mr. Bradley's guarantee is $21.5 million. As a result of the
refinancing transaction, The CIT Group credit facilities will be
refinanced and Mr. Charles E. Bradley, Sr. will benefit from the release
of his personal guaranty of those credit facilities.

. NAPTech. Mr. Charles E. Bradley Sr. owns 100% of the common stock of
NAPTech. As a result, Mr. Bradley will receive all of the $10,000 cash
consideration paid by Reunion Industries for the acquisition of NAPTech.
Mr. Bradley also personally guarantees approximately $7.4 million of
NAPTech indebtedness and, as a result of the assumption of this
indebtedness by Reunion Industries, Mr. Bradley will be released of this
obligation and he will be paid $90,000 in consideration for having
undertaken this guaranty. See "Merger-Related Transaction--NAPTech
Acquisition."

. Chatwins Group Debt. Mr. Charles E. Bradley, Sr. and Mr. Poole are
indebted to Chatwins Group in the amount of $1.01 million in connection
with the May 1988 issuance of certain Chatwins Group preferred stock. In
connection with the merger, it is anticipated that the interest-free
demand notes evidencing this indebtedness will be amended and restated to
carry an interest rate of 10% and to provide that the interest and the
indebtedness will be repayable only out of dividends paid on or
redemption proceeds of the Series A preferred stock they receive in the
merger.

83
<PAGE>

Each of Reunion Industries and Chatwins Group are being represented by
separate legal counsel in connection with the merger. Additionally, the
independent directors of Reunion Industries have been advised by separate legal
counsel. Reunion Industries has retained Legg Mason, an investment banking
firm, to conduct evaluations of the relative values of Reunion Industries and
Chatwins Group. One-half of the directors on the board of directors of Reunion
Industries, which is unanimously recommending approval of the amended and
restated merger agreement and the merger by the stockholders of Reunion
Industries at the annual meeting, have no affiliation with Chatwins Group.

LEGAL MATTERS

Buchanan Ingersoll Professional Corporation has rendered an opinion as to
the validity of the shares of Reunion Industries common stock and the Reunion
Industries Series A preferred stock to be issued in connection with the merger.
The federal income tax consequences of the merger to Reunion Industries' and
Chatwins Group's common and preferred stockholders have been passed upon for
Reunion Industries by Finn Dixon & Herling LLP.

REUNION INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS

The accompanying unaudited pro forma consolidated condensed financial
statements and related notes are presented in accordance with the SEC rules and
regulations to show the pro forma effects of the merger of all of the assets
and business of Chatwins Group with and into Reunion Industries. See "The
Merger."

The merger will be accounted for as a purchase under APB Opinion No. 16
"Business Combinations" with Chatwins Group as the acquirer for purposes of
applying purchase accounting. Accordingly, the Chatwins Group assets and
liabilities will be accounted for at historical book values and the assets and
liabilities of Reunion Industries will be revalued at their estimated fair
value subject to adjustment upon completion of a closing date balance sheet.
The excess of purchase price over fair value of assets acquired and liabilities
assumed (goodwill), if any, for the acquisition of the approximately 63% of
Reunion Industries common stock not previously owned by Chatwins Group will be
capitalized and amortized over 15 years. For purposes of this presentation, the
purchase price in the transaction is deemed to be approximately $8.1 million,
consisting of 2,490,000 shares of Reunion Industries common stock not owned by
Chatwins Group at June 30, 1999 valued at $3.25 per share, based on the market
price of Reunion Industries common stock immediately prior to the announcement
of the amended terms of the merger. In June 1995, Chatwins Group had previously
acquired 1,450,000 shares, which at that time represented approximately 38% of
Reunion Industries' then outstanding common stock and which at June 30, 1999
represented approximately 37% of Reunion Industries' outstanding common stock.
The purchase price reflects the acquisition of the approximately 63% of Reunion
Industries' common stock not previously owned by Chatwins Group.

Prior to the closing of the merger, Chatwins Group is assumed to have sold
substantially all of the domestic assets of the Klemp division to Alabama Metal
Industries for $31.5 million in cash. The sale will be accounted for under APB
Opinion No. 30. The cash proceeds, along with the proceeds from the new
revolving credit facility, term loan A and term loan B (the new credit
facilities) are assumed to be used to pay down existing Chatwins Group
indebtedness. The pro forma financial statements for the merged Reunion
Industries reflect the sale of Klemp, the redemption of the Chatwins Group $50
million 13% Senior Notes, the refinancing of certain debt of Reunion Industries
and the new credit facilities.

Contemporaneously with the closing of the merger and related refinancing,
Reunion Industries plans to acquire Kingway and NAPTech. These acquisitions
will be accounted for as purchases under APB Opinion No. 16. The unaudited pro
forma consolidated condensed financial statements assume that the consideration
for the

84
<PAGE>

purchases of Kingway and NAPTech will include the assumption of approximately
$20.0 million of Kingway's debt and preferred stock, including accumulated
dividends thereon and approximately $7.5 million of NAPTech's debt. Amounts
related to Kingway and NAPTech are segregated in the following unaudited pro
forma financial statements because Kingway's and NAPTech's results are not
included in either Reunion Industries' or Chatwins Group's historical results.

The unaudited pro forma consolidated condensed balance sheet for the merged
Reunion Industries and Chatwins Group is based on the assumption that the
merger, the sale of Klemp and the refinancing were completed on June 30, 1999.
The unaudited pro forma consolidated condensed income statements for the merged
Reunion Industries and Chatwins Group for the six month period ended June 30,
1999 and the year ended December 31, 1998 are based on the assumption that the
merger, the sale of Klemp and the refinancing were completed January 1, 1998.

The unaudited pro forma consolidated condensed balance sheet also assumes
that the acquisitions of Kingway and NAPTech were completed on June 30, 1999.
The unaudited pro forma consolidated condensed statements of operations for the
six month period ended June 30, 1999 and the year ended December 31, 1998 also
assume that the acquisitions of Kingway and NAPTech were completed on January
1, 1998. The Kingway and NAPTech acquisitions are not dependent on each other
and either could occur without the other. However, management believes that
completion of both acquisitions is highly probable because of the affiliated
ownership. Therefore, the two acquisitions are presented as a single
transaction in the pro forma financial statements.

The historical financial information for Reunion Industries, Chatwins Group,
Kingway and NAPTech presented in the unaudited pro forma consolidated condensed
balance sheet at June 30, 1999, and consolidated condensed statement of
operations for the six-month period ended June 30, 1999, is derived from
unaudited financial statements. The historical financial information for
Reunion Industries, Chatwins Group and Kingway presented in the unaudited pro
forma consolidated condensed statement of operations for the year ended
December 31, 1998, is derived from audited financial statements for the year
then ended. The historical financial information for NAPTech presented in the
unaudited pro forma consolidated condensed statement of operations for the year
ended December 31, 1998, is derived from unaudited financial statements for the
year then ended.

Pro forma data are based on assumptions and include adjustments as explained
in the notes to the unaudited pro forma consolidated condensed financial
statements. The pro forma data are not necessarily indicative of the financial
results that would have occurred had the transactions been effective on the
dates indicated above, and should not be viewed as indicative of operations in
future periods. The unaudited pro forma consolidated condensed financial
statements should be read in conjunction with the accompanying notes and with
Reunion Industries' and Chatwins Group's financial statements. The financial
statements, Management's Discussion and Analysis of Financial Condition and
Results of Operations and a description of the businesses of Reunion Industries
and Chatwins Group have been included in this proxy statement/prospectus.

85
<PAGE>

REUNION INDUSTRIES, INC.
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET

June 30, 1999 (in Thousands)

86
<PAGE>

REUNION INDUSTRIES, INC.
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET--(Continued)

June 30, 1999 (in Thousands)

<TABLE>
<CAPTION>
Reunion Chatwins Sale Merged King-
Industries Group of Pro forma Reunion Way NAPTech Acquisition Pro Forma
Historical Historical Klemp Adjustments and Chatwins Historical Historical Adjustments Combined
---------- ---------- ------ ----------- ------------ ---------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current Portion of
Long-Term Debt... $ 2,312 $ 25,016 $ $(26,000)(6b)
32 (6d) $ 1,360 $ 6,180 $7,361 $(6,180)(6b)
(7,361)(6b) $ 1,360
Short-Term Debt-
Related Parties.. 278 278 7,565 190 (7,565)(6b)
(100)(6b)
(90)(6b) 278
Revolving Credit.. 8,739 31,213 27,136 (6a)
(39,952)(6b) 27,136 6,500(6a) 33,636
Trade Payables.... 7,724 9,685 17,409 1,011 433 18,853
Accrued Bargo
Judgment......... 5,000 (5,000)(6b)
Due to Related
Parties.......... 1,716 535 (1,293)(7)
(535)(7) 423
Accrued Other..... 7,219 7,583 (1,083)(6b)
(204)(6b) (94)(6b)
(107)(7) 13,408 399 651 (8)(6b) 14,356
------- -------- ------ -------- -------- ------- ------ ------- --------
Total Current
Liabilities...... 31,272 73,497 (45,178) 59,591 16,871 9,170 (16,726) 68,906
Other Long-Term
Debt.............. 15,764 24,991 (24,975)(6b)
(4,250)(6b)
32 (6d) 11,562 11,562
New Term Debt..... 47,000 (6a) 47,000 15,000(6a) 62,000
Related Party
Debt............. 1,385 (368)(7) 1,017 1,017
Net Liabilities of
Discontinued
Business.........
Other Liabilities.. 3,356 1,415 3,741 8,512 8,512
------- -------- ------ -------- -------- ------- ------ ------- --------
Total
Liabilities...... 51,777 99,903 3,741 (27,739) 127,682 16,871 9,170 (1,726) 151,997
Minority
Interests......... 2,022 2,022 2,022
Redeemable
Preferred Stock... 533 8,710 (8,710)(6g) 533 6,250 (6,250)(6g) 533
Warrant Value...... 14 (14)(1)
Stockholders'
Equity:
Common Stock...... 39 3 117 (3)
(39)(5) 120 5 (5)(6c) 120
Preferred Stock... 8,710 (6g) 8,710 6,250(6g) 14,960
Paid-in Capital... 29,403 1,860 14 (1) 25 (25)(6c)
(500)(2)
7,976 (3)
(29,403)(5) 9,350 9,350
Treasury Stock.... (500) 500 (2)
Notes From
Shareholders..... (1,001) (1,001) (1,001)
Translation
Adjustment....... (832) 832 (5)
Retained Earnings
(accumulated
deficit)......... (13,506) (8,803) 5,611 13,506 (5) (2,458) (703) 2,458(6c)
(4,438)(6d) 703(6c)
(834)(6e) (8,464) (8,464)
------- -------- ------ -------- -------- ------- ------ ------- --------
Total
Stockholders'
Equity........... 15,104 (8,441) 5,611 (3,559) 8,715 (2,433) (698) 9,381 14,965
------- -------- ------ -------- -------- ------- ------ ------- --------
Total Liabilities
and Stockholders'
Equity........... $69,436 $100,186 $9,352 $(40,022) $138,952 $20,688 $8,472 $ 1,405 $169,517
======= ======== ====== ======== ======== ======= ====== ======= ========
</TABLE>

87
<PAGE>

REUNION INDUSTRIES, INC.
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(In Thousands, except per share amounts)

<TABLE>
<CAPTION>
Reunion Chatwins Merged
Industries Group Pro Forma Reunion Kingway NAPTech Acquisition Pro Forma
Historical Historical Adjustments and Chatwins Historical Pro Forma Adjmts. Combined
---------- ---------- ----------- ------------ ---------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SALES................... $ 97,318 $134,583 $ $231,901 $17,474 $6,220 $ $255,595
Operating Costs and
Expenses
Cost of Sales.......... 83,088 108,616 191,704 11,990 4,621 208,315
Selling, General and
Administrative........ 11,373 13,776 25,149 2,763 373 28,285
Provision for Merger
and Refinancing
Costs................. 1,362 1,362 1,362
Other.................. 596 40 (a) 636 881 411 222 (a) 2,150
-------- -------- ------- -------- ------- ------ ----- --------
OPERATING PROFIT
(LOSS)................ 1,495 11,595 (40) 13,050 1,840 815 (222) 15,483
OTHER (INCOME) EXPENSE
Interest Expense....... 3,221 7,462 (2,555)(c) 8,128 2,234 676 (430)(e) 10,608
Equity in Juliana
Preserve.............. 388 388 388
Provision for Bargo
Judgment and Costs.... 9,239 9,239 9,239
Equity loss from
continuing operations
of affiliate.......... 4,056 (4,056)(f)
Other (Income)
Expense............... (252) (252) (43) (295)
-------- -------- ------- -------- ------- ------ ----- --------
Income (Loss) from
Continuing Operations
Before Taxes.......... (11,101) 77 6,571 (4,453) (351) 139 208 (4,457)
INCOME TAX EXPENSE
(BENEFIT)............. (661) 29 (29)(g) (661) (661)
-------- -------- ------- -------- ------- ------ ----- --------
Income (Loss) from
Continuing Operations.. (10,440) 48 6,600 (3,792) (351) 139 208 (3,796)
Preferred Stock
Dividends.............. (456) (347)(h) (803) (750) (1,553)
-------- -------- ------- -------- ------- ------ ----- --------
Income (Loss) from
Continuing Operations
Available to Common
Stockholders........... $(10,440) $ (408) $ 6,253 $ (4,595) $(1,101) $ 139 $ 208 $ (5,349)
======== ======== ======= ======== ======= ====== ===== ========
Income (Loss) from
Continuing Operations
per Common Share
Basic.................. $ (2.69) $ (1.54) $ (0.39) $ (0.45)
======== ======== ======== ========
Diluted................ $ (2.69) $ (1.54) $ (0.39) $ (0.45)
======== ======== ======== ========
Weighted Average Number
of Common Shares
Basic.................. 3,881 265 11,931 11,931
======== ======== ======== ========
Diluted................ 3,881 265 11,931 11,931
======== ======== ======== ========
</TABLE>

88
<PAGE>

REUNION INDUSTRIES, INC.
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1999
(In Thousands, except per share amounts)

<TABLE>
<CAPTION>
Reunion Chatwins
Industries Group Pro Forma Merged Kingway NAPTech Acquisition Pro Forma
Historical Historical Adjmts. Reunion Historical Historical Adjmts. Combined
---------- ---------- --------- ------- ---------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SALES................... $38,327 $61,667 $ $99,994 $ 7,827 $1,259 $ $109,080
Operating Costs and
Expenses
Cost of Sales.......... 33,103 50,866 83,969 5,338 985 90,292
Selling, General and
Administrative........ 6,345 6,763 13,108 1,406 220 14,734
Other.................. 310 20 (a) 330 446 248 111 (a) 1,135
------- ------- ------- ------- ------- ------ ----- --------
OPERATING PROFIT
(LOSS)................ (1,121) 3,728 (20) 2,587 637 (194) (111) 2,919
OTHER (INCOME) AND
EXPENSE
Interest Expense....... 1,318 3,588 (1,232)(b) 3,674 1,427 564 (751)(d) 4,914
Equity in Juliana
Preserve
Provision for Bargo
Judgment and Costs.... 1,646 1,646 1,646
Bargo settlement gain.. (3,617) (3,617) (3,617)
Equity loss from
continuing operations
of affiliate.......... 67 (67)(f)
Other, Including
Interest (Income)
Expense............... (302) (302) (18) (320)
------- ------- ------- ------- ------- ------ ----- --------
Income (Loss) from
Continuing
Operations Before
Taxes................. (166) 73 1,279 1,186 (772) (758) 640 296
INCOME TAX EXPENSE
(BENEFIT)............. 9 32 (32)(g) 9 1 10
------- ------- ------- ------- ------- ------ ----- --------
Income (Loss) from
Continuing Operations.. (175) 41 1,311 1,177 (772) (759) 640 286
Preferred Stock
Dividends.............. (228) (173)(h) (401) (375) (776)
------- ------- ------- ------- ------- ------ ----- --------
Income (Loss) from
Continuing Operations
Available to Common
Stockholders........... $ (175) $ (187) $ 1,138 $ 776 $(1,147) $ (759) $ 640 $ (490)
======= ======= ======= ======= ======= ====== ===== ========
Income (Loss) from
Continuing Operations
per Common Share
Basic.................. $ (0.04) $ (0.65) $ 0.06 $ (0.04)
======= ======= ======= ========
Diluted................ $ (0.04) $ (0.65) $ 0.06 $ (0.04)
======= ======= ======= ========
Weighted Average Number
of Common Shares
Basic.................. 3,908 290 11,958 11,958
======= ======= ======= ========
Diluted................ 3,908 290 11,958 11,958
======= ======= ======= ========
</TABLE>

89
<PAGE>

REUNION INDUSTRIES, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(In Thousands)

Note 1. Pro Forma Adjustments to the Unaudited Pro Forma Consolidated Condensed
Balance Sheet

Adjustments to the unaudited pro forma combined balance sheet as of June 30,
1999:

(1) To record assumed exercise of Chatwins Group warrants prior to the
merger.

(2) To retire Chatwins Group's treasury stock.

(3) To record issuance of 9,500,000 shares of Reunion Industries' common
stock to Chatwins Group stockholders. Purchase price determined based
on 2,490,000 shares, representing Reunion Industries common stock not
owned by Chatwins Group at June 30, 1999, times $3.25 per share, based
on the market price of Reunion Industries' common stock immediately
prior to the announcement of the amended terms of the merger.

(4) To eliminate Chatwins Group's investment in Reunion Industries.

(5) To eliminate Reunion Industries consolidated equity accounts.

(6) To record the sources and uses of the net proceeds and other
transactions related to the sale of Klemp, the merger, the new term
debt and the new revolving credit facility:

(6a) Sources of proceeds:

<TABLE>
<CAPTION>
Gross Issuance Total Net
Proceeds Costs Proceeds
-------- -------- ---------
<S> <C> <C> <C>
Klemp sale.................................. $ 31,500 $ -- $ 31,500
New term loans A and B--Merger.............. 47,000 -- 47,000
Additional term loan B--Acquisitions........ 15,000 -- 15,000
New revolving credit proceeds--Merger....... 27,136 (1,500) 25,636
Additional revolving credit proceeds--Acqui-
sitions.................................... 6,500 -- 6,500
-------- ------- --------
Totals.................................... $127,136 $(1,500) $125,636
======== ======= ========
</TABLE>

90
<PAGE>

(6b) Uses of proceeds:
<TABLE>
<CAPTION>
Classifications of Debt and Other
---------------------------------------------
Current Revolving Long-term Other Total Uses
------- --------- --------- ------ ----------
<S> <C> <C> <C> <C> <C>
Chatwins Group Senior Note Re-
demption:
Principal..................... $25,000 $ -- $24,975 $ -- $ 49,975
Accrued Interest.............. -- -- -- 1,083 1,083
Prepayment penalty............ -- -- -- 2,164 2,164
------- ------- ------- ------ --------
25,000 -- 24,975 3,247 53,222
------- ------- ------- ------ --------
Chatwins Group Revolver Paydown:
Outstanding borrowings........ -- 31,213 -- -- 31,213
Accrued interest.............. -- -- -- 204 204
------- ------- ------- ------ --------
-- 31,213 -- 204 31,417
------- ------- ------- ------ --------
Reunion Industries Debt Paydown
and
Bargo Litigation Settlement:
CITBC revolver................ -- 8,739 -- -- 8,739
CITBC term loan............... 1,000 -- 4,250 -- 5,250
Prepayment penalty............ -- -- -- 500 500
Bargo litigation settlement... -- -- -- 5,000 5,000
------- ------- ------- ------ --------
1,000 8,739 4,250 5,500 19,489
------- ------- ------- ------ --------
Subtotal.................... 26,000 39,952 29,225 8,951 104,128
------- ------- ------- ------ --------
Acquisitions of Kingway and
NAPTech:
Kingway debt.................. 6,180 -- -- -- 6,180
Kingway debt-related party.... 7,565 -- -- -- 7,565
NAPTech debt.................. 7,361 -- -- -- 7,361
NAPTech debt-related party.... -- -- -- 100 100
NAPTech fee-related party..... -- -- -- 90 90
Kingway stock................. -- -- -- 100 100
NAPTech stock................. -- -- -- 10 10
Accrued interest.............. -- -- -- 94 94
Accrued interest-related
party........................ -- -- -- 8 8
------- ------- ------- ------ --------
21,106 -- -- 402 21,508
------- ------- ------- ------ --------
Totals...................... $47,106 $39,952 $29,225 $9,353 $125,636
======= ======= ======= ====== ========
</TABLE>

91
<PAGE>

Acquisition Detail:

The purchase price amounts from the three acquisitions and the allocation of
those amounts to the individual assets and liabilities acquired are as follows:

<TABLE>
<CAPTION>
Reunion Kingway NAPTech
-------- -------- -------
<S> <C> <C> <C>
Purchase price:
Reunion Industries Stock
Common.......................................... $ 8,093 $ -- $ --
Series B preferred.............................. -- 6,250 --
Cash............................................. -- 100 10
-------- -------- -------
$ 8,093 $ 6,350 $ 10
======== ======== =======
Allocation of purchase price:
Cash............................................. $ 547 $ 894 $ 245
Receivables...................................... 6,172 4,091 461
Inventories...................................... 4,617 1,043 572
Other current assets............................. 1,369 268 101
Property......................................... 25,185 2,350 1,231
Other assets..................................... 550 49 39
Debt assumed..................................... (16,947) (13,745) (7,551)
Trade payables................................... (4,882) (1,011) (433)
Due to related parties........................... (1,051) (1,716) (541)
Accrued Bargo judgment........................... (3,160) -- --
Other accruals................................... (4,562) (399) (645)
Other liabilities................................ (2,121) -- --
Minority interests............................... (1,278) -- --
Redeemable preferred stock....................... (337) -- --
Goodwill......................................... 3,991 14,526 6,531
-------- -------- -------
$ 8,093 $ 6,350 $ 10
======== ======== =======
</TABLE>
(6c)Incremental goodwill on Kingway and NAPTech acquisitions:

<TABLE>
<S> <C> <C>
Purchase price of Kingway common stock.......................... $ 100
Purchase price of NAPTech common stock.......................... 10 110
------
Less net assets acquired:
Kingway common equity........................................... (25)
NAPTech common equity........................................... (5)
Kingway retained earnings....................................... 2,458
NAPTech retained earnings....................................... 703 3,131
------
Write-off Kingway deferred financing costs...................... 82
------
Incremental goodwill............................................ $3,323
======
(6d)Charges related to Chatwins Group Senior Note redemption:
Write-off original issue discount--current maturities........... $ 32
Write-off original issue discount--long-term.................... 32
Write-off old deferred financing costs.......................... 2,210
Prepayment penalty.............................................. 2,164
------
Charges to retained earnings.................................... $4,438
======
(6e) Write-off old Chatwins Group revolver deferred financing
costs........................................................ $ 834
======
(6f) Write-off old Reunion Industries deferred financing
costs........................................................ $ 603
======
</TABLE>

(6g) Conversion of Chatwins Group's and Kingway's redeemable preferred
stocks into new Reunion Industries callable Series A and Series B
preferred stocks, respectively.

92
<PAGE>

(7) Eliminate intercompany receivables and payables.

Note 2. Pro Forma Adjustments to the Unaudited Pro Forma Consolidated Condensed
Statement of Operations

Adjustments to the unaudited pro forma consolidated condensed statements of
operations for the six-month period ended June 30, 1999, and year ended
December 31, 1998:

(a) To record the amortization of incremental goodwill related to the
merger of Chatwins Group and Reunion Industries, as well as the
amortization of incremental goodwill related to the acquisitions of
Kingway and NAPTech over a 15-year period. No adjustments have been
made to depreciation. The book values of property for Reunion
Industries, Kingway and NAPTech are assumed to approximate fair value
because substantially all of these assets have been recently restated
to fair value as a result of the application of purchase accounting
under APB Opinion 16.

(b) To record the effect on interest expense for the six-month period ended
June 30, 1999, resulting from the merger:

<TABLE>
<CAPTION>
Pro Forma Pro Forma
Annual Rates Balance Interest
------------ --------- ---------
<S> <C> <C> <C>
Pro Forma Interest Expense:
New revolving credit facility................ LIBOR + 2.50% 19,349 $ 661
New term loan A.............................. LIBOR + 2.75% 27,000 1,043
New term loan B.............................. 13% 20,000 1,300
Other debt -- actual 1st 6 months 1999.............................. 420
-------
Total Pro Forma Cash Interest..................................... 3,424
Amortization of deferred financing costs............................ 250
-------
Total Pro Forma Interest.......................................... 3,674
Less: Historical Interest Expense................................... (4,906)
-------
Pro Forma Merger Interest Adjustment.............................. $(1,232)
=======
</TABLE>

<TABLE>
<CAPTION>
Pro Forma Pro Forma
Annual Rates Balance Interest
------------ --------- ---------
<S> <C> <C> <C>
Pro Forma Interest Expense:
New revolving credit facility................ LIBOR + 2.50% 20,844 $ 1,699
New term loan A.............................. LIBOR + 2.75% 27,000 2,268
New term loan B.............................. 13% 20,000 2,600
Other debt -- actual 1998........................................... 1,061
--------
Total Pro Forma Cash Interest..................................... 7,628
Amortization of deferred financing costs............................ 500
--------
Total Pro Forma Interest.......................................... 8,128
Less: Historical Interest Expense................................... (10,683)
--------
Pro Forma Merger Interest Adjustment.............................. $ (2,555)
========
</TABLE>

93
<PAGE>

(d) To record the effect on interest expense for the six-month period ended
June 30, 1999, resulting from the acquisitions of Kingway and NAPTech:

<TABLE>
<CAPTION>
Pro Forma Pro Forma
Annual Rates Balance Interest
------------ --------- ---------
<S> <C> <C> <C>
Pro Forma Interest Expense:
Additional revolving credit facility........ LIBOR + 2.50% 6,500 $ 265
Additional term loan B...................... 13% 15,000 975
Less: Historical Interest Expense of Kingway
and NAPTech................................ (1,991)
-------
Pro Forma Acquisitions Interest Adjustment.. $ (751)
=======
</TABLE>

(e) To record the effect on interest expense for the year ended December
31, 1998, resulting from the acquisitions of Kingway and NAPTech:

<TABLE>
<CAPTION>
Pro Forma Pro Forma
Annual Rates Balance Interest
------------ --------- ---------
<S> <C> <C> <C>
Pro Forma Interest Expense:
Additional revolving credit facility........ LIBOR + 2.50% 6,500 $ 530
Additional term loan B...................... 13% 15,000 1,950
Less: Historical Interest Expense of Kingway
and NAPTech................................ (2,910)
-------
Pro Forma Acquisitions Interest Adjustment.. $ (430)
=======
</TABLE>

A 0.125% change in interest rates would affect interest expense by
approximately $29 for the six months ended June 30, 1999 and $60 for the year
ended December 31, 1998 assuming completion of the merger, the sale of Klemp
and the refinancing, and by approximately $33 for the six months ended June 30,
1999 and $68 for the year ended December 31, 1998 assuming also the
acquisitions of Kingway and NAPTech.

(f) To eliminate Chatwins Group's equity loss from continuing operations of
Reunion Industries.

(g) To adjust the Chatwins Group's income tax provision for pro forma
utilization of Reunion Industries' Federal net operating loss
carryovers.

(h) To record incremental dividends on Reunion Industries' Series A
preferred stock at 10% per annum.

94
<PAGE>

INFORMATION ABOUT REUNION INDUSTRIES

Business

General

Reunion Industries, a Delaware corporation, is the successor by merger,
effective April 19, 1996, of Reunion Resources Company. Reunion Industries'
executive offices are located at 62 Southfield Avenue, One Stamford Landing,
Stamford, Connecticut 06902 and its telephone number is (203) 324-8858.

Reunion Industries, through its wholly owned subsidiary, Oneida Rostone
Corp., manufactures high volume, precision plastic products and provides
engineered plastics services. Oneida Rostone's Oneida division, acquired in
September 1995, designs and produces injection molded parts and provides
secondary services such as hot stamping, welding, printing, painting and
assembly of such products. In addition, Oneida designs and builds custom molds
at its tool shops in order to produce component parts for specific customers.
Oneida Rostone's Rostone division, acquired in February 1996, compounds and
molds thermoset polyester resins. The acquisitions in November 1996 of Data
Packaging Limited, and the assets and business of Quality Molded Products, Inc.
have expanded Reunion Industries' custom injection molding capacity. Reunion
Industries is also engaged in wine grape agricultural operations in Napa
County, California.

On February 26, 1999, Reunion Industries announced that it had commenced
discussions with a third party to sell Oneida Rostone and had reinstituted its
merger discussions with Chatwins Group. The discussions with the third party to
sell Oneida Rostone were subsequently terminated. Reunion Industries has now
decided to suspend its plans for the sale of Oneida Rostone in light of the
possible merger with Chatwins Group and the related refinancings. Reunion
Industries will consider alternative strategies for Oneida Rostone if the
merger and refinancing are not completed.

During the five year period ended December 31, 1998, Reunion Industries,
through its subsidiaries, was also engaged in exploring for, developing,
producing and selling crude oil and natural gas in the United States. In
November 1995, Reunion Industries' board of directors resolved to pursue the
sale of Reunion Industries' oil and gas assets and discontinue Reunion
Industries' oil and gas operations. On May 24, 1996, Reunion Industries
completed the sale of its wholly owned subsidiary, Reunion Energy Company,
which included substantially all of Reunion Industries' oil and gas assets.

Reunion Industries' original predecessor was organized in California in
1929. Reunion Industries' predecessor, Buttes Gas and Oil Co., and certain of
its subsidiaries emerged in December 1988 from a reorganization in bankruptcy
under Chapter 11 of the United States Bankruptcy Code. Effective June 29, 1993,
the articles of incorporation of Buttes Gas and Oil Co. were amended to affect
a plan of recapitalization pursuant to which, among other things:

. each then outstanding share of common stock, par value $.01 per share, of
Buttes Gas and Oil Co., was converted automatically and without further
action by stockholders into 1/300th share of a new common stock, par
value $.01 per share, of Buttes Gas and Oil Co.

. all fractional interests in shares of Buttes Gas and Oil Co. resulting
from the recapitalization were settled in cash at the last sale price of
Buttes Gas and Oil Co. shares traded on the Pacific Exchange

. following the effective date of the recapitalization, Buttes Gas and Oil
Co. effected a fifteen-for-one split and distributed 14 additional shares
for each new share issued (or issuable) in the recapitalization

Buttes Gas and Oil Co. was then merged into Reunion Resources Company, a
Delaware corporation. Reunion Resources Company was merged into Reunion
Industries effective April 19, 1996.

95
<PAGE>

Plastic Products and Services

On September 14, 1995, Reunion Industries acquired Oneida Molded Plastics
Corp. On February 2, 1996, Rostone Corporation merged with and into Oneida and
the surviving corporation changed its name to Oneida Rostone. Oneida and
Rostone operate as divisions of Oneida Rostone. On November 18, 1996, Oneida
Rostone acquired the assets and business of Quality Molded Plastics and
completed the acquisition of 95.5% of the outstanding shares of Data Packaging
Limited. Quality Molded Plastics became part of the Oneida division of Oneida
Rostone. Data Packaging Limited is a subsidiary of Oneida Rostone.

Oneida. Founded in 1964, the Oneida division is a full-service plastic
injection molder which manufactures high volume, precision plastic products and
provides engineered plastics services. Oneida designs and produces injection
molded parts and provides secondary services such as hot stamping, welding,
printing, painting and assembly of such products. Oneida's principal products
consist of specially designed and manufactured components for office equipment;
business machines; computers and peripherals; telecommunications, packaging and
industrial equipment; and recreational and consumer products.

Oneida designs and manufactures most of its products by injection molding to
a customer's specifications. In most cases, Oneida obtains a contract to
produce a specified number of custom designed products using custom built molds
owned by the customer. The customer either provides its own molds or has Oneida
design and build or obtain from a supplier the molds necessary to produce the
products. The custom molds produced by Oneida are manufactured at one of its
two tool shops, which are located in Phoenix, New York and Siler City, North
Carolina. Oneida has three injection molding facilities, which are located in
Oneida and Phoenix, New York and Siler City, North Carolina.

The markets in which Oneida competes have sales in excess of $6 billion per
year. These markets are highly competitive. Oneida's principal competitors are
international companies with multi-plant operations based in the United States,
Germany, France and Japan, as well as approximately 3,800 independent companies
located in the United States engaged in the custom molding business. Most of
these companies are privately owned and have sales volumes ranging from $3
million to $7 million per year. In addition, approximately one-half of the
total injection molding market is supplied by in-house molding shops. Oneida
competes on the basis of price, customer service and product quality.

Oneida has a decentralized sales organization that keeps close contact with
customers. Sales of Oneida's products are made through an internal sales staff
and a network of independent manufacturers representatives working from nine
separate regional offices throughout the eastern United States. Oneida
generally pays commissions of between 2% and 5% of sales, based upon volume.
During 1998, 1997 and 1996, one customer, Xerox Corporation, was responsible
for more than 20% of Oneida's net sales. Sales to Xerox were approximately 22%
of Oneida's sales and 11% of Oneida Rostone's consolidated sales during 1998,
and receivables from Xerox were approximately 18% of Oneida's accounts
receivable at December 31, 1998. The loss of this customer could have a
material adverse effect on the results of operations of Oneida. Sales to Xerox
have declined as a percentage of Oneida Rostone's sales in 1998 and 1997 as
Reunion Industries diversified its customer base. In addition to Xerox, Oneida
has approximately 500 customers in the various industries described above.
Oneida continues to seek additional customers in the business machines,
consumer products and medical products industries. Reunion Industries believes
that these new customers provide future growth opportunities for Oneida.

The principal raw materials used by Oneida are thermoplastic polymers. These
materials are available from a number of suppliers. Prices for these materials
are affected by changes in market demand, and there can be no assurances that
prices for these and other raw materials used by Oneida will not increase in
the future. Oneida's contracts with its customers generally provide that such
price increases can be passed through to the customers.

The majority of Oneida's engineering work is related to meeting design
requirements and specifications of its customers that require customized
products and developing greater production efficiencies. To meet these

96
<PAGE>

objectives, Oneida has engineering personnel at each of its manufacturing
locations. Oneida's business is not materially dependent on any patents,
licenses or trademarks.

Rostone. Founded in 1927, the Rostone division specializes in precision
thermoset plastic molded parts for original equipment manufacturers in the
electrical, transportation, appliance and office equipment industries. Rostone
is also a compounder of proprietary fiberglass reinforced polyester materials
used in a number of customer applications.

Rostone manufactures its thermoset products through the use of custom built
molds to produce parts to customer specifications. These customer-owned molds
are either provided by the customer or designed by Rostone and built by one of
the Oneida tooling facilities or by another supplier. Rostone has two molding
facilities, which are located in Lafayette, Indiana and Clayton, North
Carolina.

Rostone competes in a market with a limited number of privately owned
competitors and in-house molders on the basis of price, product specifications
and customer service. Sales of Rostone's products are made through an internal
sales staff and a network of independent representatives working from ten
separate offices throughout the central United States. Rostone generally pays
commissions of between 3% and 5% of sales based on volume. During 1998, 1997
and 1996, one customer, Cutler Hammer, was responsible for more than 20% of
Rostone's sales. Sales to Cutler Hammer were approximately 29% of Rostone's
sales and 7% of Oneida Rostone consolidated sales during 1998, and receivables
from Cutler Hammer were approximately 36% of Rostone's accounts receivable at
December 31, 1998. The loss of this customer could have a material adverse
effect on Rostone's results of operations. Rostone continues to seek new
customers in the industries described above and in other industries.

The principal raw materials used by Rostone are styrene, polyester resins,
fiberglass and commercial phenolics. These materials are available from a
number of suppliers. Prices and availability of these materials are affected by
changes in market demand, and there can be no assurances that prices for these
and other raw materials used by Rostone will not increase in the future. When
possible if shortages occur, Rostone engineers new products to provide its
customers a cost effective alternative to the material in short supply.

Research and development at Rostone is focused on the development of
proprietary thermoset materials under the trade name Rosite(R). Rostone
compounds a wide range of Rosite materials to satisfy its customers' various
needs. Rostone also provides services in meeting customers' design requirements
and specifications of their customized products. Other than Rosite(R),
Rostone's business is not materially dependent on any patents, licenses or
trademarks.

Data Packaging Limited. Founded in 1981, Data Packaging Limited originally
produced magnetic media cassettes, compact disk and other proprietary products
for the computer and data storage industries. These businesses were
discontinued by 1989. Data Packaging Limited presently is a full-service custom
plastics injection molder which manufactures high volume, precision plastic
products and provides engineered plastics services. Data Packaging Limited's
principal products consist of specially designed and manufactured components
for office equipment, business machines, computer and peripherals, and
telecommunications equipment.

Data Packaging Limited designs and manufactures its products to a customer's
specifications using custom built molds owned by the customer. The customer
either provides its own molds or has Data Packaging Limited design and obtain
from a supplier the molds necessary to produce the products. All operations are
conducted from one facility in Mullingar, County Westmeath, Ireland.

Data Packaging Limited's markets are highly competitive. Principal
competitors are international companies with operations in Ireland and Western
Europe, and approximately five independent companies in Ireland. Data Packaging
Limited competes on the basis of price, customer service and product quality.

97
<PAGE>

Sales of Data Packaging Limited's products are made by the company's in-
house sales force, which maintains close contact with its customers. During
1998 and 1997, one customer, Dell Computer, was responsible for more than 20%
of Data Packaging Limited's net sales. Dell represented approximately 42% of
Data Packaging Limited's sales and 9% of Oneida Rostone's consolidated sales
during 1998, and receivables from Dell were approximately 53% of Data Packaging
Limited's accounts receivables at December 31, 1998. The loss of this customer
could have a material adverse effect on Data Packaging Limited's results of
operations. Data Packaging Limited continues to seek new customers in the
office equipment and telecommunications industries in Europe.

The principal raw materials used by Data Packaging Limited are thermoplastic
polymers. These materials are available from a number of suppliers. Prices for
these materials are affected by changes in market demand, and there can be no
assurances that prices for these and other raw materials used by Data Packaging
Limited will not increase in the future. Data Packaging Limited's contracts
with its customers generally provide that such price increases can be passed
through to the customers.

The majority of Data Packaging Limited's engineering work is related to
meeting design requirements and specifications of its customers that require
customized products and developing greater production efficiencies. Data
Packaging Limited's business is not materially dependent on any patents,
licenses or trademarks.

During 1997, the legal ownership of Data Packaging Limited was reorganized
to provide certain members of Data Packaging Limited's management with
conditional ownership of 15% of Data Packaging Limited. Management's ownership
will provisionally vest at the rate of up to 20% each year based on the
achievement of certain earnings targets, and will fully vest when 100%
provisionally vested or at the end of 2004, whichever is earlier. Until fully
vested, any manager's shares revert to Reunion Industries upon termination of
employment. When fully vested, management has the right to put, and Reunion
Industries has the right to call, such ownership for settlement in cash for an
amount determined by a formula based on a multiple of earnings. Because of the
put and call features, Reunion Industries accounts for this arrangement as a
deferred compensation plan and not as a minority interest. At December 31,
1998, management was provisionally vested in 40% of their 15% ownership and
deferred compensation of $0.4 million had been accrued.

Backlog. ORC's backlog of orders believed firm at December 31, 1998 and
December 31, 1997 were approximately $16.7 million and $21.9 million,
respectively, substantially all of which are expected to ship within a year.
Backlog is down from 1997 as more major customers move to just-in-time ordering
and shorter delivery cycles and because of customer deferrals of new programs.

Agricultural Operations

Reunion Industries, through its subsidiary Juliana Vineyards, is engaged in
wine grape vineyard development and the growing and harvesting of wine grapes
for the premium table wine market. Reunion Industries' wine grape agricultural
operations consist of approximately 3,800 acres, of which approximately 1,200
acres are suitable for wine grape production and of which approximately 325
acres are currently in production. This property is located within the official
boundaries of the Napa Valley American Viticultural Area, the premier grape
growing region of North America. The company does not hold a significant
position in the wine grape market. Prices received on the sale of wine grapes
may fluctuate widely, depending upon supply, demand and other factors.

From October 1994 to September 1998, Juliana Vineyards conducted its
agricultural operations through the Juliana Preserve, a joint venture organized
as a California general partnership. Juliana Vineyards had a 71.7% interest in
the net income and net assets of the joint venture, but had a 50% voting
interest in matters concerning the operation, development and disposition of
the joint venture assets. In September 1998, Juliana Vineyards purchased the
interest of its joint venture partner for approximately $5.9 million.

98
<PAGE>

In August 1997, Juliana Preserve sold approximately 500 acres, including
approximately 300 plantable acres, to a Napa Valley winery. In September 1998,
Juliana Vineyards sold approximately 400 acres, including approximately 250
plantable acres, to an Australian winery. Also during 1998, Juliana Vineyards
formed the Juliana Mutual Water Company to own and operate the water storage
and transmission system for the entire property originally owned by the
Preserve. Ownership of Juliana Mutual is generally in proportion to plantable
acres as specified in the Juliana Mutual bylaws.

Juliana Vineyards has undertaken a limited wine grape development effort
which management believes will enhance the value of the property. Approximately
95 acres were planted in 1998. These new plantings should reach production in
four or five years. Additional plantings may be made in future years if
additional funds can be obtained through financing or from additional property
sales. One parcel including approximately 65 plantable acres has been leased to
a Napa Valley winery. Juliana Vineyards also expects to provide vineyard
development and farm management services to certain of the third party owners
and lessees of parcels in the Preserve.

Environmental Regulation

Various federal, state and local laws and regulations including, without
limitation, laws and regulations concerning the containment and disposal of
hazardous waste, oil field waste and other waste materials, the use of storage
tanks, the use of insecticides and fungicides and the use of underground
injection wells directly or indirectly affect Reunion Industries' operations.
In addition, environmental laws and regulations typically impose "strict
liability" upon Reunion Industries for certain environmental damages.
Accordingly, in some situations, Reunion Industries could be liable for clean
up costs even if the situation resulted from previous conduct of Reunion
Industries that was lawful at the time or from improper conduct of, or
conditions caused by, previous property owners, lessees or other persons not
associated with Reunion Industries or events outside the control of Reunion
Industries. Such clean up or costs associated with changes in environmental
laws and regulations could be substantial and could have a material adverse
effect on Reunion Industries' consolidated financial position, results of
operations or cash flows.

Reunion Industries' plastic products and service business routinely uses
chemicals and solvents, some of which are classified as hazardous substances.
Reunion Industries' vineyard operations routinely use fungicides and
insecticides, the handling, storage and use of which is regulated under the
Federal Insecticide, Fungicide and Rodenticide Act, as well as California laws
and regulations. Reunion Industries' former oil and gas business and related
activities routinely involved the handling of significant amounts of waste
materials some of which are classified as hazardous substances.

Except as described in the following paragraphs, Reunion Industries believes
it is currently in material compliance with existing environmental protection
laws and regulations and is not involved in any significant remediation
activities or administrative or judicial proceedings arising under federal,
state or local environmental protection laws and regulations. In addition to
management personnel who are responsible for monitoring environmental
compliance and arranging for remedial actions that may be required, Reunion
Industries has also employed outside consultants from time to time to advise
and assist Reunion Industries' environmental compliance efforts. Except as
described in the following paragraphs, Reunion Industries is not aware of any
conditions or circumstances relating to environmental matters that will require
significant capital expenditures by Reunion Industries or that would result in
material adverse effects on its businesses.

In February 1996, Rostone was informed by a contracted environmental
services consulting firm that soil and ground water contamination exists at its
Lafayette, Indiana site. Reunion Industries has initiated a remediation plan
under an agreement with the Indiana Department of Environmental Management and
expects to substantially complete the remediation during 2000. Reunion
Industries has expended approximately $0.2 million and has accrued an
additional $0.2 million based on current estimates of remediation costs.
Certain of these costs are recoverable from CGI Investment Corp., the seller of
Rostone.

99
<PAGE>

In connection with the sale of Reunion Energy Company, Reunion Industries
retained certain oil and gas properties in Louisiana because of litigation
concerning environmental matters. Reunion Industries is in the process of
environmental remediation under a plan approved by the Louisiana Office of
Conservation. Reunion Industries has recorded an accrual for its proportionate
share of the remaining estimated costs to remediate the site based on plans and
estimates developed by the environmental consultants hired by Reunion
Industries. During 1998 Reunion Industries increased this accrual by a charge
of $1.2 million to discontinued operations, based on revised estimates of the
remaining remediation costs. During the second quarter of 1999, Reunion
Industries conducted remediation work on the property. Reunion Industries is
required to pay $0.2 million of the total cost of $0.3 million. A regulatory
hearing has been scheduled for November 1999 to consider the adequacy of the
remediation conducted to date. At June 30, 1999, the balance accrued by Reunion
Industries for these remediation costs was approximately $1.4 million.

Employees

At December 31, 1998, Reunion Industries employed 844 full time employees,
of whom 834 were employed in the plastic products segment, six were employed in
agricultural operations and four were corporate personnel. Reunion Industries
also employs hourly employees in its agricultural operations, the number of
whom varies throughout the year.

In Oneida Rostone's division, approximately 190 employees are represented by
the International Brotherhood of Electrical Workers, AFL-CIO, under a
collective bargaining agreement which expires in February 2000.

Substantially all of Data Packaging Limited's 117 hourly employees are
represented by the Services Industrial Profession and Technical Union. Data
Packaging Limited participates in the Irish Business and Employers
Confederation, which negotiates binding national agreements about employment
policy, pay increases and taxation with the government and trade unions. The
latest three year agreement was signed in December 1996.

Properties

Manufacturing Properties

Reunion Industries' properties used in the plastic products and services
segment are as follows:

<TABLE>
<CAPTION>
Lease
Square Land Expiration
Division Location Feet Acres Title Date Use
-------- ------------------ ------- ----- ------ ---------- --------------------------------
<S> <C> <C> <C> <C> <C> <C>
Oneida Oneida, NY 84,000 3.5 Owned* -- Manufacturing and Administrative
Phoenix, NY 28,000 -- Leased 1/31/05 Manufacturing
Phoenix, NY 20,000 2.0 Owned* -- Manufacturing
Siler City, NC 130,000 8.3 Owned* -- Manufacturing and Administrative
Rostone Lafayette, IN 168,000 20.0 Owned* -- Manufacturing and Administrative
Clayton, NC 35,000 -- Leased 6/17/01 Manufacturing
Data Packaging Limited Mullingar, Ireland 72,000 5.9 Owned -- Manufacturing and Administrative
</TABLE>
- - - --------
* Subject to mortgages in connection with Oneida Rostone's credit facility
with The CIT Group/Business Credit, Inc. See "Reunion Industries, Inc.
Notes to the Consolidated Financial Statements--Note 8".

Reunion Industries believes that these facilities are suitable and adequate
for Oneida Rostone's use.

Other Properties

Reunion Industries' owns the 3,800 acres on which it conducts its wine grape
agricultural operations and maintains an office facility on its vineyard
property.

100
<PAGE>

Reunion Industries intends to sell the oil and gas properties in Louisiana
it retained because of litigation concerning environmental matters when the
litigation is resolved.

Reunion Industries holds title to or recordable interests in federal and
state leases totaling approximately 55,000 acres near Moab, Utah, known as Ten
Mile Potash. Sylvanite, a potash mineral, is the principal mineral of interest
and occurrence in the Ten Mile Potash property. To date, Ten Mile Potash has
not yielded any significant revenues from mining operations or any other
significant revenues, and Reunion Industries is pursuing the sale or farmout of
these interests.

Reunion Industries subleases from Stanwich Partners, Inc., a related party,
approximately 1,500 square feet of office space in Stamford, Connecticut for
its corporate offices. Management believes the terms of this sublease are
comparable to those available from third parties.

Legal Proceedings

Certain litigation in which Reunion Industries is involved is described
below.

The owners of a portion of the Reunion Industries property in Louisiana
currently being remediated for environmental contamination have objected to
Reunion Industries' proposed cleanup methodology and have filed suit to require
additional procedures. Reunion Industries is contesting the litigation, and
believes its proposed methodology is well within accepted industry practice for
remediation efforts of a similar nature. No accrual has been made for costs of
any alternative cleanup methodology which might be imposed as a result of the
litigation.

Two suits were filed in July 1998 in the Court of Chancery of the State of
Delaware against Reunion Industries and its directors and Chatwins Group in
connection with the proposed merger. The lawsuits alleged breaches of fiduciary
duty by the defendants in setting the exchange ratio of the merger. The
defendants maintained that the exchange ratio fixed for the merger fairly
reflected the relative values of Reunion Industries and Chatwins Group when the
merger terms were agreed. On October 27, 1998, after the companies announced
they had agreed to terminate merger discussions, the court dismissed the suits
without prejudice to the plaintiffs to bring an action in the future.

Reunion Industries and its subsidiaries are the defendants in other lawsuits
and administrative proceedings which have arisen in the ordinary course of
business of Reunion Industries and its subsidiaries. Reunion Industries
believes that any material liability which can result from any of such lawsuits
or proceedings has been properly reserved for in Reunion Industries' financial
statements or is covered by indemnification in favor of Reunion Industries or
its subsidiaries, and, that, therefore, the outcome of these lawsuits or
proceedings, or the matters referred to above, will not have a material adverse
effect on Reunion Industries' consolidated financial position, results of
operations or cash flows.

Market for the Registrant's Common Equity and Related Stockholder Matters

Reunion Industries' common stock is traded in the over-the-counter market
and is listed on the NASDAQ Small-Cap Market under the symbol "RUNI". The
common stock is also traded on the Pacific Exchange under the symbol "RUN".

As of October 22, 1999, there were approximately 1,400 holders of record of
Reunion Industries' common stock with an aggregate of 3,940,100 shares
outstanding.

101
<PAGE>

The table below reflects the high and low sales prices on the NASDAQ Small-
Cap Market for the quarterly periods in the two years ended December 31, 1998
and the first nine months of 1999. The NASDAQ Small-Cap quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may
not necessarily represent actual transactions.

<TABLE>
<CAPTION>
Quarter Ended High Low
------------- ------ ------
<S> <C> <C>
1999
September 30.................................................. $3.500 $2.375
June 30....................................................... $4.875 $3.188
March 31...................................................... $5.250 $2.625
1998
December 31................................................... $3.250 $2.406
September 30.................................................. $6.125 $2.875
June 30....................................................... $7.625 $5.000
March 31...................................................... $5.500 $4.750
1997
December 31................................................... $5.250 $4.188
September 30.................................................. $4.380 $3.813
June 30....................................................... $4.125 $3.125
March 31...................................................... $5.000 $3.875
</TABLE>

No cash dividends have been declared or paid during the past three years
with respect to the common stock of Reunion Industries. The board of directors
of Reunion Industries currently follows a policy of retaining any earnings for
operations and for the expansion of the business of Reunion Industries. Cash
dividends are also limited by the availability of funds, including limitations
on dividends and other transfers to Reunion Industries by Oneida Rostone and
Juliana Vineyards contained in their lending agreements. Therefore, Reunion
Industries anticipates that it will not pay any cash dividends on Reunion
Industries' common stock in the foreseeable future. See "--Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Factors Affecting Future Liquidity--Corporate."

Selected Financial Data

The following table sets forth selected historical consolidated financial
data of Reunion Industries. Reunion Industries derived the data for the years
ended December 31, 1994 through 1998 from the company's audited financial
statements. The report by the company's independent accountants,
PricewaterhouseCoopers LLP, for the year ended December 31, 1998 contains an
explanatory paragraph on going concern matters. Reunion Industries derived the
consolidated balance sheet data as of June 30, 1999 and the consolidated income
statement data for the six months then ended from unaudited interim financial
statements. All data are reported in thousands, except for per-share data.

Information for 1999 and 1998 includes Juliana Vineyards as a consolidated
subsidiary subsequent to the September 1998 purchase of the joint venture
partner's interest. From October 1994 to September 1998, the agricultural
operations were accounted for on the equity method. The results of operations
and balance sheet information for Quality Molded Products and Data Packaging
Limited are included for all periods subsequent to their acquisitions on
November 18, 1996. The results of operations and balance sheet information for
the Rostone division of Oneida Rostone are included for all periods subsequent
to its acquisition on February 2, 1996. The results of operations and balance
sheet information for the Oneida division of Oneida Rostone are included for
all periods subsequent to its acquisition on September 14, 1995. See "--
Business--Agricultural Operations" and "Reunion Industries, Inc. Notes to the
Consolidated Financial Statements--Note 2."

102
<PAGE>

<TABLE>
<CAPTION>
Six Months
Ended
June 30, Year Ended December 31,
1999 ---------------------------------------------
(unaudited) 1998 1997 1996 1995 1994
----------- -------- ------- ------- -------- -------
(In Thousands, Except Per Share Data)
<S> <C> <C> <C> <C> <C> <C>
Operations Data
Continuing Operations:
Operating Revenue..... $38,327 $ 97,318 $93,378 $60,305 $ 10,855 $ 1,619
Operating Income
(Loss)............... (1,121) 1,495 2,513 1,449 (3,016) (2,481)
Interest Expense...... (1,318) (3,221) (3,267) (2,402) (508) (269)
Provision for Bargo
Judgment and Related
Costs................ (1,646) (9,239) -- -- -- --
Bargo settlement
gain................. 3,617 -- -- -- -- --
Equity in Writedown of
Joint Venture
Development Costs.... -- -- (855) (1,290) -- --
Gain on Sale of
Mineral Properties... -- -- -- -- -- 2,124
Other Income
(Expense)............ 302 (136) 714 425 (57) (34)
Income Tax Benefit
(Expense)............ (9) 661 (86) (876) -- --
------- -------- ------- ------- -------- -------
Loss From Continuing
Operations(1).......... (175) (10,440) (981) (2,694) (3,581) (660)
======= ======== ======= ======= ======== =======
Discontinued Operations:
Agriculture........... -- -- 710 (710) -- --
Oil and Gas........... (370) (1,710) -- 1,122 (10,389) (3,495)
Drilling and
Workover............. -- -- -- -- -- 65
------- -------- ------- ------- -------- -------
Income (Loss) From
Discontinued
Operations............. (370) (1,710) 710 412 (10,389) 3,430
------- -------- ------- ------- -------- -------
Extraordinary Item...... -- (233) -- -- -- --
------- -------- ------- ------- -------- -------
Net Loss(2)............. (545) $(12,383) $ (271) $(2,282) $(13,970) $(4,090)
Income (Loss) Per Share-
Basic:
Continuing
Operations........... $ (0.04) $ (2.69) $ (0.25) $ (0.70) $ (0.93) $ (0.17)
Discontinued
Operations........... (0.10) (0.44) 0.18 0.11 (2.72) (0.91)
Extraordinary Item.... -- (0.06) -- -- -- --
------- -------- ------- ------- -------- -------
Net Loss.............. $ (0.14) $ (3.19) $ (0.07) $ (0.59) $ (3.65) $ (1.08)
======= ======== ======= ======= ======== =======
Loss Per Share-Diluted.. $ (0.14) $ (3.19) $ (0.07) $ (0.59) $ (3.65) $ (1.08)
======= ======== ======= ======= ======== =======
Balance Sheet Data
Total Assets............ $69,436 $ 74,874 $72,059 $75,176 $ 51,935 $51,639
Long-term Obligations... $17,682 $ 17,237 $12,654 $15,575 $ 7,947 $ 2,693
Stockholders' Equity.... $15,104 $ 16,239 $28,317 $28,944 $ 31,254 $44,624
Weighted Average Common
Shares Outstanding..... 3,908 3,881 3,855 3,855 3,832 3,794
Cash Dividends per
Common Share........... $ -0- $ -0- $ -0- $ -0- $ -0- $ -0-
</TABLE>
- - - --------
(1) Loss from Continuing Operations includes the following items which might
affect comparability:
Six months ended June 30, 1999: a $1.6 million charge for interest and
costs related to the company's litigation with Bargo Energy Company and a
$3.6 million gain from the settlement of this litigation. See "--
Management's Discussion and Analysis of Financial Condition and Results of
Operations--Recent Developments--Bargo Litigation."
1998: a $9.2 million charge to record entry of the judgment and related
costs in the company's litigation with Bargo
1997: a $1.0 million charge for writedown of excess equipment and a $0.9
million charge for equity in the write-off of joint venture development
costs
1996: a $1.3 million charge for equity in the write-off joint venture
development costs
1994: a $2.1 million gain on the sale of mineral properties
(2) Net Loss includes the items described above and the following additional
items which might affect comparability:
Six months ended June 30, 1999: a $0.4 million charge for a provision for a
tax settlement, included in "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Discontinued Operations."
1998: a $1.2 million charge for increase in a provision for environmental
remediation and a $0.5 million charge for a provision for a tax settlement.
See "--Business--Environmental Regulation" and "Information About Reunion
Industries--Management's Discussion and Analysis of Financial Condition and
Results of Operations--Recent Developments--California Tax Assessment."
1997: income of $0.7 million from reversal of the 1996 estimated loss on
disposal of the agricultural and real estate operations. See "Reunion
Industries, Inc. Notes to the Consolidated Financial Statements--Note 3"
1996: a $0.7 million charge for the estimated loss on disposal of the
agricultural and real estate operations and a $1.1 million net gain from
the disposal of the oil and gas operations. See "Reunion Industries, Inc.
Notes to the Consolidated Financial Statements--Note 3"
1995: a $7.0 million impairment charge against the company's oil and gas
properties and a $3.8 million charge for the expected loss on disposal of
the oil and gas operations
1994: a $3.2 million impairment charge against the company's oil and gas
properties

103
<PAGE>

Management's Discussion and Analysis of Financial Condition and Results of
Operations

Overview

Reunion Industries' principal operations are in the plastic products and
services industry through its wholly owned subsidiary Oneida Rostone. Reunion
Industries is also engaged in wine grape agricultural operations in Napa
County, California.

As discussed more fully elsewhere in this proxy statement/prospectus,
Reunion Industries has entered into agreements to acquire both Kingway and
NAPTech. Reunion Industries expects to enter into the refinancing transaction
described elsewhere in this proxy statement/prospectus in connection with these
acquisitions.

In November 1995, Reunion Industries' board of directors resolved to sell
Reunion Industries' oil and gas assets and discontinue Reunion Industries' oil
and gas operations. During 1996, Reunion Industries sold substantially all of
its oil and gas assets, for a total price of approximately $11.4 million.

Reunion Industries recognized a net loss of $12.4 million in 1998 compared
to a net loss of $0.3 million in 1997 and a net loss of $2.3 million in 1996.
The following discussion of Results of Continuing Operations describes Reunion
Industries' continuing operations in plastic products and services and wine
grape agriculture separately from discontinued operations.

Results of Continuing Operations--Six Months Ended June 30, 1999, Compared With
Six Months Ended June 30, 1998

Reunion Industries had a net loss of $0.5 million for the six months ended
June 30, 1999 compared to a net loss of $10.3 million for the six months ended
June 30, 1998.

Oneida Rostone. Revenues and operating income of Oneida Rostone were $37.5
million and $0.3 million, respectively, for the six months ended June 30, 1999
compared to revenues and operating income of $51.1 million and $2.5 million,
respectively, for the six months ended June 30, 1998.

The 27% decrease in revenues resulted from several factors, including
certain customers relocating manufacturing operations to Mexico and Asia,
reduced customer orders for continuing programs, end of product cycles and
delays in new program starts, which affected all Oneida Rostone facilities.
Oneida Rostone's backlog totaled $16.6 million at June 30, 1999, compared to
backlog of $16.7 million at December 31, 1998 and backlog of $21.5 million at
June 30, 1998. Backlog is also affected by customers' continuing movement to
just-in-time ordering and shorter delivery cycles.

Cost of sales totaled $32.3 million, or 86.0% of net sales, for the six
months ended June 30, 1999 compared to $43.7 million, or 85.4% of net sales for
the six months ended June 30, 1998. Gross profit was $5.2 million for the six
months ended June 30, 1999 compared to $7.4 million in the prior year period.
The decrease in both cost of sales and gross profit resulted from the decrease
in revenues.

Selling, general and administrative expenses were $5.0 million for the six
months ended June 30, 1999, compared to $4.9 million for the six months ended
June 30, 1998. The 1999 period included a $0.5 million provision for retirement
compensation. Operating income was $0.3 million for the six months ended June
30, 1999 compared to $2.5 million in the comparable 1998 period, primarily
because of the decrease in revenues.

Juliana Vineyards. Juliana Vineyards had an operating loss of $0.3 million
on miscellaneous revenues of $0.8 million for the six months ended June 30,
1999. Juliana Vineyards' agricultural operations were accounted for on the
equity method in the prior year period, and the loss for the period was
included in Other Income and (Expense).

104
<PAGE>

company costs, totaled $1.1 million for both the six months ended June 30, 1999
and June 30, 1998. The 1999 amount includes $0.2 million of expenses incurred
in connection with the proposed sale of Oneida Rostone, which was subsequently
terminated. The 1999 and 1998 amounts include $0.2 million and $0.4 million,
respectively, of legal costs for Reunion Industries' litigation with Bargo.

Other Income and (Expense). Interest expense was $1.3 million for the six
months ended June 30, 1999 compared to $1.5 million for the prior year period
as a result of lower interest rates on Oneida Rostone's new credit facility
with the CIT Group/Business Credit, Inc. Reunion Industries recorded a charge
of $8.8 million in the 1998 period to record entry of judgment in the
litigation with Bargo. Reunion Industries also recorded a $1.6 million charge
in the 1999 period for interest and credit support fees relating to the bond
posted in the appeal of the Bargo litigation judgment, and recognized a gain of
$3.6 million in the 1999 period as a result of the settlement of this
litigation. Reunion Industries recognized a loss of $0.1 million from its
equity investment in the agricultural operations for the six months ended June
30, 1998.

Results of Continuing Operations--1998 Compared to 1997

Plastic products and services. Oneida Rostone revenues and operating income
were $95.1 million and $5.0 million, respectively, for the year ended December
31, 1998. This compares to 1997 revenues and operating income of $93.4 million
and $4.3 million, respectively.

The increase in revenues is attributable to a 34% increase in Data Packaging
Limited's sales as a result of new customer programs, offset by a 5% decrease
in sales at U.S. operations. Parts sales increased $0.7 million, or 0.6% to
$89.0 million for the year ended December 31, 1998 compared to $88.5 million
for the prior year period. Tooling sales increased $1.2 million, or 24.5% to
$6.1 million for 1998 compared to $4.9 million for 1997. Tooling revenues
associated with the production of customer tools are deferred until the tools
are completed and delivered to the customers. As a result, tooling sales
fluctuate depending on when projects are completed. The 34% increase in Data
Packaging Limited's sales resulted from two significant new projects, for which
Reunion Industries added production capacity. Although Reunion Industries
continues to seek new customers and projects, management does not expect that
such sales growth will recur. Oneida Rostone's backlog totaled $16.7 million at
December 31, 1998 compared to backlog of $21.9 million at December 31, 1997.
Backlog is down from 1997 as more major customers move to just-in-time ordering
and shorter delivery cycles and because of customer deferrals of new programs.

Cost of sales totaled $80.9 million, or 85.1% of net sales, for the year
ended December 31, 1998 compared to $78.9 million, or 84.5% of net sales, for
the year ended December 31, 1997. Gross margins were $14.2 million or 14.9% of
net sales, in 1998 compared to $14.5 million, or 15.5% of net sales in 1997.

During 1997, Oneida Rostone recorded a $1.0 million writedown of surplus
equipment to net realizable value. This writedown was made in conjunction with
the relocation of thermoplastic molding production from the Clayton, N.C.
facility to the Siler City, N.C. facility.

Selling, general and administrative expenses were $9.2 million in 1998, and
$9.2 million in 1997. Operating income was $5.0 million, or 5.3% of net sales
in 1998 compared to $4.3 million, or 4.6% of net sales in 1997.

Agriculture. Juliana Vineyards had an operating loss of $0.1 million on
revenues of $2.2 million in 1998. Revenues and direct expenses from the 1998
harvest were recognized in the fourth quarter, and these fourth quarter amounts
are not representative of a full year. Prior to October 1998, Reunion
Industries accounted for its wine grape agriculture operations on the equity
method.

105
<PAGE>

year ended December 31, 1997. The 1998 and 1997 amounts included approximately
$0.6 million and $0.4 million, respectively, in legal costs for Reunion
Industries' Bargo litigation.

As a result of termination of the 1998 merger agreement with Chatwins Group
because of the inability to raise sufficient financing under then current
market conditions, Reunion Industries recorded a charge of $1.4 million in 1998
to write off accumulated legal, investment banking and other costs related to
the merger.

Other Income and Expense. Interest expense was $3.2 million in 1998 compared
to $3.3 million for the prior year. Reunion Industries also recorded a charge
of $9.2 million during 1998 to record entry of the judgment in Reunion
Industries' litigation with Bargo, accrual of interest on the judgment and
letter of credit and guarantee fees related to obtaining a supersedeas bond to
appeal the judgment.

Reunion Industries participated in the wine grape agriculture industry
through its equity investment in the Juliana Preserve joint venture in 1997 and
until September 1998. Reunion Industries recognized a loss of $0.4 million in
1998 and income of $0.3 million in 1997 from its equity interest in the
Preserve's results of operations. In addition, Reunion Industries recorded a
charge of $0.9 million in 1997 for its equity in the write off of development
costs by the joint venture.

Income Tax Expense. In August 1998, Reunion Industries reached a settlement
with the IRS on its appeal of the denial of Reunion Industries' request for
refund of Alternative Minimum Tax paid in 1990 and 1991. As a result of the
settlement, Reunion Industries received refunds totaling $0.7 million including
interest. Because of the uncertainty over realization of the refund, Reunion
Industries had recorded an allowance of $0.8 million in 1996 for the possible
denial of the refund claim with a corresponding charge to income tax expense.
As a result of the settlement, Reunion Industries recorded an income tax
benefit of $0.7 million in 1998.

Results of Continuing Operations--1997 Compared to 1996

Plastic products and services. Oneida Rostone's revenues and operating
income were $93.4 million and $4.3 million, respectively, for the year ended
December 31, 1997. This compares to 1996 revenues and operating profit of $60.3
million and $3.4 million respectively.

The increase in revenues is attributable primarily to a full year's results
of the acquired businesses offset somewhat by a strike at the Rostone division.
Parts sales increased $35.5 million, or 67.0% to $88.5 million for the year
ended December 31, 1997 compared to $53.0 million for the prior year period.
Tooling sales decreased $2.4 million, or 32.9% to $4.9 million for 1997
compared to $7.3 million for 1996. Tooling revenues associated with the
production of customer tools are deferred until the tools are completed and
delivered to the customers. As a result, tooling sales fluctuate dependent upon
when projects are completed. Additionally, in 1997, there was a higher
incidence of molding contracts where the tools were provided by the customer.
Oneida Rostone's backlog totaled $21.9 million at December 31, 1997 compared to
backlog of $25.1 million at December 31, 1996. Backlog is down from 1996 as
more major customers move to just-in-time ordering and shorter delivery cycles.

During the second calendar quarter of 1997, a strike of Reunion Industries'
unionized factory work force took place at Oneida Rostone's Rostone division.
The work stoppage occurred on April 15, 1997 and continued until May 15, 1997.
Rostone used office personnel, temporary workers and new hires to minimize the
impact of the strike on product shipments and the loss of customer business.
Rostone, however, experienced excess scrap, labor inefficiencies and higher
than normal product returns during the strike period and incurred additional
overtime subsequent to the strike in restoring normal production. As a result
of the strike, sales and operating income were approximately $2.1 million and
$1.0 million, respectively, less than expected for the second quarter.

Cost of sales totaled $78.9 million, or 84.5% of net sales, for the year
ended December 31, 1997 compared to $50.7 million, or 84.1% of net sales, for
the year ended December 31, 1996. As a result of the increase in

106
<PAGE>

sales, offset by the effects of the strike, gross margins rose to $14.5 million
or 15.5% of net sales, in 1997 from $9.6 million, or 15.9% of net sales in
1996.

During 1997, Oneida Rostone recorded a $1.0 million writedown of surplus
equipment. This writedown was made in conjunction with the relocation of
thermoplastic molding production from the Clayton, N.C. facility to the Siler
City, N.C. facility acquired by Reunion Industries in November 1996.

Selling, general and administrative expenses were $9.2 million in 1997, $2.9
million more than in 1996 reflecting the businesses acquired in 1996. Operating
income was $4.3 million, or 4.6% of net sales in 1997 compared to $3.4 million,
or 5.6% of net sales in 1996.

Corporate General and Administrative Expense. Corporate general and
administrative expenses, consisting primarily of executive and administrative
salaries and benefits, professional fees and other public company costs,
totaled $1.8 million for the year ended December 31, 1997 compared to $1.9
million for the year ended December 31, 1996. The 1997 amount included
approximately $0.4 million in legal costs for Reunion Industries' Bargo
litigation. The expenses for the year ended December 31, 1996 included
occupancy and office costs for both Reunion Industries' previous headquarters
in Houston, Texas, closed in May 1996, and its new headquarters in Stamford,
Connecticut and are net of $0.3 million in reversals of certain charges for
office closing and severance accrued in 1995.

Other Income and Expense. Interest expense was $3.3 million in 1997 compared
to $2.4 million in 1996 as a result of interest on Oneida Rostone's debt
subsequent to the Rostone, Quality Molded Plastics and Data Packaging Limited
acquisitions. Other income in 1996 includes a $0.6 million insurance recovery
on a business loss claim for a Data Packaging Limited customer contract
termination.

Reunion Industries participated in the wine grape agriculture industry in
1997 and 1996 through its equity investment in the Juliana Preserve. Reunion
Industries recognized income of $0.3 million in 1997 compared to a loss of $0.3
million in 1996 from its equity interest in the Preserve's results of
operations. In addition, Reunion Industries recorded an impairment charge of
$1.3 million in 1996 and a further charge of $0.9 million in 1997 for its
equity in the write off of approximately $2.9 million of development costs by
the joint venture.

Income Tax Expense. Because of the uncertainty over realization of a refund
claimed for Alternative Minimum Taxes paid in 1990 and 1991, Reunion Industries
recorded an allowance of $0.8 million for the possible denial of the refund
claim with a corresponding charge to Income Tax Expense in 1996.

Discontinued Operations

Reunion Industries discontinued its U. S. oil and gas operations in 1995.
Reunion Industries recognized income from discontinued operations of $0.7
million in 1997 compared to income of $0.4 million in 1996. Reunion Industries
recognized a net gain of $1.1 million in 1996 from disposition of the oil and
gas assets, consisting of a $1.6 million insurance reimbursement offset by $0.4
million of adjustments to the purchase price for certain assets not sold and
$0.1 million of provisions for environmental remediation of those assets.
Results of discontinued oil and gas operations during 1996, prior to the
disposition on May 24, 1996, were approximately break even on revenues of $2.1
million.

As described below under "--Recent Developments," Reunion Industries has
recorded a provision of $1.0 million in connection with settlement discussions
for the California Franchise Tax Board audit of the company's franchise tax
returns for 1991 through 1993.

Liquidity and Capital Resources

Summary. Cash and cash equivalents totaled $0.9 million at June 30, 1999.
During the six months ended June 30, 1999, cash decreased $1.1 million, with
$0.8 million provided by operations, $1.5 million used in

107
<PAGE>

investing activities and $0.6 million used in financing activities. Cash and
cash equivalents totaled $2.0 million at December 31, 1998. During the year
ended December 31, 1998, cash decreased $0.1 million, with $2.4 million
provided by operations, $2.2 million used by investing activities and $0.6
million provided by financing activities.

Investing Activities. Capital expenditures were $1.5 million during the six
months ended June 30, 1999, and $3.3 million in 1998. Reunion Industries paid
$2.2 million to acquire its joint venture partner's interest in the Preserve in
1998, and received $2.6 million from the sale of a portion of the Preserve.

Financing Activities. Proceeds from new term loan borrowings during the six
months ended June 30, 1999 totaled $7.8 million, principally as a result of
Juliana Vineyard's $7.5 million refinancing described below. Principal payments
reduced long-term obligations by $7.1 million, including $5.7 million repaid
from the proceeds of the Juliana Vineyards refinancing. Net short term
borrowings were reduced $0.9 million. Principal payments reduced long-term
obligations by $10.2 million in the year ended December 31, 1998. Proceeds from
new term loan borrowings totaled $7.1 million and debt issuance costs of $1.9
million were paid. Net short term borrowings totaled $3.4 million.

Factors Affecting Future Liquidity

Because of various restrictions included in Reunion Industries' loan
arrangements, management must separately consider liquidity and financing for
corporate requirements, Oneida Rostone and Juliana Vineyards.

Corporate. Corporate expenses, including salaries and benefits, professional
fees and other public company costs, are expected to approximate $1.5 million
annually. A payment of $5.0 million to settle the Bargo litigation was made on
July 15, 1999 and a settlement payment of approximately $1.0 million to
conclude a California tax audit was made on September 2, 1999. In addition, a
significant portion of the $1.4 million accrued for environmental remediation
of the Louisiana properties is expected to be expended during the next twelve
months. Reunion Industries' source of funds for these expenses, other than from
additional borrowings, are from cash balances and permitted payments by Oneida
Rostone and Juliana Vineyards. The corporate cash balance at June 30, 1999 was
$0.02 million.

Oneida Rostone closed a new credit facility with The CIT Group/Business
Credit, Inc. in October 1998. This new credit facility limits payments to
Reunion Industries by Oneida Rostone and Juliana Vineyards. If certain levels
of availability (as defined in the loan agreements) are maintained, Oneida
Rostone is permitted to pay Reunion Industries monthly payments of interest,
plus up to $0.1 million for management fees and dividends on preferred stock,
plus tax sharing payments of up to 50% of the tax savings realized by Oneida
Rostone because of Reunion Industries' net operating loss carryforwards. There
can be no assurances that Oneida Rostone will be able to maintain the required
levels of availability and be permitted to make the management fee and tax
sharing fee payments to Reunion Industries'. In any event, the maximum amount
of such payments is not expected to be sufficient for Reunion Industries'
corporate operating and debt service requirements.

The new credit facility also provided a letter of credit guarantee to
provide credit support for a supersedeas bond in the Bargo litigation. In
addition to the Oneida Rostone assets, the facility is secured by a guarantee
by Mr. Bradley, a pledge of assets by Stanwich Financial Services, a related
party, and a pledge of the stock of Oneida Rostone and Juliana Vineyards. Since
October 1998, substantially all the amounts otherwise permitted to be paid by
Oneida Rostone have been used to fund letter of credit and guarantee fees
relating to the bond in the Bargo litigation.

The $5.0 million settlement payment to Bargo was funded by a temporary
overadvance on the revolver portion of Oneida Rostone's credit facility and the
letter of credit was released. In August 1999, the credit facility was amended
to increase term loan A to $8.25 million and provide for a $3.0 million term
loan B. This amended facility replaces the temporary overadvance and provides
additional working capital for Oneida

108
<PAGE>

Rostone. The guarantee by Mr. Bradley and the pledges of collateral by Reunion
Industries and Stanwich Financial Services were continued under this amendment.
Substantially all the amounts permitted to be paid by Oneida Rostone to Reunion
Industries are expected to be used to fund continuing guarantee fees on this
loan facility.

Without additional financing, management believes that Reunion Industries
will not have sufficient resources to meet its corporate expenses and legal and
environmental costs as they become due over the next twelve months. During 1998
and January 1999, Reunion Industries borrowed a total of $1.0 million from
Stanwich Financial Services. These borrowings bear interest at 15%, and were
originally due to mature September 30, 1998. Reunion Industries repaid $0.8
million, including interest, in February 1999 and $0.3 million, including
interest, in August 1999. There can be no assurances that additional financing
will be arranged, or that Stanwich Financial Services will lend additional
funds. If Reunion Industries is unable to complete the merger and the related
refinancing transaction, or arrange alternative financing, during the fourth
quarter of 1999, it will be necessary to reduce or defer corporate headquarters
salaries and other corporate expenses and it may be necessary to sell one or
more of the company's businesses.

The independent accountants' report on Reunion Industries' December 31, 1998
financial statements states that historical cash flows generated by Reunion
Industries may not be sufficient to enable it to meet its obligations when they
become due, which raises substantial doubt about its ability to continue as a
going concern. This opinion results from the fact that at the time the
financial statements were issued, Reunion Industries did not have sufficient
liquidity to meet the projected corporate cash obligations described above.
Management believes that the merger and the refinancing transactions described
in this proxy statement/prospectus would provide sufficient liquidity to enable
the company to meet these obligations as they come due over the next 12 months.
Accordingly, management believes that the language in the independent
accountants' report describing substantial doubt about Reunion Industries'
ability to continue as a going concern will be removed if the merger and
refinancing transactions are completed.

Oneida Rostone. On October 19, 1998, Oneida Rostone closed the new credit
facility with The CIT Group/Business Credit, Inc. This is a six-year senior
secured credit facility including revolving credit loans of up to $10.2 million
and a term loan in the initial amount of $6.0 million for Oneida Rostone. The
proceeds were used to refinance Oneida Rostone's debt with Congress Financial
Corporation and to provide working capital for Oneida Rostone. Management
believes that Oneida Rostone's cash flow from operations, together with this
credit facility and permitted levels of capital and operating leases, will be
sufficient for Oneida Rostone's operating requirements, including capital
expenditures and debt service, over the next twelve months. At June 30, 1999
Oneida Rostone had $1.5 million in revolving credit availability.

At June 30, 1999, Oneida Rostone was not in compliance with a financial
covenant to maintain EBITDA (as defined in the financing agreements) of not
less than specified amounts each fiscal quarter. The CIT Group/Business Credit,
Inc. has agreed to waive compliance with this covenant for the quarter ended
June 30, 1999. In connection with the amended credit facility described above,
the financial covenants in the loan agreement were also amended to levels that
management believes are reasonably attainable in future quarters.

Juliana Vineyards. In September 1998, Juliana Vineyards completed the
purchase of its joint venture partner's 28.3% interest in the Juliana Preserve
joint venture for approximately $5.9 million. The purchase was funded from the
proceeds of the sale of three parcels for $2.7 million, and by a $3.7 million
4-month note to the joint venture partner.

In January 1999, Juliana Vineyards closed a $7.5 million loan with Equitable
Life Assurance Society of the United States. The proceeds were used to
refinance Juliana Vineyards' existing $2.0 million loan with Equitable, to
repay the $3.7 million 4-month note to the joint venture partner and for
working capital.

In March 1999, Juliana Vineyards entered into a $1.5 million one-year credit
facility secured by grape sale contracts for the 1999 harvest. The proceeds
will be used for 1999 farming operations and will be repaid from proceeds of
grape sales.

109
<PAGE>

In August 1999, Juliana Vineyards sold a portion of the vineyard property to
a third party for net proceeds of $1.4 million. The proceeds were used to pay
the California tax settlement and to repay debt to Stanwich Financial. Juliana
Vineyards is continuing its efforts to sell the remaining vineyard property,
but there is no assurance that it will be able to do so at a reasonable price
or at all. If it is unable to sell additional parcels, it may not be possible
for Juliana Vineyards to fund its operating requirements over the next twelve
months without additional funding from Reunion Industries.

Year 2000 Computer Compliance

Reunion Industries, like most companies, utilizes electronic technology
which includes computer hardware and software systems that process information
and perform calculations that are date-and time-dependent. Reunion Industries
is aware that the coming of the year 2000 poses pervasive and complex problems
in that virtually every computer operation (including manufacturing equipment
and other non-information systems equipment), unless it is Year 2000 compliant,
will be affected in some way by the rollover of the two-digit year value from
"99" to "00" and the inadvertent recognition by electronic technology of "00"
as the year 1900 rather than year 2000. Reunion Industries is also aware that
it may not only be negatively affected by the failure of its own systems to be
Year 2000 compliant, but may also be negatively affected by the Year 2000 non-
compliance of its vendors, customers, lenders and any other party with which
Reunion Industries transacts business.

Reunion Industries has completed its initial assessment of all of the
systems and software in place at all locations and has identified hardware
replacements and software upgrades necessary to achieve Year 2000 compliance.
Because Reunion Industries uses integrated accounting and manufacturing
software provided by third party vendors, it has avoided internal programming
costs associated with modifying code and data to handle dates past the year
2000. The latest software releases provided by the respective third party
vendors have achieved Year 2000 certification from independent testing
organizations. Reunion Industries is in the process of upgrading all of its
software to Year 2000 compliant releases. Upgrading and testing is
substantially complete at six of Reunion Industries' seven manufacturing
locations and at the headquarters location. Reunion Industries expects to
complete the remaining upgrades by the third quarter of 1999. Significant
customers and outside vendors such as suppliers, banks and payroll services
have been contacted and have provided assurances that they either are or will
be Year 2000 compliant by September 1999. Testing of Reunion Industries'
software and systems (including manufacturing equipment and other non-
information systems equipment) is expected to be completed during the third
quarter of 1999. The expected incremental cost to complete the upgrades and
testing necessary to achieve Year 2000 readiness is less than $0.02 million.

Because management expects to complete the upgrading of all of its software
in 1999, Reunion Industries has not developed a Year 2000 contingency plan.
Management regularly monitors the status of the Year 2000 compliance process,
and will develop contingency plans if it appears that Reunion Industries will
not achieve full Year 2000 compliance.

Reunion Industries has incurred and expects to continue to incur internal
staff and other costs as a result of modifying existing systems to be Year 2000
compliant. Such costs will continue to be expensed as incurred and funded
through internally generated cash while costs to acquire new equipment and
software will be capitalized and depreciated over their useful lives. The
hardware replacements and software upgrades were principally planned to improve
operating controls and implementation was not significantly accelerated.
Management does not expect the incremental cost to Reunion Industries of
enterprise-wide Year 2000 compliance to be material to its operations.

Management recognizes that the failure of Reunion Industries or any party
with which Reunion Industries conducts business to be Year 2000 compliant in a
timely manner could have a material adverse impact on the operations of Reunion
Industries. If Reunion Industries' systems were to fail because they were not
Year 2000 compliant, Reunion Industries would incur significant costs and
inefficiencies. Manual systems for manufacturing and financial control would
have to be implemented and staffed. Significant customers might

110
<PAGE>

decide to cease doing business with Reunion Industries. Disruptions in electric
power or in the delivery of materials could cause significant business
interruptions. Similarly, business interruptions at significant customers could
result in deferred or canceled orders.

The dates on which Reunion Industries believes Year 2000 compliance will be
completed are based on management's best estimates, which were derived
utilizing numerous assumptions of future events, including the continued
availability of certain resources, third-party modification plans and other
factors. However, there can be no guarantee that these estimates will be
achieved, or that there will not be a delay in, or increased costs associated
with, the implementation of Year 2000 compliance. Specific factors that might
cause differences between the estimates and actual results include, but are not
limited to, the availability and cost of personnel trained in these areas,
timely responses to and corrections by third-parties and suppliers, the ability
to implement interfaces between the new systems and the systems not being
replaced, and similar uncertainties. Due to the general uncertainty inherent in
the Year 2000 problem, resulting in part from the uncertainty of the Year 2000
readiness of third-parties, the company cannot ensure its ability to resolve
problems associated with the Year 2000 issue that may affect its operations and
business, or expose it to third-party liability in a timely and cost-effective
manner.

Recent Developments

Bargo Litigation. Reunion Industries filed suit in the 125th Judicial
District Court of Harris County, Texas against Bargo Energy Company and its
general partners, Chisos Corporation, Austin Resources Corporation, Shearwave,
Inc., Brazos Oil & Gas Corporation, and Schroder Oil Financing & Investment
Company, on January 16, 1996 for damages and relief arising out of Bargo's
repudiation of its agreement to purchase all outstanding shares of the capital
stock of the company's subsidiary, Reunion Energy Company. Bargo had agreed to
pay Reunion Industries $15.1 million for Reunion Energy Company's capital
stock, subject to certain potential adjustments in the purchase price as set
forth in the stock purchase agreement between Reunion Industries and Bargo, and
had deposited $0.5 million with a contractual escrow agent in accordance with
the terms of the stock purchase agreement. Reunion Industries alleged in its
complaint that Bargo tortuously interfered with a prospective stock purchase
agreement with another purchaser of Reunion Energy Company's stock, and then
wrongfully repudiated its agreement to purchase Reunion Energy Company's stock.
Reunion Industries also asserted claims against Bargo for breach of contract
and breach of duty of good faith and fair dealing, and sought damages under
these theories of liability. Bargo also filed suit against Reunion Industries
claiming that the company, its investment bankers, and certain individuals
fraudulently misrepresented information and fraudulently induced Bargo into
signing the stock purchase agreement. Bargo also asserted claims for breach of
contract and warranty, return of its escrow, and for unspecified damages under
these theories of liability. The cases were consolidated in the 334th Judicial
District Court of Harris County, Texas, and the consolidated case was realigned
with Reunion Industries as plaintiff.

On April 24, 1998, after a three week trial, a jury found that Bargo had a
right to terminate the stock purchase agreement with Reunion Industries and
that Reunion Industries fraudulently induced Bargo into entering into the
agreement and recommended that an award of $5.0 million in punitive damages be
assessed against Reunion Industries. In July 1998, the court entered judgment
affirming the $5.0 million jury verdict and awarding approximately $3.0 million
in attorneys' fees and costs. Reunion Industries maintained at trial and
continued to maintain during appeal that all requirements to closing under the
contract were met, and that Bargo was required to close the transaction.
Reunion Industries also maintained that no evidence sufficient to support a
jury finding of fraud or the related punitive damages finding was presented at
trial. Reunion Industries filed a bond which suspended execution on the
judgment while the company appealed the judgment. Reunion Industries filed its
appeal brief on April 5, 1999 and Bargo filed its reply brief on June 10, 1999.

On July 16, 1999, Reunion Industries announced that it had settled its
litigation with Bargo. Under the settlement agreement, Reunion Industries paid
$5.0 million to Bargo and the parties released all claims. In connection with
the settlement payment, the parties agreed to file joint motions with the
appeals court and the trial court providing that the trial court judgment is
reversed, the jury findings are disregarded, the $500,000

111
<PAGE>

escrow amount deposited by Reunion Industries in connection with the original
transaction is to be returned to Reunion Industries with interest and Reunion
Industries is to pay all court costs. The settlement payment was funded by a
temporary overadvance on Reunion Industries' revolving credit facility, which
was subsequently converted into a term loan. Because Reunion Industries had
previously recorded accruals for the amount of the judgment and interest, the
company recognized a gain of approximately $3.6 million in the second quarter
of 1999 as a result of this settlement.

California Tax Assessment. In early 1996, the State of California Franchise
Tax Board initiated an audit of the Reunion Industries' franchise tax returns
for the years 1991, 1992 and 1993. In October 1996, Reunion Industries received
a formal notice of assessment from the taxing authority in the aggregate amount
of $0.7 million plus interest. Of this amount, $0.6 million results from the
auditor's conclusion that income from gains on sales of certain Canadian oil
and gas assets in 1991 should be reclassified from non-business to business
income. Reunion Industries believes its classification of such income was
correct, and appealed the assessment of tax. In 1996, Reunion Industries
recorded a provision for approximately $0.1 million for certain other proposed
adjustments. The appeal was denied, and Reunion Industries requested that the
case be considered for settlement. In connection with the settlement
discussions, Reunion Industries accrued an additional $0.5 million in 1998,
with a corresponding charge to discontinued operations. The total accrual of
$0.6 million represented management's estimate of the minimum of the range of
possible settlement outcomes.

In June 1999, Reunion Industries reached agreement with the California
Franchise Tax Board to settle the assessment of additional taxes for 1991, 1992
and 1993. The settlement agreement is subject to final State of California
approval, which management expects will be received. Under the settlement
agreement, Reunion Industries paid approximately $1.0 million, including
interest, on September 2, 1999. Reunion Industries recognized a charge to
discontinued operations of approximately $0.4 million in the second quarter of
1999 as a result of this settlement.

Quantitative and Qualitative Disclosures About Market Risk

In the operation of its business, Reunion Industries has market risk
exposures to foreign currency exchange rates, raw material prices and interest
rates. Each of these risks and Reunion Industries' strategies to manage the
exposure is discussed below.

Reunion Industries manufactures its products in the United States and
Ireland and sells products in those markets as well as in Europe. International
sales were 26% of Reunion Industries' sales in the six months ended June 30,
1999, 28% in 1998 and 18% in 1997. Reunion Industries' operating results could
be affected by changes in foreign currency exchange rates or weak economic
conditions in Europe. Reunion Industries does not actively hedge its foreign
currency risk because the international operations are self-financed and the
translation exposure is not considered material to Reunion Industries'
financial condition, liquidity or results of operations.

The principal raw materials used by Reunion Industries are thermoplastic
polymers. These materials are available from a number of suppliers. Prices for
these materials are affected by changes in market demand, and there can be no
assurances that prices for these and other raw materials will not increase in
the future. Reunion Industries' contracts with its customer generally provide
that such price increases can be passed through to the customers.

Reunion Industries' operating results are subject to risk from interest rate
fluctuations on debt which carries variable interest rates. The variable rate
debt was approximately $15 million at June 30, 1999, which is representative of
balances outstanding during the year. A 0.25% change in interest rates would
affect results of operations by approximately $0.04 million.

Consolidated Financial Statements

Reunion Industries' consolidated financial statements are set forth
beginning at page F-2.

112
<PAGE>

INFORMATION ABOUT CHATWINS GROUP

Business

Chatwins Group, through its five manufacturing divisions, designs,
manufactures and markets a broad range of metal fabricated and machined
industrial parts and products, primarily for sale to original equipment
manufacturers in a variety of industries. Chatwins Group's manufacturing
divisions, and the principal fabricated and machined products produced by them,
include:

. CP Industries, large, seamless pressure vessels for highly pressurized
gases

. Hanna, industrial hydraulic and pneumatic cylinders

. Alliance, industrial cranes and large mill equipment

. Steelcraft, cold-rolled steel leaf springs

. Auto-Lok, high quality roll formed and structural storage racks

Chatwins Group also has a small oil and gas division, Europa.

Chatwins Group emphasizes internal development of products, enhancement of
manufacturing capabilities, market development and cost control. Although its
manufacturing divisions share common characteristics as basic metal fabrication
concerns, Chatwins Group believes that the variety of market niches served by
these divisions lessens the impact of adverse economic conditions on Chatwins
Group.

Chatwins Group's strategy has been the establishment of large market share
positions in well established niche markets. Since 1989, Chatwins Group has
consummated nine such acquisitions. Additionally, Chatwins Group has undertaken
efforts to expand export and international sales by exploring the potential for
increased marketing of certain products in targeted foreign countries and joint
venturing with selected international partners.

Investments

Reunion Industries. On June 20, 1995, Chatwins Group acquired 1,450,000
shares, or at that time approximately 38% of the then issued and outstanding
shares of common stock of Reunion Industries from Parkdale Holdings Corporation
N.V., and purchased 75,000 warrants to purchase shares of Reunion Industries
common stock from Mr. F. Dean Gesterkamp, an unrelated third party.

The aggregate purchase price of the common stock consisted of $5.8 million
paid in cash and a $5.8 million promissory note to Parkdale. The aggregate
purchase of the warrants consisted of $0.3 million paid in cash and a $0.2
million two-year promissory note to Mr. Gesterkamp. Mr. Bradley later purchased
the Parkdale note. Mr. Franklin Myers, a director of Reunion Industries, later
purchased the Gesterkamp note. Both the Parkdale note and Gesterkamp note have
been fully repaid by Chatwins Group in accordance with contractual terms.

CGI Investment. Chatwins Group owns 49% of CGI Investment Corp., which owned
100% of the outstanding preferred stock and fully diluted common stock of
Rostone.

Chatwins Group made three loans to CGI Investment; $1.5 million in December
1990, $1.35 million in December 1993 and $0.3 million in February 1994. Over
time, Chatwins Group had provided reserves for a

113
<PAGE>

substantial portion of the principal on its notes receivable from CGI
Investment and at December 31, 1997, the net carrying value of Chatwins Group
investment in CGI Investment common stock and net notes receivable was $0.6
million.

CGI Investment's primary assets remaining after the merger of Rostone into
Oneida in February 1996 were two notes receivable, one of which was from
Rostone, and a minimal amount of cash, the sum of which totaled $0.7 million at
December 31, 1997. During 1998, Chatwins Group and CGI Investment agreed that
CGI Investment's liabilities significantly exceeded its assets and it would not
be able to repay its obligations to Chatwins Group. As a result, Chatwins Group
agreed to exchange its notes receivable from CGI Investment for CGI
Investment's note receivable from Rostone which, plus accrued interest, totaled
$0.5 million at December 31, 1998.

Shanghai Klemp. In December 1995, Chatwins Group entered into a joint
venture agreement with China Metallurgical Import & Export Shanghai Company and
Wanggang Township Economic Development Corporation to form Shanghai Klemp Metal
Products Co. Ltd. China Metallurgical Import & Export Shanghai Company is a
state-owned foreign trade enterprise which trades in steel and equipment used
in the manufacture of steel products. Wanggang Township Economic Development
Corporation is an independently owned, industrial development corporation
focusing on economic growth in the Pudong New Area of Shanghai. Chatwins Group
has a 65% interest in Shanghai Klemp. The assets and liabilities of Shanghai
Klemp and Chatwins Group's interest in Shanghai Klemp are excluded from the
currently proposed sale of Klemp division. Shanghai Klemp is classified as part
of discontinued operations. Chatwins Group intends to explore a separate sale
of its interest in Shanghai Klemp.

Suzhou Grating Co. Ltd. In May 1998, Chatwins Group entered into a joint
venture agreement with Nantong Grating Composite Materials Co. Ltd. and
American Grating, Inc. to create a sino-foreign equity joint venture known as
Suzhou Grating Co., Ltd. Nantong is an independently owned manufacturing
company organized under the laws of China. American Grating is a privately held
U.S. corporation incorporated in the state of California. Chatwins Group 10%
investment in Suzhou Grating is being accounted for under the cost method.
Chatwins Group intends to explore a sale of its interest in Suzhou Grating.

CGI Sales Corporation. Chatwins Group also had a wholly-owned subsidiary,
CGI Sales Corporation, which is a Barbados corporation that functioned as
Chatwins Group's foreign sales corporation. In 1998, approximately $5.0 million
of Chatwins Group sales passed through CGI Sales Corporation. CGI Sales
Corporation was dissolved during 1998.

Klemp de Mexico. In 1993, Chatwins Group entered into a joint venture
agreement with a Mexican company for the purpose of manufacturing, selling and
distributing metal bar grating. This affiliate, Acervalco-Klemp, S.A. de C.V.
was 49% owned by Chatwins Group. During May 1994, Chatwins Group increased its
ownership in Acervalco-Klemp, S.A. de C.V., to 85% and has consolidated the
results since such date. In January 1995, the subsidiary's name was changed to
Klemp de Mexico. Klemp de Mexico is classified as part of discontinued
operations. Chatwins Group intends to explore a separate sale of Klemp de
Mexico.

During 1996, Klemp de Mexico entered into a joint venture agreement with
Consolidated Fabricators, Inc., a Massachusetts company, to form CFI-Klemp, a
Mexican corporation. CFI-Klemp is in the business of metal fabrications. As
Klemp de Mexico has a 50.1% interest in CFI-Klemp, CFI-Klemp is consolidated
with Klemp de Mexico for financial reporting purposes.

Individual Operating Divisions

CP Industries. Founded in 1897, CP Industries, the former Christy Park
division of USX Corporation, specializes in manufacturing large, seamless
pressure vessels for the above ground storage and transportation of highly
pressurized gases such as natural gas, hydrogen, nitrogen, oxygen and helium.
These pressure vessels

114
<PAGE>

are provided to customers such as industrial gas producers and suppliers, the
alternative fueled vehicle compressed natural gas fuel industry, chemical and
petrochemical processing facilities, shipbuilders, NASA, public utilities and
gas transportation companies.

Alliance. Founded in 1901, Alliance designs, engineers and manufactures
cranes used in a wide range of steel and aluminum mill applications and large
special purpose cranes used in marine and aerospace applications and heavy
industrial plants. Alliance also manufactures lighter duty cranes for various
industrial applications, coke oven machinery and other large steel-related
fabrications. In recent years, Alliance has expanded and diversified its
engineering and manufacturing capabilities to offer a variety of equipment and
related engineering, fabrication, maintenance and repair services.

Hanna. Founded in 1901, Hanna designs and manufactures a broad line of
hydraulic and pneumatic cylinders, actuators, accumulators and manifolds. These
products are used in a wide variety of industrial and mobile machinery and
equipment requiring the application of force in a controlled and repetitive
process. Hanna's specialty is custom cylinders in both small quantities
packaged by its distributors with valves, pumps and controls as complete fluid
power systems and large quantities sold directly to equipment manufacturers.

Steelcraft. Founded in 1972, Steelcraft manufactures and sells cold-rolled
steel leaf springs. Its principal customers are manufacturers of trailers for
boats, small utility vehicles and golf carts and makers of recreational vehicle
and agricultural trailers.

Europa. Chatwins Group was originally incorporated as Europa Petroleum, Inc.
in 1980. The Europa division continues Chatwins Group original oil and gas
business, holding interests in a small number of leases for oil and gas
properties, investing in low-risk gas exploration and managing a portfolio of
oil and gas participations.

Auto-Lok. Founded in 1946, Auto-Lok manufactures high quality roll formed
and structural steel fabricated storage racks for industrial and commercial
handling systems and general storage applications. In addition, Auto-Lok
participates on larger contracts in the sale of total material handling systems
through purchasing and reselling related components such as decking and carton
flow devices, and subcontracting of rack erection.

115
<PAGE>

The following represents historical net sales, EBITDA, and total assets by
division, adjusted for the classification of the Klemp division as a
discontinued operation for the six months ended June 30, 1999 and for the years
ended December 31, 1998, 1997 and 1996 (in thousands, including notes hereto,
unless otherwise indicated):

<TABLE>
<CAPTION>
Net Total
Sales EBITDA(1) Assets(2)
-------- --------- ---------
<S> <C> <C> <C>
At and for the six months ended June 30, 1999:
Alliance........................................ $ 12,966 $ (115) $13,722
Auto-Lok........................................ 16,501 1,644 10,122
CP Industries................................... 12,641 2,168 18,245
Europa.......................................... 54 54 1,084
Hanna........................................... 17,614 2,642 16,691
Steelcraft...................................... 1,891 218 1,600
-------- ------- -------
Totals........................................ $ 61,667 $ 6,611 $61,464
======== ======= =======
At and for the year ended December 31, 1998:
Alliance........................................ $ 41,982 $ 2,485 $18,111
Auto-Lok........................................ 25,794 1,775 10,645
CP Industries................................... 28,284 6,003 20,117
Europa.......................................... 105 62 1,106
Hanna........................................... 34,458 5,714 17,544
Steelcraft...................................... 3,960 644 1,651
-------- ------- -------
Totals........................................ $134,583 $16,683 $69,174
======== ======= =======
At and for the year ended December 31, 1997:
Alliance........................................ $ 43,791 $ 3,817 $14,872
Auto-Lok........................................ 26,524 899 10,054
CP Industries................................... 28,171 5,882 17,071
Europa.......................................... 135 29 1,326
Hanna........................................... 33,420 4,721 15,916
Steelcraft...................................... 4,378 889 1,705
-------- ------- -------
Totals........................................ $136,419 $16,237 $60,944
======== ======= =======
At and for the year ended December 31, 1996:
Alliance........................................ $ 28,091 $ 1,546 $12,662
Auto-Lok........................................ 16,864 (154) 7,860
CP Industries................................... 25,107 5,377 16,236
Europa.......................................... 148 94 1,433
Hanna........................................... 29,617 3,127 15,972
Steelcraft...................................... 4,010 771 1,766
-------- ------- -------
Totals........................................ $103,837 $10,761 $55,929
======== ======= =======
</TABLE>
- - - --------
(1) Excludes headquarters expenses in the six months ended June 30, 1999 of
$1,206 and in the years ended December 31, 1998 of $2,007, December 31,
1997 of $2,398 and December 31, 1996 of $1,558. See "--Selected Historical
Financial Data" for operating income and a definition of EBITDA.
(2) Excludes headquarters assets at June 30, 1999 of $16,023, at December 31,
1998 of $15,762, at December 31, 1997 of $20,794 and December 31, 1996 of
$20,286.

116
<PAGE>

General Aspects Applicable to the Chatwins Group Divisions

Raw Materials. The major raw materials used by Chatwins Group in its
fabricated and machined products manufacturing divisions include steel coils,
structural bars, welded and seamless steel tubing and pipe, steel alloy bars,
steel plates, brass tubing and bars and aluminum extrusions, all of which are
supplied by various domestic sources. Prices for most of these raw materials
used by Chatwins Group remained relatively constant during 1998. There can be
no assurance that prices for these and other raw materials used by Chatwins
Group will not increase in the future.

Competition. Most of Chatwins Group's products are sold in highly
competitive markets both in the U.S. and internationally. Chatwins Group
competes with a significant number of companies of varying sizes, including
divisions or subsidiaries of larger companies, on the basis of price, service,
quality and the ability to supply customers in a timely manner. A number of
Chatwins Group's competitors have financial and other resources that are
substantially greater than those of Chatwins Group. Competitive pressures or
other factors could cause Chatwins Group's products to lose market share or
result in significant price erosion which would have a material effect on
Chatwins Group's results of operations.

Export Sales. Chatwins Group's export sales for 1998 were approximately 9%
of total sales. Export sales were primarily made in four major areas during
1998--the Far East, Mexico and South America, the United Kingdom and Canada. CP
Industries accounted for approximately 63% of export sales during 1998,
recording sales in all four areas, but primarily in Taiwan and the United
Kingdom. Alliance represented almost all of the remainder, primarily in Mexico
and Brazil. Hanna also had a small amount of export sales, primarily to Canada.
Export sales of the remaining divisions were insignificant. Chatwins Group does
not consider the domestic sales of its discontinued foreign subsidiaries as
export sales.

Backlog. Chatwins Group consolidated backlog at December 31, 1998 was
approximately $42.4 million and at December 31, 1997 was approximately $55.9
million. Except for Alliance, all backlog orders at December 31, 1998 are
expected to ship within a year. Due to the nature of its business, Alliance's
backlog, which represented 32% and 51% of consolidated backlog at December 31,
1998 and 1997, respectively, is expected to ship within two years.

Research and Development. Chatwins Group operates in relatively mature
markets and the majority of its research and development work is related to
improving the quality and performance of its existing products, meeting design
requirements and specifications of its customers that require customized
products and developing greater production efficiencies. To meet these
objectives, Chatwins Group has engineering departments at all of its major
manufacturing divisions.

Major Customers. During 1998, no one customer accounted for more than 10% of
the net sales of Chatwins Group. Individual divisions of Chatwins Group have
had customers in certain calendar years that have accounted for in excess of
10% of that division's net sales. This occurs principally at CP Industries,
Alliance, the Brooks operation of Hanna and Auto-Lok due to the large contract
nature of their businesses, and commonly occurs for different customers from
one year to the next.

Patents and Trademarks. Chatwins Group owns a number of patents and
trademarks that are registered in the United States Patent and Trademark Office
and internationally. Chatwins Group does not believe that any of its registered
trademarks or patents are material to Chatwins Group business or that such
business is dependent on any trademark or patent.

Marketing and Distribution. Chatwins Group markets and distributes its
products in a variety of ways including in-house marketing and sales personnel
at all of its divisions, domestic independent and manufacturer representatives,
domestic and international agents and North American networks of independent
distributors that specialize in a product of Chatwins Group's various
divisions.

117
<PAGE>

Employees. As of December 31, 1998, Chatwins Group had a total of 1,297
people in manufacturing, sales and administrative positions. Upon consummation
of the sale of the Klemp division, Chatwins Group's total employment will be
reduced by approximately 458 employees. Chatwins Group believes its relations
with its employees are good.

A breakdown of Chatwins Group's work force by location and function at
December 31, 1998 excluding the employees of Klemp, is as follows:

<TABLE>
<CAPTION>
General and
Manufacturing Administrative
----------------- -----------------
Division Location Union Non-Union Union Non-Union Total
-------- -------------- ----- --------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Alliance Alliance, OH 174(1) 60 26 260
Auto-Lok Acworth, GA 153 45 198
CP Industries McKeesport, PA 90(2) 7 8(3) 26 131
Hanna Chicago, IL 85 31 116
Milwaukee, WI 72 10 82
Headquarters Pittsburgh, PA 19 19
Steelcraft Miami, OK 29 4 33
--- --- --- --- ---
Totals 264 406 8 161 839
=== === === === ===
</TABLE>
- - - --------
(1) United Steelworkers of America--Contract expires June 14, 2002.
(2) United Steelworkers of America--Contract expires May 31, 2001.
(3) United Steelworkers of America--Contract expires May 31, 2001.

Insurance. Chatwins Group maintains general liability, product liability,
property, workers' compensation, and other insurance in amounts and on terms
that it believes are customary for companies similarly situated.

Environmental. Since 1988, Chatwins Group has followed procedures and
maintained strict policies designed to protect the environmental welfare of its
employees and the communities surrounding its various locations.

As a part of refinancing efforts by Chatwins Group in 1990 and 1998,
environmental audits were performed at Chatwins Group's various locations by
independent environmental engineering companies. Recommendations contained in
those audits were implemented by Chatwins Group. Each facility is monitored as
part of Chatwins Group's internal environmental and hazardous materials
management program. Chatwins Group has also completed a compliance program for
polychlorinated biphenyls and to remove or encapsulate asbestos at all of its
facilities. A policy of seeking substitutes for hazardous materials has been
established and many potentially hazardous substances have been replaced by
environmentally safe items. Chatwins Group employees have been trained to work
properly with potentially hazardous substances and to read and understand
Material Safety Data Sheets.

As a result of these efforts, Chatwins Group believes that its business,
operations and facilities are being operated in substantial compliance with
applicable environmental and health and safety laws and regulations. In
addition, Chatwins Group is aware of no environmental claims that have been or
could be asserted against Chatwins Group, other than those claims that Chatwins
Group believes have been resolved or are the subject of indemnification
agreements with former owners of Chatwins Group's properties.

In September 1988, U.S. Metalsource Corp., the owner of the Ipsen facility
prior to Chatwins Group, removed substantial quantities of solvent contaminated
soil from the Ipsen facility to a licensed landfill. While almost all of the
contaminated soil was removed, isolated areas could not be removed due to
building safety concerns. A residual groundwater contamination problem remains.
Alco Standard Corporation, the owner of the Ipsen facility during the time when
the vast majority of the contamination occurred, has agreed to perform, pay

118
<PAGE>

for and assume direct responsibility and liability for, and hold Chatwins Group
harmless in respect of, the remediation of the remaining contamination
including an ongoing groundwater remediation plan which has been approved by
the Illinois Environmental Protection Agency. Concurrent with its sale of the
Ipsen assets, Chatwins Group assigned to the purchaser Chatwins Group's rights
to this agreement with Alco. Chatwins Group also covenanted with the purchaser
to complete or cause to be completed the remediation of the remaining
contamination if Alco should fail to honor its agreement. As of December 31,
1998, Chatwins Group had not received notice that Alco was failing to perform
the approved groundwater remediation plan.

Recent Developments

Recent Accounting Changes. Effective January 1, 1999, Chatwins Group adopted
the AICPA's Statement of Position 98-5, "Reporting on the Costs of Start-up
Activities," which requires that the costs of start-up activities be expensed
as incurred. Such adoption is reported as the cumulative effect of a change in
accounting principle and results in the write-off of $176,000 of start-up
costs, net of taxes of $91,000. These start-up costs primarily related to
Chatwins Group's international subsidiaries.

Exercise of Warrants. Pursuant to a warrant agreement dated as of May 1,
1993, Chatwins Group issued 50,000 warrants, each of which entitles the holder
thereof to purchase one share of the common stock of Chatwins Group at an
exercise price of $.01 per share. The warrants were issued in a transaction
pursuant to which Chatwins Group issued $50 million of 13% Senior Notes due
2003. The warrants were not exercisable except upon the occurrence of certain
trigger events as defined in the warrant agreement or, if no trigger event had
occurred prior to May 3, 1998, upon Chatwins Group's failure to consummate a
repurchase offer due to a payment blockage, both as defined in the warrant
agreement. No trigger event had occurred through May 3, 1998 and a payment
blockage existed on such date, resulting in the warrants becoming exercisable
as of May 3, 1998. Consistent with the warrant agreement, Chatwins Group
notified holders of the warrants of the existence of a payment blockage within
30 days of such date. Due to the then existing prospective merger with Reunion
Industries Chatwins Group simultaneously gave holders of the warrants a notice
notifying them that their warrants would lapse if not exercised within thirty
days. The thirty-day period was subsequently extended indefinitely when the
then existing prospective merger with Reunion Industries was delayed. The May
31, 1998 merger agreement with Reunion Industries was terminated by mutual
agreement. Through the date of this proxy statement/prospectus, 47,325 warrants
were exercised at $.01 per share resulting in the issuance of 47,325 shares of
Chatwins Group common stock. The remaining 2,675 warrants which have not been
exercised remain exercisable.

Chatwins Group had previously notified its warrantholders that its
registration statement on Form S-1 filed with the SEC could not be used in
connection with any resale of its warrants or shares of its common stock
underlying the warrants. Any transactions in Chatwins Group warrants or common
stock into which the warrants are convertible continue to require compliance
with Rule 144A or another exemption from the registration requirements of the
Securities Act of 1933.

Defaults Under Indenture

Purchase Offer. In connection with the acquisition of the Reunion Industries
common stock, on June 20, 1995, Chatwins Group and the trustee agreed to a
first supplemental indenture and waiver of covenants of the Indenture dated as
of May 1, 1993 under which the 13% Senior Notes are issued. Pursuant to the
supplemental indenture, Chatwins Group agreed to offer to purchase $25.0
million principal amount of the notes, which represents 50% of the originally
issued principal amount of the notes, from the noteholders on each of June 1,
1999 and June 1, 2000. Chatwins Group would purchase the notes at an amount
equal to 100% of the aggregate outstanding principal amount, plus unpaid
interest accrued to the purchase date. In May of 1999, Chatwins Group made the
required offer to repurchase $25.0 million principal amount of the notes.
Approximately $24.1 million of those notes were tendered by June 1, 1999.
Chatwins Group was unable to repurchase the $24.1 million of notes tendered due
to insufficient liquidity and financing agreement limitations. In an effort to
avoid

119
<PAGE>

a payment default under the indenture on June 2, 1999, Chatwins Group delivered
to the noteholders a notice of request to withdraw the tendered notes and
offered to pay 2% of the principal amount of the notes tendered by such
securityholder to those who agreed to withdraw their election to tender.
Chatwins Group informed the recipients that if they did not withdraw their
election to tender, a third-party buyer had agreed to purchase the notes for
the same price payable by Chatwins Group under the purchase offer. The buyer's
agreement with Chatwins Group provided that it would elect a withdrawal of all
the notes it acquired, if any, in consideration of payment of the 2% fee for
the notes it acquired and withdrew. As of June 8, 1999, $835,000 principal
amount of the tendered notes remained outstanding. Pursuant to the indenture,
Chatwins Group was obligated to deposit with the trustee 100% of the amount
outstanding by June 7, 1999. Chatwins Group did not do so, and its failure to
timely do so constituted a default under the indenture.

Chatwins Group notified the trustee of the default on June 8, 1999. As of
June 23, 1999, $25,000 principal amount of the notes remained outstanding.
Chatwins Group paid for the notes, plus accrued and unpaid interest as provided
in the indenture, and in so doing cured the default. A total of $7,125,000
principal amount of the notes were withdrawn by the noteholders and $16,971,000
principal amount of the notes were purchased by the third-party buyer and
withdrawn. Both the noteholders and the third-party buyer received a fee of 2%
of the principal amount of the notes they withdrew. Chatwins then notified the
Trustee on June 23, 1999, that it had cured the default.

Suzhou Grating. In May of 1998, Chatwins Group executed a joint venture
agreement pursuant to which it contributed $100,000 to Suzhou Grating, a
fiberglass reinforced plastic grating manufacturer in China. The investment
constitutes a default under the indenture.

Bradley Family Limited Partnership. In May of 1998, Mr. Bradley, Chairman of
the boards of both Chatwins Group and Reunion Industries and stockholder of
Chatwins Group, transferred all of his shares of Chatwins Group common stock to
the Charles E. Bradley, Sr. Family Limited Partnership for estate planning
purposes. The Bradley Family Limited Partnership has granted voting control
over such shares to Stanwich Partners, which in turn has granted voting control
over such shares to Mr. John G. Poole, a director and beneficial stockholder of
Chatwins Group. Because Mr. Bradley no longer has voting control over such
shares of Chatwins Group common stock, a breach has occurred under the
Securities Pledge Agreement (as defined in the indenture). Because the
Securities Pledge Agreement is cross-covenanted to the indenture, such breach
created a default under the indenture.

The indenture provides that neither of the aforementioned two continuing
defaults will mature into an event of default subject to the remedies therein
provided, including acceleration of the 13% Senior Notes, until State Street
Bank and Trust Company, as successor trustee to the indenture or the holders of
at least twenty-five percent (25%) of the notes notify Chatwins Group of the
default and the default remains unremedied for thirty (30) days after said
notice. As of the date of this proxy statement/prospectus, Chatwins Group had
not received notice from either the trustee or any noteholders. In the event
notice is received, Chatwins Group currently has agreements in place that it
believes would remedy each such default within the 30 day remedy period.
However, there can be no assurance that an event of default will not result
from these defaults.

120
<PAGE>

Properties

Adjusted for the Klemp sale, Chatwins Group has a total of 71.2 acres and
1,389,233 square feet being used for ongoing operations. Except for CP
Industries' sales office in Beijing, China, and Chatwins Group's corporate
headquarters in Pittsburgh, Pennsylvania, which is administrative, all
locations are both manufacturing and administrative facilities:

<TABLE>
<CAPTION>
Square Expiration
Division Location Feet Land Acres Title Date
-------- -------------- ------- ---------- ------ ----------
<S> <C> <C> <C> <C> <C>
CP Industries............ McKeesport, PA 602,772 37.0 Owned --
Beijing, China 808 -- Leased 10/31/00
Alliance................. Alliance, OH 383,865 14.8 Owned --
Hanna.................... Chicago, IL 85,283 2.7 Owned --
Milwaukee, WI 48,000 3.2 Owned --
Steelcraft............... Miami, OK 39,120 13.5 Owned --
Headquarters............. Pittsburgh, PA 6,485 -- Leased 08/31/01
Auto-Lok................. Acworth, GA 222,900 -- Leased 03/12/08
</TABLE>

Hanna's location in Milwaukee, Wisconsin includes two buildings; one of
approximately 41,000 square feet and the other of approximately 7,000 square
feet. During 1998, Chatwins Group undertook a project to expand the smaller
building by 20,000 square feet as the result of a sole-source supply agreement
for double welded hydraulic cylinders executed with one of Brooks' major
customers located in Horicon, Wisconsin.

Chatwins Group believes that all of its facilities have been in operation
for a sufficient period of time to demonstrate their suitability for their
individual purposes. The production capacities of Chatwins Group's facilities,
subject to the completion of the expansion of Hanna's Milwaukee, Wisconsin
facility, are believed by Chatwins Group to be sufficient for Chatwins Group's
anticipated future needs.

In addition to the property listed above, Chatwins Group owns 92.7 acres of
idle farm land adjacent to its former Ipsen facility, in Boone County,
Illinois, which were retained by Chatwins Group after the Ipsen sale.

Legal Proceedings

In June 1993, the U.S. Customs Service made a demand on Chatwins Group's
former industrial rubber distribution division for $612,948.30 in marking
duties pursuant to 19 U.S.C. Sec. 1592. The duties are claimed on importations
of "unmarked" hose products from 1982 to 1986. Following Chatwins Group's
initial response raising various arguments in defense, including expired
statute of limitations, Customs responded in January 1997 by reducing its
demand to $370,968.00 and reiterating that demand in October 1997. Should the
claim not be resolved, Customs threatens suit in the International Court of
Claims. Chatwins Group continues to believe that, based on consultation with
counsel, there are facts which raise a number of procedural and substantive
defenses to this claim, which will be vigorously defended. There is no
applicable insurance coverage.

In addition to the aforementioned Customs claim, Chatwins Group is involved
in other various legal proceedings and product liability claims and believes
that none of these individually or in the aggregate will have a material effect
on the financial condition or results of operations of Chatwins Group.

121
<PAGE>

Selected Financial Data of Chatwins Group

SELECTED HISTORICAL FINANCIAL DATA
(in thousands, including notes hereto,
except for share and per share amounts)

The following table sets forth selected historical consolidated financial
data of Chatwins Group. Chatwins Group derived the consolidated balance sheet
data at December 31, 1994 through 1998 and the consolidated income statement
data for the years then ended from financial statements audited by
PricewaterhouseCoopers LLP, independent accountants. Chatwins Group derived the
consolidated balance sheet data as of June 30, 1999 and the consolidated income
statement data for the six months then ended from unaudited interim financial
statements. All data are reported in thousands, except for share and per-share
data. Historical data have been restated for the classification of the Klemp
division as a discontinued operation.

<TABLE>
<CAPTION>
Six Months
Ended
June 30, Year Ended December 31,
1999 ------------------------------------------------
(unaudited) 1998 1997 1996 1995 1994
----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Earnings Data(1):
Net sales............... $ 61,667 $134,583 $136,419 $103,837 $134,205 $113,189
Cost of sales........... 50,866 108,616 111,259 84,579 108,155 92,426
-------- -------- -------- -------- -------- --------
Gross profit............ 10,801 25,967 25,160 19,258 26,050 20,763
Selling, general and
administrative
expenses............... 6,763 13,776 13,439 12,621 14,285 13,872
Other expense, net...... 310 596 658 275 444 131
-------- -------- -------- -------- -------- --------
Operating profit........ 3,728 11,595 11,063 6,362 11,321 6,760
Interest expense,
net(2)................. 3,588 7,462 7,402 7,378 7,630 6,792
Equity loss from
continuing operations
of affiliate........... 67 4,056 373 915 -- --
-------- -------- -------- -------- -------- --------
Income (loss) before
income taxes from
continuing operations.. 73 77 3,288 (1,931) 3,691 (32)
Provision for (benefit
from) income taxes(3).. 32 29 833 (691) 629 (6)
-------- -------- -------- -------- -------- --------
Income (loss) from
continuing operations.. $ 41 $ 48 $ 2,455 $ (1,240) $ 3,062 $ (26)
======== ======== ======== ======== ======== ========
Income (loss) from
continuing operations
applicable to common
stock(4)............... $ (187) $ (408) $ 1,999 $ (1,696) $ 2,606 $ (476)
======== ======== ======== ======== ======== ========
Average equivalent
common shares
outstanding(10)........ 289,726 265,088 292,887 242,887 292,887 243,242
======== ======== ======== ======== ======== ========
Income (loss) from
continuing operations
per common share(10)... $ (0.65) $ (1.54) $ 6.82 $ (6.98) $ 8.90 $ (1.96)
======== ======== ======== ======== ======== ========
Operating and Other
Data:
EBITDA(5)............... $ 5,405 $ 14,676 $ 13,839 $ 9,203 $ 14,089 $ 8,846
======== ======== ======== ======== ======== ========
Cash flow from (used in)
operating
activities(11)......... (38) (3,094) 3,616 3,492 2,472 (1,432)
======== ======== ======== ======== ======== ========
Cash flow from (used in)
investing
activities(11)......... 2,792 (5,195) (5,044) (1,190) (6,866) (4,321)
======== ======== ======== ======== ======== ========
Cash flow from (used in)
financing
activities(11)......... (2,844) 7,896 1,806 (2,303) 4,725 5,271
======== ======== ======== ======== ======== ========
Depreciation and
amortization(6)........ 1,677 3,081 2,776 2,841 3,257 3,538
======== ======== ======== ======== ======== ========
Capital expenditures.... 1,771 2,364 2,694 3,051 3,853 3,284
======== ======== ======== ======== ======== ========
Balance Sheet Data:
Working capital(9)...... $ 24,556 $ 25,194 $ 20,786 $ 18,274 $ 15,760 $ 13,437
======== ======== ======== ======== ======== ========
Total assets............ 100,186 108,496 103,330 95,239 101,020 90,311
======== ======== ======== ======== ======== ========
Total long-term
debt(8)................ 49,959 50,019 50,043 50,066 50,090 50,966
======== ======== ======== ======== ======== ========
Redeemable preferred
stock.................. 8,710 8,482 8,026 7,570 7,114 6,658
======== ======== ======== ======== ======== ========
Stockholders'
equity(7).............. (8,441) (8,594) (6,863) (8,666) (7,771) (11,608)
======== ======== ======== ======== ======== ========
</TABLE>
- - - --------
(1) Chatwins Group holds a minority voting interest in Reunion Industries
which it accounts for under the equity method. On September 14, 1995,
Chatwins Group sold Oneida Molded Plastics to Reunion Industries. Such
transaction was treated as the disposal of a portion of a line of business
with Oneida's historical operating results through September 14, 1995 and
resulting gain on sale of $1.2 million classified within continuing
operations.

122
<PAGE>

(2) Includes amortization of debt issuance expenses of $360 for the six-months
ended June 30, 1999 and the following amounts for the following years:
1998: $671; 1997: $550; 1996: $632; 1995: $564 and 1994: $444.
(3) See Note 17 to the consolidated financial statements of Chatwins Group for
the year ended December 31, 1998 . Due primarily to the use of net
operating loss carryforwards, Chatwins Group's actual cash payments, net
of refunds, relating to state and federal income taxes for the years ended
December 31, 1994 through December 31, 1997 have been approximately $533,
$20, $53 and $205, respectively. In 1998, Chatwins Group had a net refund
of $139. There were no tax payments or refunds in the first half of 1999.
(4) In determining income (loss) from continuing operations applicable to
common stock, income from continuing operations is reduced by accretions
of dividends on preferred stock as follows: Six-months ended June 30,
1999: $228; 1998: $456; 1997: $456; 1996: $456; 1995: $456 and 1994: $450.
(5) EBITDA is calculated as follows (restated for the classification of the
Klemp division as a discontinued operation):

<TABLE>
<CAPTION>
Six Months
Ended
June 30, Year Ended December 31,
1999 -----------------------------------------
(unaudited) 1998 1997 1996 1995 1994
----------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Income (loss) from
continuing operations
before income taxes.... $ 73 $ 77 $ 3,288 $(1,931) $ 3,691 $ (32)
Interest expense,
net(2)................. 3,588 7,462 7,402 7,378 7,630 6,792
Depreciation and
amortization(6)........ 1,677 3,081 2,776 2,841 3,257 3,538
Equity loss from
continuing operations
of affiliate........... 67 4,056 373 915 -- --
Gain on sale of
business............... -- -- -- -- (1,190) (1,452)
Loss on notes
receivable............. -- -- -- -- 701 --
------ ------- ------- ------- ------- -------
EBITDA................ $5,405 $14,676 $13,839 $ 9,203 $14,089 $ 8,846
====== ======= ======= ======= ======= =======
</TABLE>

Chatwins Group has included EBITDA in the Selected Historical Financial
Data due to the close relationship it bears to Chatwins Group's financial
covenants benefiting the 13% Senior Notes.
(6) Excludes amortization of debt issuance expenses. See footnote (2) above.
(7) Stockholders' equity has been reduced by accretions for redemption value
of and dividends on preferred stock of $14.7 million through June 30,
1999.
(8) Excludes borrowings under revolving credit facilities and includes current
maturities of Senior Notes.
(9) Represents current assets excluding net assets of discontinued operations
less current liabilities excluding borrowings under revolving credit
facilities and current maturities of Senior Notes.
(10) Includes the dilutive effect of the Chatwins Group warrants.
(11) Current accounting rules do not require restatement of the statement of
cash flows upon the classification of a segment as a discontinued
operation.

Management's Discussion of Financial Condition and Results of Operations of
Chatwins Group

Results of Continuing Operations--Six Months Ended June 30, 1999 Compared to
Six Months Ended June 30, 1998

Net sales for the first half of 1999 totaled $61.7 million, compared to
$63.0 million for the first half of 1998. Sales for the first half of 1999
decreased $1.3 million, or 2%, from the first half of 1998. The decrease in
sales was primarily at Alliance, partially offset by increases at Auto-Lok and
Hanna. Sales decreased $6.5 million at Alliance due primarily to a decrease in
order levels which have been negatively impacted by a downturn in large capital
projects in the steel industry due to strong foreign competition. Auto-Lok's
sales increase of $4.5 million was due to increased product demand as well as
the completion of a large contract for one customer. Sales increased $0.9
million at Hanna primarily due to increase demand in their mobile cylinder
product lines manufactured in Milwaukee, Wisconsin. Steelcraft's sales were
down $0.3 million compared to last year's first half.

Gross profit for the first half of 1999 was $10.8 million, compared to $13.0
million of gross profit for the first half of 1998, a decrease of $2.2 million.
First half 1999 gross profit margin was 17.5%, compared to 20.6% in the first
half of 1998. Gross profit during the first half of 1999 compared to the first
half of 1998 decreased $2.0 million at Alliance, $0.4 million at Hanna and $0.3
million at both CPI and Steelcraft, partially

123
<PAGE>

offset by a $0.7 million increase at Auto-Lok. First half gross profit margins
for 1999 compared to first half margins for 1998 increased only at Auto-Lok and
decreased at all other divisions. The increase in gross profit and margin at
Auto-Lok is due primarily to the division's increased volume. The decreases in
gross profits and margins at the remaining divisions are due to decreases in
volume noted above and a change in product mix at Hanna.

Selling, general and administrative expenses for the first half of 1999 were
$6.8 million, compared to $7.4 million for the first half of 1998, a decrease
of $0.6 million. Selling, general and adminstrative expenses as a percentage of
sales decreased to 11.0% for the first half of 1999 compared to 11.7% in 1998's
first half. The decreases in selling, general and administrative expenses and
selling, general and administrative expenses as a percentage of sales were due
to an overall effort to contain and reduce such costs.

Other expense for the first half of 1999 was $0.3 million, compared to other
expense of $0.1 million for the first half of 1998, a net increase of $0.2
million. There were no individually significant or offsetting items in either
of the first halves of 1999 or 1998.

Interest expense, net, in each of the first halves of 1999 and 1998 was $3.6
million. A decrease in the effective borrowing rate on Chatwins Group's debt
for the first half of 1999, due to the revolving credit facility entered into
with NationsBank in October 1998, was offset by higher average borrowing levels
in 1999 and an increase in the level of amortization of deferred financing
costs.

Equity loss from continuing operations of affiliate in both of the first
halves of 1999 and 1998 represents Chatwins Group's share of Reunion
Industries' loss from continuing operations. Reunion Industries' first half of
1998 results from continuing operations were negatively impacted by the Bargo
litigation provision it recorded in its 1998 second quarter.

There was a tax provision of less than $0.1 million for the first half of
1999 compared to a benefit of $0.6 million for the first half 1998. The tax
provision for both periods is directly related to the level of pre-tax
earnings.

Results of Continuing Operations--1998 Compared to 1997

Net sales for 1998 totaled $134.6 million, compared to $136.4 million for
1997. Sales for 1998 decreased $1.8 million, or 1%. A sales increase of $1.0
million at Hanna, was offset by decreases or flat revenues at the remaining
divisions. Sales decreased $1.8 million at Alliance, $0.7 million at Auto-Lok
and $0.4 million at Steelcraft. CP Industries reported flat revenues in 1998
compared to 1997. The increase in sales at Hanna in 1998 compared to 1997
occurred in the fourth quarter of 1998 and was the result of a series of large
shipments to one of Hanna's largest customers. The decrease in sales at
Alliance was primarily due to a slight decrease in the level of material inputs
to large projects during 1998 compared to 1997. Decreases at Auto-Lok and
Steelcraft were general in nature and management believes not indicative of
adverse trends.

Gross profit for 1998 was $26.0 million, a 3% increase compared to $25.2
million for 1997. Gross profit margin was 19.3% in 1998, compared to 18.4% in
1997. Gross profit during 1998 compared to 1997 improved $1.1 million at Hanna,
$0.8 million at Auto-Lok and $0.5 million at CP Industries. These gross profit
improvements were partially offset by decreases of $1.3 million at Alliance and
$0.2 million at Steelcraft. Gross profit margin was also up at Hanna, Auto-Lok
and CP Industries, but down at Alliance and Steelcraft. The increase in gross
profit and margin at Hanna was primarily due to the efficiencies of increased
volume and a shift in product mix towards its industrial cylinder line, which
has higher margin products than its mobile cylinder line. Although Auto-Lok's
overall volume decreased in 1998 compared to 1997, the increase in gross profit
and margin at Auto-Lok was primarily due to the efficiencies of a higher
operating level at Auto-Lok's facility due to the ability to absorb fixed and
semi-variable overhead costs by the integration of Kingway's operations. CP
Industries' profits and margin both improved in 1998 compared to 1997 due to a
higher margin product mix while Alliance's profits and margin were negatively
impacted by cost overruns on a large project. The decrease in Steelcraft's
profits and margin were directly related to the decrease in volume in 1998
compared to 1997.

124
<PAGE>

Selling, general and administrative expenses for 1998 were $13.8 million,
compared to $13.4 million for 1997, an increase of $0.4 million. Such expenses
as a percentage of sales increased to 10.2% for 1998 compared to 9.9% in 1997.
The increase in such expenses and such expenses as a percentage of sales
occurred during the first half of 1998 and was due to an overall increase in
administrative spending at certain significant divisions due to increased
domestic and international marketing efforts.

There was other expense in 1998 of $0.6 million, compared to other expense
of $0.7 million for 1997, a net decrease of $0.1 million. There were no
individually significant or offsetting items in either 1998 or 1997.

Interest expense, net, for 1998 was $7.5 million, compared to $7.4 million
for 1997, an increase of $0.1 million. In general, average borrowing levels
under Chatwins Group's revolving credit facilities increased during 1998 when
compared to 1997 as a result of an increase in net working capital (defined as
receivables and inventories less trade payables).

Equity loss from continuing operations of affiliate in both 1998 and 1997
represents Chatwins Group's share of Reunion Industries' loss from continuing
operations. Reunion Industries' 1998 results of continuing operations were
negatively impacted by the Bargo litigation provision recorded by Reunion
Industries in its second quarter of 1998.

There was a tax provision of less than $0.1 million in 1998, compared to
$0.8 million in 1997, an increase of $0.8 million. The increase in the tax
provision for 1998 compared to 1997 was due to a $0.3 million reduction in the
valuation allowance for deferred tax assets during 1997 compared to no change
in the valuation allowance during 1998 as well as a decrease in pre-tax income
in 1998 over 1997.

Results of Continuing Operations--1997 compared to 1996

Net sales for 1997 totaled $136.4 million, compared to $103.8 million for
1996, increasing $32.6 million, or 31%. Sales increased at all divisions of
Chatwins Group. Sales increased $15.7 million at Alliance, $9.6 million at
Auto-Lok, $3.8 million at Hanna, $3.1 million at CP Industries and $0.4 million
at Steelcraft. The increase in sales at CP Industries was primarily due to an
increase in orders from and shipments to one of CP Industries' largest domestic
customers. The increases at Auto-Lok and Hanna are primarily due to a general
increase in demand for their products, which has resulted in higher levels of
orders and shipments. The increase in sales at Alliance is primarily due to a
significant increase in orders associated with the steel industry that began in
the fourth quarter of 1996 and continued into 1997.

Gross profit for 1997 was $25.2 million, compared to $19.3 million for 1996.
Gross profit for 1997 increased $5.9 million, or 31%. Gross profit margin was
18.4% in 1997, compared to 18.5% in 1996. Gross profit during 1997 compared to
1996 improved at all divisions of Chatwins Group due to higher volumes in 1997.
Gross profit margin improved significantly at Hanna due to the efficiencies of
increased volume and cost savings programs and increased at all of Chatwins
Group's other divisions due to volume increases.

Selling general and administrative expenses for 1997 were $13.4 million,
compared to $12.6 million for 1996. However, such expenses as a percentage of
sales decreased to 9.9% for 1997 compared to 12.2% in 1996. The decrease in
such expenses as a percentage of sales was primarily due to the 31% increase in
sales while SGA expenses increased only 7% as a result of the fixed and semi-
variable nature of certain expenses.

Other expense for 1997 was $0.7 million compared to $0.3 million in 1996.
There were no individually significant or offsetting items in either 1997 or
1996.

Interest expense, net, for 1997 was slightly above $7.4 million, compared to
slightly below $7.4 million for 1996. A slightly higher level of interest
expense under the Congress Facility in 1997 compared to 1996 was offset by a
lower level of interest expense on related party indebtedness. The increase in
interest expense on Chatwins Group's revolving credit facility was due to a
.25% increase in the prime rate and a higher level of average borrowings. The
decrease in interest expense on related party indebtedness was due to the full
repayments of the Parkdale note and Gesterkamp note during the first half of
1997.

Equity loss from continuing operations of affiliate in both 1997 and 1996
represents Chatwins Group's share of Reunion Industries' results from
continuing operations.

125
<PAGE>

There was a tax provision of $0.8 million in 1997 compared to a tax benefit
of $0.7 million in 1996. The increase in the provision for income taxes was due
to the increase in pre-tax earnings, partially offset by the $360,000 reduction
in the valuation allowance for deferred tax assets.

Liquidity and Capital Resources

General. Except for its foreign subsidiaries, which are classified as part
of discontinued Klemp, Chatwins Group manages its liquidity as a consolidated
enterprise. The operating divisions of Chatwins Group carry minimal cash
balances. Cash generated from the divisions' operating activities generally is
used to repay borrowings under revolving credit arrangements, as well as other
uses (e.g. corporate headquarters expenses, debt service, capital expenditures,
etc.). Conversely, cash required for the divisions' operating activities
generally is provided from funds available under the same revolving credit
arrangements. Chatwins Group's foreign subsidiaries are self-sustaining and
operate almost exclusively within the countries they are located. Their cash
flows are devoted to and obligations paid by their own operations. Chatwins
Group does not provide day-to-day operating funds to the foreign operations nor
does Chatwins Group guarantee any foreign indebtedness. Although Chatwins Group
operates in relatively mature markets, it intends to continue to invest in and
grow its businesses through selected capital expenditures as cash generation
permits.

On October 30, 1998, Chatwins Group and NationsBank executed the financing
agreement which has provided Chatwins Group with the NationsBank facility of up
to a maximum principal amount of $40.0 million, including a letter of credit
facility of up to $5.0 million.

The NationsBank facility includes a special availability amount, as defined
in the financing agreement, of $6.0 million. The special availability amount is
being reduced in $250,000 monthly increments which began in February 1999. The
special availability amount was further reduced by $2.28 million in April 1999.
Once reduced, the special availability amount may not be reborrowed without
NationsBank's consent. Availability under the NationsBank facility is subject
to a borrowing base limitation calculated as the aggregate of 85% of eligible
accounts receivable plus the lesser of $15.0 million or the sum of 60% of
finished goods and raw materials, 50% of supplies and stores, a percentage,
determined from time to time by NationsBank, of work-in-process and the special
availability amount in effect at the time of the calculation, all of the above
as defined in the financing agreement. Interest under the NationsBank facility
is determined by reference to various rates including the NationsBank prime
rate, the Federal Funds rate or LIBOR, each plus an applicable margin. Chatwins
Group may elect the rates upon notification to NationsBank with applicable
margins ranging from zero to 0.5% when using either the NationsBank prime rate
or the Federal Funds rate and from 2.0% to 2.75% when using LIBOR. The
NationsBank facility also includes an unused line fee and a monthly service
charge.

The NationsBank facility is secured by a lien in favor of NationsBank on
Chatwins Group's accounts receivable, inventory and certain other property and
accounts to the extent necessary to permit foreclosure on the accounts
receivable and inventory. The financing agreement expires on October 31, 2001
and is renewable annually thereafter, subject to the approval of NationsBank,
but not beyond October 31, 2005.

The NationsBank facility includes various representations, warranties and
affirmative and negative covenants by Chatwins Group and provides NationsBank
with certain rights and remedies including, but not limited to, acceleration,
both in the event of default or subjectively, of all amounts borrowed under the
NationsBank facility. Financial covenants in the NationsBank facility include
an adjusted earnings before interest, taxes, depreciation and amortization to
fixed charge coverage ratio and an indebtedness to cash flow ratio,
calculations of which are defined in the financing agreement. Generally all
amounts for calculation of the ratios are derived from domestic operations and
NationsBank earnings before interest, taxes, depreciation and amortization is
adjusted for domestic capital expenditures. These covenants require Chatwins
Group to maintain a rolling twelve-month minimum adjusted NationsBank earnings
before interest, taxes, depreciation and amortization to fixed charge coverage
ratio of 1.2:1 and a maximum indebtedness to cash flow ratio of 5.0:1. At June
30, 1999 such ratios were 1.4:1 and 4.8:1, respectively, and complied with the
financing agreement. Borrowings outstanding under the NationsBank facility at
June 30, 1999 totaled $31.2 million and the weighted average rate for borrowing
was 7.5%.

126
<PAGE>

On July 23, 1999, Chatwins Group and NationsBank executed an amendment and
waiver to the NationsBank facility. In general, the amendment and waiver fixed
the special availability amount at $3.47 million, an increase of $1 million in
the then existing special availability amount. Additionally, the amendment
provides that the special availability amount would start to be reduced in
weekly amounts of at least $270,000 beginning August 16, 1999 only if Chatwins
Group failed to deliver certain documents related to the potential sale of a
division or failed to deliver additional collateral for the special
availability amount. The amendment and waiver also waived two instances of
noncompliance by Chatwins Group in June and July 1999 of the covenant that
requires Chatwins Group to maintain a minimum average daily availability of no
less than $1.0 million. In exchange for providing Chatwins Group with the
amendment and waiver, NationsBank received $100,000 in fees, additional
collateral for the special availability amount and potential fees of $50,000 on
September 1, 1999 and October 1, 1999 dependent on certain circumstances
related to the potential sale of a division or other additional collateral.
Except for the instances of noncompliance waived above, Chatwins Group was in
compliance with all representations, warranties and covenants at June 30, 1999.

During April 1999, Chatwins Group sold the land and building which comprised
the former Chicago, Illinois location of its Klemp division, which was
relocated to Libertyville, Illinois in early 1999. Net cash proceeds received
by Chatwins Group as a result of the sale totalled $4.56 million and were used
to repay borrowings under the NationsBank facility. On May 3, 1999, Chatwins
Group paid its semi-annual interest payment on the 13% Senior Notes of $3.25
million from funds available under the NationsBank facility, such availability
being partially the result of the application of the property sale proceeds to
the Nationsbank facility.

Based on its own liquidity, Chatwins Group was unable to consummate the
Purchase Offer on June 1, 1999, resulting in an event of default under the
Indenture. This event of default was subsequently cured by Chatwins Group.
Chatwins Group is required to offer to purchase up to $25,000,000 principal
amount of Senior Notes, plus accrued and unpaid interest through the purchase
date, on June 1, 2000. The full principal amount of this $25,000,000 of 13%
Senior Notes is classified as current maturities of long-term debt in Chatwins
Group's consolidated balance sheet at June 30, 1999.

At December 31, 1998, Chatwins Group had net operating loss carryforwards
for tax return reporting purposes of approximately $5.8 million, of which $1.4
million expires in 2008, $1.2 million expires in 2011 and $3.2 million expires
in 2018. The availability of these carryforwards may be subject to limitations
imposed by the Internal Revenue Code. A U.S. federal corporate income tax
return examination has been completed for Chatwins Group's 1995 tax year.
Chatwins Group believes adequate provisions for income taxes have been recorded
for all years.

SFAS 109 requires that deferred tax assets be reduced by a valuation
allowance if it is more likely than not that some portion or all of the
deferred tax assets will not be realized. Chatwins Group periodically reviews
the adequacy of the valuation allowance as a result of changes in its
profitability and other factors. The valuation allowance was not changed during
1998.

Operating Activities. Operating activities used less than $0.1 million of
cash during the first half of 1999, compared to cash provided of $0.3 million
in the first half of 1998, a decrease of $0.4 million. This decrease in cash
provided from operating activities was due primarily to changes in the levels
of working capital in each period.

Investing Activities. Investing activities provided $2.8 million of cash
during the first half of 1999, compared to cash used of $2.6 million during the
first half of 1998, an increase in cash provided of $5.4 million. The increase
in cash provided from investing activities was due to the $4.6 million of cash
received from the sale of property in the second quarter of 1999 and a $0.7
million decrease in the level of capital expenditures in the first half of 1999
compared to 1998. See "--Recent Developments--Sale of Property."

Financing Activities. Financing activities during the first half of 1999
used almost $2.9 million in cash, compared to $1.8 million of cash provided
during the first half of 1998, an increase in cash used of $4.6 million. This
increase in cash used is the result of a decrease of $2.8 million in the level
of net borrowings

127
<PAGE>

under revolving credit facilities during the first half of 1999 compared to an
increase of $1.7 million in the first half of 1998.

The Year 2000

Chatwins Group, like most companies, utilizes electronic technology which
includes computer hardware and software systems that process information and
perform calculations that are date- and time-dependent. Chatwins Group is aware
that the coming of year 2000 poses pervasive and complex problems in that
virtually every computer operation unless it is Year 2000 compliant, will be
affected in some way by the rollover of the two-digit year value from "99" to
"00" and the inadvertent recognition by the electronic technology of "00" as
the year 1900 rather than Year 2000. Chatwins Group is also aware that it may
not only be negatively affected by the failure of its own systems to be Year
2000 compliant, but may also be negatively affected by the Year 2000 non-
compliance of its vendors, customers, lenders and any other party with which
Chatwins Group transacts business.

In 1995, Chatwins Group undertook a project to invest in and install a time-
critical manufacturing and management information system at certain of its
significant divisions in an effort to save costs and improved information flow
by substantially improving all operational processes. Year 2000 compliant
technology is part of this system and Chatwins Group anticipates no material
adverse effects to its new operating systems from Year 2000.

In addition to this new system, Chatwins Group completed an assessment of
all other systems and software in place at all locations and identified
hardware replacements and software upgrades necessary to achieve Year 2000
compliance. Required hardware replacements and software upgrades have been
provided by vendors whose hardware and software have achieved Year 2000
certification. Additionally, internally developed systems have been modified to
be Year 2000 compliant. Hardware replacements and software upgrades are a
normal part of Chatwins Group's ongoing program for maintaining up-to-date
information technology. The incremental cost of hardware replacements and
software upgrades required to achieve Year 2000 compliance is estimated to be
less than $0.1 million. Chatwins Group has incurred and expects to continue to
incur internal staff and other costs as a result of modifying existing systems
to be Year 2000 compliant. Such costs will continue to be expensed as incurred
and funded through internally generated cash while costs to acquire new
equipment and software will be capitalized and depreciated over their useful
lives.

In addition to internal Year 2000 compliance, Chatwins Group has surveyed
all significant vendors, customers, lenders and other outside parties with
which it transacts business in an effort to identify Year 2000 non-compliance
by such parties. Results indicate that those important parties with which
Chatwins Group does business either have already achieved Year 2000 readiness
or will be Year 2000 compliant during 1999. The most significant third parties
with which Chatwins Group contracts for services are its payroll services
provider, its local bank of record and its revolving credit lender,
NationsBank. Chatwins Group has received certification that its provider of
payroll services is Year 2000 compliant. Regarding its bank and revolving
credit facility lender, Chatwins Group funds its day-to-day operations through
a series of wire transfers between its revolving credit facility lender and its
local bank of record. The wire transfers are initiated at Chatwins Group's
headquarters via dial-up phone line connections. Both Chatwins Group's local
bank of record and NationsBank have indicated publicly that they are Year 2000
compliant. However, any disruption in phone service as a result of Year 2000
could result in Chatwins Group's inability to fund its operations and have a
significant adverse impact on the financial position and results of operation
of Chatwins Group.

Management recognizes that the failure of Chatwins Group or any party with
which Chatwins Group conducts business to be Year 2000 compliant in a timely
manner could have a material adverse impact on the operations of Chatwins
Group. If Chatwins Group's systems or the systems of its significant vendors,
customers, lenders and other outside parties with which it transacts business
were to fail because they were not Year 2000 compliant, Chatwins Group would
incur significant costs and inefficiencies. Manual systems for manufacturing
and financial controls would have to be implemented and staffed. Significant
customers might

128
<PAGE>

decide to cease doing business with Chatwins Group. Disruptions in electrical
power, phone service and/or delivery of materials could cause significant
business interruptions. Similarly, business interruptions at significant
customers could result in deferred or canceled orders.

The dates on which Chatwins Group believes Year 2000 compliance will be
completed are based on management's best estimates, which were derived
utilizing numerous assumptions of future events, including the continued
availability of certain resources, third party modification plans and other
factors. However, there can be no guarantees that these estimates will be
achieved, or that there will not be delays in, or increased costs associated
with, achieving enterprise-wide Year 2000 compliance. Specific factors that
might cause differences between the estimates and actual results include, but
are not limited to, the availability and cost of personnel trained in these
areas, timely responses to and corrections by third-parties and suppliers, the
ability to implement interfaces between the new systems and the systems not
being replaced, and similar uncertainties. Due to general uncertainty inherent
in the Year 2000 problem, resulting in part from the uncertainty of the Year
2000 compliance of third-parties, Chatwins Group cannot ensure its ability to
resolve problems associated with the Year 2000 issue that may affect its
operations and business, or expose it to third-party liability in a timely and
cost-effective manner.

Quantitative and Qualitative Disclosures About Market Risk

In conducting business, Chatwins Group has market risk exposures to foreign
currency exchange rates, interest rates and raw material prices. Although
Chatwins Group's foreign subsidiaries are classified within discontinued
operations, it is still exposed to foreign currency exchange rate risks
discussed below until such entities are sold.

Foreign Currency Exchange Rate Risk. Chatwins Group's continuing operations
manufactures its products in the United States. Of Chatwins Group's $134.6
million of consolidated net sales for 1998, $12.0 million were export sales to
other countries. Amounts and locations of such sales are set forth in "--
General Aspects Applicable to the Divisions--Export Sales."

Export sales to foreign countries from Chatwins Group's U.S. locations are
denominated in U.S. dollars, Chatwins Group's reporting currency. Accordingly,
transaction loss exposures due to fluctuations in the functional currencies of
the countries in which Chatwins Group's domestic locations export to, which
vary significantly from year to year, are minimal.

Sales of Klemp de Mexico and Shanghai Klemp, Chatwins Group's discontinued
foreign subsidiaries, are almost entirely within the countries in which they
are located and are denominated in each location's functional currency; the
peso in Mexico and the renminbi in China. Accordingly, transaction loss
exposure to Chatwins Group from fluctuations in each location's functional
currency are minimal.

Chatwins Group's exposure to foreign currency rate fluctuations arise from
the translation effects on Chatwins Group's investments in its international
subsidiaries from potential fluctuations in each subsidiary's functional
currency. At December 31, 1998, Chatwins Group had approximately $3.6 million
invested in Klemp de Mexico and approximately $1.9 million invested in Shanghai
Klemp.

129
<PAGE>

of the magnitude seen during 1998 can be expected to have a similar impact on
the future financial position and operating results of Chatwins Group.
Effective January 1, 1999, Mexico emerged from highly inflationary status. As
such, future fluctuations in the value of the peso against the U.S. dollar will
be recorded as adjustments to the cumulative translation adjustment account.

Impacts on Chatwins Group due to foreign currency rate fluctuations in China
have been insignificant. Since establishing the joint venture in late 1995, the
renminbi has remained stable at approximately 8.3 renminbi/$1.00. However,
fluctuations in the renminbi against the U.S. dollar could have a significant
impact on the financial position and operating results of Chatwins Group,
primarily in the form of translation effects. On a sensitivity basis, a 10%
devaluation in the value of the renminbi at December 31, 1998 would be
estimated by Chatwins Group to have an approximate $200,000 negative impact on
the cumulative translation adjustment in equity.

Chatwins Group's foreign subsidiaries are self-sustaining and operate almost
exclusively within the countries they are located. Their cash flows are devoted
to and obligations paid by their own operations. Chatwins Group does not
provide day-to-day operating funds to the foreign operations nor does Chatwins
Group guarantee any foreign indebtedness.

Interest Rate Risk. Chatwins Group's exposure to interest rate risk arises
primarily from borrowing under the NationsBank facility. Interest under the
facility is determined by reference to various rates including the NationsBank
prime rate, the federal funds rate or LIBOR, each plus an applicable margin. At
December 31, 1998, the weighted average rate for borrowing under the
NationsBank facility was 7.5% and borrowings outstanding totaled $34.0 million.
All else remaining equal, on a sensitivity basis a 100 basis-point increase in
the borrowing rate would be estimated by Chatwins Group to have an approximate
$340,000 increase in annual interest expense.

There have been no significant changes in the market risk factors which
affect Chatwins Group during the first six months of 1999.

Consolidated Financial Statements

Chatwin Group's consolidated financial statements are set forth beginning at
page F-43.

130
<PAGE>

OWNERSHIP INFORMATION

Reunion Industries

Beneficial ownership information for Reunion Industries as of October 22,
1999 can be found elsewhere in the proxy statement/prospectus by looking at
"Proposal 2. The Election of Directors--Security Ownership of Certain
Beneficial Owners and Management" on page 140.

Chatwins Group

Security Ownership of Certain Beneficial Owners and Management

As of October 22, 1999, Chatwins Group had:

. 290,212.4 shares of common stock outstanding

. 2,249.0 shares of Class D Series A Preferred Stock, par value $.01 per
share outstanding

. 800.0 shares of Class D Series B Preferred Stock, par value $.01 per
share outstanding

. 1,510.0 shares of Class D Series C Preferred Stock, par value $.01 per
share outstanding

On May 3, 1993, Chatwins Group issued 50,000 warrants each exercisable into
one share of Chatwins Group's common stock at $0.01 per share. These warrants
became exercisable on June 2, 1998. As of October 22, 1999, 47,325 warrants had
been exercised and were each converted into one share of Chatwins Group common
stock, and 2,675 warrants remained outstanding and exercisable. The following
table sets forth information, as of October 22, 1999, as to the beneficial and
percentage of ownership of each class of Chatwins Group's capital stock by the
following:

. each person owning beneficially more than 5% of the outstanding shares of
each class of Chatwins Group's outstanding capital stock

. each director and named executive officer of Chatwins Group

. all directors and officers of Chatwins Group as a group

Except as otherwise indicated in the notes to the following table, each
stockholder has sole voting and investment power with respect to the shares
shown to be beneficially owned by such stockholder.

<TABLE>
<CAPTION>
Preferred Stock--Class D
-------------------------------
Common Stock Series A Series B Series C
------------ -------- -------- --------
<S> <C> <C> <C> <C>
Charles E. Bradley,
Sr..................... 140,946.6(1)(2) 2,249.0(3) 800.0(3) 1,510.0(4)
c/o Stanwich Partners,
Inc. 48.3% 100.0% 100.0% 100.0%
(see below for address)

John G. Poole........... 195,003.6(1)(2)(5) 2,249.0(3) 800.0(3) 1,510.0(4)
c/o Stanwich Partners,
Inc. 67.2% 100.0% 100.0% 100.0%
(see below for address)

Stanwich Partners,
Inc.................... 138,946.6(2) -- -- --
One Stamford Landing 47.9% -- -- --
62 Southfield Avenue
Stamford, CT 06902

Cede & Co............... 47,325.0 -- -- --
55 Water Street 16.3% -- -- --
New York, NY 10041

Kimball J. Bradley...... 24,000.0 -- -- --
c/o Stanwich Partners,
Inc. 8.3%
(see above for address)

</TABLE>

131
<PAGE>

<TABLE>
<CAPTION>
Preferred Stock--Class D
---------------------------
Common Stock Series A Series B Series C
------------ -------- -------- --------
<S> <C> <C> <C> <C>
Joseph C. Lawyer..................... 18,094.0 -- -- --
c/o Chatwins Group, Inc. 6.2% -- -- --
300 Weyman Plaza, Suite 340
Pittsburgh, PA 15236

Jack T. Croushore.................... 4,065.4 -- -- --
c/o Chatwins Group, Inc. 1.4% -- -- --
(see above for address)

John M. Froehlich.................... 30.0 -- -- --
c/o Chatwins Group, Inc.
(see above for address)

Alan S. Wippman...................... 25.0 -- -- --
c/o Chatwins Group, Inc. -- -- -- --
(see above for address)

All directors and officers as a
group............................... 243,193.0 2,249.0 800.0 1,150.0
..................................... 83.3% 100.0% 100.0% 100.0%
</TABLE>
- - - --------

(1) Pursuant to the Securities Pledge Agreement, dated as of May 1, 1993, Mr.
Bradley, Sr. pledged 127,799 shares of Chatwins Group common stock to the
Collateral Agent (as defined therein) for the benefit of the holders of the
13% Senior Notes and Mr. Poole pledged 17,040 shares of Chatwins Group's
common stock to secure the Chatwins Group's obligations under the indenture
and the notes.

(2) Includes 138,946.6 shares held of record by the Bradley Family Limited
Partnership established by Mr. Bradley, Sr. in May 1998 for estate planning
purposes and of which Mr. Bradley, Sr. owns 1% as general partner and 55%
as a limited partner. The Bradley Family Limited Partnership has designated
Stanwich Partners to vote these shares, and Stanwich Partners in turn has
designated Mr. Poole, who is one of its officers, as the person to vote
these shares on its behalf. Pursuant to Rule 13d-3, Mr. Bradley, Sr. and
the Bradley Family Limited Partnership may be deemed to be the beneficial
owner of these shares with shared dispositive power with respect thereto,
and Stanwich Partners and Mr. Poole each may be deemed to be the beneficial
owner of these shares with voting power with respect thereto. Because Mr.
Bradley, Sr. no longer has voting control over such shares of Chatwins
Group common stock, a breach occurred under the Securities Pledge
Agreement. See "--Business--Recent Developments--Defaults Under Indenture."

(3) Held of record by KSB Acquisition Corp., the former owner of the corporate
predecessor-in-interest to the Klemp and Steelcraft divisions of Chatwins
Group, of which Messrs. Bradley, Sr. and Poole are the sole executive
officers and directors. Pursuant to Rule 13d-3, Messrs. Bradley, Sr. and
Poole would be deemed to be the beneficial owners of these shares, with
shared voting and dispositive power with respect thereto.

(4) Held of record by Hanna Investment Corp., the former owner of the corporate
predecessor-in-interest to the Hanna division of Chatwins Group, of which
Messrs. Bradley, Sr. and Poole are the sole executive officers and Mr.
Poole is the sole director. Pursuant to Rule 13d-3, Messrs. Bradley, Sr.
and Poole would be deemed to be the beneficial owners of these shares, with
shared voting and dispositive power with respect thereto.

(5) Includes 44,599.2 shares held of record by John Grier Poole Family Limited
Partnership, established by Mr. Poole in 1995 for estate planning purposes,
and of which Mr. Poole owns 1% and is the sole general partner. Pursuant to
Rule 13d-3, Mr. Poole may be deemed to be the beneficial owner of these
shares, with sole voting and dispositive power with respect thereto. Also
includes 11,457.8 shares as to which Mr. Poole has voting rights, but not
dispositive rights. Pursuant to Rule 13d-3, Mr. Poole may be deemed to be
the beneficial owner of these shares, with sole voting power with respect
thereto.

132
<PAGE>

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
AND
MATERIAL CONTACTS WITH THE COMPANY BEING ACQUIRED

In addition to the transactions set forth below, the discussion of the
merger to be voted upon at the annual meeting is incorporated below by
reference. The consummation of the merger will impact most of the transactions
and relationships discussed below. You are strongly encouraged to read the
discussion below in conjunction with the discussion of the merger in this
proxy statement/prospectus. See "The Merger."

Historically, Reunion Industries and Chatwins Group have separately entered
into transactions with related parties. This section describes such prior
separate transactions and the merger.

Stock Ownership

Chatwins Group owns 1,450,000 shares, or approximately 36.8%, of Reunion
Industries' common stock.

The common stock of Chatwins Group is owned directly and indirectly by the
following individuals and entities in the following percentages: Mr. Charles
E. Bradley, Sr. owns approximately 48%, including:

. pledged shares in connection with the Chatwins Group indenture,

. shares held by the Bradley Family Limited Partnership, which has
designated Stanwich Partners and, in turn, Mr. Poole, to vote such
shares, and

. warrants;

Mr. Poole is attributed to owning approximately 67% of the common stock
including:

. pledged shares in connection with the Chatwins Group indenture,

. shares held by the Bradley Family Limited Partnership, which has
designated Stanwich Partners, and, in turn, Mr. Poole, to vote such
shares,

. shares held of record by John Grier Poole Family Limited Partnership;

Mr. Kimball J. Bradley owns 8.2%; Mr. Joseph C. Lawyer owns 6.2%; and Jack T.
Croushore owns 1.4%.

The preferred stock of Chatwins Group is 100% beneficially owned by Messrs.
Bradley and Poole, and held of record by:

. KSB Acquisition Corp., the former owner of the corporate predecessor-in-
interest to the Klemp and Steelcraft divisions of Chatwins Group, of
which Messrs. Bradley and Poole are the sole executive officers and
directors and

. Hanna Investment Corp., the former owner of the corporate predecessor-
in-interest to the Hanna division of Chatwins Group, of which Messrs.
Bradley and Poole are the sole executive officers and directors.

Stanwich Financial Services Corp. owns 271,280 shares, or approximately
6.9% of Reunion Industries' common stock. Mr. Charles E. Bradley, Sr. is
President and the indirect owner of 42.5% of Stanwich Financial Services'
common stock; Mr. Charles E. Bradley, Jr., a director of Chatwins Group, is
the indirect owner of 42.5% of Stanwich Financial Services' common stock; Mr.
Poole is the indirect owner of 7.5% of Stanwich Financial Services' common
stock; and Richard L. Evans, Executive Vice President, Chief Financial Officer
and Secretary of Reunion Industries, is Vice President of Stanwich Financial
Services.

Chatwins Group Acquisition of Reunion Industries

On June 20, 1995, Chatwins Group acquired 1,450,000 shares, or at that time
approximately 38% of the outstanding Reunion Industries common stock from
Parkdale Holdings Corporation, N.V. who, prior to the transaction owned
approximately 45% of Reunion Industries.

133
<PAGE>

As part of the purchase price paid by Chatwins Group to Parkdale, Chatwins
Group issued a $5.8 million promissory note to Parkdale, bearing interest at
10% per annum and originally due on September 18, 1995. The Parkdale note was
guaranteed by Mr. Bradley, Sr. and secured by a pledge of 100% of the stock of
Chatwins Holdings, Inc., at that time, a Delaware corporation and wholly-owned
subsidiary of Chatwins Group. Mr. Bradley, Sr. purchased the note from Parkdale
on September 14, 1995 for approximately $5.95 million. Chatwins Group paid Mr.
Bradley approximately $3.11 million in 1995, $2.62 million in 1996 and $.48
million in 1997 on the Parkdale note, including interest, which is now paid in
full.

At the time of the acquisition of Reunion Industries common stock, Chatwins
Group issued a promissory note to Mr. F. Dean Gesterkamp in the original
principal amount of $200,000, bearing interest at 10% per annum, as part of the
purchase price for a warrant to purchase 75,000 shares of Reunion Industries'
common stock. After its issuance, the balance of the Gesterkamp note was
purchased by Mr. Franklin Myers, a Director of Reunion Industries. On each of
January 6, 1996 and 1997 and June 6, 1996 and 1997, Chatwins Group paid
$50,000, plus interest to Mr. Myers on the Gesterkamp note, which is now paid
in full.

Reunion Industries' 1995 Acquisition of Oneida from Chatwins Group

On September 14, 1995, Reunion Industries purchased from Chatwins Holdings,
all of the issued and outstanding common and preferred stock of Oneida Molded
Plastics for approximately $3.1 million, which was paid to Chatwins Group.
These proceeds were applied by Chatwins Group to repay part of the Parkdale
note, at that time still outstanding and held by Mr. Charles E. Bradley, Sr. In
addition, pursuant to the stock purchase agreement between Reunion Industries
and Chatwins Group, Oneida paid to Chatwins Group $1.55 million in 1995 and
$3.66 million in 1996, in full repayment, including interest, of Oneida's
indebtedness to Chatwins Group, which had totaled $4.93 million.

The financial terms of the acquisition of Oneida were determined based on
its financial position and results of operations at and for the six months
ended June 28, 1995. The terms of the transaction were approved by the
unanimous vote of the directors of Reunion Industries and Chatwins Group at the
time with Messrs. Bradley, Sr. and Cassidy, then directors of both Chatwins
Group and Reunion Industries, abstaining. Both Reunion Industries and Chatwins
Group received fairness opinions in connection with the acquisition.

Chatwins Group had previously purchased Oneida Molded Plastics on March 31,
1994 for $251.00 from the following:

. Oneida Products Corp.

. Stanwich Partners

. Stanwich Oil & Gas, Inc.

entities with which Messrs. Bradley, Sr. and/or Poole are affiliated.

Rostone/Oneida Merger and Related Transactions

Loans to CGI Investment Corp. In April 1990, Chatwins Group acquired a 49%
interest in CGI Investment Corp., a company controlled by Stanwich Partners.
Mr. Bradley, Sr., Mr. Poole and Mr. Evans are officers, directors and/or
stockholders of Stanwich Partners. Since April 1990, Chatwins Group has made
loans to CGI Investment of $1.5 million, $1.35 million and $299,000. None of
the principal or accrued interest thereon has been repaid under these
obligations. Over time, Chatwins Group had provided reserves for a substantial
portion of the principal on its notes receivable from CGI Investment and at
December 31, 1997, the net carrying value of Chatwins Group's investment in CGI
Investment common stock and net notes receivable was $0.6 million.

CGI Investment's primary assets were two notes receivable from affiliates of
Chatwins Group, and a minimal amount of cash, the sum of which totaled $0.7
million at December 31, 1997. During 1998, CGI

134
<PAGE>

Investment was declared insolvent and Chatwins Group exchanged its notes
receivable from CGI Investment for one of CGI Investment's notes receivable
from an affiliate which, plus accrued interest, totaled $0.5 million. The
difference was provided for currently.

Additionally, Rostone is indebted to CGI Investment pursuant to a $250,000
promissory note dated May 21, 1993. The note had an outstanding balance of
$477,000 (principal and accrued interest) on December 31, 1998, and is
subordinated to the prior payment of indebtedness owing by Oneida Rostone to
The CIT Group, except that if certain conditions are met, regularly scheduled
monthly interest payments may be paid. Oneida Rostone is also permitted to
recover certain environmental remediation costs relating to soil and ground
water contamination at Rostone's Lafayette, Indiana site by offset against this
note. As of December 31, 1998, $177,000 had been spent on these remediation
costs and an additional $220,000 had been accrued.

Rostone/Oneida Merger. On February 2, 1996, Rostone was merged into Oneida,
a wholly-owned subsidiary of Reunion Industries. Oneida, as the surviving
corporation, changed its name to Oneida Rostone Corp. In the merger, Oneida
Rostone acquired 100% of the preferred and common stock of Rostone from CGI
Investment. Prior to the merger, certain officers of Oneida were also serving
as officers of Rostone and CGI Investment. The terms of the Rostone/Oneida
merger were approved by the unanimous vote of the directors of Reunion
Industries, including by all disinterested directors.

Oneida Rostone paid the stockholders of Rostone $503.00 in 1996. Although
the Rostone/Oneida merger agreement provided that the purchase price would also
include payments by Oneida Rostone up to $2.0 million in each of 1997 and 1998
based on Rostone's achievement of specific earnings levels for the prior
calendar years, no such payments were made since Rostone failed to achieve the
specified earnings levels.

Bradley/Bir Transaction. To obtain Mr. Bir's approval of the Rostone/Oneida
merger, on February 2, 1996, Mr. Bradley purchased 50% of the approximately
$2.03 million amount owed by Rostone to Mr. Allan C. Bir, a third party
creditor. As a result of this transaction, Mr. Bradley, Sr. and the creditor
each hold a note from Oneida Rostone in the amount of approximately $1.02
million bearing interest at 11% per annum which is subordinated to the prior
payment of indebtedness owing by Oneida Rostone to The CIT Group/Business
Credit, Inc., except that if certain conditions are met, regularly scheduled
payments of interest are paid when due. No principal has been paid on these
notes, and interest has been paid quarterly in arrears. Reunion Industries
expects that the indebtedness resulting from the refinancing transactions with
Bank of America Business Credit will either be senior to this indebtedness or
that payment on this indebtedness will be restricted.

Oneida Rostone's Loan Facilities. Oneida Rostone's loan facility with The
CIT Group/Business Credit, Inc. initially provided for a guarantee of a letter
of credit supporting a supersedeas bond filed in connection with the Reunion
Industries' litigation with Bargo Energy Company in the amount of $9.675
million, a $10.2 million revolving credit loan and a $6 million term loan. As
additional collateral for the letter of credit guarantee, Reunion Industries
pledged the stock of its subsidiaries Oneida Rostone and Juliana Vineyards;
Stanwich Financial Services pledged certain collateral; and Mr. Charles E.
Bradley, Sr. guaranteed the obligations of Oneida Rostone and Reunion
Industries under The CIT Group facility. In July 1999, an additional $5.0
million was advanced under this facility to fund the settlement of the Bargo
litigation and the letter of credit was terminated. In August 1999, the credit
facility was amended to provide for an increase in term loan A to $8.25 million
and provide for a $3.0 million term loan B. The guarantee by Mr. Bradley and
the pledges of collateral by Reunion Industries and Stanwich Financial Services
were continued under this amendment. Mr. Bradley receives a credit support fee
from Reunion Industries in an aggregate amount equal to 3% per annum of the
amount guaranteed, payable monthly. Mr. Bradley's rights to payment of the
monthly installments of the credit support fee are subordinated to the prior
payment of indebtedness owing by Oneida Rostone to The CIT Group, except that
if certain conditions are met, the monthly installments may be paid when due.

135
<PAGE>

Under Oneida Rostone's previous loan facility with Congress Financial
Corporation, Mr. Bradley received a credit support fee from Oneida Rostone in
an aggregate amount equal to 1% per annum of the amount guaranteed, payable
monthly. The amount guaranteed was subject to a cap of $4 million, which
declined over time. Mr. Bradley also indemnified Congress against potential
liabilities arising from certain environmental exposures. All of Mr. Bradley's
obligations to Congress were released upon termination of the Congress loan
facility in October 1998.

In connection with Oneida Rostone's acquisition of the assets and business
of Quality Molded Products on November 18, 1996, Mr. Bradley guaranteed the
amounts, if any, borrowed under this overformula line for a credit support fee
of 1% per annum. Congress extended a $1.0 million temporary overformula line.
The overformula line expired February 14, 1997.

Data Packaging Limited Acquisition by Oneida Rostone. On November 18, 1996,
Oneida Rostone completed the Data Packaging Limited acquisition by acquiring
68% of the outstanding stock of Data Packaging Limited, pursuant to a stock
purchase agreement with a creditor of Texon Energy Corporation and its
subsidiaries. The Data Packaging Limited stock had been pledged by such
subsidiaries as collateral for debt obligations, and had been acquired by the
creditor through foreclosure. Mr. Charles E. Bradley, Sr. is the President,
acting Chief Financial Officer, a director and a stockholder of Texon Energy,
and beneficial owner of approximately 14% of Texon Energy's outstanding common
stock.

Prior to the Data Packaging Limited acquisition, Data Packaging Limited was
indebted to Stanwich Oil & Gas pursuant to a $250,000 10% loan agreement dated
June 14, 1995. Mr. Bradley, Sr. and Mr. Poole are officers, directors and the
principal stockholders of Stanwich Oil & Gas. On December 16, 1996, Reunion
Industries purchased the indebtedness of Data Packaging Limited from Stanwich
Oil & Gas for $249,430, representing the outstanding balance of principal and
interest that Data Packaging Limited owed to Stanwich Oil & Gas at that date.

Other Reunion Industries and Oneida Rostone Affiliate Transactions

In November 1995, Mr. Charles E. Bradley, Sr. loaned Reunion Industries
$1.35 million evidenced by two notes, each bearing interest from November 1,
1995 at a rate of 10% per annum and each due and payable on September 14, 1997.
These notes were repaid in full in May 1996 from the proceeds of the sale of
Reunion Industries' oil and gas assets.

Beginning in 1997, Oneida Rostone entered into leases for machinery and
equipment with CPS Leasing, Inc., a subsidiary of Consumer Portfolio Services,
Inc. Mr. Charles E. Bradley, Sr. and Mr. Poole are directors and 19% and 2%
stockholders, respectively, of Consumer Portfolio Services. Mr. Charles E.
Bradley, Jr. is the Chief Executive Officer of Consumer Portfolio Services and
a director of Chatwins Group. The leases are for terms of five to seven years,
with aggregate future minimum rental commitments of $937,000 as of December 31,
1998. Reunion Industries believes that the terms of these leases are comparable
to those available from third parties.

In May 1997, Reunion Industries loaned $1.5 million to SST Acquisition
Corp., a company in which Mr. Charles E. Bradley, Sr. and Mr. Poole are 50%
stockholders. The loan was repaid after three days with interest at 9% plus a
$15,000 transaction fee.

Beginning in August 1998, Reunion Industries borrowed $1.1 million in funds
for corporate working capital from Stanwich Financial Services in the form of a
$500,000 promissory note and a $600,000 credit line note. The debt bears
interest at 15% and was originally scheduled to mature September 30, 1998.
Reunion Industries repaid $800,000, including interest, in February 1999 and
$303,000, including interest, in August 1999 to fully repay the loans. Also in
August 1999, Reunion Industries loaned $310,000 to Stanwich Financial Services.
This loan is repayable December 31, 1999 with interest at 15%.

136
<PAGE>

Reunion Industries subleases from Stanwich Partners approximately 1,500
square feet of office space in Stamford, Connecticut for its corporate offices.
Management believes that the terms of this sublease are comparable to those
available from third parties.

Under the arrangements described above, the Reunion Industries consolidated
financial statements include the following amounts and balances:

<TABLE>
<CAPTION>
Year Ended
December 31,
--------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Rent Expense:
CPS Leasing................................................. $167 $ 64 --
Stanwich Partners........................................... 32 32 23
Chatwins Group and Mr. Charles E. Bradley, Sr............... -- -- 42
Travel Expense:
Butler Air.................................................. 73 -- --
Interest Expense:
Mr. Bradley................................................. 112 112 178
CGI Investment.............................................. 38 38 37
Stanwich Financial Services................................. 25 -- --
Chatwins Group.............................................. -- -- 199
Stanwich Oil & Gas.......................................... -- -- 2
Guarantee fees: Mr. Charles E. Bradley, Sr.................. 190 41 55
</TABLE>

<TABLE>
<CAPTION>
As of
December 31,
------------
1998 1997
------ -----
<S> <C> <C>
Current liabilities:
Stanwich Financial Services: short-term debt................ $1,015 $ --
CGI Investment: interest.................................... 109 72
Stanwich Financial Services: interest....................... 25 --
Butler Air: travel.......................................... 18 --
Mr. Charles E. Bradley, Sr.: fees........................... -- 28
Long term debt-related parties:
Mr. Bradley................................................. 1,017 1,017
CGI Investment.............................................. 368 368
CPS Leasing................................................. -- 157
Other liabilities: Fees payable to Mr. Charles E. Bradley,
Sr........................................................... 123 123
</TABLE>

<TABLE>
<CAPTION>
As of
December 31,
-------------
1998 1997
------ ------
<S> <C> <C>
Future minimum rental commitments under noncancellable oper-
ating leases: CPS Leasing.................................. $ 937 $ 706
</TABLE>

Oneida Rostone manufacturers component parts for Kingway. Sales to Kingway
in 1998 were $299,000, and were at margins equivalent to those earned on sales
to third party customers at comparable volumes.

Other Chatwins Group Transactions

Chatwins Group/Stanwich Partners Consulting Agreement. Pursuant to a
consulting agreement dated and effective as of March 31, 1993, as amended,
Chatwins Group retains Stanwich Partners to render financial planning and
reporting consulting services. The consulting agreement expires on March 31,
2003 unless terminated earlier by Stanwich Partners on 30 days' notice. The
consulting agreement provides for the payment

137
<PAGE>

of an annual consulting fee to Stanwich Partners of $300,000, and the
reimbursement of any reasonable and necessary out-of-pocket expenses incurred
by Stanwich Partners in connection with its performance under the consulting
agreement.

Consulting fees of $300,000 in each of 1996, 1997 and 1998 were paid by
Chatwins Group to Stanwich Partners in accordance with the consulting
agreement.

Chatwins Group Loans to Robinson Incorporated. Chatwins Group had
outstanding loans to Robinson Incorporated, an oil and gas company operating in
Oklahoma controlled by Mr. Charles E. Bradley, Sr., Mr. Poole, Mr. Lawyer and
Jack T. Croushore, Vice President of Chatwins Group. The aggregate amount of
such loans and the largest principal amount outstanding under such loans in
1995 was $800,000. In December 1995, Chatwins Group agreed to settle in full
the two notes receivable from Robinson for the cash payment of $58,000 plus a
warrant to purchase up to 50% of the common stock of Robinson at any time in
the future. As a result of this agreement, Chatwins Group recognized a $701,000
loss on the settlement of these notes. On December 29, 1997 Reunion Industries
purchased the Robinson warrant for $22,676 in cash, and Reunion Industries
still holds the warrant. During 1998, Chatwins Group's Europa division sold its
interest in a West Virginia well to and collected other fees from Robinson for
a total of $100,000 in cash.

Chatwins Group Stockholder Notes. In January 1988, Mr. Charles E. Bradley,
Sr., Mr. Poole and two former stockholders of Chatwins Group subscribed for
Chatwins Group preferred stock in consideration of their payment of an
aggregate of $57,500 in cash and their personal interest free demand notes,
dated January 15, 1988, payable to Chatwins Group in the aggregate principal
amount of approximately $1.01 million. The class of preferred stock acquired by
them was converted into common stock of Chatwins Group in connection with the
May 1988 merger that combined most of Chatwins Group's business lines as
divisions of Chatwins Group. At the time the stockholder notes were executed,
Chatwins Group and Messrs. Bradley and Poole and the other former stockholders
had an unwritten understanding that payment on the notes would not be demanded
until such time as Chatwins Group was sold or funds for the repayment of the
notes were distributed to them as dividends on their shares of Chatwins Group
common stock.

In September 1993, Chatwins Group purchased all the shares of Chatwins Group
common stock owned by the obligors of the stockholders notes other than Messrs.
Bradley and Poole. In connection with Chatwins Group's purchase of such shares,
Messrs. Bradley and Poole assumed the obligations of such former stockholders
under their respective notes. The amount outstanding at December 31, 1998 under
(i) Mr. Bradley's note was $643,166, (ii) Mr. Poole's note was $206,704, and
(iii) the two other notes assumed by Messrs. Bradley and Poole was $150,874.

In connection with the merger, Reunion Industries will succeed to Chatwins
Group's rights with respect to the notes with the issuance of the new
stockholder notes, which will bear interest at a rate of 10% per annum and be
repaid from and to the extent dividends on or redemptions of the Reunion
Industries Series A preferred stock are paid.

CPS Leasing, Inc. During 1997 and 1998, Chatwins Group entered into thirteen
operating lease agreements with CPS Leasing. During 1997 and 1998, Chatwins
Group made lease payments totaling $39,112 and $209,989 to CPS Leasing.

Kingway Services Agreement. The Auto-Lok division of Chatwins Group and
Kingway entered into a services agreement as of April 1, 1998 pursuant to which
Kingway would utilize Auto-Lok's surplus capacity in consideration for cash
fees approximately equal to Auto-Lok's costs of providing the surplus capacity
plus a right of first negotiation to acquire Kingway from Stanwich Acquisition.
While this right of first negotiation has

138
<PAGE>

expired, the services agreement is effective for a period of one year and may
be renewed annually upon the mutual consent of Chatwins Group and Stanwich
Acquisition no later than 60 days prior to the end of the original term or any
renewal thereof. The services agreement has been renewed through April 1, 2000.

NAPTech Services Agreement. The CP Industries division of Chatwins Group and
NAPTech entered into a services agreement as of August 26, 1998 pursuant to
which CP Industries would provide certain administrative services to NAPTech
for cash fees which will approximate $29,000 per month. NAPTech is wholly owned
by Mr. Bradley and manufactures steel seamless pressure vessels. The services
agreement is effective for a period of one year and may be renewed annually
upon the mutual consent of Chatwins Group and NAPTech no later than 60 days
prior to the end of the original term or any renewal thereof. The services
agreement has been renewed through August 31, 2000. On August 25, 1998 Chatwins
Group purchased from NAPTech $1.0 million of inventory usable by CP Industries
in its normal course of business.

NationsBank Guarantee. Beginning in January 1999, Mr. Charles E. Bradley,
Sr. guaranteed up to $3,470,000 of the special availability amount borrowed
under Chatwins Group's revolving credit facility with NationsBank for a fee of
5% annually. The guarantee ended by its terms on September 30, 1999. Chatwins
Group paid Mr. Bradley, Sr. a fee of $112,500 in October 1999.

Certain Other Agreements

Reunion Industries obtains its property, casualty and product and general
liability insurance coverage through a joint arrangement with Chatwins Group,
and Reunion Industries and Chatwins Group shared the costs in proportion to the
coverages.

Beginning February 1998, both Reunion Industries and Chatwins Group entered
into arrangements for flying services with Butler Air, Inc. Mr. Charles E.
Bradley, Sr. is a director of Butler Air and the owner of 65% of Stanwich
Aviation Company, Inc., of which Butler Air is a wholly-owned subsidiary.
Butler Air provides charter flight services for certain business travel of
Reunion Industries officers and employees at rates which Reunion Industries
believes are comparable to those available from third parties. Reunion
Industries and Chatwins Group pay monthly minimums each of $5,000, which are
credited against services as used. These arrangements were terminated as of
June 30, 1999.

139
<PAGE>

PROPOSAL 2:

THE ELECTION OF DIRECTORS

At the annual meeting, the stockholders of Reunion Industries will be asked
to vote for the election of six directors to the board of directors of Reunion
Industries. The candidates proposed by management for election at the annual
meeting are Thomas N. Amonett, Charles E. Bradley, Sr., Thomas L. Cassidy, W.R.
Clerihue, Franklin Myers, and John G. Poole. If elected, these candidates would
comprise the entire board of directors of Reunion Industries, and would hold
office until their successors are duly elected and qualified at the next annual
meeting of stockholders of Reunion Industries or until they earlier die, resign
or are removed from office in accordance with applicable law. The persons
listed as "Nominees" in the table below comprise the entire board of directors
of Reunion Industries as of the date of this proxy statement/prospectus.

Nominees

Each of the six persons standing for election at the annual meeting
currently is a director of Reunion Industries. There are no arrangements or
understandings between any nominee for director and any other person pursuant
to which such person was selected as nominee.

<TABLE>
<CAPTION>
Principal Position Director
Name with the Company Age Since
---- ------------------------- --- --------
<S> <C> <C> <C>
Thomas N. Amonett..................... Director 56 1992
Charles E. Bradley, Sr................ Director, President & CEO 70 1995
Thomas L. Cassidy..................... Director 71 1995
W.R. Clerihue......................... Director 76 1996
Franklin Myers........................ Director 46 1995
John G. Poole......................... Director 56 1996
</TABLE>

Thomas N. Amonett has served as a director of Reunion Industries since July
1, 1992 and served as the President and Chief Executive Officer of Reunion
Industries from July 1, 1992 until October 26, 1995. Mr. Amonett also served as
the President of the Reunion Energy Company, then a wholly-owned subsidiary of
Reunion Industries in the oil and gas operating business, from July 1, 1992
until May 24, 1996. From November 1998 to June 1999, Mr. Amonett was President,
Chief Executive Officer and a director of American Residential Services, Inc.,
a company providing equipment and services relating to residential heating,
ventilating, air conditioning, plumbing, electrical and indoor air quality
systems and appliances. From July, 1996 until June, 1997, Mr. Amonett was
Interim President and Chief Executive Officer of Weatherford Enterra, Inc., an
energy services and manufacturing company. Prior to his affiliation with
Reunion Industries, he had been engaged in the practice of law with Fulbright &
Jaworski in Houston, Texas, where he was of counsel for more than five years.
Mr. Amonett serves as a director of Petro Corp. Incorporated, a Houston-based
oil and gas company, and ITEQ, Inc., a provider of manufactured equipment,
engineered systems and services used in the processing, treatment, storage and
movement of gases and liquids.

Charles E. Bradley, Sr. became a director of Reunion Industries on June 20,
1995 and was appointed President and Chief Executive Officer of Reunion
Industries on October 26, 1995. Mr. Bradley is a co-founder of Stanwich
Partners in 1982 and has served as its President since that time. Stanwich
Partners is a private investment company. Mr. Bradley has been a director of
Chatwins Group since 1986 and Chairman of the Board of Chatwins Group since
1988. Mr. Bradley is a director of DeVlieg-Bullard, Inc., a machine tool parts
and services company, General Housewares Corp., a manufacturer and distributor
of housewares, Consumer Portfolio Services, Inc., engaged in the business of
purchasing, selling and servicing retail automobile installment sales
contracts, NAB Asset Corporation, engaged in mortgage and construction lending,
Audits and Surveys, Inc., an international marketing research firm, and Zydeco
Energy Inc., an oil and gas reserve development company. Mr. Bradley is
currently the Chairman of the Board of DeVlieg-Bullard, Chairman and CEO of NAB
Asset Corporation as well as President and acting Chief Financial Officer and a
director of Sanitas Inc., an inactive company, and President, acting Chief
Financial Officer and a director of Texon Energy Corporation, an inactive
company. Mr. Bradley is the father of Kimball J. Bradley.

140
<PAGE>

Thomas L. Cassidy became a director of Reunion Industries on June 20, 1995.
Mr. Cassidy has been a Managing Director of Trust Company of the West, an
investment management firm, since 1984. He is also a Senior Partner of TCW
Capital, an affiliate of Trust Company of the West. He is a director of
DeVlieg-Bullard and Spartech Corporation, a plastics manufacturing company. Mr.
Cassidy was a director of Chatwins Group from March 1993 to June 1997.

W. R. Clerihue became a director of Reunion Industries in December 1996. Mr.
Clerihue has been Chairman of the board of directors of Spartech Corporation
since October 1991.

Franklin Myers served as a director of Reunion Industries from July 1, 1992
until June 20, 1995, when he resigned contemporaneously with the sale of
1,450,000 shares of Reunion Industries' common stock by Parkdale Holdings
Corporation N.V. to Chatwins Group. Mr. Myers was reappointed as a director of
Reunion Industries on October 26, 1995. On April 1, 1995, Mr. Myers became
Senior Vice President, General Counsel and Secretary of Cooper Cameron
Corporation, an oil field manufacturing company. Prior thereto he was Senior
Vice President and General Counsel of Baker Hughes Incorporated, an
international oil field service and equipment company, for more than six years.

John G. Poole became a director of Reunion Industries on April 19, 1996. Mr.
Poole was a co-founder of Stanwich Partners with Mr. Bradley in 1982 and has
served as Stanwich Partner's Vice President since that time. Mr. Poole has been
a director of Chatwins Group since 1988, and is also a director of DeVlieg-
Bullard, Consumer Portfolio Services and Sanitas, Inc.

Board and Committee Activity

During 1998, the board convened on eight regularly or specially scheduled
occasions. The Compensation Committee of the board held two meetings in 1998
and the Audit Committee held one meeting. Each of the present directors of
Reunion Industries attended all of the meetings of the board and of each
committee on which he served during his respective tenure in 1998, except that
Mr. Myers was absent from two board meetings.

Reunion Industries' operations are managed under the broad supervision and
direction of the board of Directors, which has the ultimate responsibility for
the establishment and implementation of Reunion Industries' general operating
philosophy, objectives, goals and policies. Pursuant to delegated authority,
certain board functions may be discharged by one or more standing committees of
the board. The Compensation Committee, which is comprised of Messrs. Amonett,
Cassidy, who is the Chairman, and Clerihue, is responsible for the formulation
and adoption of all executive compensation, benefit and insurance programs,
subject to full board approval where legally required or in those instances
where the underlying benefit philosophy might be at variance with preexisting
board policies. The Compensation Committee also supervises the administration
of all executive compensation and benefit programs, including the establishment
of any specific criteria against which all annual performance based benefits
are to be measured. The Audit Committee, comprised of Messrs. Amonett, Clerihue
and Myers, who is Chairman, assists the board in assuring that the accounting
and reporting practices of Reunion Industries are in accordance with all
applicable requirements. The Audit Committee reviews with Reunion Industries'
independent auditors the scope of the proposed audit work and meets with the
auditors to discuss matters pertaining to the audit and any other matter which
the Committee or the auditors may wish to discuss. In addition, the Audit
Committee would recommend the appointment of new independent auditors to the
board of directors if future circumstances were to indicate that such action
was desirable. The board of directors does not maintain executive or nominating
committees. Stockholders who may wish to suggest individuals for possible
future consideration for board positions should direct recommendations to the
board of directors at Reunion Industries' principal offices.

Director Compensation

Directors not otherwise compensated by Reunion Industries receive annual
retainers of $18,000 for service on the board and $500 for each board or
committee meeting attended. Compensation paid to non-employee

141
<PAGE>

directors during 1998 for service in all board capacities aggregated $111,000.
Directors are reimbursed for the actual cost of any travel expenses incurred.
Additionally, non-employee directors of Reunion Industries are eligible for
awards under the 1998 Stock Option Plan of Reunion Industries. On February 13,
1998, the board of directors granted options to purchase 15,000 shares of
common stock to each of Mr. Amonett, Mr. Cassidy, Mr. Clerihue, Mr. Myers and
Mr. Poole. The options are exercisable for ten years from the date of grant for
an exercise price of $5 1/16 and vested immediately.

Security Ownership of Certain Beneficial Owners and Management

As of October 22, 1999, Reunion Industries had outstanding 3,940,100 shares
of common stock. The following table sets forth information regarding the
beneficial ownership of Reunion Industries' common stock at October 22, 1999,
by the following:

. each stockholder known to Reunion Industries to own 5% or more of the
company's common stock

. each director of Reunion Industries

. each of the chief executive officer and the other named executive
officers

. all current directors and executive officers as a group

Except as set forth in the footnotes to the following table, each
stockholder has sole dispositive and voting power with respect to the shares of
Reunion Industries' common stock shown as owned by him.

<TABLE>
<CAPTION>
Amount and Percent
Name Nature of
(and Address of 5% of Beneficial Owners) of Ownership Class
- - - ---------------------------------------- ------------ -------
<S> <C> <C>
Chatwins Group, Inc.................................... 1,450,000 36.8%
300 Weyman Plaza, Suite 340
Pittsburgh, PA 15236
Bradley Family Limited Partnership..................... 1,450,000(1) 36.8%
c/o Stanwich Partners, Inc.
62 Southfield Avenue
One Stamford Landing
Stamford, CT 06902
Stanwich Partners, Inc................................. 1,450,000(1) 36.8%
62 Southfield Avenue
One Stamford Landing
Stamford, CT 06902
Stanwich Financial Services Corp....................... 271,280(2) 6.9%
c/o Stanwich Partners, Inc.
62 Southfield Avenue
One Stamford Landing
Stamford, CT 06902
Thomas N. Amonett...................................... 49,000(3) 1.2%
Charles E. Bradley, Sr................................. 1,477,600(4) 37.2%
Thomas L. Cassidy...................................... 30,000(3) 0.8%
W.R. Clerihue.......................................... 20,000(3) 0.5%
Franklin Myers......................................... 118,710(3) 3.0%
John G. Poole.......................................... 1,465,000(1)(3) 37.0%
Richard L. Evans....................................... 63,000(5) 1.6%
All current directors and executive officers as a group
(8 individuals)....................................... 1,773,310(6) 43.3%
</TABLE>
- - - --------
(1) Includes all shares of common stock shown as beneficially owned by Chatwins
Group. The Bradley Family Limited Partnership, established by Mr. Charles
E. Bradley, Sr. in May 1998 for estate planning purposes and of which Mr.
Bradley owns 1% as general partner and 55% as a limited partner. The
Bradley

142
<PAGE>

Family Limited Partnership beneficially owns the shares owned by Chatwins
Group due to its ownership of Chatwins Group stock. The Bradley Family
Limited Partnership has designated Stanwich Partners, to vote these shares
and Stanwich Partners in turn has designated Mr. Poole, who is one of its
officers, as the person to vote these shares on its behalf. Pursuant to
Rule 13d-3, Mr. Charles E. Bradley, Sr. and the Bradley Family Limited
Partnership may be deemed to be the beneficial owner of these shares with
shared dispositive power with respect thereto, and Stanwich Partners and
Mr. Poole may be deemed to be the beneficial owner of these shares with
voting power with respect thereto.

(2) Acquired by Stanwich Financial Services from Parkdale Holdings Corporation
N.V. pursuant to a settlement agreement with respect to loans secured by
these shares. On January 28, 1999, Reunion Industries board of directors
resolved to permit this transaction notwithstanding the transfer
restrictions in Reunion Industries' certificate of incorporation after
determining that, based on the facts presently in existence, the
transaction will not jeopardize Reunion Industries' full utilization of its
tax benefits.

(3) Includes options to purchase 15,000 shares of common stock.

(4) Includes currently exercisable options to purchase 27,600 shares of common
stock. Includes all shares of common stock shown as beneficially owned by
Chatwins Group. Mr. Bradley is Chairman of the Board of Chatwins Group as
well as the beneficial owner of more than 47% of the issued and outstanding
shares of Chatwins Group and may, under Rule 13d-3, be deemed beneficial
owner of all shares of Reunion Industries common stock beneficially owned
by Chatwins Group. Mr. Bradley disclaims such beneficial ownership. See
note 1.

(5) Includes currently exercisable options to purchase 52,000 shares of common
stock.

(6) Includes currently exercisable options to purchase an aggregate of 154,600
shares of common stock.

Executive Officers of Reunion Industries

The following table sets forth the names and ages of all executive officers
of Reunion Industries and its principal subsidiary and their positions and
offices with Reunion Industries:

<TABLE>
<CAPTION>
Name Position Age
---- -------- ---
<S> <C> <C>
Charles E.
Bradley, Sr... Director, President and Chief Executive Officer 70
Richard L. Ev-
ans........... Executive Vice President, Chief Financial Officer and Secretary 47
Robert L. Sny-
der........... President, Oneida Rostone 53
</TABLE>

The business experience of Mr. Charles S. Bradley, Sr. is described above in
the section entitled "Nominees--Charles E. Bradley, Sr."

Richard L. Evans joined the Company as Executive Vice President and Chief
Financial Officer in October 1995. He was appointed Secretary of the Company in
December 1995. From May 1993 to September 1995, he was Controller of Terex
Corporation, a capital goods manufacturer. From October 1989 to May 1993, Mr.
Evans was Controller of Stanwich Partners.

Robert L. Snyder has served as President of Oneida Rostone since June 1999.
From June 1996 to October 1998, he was president of Draftex, Inc. USA, a
supplier of automotive rubber sealing components. From January 1991 to June
1996, Mr. Synder was employed by Harvard Industries, Inc. a supplier of
components to automotive manufacturers, in several positions, including Senior
Vice President of Operations, Body Systems Group from October 1995 to June
1996.

143
<PAGE>

Executive Compensation and Other Information

The following table reflects all forms of compensation for services to
Reunion Industries for the years ended December 31, 1998, 1997 and 1996, of
those individuals who were at December 31, 1998 the chief executive officer and
the other named executives officers:

Summary Compensation Table

<TABLE>
<CAPTION>
Annual Compensation Long-Term
--------------------------------------- Compensation
Other Annual Stock Options All Other
Name and Principal Position Year Salary Bonus (1) Compensation(2) (Shares) Compensation(3)
- - - --------------------------- ---- -------- --------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Charles E. Bradley,
Sr..................... 1998 $150,000 $ 0 $ 0 75,000 $ 0
President and Chief ... 1997 100,000 0 0 0 300
Executive Officer...... 1996 100,000 0 0 0 312

Richard L. Evans........ 1998 $165,000 $15,000 $ 0 20,000 $7,411
Executive Vice Presi-
dent,.................. 1997 150,000 75,000 0 0 4,662
CFO and Secretary...... 1996 135,000 30,000 0 50,000 4,352

David N. Harrington..... 1998 $255,000 $ 0 $52,000 0 $3,064
President and Chief Ex-
ecutive................ 1997 259,904 51,000 52,000 0 2,614
Officer, Oneida
Rostone(4)............. 1996 240,000 48,000 52,000 0 2,297
</TABLE>
- - - --------
(1) Amounts shown for bonuses are amounts earned for the period shown, although
such bonuses are generally paid in the subsequent year.

(2) Includes automobile allowance, and certain deferred compensation.

(3) Contributions under nondiscriminatory defined contribution plan and certain
health insurance plans of Reunion Industries and/or its subsidiaries.
Reunion Industries maintains a voluntary employee retirement plan under
which employees of Reunion Industries and its subsidiaries may contribute
up to 18% of their pre-tax earnings, with Reunion Industries making
matching contributions of 25% of each employee's contribution, not to
exceed 4% of each participant's pre-tax earnings.

(4) Mr. Harrington retired in May 1999.

Option Grants In Last Fiscal Year

The following table sets forth information with respect to the options to
purchase shares of common stock granted under all stock option plans to the
named executive officers in the fiscal year ended December 31, 1998.

<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of
Stock Price
Number of Appreciation for
Securities Percent of Total Option Term
Underlying Options/SARs --------------------
Options/ Granted to Exercise or Base Expiration
Name SARs Granted Employees in FY Price ($/Share) Date 5%($) 20%($)
- - - ---- ------------ ---------------- ---------------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Charles E. Bradley,
Sr..................... 75,000 44% $7.21875 05/19/2003 $ 86,768 $ 252,273
Richard L. Evans........ 20,000 12% $ 5.0625 02/13/2003 $ 27,975 $ 61,814
</TABLE>

144
<PAGE>

Option Exercises In Last Fiscal Year and Year-End Values

The following table sets forth information with respect to the exercise of
options during the year ended December 31, 1998 and the unexercised options to
purchase shares of common stock granted under all stock option plans to the
named executive officers and held by them at December 31, 1998:

<TABLE>
<CAPTION>
Number of
Securities Underlying Value of Unexercised
Unexercised Options at in-the-Money Options at
Number of December 31, 1998 December 31, 1998(1)
Shares Acquired ------------------------- -------------------------
Name On Exercise Value Realized Exercisable Unexercisable Exercisable Unexercisable
- - - ---- --------------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Charles E. Bradley,
Sr..................... -0- -0- 13,800 61,200(2) -0- -0-
Richard L. Evans........ 7,465 $4,199 46,535 16,000(3) -0- -0-
</TABLE>
- - - --------
(1) None of the outstanding options were in-the-money at December 31, 1998. In
addition to the options granted in 1998 to Mr. Bradley and Mr. Evans, Mr.
Evans has exercisable options for 42,535 shares at $4.4375 per share. The
closing sales price of the common stock on NASDAQ Small-Cap Market on
December 31, 1998 was $2.75.

(2) These options become exercisable in annual 13,800 share increments on May
19, 1999 through May 19, 2002 and 6,000 shares on January 2, 2003.

(3) These options become exercisable in 8,000 share increments on February 13,
1999 and February 13, 2000.

Employment Contracts, Termination of Employment and Change-in-Control
Arrangements

Oneida Rostone entered into an employment agreement dated May 3, 1999 with
Robert L. Snyder, its President. Pursuant to the employment agreement, Mr.
Snyder will receive the following:

. an annual base salary of $225,000 in 1999, increased 4% each calendar
year during the term of the agreement beginning on January 1, 2000

. an annual cash bonus of up to 100% of his annual base salary based upon
Oneida Rostone's actual performance for the year as compared to Oneida
Rostone's budgeted performance for the year

. a monthly car allowance of $600

. coverage under Oneida Rostone's fringe benefit plans for executives.

Compensation Committee Report

The Compensation Committee of the board of directors has furnished the
following report on executive compensation for 1998:

The board of directors pursues a philosophy of seeking to improve Reunion
Industries' performance and to maximize stockholder value by, among other
things, relating executive compensation and stock-based benefits to Reunion
Industries' performance. In general, executive financial rewards may be
segregated into the following significant components: base compensation, bonus,
and stock option and other benefit plans.

Base compensation for senior executives is intended to be competitive with
that paid in comparably situated companies, but with a reasonable degree of
financial security and flexibility afforded to those individuals who are
regarded by the board of directors as acceptably discharging the levels and
types of responsibility implicit in the various senior executive positions.
While the committee's principal concern is with establishing compensation
programs and setting executive compensation at levels which are somewhat
reflective of those prevailing in the molded plastics industry for similar
executive positions, no comparability studies were conducted for executive
salaries to be paid in 1998.

Under the supervision of the Compensation Committee, annual bonuses reflect
a policy of requiring a specified level of Reunion Industries performance for
the year before any bonuses are earned by senior

145
<PAGE>

executives, with bonuses for achieving higher levels of performance directly
related to the level achieved. In setting performance criteria, the Committee
will consider the total compensation payable or potentially available to the
chief executive and other executives officers. While the development of any
business necessarily involves numerous factors, the board's primary emphasis
will be on encouraging management to increase Reunion Industries' net assets
and cash flow, and in certain instances, rationalization of certain Reunion
Industries businesses or assets. Mr. Harrington did not receive an award for
1998 from Reunion Industries' Oneida Rostone subsidiary based upon Oneida
Rostone's failure to attain specific earnings objectives in 1998. The $15,000
bonus awarded to Mr. Evans was at the discretion of the board, based upon his
performance in managing the acquisitions, divestitures, financial and
administrative activities of Reunion Industries.

The board of directors is of the view that properly designed and
administered long-term, stock-based incentives for senior executives closely
align the executives' economic interests with those of stockholders and provide
a direct and continuing focus upon the goal of constantly striving to maximize
stockholder value. The Compensation Committee intends, with any necessary
concurrence of the board of directors, to continue to consider alternate forms
of stock-based incentives with a view to achieving the maximum possible
performance based benefit to all senior executives at the least possible cost
and the greatest attainable economic efficiency to Reunion Industries, with
such benefits designed as nearly as practicable to directly align the economic
interests of professional managers with those of Reunion Industries'
stockholders.

Pursuant to applicable rules of the SEC, as of October 22, 1999 members of
the Compensation Committee are deemed to own beneficially an aggregate of
99,000 shares, or 2.5% of the Reunion Industries common stock. See "--Security
Ownership of Certain Beneficial Owners and Management".

Compensation Committee Interlocks and Insider Participation

See "--Nominees--Thomas N. Amonett" above.

See "--Nominees--Thomas L. Cassidy" above, "--Security Ownership of Certain
Beneficial Owners and Management", and "Certain Relationships and Related
Transactions and Material Contacts with the Company Being Acquired" for a
discussion of Mr. Cassidy's relationship to Chatwins Group and Mr. Cassidy's
and Chatwins Group's relationship to Reunion Industries.

The Compensation Committee
Thomas L. Cassidy, Chairman
Thomas N. Amonett
W.R. Clerihue

146
<PAGE>

Common Stock Performance Graph

The following graph illustrates the yearly percentage change in the
cumulative total stockholder return on Reunion Industries' common stock,
compared with the cumulative total return on the Standard & Poor's 500 Stock
Index, and a "Peer Group" Index for the five years ended December 31, 1998:

Five Year Total Return(1)

[GRAPH APPEARS HERE]

<TABLE>
<CAPTION>
Fiscal Year Ending
---------------------------------------
Company 1993 1994 1995 1996 1997 1998
- - - ------- ---- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Reunion Industries, Inc................. 100 83.33 83.33 66.67 86.46 45.83
Peer Group(2)........................... 100 84.55 97.70 103.08 133.67 195.18
S&P 500 Index(3)........................ 100 101.32 139.40 171.41 228.59 293.92
</TABLE>
- - - --------
(1) Tabular data assumes that the value of the investment in Reunion
Industries' common stock and each index was $100 at January 1, 1994 and
that all dividends if any, were reinvested.

(2) Total Return Index provided by Media General Financial Services, Inc. for
the Peer Group of seven companies selected by Reunion Industries.
Calnetics Corp. and Sun Coast Industries, Inc., used previously in this
Peer Group by Reunion Industries, have since been acquired, are no longer
publicly traded, and hence have been omitted. The Peer Group is made up of
the following:

<TABLE>
<S> <C>
Advanced Technical Products Rotonics Manufacturing
Essef Corp. Summa Industries
Glassmaster Co. Triple S Plastics Inc.
Myers Industries Inc.
</TABLE>

(3) Standard & Poor's 500 Total Return Index provided by Media General
Financial Services, Inc.

147
<PAGE>

Compliance With Section 16(a) of Securities Exchange Act of 1934

Section 16(a) of the Securities Exchange Act of 1934, as amended requires
Reunion Industries' directors and officers and person who own beneficially more
than 10% of the common stock of Reunion Industries to file with the Securities
and Exchange Commission and the National Association of Securities Dealers
initial reports of beneficial ownership and reports of changes in beneficial
ownership of the common stock of Reunion Industries. Directors, officers and
person owning more than 10% of the common stock of Reunion Industries are
required to furnish Reunion Industries with copies of all such reports. Mr.
Evans failed to timely file Form 4 in March 1998 regarding the exercise of
options and Form 5 for the fiscal year ending December 31, 1998. Mr. Myers
failed to timely file Form 4 in June 1998 regarding the exercise of warrants
and Form 5 for the fiscal year ending December 31, 1998. Messrs. Amonett,
Bradley, Cassidy, Clerihue and Poole failed to timely file Form 5 for the
fiscal year ending December 31, 1998. All individuals have subsequently filed
the required forms.

Deadline For Stockholder Proposals

Proposals of stockholders of Reunion Industries intended to be presented at
the 2000 annual meeting of stockholders must be received by the Secretary of
Reunion Industries at One Stamford Landing, 62 Southfield Avenue, Stamford,
Connecticut 06902, by July 13, 2000. If such proposals are in compliance with
all of the requirements of Rule 14a-8 under the Exchange Act, they will be
included in the proxy statement and set forth on this form of proxy issued for
the next annual meeting of stockholders.

If a stockholder intends to present a proposal at the 2000 annual meeting of
stockholders without seeking to include the proposal in Reunion Industries'
proxy statement, management proxies will be entitled to use the discretionary
voting authority that will be contained in the proxies for the 2000 annual
meeting of stockholders to vote on the stockholder's proposal at the 2000
annual meeting of stockholders.

Copies of Reunion Industries' Annual Report on Form 10-K (excluding
exhibits) for the fiscal year ended December 31, 1998, as filed with the
Securities and Exchange Commission, will be furnished free of charge, upon
written request, to stockholders who have not previously received a copy from
Reunion Industries. In addition, Reunion Industries will furnish any exhibit to
its Annual Report on Form 10-K upon payment of a fee limited to Reunion
Industries' reasonable expenses in furnishing such exhibit upon written
request. Written requests may be directed to Richard L. Evans, Secretary,
Reunion Industries, Inc., 62 Southfield Avenue, One Stamford Landing, Stamford,
Connecticut 06902.

Accountants

Management expects PricewaterhouseCoopers LLP to be selected later in the
year by the Audit Committee of the board of directors to audit Reunion
Industries' financial statements for the fiscal year ending December 31, 1999.
Representatives of PricewaterhouseCoopers are expected to be present at the
annual meeting of stockholders on December 15, 1999 to respond to appropriate
questions.

EXPERTS

The consolidated financial statements of:

. Reunion Industries as of December 31, 1998 and 1997 and for each of the
three years in the period ended December 31, 1998

. Chatwins Group as of December 31, 1998 and 1997 and for each of the
three years in the period ended December 31, 1998

. Kingway as of December 31, 1998 and for the year then ended

included in this proxy statement/prospectus have been so included in reliance
on the reports of PricewaterhouseCoopers LLP, independent accountants, given on
their authority as experts in auditing and accounting.

148
<PAGE>

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
REUNION INDUSTRIES, INC.
Audited Financial Statements as of December 31, 1998 and 1997 and for the
Years Ended December 31, 1998, 1997 and 1996
Report of Independent Accountants...................................... F-2
Consolidated Balance Sheets............................................ F-3
Consolidated Statements of Operations and Comprehensive Loss........... F-4
Consolidated Statements of Cash Flows.................................. F-5
Consolidated Statements of Stockholders' Equity........................ F-6
Notes to Consolidated Financial Statements............................. F-7
Unaudited Financial Statements as of June 30, 1999 and for the Six Month
Periods Ended June 30, 1999 and 1998
Consolidated Balance Sheet............................................. F-35
Consolidated Statements of Operations and Comprehensive Loss........... F-36
Consolidated Statements of Cash Flows.................................. F-37
Notes to Unaudited Consolidated Financial Statements................... F-38
CHATWINS GROUP, INC.
Audited Financial Statements as of December 31, 1998 and 1997 and for the
Years Ended December 31, 1998, 1997 and 1996
Report of Independent Accountants...................................... F-43
Consolidated Balance Sheet............................................. F-44
Consolidated Statement of Income and Comprehensive Income.............. F-45
Consolidated Statement of Cash Flows................................... F-46
Notes to Consolidated Financial Statements............................. F-47
Unaudited Financial Statements as of June 30, 1999 and for the Six Month
Periods Ended June 30, 1999 and 1998
Consolidated Balance Sheet............................................. F-70
Condensed Consolidated Statement of Income and Comprehensive Income.... F-71
Condensed Consolidated Statement of Cash Flows......................... F-72
Notes to Unaudited Consolidated Financial Statements................... F-73
STANWICH ACQUISITION CORP.
Audited Financial Statements as of December 31, 1998 and for the Year
Then Ended
Report of Independent Accountants...................................... F-79
Balance Sheet.......................................................... F-80
Statement of Operations................................................ F-81
Statement of Cash Flows................................................ F-82
Notes to the Financial Statements...................................... F-83
Unaudited Financial Statements as of June 30, 1999 and for the Six Month
Periods Ended June 30, 1999 and 1998
Balance Sheet.......................................................... F-93
Statement of Operations................................................ F-94
Statement of Cash Flows................................................ F-95
Notes to the Unaudited Financial Statements............................ F-96
</TABLE>

F-1
<PAGE>

Report of Independent Accountants

To the Board of Directors and
Shareholders of Reunion Industries, Inc.

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of cash flows and of shareholders'
equity present fairly, in all material respects, the financial position of
Reunion Industries, Inc. and its subsidiaries (the "Company") at December 31,
1998 and 1997, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles. 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 of the consolidated financial statements in accordance
with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1, the cash
flows historically generated by the Company may not be sufficient to enable it
to meet its obligations when they come due, which raises substantial doubt
about its ability to continue as a going concern. Management's plans in regard
to this matter are also discussed in Note 1. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.

PRICEWATERHOUSECOOPERS LLP

New York, New York
March 17, 1999

F-2
<PAGE>

REUNION INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In Thousands)

<TABLE>
<CAPTION>
December 31,
-----------------
ASSETS 1998 1997
- - - ------ -------- -------
<S> <C> <C>
Current Assets
Cash and Cash Equivalents................................. $ 2,009 $ 2,085
Accounts Receivable, Less Allowance for Doubtful Accounts
of $360 and $375, respectively........................... 12,389 12,284
Inventories............................................... 7,104 7,570
Customer Tooling-in-process............................... 897 1,773
Other Current Assets...................................... 803 495
-------- -------
Total Current Assets.................................... 23,202 24,207
-------- -------
Property, Plant and Equipment--Net.......................... 41,353 35,293
-------- -------
Other Assets
Goodwill, net of Accumulated Amortization of $2,170 and
$1,481, respectively..................................... 8,371 9,060
Investment in Joint Venture............................... -- 1,622
Debt Issuance Costs....................................... 1,088 344
Assets Held for Sale...................................... 376 369
Other..................................................... 484 1,164
-------- -------
Total Other Assets...................................... 10,319 12,559
-------- -------
Total Assets............................................ $ 74,874 $72,059
======== =======
<CAPTION>
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS'
EQUITY
- - - ---------------------------------------------------------
<S> <C> <C>
Current Liabilities
Current Portion of Long-term Debt......................... $ 11,155 $11,568
Short Term Debt--Related Parties.......................... 1,015 --
Accounts Payable.......................................... 8,684 9,328
Advances From Customers................................... 1,249 2,484
Accrued Bargo Judgment.................................... 8,425 --
Accrued Salaries, Vacation and Benefits................... 1,688 1,940
Accrued Environmental Costs............................... 1,723 983
Other Current Liabilities................................. 2,180 1,731
-------- -------
Total Current Liabilities............................... 36,119 28,034
Long-Term Debt.............................................. 15,245 11,112
Long-Term Debt--Related Parties............................. 1,385 1,542
Other Liabilities........................................... 3,279 2,914
-------- -------
Total Liabilities....................................... 56,028 43,602
-------- -------
Redeemable Preferred Stock of Consolidated Subsidiary....... 607 --
Minority Interests.......................................... 2,000 140
Commitments and Contingencies (Note 15)
Stockholders' Equity
Common Stock ($.01 par value; 20,000 authorized; 3,900 and
3,855 issued and outstanding, respectively).............. 39 38
Additional Paid-in Capital................................ 29,332 29,242
Retained Earnings (Since January 1, 1989)................. (12,961) (578)
Foreign Currency Translation Adjustments.................. (171) (385)
-------- -------
Total Stockholders' Equity.............................. 16,239 28,317
-------- -------
Total Liabilities, Redeemable Preferred Stock and
Stockholders' Equity................................... $74,874 $72,059
======== =======
</TABLE>

See Accompanying Notes to Consolidated Financial Statements.

F-3
<PAGE>

REUNION INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1998 1997 1996
-------- ------- -------
<S> <C> <C> <C>
Operating Revenue
Plastic Products and Services.................... $ 95,064 $93,378 $60,305
Agriculture ..................................... 2,254 -- --
-------- ------- -------
$ 97,318 $93,378 $60,305
Operating Costs and Expenses
Plastic Products and Services--Cost of Sales..... 80,861 78,871 50,664
Agriculture--Cost of Sales....................... 2,227 -- --
Writedown of Excess Equipment.................... -- 958 --
Selling, General and Administrative.............. 11,373 11,036 8,192
Provision for Merger and Refinancing Costs....... 1,362 -- --
-------- ------- -------
95,823 90,865 58,856
-------- ------- -------
Operating Income .................................. 1,495 2,513 1,449
-------- ------- -------
Other Income and (Expense)
Interest Expense................................. (3,221) (3,267) (2,402)
Provision for Bargo Judgment and Related Costs... (9,239) -- --
Equity In Income (Loss) of The Juliana Preserve.. (388) 330 (266)
Equity In Writedown of The Juliana Preserve Real
Estate Development Costs........................ -- (855) (1,290)
Other, Including Interest Income................. 252 384 691
-------- ------- -------
(12,596) (3,408) (3,267)
-------- ------- -------
Loss From Continuing Operations Before Income
Taxes............................................. (11,101) (895) (1,818)
Income Tax Benefit (Expense)..................... 661 (86) (876)
-------- ------- -------
Loss From Continuing Operations.................... (10,440) (981) (2,694)
-------- ------- -------
Income (Loss) From Discontinued Operations
Disposal of Oil and Gas Operations............... (1,710) -- 1,122
Disposal of Agriculture Operations............... -- 710 (710)
-------- ------- -------
(1,710) 710 412
-------- ------- -------
Extraordinary item--loss on early extinguishment of
debt ............................................. (233) -- --
-------- ------- -------
Net Loss........................................... (12,383) (271) (2,282)
Foreign Currency Translation Adjustment............ 214 (356) (29)
-------- ------- -------
Comprehensive Loss................................. $(12,169) $ (627) $(2,311)
======== ======= =======
Earnings per share--Basic and Diluted
Loss from Continuing Operations.................. $ (2.69) $ (0.25) $ (0.70)
Income (Loss) from Discontinued Operations....... (0.44) 0.18 0.11
Extraordinary Item............................... (0.06) -- --
-------- ------- -------
Net Loss......................................... $ (3.19) $ (0.07) $ (0.59)
======== ======= =======
Weighted Average Number of Common Shares
Outstanding
Basic and Diluted................................ 3,881 3,855 3,855
======== ======= =======
</TABLE>

See Accompanying Notes to Consolidated Financial Statements.

F-4
<PAGE>

REUNION INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------
1998 1997 1996
-------- ------- --------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net Loss........................................ $(12,383) $ (271) $ (2,282)
Adjustments to Reconcile Net Loss to Net Cash
Provided by (Used in) Operating Activities:
Depreciation, Depletion and Amortization....... 3,634 3,062 1,694
Goodwill Amortization.......................... 689 706 591
Debt issuance costs amortization............... 1,157 -- --
Bargo Judgment Provision....................... 8,425 -- --
Provision for Environmental Remediation........ 1,200 -- --
Provision for Tax Audit Settlement............. 510 -- --
Impairment of Assets........................... -- 958 --
(Gain) Loss on Disposal of Discontinued
Operations.................................... -- (710) 710
Equity In Income of Joint Venture, Before
Depreciation.................................. (22) (640) (39)
Write Off Of Joint Venture Costs............... -- 855 1,290
Allowance for possible denial of AMT refund
claim......................................... -- -- 750
-------- ------- --------
3,210 3,960 2,714
Changes in Assets and Liabilities, net of
effects from acquisitions:
(Increase) Decrease in Accounts Receivable..... (16) 113 120
(Increase) Decrease in Inventories............. 503 (310) (29)
Increase (Decrease) in Accounts Payable........ (718) 530 (1,113)
Other.......................................... (604) (258) (449)
-------- ------- --------
Net Cash Provided by (Used in) Operating
Activities....................................... 2,375 4,035 1,243
-------- ------- --------
Cash Flows From Investing Activities:
Sale of Property, Plant and Equipment........... 2,560 -- 2,046
Purchase of Joint Venture Interest.............. (2,178) -- --
Other Capital Expenditures...................... (3,113) (3,868) (985)
Acquisition of businesses, net of cash
acquired....................................... -- -- (5,384)
Sale of Discontinued Operations................. -- 2,200 8,998
Other........................................... 512 141 25
-------- ------- --------
Net Cash Used in Investing Activities............. (2,219) (1,527) 4,700
-------- ------- --------
Cash Flows From Financing Activities:
Debt issuance costs............................. (1,901) -- (786)
Proceeds from Issuance of Debt.................. 7,102 2,746 10,509
Repayments of Debt.............................. (10,208) (3,889) (18,698)
Increase (Decrease) in Short Term Borrowings.... 3,439 (702) 3,910
Proceeds from issuance of subsidiary preferred
stock.......................................... 586 -- --
Proceeds of capital grants...................... 300 -- --
Proceeds From Exercise of Common Stock Options
and Warrants................................... 91 -- --
-------- ------- --------
Net Cash Used in Financing Activities............. (591) (1,845) (5,065)
-------- ------- --------
Effect of Exchange Rate on Cash................... 359 15 --
-------- ------- --------
Increase (Decrease) in Cash and Cash Equivalents.. (76) 678 878
Cash and Cash Equivalents at Beginning of Period.. 2,085 1,407 529
-------- ------- --------
Cash and Cash Equivalents at End of Period........ $ 2,009 $ 2,085 $ 1,407
======== ======= ========
</TABLE>

See Accompanying Notes to Consolidated Financial Statements.

F-5
<PAGE>

REUNION INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(In Thousands)

<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1998 1997 1996
-------------- -------------- ---------------
Shares Amounts Shares Amounts Shares Amounts
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Common Stock, Par Value $.01
per Share
Beginning Balance............ 3,855 $ 38 3,855 $ 38 4,112 $ 40
Retirement of Treasury
Shares...................... -- -- (257) (2)
Exercise of Stock Options and
Warrants.................... 45 1 -- -- --
----- ------- ----- ------- ----- -------
Ending Balance............... 3,900 39 3,855 38 3,855 38
Additional Paid-in Capital
Beginning Balance............ 29,242 29,242 31,037
Retirement of Treasury
Shares...................... -- -- (1,795)
Exercise of Stock Options and
Warrants.................... 90 --
------- ------- -------
Ending Balance............... 29,332 29,242 29,242
------- ------- -------
Retained Earnings
Beginning Balance............ (578) (307) 1,975
Net Loss..................... (12,383) (271) (2,282)
------- ------- -------
Ending Balance............... (12,961) (578) (307)
------- ------- -------
Less Treasury Shares
Beginning Balance............ (257) (1,798)
Retirement of Treasury
Shares...................... 257 1,798
Ending Balance............... -- --
----- -------
Foreign Currency Translation
Adjustments
Beginning Balance............ (385) (29) --
Current Year Adjustments..... 214 (356) (29)
------- ------- -------
Ending Balance............... (171) (385) (29)
------- ------- -------
Total Shareholders' Equity..... 3,900 $16,239 3,855 $28,317 3,855 $28,944
===== ======= ===== ======= ===== =======
</TABLE>

See Accompanying Notes to Consolidated Financial Statements.

F-6
<PAGE>

REUNION INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1998

(amounts in thousands, except share amounts)

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Businesses

Reunion Industries, Inc. ("RII") is the successor, by merger effective April
19, 1996, to Reunion Resources Company. As used herein, the term "Company"
refers to RII, its predecessors and its subsidiaries unless the context
indicates otherwise. The Company, through its wholly owned subsidiary, Oneida
Rostone Corp. ("ORC"), manufactures high volume, precision plastic products and
provides engineered plastics services. The Company through its wholly owned
subsidiary, Juliana Vineyards ("Juliana"), is also engaged in wine grape
agricultural operations in Napa County, California. The Company was previously
primarily engaged in oil and gas production in the United States; this business
was discontinued in 1995 (see Note 3). Information presented in the footnotes
is based on continuing operations unless the context indicates otherwise.

On February 26, 1999, the company announced that it had commenced
discussions with a third party to sell ORC. The Company also announced that it
has reinstituted merger discussions with Chatwins Group, Inc. ("Chatwins," a
related party--see Note 13) and has held financing discussions with prospective
lenders in connection with the proposed merger. The discussions with the third
party to sell ORC have subsequently been terminated. The Company has now
decided to suspend its plans for the sale of ORC in light of the ongoing
discussions regarding the possible merger with Chatwins and the related
refinancings. The Company has also had discussions regarding possible
acquisitions of Stanwich Acquisition Corp., doing business as King-Way Material
Handling Company ("King-Way") and of NPS Acquisition Corp., doing business as
NAPTech ("NAPTech"), at the same time as the Chatwins merger. King-Way and
NAPTech are affiliates of Chatwins and the Company (see Note 13).

Going Concern Considerations

The accompanying consolidated financial statements have been prepared on a
going concern basis which contemplates the realization of assets and the
settlement of liabilities and commitments in the normal course of business. The
Company has incurred losses in each of the last five years, including a loss of
$12,383 in the year ended December 31, 1998. Corporate expenses, including
salaries and benefits, professional fees and other public company costs, are
expected to approximate $1,500 annually. Legal costs to appeal the Bargo
litigation (see Note 15) and the cost of collateralizing the Bargo appeal bond
will add to corporate requirements. In addition, a significant portion of the
$1,503 accrued for environmental remediation of the Louisiana properties (see
Note 15) is expected to be expended during the next twelve months, and a
settlement payment for the California tax audit (see Note 15) is expected to be
made.

As described in Note 8, ORC closed a new credit facility with The CIT
Group/Business Credit, Inc. in October 1998. This new credit facility limits
payments to Reunion by ORC and Juliana. The new credit facility also provides a
letter of credit guarantee to provide credit support for a supersedeas bond in
the Bargo litigation. Since October 1998, substantially all the amounts
otherwise permitted to be paid by ORC to Reunion have been used to fund letter
of credit and guarantee fees relating to the supersedeas bond.

Without additional financing, management believes that the Company will not
have sufficient resources to meet its corporate expenses and legal and
environmental costs as they become due over the next twelve months. During
1998, the Company borrowed a total of $1,015 from Stanwich Financial Services
Corp., ("SFSC"), a related party--see Note 13. These borrowings bear interest
at 15%, and were due to mature September 30, 1998. SFSC has agreed to extend
the maturity date to December 31, 1999 while the Company seeks additional
financing. There can be no assurances that such financing will be arranged, or
that SFSC will extend the maturity indefinitely or lend additional funds. If
the Company is unable to arrange additional financing, it may be necessary to
sell one or more of the Company's businesses.

F-7
<PAGE>

REUNION INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

DECEMBER 31, 1998

As described above, the Company has announced that it has had merger
discussions with Chatwins, King-Way and NAPTech and has held financing
discussions with prospective lenders. If such transactions are completed,
management believes that there will be sufficient resources for the Company's
requirements. There can be no assurances that any of these transactions can be
consummated.

Principles of Consolidation

The consolidated financial statements include the accounts of RII and its
majority owned subsidiaries. All intercompany transactions and accounts are
eliminated in consolidation. As described in Note 6, Juliana purchased the
interest of its joint venture partner in the Juliana Preserve in September 1998
and, accordingly, the agricultural operations are included on a consolidated
basis subsequent to that date. Prior to September 1998, the Company accounted
for the agricultural operations on the equity method.

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 reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Significant
estimates with regard to these financial statements include the estimates of
amounts payable in connection with certain litigation and environmental
remediation (see Note 15) and estimates of the recoverable value of businesses
and other assets held for sale (see Notes 3 and 7).

Revenue Recognition

Revenue is recognized as products are delivered and services are provided to
customers. Revenues and costs associated with the production of customer tools
are deferred until the tools are completed and delivered to the customer. These
revenue and cost deferrals are classified as Advances from Customers and
Customer Tooling-in-process, respectively, in the Consolidated Balance Sheets.
Revenues for wine grape sales are recognized when grapes are delivered to
customers.

Cash and Cash Equivalents

Cash equivalents include time deposits, certificates of deposit and all
highly liquid instruments with maturities when purchased of three months or
less.

Restricted cash balances aggregating $177 and $134 at December 31, 1998 and
1997, respectively, have been included in Other Assets based on the nature of
the underlying obligation collateralized. Such balances relate to regulatory
operating deposits and other contractual obligations.

Inventories

Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method. Work-in-process and finished goods
include material costs, labor costs and manufacturing overhead.

F-8
<PAGE>

REUNION INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

DECEMBER 31, 1998

Property, Plant and Equipment

Property, plant and equipment is recorded at cost, including cost as
determined by the allocation of the purchase price in business acquisitions
accounted for using the purchase method. Expenditures for major renewals and
improvements are capitalized while expenditures for maintenance and repairs not
expected to extend the life of an asset are charged to expense when incurred.
Gains or losses are recognized when property and equipment is sold or otherwise
disposed of. Depreciation of property, plant and equipment is provided on the
straight-line method over their expected useful lives:

<TABLE>
<S> <C>
Plastic Products and Services:
Machinery and equipment ................................. 3 to 12 years
Buildings and improvements............................... 15 to 40 years
Land improvements........................................ 10 to 30 years
Agricultural Operations:
Land improvements........................................ 20 to 45 years
Equipment................................................ 5 to 45 years
</TABLE>

Long-Lived Assets and Impairment

Goodwill recorded as a result of business acquisitions is being amortized
using the straight-line method over 15 years. The Company reviews long-lived
assets, including goodwill, for impairment whenever circumstances indicate that
the carrying amount of the asset may not be recoverable, and recognizes an
impairment loss when the future cash flows expected to be generated by the
asset are less than the carrying amount of the asset. Long-lived assets held
for sale, other than assets to be disposed of in connection with disposal of a
discontinued business segment, are reported at the lower of carrying amount or
fair value less cost to sell.

Grants

Capital grants have been received from the Irish Government Development
Agency towards the cost of new buildings and equipment. Capital grants for
purchased assets are recorded as deferred credits on the balance sheet and
amortized to income over the useful lives of the related assets. Capital grants
for leased assets reduce the net present value of lease payments capitalized as
leased machinery. Training and feasibility study grants are credited against
the related expenses (principally training and travel expenses) as such costs
are incurred.

Translation of Foreign Currencies

All amounts in the accompanying consolidated financial statements are
denominated in U.S. dollars. Assets and liabilities of foreign subsidiaries
whose local currency is the functional currency are translated at exchange
rates in effect at the balance sheet date. Revenues and expenses of these
subsidiaries are translated at average exchange rates during the period.
Translation gains and losses are not included in results of operations but are
accumulated as a separate component of shareholders' equity. Gains and losses
from foreign currency transactions are included in results of operations.

Environmental Policies

Environmental expenditures that relate to current operations are either
expensed or capitalized depending on the nature of the expenditure.
Expenditures relating to conditions caused by past operations that do not

F-9
<PAGE>

REUNION INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

DECEMBER 31, 1998

contribute to current or future revenue generation are expensed. Liabilities
are recorded when environmental assessments and/or remediation actions are
probable, and the costs can be reasonably estimated (see Note 15).

Income Taxes

The Company provides deferred income taxes for all temporary differences
between financial and income tax reporting using the liability method. Deferred
taxes are determined based on the estimated future tax effect of differences
between the financial statement and tax bases of assets and liabilities given
the provisions of enacted tax laws. A valuation allowance is recorded for net
deferred tax assets if it is more likely than not that such assets will not be
realized. The Company has significant net operating loss and investment tax
credit carryforwards for tax purposes, a portion of which may expire unutilized
(see Note 12).

Earnings Per Share

Basic earnings per share is computed based on the weighted average number of
common shares outstanding during the period. Diluted earnings per share gives
effect to all dilutive potential common shares outstanding during this period.
Potential common shares include shares issuable upon exercise of the Company's
stock options and warrants (see Note 11).

Potential common shares relating to options and warrants to purchase common
stock aggregating 335,785, 215,750 and 215,750, respectively, were not included
in the weighted average number of shares for the years ended December 31, 1998,
1997 and 1996 because their effect would have been anti-dilutive.

Accounting Pronouncements

The Financial Accounting Standards Board (FASB) has issued the following
accounting pronouncement which the company will be required to adopt in future
periods:

FASB Statement No. 133 "Accounting for Derivative Instruments and Hedging
Activities" requires that derivative instruments such as options, forward
contracts and swaps be recorded as assets and liabilities at fair value and
provides guidance for recognition of changes in fair value depending on the
reason for holding the derivative. The Company does not presently have
significant transactions involving derivative instruments, but may do so in the
future. The Company is required to adopt Statement No. 133 for the first
quarter of 2000 and may adopt it earlier.

Supplemental Cash Flow Information

<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid for interest during the periods.............. $3,208 $3,093 $2,024
Cash paid for income taxes during the periods.......... 105 285 156
Supplemental disclosure of non-cash investing and
financing activities:
Assets acquired through capital leases................. 572 254 478
Debt issued to seller for acquisition of joint venture
interests............................................. 3,700 -- --
Debt issued to seller for acquisition of businesses.... -- -- 1,775
</TABLE>

Reclassifications

Certain amounts in prior period statements have been reclassified to conform
with current year presentation.

F-10
<PAGE>

REUNION INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

DECEMBER 31, 1998

2. BUSINESS ACQUISITIONS

Rostone

On February 2, 1996, the Company acquired (the "Rostone Acquisition")
Rostone Corporation ("Rostone") which was merged with and into the Company's
subsidiary, Oneida Molded Plastics Corp. The surviving corporation changed its
name to ORC. The Company paid $1 to the stockholders of Rostone in 1996.
Although the merger agreement provided for additional payments of up to $2,000
in each of 1997 and 1998, no additional payments were made because Rostone did
not achieve specified levels of earnings before interest and taxes. In
addition, the Company incurred approximately $435 in acquisition related costs.
Based on Rostone's earnings for 1996 and 1997, the Company did not pay any
additional purchase price.

The Rostone Acquisition was accounted for using the purchase method, with
the purchase price of $436, including acquisition costs, allocated to the
assets acquired and liabilities assumed based upon their respective estimated
fair values at the date of acquisition. The results of Rostone's operations are
included in the consolidated financial statements from the date of acquisition.

The estimated fair values of assets and liabilities acquired in the Rostone
Acquisition are summarized as follows:

<TABLE>
<S> <C>
Cash............................................................ $ 318
Accounts Receivable............................................. 3,417
Inventories..................................................... 1,857
Other Current Assets............................................ 67
Property, Plant and Equipment................................... 6,445
Other Assets.................................................... 43
Goodwill........................................................ 4,500
Accounts Payable and Other Current Liabilities.................. (3,852)
Long-term Debt.................................................. (10,837)
Other liabilities............................................... (1,522)
--------
Total......................................................... $ 436
</TABLE>

Data Packaging Limited

On October 21, 1996, DPL Acquisition Corp. ("DPLAC"), a wholly-owned
subsidiary of ORC, acquired a 27.5% interest in Data Packaging Limited ("DPL"),
a Bermuda corporation operating in Ireland, for a cash payment of $700. On
November 18, 1996, DPLAC acquired an additional 68% of the outstanding stock of
DPL. Together, these transactions represent the "DPL Acquisition." The purchase
price paid by DPLAC for the additional 68% was approximately $2,825, including
a cash payment of $1,050 and a $1,775 three year unsecured note, with interest
at 10%. The total purchase price for the combined 95.5% interest in DPL,
including $100 in acquisition costs, was $3,625, the cash portions of which
were funded by the Company's cash balances.

The remaining 4.5% of the outstanding stock of DPL is owned by Enterprise
Ireland, an agency of the Irish government, and is accounted for as a minority
interest in the accompanying financial statements.

The DPL Acquisition was accounted for using the purchase method, with the
purchase price of $3,625, including acquisition costs, allocated to the assets
acquired and liabilities assumed based upon their respective

F-11
<PAGE>

REUNION INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

DECEMBER 31, 1998

estimated fair values at the date of acquisition. The results of DPL's
operations are included in the consolidated financial statements from the date
of acquisition.

The estimated fair values of assets and liabilities acquired in the DPL
acquisition are summarized as follows:

<TABLE>
<S> <C>
Accounts Receivable............................................... $2,343
Inventories....................................................... 786
Property, Plant and Equipment..................................... 5,231
Goodwill.......................................................... 1,342
Accounts Payable and Other Current Liabilities.................... (3,167)
Long-term Debt.................................................... (1,811)
Other liabilities................................................. (1,099)
------
Total........................................................... $3,625
</TABLE>

During 1997, the legal ownership of DPL was reorganized to provide certain
members of DPL's management with conditional ownership of 15% of DPL.
Management's ownership will provisionally vest at the rate of up to 20% each
year based on the achievement of certain earnings targets, and will fully vest
when 100% provisionally vested or at the end of 2004, whichever is earlier.
Until fully vested, any manager's shares revert to the Company upon termination
of employment. When fully vested, management has the right to put, and the
Company has the right to call, such ownership for settlement in cash for an
amount determined by a formula based on a multiple of earnings. Because of the
put and call features, the Company accounts for this arrangement as a deferred
compensation plan and not as a minority interest. At December 31, 1998,
management was provisionally vested in 40% of their 15% ownership and deferred
compensation of $413 had been accrued.

In April 1998, DPL issued 410,000 shares of redeemable preferred stock for
IR(Pounds)410,000 to Enterprise Ireland in connection with the receipt of
capital grants. Dividends of 3% are payable annually in arrears and the
preferred stock is scheduled to be redeemed in three equal installments in
2002, 2003 and 2004.

Quality Molded Products

On November 18, 1996, ORC acquired (the "QMP Acquisition") substantially all
of the assets and the business and assumed certain liabilities of Quality
Molded Products, Inc. ("QMP"). The purchase price paid by ORC was approximately
$3,000 cash and the assumption of approximately $6,800 of debt and other
liabilities. ORC borrowed approximately $4,100 under an existing secured credit
facility to fund the $3,000 QMP Acquisition purchase price and repay a portion
of the bank debt assumed. The remaining $2,000 of the bank debt assumed was
repaid from the Company's cash balances.

The QMP Acquisition was accounted for using the purchase method, with the
purchase price of $3,416, including acquisition costs, allocated to the assets
acquired and liabilities assumed based upon their respective estimated fair
values at the date of acquisition. The purchase price was less than the fair
value of the net assets acquired, and the difference was allocated to property,
plant and equipment. The results of QMP's operations are included in the
consolidated financial statements from the date of acquisition.

F-12
<PAGE>

REUNION INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

DECEMBER 31, 1998

The estimated fair values of assets and liabilities acquired in the QMP
Acquisition are summarized as follows:

<TABLE>
<S> <C>
Accounts Receivable.............................................. $ 2,315
Inventories...................................................... 2,149
Other Current Assets............................................. 63
Property, Plant and Equipment.................................... 5,687
Current Portion of Long-term Debt (1)............................ (1,599)
Accounts Payable and Other Current Liabilities................... (3,609)
Long-term Debt (1)............................................... (1,590)
-------
Total.......................................................... $ 3,416
</TABLE>
- - - --------
(1) Debt immediately repaid upon purchase as described above.

Pro Forma Results

The following unaudited pro forma results of operations for 1996 have been
prepared assuming the acquisitions of Rostone, DPL and QMP had occurred as of
January 1, 1996. These pro forma results are not necessarily indicative of the
results of future operations or of results that would have occurred had the
acquisitions been consummated as of that date.

<TABLE>
<CAPTION>
(Unaudited)
1996
-----------
<S> <C>
Revenues...................................................... $85,282
Loss From Continuing Operations............................... (2,865)
Net Loss...................................................... $(2,453)
Loss per Share--Basic and Diluted............................. $ (.64)
</TABLE>

3. DISCONTINUED OPERATIONS

Oil and Gas Operations

Through November 1995, the Company was engaged in exploring for, developing,
producing and selling crude oil and natural gas in the United States through
the Company's wholly-owned subsidiary, Reunion Energy Company ("REC"). In
November 1995, the Company's Board of Directors resolved to pursue the sale of
the Company's oil and gas assets and to discontinue the Company's oil and gas
operations. The Company engaged an investment bank specializing in oil and gas
transactions to assist in the sale of the oil and gas operations. On April 2,
1996, the Company entered into an agreement to sell REC, including
substantially all of its oil and gas assets, to Tri-Union Development Corp.
("Tri-Union"), a subsidiary of Tribo Petroleum Corporation, for a total price
of approximately $11,375. On May 24, 1996 the Company completed the sale of REC
for proceeds of $8,000 cash and a $2,200 six month note bearing interest at
12%. The purchase price received for REC's stock reflected adjustments for
intercompany cash transfers by REC to the Company and certain expenditures by
REC between January 1 and the May 24, 1996 closing date. The note was fully
paid in February 1997. Upon completion of this transaction, the Company
substantially completed the disposal of its discontinued oil and gas
operations.

During 1995, the Company incurred $1,666 of costs to replug a well that had
originally been plugged and abandoned in 1994 and that had subsequently been
found to be leaking. The Company submitted a claim with its insurance companies
for recovery of these costs, which claim was initially denied. The Company
provided

F-13
<PAGE>

REUNION INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

DECEMBER 31, 1998

additional information to the insurance companies, but did not include any
anticipated recovery on this claim in determining the estimated loss from
disposition of the oil and gas operations. Under the terms of the agreement to
sell REC, this claim was retained by the Company. During 1996, the Company was
notified that the insurance companies had approved the claim in the amount of
$1,613 and the Company was paid in full. Accordingly, the Company recorded
income from the disposition of the discontinued oil and gas operations of
$1,122, net of $365 of adjustments to the purchase price for certain assets not
sold and $126 of provisions for environmental remediation of those assets (See
Note 15).

Revenues from the discontinued oil and gas operations were $2,137 for 1996
through the date of sale of REC.

As described in Note 15, the company recorded a provision of $1,200 in 1998
in connection with environmental remediation of certain retained oil and gas
properties, and a provision of $510 in 1998 in connection with settlement
discussions for the California Franchise Tax Board audit of the Company's
Franchise tax returns for 1991 through 1993.

Agricultural and Real Estate Operations

Through December 1996, the Company was engaged in agricultural and real
estate operations consisting primarily of investments in The Juliana Preserve
(the "Preserve") and in certain real estate controlled by the Preserve. In
December 1996, the Company's Board of Directors concurred in the Preserve's
plan to suspend the residential development activities and seek a buyer or
buyers for the entire property. Based on an appraisal of the property for
agricultural use, and on preliminary discussions with potential buyers, the
Company recognized a loss of $2,000 in 1996 to recognize impairment of the real
estate development costs and to reduce the carrying value of the agricultural
operations to net realizable value, approximately $14,000.

The Preserve was unsuccessful in finding a buyer for the entire property in
1997, and the property is not currently listed for sale with a broker. As a
result, the company reclassified the agricultural operations to continuing
operations in 1997 and reversed the $710 estimated loss on disposal recognized
in 1996. See Note 6 for a description of the agricultural operations.

4. INVENTORIES

Inventories at December 31, 1998 and 1997 consisted of the following:

<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Raw materials............................................... $3,308 $3,461
Work-in-process............................................. 962 1,440
Finished goods.............................................. 2,834 2,669
------ ------
Total..................................................... $7,104 $7,570
====== ======
</TABLE>

F-14
<PAGE>

REUNION INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

DECEMBER 31, 1998

5. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment at December 31, 1998 and 1997 consisted of the
following:

<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Plastic Products and Services:
Machinery and equipment............................... $20,881 $18,171
Buildings and improvements............................ 7,108 6,763
Land and improvements................................. 559 563
------- -------
28,548 25,497
Accumulated depreciation.............................. (5,139) (2,119)
------- -------
Net................................................. 23,409 23,378
Agricultural Operations:
Land and improvements................................. 19,243 13,230
Equipment............................................. 1,549 793
------- -------
20,792 14,023
Accumulated depreciation.............................. (2,848) (2,108)
------- -------
Net................................................. 17,944 11,915
------- -------
Total property, plant and equipment, net................ $41,353 $35,293
======= =======
</TABLE>

Machinery and equipment includes assets acquired under capital leases which
have a net book value of $1,360 at December 31, 1998.

6. INVESTMENT IN THE JULIANA PRESERVE

The Company's wine grape agricultural operations consist of approximately
3,800 acres, of which approximately 1,200 acres are suitable for wine grape
production and of which approximately 325 acres are currently in production.
This property is located in Napa County, California within the boundaries of
the Napa Valley American Viticultural Area.

From October 1994 to September 1998, Juliana conducted its agricultural
operations through the Preserve, a joint venture organized as a California
general partnership. Juliana had a 71.7% interest in the net income and net
assets of the joint venture, but had a 50% voting interest in matters
concerning the operation, development and disposition of the joint venture
assets. In September 1998, Juliana purchased the interest of its joint venture
partner for $5,878, including closing costs. The purchase was funded from the
proceeds of the sale of three parcels for $2,700 and by a $3,700 4-month note
to the joint venture partner. Substantially all of the purchase price was
allocated to property and equipment.

In August 1997, the Preserve sold approximately 500 acres, including
approximately 300 plantable acres, to a Napa Valley winery. The proceeds were
used to repay joint venture debt. In September 1998, Juliana sold approximately
400 acres, including approximately 250 plantable acres, to an Australian
winery. The proceeds were used for the acquisition of the joint venture
partner's interests.

Also during 1998, Juliana formed the Juliana Mutual Water Company ("JMWC")
to own and operate the water storage and transmission system for the entire
property originally owned by the Preserve. Ownership of JMWC is generally in
proportion to plantable acres as specified in the JMWC bylaws. Ownership
interests attributable to the other property owners are shown as minority
interests in the December 31, 1998 Consolidated Balance Sheet.

F-15
<PAGE>

REUNION INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

DECEMBER 31, 1998

7. ASSETS HELD FOR SALE

In connection with the sale of REC, the Company retained certain oil and gas
properties in Louisiana because of litigation concerning environmental matters.
As described in Note 15, the Company is in the process of environmental
remediation of these properties. The Company intends to sell these properties
when the litigation is resolved. The net carrying value was $238 at December
31, 1998.

The Company holds title to or recordable interests in federal and state
leases totaling approximately 55,000 acres near Moab, Utah, known as Ten Mile
Potash. Sylvanite, a potash mineral, is the principal mineral of interest and
occurrence in the Ten Mile Potash property. To date, Ten Mile Potash has not
yielded any significant revenues, and the Company is pursuing the sale or
farmout of these interests. The carrying value for these properties is $138,
which the Company believes is realizable from the sale of these interests.

8. DEBT

Debt at December 31, 1998 and 1997 consisted of the following:

<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
CITBC Revolver........................................... $ 8,543 $ --
CITBC Term Loan.......................................... 6,000 --
Congress Revolver........................................ -- 6,514
Congress Term Loan....................................... -- 6,843
Other ORC Debt........................................... 5,704 7,168
Juliana Debt............................................. 6,092 2,155
Related Party Debt....................................... 2,461 1,542
------- -------
Total Debt............................................. $28,800 $24,222
======= =======
Current Portion of Long-Term Debt........................ $11,155 $11,568
Short-Term Debt-Related Parties.......................... 1,015 --
Long-Term Debt........................................... 15,245 11,112
Long-Term Debt-Related Parties........................... 1,385 1,542
------- -------
Total Debt............................................. $28,800 $24,222
======= =======
</TABLE>

CITBC Credit Facility

On October 19, 1998, ORC closed a financing under a Loan and Security
Agreement (the "Loan Agreement") with the CIT Group/Business Credit, Inc.
("CITBC"). The agreement provides a six-year senior secured credit facility
including revolving credit loans of up to $10,200 and a term loan in the
initial amount of $6,000 for ORC (the "CITBC Credit Facility"). The proceeds
were used to refinance ORC'S debt with Congress Financial Corporation
("Congress") and to provide working capital for ORC. The CITBC Credit Facility
also provides a letter of credit used to collateralize the bond for the
Company's appeal of the judgment in favor of Bargo Energy Company (See Note
15).

The initial borrowing under the CITBC Credit Facility totaled $15,196 of
which $13,941 was used to repay the debt with Congress and $1,255 was paid for
fees and other loan costs. CITBC received fees totaling $1,100.

Future borrowings under the revolving credit loans are subject to a
collateral availability formula based on 85% of eligible accounts receivable
and 60% of eligible raw materials and finished goods inventories, as such terms
are defined in the agreement. At December 31, 1998, ORC had $1,202 of revolving
credit availability.

F-16
<PAGE>

REUNION INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

DECEMBER 31, 1998

The term loan is repayable in quarterly installments of $250 beginning December
31, 1998. Interest is payable monthly at 0.25% above the Chase Manhattan Bank
Rate for revolving loans (8.00% at December 31, 1998) and at 0.50% above the
Chase Manhattan Bank Rate for the term loan (8.25% at December 31, 1998). The
Loan Agreement also requires the maintenance of certain minimum earnings and
ratio of earnings to interest expense, limits annual capital expenditures, and
limits amounts payable to Reunion.

The CITBC Credit Facility is secured by liens on substantially all of ORC's
assets and by guarantees of (i) ORC's subsidiary DPL Acquisition Corp., which
indirectly owns 95.47% of DPL, (ii) Reunion, and (iii) Mr. Bradley, President,
Chief Executive Officer and a director of the Company. The Company's guarantee
is secured by (i) a pledge of the stock of ORC, (ii) 10% of the stock of the
Company's subsidiary, Juliana Vineyards (subsequently increased to 100%
following the refinancing of Juliana's debt in January 1999), and (iii) a cash
deposit of $438. Mr. Bradley's guarantee is secured by a pledge by SFSC (a
related party--see Note 13) of $6,000 of Partially Convertible Subordinated 9%
Notes of Consumer Portfolio Services, Inc.

Congress Credit Facility

The revolving credit and term loan facility (the "Congress Credit Facility")
with Congress was secured by substantially all of ORC's domestic receivables,
inventory, equipment, real property and general intangibles. The maximum credit
available under the Congress Credit Facility, subject to the availability of
collateral, was $20,000. At December 31, 1997 the interest rate on term loan
borrowings was 10.75% (Prime + 2.25%) and the interest rate on revolving credit
borrowings was 10.5% (Prime + 2.0%).

The Congress Credit Facility was terminated in connection with entering into
the CITBC Credit Facility. The Company paid a $200 early termination fee and
wrote off $33 of unamortized debt issuance costs. This loss of $233 on
termination is reported as an Extraordinary Item.

Other ORC Debt

Other ORC debt includes a $1,183 three-year 10% unsecured note issued in
connection with the DPL Acquisition (see Note 2); a $1,017 11% note payable to
a creditor of Rostone, payable in quarterly installments subject to a
subordination agreement with Congress; $826 of variable-rate term loans from
DPL's bank, payable in monthly installments over twenty years; a $1,482 tax
qualified Irish business expansion loan bearing interest at 1% and payable in
2002; and $1,196 of capital lease obligations, economic development loans and
small business loans, generally secured by equipment or other assets of ORC and
DPL and bearing interest at rates ranging from 3.8% to 16.4% at December 31,
1998.

Juliana Debt

Notes payable to an insurance company consist of three notes with an
aggregate balance of $1,997 at December 31, 1998, bearing interest at 8.0% to
8.25% and collateralized by certain Juliana land parcels. As described in Note
6, Juliana issued a $3,700 four-month bridge note, bearing interest at prime
rate plus 2% (9.75% at December 31, 1998), to the former joint venture partner
for the purchase of the joint venture interests in September 1998. On January
26, 1999, the insurance company notes and the bridge note were repaid from the
proceeds of a $7,500, 15 year loan from the insurance company, bearing interest
at 7.15%. Accordingly, the total of $5,697 is classified as long-term debt in
the December 31, 1998 Consolidated Balance Sheet.

At December 31, 1998, $395 was outstanding under a $1,500 crop loan with a
bank, bearing interest at prime rate plus 1.25% (9.0% at December 31, 1998).
The loan is collateralized by certain wine grape sales contracts.

F-17
<PAGE>

REUNION INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

DECEMBER 31, 1998

Related Party Debt (See Note 13)

Beginning in August 1998, the Company has borrowed funds for corporate
working capital from SFSC. These borrowings bear interest at 15% and were due
to mature September 30, 1998. SFSC has agreed to extend the maturity date to
December 31, 1999. The balance at December 31, 1998 was $1,015.

To facilitate the Rostone Acquisition and closing of the Congress Credit
Facility. Mr. Bradley purchased 50% of a $2,034 balance owed to a Rostone
creditor. As a result of this transaction, Mr. Bradley holds a note from ORC in
the amount of $1,017 bearing interest at 11% per annum and subordinated to
CITBC indebtedness except that if certain conditions are met, regularly
scheduled payments of interest may be paid when due.

ORC is indebted to CGII for $368 pursuant to a promissory note dated May 21,
1993 bearing interest at 15%. The note is subordinated to the prior payment of
CITBC indebtedness except that if certain conditions are met, monthly interest
payments may be paid. The note is subject to offset rights by ORC for certain
environmental costs incurred (See Note 15).

Beginning in 1997, ORC has entered into capital leases for machinery and
equipment with CPS Leasing, Inc. ("CPS Leasing"), a subsidiary of Consumer
Portfolio Services, Inc. ("CPS"). The leases are for terms of five to seven
years, with a present value of future minimum lease payments of $61 as of
December 31, 1998. The Company believes that the terms of these leases are
comparable to those available from third parties.

Maturities

The aggregate amounts of debt maturities are as follows:

<TABLE>
<S> <C>
1999.............................................................. $12,170
2000.............................................................. 2,225
2001.............................................................. 1,347
2002.............................................................. 2,806
2003.............................................................. 1,322
Thereafter........................................................ 8,930
-------
Total........................................................... $28,800
=======
</TABLE>

9. EMPLOYEE BENEFITS

Pension Plans

The Company sponsors defined benefit pension plans for certain Oneida and
DPL employees.

Oneida Plan: ORC sponsors a defined benefit pension plan which covers
substantially all Oneida employees. Benefits under the pension plan are based
on years of service and average compensation for the five highest consecutive
years. Annually, Oneida contributes the minimum amount required by applicable
regulations. Assets of the pension plan are principally invested in fixed
income and equity securities. Contributions are intended to provide for
benefits attributed to employees' service to-date and for those benefits
expected to be earned from future service.

F-18
<PAGE>

REUNION INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

DECEMBER 31, 1998

Effective January 1, 1997, benefits for salaried employees except certain
executives were frozen under the Oneida plan and no additional benefits will be
earned for future service. In conjunction with the freeze, these employees are
eligible to participate in the Company's merged 401(k) Plan as described below.
Oneida hourly employees will continue to participate in the Oneida pension
plan.

The following table sets forth the change in the benefit obligation for the
Oneida Plan for the years ended December 31, 1998 and 1997:

<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Benefit obligation at beginning of year.................... $2,263 $1,795
Service cost............................................. 93 156
Interest cost............................................ 168 151
Actuarial loss........................................... 403 161
------ ------
Benefit obligation at end of year.......................... $2,927 $2,263
====== ======
</TABLE>

DPL Plan: DPL sponsors a defined benefit pension plan for its salaried staff
employees. Benefits are based largely on years of service and salary over the
last three years of employment. A lump sum death benefit is also provided,
which is a multiple of salary. Hourly-paid employees are included for a modest
level of death benefit only. The cost of the plan is met entirely by
contributions paid by DPL. As recommended by its actuaries, DPL contributes a
level percentage of salary every year. These contributions are expected to
provide the benefits promised, allowing for future salary increases. The assets
of the plan consist entirely of units in a pooled fund operated by a life
assurance company.

The following table sets forth the change in the benefit obligation for the
DPL Plan for the years ended December 31, 1998 and 1997:

<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Benefit obligation at beginning of year....................... $662 $593
Service cost................................................ 64 57
Interest cost............................................... 36 31
Actuarial gain ............................................. (19) (19)
---- ----
Benefit obligation at end of year............................. $743 $662
==== ====
</TABLE>

The following table sets forth the changes in plan assets and the funded
status of the plans based on the most recent actuarial valuations, which were
December 31, 1998, and September 30, 1997 for the Oneida Plan and December 31,
1998 and 1997 for the DPL Plan:

<TABLE>
<CAPTION>
1998 1997
-------------------- --------------------
Oneida Plan DPL Plan Oneida Plan DPL Plan
----------- -------- ----------- --------
<S> <C> <C> <C> <C>
Plan assets at fair value, beginning
of year............................ $1,959 $ 799 $1,620 $ 652
Actual return on plan assets........ 242 167 288 126
Employer contribution............... 85 121 95 61
Benefits paid....................... (89) -- (44) (40)
------ ------ ------ -----
Plan assets at fair value, end of
year............................... $2,197 $1,087 $1,959 $ 799
====== ====== ====== =====
Funded status of plans.............. $ 730 $ (344) $ 304 $(137)
Unrecognized net gain (loss)........ (204) 395 205 247
------ ------ ------ -----
Accrued pension cost................ $ 526 $ 51 $ 509 $ 110
====== ====== ====== =====
</TABLE>

F-19
<PAGE>

REUNION INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

DECEMBER 31, 1998

The following table sets forth the actuarial assumptions used to develop the
net periodic pension costs for the periods presented:

<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Discount Rate:
Oneida Plan........................................... 7.0% 7.5% 8.5%
DPL Plan.............................................. 8.0% 8.0% 8.0%
Expected rate of return on plan assets:
Oneida Plan........................................... 9.0% 9.0% 9.0%
DPL Plan.............................................. 9.0% 9.0% 9.0%
Assumed compensation rate increase:
Oneida Plan........................................... 4.0% 4.0% 4.0%
DPL Plan.............................................. 6.0% 6.0% 6.0%
</TABLE>

Deferred Compensation Plans

The Company sponsors qualified contributory 401(k) plans covering
substantially all domestic employees. Employees may elect to contribute up to
an annually determined maximum amount permitted by law, and the Company makes
matching contributions up to specified limits. The Company's contributions to
the plan in each of the three years ended December 31, 1998 were not material.

Postretirement Benefits Other Than Pensions

ORC provides health care benefits for certain of Rostone's salaried and
union retirees and their dependents under two separate but substantially
similar plans. Generally, employees are eligible to participate in the medical
benefit plans if, at the time of retirement, they have at least 10 years of
service and have attained 62 years of age. Rostone's medical benefit plans are
contributory via employee contributions, deductibles and co-payments and are
subject to certain annual, lifetime and benefit-specific maximum amounts.

The following table sets forth the change in the benefit obligation and the
funded status of the health care benefits for the years ended December 31, 1998
and 1997:

<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Benefit obligation at beginning of year................... $1,621 $1,510
Service cost............................................ 43 52
Interest cost........................................... 94 109
Benefit payments........................................ (46) (50)
Amortization of gain.................................... (303) --
------ ------
Benefit obligation at end of year......................... 1,409 1,621
Unrecognized net gain..................................... 141 73
------ ------
Postretirement benefit liability.......................... $1,550 $1,694
====== ======
</TABLE>

Benefit costs were estimated assuming retiree health care costs would
initially increase at a 10.0% annual rate, decreasing gradually to 5.3% after
15 years. A 1.0% increase in the assumed health care cost trend rate would have
increased the APBO at December 31, 1998 and postretirement benefit cost for
1998 by $152 and $15, respectively. The discount rate used to estimate the
accumulated postretirement benefit obligation was 6.5% at December 31, 1998 and
1997.

F-20
<PAGE>

REUNION INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

DECEMBER 31, 1998

Health care benefits are funded as claims are paid. In 1998, 1997 and 1996,
Rostone's cash payments for such benefits were approximately $46, $50 and $64,
respectively.

Postemployment Benefits

Other than unemployment compensation benefits required by law, the Company
does not provide postemployment benefits to former or inactive employees.

10. SHAREHOLDERS' EQUITY

Name Change and Reincorporation

On April 19, 1996, Reunion Resources Company merged with and into its
wholly-owned subsidiary, RII, pursuant to a merger agreement dated November 14,
1995. The Company's Certificate of Incorporation authorizes the issuance of
20,000,000 shares of common stock, par value $.01 per share, and 10,000,000
shares of "blank check" preferred stock, par value $.01 per share, and includes
certain capital stock transfer restrictions (the "Transfer Restrictions") which
are designed to prevent any person or group of persons from becoming a 5%
shareholder of the Company and to prevent an increase in the percentage stock
ownership of any existing person or group of persons that constitutes a 5%
shareholder by prohibiting and voiding any transfer or agreement to transfer
stock to the extent that it would cause the transferee to hold such a
prohibited ownership percentage. The Transfer Restrictions are intended to help
assure that the Company's substantial net operating loss carryforwards will
continue to be available to offset future taxable income by decreasing the
likelihood of an "ownership change" for federal income tax purposes.

Additional Paid-in Capital

Paid-in capital was increased $90 in 1998 from the exercise of stock options
(see Note 11). In 1996 paid-in capital was reduced $1,795, the cost of 257
shares of treasury stock retired.

Dividends

No dividends have been declared or paid during the past three years with
respect to the common stock of the Company. Cash dividends are limited by the
availability of funds, including limitations on dividends and other transfers
to Reunion by ORC and Juliana contained in ORC's lending agreements (see Note
8).

11. STOCK OPTIONS AND WARRANTS

At December 31, 1998, the Company has three stock option plans and
outstanding warrants which are described below. In implementing FASB Statement
123 "Accounting for Stock-Based Compensation" in 1996, the Company elected to
continue to apply the provisions of APB Opinion 25 and related Interpretations
in accounting for its plans and warrants. Stock option grants during the
periods presented were all at exercise prices equal to or above the current
market price of the underlying security and, accordingly, no compensation cost
has been recognized for the Company's stock option plans.

Had compensation cost for the Company's stock option plans and warrants been
determined based on the fair value at the grant dates for awards under those
plans consistent with the method of FASB Statement 123, the Company's net
income and earnings per share would have been reduced to the pro forma amounts
as indicated below:

F-21
<PAGE>

REUNION INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

DECEMBER 31, 1998

<TABLE>
<CAPTION>
1998 1997 1996
-------- ------ --------
<S> <C> <C> <C> <C>
Net Loss.......................... As reported $(12,383) $ (271) $(12,282)
Pro forma $(12,667) $ (302) $ (2,327)
Basic and Diluted
Net Loss per Share.............. As reported $ (3.19) $(0.07) $ (0.59)
Pro forma $ (3.26) $(0.08) $ (0.60)
</TABLE>

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions: dividend yield of 0 percent for all years; expected volatility of
25% in 1998 and 60% in 1996, risk-free interest rates of 5.5% to 5.7% in 1998
and 5.1% in 1996 and expected lives of 5 and 10 years in 1998 and 3 years in
1996. There were no options granted during 1997. Expected volatility was
estimated based on historical performance of the Company's stock prices and is
not necessarily an indication of future stock movements.

1992 Option Plan

Effective July 1, 1992, the Board of Directors of the Company approved the
adoption of the 1992 Nonqualified Stock Option Plan (the "1992 Option Plan").
The 1992 Option Plan, as amended, authorized the grant of options and sale of
250,000 shares of common stock of the Company to key employees, directors and
consultants. No option granted under the 1992 Option Plan may be exercised
prior to six months from its date of grant or remain exercisable after ten
years from the grant date.

1992 Warrants

In addition, during 1992 the Company's Board of Directors approved the
issuance of warrants to a director and to a consultant to the Board of
Directors to purchase an aggregate of 150,000 shares of the Company's common
stock at $1.562 per share, determined from the average market price of the 90
days preceding the effective date. The warrants became exercisable for two
years on July 1, 1993. In June 1995, the expiration date of these warrants was
extended to June 30, 1999.

1993 Option Plan

Effective September 28, 1993, the Board of Directors of the Company approved
the adoption of the 1993 Incentive Stock Option Plan (the "1993 Option Plan")
for the granting of options or awards covering up to 250,000 shares of the
Company's common stock to officers and other key employees. Under the terms of
the 1993 Option Plan, the Compensation Committee of the Board of Directors is
authorized to grant (i) stock options (nonqualified or incentive), (ii)
restricted stock awards, (iii) phantom stock options, (iv) stock bonuses and
(v) cash bonuses in connection with grants of restricted stock or stock
bonuses. In January 1995, the Company granted 62,750 incentive stock options to
certain key employees at an exercise price of $5.00 per share. The options
originally vested 50% in January 1996 and 50% in January 1997 and remain
exercisable until January 1999. As a result of Chatwins' acquisition of its
common stock ownership in June 1995 (see Note 13), all of the outstanding
options under the 1993 Option Plan at that date became immediately exercisable.
In July 1996, the Company granted 55,000 incentive stock options to two
officers at an exercise price of $4.375 per share. The options were fully
vested in July 1998, and are exercisable until July 1999. In February 1998, the
Company granted 20,000 options at an exercise price of $5.0625 to Richard L.
Evans, the Company's Executive Vice President, Chief Financial Officer and
Secretary, and in May 1998, the Company granted 75,000 options at an exercise
price of $7.21875 to Mr. Bradley. The options vest in installments through

F-22
<PAGE>

REUNION INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

DECEMBER 31, 1998

February 2000 and are exercisable until February 2003 for Mr. Evans and vest in
installments through January 2003 and are exercisable until May 2003 for Mr.
Bradley.

1998 Option Plan

On August 4, 1998, the Company's stockholders ratified the adoption by the
Board of Directors, on June 1, 1998, of the 1998 Stock Option Plan (the "1998
Option Plan"). The Compensation Committee of the Board of Directors is
authorized to grant incentive options and nonqualified options covering up to
600,000 shares of the Company's common stock to officers and other key
employees. On February 13, 1998, the Board of Directors, on recommendation by
the Compensation Committee, had conditionally granted options to purchase
15,000 shares of the Company's common stock to each of the five non-employee
Directors (excluding Mr. Bradley), subject to adoption of the plan by the Board
and ratification by the stockholders. The options have an exercise price of
$5.0625, vested immediately and are exercisable until February 2008.

A summary of the status of the Company's stock options and warrants as of
December 31, 1998, 1997 and 1996 and changes during the years ending on those
dates is presented below:

<TABLE>
<CAPTION>
1998 1997 1996
------------------ ----------------- ------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------- --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 215,750 $2.47 215,750 $2.47 255,750 $3.23
Granted................. 170,000 $6.01 -- $ -- 55,000 $4.44
Exercised............... (44,965) $2.04 -- $ -- $ --
Forfeited/Expired....... (5,000) $4.44 -- $ -- (95,000) $5.63
Outstanding at end of
year................... 335,785 $4.29 215,750 $2.47 215,750 $2.47
Options exercisable at
year-end............... 258,585 $3.55 193,750 $2.24 160,750 $1.97
Weighted-average fair
value of options
granted during the
year;
Exercise price equal
to market price
on date of grant..... $2.37 $ -- $1.48
Exercise price greater
than market price on
date of grant........ $1.94 $ -- $ --
</TABLE>

The following table summarizes information about stock options and warrants
outstanding at December 31, 1998:

<TABLE>
<CAPTION>
Remaining Number Number
Contractual Outstanding Exercisable
Exercise Price Life at 12/31/98 at 12/31/98
- - - -------------- ----------- ----------- -----------
<S> <C> <C> <C>
$1.562...................................... 6 mos. 112,500 112,500
$4.44....................................... 6 mos. 42,535 42,535
$5.00....................................... .5 mo. 10,750 10,750
$5.0625..................................... 4 yrs. 20,000 4,000
$5.0625..................................... 9 yrs. 75,000 75,000
$7.21875.................................... 4.5 yrs. 75,000 13,800
------- -------
335,785 258,585
</TABLE>

F-23
<PAGE>

REUNION INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

DECEMBER 31, 1998

12. TAXES ON INCOME

The components of the Company's income tax (benefit) expense are as follows:

<TABLE>
<CAPTION>
Year Ended
December 31,
----------------
1998 1997 1996
----- ---- ----
<S> <C> <C> <C>
Current
Federal...................................................... $(676) $-- $750
State........................................................ 15 86 126
Foreign...................................................... -- -- --
----- --- ----
(661) 86 876
Deferred..................................................... -- -- --
----- --- ----
$(661) $86 $876
===== === ====
</TABLE>

The Company files a consolidated U.S. federal income tax return and its U.S.
subsidiaries file combined or separate company income tax returns in states in
which they conduct business.

In September 1995, the Company amended its 1991 and 1992 Federal tax returns
to request a refund of Alternative Minimum Tax ("AMT") previously paid. The
refund resulted from the carryback of a capital loss originating from the sale,
in 1993, of the Company's common stock owned by a subsidiary of the Company.
The Company recorded a receivable for this refund in 1993 when the transaction
occurred. The IRS audited this refund request and issued a formal IRS agent's
report denying the refund claim, and asserting an additional tax deficiency for
1993. The Company appealed the case to the IRS appeals division. Because of the
uncertainty over realization of the refund, the Company recorded an allowance
of $750 for the possible denial of the AMT refund with a corresponding charge
to income tax expense in 1996. In August 1998, the Company reached a settlement
with the IRS on its appeal. As a result of the settlement, the Company received
refunds totaling $676 including interest and recorded an income tax benefit of
$676 in the quarter ended September 30, 1998.

As part of the settlement, the IRS also confirmed the amounts of the
Company's net operating loss carryforwards ("NOLs") as of December 1993. Based
on the amounts confirmed, the Company's NOLs as of December 31, 1998 expire as
follows:

The Company's ability to use these NOL's to offset future taxable income
would be limited if an "ownership change" were to occur for federal income tax
purposes. As described in Note 10, the merger of RRC into RII was intended to
decrease the likelihood of such an ownership change occurring.

F-24
<PAGE>

REUNION INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

DECEMBER 31, 1998

Significant components of the Company's deferred tax position at December
31, 1998 and 1997 are as follows:

<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Deferred tax liabilities:
Excess tax depreciation and bases differences of
assets........................................... $ (1,645) $ (1,359)
Other............................................. (210) (31)
-------- --------
Total deferred tax liabilities.................. (1,855) (1,390)
-------- --------
Deferred tax assets:
NOL and ITC carryforwards......................... 89,121 74,806
Bases differences of assets and liabilities....... 2,487 2,584
Provision for Bargo judgment...................... 2,865 --
Other............................................. 1,684 1,378
-------- --------
Total deferred tax assets....................... 96,157 78,768
-------- --------
Net deferred tax assets............................. 94,302 77,378
Valuation allowance................................. (94,302) (77,378)
-------- --------
$ --0 $ --0
======== ========
</TABLE>

The Company has continued to incur tax losses since emerging from bankruptcy
in 1988, and there can be no assurance that the Company will be able to utilize
the net operating and capital loss carryforwards in excess of that required to
offset temporary differences which will result in future taxable income.
Therefore, the Company has provided a valuation allowance for the net deferred
tax asset. This valuation allowance increased $16,924 in 1998 (primarily due to
adjustments of the NOL carryforwards in connection with the IRS settlement),
decreased $449 in 1997 and increased $1,388 in 1996.

13. RELATED PARTY TRANSACTIONS

Chatwins and Affiliates

Chatwins owns 1,450,000 shares, or approximately 38%, of the Company's
common stock, and a warrant to purchase 75,000 shares of the Company's common
stock (the "Chatwins Warrant").

Charles E. Bradley, Sr., President, Chief Executive Officer and a director
of the Company, is the Chairman and a director of Chatwins and the beneficial
owner of approximately 57% of the outstanding common stock of Chatwins. John G.
Poole, a director of the Company, is a director and shareholder of Chatwins and
Thomas L. Cassidy, a director of the Company, was a director of Chatwins until
June 1997.

In 1995, Mr. Bradley made loans totaling $1,350 to the Company, which the
Company then used as part of a $1,550 loan it advanced to Oneida evidenced by a
10% promissory note of Oneida payable November 2, 1997. Oneida used these funds
to repay a portion of debt owed by Oneida to Chatwins. The Company issued two
notes to Mr. Bradley for the $1,350 he advanced, each bearing interest at a
rate of 10% per annum and each due and payable on September 14, 1997. This debt
was repaid in May 1996 from the proceeds of the sale of the Company's oil and
gas assets.

On February 2, 1996, the Rostone Acquisition was consummated pursuant to a
Merger Agreement (the "Rostone/Oneida Agreement") and Oneida, as the surviving
corporation, changed its name to ORC. The

F-25
<PAGE>

REUNION INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

DECEMBER 31, 1998

purchase price payable by ORC under the Rostone/Oneida Agreement to the
stockholders of Rostone was an amount up to $4,001 as follows: (i) $1 in 1996,
(ii) up to $2,000 in 1997 if Rostone achieved specified levels of earnings
before interest and taxes (as provided in the Rostone/Oneida Agreement) for the
calender year 1996 and (iii) up to $2,000 in 1998 if Rostone achieved specified
levels of earnings before interest and taxes for the calendar year 1997. Based
on Rostone's earnings for 1996 and 1997, the Company did not pay any additional
purchase price. The financial terms of the transaction were determined based on
Rostone's financial position and results of operations for the fiscal year
ended December 31, 1994 and for the eleven months ended November 30, 1995. The
terms of the Rostone Acquisition were approved by the unanimous vote of the
directors of the Company, including all disinterested directors. In the Rostone
Acquisition, ORC acquired 100% of the preferred and common stock of Rostone
from CGI Investment Corp. ("CGII") a company owned 51% by Stanwich Partners,
Inc. ("SPI") and 49% by Chatwins. Mr. Bradley, Mr. Poole and Richard L. Evans,
Executive Vice President, Chief Financial Officer and Secretary of the Company,
are officers, directors and/or shareholders of SPI. Prior to the Rostone
Acquisition certain officers of Oneida were also serving as officers of Rostone
and CGII.

ORC is indebted to CGII pursuant to a $250,000 promissory note dated May 21,
1993. The note had an outstanding balance of $477 (principal and accrued
interest) on December 31, 1998, and is subordinated to the prior payment of
indebtedness owing by ORC to CITBC except that if certain conditions are met,
regularly scheduled monthly interest payments may be paid when due. ORC is also
permitted to recover certain environmental remediation costs relating to soil
and ground water contamination at Rostone's Lafayette, Indiana site by offset
against this note.

To facilitate the closing of the Congress Credit Facility, Mr. Bradley
entered into several financial arrangements with Congress. To induce Congress
to consummate the Loan Facility, Mr. Bradley guaranteed the obligations of ORC
under the Congress Credit Facility subject to a cap of $4 million, which cap
declines over time to $2 million. Mr. Bradley received a credit support fee
from ORC and in an aggregate amount equal to 1% per annum of the amount
guaranteed, payable monthly. As a further inducement to Congress, Mr. Bradley
entered into an environmental indemnity agreement pursuant to which Mr. Bradley
agreed to indemnify Congress against liabilities that may arise from
environmental problems that may be associated with ORC's existing properties
and to reimburse Congress for certain investigatory and cleanup costs that
Congress may incur should Congress request that those activities be performed
by ORC and should ORC fail to perform. All of Mr. Bradley's obligations to
Congress were released upon termination of the Congress Credit Facility in
October 1998.

To facilitate the closing of the CITBC Credit Facility, Mr. Bradley
guaranteed the obligations of ORC and RII under the CITBC Credit Facility. Mr.
Bradley will receive a credit support fee from the Company in an aggregate
amount equal to 3% per annum of the amount guaranteed, payable monthly. Mr.
Bradley's rights to payment of the monthly installments of the credit support
fee are subordinated to the prior payment of indebtedness owing by ORC to
CITBC, except that if certain conditions are met, the monthly installments may
be paid when due.

To induce an existing creditor of Rostone to permit the Rostone Acquisition
and Congress Credit Facility to be consummated, Mr. Bradley agreed to purchase
from this creditor 50% of the $2,034 owing to him by Rostone on February 2,
1996. This indebtedness was restated to provide for quarterly amortization over
a two year period with interest at 10% per annum (increasing to 11% in certain
circumstances) payable quarterly subject, however, to a subordination agreement
with Congress. As a result of this transaction, Mr. Bradley and the creditor
each hold a note from ORC in the amount of $1,017 bearing interest at 11% per
annum which is

F-26
<PAGE>

REUNION INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

DECEMBER 31, 1998

now subordinated to the prior payment of indebtedness owing by ORC to CITBC,
except that if certain conditions are met, regularly scheduled payments of
interest may be paid when due.

On November 18, 1996, ORC completed the DPL Acquisition by acquiring 68% of
the outstanding stock of DPL, pursuant to a Stock Purchase Agreement with a
creditor of Texon Energy Corporation ("TEC") and its subsidiaries. The DPL
stock had been pledged by such subsidiaries as collateral for debt obligations,
and had been acquired by the creditor through foreclosure. Mr. Bradley is
President and a director of TEC and beneficial owner of approximately 14% of
TEC's outstanding stock.

Prior to the DPL acquisition, DPL was indebted to Stanwich Oil and Gas, Inc.
("SOG") pursuant to a $250 loan agreement dated June 14, 1995. Mr. Bradley and
Mr. Poole are officers, directors and the principal shareholders of SOG. On
December 16, 1996, the Company purchased the indebtedness from SOG for $249,
representing the outstanding balance of principal and interest at that date.

In connection with the QMP Acquisition on November 18, 1996, Congress
extended to ORC a $1,000 temporary overformula line as part of the amendment of
the Loan Facility to increase the maximum amount to $20,000. Mr. Bradley
guaranteed the amounts, if any, borrowed under this overformula line, for a
credit support fee from ORC of $1 per month. The overformula line expired
February 14, 1997, and the fee terminated as of that date.

Beginning in 1997, ORC has entered into leases for machinery and equipment
with CPS Leasing, a subsidiary of Consumer Portfolio Services, Inc. ("CPS").
Mr. Bradley and Mr. Poole are directors and shareholders of CPS. The leases are
for terms of five to seven years. The Company believes that the terms of these
leases are comparable to those available from third parties.

Effective April 1, 1996, the Company subleases from SPI approximately 1,500
square feet of office space in Stamford, Connecticut for its corporate offices.
The Company believes that the terms of this sublease are comparable to those
available from third parties.

In May, 1997, the Company loaned $1,500 to SST Acquisition Corp., a company
in which Mr. Bradley and Mr. Poole are shareholders. The loan was repaid after
three days with interest at 9% plus a $15 transaction fee.

Beginning in February 1998, the Company entered into an arrangement for
flying services with Butler Air, Inc. ("Butler"). Mr. Bradley is a director of
Butler and the owner of 65% of Stanwich Aviation Company, Inc., of which Butler
is a wholly owned subsidiary. Butler provides charter flight services for
certain business travel by Company officers and employees at rates which the
Company believes are comparable to those available from third parites. The
Company pays a monthly minimum of $5, which is credited against services as
used.

Beginning in August 1998, the Company has borrowed funds for corporate
working capital from SFSC. Mr. Bradley, Mr. Poole and Mr. Evans are officers,
directors and/or shareholders of SFSC. The debt bears interest at 15% and was
originally scheduled to mature September 30, 1998. SFSC has agreed to extend
the maturity to December 31, 1999 while the Company seeks an alternative source
of funds.

F-27
<PAGE>

REUNION INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

DECEMBER 31, 1998

Under the arrangements described above, the consolidated financial statements
include the following amounts and balances:
<TABLE>
<CAPTION>
Year Ended
December 31,
--------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Rent Expense:
CPS Leasing............................................. $167 $64 --
SPI..................................................... 32 32 23
Chatwins and Mr. Bradley................................ -- -- 42
Travel Expense:
Butler.................................................. 73 -- --
Interest Expense:
Mr. Bradley............................................. 112 112 178
CGII.................................................... 38 38 37
SFSC.................................................... 25 -- --
Chatwins................................................ -- -- 199
SOG..................................................... -- -- 2
Guarantee fees: Mr. Bradley............................. 190 41 55
</TABLE>

<TABLE>
<CAPTION>
As of
December 31,
-------------
1998 1997
------ ------
<S> <C> <C>
Current liabilities:
SFSC: short-term debt .................................. $1,015 $ --
CGII: interest.......................................... 109 72
SFSC: interest.......................................... 25 --
Butler: travel.......................................... 18 --
Mr. Bradley: fees....................................... -- 28
Long term debt-related parties:
Mr. Bradley............................................. 1,017 1,017
CGII.................................................... 368 368
CPS Leasing............................................. -- 157
Other liabilities: fees payable to Mr. Bradley............ 123 123
</TABLE>

<TABLE>
<CAPTION>
As of
December
31,
---------
1998 1997
---- ----
<S> <C> <C>
Future minimum rental commitments under noncancellable
operating leases: CPS Leasing ................................ $937 $706
</TABLE>

ORC manufactures component parts for King-Way. Mr. Bradley and Mr. Evans are
officers and directors of King-Way and own 42.5% and 15%, respectively, of
King-Way's common stock. Sales to King-Way in 1998 were $299, and were at
margins equivalent to those earned on sales to third party customers at
comparable volumes.

The Company obtains its property, casualty and general liability insurance
coverage, as well as health care coverage for corporate and Juliana employees,
through a joint arrangement with Chatwins. The Company and Chatwins share the
costs in proportion to coverages.

F-28
<PAGE>

REUNION INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

DECEMBER 31, 1998

The Company and Chatwins are considering the possible merger of Chatwins
with and into the Company in a tax-free exchange of stock. Such a merger will
be subject to, among other conditions, approvals by the Boards of Directors
and the Stockholders of the Company and Chatwins and compliance by Chatwins
with the covenants in its financing agreements. The Company has also had
discussions regarding possible acquisitions of King-Way and of NAPTech at the
same time as the Chatwins merger. NAPTech is owned by Mr. Bradley. If King-Way
and NAPTech were acquired, they would be combined with divisions of Chatwins
operating in similar businesses. The Company has engaged legal and financial
advisors in connection with these transactions and has held financing
discussions with prospective lenders. If such transactions are agreed to, and
requisite approvals are obtained and other conditions are satisfied, the
consummation of the transactions could occur as early as the second quarter of
this year. There can be no assurances that these transactions will be agreed
to, approved or consummated.

Boreta

In 1992, the former Board of Directors approved a $300 five year, unsecured
loan to John Boreta, the former President of the Company due on April 10,
1997. The loan bears interest at the London Interbank Offering Rate and
accrued interest was payable annually through maturity. In March 1997, the
Company agreed to accept payment of this note in installments, initially $5
per month and increasing to $20 per month, with final payment due April 1,
2000. The note will remain subject to immediate acceleration in the event any
payment is not made as agreed. During 1998 and 1997, payments totaling $89 and
$61, respectively, were received.

14. SEGMENT INFORMATION

The Company operates in two business segments, which are identified based
on products and services.

The Company, through its wholly owned subsidiary ORC, manufactures high
volume, precision plastic products and provides engineered plastics services.
ORC's Oneida division, and its DPL subsidiary, design and produce injection
molded parts and provide secondary services such as hot stamping, welding,
printing, painting and assembly of such products. In addition, Oneida designs
and builds custom molds at its tool shops in order to produce component parts
for specific customers. ORC's Rostone division compounds and molds thermoset
polyester resins.

The Company, through its subsidiary Juliana, is engaged in wine grape
vineyard development and the growing and harvesting of wine grapes for the
premium table wine market.

F-29
<PAGE>

REUNION INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

DECEMBER 31, 1998

The following tables present information about the results of operations and
financial position of the Company's business segments:

<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1998 1997 1996
-------- ------- -------
<S> <C> <C> <C>
Revenues
Plastic products and services................... $ 95,064 $93,378 $60,305
Agriculture..................................... 2,254 -- --
-------- ------- -------
$ 97,318 $93,378 $60,305
======== ======= =======
United States................................... $ 70,196 $77,031 $59,117
International (principally Ireland)............. 27,122 16,347 1,188
-------- ------- -------
$ 97,318 $93,378 $60,305
======== ======= =======
Income before interest, taxes, depreciation and
amoritzation (EBITDA)
Plastic products and services................... $ 9,034 $ 7,926 $ 5,902
Agriculture..................................... 118 (219) (1,535)
Corporate and other............................. (12,706) (1,567) (1,713)
-------- ------- -------
$ (3,554) $ 6,140 $ 2,654
======== ======= =======
Depreciation and amortization
Plastic products and services................... $ 3,775 $ 3,457 $ 1,758
Agriculture..................................... 547 306 308
Corporate and other............................. 4 5 4
-------- ------- -------
$ 4,326 $ 3,768 $ 2,070
======== ======= =======
Income before interest and taxes (EBIT)
Plastic products and services................... $ 5,259 $ 4,469 $ 4,144
Agriculture..................................... (429) (525) (1,843)
Corporate and other............................. (12,710) (1,572) (1,717)
-------- ------- -------
(7,880) 2,372 584
Interest expense.................................. (3,221) (3,267) (2,402)
-------- ------- -------
Income from continuing operations before income
taxes............................................ $(11,101) $ (895) $(1,818)
======== ======= =======
Capital Expenditures
Plastic products and services................... $ 3,113 $ 3,868 $ 985
Agriculture..................................... -- -- --
Corporate and other............................. -- -- --
-------- ------- -------
$ 3,113 $ 3,868 $ 985
======== ======= =======
</TABLE>

F-30
<PAGE>

REUNION INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

DECEMBER 31, 1998

<TABLE>
<CAPTION>
As of December
31,
----------------
1998 1997
-------- -------
<S> <C> <C>
Total Assets
Plastic products and services........................ $ 54,638 $55,269
Agriculture.......................................... 19,058 14,027
Corporate and other.................................. 1,178 2,764
-------- -------
$ 74,874 $72,060
======== =======
Property Plant and Equipment--Net
United States........................................ $ 34,036 $29,194
International (principally Ireland).................. 7,317 6,099
-------- -------
$ 41,353 $35,293
======== =======
</TABLE>

ORC had sales to a single customer which represented approximately 11% of
ORC's sales during 1998 and which represented approximately 11% of ORC's
accounts receivable at December 31, 1998. Accounts receivable at December 31,
1998 include no significant geographic concentrations of credit risk. The
Company performs ongoing credit evaluations of its customers and generally does
not require collateral.

15. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

On April 24, 1998, a jury in the state district court in Harris County,
Texas returned jury verdict findings that Bargo Energy Company ("Bargo") had a
right to terminate a November 1995 stock purchase agreement with the Company
and that the Company fraudulently induced Bargo into entering into the
agreement. The November 1995 stock purchase agreement concerned the sale of the
Company's subsidiary, REC, which operated the Company's discontinued oil and
gas business. The jury recommended that an award of $5,000 in punitive damages
be assessed against the Company. In July 1998, the court entered judgment
affirming the $5,000 jury verdict and awarding approximately $3,000 in
attorneys' fees and costs. The Company maintained at trial and continues to
maintain that all requirements to closing under the contract were met, and that
Bargo was required to close the transaction. The Company also maintains that no
evidence sufficient to support a jury finding of fraud or the related punitive
damages finding was presented at trial. The Company has filed a bond which
suspends execution on the judgment while the Company appeals. A formal notice
of appeal has been filed and the Company intends to file its appeal in April
1999. Although management believes, based on consultation with counsel, that it
is more likely than not that the judgment will be overturned on appeal, the
Company has recorded an accrual for the amount of the judgment with a charge to
continuing operations in 1998. Interest on the judgment at 10% has been accrued
and will continue to accrue until the litigation is resolved.

The Company and its subsidiaries are the defendants in a number of lawsuits
and administrative proceedings, which have arisen in the ordinary course of
business of the Company and its subsidiaries. The Company believes that any
material liability which can result from any of such lawsuits or proceedings
has been properly reserved for in the Company's consolidated financial
statements or is covered by indemnification in favor of the Company or its
subsidiaries, and therefore the outcome of these lawsuits or proceedings will
not have a material adverse effect on the Company's consolidated financial
position, results of operations or cash flows.

F-31
<PAGE>

REUNION INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

DECEMBER 31, 1998

Environmental Compliance

Various U.S. federal, state and local laws and regulations including,
without limitation, laws and regulations concerning the containment and
disposal of hazardous waste, oil field waste and other waste materials, the use
of storage tanks, the use of insecticides and fungicides and the use of
underground injection wells directly or indirectly affect the Company's
operations. In addition, environmental laws and regulations typically impose
"strict liability" upon the Company for certain environmental damages.
Accordingly, in some situations, the Company could be liable for clean up costs
even if the situation resulted from previous conduct of the Company that was
lawful at the time or from improper conduct of, or conditions caused by,
previous property owners, lessees or other persons not associated with the
Company or events outside the control of the Company. Such clean up costs or
costs associated with changes in environmental laws and regulations could be
substantial and could have a materially adverse effect on the Company's
consolidated financial position, results of operations or cash flows.

The Company's plastic products and service business routinely uses chemicals
and solvents, some of which are classified as hazardous substances. The
Company's vineyard operations routinely use fungicides and insecticides, the
handling, storage and use of which is regulated under the Federal Insecticide,
Fungicide and Rodenticide Act, as well as California laws and regulations. The
Company's former oil and gas business and related activities routinely involved
the handling of significant amounts of waste materials, some of which are
classified as hazardous substances.

Except as described in the following paragraphs, the Company believes it is
currently in material compliance with existing environmental protection laws
and regulations and is not involved in any significant remediation activities
or administrative or judicial proceedings arising under federal, state or local
environmental protection laws and regulations. In addition to management
personnel who are responsible for monitoring environmental compliance and
arranging for remedial actions that may be required, the Company has also
employed outside consultants from time to time to advise and assist the
Company's environmental compliance efforts. Except as described in the
following paragraphs, the Company has not recorded any accruals for
environmental costs.

In February 1996, Rostone was informed by a contracted environmental
services consulting firm that soil and ground water contamination exists at its
Lafayette, Indiana site. The Company has expended $175 and has accrued an
additional $220 based on current estimates of remediation costs. Certain of
these costs are recoverable from CGII. (See Notes 8 and 13).

In connection with the sale of REC, the Company retained certain oil and gas
properties in Louisiana because of litigation concerning environmental matters.
The Company is in the process of environmental remediation under a plan
approved by the Louisiana Office of Conservation. The Company has recorded an
accrual for its proportionate share of the remaining estimated costs to
remediate the site based on plans and estimates developed by the environmental
consultants hired by the Company. During 1998 the Company increased this
accrual by a charge of $1,200 to discontinued operations, based on revised
estimates of the remaining remediation costs. At December 31, 1998, the balance
accrued for these remediation costs was $1,503. Owners of a portion of the
property have objected to the Company's proposed cleanup methodology and have
filed suit to require additional procedures. The Company is contesting this
litigation, and believes its proposed methodology is well within accepted
industry practice for remediation efforts of a similar nature. No accrual has
been made for costs of any alternative cleanup methodology which might be
imposed as a result of the litigation.

F-32
<PAGE>

REUNION INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

DECEMBER 31, 1998

Other Contingencies

In early 1996, the State of California Franchise Tax Board initiated an
audit of the Company's franchise tax returns for the years 1991, 1992 and 1993.
In October 1996, the Company received a formal notice of assessment from the
taxing authority in the aggregate amount of $716 plus interest. Of this amount,
$645 results from the auditor's conclusion that income from gain on sales of
certain Canadian oil and gas assets in 1991 should be reclassified from
nonbusiness to business income. The Company believes its classification of such
income was correct, and appealed the assessment of tax. In 1996, the Company
recorded a provision of $85 for certain other adjustments proposed. The appeal
was denied, and the Company requested that the case be considered for
settlement. If the Company's positions prevail on this issue, management
believes that the amounts due would not exceed amounts previously paid or
provided for. However, in connection with the settlement discussions, the
Company accrued an additional $510 in 1998, with a corresponding charge to
Discontinued Operations. The total accrual of $595 represents management's
estimate of the minimum of the range of possible settlement outcomes.

Operating Leases

At December 31, 1998, the Company's minimum rental commitments under
noncancellable operating leases for buildings and equipment are as follows:

<TABLE>
<S> <C>
1999.............................................................. $ 893
2000.............................................................. 872
2001.............................................................. 783
2002.............................................................. 683
2003.............................................................. 453
Thereafter........................................................ 413
------
Total........................................................... $4,097
======
</TABLE>

Total rental expenses were $684, $702 and $305 in 1998, 1997 and 1996,
respectively.

16. FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:

Cash and cash equivalents, accounts receivable and accounts payable. The
carrying amounts approximate fair value because of the short maturities of
these instruments.

Long term notes receivable. These notes, totaling approximately $377 were
issued by individuals in private transactions with the Company. One note, for
$198, bears interest at a variable rate and is payable in monthly installments
through March 2000. The other notes, totaling $179, bear interest at 11% and
mature in January 2000. It is not practicable to estimate the fair value of
these instruments because no ready market exists for these instruments.

Long term debt. Approximately 54% of the Company's long term debt has
variable rates of interest and 37% bears interest at fixed rates approximating
current market rates. Accordingly, management estimates that the carrying
amounts approximate the fair value, approximately $26,339 at December 31, 1998
and $22,680 at December 31, 1997.

F-33
<PAGE>

REUNION INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

DECEMBER 31, 1998

Approximately 9% ($2,461) of the long term debt is related party debt for
which comparable instruments do not exist. Accordingly, it is not practicable
to estimate the fair value of this debt. Of this amount, $1,385 bears interest
at 10%, matures February 1999, is subject to subordination to the Company's
CITBC Credit Facility, and is subject to prepayment under certain
circumstances; $1,015 bears interest at 15% and matures December 1999 (see Note
8).

17. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

Results of operations by quarter for the years ended December 31, 1998 and
1997 are set forth in the following tables:

<TABLE>
<CAPTION>
1998 Quarter Ended
-----------------------------------
March 31 June 30 Sept 30 Dec 31
-------- -------- ------- -------
<S> <C> <C> <C> <C>
Operating Revenue......................... $26,368 $ 24,704 $22,957 $23,289
Less Operating Costs and Expenses......... 25,308 24,361 23,588 22,566
------- -------- ------- -------
Operating Income (Loss)................. 1,060 343 (631) 723
------- -------- ------- -------
Income (Loss) from continuing operations.. 274 (9,330) (962) (422)
Loss from discontinued operations......... -- (1,200) -- (510)
Extraordinary Item........................ -- -- -- (233)
------- -------- ------- -------
Net Income (Loss)......................... $ 274 $(10,530) $ (962) $(1,165)
======= ======== ======= =======
Net Income (Loss) Per Share--Basic and
Diluted.................................. $ 0.07 $ (2.72) $ (0.25) $ (0.30)
======= ======== ======= =======
Significant items included in continuing
operations which might affect
comparability are as follows:
Provision for Bargo judgment............ -- (8,825) -- (414)
Provision for merger and refinancing
costs.................................. -- -- (1,362) --
</TABLE>

<TABLE>
<CAPTION>
1997 Quarter Ended
---------------------------------
March 31 June 30 Sept 30 Dec 31
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Operating Revenue........................... $24,672 $23,471 $21,734 $23,501
Less Operating Costs and Expenses........... 23,700 23,152 20,821 23,192
------- ------- ------- -------
Operating Income.......................... 972 319 913 309
------- ------- ------- -------
Income (Loss) from continuing operations.... 295 (418) 147 (1,005)
Income from discontinued operations......... -- -- -- 710
------- ------- ------- -------
Net Income (Loss)........................... $ 295 $ (418) $ 147 ( 295)
======= ======= ======= =======
Net Income (Loss) Per Share--Basic and
Diluted ................................... $ 0.07 $ (0.11) $ 0.04 $ (0.07)
======= ======= ======= =======
Significant items included in continuing
operations which might affect
comparability are as follows:
Writedown of excess equipment............... -- -- -- (958)
Writedown of joint venture development
costs....................................... -- -- -- (855)
</TABLE>

F-34
<PAGE>

REUNION INDUSTRIES, INC.

CONSOLIDATED BALANCE SHEET

(Unaudited)

(In Thousands)

<TABLE>
<CAPTION>
June 30,
1999
--------
ASSETS
- - - ------
<S> <C>
Current Assets
Cash and Cash Equivalents.......................................... $ 865
Accounts Receivable, Less Allowance for Doubtful Accounts of $163.. 9,766
Inventories........................................................ 7,306
Customer Tooling-in-Process........................................ 319
Deferred crop costs................................................ 819
Other Current Assets............................................... 1,028
--------
Total Current Assets............................................. 20,103
--------
Property, Plant and Equipment--Net................................... 39,849
--------
Other Assets
Goodwill........................................................... 8,011
Other.............................................................. 1,473
--------
Total Other Assets............................................... 9,484
--------
Total Assets..................................................... $ 69,436
========
<CAPTION>
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
- - - ----------------------------------------------------------------
<S> <C>
Current Liabilities
Current Portion of Long-Term Debt.................................. $ 11,051
Short Term Debt--Related Parties................................... 278
Accounts Payable................................................... 7,724
Advances From Customers............................................ 754
Accrued Bargo Judgment............................................. 5,000
Accrued environmental costs........................................ 1,634
Other Current Liabilities.......................................... 4,831
--------
Total Current Liabilities........................................ 31,272
Long-Term Debt....................................................... 15,764
Long-Term Debt-Related Parties....................................... 1,385
Other Liabilities.................................................... 3,356
--------
Total Liabilities................................................ 51,777
--------
Commitments and Contingencies--Note 5
Redeemable preferred stock of consolidated subsidiary................ 533
Minority Interests................................................... 2,022
Stockholders' Equity
Common Stock ($.01 par value; 20,000 authorized; 3,940 issued and
outstanding)...................................................... 39
Additional Paid-in Capital......................................... 29,403
Accumulated Deficit (Since January 1, 1989)........................ (13,506)
Foreign Currency Translation Adjustments........................... (832)
--------
Total Stockholders' Equity....................................... 15,104
--------
Total Liabilities, Redeemable Preferred Stock and Stockholders'
Equity.......................................................... $ 69,436
========
</TABLE>

See Accompanying Notes to Unaudited Consolidated Financial Statements

F-35
<PAGE>

REUNION INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

(In Thousands, Except Per Share Data)

<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------
1999 1998
------- --------
<S> <C> <C>
Net Sales
Plastics.................................................. $37,504 $ 51,072
Agriculture............................................... 823 --
------- --------
38,327 51,072
Cost of Sales
Plastics.................................................. 32,251 43,635
Agriculture............................................... 852 --
------- --------
33,103 43,635
Gross Profit................................................ 5,224 7,437
Selling, General and Administrative Expenses................ 6,345 6,034
------- --------
Operating Income (Loss)..................................... (1,121) 1,403
Other Income and (Expense)
Interest Expense.......................................... (1,318) (1,494)
Provision for Bargo Judgment and Related Costs............ (1,646) (8,825)
Bargo Settlement Gain..................................... 3,617 --
Other, Including Interest Income.......................... 302 (65)
------- --------
955 (10,384)
------- --------
Income (Loss) Before Taxes.................................. (166) (8,981)
Income Tax Expense........................................ (9) (75)
------- --------
Income (Loss) from Continuing Operations.................... (175) (9,056)
Loss from Discontinued Operations........................... (370) (1,200)
------- --------
Net Loss.................................................... (545) (10,256)
Foreign Currency Translation Adjustment..................... (661) (89)
------- --------
Comprehensive Loss.......................................... $(1,206) $(10,345)
======= ========
Income (Loss) per Share--Basic and Diluted
Income (Loss) from Continuing Operations.................. $ (0.04) $ (2.35)
Loss from Discontinued Operations......................... (0.10) (0.31)
------- --------
Net Loss.................................................. $ (0.14) $ (2.66)
======= ========
Weighted Average Number of Common Shares Outstanding........
Basic and Diluted......................................... 3,908 3,861
======= ========
</TABLE>

See Accompanying Notes to Unaudited Consolidated Financial Statements

F-36
<PAGE>

REUNION INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In Thousands)

<TABLE>
<CAPTION>
Six Months Ended
June 30
-----------------
1999 1998
------- --------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Loss.................................................. $ (545) $(10,256)
Adjustments to Reconcile Net Loss to Net Cash Provided by
Operating Activities:
Depreciation............................................ 1,736 1,795
Goodwill amortization................................... 362 347
Debt issuance costs amortization........................ 791 171
Provision for Bargo judgment and related costs.......... 400 8,825
Bargo settlement gain................................... (3,617) --
Provision for environmental liability................... -- 1,200
------- --------
(873) 2,082
Changes in Assets and Liabilities:
(Increase) Decrease in Accounts Receivable.............. 2,624 (707)
Increase in Inventory................................... (202) (744)
Increase (Decrease) in Accounts Payable................. (960) 1,479
Other--net.............................................. 167 (276)
------- --------
Net Cash Provided By Operating Activities................... 756 1,834
------- --------
Cash Flows From Investing Activities:
Capital Expenditures...................................... (1,503) (2,274)
Other..................................................... 6 --
------- --------
Net Cash Used In Investing Activities....................... (1,497) (2,274)
------- --------
Cash Flows From Financing Activities:
Proceeds from Issuance of Debt Obligations................ 7,765 --
Debt Issuance Costs....................................... (310) --
Payments of Debt Obligations.............................. (7,149) (1,512)
Increase (Decrease) in Short Term Borrowings.............. (936) 91
Proceeds from exercise of stock options................... 69 90
------- --------
Net Cash Used in Financing Activities....................... (561) (1,331)
------- --------
Effect of Exchange Rate on Cash............................. 158 --
------- --------
Increase (Decrease) in Cash and Cash Equivalents............ (1,144) (1,771)
Cash and Cash Equivalents at Beginning of Period............ 2,009 2,085
------- --------
Cash and Cash Equivalents at End of Period.................. $ 865 $ 314
======= ========
</TABLE>

See Accompanying Notes to Unaudited Consolidated Financial Statements

F-37
<PAGE>

REUNION INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, Except Per Share Data)

NOTE 1. CONSOLIDATED FINANCIAL STATEMENTS

Going Concern Considerations

The accompanying consolidated financial statements have been prepared on a
going concern basis which contemplates the realization of assets and the
settlement of liabilities and commitments in the normal course of business. The
Company has incurred losses in each of the last five years, and incurred a loss
of $35 in the six months ended June 30, 1999. Corporate expenses, including
salaries and benefits, professional fees and other public company costs, are
expected to approximate $1,500 annually. Agreement was reached in June 1999 to
settle the litigation with Bargo Energy Company ("Bargo"), and a payment of
$5,000 was made July 15, 1999. A settlement payment of approximately $975 for
the California tax audit was made September 2, 1999. In addition, a significant
portion of the $1,439 accrued for environmental remediation of the Louisiana
properties (see Note 4) is expected to be expended during the next twelve
months.

The Company's subsidiary, Oneida Rostone Corp. ("ORC") closed a new credit
facility with The CIT Group/Business Credit, Inc. ("CITBC") in October 1998.
This new credit facility limits payments to Reunion by ORC and Juliana. The new
credit facility also provided a letter of credit guarantee to provide credit
support for a supersedeas bond in the Bargo litigation. Since October 1998,
substantially all the amounts otherwise permitted to be paid by ORC to Reunion
have been used to fund letter of credit and guarantee fees relating to the
supersedeas bond. The $5,000 settlement payment to Bargo was funded by a
temporary overadvance on the revolver portion of the CITBC credit facility and
the letter of credit was released. In August 1999, the credit facility was
amended to increase term loan A to $8,250 and provide for a $3,000 term loan B.
This amended facility replaces the temporary overadvance and provides
additional working capital for Oneida Rostone.

At June 30, 1999, ORC was not in compliance with a financial covenant to
maintain EBITDA (as defined in the financing agreements with CITBC) of not less
than specified amounts each fiscal quarter. CITBC has agreed to waive
compliance with this covenant for the quarter ended June 30, 1999. In
connection with the amended credit facility described above, the financial
covenants in the loan agreement were also amended to levels that management
believes are reasonably attainable in future quarters.

Without additional financing, management believes that the Company will not
have sufficient resources to meet its corporate expenses and legal and
environmental costs as they become due over the next twelve months. During 1998
and January 1999, the Company borrowed a total of $1,040 from Stanwich
Financial Service Corp. ("SFSC"), a related party. These borrowings bear
interest at 15% and were originally due to mature September 30, 1998. The
Company repaid $800 of this borrowing, including interest, in February 1999 and
$303, including interest, in August 1999. There can be no assurances that
additional financing will be arranged, or that SFSC will lend additional funds.
If the Company is unable to arrange additional financing, it may be necessary
to sell one or more of the Company's businesses.

As described in Note 3, the Company has announced that it has entered into
an amended and restated merger agreement with Chatwins Group, Inc. and has held
financing discussions with prospective lenders. If such transactions are
completed, management believes that there will be sufficient resources for the
Company's cash flow requirements. There can be no assurances that any of these
transactions will be consummated.

F-38
<PAGE>

REUNION INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Principles of Consolidation

The consolidated financial statements include the accounts of Reunion
Industries, Inc. ("RII") and its majority owned subsidiaries. As used herein,
the term "Company" refers to RII, its predecessors and its subsidiaries, unless
the context indicates otherwise. All intercompany transactions and accounts are
eliminated in consolidation.

Financial Statements at June 30, 1999

The Consolidated Balance Sheet at June 30, 1999 and the Consolidated
Statements of Operations and Cash Flows for the six months ended June 30, 1999
and 1998 included herein are unaudited; however, in the opinion of management
of the Company, they reflect all adjustments necessary to present fairly the
results for the interim periods. Such results are not necessarily indicative of
results to be expected for the year.

Earnings Per Share

Basic earnings per share is computed based on the weighted average number of
common shares outstanding during the period. Diluted earnings per share gives
effect to all dilutive potential common shares outstanding during the period.
Potential common shares include shares issuable upon exercise of the Company's
stock options and warrants. Potential common shares were not included in the
weighted average number of shares for 1999 because their effect would have been
anti-dilutive.

Accounting Pronouncements

The Financial Accounting Standards Board (FASB) has issued the following
accounting pronouncement which the company will be required to adopt in future
periods:

NOTE 2. INVENTORIES

Inventories consisted of the following:

<TABLE>
<CAPTION>
June 30, 1999
-------------
<S> <C>
Raw Materials............................................... $4,188
Work-in process............................................. 753
Finished Goods.............................................. 2,365
------
Total..................................................... $7,306
======
</TABLE>

NOTE 3. PROPOSED MERGER WITH CHATWINS GROUP, INC.

The Company and Chatwins Group, Inc., a Delaware corporation that owns
approximately 37% of the issued and outstanding shares of common stock of the
Company ("CGI"), have entered into an agreement for

F-39
<PAGE>

REUNION INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

a stock-for-stock merger of CGI with and into the Company. The merger is
subject to approval by the Company's stockholders, the securing of adequate
financing to refinance certain debt of the Company and CGI and to operate the
combined company, and the condition that holders of no more than 5% of CGI
stock exercise their appraisal rights under Delaware law.

In connection with the merger, Reunion and CGI are jointly pursuing long-
term financing options in an effort to consummate the merger within the next
several months. There can be no assurances that the long-term financing can be
completed or that the merger will be approved or consummated.

NOTE 4. LITIGATION AND TAX AUDIT SETTLEMENTS

Bargo Energy Company Litigation

In June 1999, the Company and Bargo Energy Company reached agreement on the
terms of a settlement of their litigation concerning a November 1995 stock
purchase agreement for the sale of the Company's subsidiary, Reunion Energy
Company ("REC") to Bargo. In July 1998, the trial court had entered judgment
affirming a jury finding awarding Bargo $5,000 in punitive damages and awarding
approximately $3,000 in attorneys' fees and costs. The Company's appeal was
pending.

On July 15, 1999, the Company and Bargo signed the Settlement Agreement, the
Company paid Bargo $5,000 and the parties released all claims against each
other. In connection with the settlement payment, the parties have also filed
joint motions with the appeals court and the trial court which provide that the
trial court judgment is reversed, the jury findings are disregarded, the $500
escrow amount, deposited by Bargo in connection with the original transaction,
is to be returned to Bargo with interest and Reunion is to pay all court costs
(approximately $10). As described in Note 1, the settlement payment was funded
by a temporary overadvance on ORC's revolving credit facility.

Through June 1999, the Company had recorded provisions totaling $8,825 for
the trial court judgment plus interest at 10% and $2,060 for credit support and
guarantee fees related to the bond filed by the Company to suspend execution on
the judgment while the Company appealed. As a result of the settlement, the
Company recognized a gain in June 1999 of $3,617, the amount by which the
recorded provisions exceeded the settlement amount plus remaining credit
support costs.

California Tax Audit

In June 1999, the Company reached agreement with the California Franchise
Tax Board to settle the assessment of additional taxes for 1991, 1992 and 1993.
The settlement agreement is subject to final approval by the State of
California, which management expects will be received. Under the settlement
agreement, Reunion paid $975, including interest, on September 2, 1999. The
Company had previously accrued $595 for this obligation based on settlement
discussions. As a result of the settlement, the Company accrued an additional
$370 in June 1999, with a corresponding charge to discontinued operations.

NOTE 5. CONTINGENCIES

Environmental Compliance

Various U.S. federal, state, and local laws and regulations including,
without limitation, laws and regulations concerning the containment and
disposal of hazardous waste, oil field waste and other waste

F-40
<PAGE>

REUNION INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

materials, the use of storage tanks, the use of insecticides and fungicides and
the use of underground injection wells directly or indirectly affect the
Company's operations. In addition, the environmental laws and regulations
typically impose "strict liability" upon the Company for certain environmental
damages. Accordingly, in some situations, the Company could be liable for clean
up costs even if the situation resulted from previous conduct of the Company
that was lawful at the time or from improper conduct of, or conditions caused
by, previous property owners, lessees or other persons not associated with the
Company or events outside the control of the Company. Such clean up costs or
costs associated with changes in environmental laws and regulations could be
substantial and could have a material adverse effect on the Company's
consolidated financial position, results of operations or cash flows.

The Company's plastic products and service business routinely uses chemicals
and solvents, some of which are classified as hazardous substances. The
Company's oil and gas business and related activities routinely involved the
handling of significant amounts of waste materials, some of which are
classified as hazardous substances. The Company's vineyard operations routinely
use fungicides and insecticides, the handling, storage and use of which is
regulated under the Federal Insecticide, Fungicide and Rodenticide Act, as well
as California laws and regulations.

Except as described in the following paragraphs, the Company believes it is
currently in material compliance with existing environmental protection laws
and regulations and is not involved in any significant remediation activities
or administrative or judicial proceedings arising under federal, state, or
local environmental protection laws and regulations. In addition to management
personnel who are responsible for monitoring environmental compliance and
arranging for remedial actions that may be required, the Company has also
employed outside consultants from time to time to advise and assist in the
Company's environmental compliance efforts. Except as described in the
following paragraphs, the Company has not recorded any accruals for
environmental costs.

In February 1996, the Rostone division of ORC was informed by a contracted
environmental services consulting firm that soil and ground water contamination
exists at its Lafayette, Indiana site. The Company has expended $200 to date
and has accrued an additional $195 based on current estimates of remediation
costs. Certain of these costs are recoverable from the seller of Rostone (a
related party) by offset to obligations due the seller.

In connection with the sale of REC, the Company retained certain oil and gas
properties in Louisiana because of litigation concerning environmental matters.
The Company is in the process of environmental remediation under a plan
approved by the Louisiana Office of Conservation. The Company has recorded an
accrual for its proportionate share of the remaining estimated costs to
remediate the site based on plans and estimates developed by the environmental
consultants hired by the Company. During 1998 the Company increased this
accrual by a charge of $1,200 to discontinued operations, based on revised
estimates of the remaining remediation costs. During the second quarter of
1999, the Company conducted remediation work on the property. The Company has
paid $85 and is required to pay an additional $75 of the total cost of $300. A
regulatory hearing has been scheduled for November 1999 to consider the
adequacy of the remediation conducted to date. At June 30, 1999, the remaining
balance accrued by the Company for remediation costs was $1,439. Owners of a
portion of the property have objected to the Company's cleanup methodology and
have filed suit to require additional procedures. The Company is contesting
this litigation, and believes its proposed methodology is well within accepted
industry practice for remediation efforts of a similar nature. No accrual has
been made for costs of any alternative cleanup methodology which might be
imposed as a result of the litigation.

F-41
<PAGE>

REUNION INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Company believes that any material liability which can result from any of such
lawsuits or proceedings has been properly reserved for in the Company's
consolidated financial statements or is covered by indemnification in favor of
the Company or its subsidiaries, and therefore the outcome of these lawsuits or
proceedings will not have a material adverse effect on the Company's
consolidated financial position, results of operations or cash flows.

NOTE 6. SEGMENT INFORMATION

The following table presents information about the results of operations of
the Company's business segments:

<TABLE>
<CAPTION>
Six Months
Ended June 30,
----------------
1999 1998
------- -------
<S> <C> <C>
Revenues
Plastic products and services............................. $37,504 $51,072
Agriculture............................................... 823 --
------- -------
$38,327 $51,072
======= =======
Income (Loss) before interest, taxes, depreciation and
amortization (EBITDA)
Plastic products and services............................. $ 2,494 $ 4,575
Agriculture............................................... (159) 15
Corporate and other....................................... 915 (9,935)
------- -------
$ 3,250 $(5,345)
======= =======
Depreciation and amortization
Plastic products and services............................. $ 2,030 $ 1,908
Agriculture............................................... 65 232
Corporate and other....................................... 3 2
------- -------
$ 2,098 $ 2,142
======= =======
Income (Loss) before interest and taxes (EBIT)
Plastic products and services............................. $ 464 $ 2,667
Agriculture............................................... (224) (217)
Corporate and other....................................... 912 (9,937)
------- -------
1,152 (7,487)
Interest expense............................................ (1,318) (1,494)
------- -------
Income (Loss) from continuing operations before income
taxes...................................................... $ (166) $(8,981)
======= =======
</TABLE>

F-42
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
and Stockholders of
Chatwins Group, Inc.

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income and comprehensive income and of cash flows
present fairly, in all material respects, the financial position of Chatwins
Group, Inc. and its subsidiaries (Chatwins Group) at December 31, 1998 and
1997, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of Chatwins Group's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

As discussed in Notes 1 and 20 to the accompanying consolidated financial
statements, Chatwins Group has reported the Klemp division as a discontinued
operation in accordance with Accounting Principles Board Opinion No. 30,
"Reporting the Results of Operations--Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions."

PRICEWATERHOUSECOOPERS LLP

Pittsburgh, Pennsylvania
March 26, 1999, except as to Note 20 which is as of May 28, 1999

F-43
<PAGE>

CHATWINS GROUP, INC.

CONSOLIDATED BALANCE SHEET
(In Thousands)

<TABLE>
<CAPTION>
At December 31,
------------------
1998 1997
-------- --------
<S> <C> <C>
ASSETS:
Cash and equivalents....................................... $ 213 $ 630
Receivables, net........................................... 29,696 26,039
Inventories (note 3)....................................... 14,506 11,276
Other current assets....................................... 3,816 4,371
Net assets of discontinued operations (notes 1 and 20)..... 23,560 21,592
-------- --------
Total current assets................................... 71,791 63,908
Property, plant and equipment, net (note 4)................ 18,590 19,168
Investments (note 5)....................................... 6,707 11,413
Due from related parties (note 14)......................... 1,403 600
Goodwill, net (note 1)..................................... 3,575 3,778
Other assets, net (note 6)................................. 6,430 4,463
-------- --------
Total assets............................................. $108,496 $103,330
======== ========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS'
EQUITY:
Revolving credit facility (note 8)......................... $ 34,005 $ 26,061
Current maturities of debt (notes 2 and 9)................. 25,010 48
Trade payables............................................. 14,151 11,162
Other current liabilities (note 7)......................... 8,838 10,320
-------- --------
Total current liabilities.............................. 82,004 47,591
Long-term debt (notes 2 and 9)............................. 25,057 50,043
Other liabilities.......................................... 1,533 4,323
-------- --------
Total liabilities...................................... 108,594 101,957
-------- --------
Commitments and contingent liabilities (note 18)........... -- --
Redeemable preferred stock (note 11)....................... 8,482 8,026
Warrant value (note 9)..................................... 14 210
Stockholders' equity (note 12):
Common stock (400,000 shares authorized, 289,677 and
242,887 shares outstanding)............................. 3 3
Capital in excess of par value........................... 1,860 1,664
Treasury stock........................................... (500) (500)
Notes receivable from stockholders....................... (1,001) (1,001)
Accumulated deficit...................................... (8,956) (7,029)
-------- --------
Total stockholders' equity............................. (8,594) (6,863)
-------- --------
Total liabilities, redeemable preferred stock and
stockholders' equity.................................. $108,594 $103,330
======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-44
<PAGE>

CHATWINS GROUP, INC.

CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME

(In Thousands, Except Share and Per Share Data)

<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net sales........................................ $134,583 $136,419 $103,837
Cost of sales.................................... 108,616 111,259 84,579
-------- -------- --------
Gross profit................................... 25,967 25,160 19,258
Selling, general and administrative.............. 13,776 13,439 12,621
Other (income) expense, net...................... 596 658 275
-------- -------- --------
Operating profit............................... 11,595 11,063 6,362
Interest expense, net............................ 7,462 7,402 7,378
Equity loss from continuing operations of
affiliate....................................... 4,056 373 915
-------- -------- --------
Income (loss) from continuing operations before
income taxes.................................... 77 3,288 (1,931)
Provision for (benefit from) income taxes........ 29 833 (691)
-------- -------- --------
Income (loss) from continuing operations......... 48 2,455 (1,240)
Discontinued operations, net of tax:
Equity income (loss) from discontinued
operations of affiliate....................... (429) 162 93
Income (loss) from discontinued operations..... (1,090) (358) 708
-------- -------- --------
Total from discontinued operations............. (1,278) (196) 801
-------- -------- --------
Net and comprehensive income (loss)............ $ (1,471) $ 2,259 $ (439)
======== ======== ========
Income (loss) applicable to common stock....... $ (1,927) $ 1,803 $ (895)
======== ======== ========
Earnings per common share--basic (note 13):
Continuing operations.......................... $ (1.54) $ 8.23 $ (6.98)
Discontinued operations........................ (5.73) (0.81) 3.30
-------- -------- --------
Earnings (loss) per common share--basic........ $ (7.27) $ 7.42 $ (3.68)
======== ======== ========
Average equivalent shares outstanding--basic... 265,088 242,887 242,887
======== ======== ========
Earnings per common share--diluted (note 13):
Continuing operations.......................... $ (1.54) $ 6.82 $ (6.98)
Discontinued operations........................ (5.73) (0.66) 3.30
-------- -------- --------
Earnings (loss) per common share--diluted...... $ (7.27) $ 6.16 $ (3.68)
======== ======== ========
Average equivalent shares outstanding--
diluted....................................... 265,088 292,887 242,887
======== ======== ========
</TABLE>

See Accompanying Notes to Consolidated Financial Statements.

F-45
<PAGE>

CHATWINS GROUP, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

(In Thousands)

<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flow from operating activities:
Net income (loss)............................ $ (1,471) $ 2,259 $ (439)
Adjustments to reconcile net income (loss) to
net cash from operating activities:
Depreciation................................ 3,922 3,438 3,279
Amortization................................ 1,235 955 984
Provision for losses on inventories......... -- 158 338
Equity in net loss of affiliate............. 3,106 62 456
Changes in assets and liabilities:
Decrease (increase) in receivables......... (4,094) (7,841) 3,553
Decrease (increase) in inventories......... (3,782) (97) 381
Decrease (increase) in other current
assets.................................... (47) (343) 909
Increase (decrease) in trade payables and
other current liabilities................. 3,079 5,909 (3,612)
Net change in other assets and
liabilities............................... (5,042) (884) (2,357)
--------- --------- ---------
Cash provided by (used in) operating
activities.................................. (3,094) 3,616 3,492
--------- --------- ---------
Cash flow from investing activities:
Capital expenditures......................... (5,095) (5,044) (4,704)
Investment in joint venture.................. (100) -- (150)
Receipts from related parties................ -- -- 3,664
--------- --------- ---------
Cash used in investing activities............ (5,195) (5,044) (1,190)
--------- --------- ---------
Cash flow from financing activities:
Repayments of debt........................... (48) (47) (48)
Repayments to related parties................ -- (579) (2,737)
Revolving credit facilities borrowings....... 191,281 180,115 159,449
Revolving credit facilities repayments....... (183,337) (177,683) (158,967)
--------- --------- ---------
Cash provided by (used in) financing
activities.................................. 7,896 1,806 (2,303)
--------- --------- ---------
Net increase (decrease) in cash and
equivalents................................. (393) 378 (1)
Change in cash of discontinued operations.... (24) 6 162
Cash and equivalents, beginning of year...... 630 246 85
--------- --------- ---------
Cash and equivalents, end of year............ $ 213 $ 630 $ 246
========= ========= =========
Supplemental cash flow information:
Interest paid.............................. $ 9,211 $ 9,226 $ 8,938
========= ========= =========
Income taxes paid (refunded)............... $ (139) $ 205 $ 53
========= ========= =========
</TABLE>

See accompanying notes to consolidated financial statements.

F-46
<PAGE>

CHATWINS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Discontinued Operations

During the second quarter of 1999, Chatwins Group's management adopted a
plan to exit the grating manufacturing business through the disposition of
substantially all the business and assets of its Klemp division (Discontinued
Klemp). Upon adoption of the plan, Chatwins Group classified and began
accounting for Discontinued Klemp, including its international grating
subsidiaries, as discontinued operations in accordance with Accounting
Principles Board Opinion No. 30, "Reporting the Results of Operations--
Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions" (APB
30), which requires discontinued operations to be reported separately from
continuing operations. These consolidated financial statements and accompanying
notes have been restated to reflect Discontinued Klemp in accordance with APB
30. See note 20.

Nature of Business

Chatwins Group, Inc., is composed of five divisions that design, manufacture
and market metal products and an oil and gas division. Chatwins Group's
principal products include large, seamless pressure vessels for highly
pressurized gases; industrial hydraulic and pneumatic cylinders; high quality,
roll-formed and structural storage racks; industrial cranes; large mill
equipment; and cold-rolled steel leaf springs. Chatwins Group's metals
manufacturing divisions accounted for substantially all of Chatwins Group's net
sales in 1998 and 1997. See notes 19 and 20.

Principles of Consolidation

The consolidated financial statements include the accounts of Chatwins Group
and its majority- and wholly-owned subsidiaries. All significant intercompany
transactions have been eliminated.

Investments in other companies over which Chatwins Group does not have
control, less than a 50% equity interest, and in which Chatwins Group has the
ability to exercise significant influence over operating or financial policies
are accounted for by the equity method. See note 5.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates that
affect the reported amounts of assets, liabilities, revenues, expenses, and
disclosures of contingencies during the reporting period, which in the normal
course of business are subsequently adjusted to actual results.

Cash and Equivalents

Cash and equivalents consist of demand deposit accounts and other cash
equivalents with maturities of 3 months or less.

Accounts Receivable

Accounts receivable are net of $512,000 and $474,000 in allowance for
doubtful accounts at December 31, 1998 and 1997, respectively. Chatwins Group
has no concentration of credit risks and generally does not require collateral
or other security from its customers.

F-47
<PAGE>

CHATWINS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Inventories

Inventories are stated at the lower of cost or market, with cost being
determined on the "last-in, first-out" (LIFO) method of inventory valuation for
approximately 81% and 78% of total inventories at December 31, 1998 and 1997,
respectively, and on the "first-in, first-out" (FIFO) method for the remaining
inventories. See note 3.

Other Current Assets

Other current assets are primarily comprised of current deferred taxes, net
assets, and prepaid expenses. See note 17.

Property, Plant and Equipment

Properties for the manufacturing businesses are stated at cost and
depreciated over their estimated useful lives using the straight-line method
for financial statement purposes. Estimated useful lives in years for
depreciation are as follows: 25 to 40 for buildings and improvements; 7 to 12
for machinery and equipment; 5 to 8 for computer systems; 7 to 10 for furniture
and fixtures. Additions, betterments and replacements are capitalized, while
expenditures for repairs and maintenance are charged to income. As units of
property are sold or retired, the related cost and accumulated depreciation are
removed from the accounts, and any resulting gain or loss is recognized in
income.

Oil and gas properties are accounted for by the full-cost method whereby all
exploration and development costs are capitalized. Depreciation and depletion
are provided based on a unit-of-production method. Dispositions of properties
are treated as reductions of the cost pool and no gain or loss is recognized
subject to certain limitations.

Goodwill

The excess of the purchase consideration over the fair value of the assets
acquired is being amortized generally over 20 years using the straight-line
method. Accumulated amortization of goodwill at December 31, 1998 and 1997, is
$1,581,000 and $1,378,000, respectively.

Other Assets

Other assets primarily include capitalized debt issuance costs on presently
outstanding debt, which are being amortized ratably to interest expense over
the term of the related debt agreements and the cash surrender value of life
insurance policies. See note 6.

Revenue Recognition

Sales are recorded primarily as products are shipped and services are
rendered. The percentage-of-completion method of accounting is used at one
division for orders with long cycle times. Under this method, income is
recognized as work on contracts progresses. The percentage of work completed is
determined principally by comparing the accumulated costs to date with
management's current estimate of costs at contract completion. Contract costs
include all direct material and labor costs and those indirect costs related to
contract performance. At the time when current estimates indicate a loss,
Chatwins Group provides currently for the total amount of the estimated loss.

F-48
<PAGE>

CHATWINS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The following long-term contract amounts are included in accounts receivable
at December 31, 1998 and 1997 (in thousands):

<TABLE>
<CAPTION>
At December 31,
----------------
1998 1997
------- -------
<S> <C> <C>
Uncompleted contract costs over related billings......... $10,556 $ 6,820
Uncompleted contract billings over related costs......... (5,297) (3,499)
------- -------
$ 5,259 $ 3,321
======= =======
</TABLE>
Foreign Currency Translation

At December 31, 1998 and 1997, Chatwins Group had two majority-owned,
consolidated foreign subsidiaries; Klemp de Mexico S.A de C.V (Klemp de Mexico)
and Shanghai Klemp Metal Products Co., Ltd. (Shanghai Klemp). These
subsidiaries are classified as discontinued operations. See note 20. Prior to
1997, the financial statements of Klemp de Mexico were measured using the
Mexican peso. Effective January 1, 1997, Mexico was deemed to be a highly
inflationary economy and the functional currency for the financial statements
of Klemp de Mexico changed from the Mexican peso to the U.S. dollar. Effective
January 1, 1999, Mexico emerged from highly inflationary status. Therefore, the
functional currency for Klemp de Mexico's financial statements returned to the
peso. The devaluation of the peso during 1998 had a negative impact on the
financial position and results of operations of Chatwins Group. See notes 10
and 12.

Shanghai Klemp's financial statements are measured using the Chinese
Renminbi. Therefore, its assets and liabilities are translated at the exchange
rate in effect at the end of a period. Income statement amounts are translated
at the average rate of exchange prevailing during each month in the reporting
period. Translation adjustments arising from differences in exchange rates from
period to period are included in the cumulative translation adjustment account
in net assets of discontinued operations. Transaction gains and losses
resulting from foreign currency transactions, if any, are included in results
of discontinued operations currently. See notes 10 and 12.

Earnings Per Share

Basic earnings per share is computed by dividing net income (loss) by the
weighted average number of common shares outstanding during the period. Diluted
earnings per common share is computed by dividing net income (loss) by the
weighted average number of common shares outstanding plus all dilutive
potential common shares outstanding during the period. The Warrants (see notes
9 and 13) are dilutive common shares under the treasury stock method, which
assumes they are exercised at the beginning of the period.

Fair Market Value Disclosure

Statement of Financial Accounting Standards (SFAS) No. 107, "Disclosures
About Fair Value of Financial Instruments," requires disclosure of the fair
value of certain items, including debt and investments. Chatwins Group believes
that the amounts disclosed for such amounts in the consolidated balance sheet
do not differ significantly from fair value as defined in SFAS 107. The
carrying value of cash and cash equivalents approximates fair value because of
the short maturity of those instruments. The carrying value of amounts due from
related parties and other investments (see note 5), insofar as it was practical
to determine, was deemed to approximate fair value based on current market
conditions, as well as the relationship of the parties. The carrying value of
debt approximates fair value based on Chatwins Group's incremental borrowing
rate. The carrying value of redeemable preferred stock approximates fair value
based on the accretion of such amounts to liquidation value. The carrying value
of the warrants is based on estimates received from outside investment bankers
regarding the overall value of Chatwins Group at the time of the issuance of
the $50 million principal amount of 13% Senior Notes due 2003 (Senior Notes)
(see note 9).

F-49
<PAGE>

CHATWINS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

NOTE 2: FACTORS POTENTIALLY AFFECTING FUTURE LIQUIDITY

Senior Note Purchase Offer

Chatwins Group has $50 million of Senior Notes due May 3, 2003 outstanding
at December 31, 1998. When Chatwins Group acquired the Reunion common stock on
June 20, 1995, it agreed with the Trustee of the Senior Notes to a first
supplemental indenture pursuant to which Chatwins Group issued the Senior Notes
(Indenture). Pursuant to this supplemental indenture, Chatwins Group agreed to
offer to purchase $25 million, or half, of the outstanding Senior Notes from
Noteholders on each of June 1, 1999 and 2000 at par value plus unpaid interest
to the purchase date. The full principal amount of the first purchase offer is
classified as current maturities of long-term debt in Chatwins Group's
consolidated balance sheet at December 31, 1998. Chatwins Group's failure to
fulfill its obligations under this purchase offer would constitute a failure to
pay principal under the Indenture and result in an Event of Default. An Event
of Default due to a failure to pay principal would, pursuant to the Securities
Pledge Agreement, result in a Realization Event resulting in the immediate
vesting in the Collateral Agent of the voting rights of the approximately 43%
of Reunion Industries' common stock and rights to dividends and distributions
in respect of the Pledged Collateral securing its obligations under the Senior
Notes. In addition, upon an Event of Default, the Trustee or the holders of at
least 25% of the Senior Notes may, by written notice to Reunion Industries,
declare an acceleration of the Senior Notes. Reunion Industries currently has a
commitment from a national financial institution that, pursuant to certain
actions by Reunion Industries and its majority shareholder, it will fund
Reunion Industries' obligation to purchase Senior Notes, if any, on the June 1,
1999 purchase date should Reunion Industries' then available liquidity be
insufficient to do so. As of the date of this report, no reasonable estimate
exists as to the amount of Senior Notes which Reunion Industries may be
required to purchase, if any, on the June 1, 1999 offer date. However, there
can be no assurances that a Realization Event or Event of Default will not
occur. See notes 5 and 9.

Defaults Under Indenture

In May of 1998, Chatwins Group executed a joint venture agreement with two
other non-affiliated companies, one U.S. and one Chinese, pursuant to which
Chatwins Group contributed $100,000 for a 10% equity interest in Suzhou Grating
Co., Ltd., a Chinese manufacturing company. See note 5. This investment
constitutes a default under the Indenture.

In May of 1998, Charles E. Bradley, Sr., Chairman of the Board then the
majority shareholder of Chatwins Group (Mr. Bradley), transferred all of his
shares of Chatwins Group's common stock to the Charles E. Bradley, Sr. Family
Limited Partnership (Bradley FLP) for estate planning purposes. The Bradley FLP
has granted voting control over such shares to SPI, which in turn has granted
voting control over such shares to Mr. John G. Poole, a director of Chatwins
Group and current majority beneficial shareholder of Chatwins Group (Mr.
Poole). Because Mr. Bradley no longer has voting control over such shares of
Chatwins Group's common stock, a breach has occurred under the Securities
Pledge Agreement (as defined in the Indenture). Because the Indenture is cross-
covenanted to the Securities Pledge Agreement, such breach creates a default
under the Indenture.

The Indenture provides that neither of the aforementioned defaults will
mature into an Event of Default, as defined in the Indenture, subject to the
remedies therein provided, including acceleration of the Senior Notes, until
the Trustee under the Indenture or the holders of at least 25% or more of the
Senior Notes notify Chatwins Group of the default and the default remains
unremedied for thirty (30) days after such notice. As of the date of this
report, Chatwins Group had not received notice from either the Trustee or any
Senior Note holders. Chatwins Group does not expect that either of these two
defaults will mature into an Event of Default. In the event notice is received,
Chatwins Group currently has agreements in place that it believes would remedy
each default within the 30 day remedy period should it become necessary.
However, there can be no assurances that an Event of Default will not result
from the defaults.

F-50
<PAGE>

CHATWINS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

NOTE 3: INVENTORIES

Inventories are comprised of the following (in thousands):

<TABLE>
<CAPTION>
At December 31,
----------------
1998 1997
------- -------
<S> <C> <C>
Raw material............................................. $ 6,144 $ 4,838
Work-in-process.......................................... 4,797 3,673
Finished goods........................................... 3,632 2,863
------- -------
Gross inventories...................................... 14,573 11,374
Less: LIFO reserves...................................... (67) (98)
------- -------
Inventories............................................ $14,506 $11,276
======= =======
</TABLE>

NOTE 4: PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment is comprised of the following (in thousands):

<TABLE>
<CAPTION>
At December 31,
------------------
1998 1997
-------- --------
<S> <C> <C>
Land................................................... $ 1,078 $ 1,078
Oil and gas properties................................. 1,601 1,686
Buildings and improvements............................. 7,331 6,833
Machinery and equipment................................ 21,284 20,723
Computer systems....................................... 3,094 3,058
Furniture and fixtures................................. 1,281 1,115
Construction-in-progress............................... 2,661 1,798
-------- --------
Property, plant and equipment........................ 38,330 36,291
Less: Accumulated depreciation and depletion........... (19,740) (17,123)
-------- --------
Property, plant and equipment, net................... $ 18,590 $ 19,168
======== ========
</TABLE>

NOTE 5: INVESTMENTS

Investments are comprised of the following (in thousands):

<TABLE>
<CAPTION>
At December 31,
----------------
1998 1997
------- --------
<S> <C> <C>
Reunion common stock..................................... $ 6,224 $ 10,930
Warrants to purchase Reunion common stock................ 483 483
------- --------
Investments............................................ $ 6,707 $ 11,413
======= ========
</TABLE>
Reunion Industries, Inc.

On June 20, 1995, Chatwins Group acquired 1,450,000 shares, or approximately
38%, of the then issued and outstanding shares of common stock of Reunion
Industries, Inc. (Reunion Industries). Reunion Industries is primarily engaged
in the manufacture of high volume, precision plastics products, providing
engineered plastics services and compounding and molding thermoset polyester
resins. Reunion Industries also has real estate development and wine grape
agricultural operations in Napa County, California. However, Reunion Industries
recently announced its decision to exit the plastics industry and redeploy its
assets through the acquisition of manufacturing companies.

F-51
<PAGE>

CHATWINS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Chatwins Group's investment in Reunion Industries is being accounted for
under the equity method of accounting. Chatwins Group's share of Reunion
Industries' operating results for 1998, 1997 and 1996 is included in the
accompanying consolidated statement of income and other comprehensive income as
equity income (loss) from operations of affiliate. As previously reported by
Reunion Industries, on April 24, 1998, a jury in state district court in Harris
County, Texas returned jury verdict findings against Reunion Industries related
to a November 1995 contract for the sale of all outstanding shares of capital
stock of Reunion Industries' wholly owned oil and gas subsidiary to Bargo. The
jury found that Bargo had a right to terminate the November 1995 stock purchase
agreement with Reunion Industries and that Reunion Industries fraudulently
induced Bargo into entering into the agreement. In July 1998, the court entered
judgement affirming the $5.0 million punitive damages jury verdict and awarded
approximately $3.0 million in attorneys' fees and costs. Reunion Industries
maintained at trial and continues to maintain that all requirements to closing
under the contract were met, and that Bargo was required to close the
transaction. Reunion Industries' management continues to maintain that no
evidence sufficient to support a jury finding of fraud or related punitive
damages was presented at trial. Reunion Industries has filed a bond which
suspends execution on the judgment while it appeals. Reunion Industries has
filed a formal notice of appeal and intends to file its appeal as soon as
possible. However, although Reunion Industries' management believes, based on
consultation with counsel, that it is more likely than not that the judgment
will be overturned on appeal, Reunion Industries recorded an accrual of $8.8
million for the amount of the judgment by a charge to its continuing operations
for the second quarter of 1998 in accordance with generally accepted accounting
principles. Chatwins Group's results of operations for the second quarter of
and year ended December 31, 1998 and the carrying value of Chatwins Group's
investment in Reunion Industries' common stock on the equity method of
accounting were adversely affected by this action. In addition, according to
Reunion Industries' financial advisor, its Bargo legal liability is a deduction
of $8.8 million to Reunion Industries' equity value. Reunion Industries has
indicated that, if the judgment is not overturned on appeal, Reunion Industries
would be obligated to seek alternative funding sources, possibly including a
sale of assets.

Certain summarized financial information related to Reunion Industries for
the years ended December 31, 1998 and 1997 is set forth below (in thousands):

<TABLE>
<CAPTION>
1998 1997
-------- -------
<S> <C> <C>
Current assets......................................... $ 23,202 $24,207
======== =======
Other assets........................................... $ 51,672 $47,852
======== =======
Current liabilities.................................... $ 36,119 $28,034
======== =======
Other liabilities...................................... $ 19,909 $15,568
======== =======
Shareholders' equity................................... $ 16,239 $28,317
======== =======
Net sales.............................................. $ 97,318 $93,378
======== =======
Operating income....................................... $ 1,495 $ 2,513
======== =======
Loss from continuing operations........................ $(10,440) $ (981)
======== =======
Income (loss) from discontinued operations............. $ (1,710) $ 710
======== =======
Net loss............................................... $(12,383) $ (271)
======== =======
</TABLE>

F-52
<PAGE>

CHATWINS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

NOTE 6: OTHER ASSETS

Other assets consist of the following (in thousands):

<TABLE>
<CAPTION>
At December 31,
---------------
1998 1997
------- -------
<S> <C> <C>
Deferred financing costs (net of accumulated
amortization of $2,067 and $2,324)..................... $ 2,525 $ 2,043
Cash surrender value of life insurance policies......... 2,381 1,975
Other................................................... 1,524 445
------- -------
Total other assets.................................... $ 6,430 $ 4,463
======= =======
</TABLE>

NOTE 7: OTHER CURRENT LIABILITIES

Other current liabilities consist of the following (in thousands):

<TABLE>
<CAPTION>
At December 31,
----------------
1998 1997
------- --------
<S> <C> <C>
Accrued wages and benefits............................... $ 2,619 $ 3,413
Accrued pension costs (note 15).......................... 295 322
Accrued postretirement benefits (note 15)................ 1,021 971
Accrued interest......................................... 1,300 1,083
Other.................................................... 3,603 4,531
------- --------
Total other current liabilities........................ $ 8,838 $ 10,320
======= ========
</TABLE>

NOTE 8: REVOLVING CREDIT FACILITY

On October 30, 1998, Chatwins Group and NationsBank, N.A. (NationsBank), a
national banking association, executed a financing and security agreement
(Financing Agreement) wherein NationsBank has provided Chatwins Group with a
revolving credit facility (NationsBank Facility) of up to a maximum principal
amount of $40.0 million, including a letter of credit facility of up to $5.0
million.

The NationsBank Facility includes a Special Availability Amount, as defined
in the Financing Agreement, of $6.0 million. The Special Availability Amount is
required to be reduced in $750,000 increments on each of February 1, May 1,
August 1 and November 1 in each of the years 1999 and 2000. Once reduced, the
Special Availability Amount may not be reborrowed. Availability under the
NationsBank Facility is subject to a borrowing base limitation calculated as
the aggregate of 85% of eligible accounts receivable plus the lesser of $15.0
million or the sum of 60% of finished goods and raw materials, 50% of supplies
and stores, a percentage, determined from time to time by NationsBank, of work-
in-process and the Special Availability Amount in effect at the time of the
calculation, all of the above as defined in the Financing Agreement. Interest
under the NationsBank Facility is determined by reference to various rates
including the NationsBank prime rate, the Federal Funds rate or LIBOR, each
plus an applicable margin. Chatwins Group may elect the rates upon notification
to NationsBank with applicable margins ranging from zero to 0.5% when using
either the NationsBank prime rate or the Federal Funds rate and from 2.0% to
2.75% when using LIBOR.

The NationsBank Facility is secured by a lien in favor of NationsBank on
Chatwins Group's accounts receivable, inventory and certain other property and
accounts to the extent necessary to permit foreclosure on the accounts
receivable and inventory. The Financing Agreement expires on October 31, 2001
and is renewable annually thereafter, subject to the approval of NationsBank,
but not beyond October 31, 2005.

F-53
<PAGE>

CHATWINS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Contemporaneously with the execution of the Financing Agreement on October
30, 1998, Chatwins Group borrowed a total of $28.9 million under the
NationsBank Facility, $28.1 million of which was used to repay, in total,
borrowings, interest and fees under Chatwins Group's then existing revolving
credit facility (Congress Facility) with Congress Financial Corporation
(Congress) and $0.8 million of which was placed on deposit with Congress as
cash collateral for unexpired letters of credit. Such cash collateral will be
returned to Chatwins Group upon the expirations of the related letters of
credit. Chatwins Group and Congress agreed to terminate the Congress Facility
upon execution of the Financing Agreement. On November 2, 1998, Chatwins Group
borrowed an additional $3.25 million under the NationsBank Facility to fund its
semiannual interest payment on the Senior Notes. See notes 2 and 9.

The NationsBank Facility includes various representations, warranties and
affirmative and negative covenants by Chatwins Group and provides NationsBank
with certain rights and remedies in the event of any defaults including, but
not limited to, acceleration, both in the event of default or subjectively, of
all amounts borrowed under the NationsBank Facility. Financial covenants in the
NationsBank Facility include an adjusted earnings before interest, taxes,
depreciation and amortization excluding amortization of deferred financing
costs (NationsBank EBITDA) to fixed charge coverage ratio and an indebtedness
to cash flow ratio, calculations of which are defined in the Financing
Agreement. Generally all amounts for calculation of the ratios are derived from
domestic operations and NationsBank EBITDA is adjusted for domestic capital
expenditures. Beginning on December 31, 1998, these covenants require Chatwins
Group to maintain a rolling twelve-month minimum adjusted NationsBank EBITDA to
fixed charge coverage ratio of 1.2:1 and a maximum indebtedness to cash flow
ratio of 5.0:1. At December 31, 1998 such ratios were 1.3:1 and 4.9:1,
respectively, and complied with the Financing Agreement. Chatwins Group was
also in compliance with all other representations, warranties and covenants at
December 31, 1998. Borrowings outstanding under the NationsBank Facility at
December 31, 1998 totaled $34.0 million and the weighted average rate for
borrowing was 7.5%. Borrowings under the Congress Facility bore interest at an
annual rate of the Philadelphia National Bank Prime Rate plus 1.5% which, at
the time of its termination, was 10.0%.

For 1998, the blended effective rate for combined average outstanding
borrowings of $28.2 million under both the Congress Facility and the
NationsBank Facility was 10.1%. For 1997, the effective rate for average
outstanding borrowings of $24.4 million under the Congress Facility was 10.7%.

NOTE 9: LONG-TERM DEBT

Long-term debt consists of the following (in thousands):

<TABLE>
<CAPTION>
At December 31,
-----------------
1998 1997
-------- -------
<S> <C> <C>
13% Senior Notes due May 1, 2003 (net of unamortized
discount of $76 and $100)(1).......................... $ 49,924 $49,900
Other.................................................. 143 191
-------- -------
Total long-term debt................................. 50,067 50,091
Current maturities..................................... (25,010) (48)
-------- -------
Total long-term debt, less current maturities........ $ 25,057 $50,043
======== =======
</TABLE>
- - - --------
(1) In May 1993, Chatwins Group issued the Senior Notes and 50,000 warrants
(Warrants) to purchase 50,000 shares of Chatwins Group's common stock. The
Senior Notes bear interest at 13% per year. Interest is payable
semiannually in arrears on May 1 and November 1 of each year. The Senior
Notes mature on May 1, 2003 and are redeemable at the option of Chatwins
Group in whole or in part at any time on or after May 1, 1998. Chatwins
Group is required to redeem $12.5 million principal amount of the Senior
Notes

F-54
<PAGE>

CHATWINS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

on each of May 1, 2000, May 1, 2001 and May 1, 2002, at face value plus
accrued interest. Chatwins Group is required to offer to purchase $25
million of the Senior Notes on each of June 1, 1999 and June 1, 2000 at face
value plus accrued interest. See note 2. The maximum potential principal
amount of the June 1, 1999 purchase offer is classified as current
maturities of long term debt in Chatwins Group's consolidated balance sheet
at December 31, 1998. The Senior Notes rank senior in right of payment to
all current and future subordinated indebtedness and pari passu in right of
payment to all current and future senior indebtedness of Chatwins Group,
subject, however, to NationsBank's security interests in certain assets of
Chatwins Group under the NationsBank Facility. See note 8. The Senior Notes
are secured by a pledge of approximately 43% of the outstanding common stock
of Chatwins Group. At December 31, 1998, an aggregate of $4,140,000 of
Senior Notes were held by various executive officers and directors of
Chatwins Group, which were purchased in open market transactions.

Each Warrant entitles the holder to purchase one share of the common stock
of Chatwins Group at an exercise price of $.01 per share. The Warrants were
not exercisable except upon the occurrence of certain trigger events as
defined in the warrant agreement or, if no trigger event had occurred prior
to May 3, 1998, upon Chatwins Group's failure to consummate a repurchase
offer due to a payment blockage, both as defined in the warrant agreement.
No trigger event had occurred through May 3, 1998 and a payment blockage
existed on such date, resulting in the Warrants becoming exercisable as of
May 3, 1998. Consistent with the warrant agreement, Chatwins Group notified
holders of the Warrants of the existence of a payment blockage and that the
Warrants were exercisable. As of December 31, 1998, 46,790 Warrants had been
exercised resulting in the issuance of 46,790 shares of Chatwins Group's
common stock. As of the date of this report, remaining Warrants which have
not been exercised remain exercisable. See note 12.

Aggregate maturities of long-term debt for the next five years are as
follows (in thousands):

<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------------------------------------------------------
Total 1999 2000 2001 2002 2003
------- ------- ------- ---- ---- ----
<S> <C> <C> <C> <C> <C>
$50,067 $25,010 $25,010 $47 $-- $--
======= ======= ======= === ==== ====
</TABLE>

NOTE 10: FOREIGN CURRENCIES, INTERNATIONAL SUBSIDIARIES AND MINORITY INTERESTS

Foreign Currencies

Export sales to foreign countries from Chatwins Group's U.S. locations are
denominated in U.S. dollars, Chatwins Group's reporting currency. Accordingly,
transaction loss exposures due to fluctuations in the functional currencies of
the countries to which Chatwins Group's domestic locations export, which vary
significantly from year to year, are minimal.

Sales of Klemp de Mexico and Shanghai Klemp are almost entirely within the
countries in which they are located and are denominated in each location's
functional currency; the peso in Mexico and the renminbi in China. Accordingly,
transaction loss exposure to Chatwins Group from fluctuations in each
location's functional currency are minimal.

International Subsidiaries and Minority Interests

At December 31, 1998, Chatwins Group had approximately $3.6 million invested
in Klemp de Mexico and approximately $1.9 million invested in Shanghai Klemp.
Chatwins Group considers its investments in these

F-55
<PAGE>

CHATWINS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

international subsidiaries to be long-term in nature. Chatwins Group's foreign
subsidiaries are self-sustaining and operate almost exclusively within the
countries they are located. Their cash flows are devoted to and obligations
paid by their own operations. Chatwins Group does not provide day-to-day
operating funds to the foreign operations nor does Chatwins Group guarantee any
foreign indebtedness. These subsidiaries are classified as discontinued
operations. See note 20.

Klemp de Mexico

Chatwins Group's Mexican grating subsidiary, Klemp de Mexico, is owned 85%
by Chatwins Group and 15% by Mr. Kimball J. Bradley, Senior Vive President and
shareholder of Chatwins Group and son of Mr. Bradley. During 1996, Klemp de
Mexico, entered into a joint venture agreement with Consolidated Fabricators,
Inc., a Massachusetts company, to form CFI-Klemp de Mexico (CFI-Klemp), a
Mexican corporation. CFI-Klemp is in the business of metal fabrications. As
Klemp de Mexico has a 50.1% interest in CFI-Klemp, CFI-Klemp is consolidated
with Klemp de Mexico for financial reporting purposes. Their joint venture
partner's 49.9% interest is included in net assets of discontinued operations
in minority interest in Chatwins Group's consolidated balance sheet at December
31, 1998 and 1997.

Total sales related to Klemp de Mexico for the years ended December 31,
1998, 1997 and 1996, were $4.7 million, $3.7 million and $3 million,
respectively. Klemp de Mexico's sales for 1998, 1997 and 1996 included $1.7
million, $1.2 million and $0.7 million, respectively, related to CFI-Klemp.
Klemp de Mexico had losses before taxes for the years ended December 31, 1998,
1997 and 1996 of approximately $0.2 million, $0.4 million and $0.1 million,
respectively. Included in Klemp de Mexico's 1998 and 1997 results were $6,000
and $51,000, respectively, of losses before taxes related to CFI-Klemp. CFI-
Klemp had no income or loss for 1996. During 1998 and 1997, losses allocated to
the minority interest were $6,000 and $51,000, respectively.

Effective January 1, 1997, Mexico's economy was classified as highly
inflationary as defined in SFAS 52 due primarily to the substantial inflation
in Mexico over 1995 and 1996, which was approximately 60% and 30%,
respectively. During 1997, inflation in Mexico subsided substantially and the
peso devalued minimally; from 7.84 pesos/$1.00 at December 31, 1996 to 8.07
pesos/$1.00 at December 31, 1997. However, during 1998, even though inflation
remained relatively stable, the peso devalued almost 25% against the U.S.
dollar; from 8.07 pesos/$1.00 at December 31, 1997 to almost 10.00 pesos/$1.00
at December 31, 1998. This devaluation of the peso had a negative impact on
Chatwins Group's investment in Klemp de Mexico, resulting in translation losses
charged to earnings during 1998 of $150,000 and an increase in the cumulative
translation adjustment account equity of $666,000. On a sensitivity basis,
additional devaluations of the peso, if any, of the magnitude seen during 1998
can be expected to have a similar impact on the future financial position and
operating results of Chatwins Group. At December 31, 1998, 1997 and 1996, the
cumulative translation adjustment account in net assets of discontinued
operations totaled $1,354,000, $688,000 and $688,000, respectively. Effective
January 1, 1999, Mexico emerged from highly inflationary status. As such,
future fluctuations in the value of the peso against the U.S. dollar will be
recorded as adjustments to the cumulative translation adjustment account in net
assets of discontinued operations.

Shanghai Klemp

Chatwins Group's 65% interest in Shanghai Klemp is consolidated for
financial reporting purposes. The joint venture partners' interests are
included in minority interest in Chatwins Group's consolidated balance sheet at
December 31, 1998 and 1997. During 1998 and 1997, Shanghai Klemp had sales of
$2.4 million and $0.7 million, respectively, and losses before taxes of $95,000
and $167,000, respectively. Production began in

F-56
<PAGE>

CHATWINS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

late December 1996 and its results were insignificant. During 1998 and 1997,
losses allocated to the minority interests were $51,000 and $90,000,
respectively.

Impacts on Chatwins Group due to foreign currency rate fluctuations in China
have been insignificant. Since establishing the joint venture, the renminbi has
remained stable at approximately 8.3 renminbi/$1.00. However, fluctuations in
the renminbi against the U.S. dollar could have a significant impact on the
financial position and operating results of Chatwins Group, primarily in the
form of translation effects. On a sensitivity basis, a 10% devaluation in the
value of the renminbi at December 31, 1998 would be estimated by Chatwins Group
to have an approximate $200,000 negative impact on the cumulative translation
adjustment in net assets of discontinued operations.

NOTE 11: REDEEMABLE PREFERRED STOCK

Chatwins Group has one class of preferred stock, which has a par value of
$.01 per share and contains redemption privileges and obligations. The Class D,
Series A and B preferred stock is held of record by KSB Acquisition Corp., the
former owner of the corporate predecessor-in-interest to the Klemp and
Steelcraft divisions of Chatwins Group, of which Messrs. Bradley and Poole are
the sole executive officers and directors. The Class D, Series C preferred
stock is held of record by Hanna Investment Corp., the former owner of the
corporate predecessor-in-interest to the Hanna division of Chatwins Group, of
which Messrs. Bradley and Poole are the sole executive officers and Mr. Poole
is the sole director. The outstanding preferred stock activity consisted of (in
thousands):

<TABLE>
<CAPTION>
Class D
--------------------------
Series A Series B Series C Total
-------- -------- -------- ------
<S> <C> <C> <C> <C>
Balance at January 1, 1996................... $3,691 $1,411 $2,012 $7,114
Accretions................................... 225 80 151 456
------ ------ ------ ------
Balance at December 31, 1996................. 3,916 1,491 2,163 7,570
Accretions................................... 225 80 151 456
------ ------ ------ ------
Balance at December 31, 1997................. 4,141 1,571 2,314 8,026
Accretions................................... 225 80 151 456
------ ------ ------ ------
Balance at December 31, 1998................. $4,366 $1,651 $2,465 $8,482
====== ====== ====== ======
</TABLE>

The Class D preferred stock is entitled to receive preferential and
cumulative dividends at an annual rate of $100 per share. In liquidation, Class
D preferred stock is entitled to a preference in the amount of $1,000 per share
plus an amount equal to the dividends accumulated but unpaid to the date of
final payment or dissolution and is not entitled to vote, except as may be
required by law. Chatwins Group has the option to redeem any or all of the
shares of Class D preferred stock, and the holders have the option to require
Chatwins Group to redeem all (but not less than all) of the shares, unless
restricted by law or Chatwins Group's financing agreements. Both the Indenture
and the NationsBank Financing Agreement restrict Chatwins Group from preferred
stock redemptions. The redemption price is $1,000 per share plus an amount
equal to the dividends accumulated but unpaid on the date of the redemption.

The authorized, issued and outstanding preferred stock at December 31, 1998,
1997 and 1996 consisted of 2,249 shares of Class D, Series A; 800 shares of
Class D, Series B; and 1,510 shares of Class D, Series C.

Chatwins Group is not permitted to reissue any shares of its preferred stock
that have been redeemed, and all such shares redeemed shall cease to be a part
of the authorized shares of Chatwins Group. Additionally, the covenants in the
Indenture place restrictions on dividend payments and redemptions of shares.
Such payments

F-57
<PAGE>

CHATWINS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

and redemptions are limited to approximately 50% of net income, as defined,
from the issuance date of the Senior Notes, provided that Chatwins Group meets
an interest coverage ratio (as defined) of at least 2 to 1 for the four full
fiscal quarters immediately preceding any proposed payments prior to May 1,
1996, a ratio of 2.25 to 1 for proposed payments from May 1, 1996, to May 1,
1999, and a ratio of 2.5 to 1 for proposed payments thereafter. Chatwins
Group's interest coverage ratio for 1998 was 1.84 to 1.

Redeemable preferred stocks are being accreted by a charge against retained
earnings for the accumulated but unpaid dividends on such stock. At December
31, 1998 and 1997, dividends in arrears were $3,923,000 and $3,467,000,
respectively.

NOTE 12: STOCKHOLDERS' EQUITY

In September 1993, 38,412 shares of common stock were acquired by Chatwins
Group from two stockholders for $500,000. In February 1994, Chatwins Group
acquired 2,697 shares of its common stock from one stockholder of Chatwins
Group for $.01 per share. Such reacquired stock is being held as treasury
stock.

The majority of Chatwins Group's stock is beneficially owned by the two
principals of Stanwich Partners, Inc. (SPI), a company engaged in consulting
services within the field of financial planning and reporting. Such principals
have pledged approximately 43% of the total outstanding shares of Chatwins
Group to the Senior Notes collateral agent for the benefit of the holders of
the Senior Notes.

The following represents all activity in stockholders' equity for the 3-year
period ended December 31, 1998 (in thousands):

<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Par value of common stock, January 1 and
December 31.................................... $ 3 $ 3 $ 3
======= ======= =======
Treasury stock, January 1 and December 31....... $ (500) $ (500) $ (500)
======= ======= =======
Capital in excess of par value, January 1....... $ 1,664 $ 1,664 $ 1,664
Warrant exercises (note 9)...................... 196 -- --
------- ------- -------
Capital in excess of par value, December 31... $ 1,860 $ 1,664 $ 1,664
======= ======= =======
Stockholder notes receivable, January 1 and
December 31.................................... $(1,001) $(1,001) $(1,001)
======= ======= =======
Accumulated deficit, January 1.................. $(7,029) $(8,832) $(7,937)
Net income (loss)............................... (1,471) 2,259 (439)
Preferred stock accretions (note 11)............ (456) (456) (456)
------- ------- -------
Accumulated deficit, December 31.............. $(8,956) $(7,029) $(8,832)
======= ======= =======
Total stockholders' equity, January 1........... $(6,863) $(8,666) $(7,771)
Warrant exercises............................... 196 -- --
Net income (loss)............................... (1,471) 2,259 (439)
Preferred stock accretions...................... (456) (456) (456)
------- ------- -------
Total stockholders' equity, December 31....... $(8,594) $(6,863) $(8,666)
======= ======= =======
</TABLE>

F-58
<PAGE>

CHATWINS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

NOTE 13: EARNINGS PER COMMON SHARE

The computations of basic and diluted earnings per common share (EPS) for
the years ended December 31, 1998, 1997 and 1996 are as follows (in thousands,
except share and per share amounts):

<TABLE>
<CAPTION>
Income Shares EPS
------- ------- ------
<S> <C> <C> <C>
Year ended December 31, 1998:
Net loss.......................................... $(1,471)
Less: Preferred stock dividend accretions......... (456)
-------
Income available to common stockholders, shares
outstanding and basic EPS........................ $(1,927) 265,088 $(7.27)
======= ======= ======
Year ended December 31, 1997:
Net income........................................ $ 2,259
Less: Preferred stock dividend accretions......... (456)
-------
Income available to common stockholders, shares
outstanding and basic EPS........................ 1,803 242,887 $ 7.42
======
Dilutive effect of Warrants....................... 50,000
------- -------
Income available to common stockholders, shares
outstanding and diluted EPS...................... $ 1,803 292,887 $ 6.16
======= ======= ======
Year ended December 31, 1996:
Net loss.......................................... $ (439)
Less: Preferred stock dividend accretions......... (456)
-------
Income available to common stockholders, shares
outstanding and basic and diluted EPS............ $ (895) 242,887 $(3.68)
======= ======= ======
</TABLE>

For 1998 and 1996, assumed exercise of the Warrants has an anti-dilutive
effect on per-share income from continuing operations. Therefore, basic and
diluted EPS are the same for 1998 and 1996. For a discussion of the Warrants
and preferred stock dividend accretions, see notes 9 and 12, respectively.

NOTE 14: OTHER RELATED-PARTY TRANSACTIONS

SPI Consulting Agreement

Chatwins Group has maintained various consulting agreements with SPI under
which $300,000 was recorded as expense during each of the years ended December
31, 1998, 1997 and 1996, respectively. Messrs. Bradley and Poole are the
principals of SPI. The consulting agreement was to expire on March 31, 1998,
but has been extended for an additional five-year period to expire on March 31,
2003 unless terminated by SPI with 30 days' notice. Under the consulting
agreement, Chatwins Group retains SPI to render consulting services in the
field of financial planning and reporting. Annual payments are permitted on
this agreement as long as Chatwins Group meets an interest coverage ratio of at
least 1.5 to 1 for the prior 4 full fiscal quarters. All amounts owed to SPI
from Chatwins Group have been paid in full at December 31, 1998 and 1997.

F-59
<PAGE>

CHATWINS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

King-Way Service Agreement

On November 3, 1997, Stanwich Acquisition Corporation (SAC) acquired King-
Way Material Handling (King-Way) from the Kingston-Warren Corporation for a
purchase price of $18.1 million. SAC is a privately-held company whose common
stock is owned 42.5% by Mr. Bradley, 42.5% by Mr. K.J. Bradley and 15% by Mr.
Evans. Similar to Auto-Lok, King-Way is in the business of producing industrial
and commercial storage racks and materials handling systems.

SAC and Auto-Lok entered into a service agreement pursuant to which King-Way
would utilize Auto-Lok's surplus capacity in exchange for fees approximately
equal to Auto-Lok's costs of providing the surplus capacity plus a right of
first negotiation to acquire King-Way from SAC. This right of first negotiation
has since expired. The integration of King-Way's business into Auto-Lok's
facility took place primarily during the second quarter of 1998. Through
December 31, 1998, costs totaling $1,298,631 had been charged to King-Way under
this agreement. At December 31, 1998, Chatwins Group had receivables totaling
$780,000 from King-Way.

NAPTech Services Agreement

On August 25, 1998, NPSAC acquired NAPTech from the Shaw Group for a
purchase price of $8.4 million. NPSAC is wholly owned by Mr. Bradley. Like
Chatwins Group's CPI division, NAPTech manufactures steel seamless pressure
vessels.

In August 1998, the CPI division of Chatwins Group and NPS Acquisition Corp.
(NPSAC), doing business as NAPTech Pressure Systems (NAPTech), entered into a
services agreement pursuant to which CPI would provide certain administrative
services to NAPTech for cash fees which approximate $29,000 per month. The
NAPTech services agreement is for one year and may be renewed annually upon
agreement by both Chatwins Group and NAPTech. On August 25, 1998 Chatwins Group
purchased from NAPTech $1.0 million of inventory usable by its CPI division in
its normal course of business. At December 31, 1998, Chatwins Group had
receivables totaling $148,000 from NAPTech.

CPS Leasing

During 1997 and 1998, Chatwins Group entered into thirteen operating lease
agreements with CPS Leasing, Inc. (CPSL), a company owned 80% by Consumer
Portfolio Services and 20% by Charles E. Bradley Jr., President of Consumer
Portfolio Services, a director of Chatwins Group and son of Charles E. Bradley
Sr., Chairman of the Board, Director and a beneficial shareholder of Chatwins
Group. During 1997 and 1998, Chatwins Group made lease payments totaling
$39,112 and $209,989, respectively, to CPSL.

CGI Investment Corp.

In April 1990, Chatwins Group acquired a 49% interest in CGI Investment
Corp. (CGII), a company controlled by SPI. The principals of SPI are also the
majority beneficial owners of Chatwins Group. Since April 1990, Chatwins Group
has made loans to CGII of $1.5 million, $1.35 million and $299,000. None of the
principal or accrued interest thereon has been repaid under these obligations.
Over time, Chatwins Group had provided reserves for a substantial portion of
the principal on its notes receivable from CGII and at December 31, 1997, the
net carrying value of Chatwins Group's investment in CGII common stock and net
notes receivable was $0.6 million.

CGII's primary assets were two notes receivable from affiliates of Chatwins
Group, and a minimal amount of cash, the sum of which totaled $0.7 million at
December 31, 1997. During 1998, Chatwins Group and CGII agreed that CGII's
liabilities significantly exceeded its assets and it would not be able to repay
its obligations to Chatwins Group. As a result, Chatwins Group agreed to
exchange its notes receivable from CGII for one of CGII's notes receivable from
affiliate which, plus accrued interest, totaled $0.5 million. The difference
was provided for currently.

F-60
<PAGE>

CHATWINS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Robinson Incorporated

During 1998, Chatwins Group's Europa division sold its interest in a West
Virginia well to and collected other fees from Robinson Incorporated (Robinson)
for a total of $100,000 in cash. Robinson is an oil and gas company operating
in Oklahoma and is controlled by several members of Chatwins Group's executive
management and board of directors.

NOTE 15: PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS

Pension Plans

Chatwins Group has various retirement plans that cover substantially all of
its employees. Included in these plans is one noncontributory, defined benefit
plan, benefits under which are based solely on continuous years of service and
are not affected by changes in compensation rates.

Chatwins Group's funding policy provides that payments to the pension trusts
be at least equal to the minimum funding requirements of the Employee
Retirement Income Security Act of 1974. Assets of the plan are invested
principally in fixed income and equity securities. Chatwins Group participates
in a separate multiemployer defined benefit pension plan covering certain
employees at one division and has defined contribution plans covering most of
its other employees. Chatwins Group's policy with respect to these plans is to
fund the amounts accrued.

Other Postretirement Plans

Chatwins Group maintains various postretirement healthcare and life
insurance benefit plans for certain active and retired employees. Covered
active and retired employees include those of one operating division of
Chatwins Group and, pursuant to a November 1997 plan amendment which became
effective January 1, 1998, employees of Chatwins Group's Corporate Executive
Payroll (as defined in the plan document).

Eligible active and retired employees of the one operating division for
which postretirement benefits are provided include both union and nonunion
employees. Healthcare benefits for both union and nonunion retirees are
provided for the most part through comprehensive major medical and other health
benefit provisions subject to various retiree cost-sharing features. The
majority of employees eligible for healthcare benefits upon retirement are
former employees of USX Corporation (USX). A significant portion of
postretirement healthcare earned by such employees prior to 1987 is the
responsibility of USX. Life insurance benefits provided to eligible union
retirees are based on fixed amounts negotiated in labor agreements. Life
insurance benefits provided to eligible nonunion retirees are based on the
employee's annual base salary at retirement subject to a maximum benefit.

Postretirement healthcare benefits for eligible active and retired (none as
of December 31, 1998) employees of Chatwins Group's Corporate Executive Payroll
are paid for by Chatwins Group and subject to various retiree cost-sharing
features. Postretirement healthcare benefits for Corporate Executive Payroll
employees terminate when the retiree becomes Medicare eligible. Postretirement
life insurance benefits for eligible active and retired (none as of December
31, 1998) employees of Chatwins Group's Corporate Payroll are paid for by
Chatwins Group and are based on the employee's annual base salary at
retirement. Except for certain life insurance benefits paid from reserves held
by insurance carriers, benefits have not been funded. Contributions to the
plans by Chatwins Group equal benefits paid.

The Financial Accounting Standards Board issued SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits" in February 1998.
The new standard does not change the measurement or recognition of costs for
pension or other postretirement plans but, rather, standardizes

F-61
<PAGE>

CHATWINS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

disclosures and eliminates those that are no longer useful. The following table
sets forth the changes in the benefit obligations and plan assets for the years
ended December 31, 1998 and 1997 and the funded status at December 31, 1998 and
1997 of Chatwins Group's pension and other postretirement benefit plans (in
thousands):

<TABLE>
<CAPTION>
Pension Other Postretirement
-------------- ----------------------
1998 1997 1998 1997
------ ------ ---------- ----------
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation, beginning...... $2,002 $1,800 $ 919 $ 1,345
Service cost....................... 108 96 28 45
Interest cost...................... 128 120 65 105
Plan amendment..................... -- -- -- (54)
Actuarial loss (gain).............. 14 96 (29) (480)
Benefits paid...................... (118) (110) (39) (42)
------ ------ ---------- ----------
Benefit obligation, ending....... $2,134 $2,002 $ 944 $ 919
====== ====== ========== ==========
Change in plan assets:
Fair value, beginning.............. $1,365 $1,104 $ -- $ --
Actual return...................... 80 221 -- --
Company contribution............... 165 150 39 42
Benefits paid...................... (118) (110) (39) (42)
------ ------ ---------- ----------
Fair value, ending............... $1,492 $1,365 $ -- $ --
====== ====== ========== ==========
Funded status:
Net obligation, ending............. $ 642 $ 637 $ 944 $ 919
Unrecognized costs:
Prior service costs................ (69) (76) 8 --
Net (loss) gain.................... (229) (178) 705 738
Transition obligation.............. (49) (61) (636) (686)
------ ------ ---------- ----------
Accrued benefit cost............. $ 295 $ 322 $ 1,021 $ 971
====== ====== ========== ==========
</TABLE>

F-62
<PAGE>

CHATWINS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Net periodic pension and other postretirement benefits costs for the
following years ended December 31 are as follows (in thousands):

<TABLE>
<CAPTION>
Pension Other Postretirement
------------------- ----------------------
1998 1997 1996 1998 1997 1996
----- ---- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Benefits earned during year... $ 108 $ 96 $ 93 $ 28 $ 45 $ 54
Interest cost................. 128 120 107 65 105 90
Amortization of:
Prior service cost.......... 8 7 2 -- -- --
Unrecognized net loss
(gain)..................... -- 3 7 (52) (10) (10)
Unrecognized net
obligation................. 12 12 12 50 49 53
Expected return on plan
assets..................... (118) (93) (79) -- -- --
----- ---- ------ ------ ------ ------
Defined benefit pension and
total other postretirement
benefits costs............... 138 145 142 $ 91 $ 189 $ 187
====== ====== ======
Defined contribution plan
cost......................... 765 786 862
----- ---- ------
Net periodic pension costs.. $ 903 $931 $1,004
===== ==== ======
</TABLE>

Assumptions used to develop the pension cost and projected benefit
obligation for the defined benefit pension plan for the following years ended
December 31 are as follows:

<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Discount rate (net periodic pension costs)................. 6.75% 7.0% 7.0%
==== ==== ===
Discount rate (projected benefit obligations).............. 6.75% 6.75% 7.0%
==== ==== ===
Expected rate of return on plan assets..................... 8.25% 8.0% 8.0%
==== ==== ===
</TABLE>

For the calculation of the net periodic pension costs to be recorded in
1999, the expected rate of return on plan assets was held at 8.25%.

Assumptions used to develop the net periodic postretirement benefit costs
and accumulated postretirement benefit obligations for the following years
ended December 31 are as follows:

<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Discount rate (postretirement benefit cost)............... 6.75% 8.0% 8.0%
==== === ===
Discount rate (postretirement benefit obligation)......... 6.75% 7.5% 8.0%
==== === ===
Healthcare cost trend rate (postretirement benefit cost).. 3.0% 8.0% 8.0%
==== === ===
Healthcare cost trend rate (postretirement benefit
obligation).............................................. 3.0% 3.0% 8.0%
==== === ===
Rate of compensation increase............................. 2.0% 2.0% 2.0%
==== === ===
</TABLE>

USX administers the postretirement healthcare plans for the eligible
employees of the operating division of Chatwins Group previously owned by USX
and bills Chatwins Group for its share of the postretirement costs related to
Chatwins Group's retirees covered by the plans. During 1997, Chatwins Group's
actuary reviewed

F-63
<PAGE>

CHATWINS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

several years of rates charged to Chatwins Group by USX for retiree medical
coverage and, as a result, elected to reduce the applicable healthcare cost
trend rate for all years subsequent to 1997 to 3%. This reduction in healthcare
cost trend rate resulted in a reduction in Chatwins Group's accumulated
postretirement benefit obligation and an increase in the unrecognized net gain
from December 31, 1996 to December 31, 1997 and a reduction in the net periodic
postretirement benefit cost for 1998. A one percentage point increase in the
assumed healthcare cost trend rate would increase the benefit obligation at
December 31, 1998 by approximately $104,000, increase projected 1999 net
periodic cost by approximately $26,000 and increase the total of the service
and interest cost components by approximately $14,000. Conversely, a one
percentage point decrease in the assumed healthcare cost trend rate would
result in approximate decreases in each by $86,000, $21,000 and $11,000,
respectively.

NOTE 16: LEASES

Minimum rental commitments under all noncancellable operating leases in
effect at December 31, 1998, were as follows (in thousands):

<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------------------------------------------------
Total 1999 2000 2001 2002 2003 After 2003
------- ------ ------ ------ ------ ---- ----------
<S> <C> <C> <C> <C> <C> <C>
$10,235 $1,843 $1,602 $1,366 $1,120 $976 $3,328
======= ====== ====== ====== ====== ==== ======
</TABLE>

Operating lease rental expense for the years ended December 31, 1998, 1997
and 1996, amounted to $2,003,000, $1,765,000 and $994,000, respectively.

NOTE 17: INCOME TAXES

The tax provision comprises the following amounts (in thousands):

<TABLE>
<CAPTION>
Year Ended December 31,
------------------------
1998 1997 1996
------- ------- --------
<S> <C> <C> <C>
Current:
Federal....................................... $ -- $ 91 $ 16
State and local............................... -- 48 9
------- ------- --------
Total....................................... -- 139 25
------- ------- --------
Deferred:
Federal....................................... 29 694 (716)
------- ------- --------
Total....................................... 29 694 (716)
------- ------- --------
Total tax provision (benefit)............... $ 29 $ 833 $ (691)
======= ======= ========
</TABLE>

F-64
<PAGE>

CHATWINS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Chatwins Group's effective income tax rate, reflected in the accompanying
consolidated statement of income, differs from the statutory rate due to the
following (in thousands):

<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1998 1997 1996
------- --------- --------
<S> <C> <C> <C>
Computed amount at statutory rate (34%)..... $ 26 $ 1,118 $ (657)
Net change in valuation allowance........... -- (360) --
State and local income taxes................ -- 48 9
Goodwill.................................... 23 1 30
Foreign sales corporation dividends......... (20) (59) (52)
Other--net.................................. -- 85 (21)
------ --------- --------
Total tax provision (benefit)............. $ 29 $ 833 $ (691)
====== ========= ========
</TABLE>

Components of consolidated income taxes consist of the following (in
thousands):

<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1998 1997 1996
-------- ------- --------
<S> <C> <C> <C>
Income (loss) from continuing operations.... $ 29 $ 833 $ (691)
Equity income (loss) from discontinued
operations of affiliate.................... (221) 108 63
Income (loss) from discontinued operations.. (325) (131) 333
-------- ------- --------
Total consolidated tax provision
(benefit)................................ $ (517) $ 810 $ (295)
======== ======= ========
</TABLE>

Temporary differences and carryforwards that gave rise to significant
portions of deferred tax assets and liabilities are as follows (in thousands):

<TABLE>
<CAPTION>
At December 31,
----------------
1998 1997
------- -------
<S> <C> <C>
Depreciation............................................ $(3,210) $(3,503)
Inventory basis differences............................. (1,285) (389)
Other................................................... (1,217) (1,131)
------- -------
Deferred tax liabilities.............................. (5,712) (5,023)
------- -------
Loss carryforwards (NOLs)............................... 4,589 1,262
Book reserves........................................... 2,070 3,835
Deferred compensation................................... 196 408
Tax credit carryforwards................................ 759 720
Unicap adjustments...................................... 235 240
Other................................................... 316 494
------- -------
Deferred tax assets..................................... 8,165 6,959
Less: Valuation allowance............................... (640) (640)
------- -------
Deferred tax assets, net................................ 7,525 6,319
------- -------
Deferred taxes, net asset............................... $ 1,813 $ 1,296
======= =======
</TABLE>

F-65
<PAGE>

CHATWINS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

the adequacy of the valuation allowance as a result of changes in its
profitability and other factors. Based on its 1997 review, Chatwins Group
reduced the valuation allowance by $360,000 in 1997. Based on rates in effect
at December 31, 1998 and after consideration of the valuation allowance,
approximately $4.5 million of future taxable income is required prior to
expiration of Chatwins Group's NOL and credit carryforwards for full
realization of net deferred tax assets. Chatwins Group believes that its future
taxable income will be sufficient for full realization of the deferred tax
assets.

The current and noncurrent classifications of the deferred tax balances are
as follows (in thousands):

<TABLE>
<CAPTION>
At December 31,
----------------
1998 1997
------- -------
<S> <C> <C>
Current:
Deferred tax assets.................................... $ 2,966 $ 4,754
Deferred tax liabilities............................... (1,285) (400)
Less: Valuation allowance.............................. (232) (460)
------- -------
Current deferred taxes, net asset.................... 1,449 3,894
------- -------
Noncurrent:
Deferred tax assets.................................... 5,199 2,205
Deferred tax liabilities............................... (4,427) (4,623)
Less: Valuation allowance.............................. (408) (180)
------- -------
Noncurrent deferred taxes, net asset (liability)......... 364 (2,598)
------- -------
Deferred taxes, net asset................................ $ 1,813 $ 1,296
======= =======
</TABLE>

At December 31, 1998, the consolidated balance sheet included deferred tax
assets of $1.4 million and $0.4 million in other current assets and other
assets, respectively. At December 31, 1997, the consolidated balance sheet
included deferred tax assets of $3.9 million in other current assets and
deferred tax liabilities of $2.6 million in other liabilities.

A U.S. federal corporate income tax return examination has been completed
for Chatwins Group's 1995 tax year. Chatwins Group believes adequate provisions
for income taxes have been recorded for all years.

NOTE 18: COMMITMENTS AND CONTINGENT LIABILITIES

In June 1993, the U.S. Customs Service (Customs) made a demand on Chatwins
Group's Industrial rubber distribution division for $612,948.30 in marking
duties pursuant to 19 U.S.C. Sec. 1592. The duties are claimed on importations
of "unmarked" hose products from 1982 to 1986. Following Chatwins Group's
initial response raising various arguments in defense, including expired
statute of limitations, Customs responded in January 1997 by reducing its
demand to $370,968.00 and reiterating that demand in October 1997. Chatwins
Group restated its position and continues to decline payment of the claim.
Should the claim not be resolved, Customs threatens suit in the International
Courts of Claims. Chatwins Group continues to believe, based on consultation
with counsel, that there are facts which raise a number of procedural and
substantive defenses to this claim, which will be vigorously defended. There is
no applicable insurance coverage.

F-66
<PAGE>

CHATWINS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Chatwins Group is involved in various litigation matters in the ordinary
course of business. In the opinion of management, settlement of these and other
contingent matters will not have any material effect on Chatwins Group's
financial position, results of operations or liquidity. Chatwins Group does not
have any adverse commitments at December 31, 1998.

NOTE 19: SEGMENT DISCLOSURES AND RELATED INFORMATION

Chatwins Group considers its separately identifiable divisions to be its
reportable segments pursuant to the management approach. The following
represents a description of each division.

Alliance--Alliance, located in Alliance, Ohio, designs, engineers and
manufactures cranes used in a wide range of steel and aluminum mill
applications and large special purpose cranes used in marine and aerospace
applications and heavy industrial plants. Alliance also manufactures lighter
duty cranes for various industrial applications, coke oven machinery and other
large steel-related fabrications. In recent years, Alliance has expanded and
diversified its engineering and manufacturing capabilities to offer a variety
of equipment and related engineering, fabrication, maintenance and repair
services.

Auto-Lok--Auto-Lok, located in Atlanta, Georgia, manufactures high quality
roll formed and structural steel fabricated storage racks for industrial and
commercial handling systems and general storage applications. In addition,
Auto-Lok participates on larger contracts in the sale of total material
handling systems through purchasing and reselling related components such as
decking and carton flow devices, and subcontracting of rack erection.

CPI--CPI, located in McKeesport, Pennsylvania, specializes in manufacturing
large, seamless pressure vessels for the above ground storage and
transportation of highly pressurized gases such as natural gas, hydrogen,
nitrogen, oxygen and helium. These pressure vessels are provided to customers
such as industrial gas producers and suppliers, the alternative fueled vehicle
compressed natural gas fuel industry, chemical and petrochemical processing
facilities, shipbuilders, NASA, public utilities and gas transportation
companies.

Hanna--Hanna, with locations in Chicago, Illinois and Milwaukee, Wisconsin,
designs and manufactures a broad line of hydraulic and pneumatic cylinders,
actuators, accumulators and manifolds. These products are used in a wide
variety of industrial and mobile machinery and equipment requiring the
application of force in a controlled and repetitive process. Hanna's specialty
is custom cylinders in both small quantities packaged by its distributors with
valves, pumps and controls as complete fluid power systems and large quantities
sold directly to equipment manufacturers.

Steelcraft--Steelcraft, located in Miami, Oklahoma, manufactures and sells
cold-rolled steel leaf springs. Its principal customers are manufacturers of
trailers for boats, small utility vehicles and golf carts and makers of
recreational vehicles and agricultural trailers.

Chatwins Group's continuing operations manufactures its products in the
United States. Of Chatwins Group's $134.6 million of consolidated net sales for
1998, $12.0 million were export sales to other countries ($5.3 million to the
Far East; $3.5 million to Latin and South America; $1.8 million to the U.K.;
and $1.4 million to Canada).

During 1998, no customer accounted for more than 10% of the net sales of
Chatwins Group. Individual divisions of Chatwins Group have had customers in
certain calendar years that have accounted for in excess of

F-67
<PAGE>

CHATWINS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

10% of that division's net sales. This occurs principally at CPI, Alliance, the
Brooks operation of Hanna and Auto-Lok due to the large contract nature of
their businesses, and commonly occurs for different customers from one year to
the next.

The following represents the disaggregation of financial data at and for the
years ended December 31, 1998, 1997 and 1996 (in thousands except for related
notes):
<TABLE>
<CAPTION>
Capital Total
Net Sales EBITDA(1) Spending Assets(2)
--------- --------- -------- ---------
<S> <C> <C> <C> <C>
Year ended December 31, 1998:
Alliance............................ $ 41,982 $ 2,485 $ 232 $ 18,111
Auto-Lok............................ 25,794 1,775 400 10,645
CPI................................. 28,284 6,003 1,421 20,117
Hanna............................... 34,458 5,714 214 17,544
Steelcraft.......................... 3,960 644 10 1,651
Europa.............................. 105 62 15 1,106
Headquarters........................ -- (2,007) 72 15,762
Discontinued operations............. -- -- 2,731 23,560
-------- ------- ------ --------
Totals............................ $134,583 14,676 $5,095 $108,496
======== ====== ========
Depreciation and amortization....... (3,752)
Interest expense(3)................. (6,791)
Equity loss from continuing
operations of affiliate............ (4,056)
-------
Income from continuing operations
before income taxes.............. $ 77
=======
Year ended December 31, 1997:
Alliance............................ $ 43,791 $ 3,817 $ 265 $ 14,872
Auto-Lok............................ 26,524 899 716 10,054
CPI................................. 28,171 5,882 1,446 17,071
Hanna............................... 33,420 4,721 229 15,916
Steelcraft.......................... 4,378 889 14 1,705
Europa.............................. 135 29 -- 1,326
Headquarters........................ -- (2,398) 24 20,794
Discontinued operations............. -- -- 2,350 21,592
-------- ------- ------ --------
Totals............................ $136,419 13,839 $5,044 $103,330
======== ====== ========
Depreciation and amortization....... (3,326)
Interest expense(3)................. (6,852)
Equity loss from continuing
operations of affiliate............ (373)
-------
Income from continuing operations
before income taxes.............. $ 3,288
=======
Year ended December 31, 1996:
Alliance............................ $ 28,091 $ 1,546 $ 326 $ 12,662
Auto-Lok............................ 16,864 (154) 525 7,860
CPI................................. 25,107 5,377 1,493 16,236
Hanna............................... 29,617 3,127 391 15,972
Steelcraft.......................... 4,010 771 45 1,766
Europa.............................. 148 94 100 1,433
Headquarters........................ -- (1,558) 171 20,286
Discontinued operations............. -- -- 1,653 19,024
-------- ------- ------ --------
Totals............................ $103,837 9,203 $4,704 $ 95,239
======== ====== ========
Depreciation and amortization....... (3,473)
Interest expense(3)................. (6,746)
Equity loss from continuing
operations of affiliate............ (915)
-------
Loss from continuing operations
before income taxes.............. $(1,931)
=======
</TABLE>

F-68
<PAGE>

CHATWINS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

- - - --------
(1) EBITDA is presented as it is the primary measurement used by management in
assessing segment performance.
(2) Headquarters total assets at December 31, 1998, 1997 and 1996 are primarily
comprised of deferred tax assets and Chatwins Group's investment in Reunion
common stock. See note 5.
(3) Excludes amortization of debt issuance expenses of $671,000, $550,000 and
$632,000 for the years ended December 31, 1998, 1997 and 1996 respectively.

NOTE 20: DISCONTINUED OPERATIONS

The assets, liabilities and equity accounts of Discontinued Klemp have been
separately classified on the balance sheet as net assets of discontinued
operations. A summary of these assets, liabilities and equity accounts follows
(in thousands):

<TABLE>
<CAPTION>
At December 31, At December 31,
1998 1997
--------------- ---------------
<S> <C> <C>
ASSETS:
Cash and cash equivalents....................... $ 128 $ 104
Receivables, net................................ 8,644 8,207
Inventories, net................................ 6,240 5,688
Other current assets............................ 918 316
Property, plant and equipment, net.............. 13,781 12,212
Goodwill, net................................... 930 986
Other assets, net............................... 1,789 2,018
------- -------
Total assets.................................... 32,430 29,531
------- -------
LIABILITIES AND EQUITY:
Current maturities of debt...................... 756 652
Trade payables.................................. 6,293 5,077
Other current liabilities....................... 1,448 1,092
Other long-term debt............................ 680 680
Other liabilities............................... 79 93
Minority interest............................... 968 1,033
Cumulative translation adjustment............... (1,354) (688)
------- -------
Total liabilities and equity.................... 8,870 7,939
------- -------
Net assets of discontinued operations........... $23,560 $21,592
======= =======
</TABLE>

Pursuant to APB 30, the consolidated financial statements reflect the
operating results of Discontinued Klemp separately from continuing operations.
Summarized results of Discontinued Klemp operations follow (in thousands)
(unaudited):

<TABLE>
<CAPTION>
Year Ended December 31, 1998 1997
- - - ----------------------- ------- -------
<S> <C> <C>
Net sales..................................................... $57,003 $52,501
Loss before taxes............................................. (1,415) (489)
</TABLE>

The above results of Discontinued Klemp operations include allocated
interest expense of $2,637,000 and $2,374,000 for the years ended December 31,
1998 and 1997, respectively.

F-69
<PAGE>

CHATWINS GROUP, INC.

CONSOLIDATED BALANCE SHEET
AT JUNE 30, 1999
(In Thousands)
(Unaudited)

<TABLE>
<CAPTION>
At
June 30,
1999
--------
<S> <C>
ASSETS:
Cash and cash equivalents........................................... $ 81
Receivables, net.................................................... 24,951
Inventories, net (note 3)........................................... 13,300
Other current assets................................................ 3,540
Net assets of discontinued operations............................... 22,699
--------
Total current assets............................................ 64,571
Property, plant and equipment, net.................................. 17,744
Investments, net.................................................... 6,500
Due from related parties............................................ 2,303
Goodwill, net....................................................... 3,473
Other assets, net................................................... 5,595
--------
Total assets.................................................... $100,186
========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY:
Revolving Credit Facility........................................... $ 31,213
Current maturities of debt.......................................... 25,016
Trade payables...................................................... 9,685
Other current liabilities........................................... 7,583
--------
Total current liabilities....................................... 73,497
Senior notes due 2003, net.......................................... 24,943
Other long-term debt................................................ 48
Other liabilities................................................... 1,415
--------
Total liabilities............................................... 99,903
Commitments and contingent liabilities (note 6)..................... --
Redeemable preferred stock.......................................... 8,710
Warrant value....................................................... 14
Stockholders' equity (note 4)....................................... (8,441)
--------
Total liabilities, redeemable perferred stock and stockholders'
equity............................................................. $100,186
========
</TABLE>

See accompanying notes to unaudited condensed consolidated financial
statements.

F-70
<PAGE>

CHATWINS GROUP, INC.

CONDENSED CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(In Thousands, Except Share and Per Share Information)
(Unaudited)

<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------
1999 1998
-------- --------
<S> <C> <C>
Net sales................................................. $ 61,667 $ 63,004
Cost of sales............................................. 50,866 50,018
-------- --------
Gross profit............................................ 10,801 12,986
Selling, general & administrative......................... 6,763 7,378
Other expense, net........................................ 310 126
-------- --------
Operating profit........................................ 3,728 5,482
Interest expense, net..................................... 3,588 3,604
Equity loss from continuing operations of affiliate....... 67 3,441
-------- --------
Income (loss) from continuing operations before income
taxes.................................................... 73 (1,563)
Provision for income taxes................................ 32 (641)
-------- --------
Income (loss) from continuing operations.................. 41 (922)
Discontinued operations, net of tax:
Equity loss from discontinued operations of affiliate... (93) (274)
Income (loss) from discontinued operations.............. 609 (173)
-------- --------
Total from discontinued operations...................... 516 (447)
-------- --------
Cumulative effect of change in accounting principle, net
of tax................................................... (176) --
-------- --------
Net and comprehensive income (loss)..................... $ 381 $ (1,369)
======== ========
Income (loss) applicable to common stock.................. $ 153 $ (1,597)
======== ========
Earnings per common share--basic:
Continuing operations................................... $ (0.65) $ (4.73)
Discontinued operations................................. 1.78 (1.85)
Change in accounting principle.......................... (0.60) --
-------- --------
Earnings (loss) per common share--basic................. $ 0.53 $ (6.58)
======== ========
Average equivalent shares outstanding--basic............ 289,726 242,887
======== ========
Earnings per common share--diluted:
Continuing operations................................... $ (0.65) $ (4.73)
Discontinued operations................................. 1.78 (1.85)
Change in accounting principle.......................... (0.60) --
-------- --------
Earnings (loss) per common share--diluted............... $ 0.53 $ (6.58)
======== ========
Average equivalent shares outstanding--diluted.......... 289,726 242,887
======== ========
</TABLE>

See accompanying notes to unaudited condensed consolidated financial
statements.

F-71
<PAGE>

CHATWINS GROUP, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(In Thousands)
(Unaudited)

<TABLE>
<CAPTION>
Six Months Ended
June 30
------------------
1999 1998
-------- --------
<S> <C> <C>
Cash provided by (used in) operating activities........... $ (38) $ 277
-------- --------
Cash flow from investing activities:
Proceeds from sale of property............................ 4,563 --
Capital expenditures...................................... (1,771) (2,468)
Investment in joint venture............................... -- (100)
-------- --------
Cash provided by (used in) investing activities........... 2,792 (2,568)
-------- --------
Cash flow from financing activities:
Repayments of debt........................................ (48) (48)
Net change in revolving credit facilities................. (2,792) 1,714
Increase (decrease) in consolidated subsidiary
indebtedness............................................. (94) 101
-------- --------
Cash provided by (used in) financing activities........... (2,844) 1,767
-------- --------
Net decrease in cash and cash equivalents................. (90) (524)
Change in cash of discontinued operations................. (42) 34
Cash and cash equivalents, beginning of year.............. 213 630
-------- --------
Cash and cash equivalents, end of period.................. $ 81 $ 140
======== ========
</TABLE>

See accompanying notes to unaudited condensed consolidated financial
statements.

F-72
<PAGE>

CHATWINS GROUP, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999

NOTE 1: BASIS OF PRESENTATION

The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to 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 normal recurring adjustments considered
necessary for a fair statement of the results of operations have been included.
The results of operations for the six month period ended June 30, 1999 are not
necessarily indicative of the results of operations for the full year.

Effective January 1, 1999, the company adopted the AICPA's Statement of
Position 98-5, "Reporting on the Costs of Start-up Activities." Such adoption
is reported as the cumulative effect of a change in accounting principle and
resulted in the write-off of $176,000 of start-up costs, net of taxes of
$91,000. Such start-up costs primarily related to the Company's international
subsidiaries.

NOTE 2: DISCONTINUED OPERATIONS

During the second quarter of 1999, the Company's management adopted a plan
to exit the grating manufacturing business through the disposition of
substantially all the business and assets of the Company's Klemp division
(Discontinued Klemp). Upon adoption of the plan, the Company classified and
began accounting for Discontinued Klemp, including its international grating
subsidiaries, as discontinued operations in accordance with Accounting
Principles Board Opinion No. 30, "Reporting the Results of Operations--
Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions" (APB
30), which requires discontinued operations to be reported separately from
continuing operations.

On May 28, 1999, the Company entered into a non-binding letter of intent
(LOI) with Alabama Metal Industries Corporation (AMICO), which was subsequently
amended on July 12, 1999 and on August 17, 1999, for the sale of substantially
all of the domestic business and assets of Discontinued Klemp for $31.5 million
in cash and the assumption by AMICO of certain operating liabilities.

F-73
<PAGE>

CHATWINS GROUP, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

<TABLE>
<CAPTION>
At June 30,
1999
-----------
(unaudited)
<S> <C>
ASSETS:
Cash and cash equivalents........................................... $ 170
Receivables, net.................................................... 8,390
Inventories, net.................................................... 5,654
Other current assets................................................ 1,480
Property, plant and equipment, net.................................. 13,419
Other assets, net................................................... 1,857
-------
Total assets........................................................ 30,970
-------
LIABILITIES AND EQUITY:
Current maturities of debt.......................................... 662
Trade payables...................................................... 5,872
Other current liabilities........................................... 1,598
Other long-term debt................................................ 680
Other liabilities................................................... 82
Minority interest................................................... 951
Cumulative translation adjustment................................... (1,574)
-------
Total liabilities and equity........................................ 8,271
-------
Net assets of discontinued operations............................... $22,699
=======
</TABLE>

<TABLE>
<CAPTION>
Six Months Ended June 30,
- - - -------------------------
<S> <C> <C>
Net sales...................................................... $26,062 $27,325
Income (loss) before taxes..................................... 1,016 (288)
</TABLE>

The above results of Discontinued Klemp operations include allocated
interest expense of $1,302,000 and $1,296,000 for the six month periods ended
June 30, 1999 and 1998, respectively. The above results of Discontinued Klemp
operations includes a $1,681,000 gain on sale of property for the six months
ended June 30, 1999.

NOTE 3: INVENTORIES

Inventories are comprised of the following (in thousands):
<TABLE>
<CAPTION>
At June 30,
1999
-----------
<S> <C>
Raw materials....................................................... $ 4,947
Work-in-process..................................................... 4,433
Finished goods...................................................... 4,126
-------
Total inventories................................................. 13,506
Less: LIFO reserves................................................. (206)
-------
Inventories, net.................................................. $13,300
=======
</TABLE>

F-74
<PAGE>

CHATWINS GROUP, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

NOTE 4: STOCKHOLDERS' EQUITY AND EARNINGS PER SHARE

The following represents a reconciliation of the change in stockholders'
equity for the six month period ended June 30, 1999 (in thousands):

<TABLE>
<CAPTION>
Par Value Capital in
of Common Treasury Excess of Notes Accumulated
Stock Stock Par Value Receivable Deficit Total
--------- -------- ---------- ---------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
At January 1, 1999...... $ 3 $(500) $1,860 $(1,001) $(8,956) $(8,594)
Activity (unaudited):
Net income............ -- -- -- -- 381 381
Preferred stock
accretions........... -- -- -- -- (228) (228)
---- ----- ------ ------- ------- -------
At June 30, 1999........ $ 3 $(500) $1,860 $(1,001) $(8,803) $(8,441)
==== ===== ====== ======= ======= =======
</TABLE>

The computations of basic and diluted earnings per common share (EPS) for
the six month periods ended June 30, 1999 and 1998 are as follows (in
thousands, except share and per share amounts) (unaudited):

<TABLE>
<CAPTION>
Average
Income Shares EPS
------- ------- ------
<S> <C> <C> <C>
Six months ended June 30, 1999:
Net income.......................................... $ 381
Less: Preferred stock dividend accretions........... (228)
-------
Income available to common stockholders, shares
outstanding and basic EPS.......................... $ 153 289,726 $ 0.53
======= ======= ======
Six months ended June 30, 1998:
Net loss............................................ $(1,369)
Less: Preferred stock dividend accretions........... (228)
-------
Income available to common stockholders, shares
outstanding and basic EPS.......................... $(1,597) 242,887 $(6.58)
======= ======= ======
</TABLE>

For the six month periods ended June 30, 1999 and 1998, assumed exercise of
the Warrants has an anti-dilutive effect on per-share income from continuing
operations. Therefore, basic and diluted EPS are the same for both periods.

NOTE 5: RELATED PARTY TRANSACTIONS

SPI Consulting Agreement

The Company has a consulting agreement with Stanwich Partners, Inc. under
which $150,000 was expensed in each six-month period ended June 30, 1999 and
1998.

CPS Leasing

The Company has entered into various operating lease agreements with CPS
Leasing, Inc. (CPSL), a company owned 80% by Consumer Portfolio Services and
20% by Charles E. Bradley Jr., President of Consumer Portfolio Services and son
of Charles E. Bradley Sr., Chairman of the Board, Director and shareholder of
the Company (Mr. Bradley). During the first half of 1999, the Company made
lease payments totaling $211,688 to CPSL.

F-75
<PAGE>

CHATWINS GROUP, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Kingway

Pursuant to a services agreement entered into between Stanwich Acquisition
Corp., which is doing business as Kingway Material Handling Company (Kingway),
and the Company, the Company provides Kingway with manufacturing facilities and
overhead support with its surplus floor space at its Auto-Lok division in
Acworth, GA. Kingway's common stock is wholly owned by directors, shareholders
and/or members of the executive managements of the Company and Reunion. During
the first half of 1999, costs totaling $1,597,202 were charged to Kingway under
this services agreement. At June 30, 1999, the Company had receivables totaling
$1,293,430 from Kingway.

NAPTech

Pursuant to a services agreement entered into between NPS Acquisition Corp.,
which is doing business as NAPTech Pressure Systems (NAPTech), and the
Company's CPI division, the Company provides certain administrative services to
NAPTech. NAPTech's common stock is wholly owned by Mr. Bradley. During the
first half of 1999, costs totaling $387,018 were charged to NAPTech under this
services agreement. At June 30, 1999, the Company had receivables totaling
$534,920 from NAPTech.

Oneida Insurances

Oneida Rostone Corp., Reunion's plastic products segment, obtains its
property, casualty, and product and general liability insurance coverage
through the Company. During the first half of 1999, the rate for such insurance
was $23,500 per month, which represented the approximate cost of such insurance
to the Company.

At June 30, 1999, the Company had notes receivable totalling $475,000 from
Oneida Rostone Corp.

NOTE 6: COMMITMENTS AND CONTINGENT LIABILITIES

In June 1993, the U.S. Customs Service (Customs) made a demand on the
Company's former industrial rubber distribution division for $612,948 in
marking duties pursuant to 19 U.S.C. Sec. 1592. The duties are claimed on
importations of "unmarked" hose products from 1982 to 1986. Following the
Company's initial response raising various arguments in defense, including
expired statute of limitations, Customs responded in January 1997 by reducing
its demand to $370,968 and reiterating that demand in October 1997. The Company
restated its position and continues to decline payment of the claim. Should the
claim not be resolved, Customs threatens suit in the International Court of
Claims. The Company continues to believe, based on consultation with counsel,
that there are facts which raise a number of procedural and substantive
defenses to this claim, which will be vigorously defended. There is no
applicable insurance coverage.

The Company is involved in various other litigation matters in the ordinary
course of business. In the opinion of management, settlement of these various
litigation matters and other contingent matters will not have any material
effect on the Company's financial position. The Company does not have any
adverse commitments at June 30, 1999.

NOTE 7: OPERATING SEGMENT DISCLOSURES

The Company considers its separately identifiable divisions to be its
operating segments pursuant to the management approach. The following
represents a description of each division and a disaggregation of certain
financial information by operating segment.

F-76
<PAGE>

CHATWINS GROUP, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

F-77
<PAGE>

CHATWINS GROUP, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The following represents the disaggregation of financial data (in thousands)
(unaudited):

<TABLE>
<CAPTION>
Net Capital Total
Sales EBITDA(1) Spending Assets
------- --------- -------- --------
<S> <C> <C> <C> <C>
Six months ended and at June 30, 1999:
Alliance................................. $12,966 $ (115) $ 46 $ 13,722
Auto-Lok................................. 16,501 1,644 167 10,122
CPI...................................... 12,641 2,168 576 18,245
Hanna.................................... 17,614 2,642 288 16,691
Steelcraft............................... 1,891 218 73 1,600
Headquarters/Other....................... 54 (1,152) 13 17,107
Discontinued Klemp....................... -- -- 608 22,699
------- ------- ------ --------
Totals................................. $61,667 5,405 $1,771 $100,186
======= ====== ========
Depreciation and amortization............ (2,037)
Interest expense(3)...................... (3,228)
Equity loss from continuing operations of
affiliate............................... (67)
-------
Income before income taxes............. $ 73
=======
Six months ended June 30, 1998:
Alliance................................. $19,419 $ 1,571 $ 130
Auto-Lok................................. 12,010 859 243
CPI...................................... 12,662 2,496 520
Hanna.................................... 16,698 2,784 146
Steelcraft............................... 2,215 460 5
Headquarters/Other....................... -- (1,134) 34
Discontinued Klemp....................... -- -- 1,390
------- ------- ------
Totals................................. $63,004 7,036 $2,468
======= ======
Depreciation and amortization............ (1,794)
Interest expense(3)...................... (3,364)
Equity loss from continuing operations of
affiliate............................... (3,441)
-------
Loss before income taxes............... $(1,563)
=======
</TABLE>

(1) EBITDA is primary measure used by management in assessing performance.
(2) Data of international subsidiaries are reported as part of Klemp.
(3) Excludes amortization of debt issuance expenses of $360,000 and $240,000
for the six month periods ended June 30, 1999 and 1998, respectively.

F-78
<PAGE>

Report of Independent Accountants

To the Board of Directors and Shareholders of
Stanwich Acquisition Corp.

In our opinion, the accompanying balance sheet and the related statements of
operations and of cash flows present fairly, in all material respects, the
financial position of Stanwich Acquisition Corp. (SAC), doing business as
Kingway Material Handling Company (Kingway), at December 31, 1998, and the
results of its operations and its cash flows for the year ended December 31,
1998, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of SAC's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether these 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.

The accompanying financial statements have been prepared assuming that SAC
will continue as a going concern. As discussed in Note 1 to the financial
statements, all of SAC's debt matures in September 1999 which, based on the
working capital deficiency and the cash flows generated by SAC, raises
substantial doubt about its ability to continue as a going concern.
Management's plans in regard to this matter are also disclosed in Note 1. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.

As discussed in Notes 3 and 4 to the accompanying financial statements, SAC
has engaged in various transactions and has established certain relationships
with various affiliates and shareholders. Because of these relationships, it is
possible that the terms of these transactions are not the same as those that
would result from transactions among wholly unrelated parties.

PRICEWATERHOUSECOOPERS LLP

Pittsburgh, Pennsylvania 15219
March 31, 1999, except as to Note 16 which is as of May 14, 1999

F-79
<PAGE>

STANWICH ACQUISITION CORP.
(D/B/A KINGWAY MATERIAL HANDLING COMPANY)

BALANCE SHEET
(In Thousands, Except Share Amounts)

<TABLE>
<CAPTION>
At December 31, 1998
--------------------
<S> <C>
ASSETS:
-------

Cash in banks............................................ $ 661
Accounts receivable (net of allowance for doubtful
accounts of $48)........................................ 4,203
Inventories (Note 5)..................................... 1,070
Prepaid and other current assets......................... 96
-------
Total current assets................................... 6,030
Plant and equipment (net of accumulated depreciation of
$264) (Note 6).......................................... 2,278
Goodwill (net of accumulated amortization of $1,029)
(Note 2)................................................ 12,352
Deferred financing costs (net of accumulated amortization
of $158)................................................ 326
Other noncurrent assets.................................. 53
-------
Total assets........................................... $21,039
=======
LIABILITIES AND SHAREHOLDERS' EQUITY:
-------------------------------------

Revolver, related party (Notes 3, 4 and 7)............... $ 7,565
Term loan (Note 8)....................................... 6,180
Accounts payable......................................... 1,053
Due to related parties (Note 4).......................... 1,254
Other current liabilities................................ 398
-------
Total liabilities...................................... 16,450
-------
Contingent liabilities and commitments (Note 14)......... --
Preferred stock, $.10 par value (10,000 shares
authorized; 5,000 issued and outstanding) (Note 9)...... 5,875

Shareholders' equity (Note 10):
Common stock, $.01 par value (1,000 shares--authorized,
issued and outstanding)
Additional paid-in-capital............................. 25
Accumulated deficit.................................... (1,311)
-------
Total shareholders' equity........................... (1,286)
-------
Total liabilities and shareholders' equity........... $21,039
=======
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-80
<PAGE>

STANWICH ACQUISITION CORP.
(D/B/A KINGWAY MATERIAL HANDLING COMPANY)

STATEMENT OF OPERATIONS
(In Thousands)

<TABLE>
<CAPTION>
Year ended
December 31, 1998
-----------------
<S> <C>
Net sales..................................................... $17,474
Cost of sales................................................. 11,990
-------
Gross profit................................................ 5,484
Selling, general and administrative........................... 2,763
Amortization of goodwill...................................... 881
-------
Operating profit............................................ 1,840
Interest expense.............................................. 2,234
Interest income............................................... 43
Loss before taxes........................................... (351)
Income taxes.................................................. --
-------
Net loss.................................................... $ (351)
=======
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-81
<PAGE>

STANWICH ACQUISITION CORP.
(D/B/A KINGWAY MATERIAL HANDLING COMPANY)

STATEMENT OF CASH FLOWS
(In Thousands)

<TABLE>
<CAPTION>
Year ended
December 31, 1998
-----------------
<S> <C>
Operating Activities:
Net loss................................................... $ (351)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation............................................. 246
Amortization of goodwill................................. 881
Amortization of deferred financing costs................. 158
Changes in assets and liabilities:
Accounts receivable.................................... (1,203)
Inventories............................................ 374
Prepaid and other current assets....................... (94)
Accounts payable....................................... 527
Other current liabilities.............................. 377
Other noncurrent assets................................ (298)
-------
Net cash provided by operating activities.................... 617

Investing Activities:
Capital expenditures....................................... (1,006)
-------
Net cash used in investing activities...................... (1,006)
-------
Decrease in cash........................................... (389)
Cash at beginning of period................................ 1,050
-------
Cash at end of period...................................... $ 661
=======
Noncash Financing Activity:
Refinancing of debt........................................ $ 5,935
=======
Supplemental Disclosures:
Cash paid for interest..................................... $ 2,095
=======
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-82
<PAGE>

STANWICH ACQUISITION CORP.

NOTES TO THE FINANCIAL STATEMENTS

NOTE 1: BASIS OF PRESENTATION AND GOING CONCERN CONSIDERATIONS

Basis of Presentation

Stanwich Acquisition Corp. (SAC) is a privately-held Delaware corporation
formed for the purpose of acquiring substantially all of the assets and
assuming certain liabilities relating to the business of manufacturing,
distributing, marketing, selling and installing gravity flow racking and
computer assisted picking systems of the Kingston-Warren Corporation
(Kingston), a New Hampshire corporation. On September 11, 1997, SAC entered
into an asset purchase agreement with Kingston pursuant to which SAC acquired
the net assets of Kingston's flow racking and computer assisted picking systems
business in a transaction it accounted for under the purchase method pursuant
to Accounting Principles Board (APB) Opinion No. 16, "Business Combinations."
SAC is currently doing business as (D/B/A) the Kingway Material Handling
Company (Kingway).

SAC has established certain relationships with and engaged in various
transactions with other entities, both private and public corporations, to
which they are related. In addition to relationships with SAC, these other
entities are related to and affiliated with each other. See notes 3 and 4.

These financial statements have been prepared by SAC's management in
conformity with generally accepted accounting principles and include such
estimates and adjustments as deemed necessary to present fairly the financial
position of SAC at December 31, 1998, and the results of its operations and its
cash flows for the year ended December 31, 1998. The use of estimates affects
the reported amounts of assets, liabilities, revenues, expenses and disclosures
of contingencies during the reporting period which, in the normal course of
business, are subsequently adjusted to actual results. Actual results could
differ from those estimates.

Going Concern Considerations

The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the settlement of
liabilities and commitments in the normal course of business. As discussed in
Notes 4, 7 and 16, SAC has the Revolver with outstanding borrowings of
$7,564,700 at December 31, 1998, which is due on September 2, 1999. As
discussed in Note 8, SAC has the Term Loan with outstanding borrowings of
$6,180,000 at December 31, 1998, which is due on September 1, 1999. As of
December 31, 1998, SAC has a working capital deficiency.

Without the assumption of SAC's debt by Reunion in the merger as discussed
in Note 16 or other restructuring of its obligations, SAC will not have
sufficient resources to meet its debt maturities in September 1999. If the
merger and related assumption of SAC's debt or other restructuring of its
obligations are delayed or do not occur, management intends to attempt to
negotiate extensions of the maturity dates of SAC's debt and/or seek
replacement financing.

SAC's Revolver is with a related party, Stanwich Financial Services Corp.
(SFSC). In March 1999, SAC and SFSC negotiated and agreed to an extension of
the Revolver to September 1, 1999. SAC's Term Loan is with an unrelated third
party but is guaranteed by related parties. Through the date of this report,
SAC has not had any discussions with its lenders regarding extensions of the
maturity dates of the Revolver and Term Loan beyond September 1999. There can
be no assurances that SAC would be able to obtain extensions of its debt
maturities from its current lenders or be able to arrange replacement financing
on acceptable terms or at all. If SAC is unable to arrange sufficient
financing, it may be necessary to curtail operations and/or sell assets to meet
its obligations.

F-83
<PAGE>

STANWICH ACQUISITION CORP.

NOTES TO THE FINANCIAL STATEMENTS--(Continued)

NOTE 2: BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business Description

SAC operates in the material handling industry and manufactures two major
product lines for the order selection segment of the industry: gravity flow
racking and computer assisted picking systems (CAPS).

SAC's gravity flow order selection system utilizes low-slope angle inclined
shelves with roll tracking and is designed for businesses requiring fast-paced
and accurate order creation and distribution. It also allows for merchandise
rotation on a first-in, first-out basis.

SAC's CAPS software computerizes the order selection process by utilizing a
series of interconnected lights throughout a customer's distribution center.
The distribution center receives orders from a host computer which instantly
sends data to the pick line, thus eliminating paper pick lists and
significantly improving order accuracy and speed of distribution.

Revenue Recognition

SAC recognizes revenue from sales of the following products and services:

. racking hardware;

. installation of racking hardware;

. computer hardware, including the electronic lighting hardware used by
the CAPS software;

. installation of the electronic lighting hardware;

. CAPS software package; and,

. training and on-site support for the customer during the CAPS software
installation period.

Revenue is recognized when services are rendered or products are shipped to
the customer. In the case of the CAPS software, revenue is recognized when the
computer containing a copy of the software is shipped to the customer or when
SAC authorizes a customer to download the software onto a customer-owned
machine. Revenues from installation services, training, and on-site customer
support are recognized ratably during the period over which such services are
rendered.

Accounts Receivable

SAC has no individual account or geographic concentrations of credit risk.
SAC performs credit reviews on new customers and periodic credit reviews on
existing customers and generally does not require collateral.

The following contract amounts are included in accounts receivable:

Contract Amounts

<TABLE>
<CAPTION>
At December 31,
1998
---------------
(in thousands)
<S> <C>
Uncompleted contract costs over related billings........... $1,442
Uncompleted contract billings over related costs........... (95)
------
Net costs over billings.................................. $1,347
======
</TABLE>

Inventories

Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method.

F-84
<PAGE>

STANWICH ACQUISITION CORP.

NOTES TO THE FINANCIAL STATEMENTS--(Continued)

Plant and Equipment

In connection with the Acquisition, the assets acquired by SAC were adjusted
to their estimated fair market values. Fair market value was based on estimates
included in an independent appraisal. Subsequent to the Acquisition, additions
to plant and equipment are recorded at cost. Plant and equipment is depreciated
using the straight-line method over the estimated useful lives of individual
assets or asset groups. Estimated useful lives in years for depreciation are as
follows: 3 to 10 for machinery and equipment; 3 to 8 for computer systems and
equipment; 5 to 10 for furniture and fixtures. Expenditures for additions and
improvements are capitalized. At the time units of plant and equipment are
sold, the related cost and accumulated depreciation are removed from the
accounts and any resulting gain or loss is recognized in income. See notes 3
and 6.

Goodwill

Goodwill recorded as a result of the Acquisition is being amortized using
the straight-line method over 15 years.

SAC regularly evaluates whether events and circumstances have occurred that
indicate the remaining estimated useful life of goodwill may warrant revision
or the carrying value of goodwill may not be recoverable. In evaluating
goodwill for possible impairment, SAC uses an estimate of undiscounted future
cash flows over the goodwill's remaining estimated useful life. Should this
analysis indicate that goodwill is impaired, SAC would write-down its carrying
value to fair market value.

NOTE 3: THE ACQUISITION AND RELOCATION

The following discussions of the Acquisition and Relocation make reference
to various entities and individuals that are directly related to or affiliated
with each other. See note 4 for a discussion of related party relationships and
transactions.

The Acquisition

On September 11, 1997, SAC entered into an asset purchase agreement with
Kingston pursuant to which SAC acquired substantially all of the assets of and
assumed certain liabilities relating to Kingston's business of manufacturing,
distributing, marketing, selling and installing gravity flow racking and
computer assisted picking systems for a net cash purchase price of $18,050,000.
SAC is a privately-held Delaware corporation owned 42.5% by Mr. Charles E.
Bradley, Sr. (Mr. Bradley), 42.5% by Mr. Kimball J. Bradley (Kimball Bradley)
and 15% by Mr. Richard L. Evans (Mr. Evans). Contemporaneously with entering
into the asset purchase agreement SAC entered into an escrow agreement with
Kingston pursuant to which it placed $850,000 in escrow to hold until the
closing, a commitment letter with SFSC pursuant to which SFSC committed to
provide SAC with a $13,000,000 term loan and to purchase $5,000,000 of SAC's
mandatorily redeemable 15% cumulative preferred stock, and a demand promissory
note with SFSC for $1,000,000. Funds for the $850,000 placed in escrow were
provided by SFSC under the $1,000,000 demand note.

On November 3, 1997, the date of the closing of the Acquisition, SAC paid
$17,286,275 to Kingston representing the purchase price of $18,050,000 less the
$850,000 of funds in escrow which were released to Kingston at the closing,
less $47,000 of purchase price adjustments, plus $133,275 under a transition
services agreement with Kingston entered into at the closing and described
below. Also at the closing, SAC entered into employment agreements with four
key employees of Kingston's former flow racking and CAPS operations, executed a
$14,000,000 revolving credit facility with SFSC which replaced the $13,000,000
term loan commitment and $1,000,000 demand note discussed above, entered into a
security agreement with SFSC to secure SAC's obligations to SFSC under the
revolving credit facility and issued 5,000 shares of Series A

F-85
<PAGE>

STANWICH ACQUISITION CORP.

NOTES TO THE FINANCIAL STATEMENTS--(Continued)

Preferred Stock to SFSC for $5,000,000 in cash. Funds for the $17,286,275 paid
to Kingston at the closing were provided by availability under the $14,000,000
revolving credit facility and the $5,000,000 of proceeds from sale of the
Series A Preferred Stock. The excess of the purchase price over the fair market
value of the acquired net assets was recorded as goodwill.

The transition services agreement entered into by SAC and Kingston provided
that, for a six-month period from the closing date, Kingston would provide
manufacturing, administrative, computer, accounting, information and consumer
response services to SAC necessary to continue the flow racking and CAPS
operations under the new ownership during the six-month transition period. The
price for such services included a $29,000 per month fixed charge for the use
of Kingston's manufacturing facilities in New Hampshire and a charge for
variable costs such as employee wages and benefits. The payments for such
services were to be made in advance on the first and fifteenth business day of
each month during the transition period, such payments representing 50% of that
month's estimate by Kingston of the cost of such services to SAC. Such
estimates were to be prepared by Kingston in good faith and with sufficient
supporting documentation as SAC may reasonably request. The $133,275 paid to
Kingston at the closing pursuant to the transition services agreement
represented 50% of the first month's transition services cost to SAC. The
transition services agreement was able to be terminated by either party or
extended by SAC pursuant to various procedures as defined in the agreement.
During 1998, including the initial charge paid at the closing, SAC paid
Kingston $868,885 for transition services pursuant to this transition services
agreement. Although SAC's management believes that amounts paid for transition
services during the transition period were reasonable for the amount and nature
of services received, it is possible that the costs of these services might not
have been the same had they been provided by wholly unrelated third parties.

The Relocation

Subsequent to the transition period described above, it was necessary to
establish Kingway's business in a new location with adequate space and overhead
support. At the time Kingway was available for purchase, the management of
Chatwins Group, Inc. (Chatwins) wished to acquire Kingway as Kingway's flow
racking and CAPS were thought to be important product line extensions to
Chatwins' more traditional storage and material handling systems and Chatwins'
material handling manufacturing operations in Acworth, Georgia possessed
surplus floor space, production workforce, administrative organization and
equipment that could be utilized to continue Kingway's operations. Chatwins was
not, however, able to consummate the acquisition. Therefore, SAC and Chatwins
entered into a service agreement pursuant to which Kingway would utilize
Chatwins' surplus capacity in exchange for fees approximately equal to
Chatwins' cost to provide such capacity and Kingway's flow racking and CAPS
hardware manufacturing operations were relocated to Chatwins' facility in
Acworth, Georgia during the second quarter of 1998 (Relocation). Kingway's
software development and support staff remained in New Hampshire in newly
leased office space not affiliated with Chatwins or Kingston.

NOTE 4: RELATED PARTIES, RELATIONSHIPS AND TRANSACTIONS

The following is a discussion of related parties, relationships and
transactions of SAC and other parties. Subsequent to December 31, 1998, several
events have occurred involving the parties below which have affected or may
affect SAC. See note 16.

The Parties and Relationships

Reunion Industries, Inc.--Reunion Industries, Inc. (Reunion) is a publicly
traded Delaware corporation headquartered in Stamford, Connecticut. Mr. Bradley
is President, Chief Executive Officer and a director of

F-86
<PAGE>

STANWICH ACQUISITION CORP.

NOTES TO THE FINANCIAL STATEMENTS--(Continued)

Reunion and 42.5% shareholder of SAC. Mr. Evans is Executive Vice President,
Chief Financial Officer and Secretary of Reunion and 15% shareholder of SAC.
Mr. John G. Poole (Mr. Poole) is a director of Reunion.

Chatwins Group, Inc.--Chatwins is a privately held Delaware corporation
headquartered in Pittsburgh, Pennsylvania. Chatwins owns approximately 38% of
Reunion's outstanding common stock. Mr. Bradley is Chairman of the Board and
majority beneficial shareholder of Chatwins. Kimball Bradley is Senior Vice
President, a shareholder of Chatwins, son of Mr. Bradley and 42.5% shareholder
of SAC. Mr. Poole is a director and shareholder of Chatwins.

Stanwich Financial Services Corp.--SFSC is a privately held Delaware
corporation headquartered in Stamford, Connecticut primarily engaged in the
business of providing acquisition financing and making equity investments. SFSC
is owned 42.5% by Mr. Bradley, 42.5% by Charles E. Bradley, Jr., Mr. Bradley's
son, and 7.5% by Mr. Poole.

The Transactions

Chatwins Services Agreement--Since the Relocation, during 1998 SAC was
charged $1,298,631 for manufacturing, selling and administrative services under
the Chatwins services agreement. Of this amount, $850,996 was included in cost
of goods sold and $447,635 was included in selling, general and administrative
expenses in the accompanying statement of operations. At December 31, 1998, SAC
owed Chatiwns $780,649 under the Chatwins services agreement which is included
in due to related parties in the accompanying balance sheet. Although SAC's
management believes that amounts paid for manufacturing, selling and
administrative services under the Chatwins services agreement were reasonable
for the amount and nature of services received, it is possible that the costs
of these services might not have been the same had they been provided by wholly
unrelated third parties.

Revolver--SFSC has provided SAC with a revolving credit facility. During
1998, $1,776,780 of interest was paid by SAC to SFSC under the Revolver. At
December 31, 1998, SAC had accrued interest payable to SFSC of $293,696 which
is included in due to related parties in the accompanying balance sheet. SAC's
management believes that the terms and conditions of the Revolver are
comparable to those that SAC may be able to obtain from a wholly unrelated
third party lender. See notes 7, 8 and 16.

Term Loan--During 1998, SAC refinanced portions of the Revolver with another
lender. SFSC paid $180,000 of SAC's closing expenses related to these
refinancings which is included in due to related parties in the accompanying
balance sheet. See notes 7 and 8.

NOTE 5: INVENTORIES

Inventories

<TABLE>
<CAPTION>
At December 31,
1998
---------------
(in thousands)
<S> <C>
Raw materials.............................................. $ 772
Work-in-process............................................ 71
Finished goods............................................. 227
------
Inventories.............................................. $1,070
======
</TABLE>

F-87
<PAGE>

STANWICH ACQUISITION CORP.

NOTES TO THE FINANCIAL STATEMENTS--(Continued)

NOTE 6: PLANT AND EQUIPMENT

Plant and Equipment

<TABLE>
<CAPTION>
At December 31,
1998
---------------
(in thousands)
<S> <C>
Machinery and equipment.................................... $2,236
Computer systems and equipment............................. 252
Furniture and fixtures..................................... 54
------
Plant and equipment...................................... 2,542
Accumulated depreciation................................... (264)
------
Plant and equipment, net................................. $2,278
======
</TABLE>

NOTE 7: REVOLVER

On November 3, 1997, SAC executed a revolving credit note agreement with
SFSC under which SFSC agreed to provide SAC with a revolving credit facility of
up to a maximum principal amount of $14,000,000 (Revolver). On such date SAC
borrowed $13,500,000, the substantial majority of the proceeds from which were
used to partially fund the Acquisition. See note 3. In September and October
1998, portions of borrowings under the Revolver were refinanced with another
lender. See note 8. At December 31, 1998, $7,564,700 was outstanding under the
Revolver. The Revolver was originally due on March 2, 1999. See note 16.

Interest under the Revolver is calculated at a fixed rate of 15% per annum
(360 days per the note agreement) on the principal amounts outstanding.
Interest is payable on the last business day (as defined) of each calendar
quarter which began on December 31, 1997. During 1998, $1,776,780 of interest
was paid to SFSC under the Revolver.

At the same time as the execution of the Revolver, SAC, its shareholders and
SFSC entered into security and pledge agreements wherein SAC assigned, pledged
and granted to SFSC a continuing security interest in and lien upon all of
SAC's property, assets and rights of every kind and SAC's shareholders
assigned, pledged and granted to SFSC a continuing security interest in and
lien upon all common stock held by them to secure borrowings under the
Revolver.

NOTE 8: TERM LOAN

On September 1 and October 19, 1998, SAC refinanced portions of the Revolver
with an unrelated third party lender. The initial refinancing was for
$5,235,000 and included $5,000,000 of cash proceeds paid to SFSC in partial
repayment of the Revolver, a $180,000 success fee payable to the lender and
$55,000 in fees paid to lender's counsel. Additional closing and facility fees
totalling $180,000 were paid to the lender on SAC's behalf by SFSC related to
this refinancing. SAC also paid $59,609 to its own counsel related to this
refinancing from internally generated cash. The second refinancing was for
$945,000 which included $935,300 of proceeds paid to SFSC in partial repayment
of the Revolver and $9,700 in fees paid to lender's counsel.

Both of these refinancings are pursuant to a single term loan agreement
between SAC and its lender dated September 1, 1998 and subsequently amended on
October 19, 1998. The term loan agreement and total outstanding borrowings of
$6,180,000 have interim maturity dates of December 1, 1998, and March 1 and
June 1, 1999 and a final maturity date of September 1, 1999. The term loan
agreement requires the payment of a $61,800 extension fee, as defined, on each
interim maturity date. The first extension fee was paid on December 1, 1998 and
was recorded as interest expense.

F-88
<PAGE>

STANWICH ACQUISITION CORP.

NOTES TO THE FINANCIAL STATEMENTS--(Continued)

Borrowings outstanding under the term loan agreement bear interest at an
annual rate of The Chase Manhattan Bank prime rate plus 5.0%, but in no case
less than 13.5%. At December 31, 1998, the rate for borrowings outstanding
under the term loan agreement was 13.5%. Interest is payable on the first
business day of each month in arrears. During 1998, SAC paid $255,683 of
interest under the term loan agreement. The term loan agreement also provides
for a post-default rate of interest, as defined, of The Chase Manhattan Bank
prime rate plus 7.0%, but in no case less than 15.5%. Interest payable under
the post-default rate is due on demand.

Borrowings outstanding under the term loan agreement are secured by a
continuing security interest in and lien upon all of SAC's property, assets and
rights of every kind, such security interest and lien having been obtained by
the execution of a security agreement by SAC wherein SFSC pledged its rights
under the Revolver to the term loan lender. Borrowings under the term loan
agreement are also secured by (i) the individual guaranties of Mr. Bradley,
Kimball Bradley and Mr. Evans and corporate guaranty of SFSC; (ii) the
individual pledge and security agreements executed by Mr. Bradley, Kimball
Bradley and Mr. Evans wherein they have pledged as collateral their holdings of
all shares of SAC common stock and holdings of common stock of another
affiliated corporation; (iii) the corporate pledge agreement of SFSC of its
holdings of the Series A Preferred Stock (see note 9) and its rights to and
interests in certain of its notes receivable and holdings of common stock of
other affiliated entities.

The term loan agreement includes various representations, warranties and
affirmative and negative covenants by SAC and provides the lender with certain
rights and remedies including, but not limited to, acceleration, both in the
event of default or subjectively, of all amounts borrowed under the term loan
agreement. Financial covenants in the term loan agreement include the
maintenance by SAC of a minimum earnings before interest, taxes, depreciation
and amortization (EBITDA) and a maximum ratio of indebtedness to EBITDA,
calculations of which are defined in the term loan agreement. Beginning on
September 30, 1998, SAC is required to maintain a rolling twelve-month minimum
EBITDA of $2.1 million, which increases to $2.6 million on October 31, 1998 and
to $3.0 million on May 31, 1999. Beginning on September 30, 1998, SAC is
required to maintain a maximum ratio of indebtedness to rolling twelve-month
EBITDA of 3.00:1, which decreases to 2.50:1 on October 31, 1998 and to 2.10:1
on May 31, 1999. At December 31, 1998, SAC had complied with all financial
covenants pursuant to the term loan agreement. SAC was also in compliance with
all other representations, warranties and covenants at December 31, 1998.

NOTE 9: PREFERRED STOCK

SAC has one series of preferred stock outstanding. This Series A Preferred
Stock has a liquidation value of $1,000 per share. Each share is entitled to
receive preferential and cumulative dividends at an annual rate of 15% of
liquidation value. At December 31, 1998, the issued and outstanding shares of
SAC's Series A Preferred Stock totalled 5,000 shares. All of these shares are
held by SFSC. Proceeds from the issuance of the Series A Preferred Stock were
used for the Acquisition. See notes 3, 7, 8 and 10.

NOTE 10: SHAREHOLDERS' EQUITY

Shareholders' Equity

<TABLE>
<CAPTION>
Common Capital Accumulated
Stock Paid-In Deficit Total
------ ------- ----------- -------
(in thousands)
<S> <C> <C> <C> <C>
At January 1, 1998........................ $-- $25 $ (210) $ (185)
Activity for the year ended December 31,
1998:
Net loss................................ -- -- (351) (351)
Preferred stock dividend accretions..... -- -- (750) (750)
--- --- ------- -------
At December 31, 1998...................... $-- $25 $(1,311) $(1,286)
=== === ======= =======
</TABLE>

F-89
<PAGE>

STANWICH ACQUISITION CORP.

NOTES TO THE FINANCIAL STATEMENTS--(Continued)

Common stock outstanding totalled 1,000 shares and has a $.01 per share par
value. Mr. Bradley and Kimball Bradley own 425 shares each and Mr. Evans owns
150 shares. All of these shares are pledged as security for borrowings under
the Revolver and Term Loan. See notes 7, 8 and 9.

SAC issued Series A Preferred Stock contemporaneously with the Acquisition.
Dividends accreted from retained earnings since its issuance totalled $875,000
at December 31, 1998.

NOTE 11: EMPLOYEE BENEFITS

Pensions and Other Postretirement Benefits

SAC does not sponsor, contribute to, or participate in any defined benefit
pension or other postretirement benefit plans. SAC has a defined contribution
plan covering all of its employees. SAC's defined contribution plan expense for
1998 totalled $40,962.

Postemployment Benefits

Other than unemployment compensation benefits required by law, SAC does not
provide postemployment benefits to former or inactive employees.

NOTE 12: INCOME TAXES

No provision for income taxes was made for the year ended December 31, 1998
due to SAC's operating loss in 1998.

Deferred income taxes result from temporary differences in the financial
bases and tax bases of assets and liabilities. For tax purposes, SAC is
treating the Acquisition as a purchase of assets. Accordingly, as of the date
of the Acquisition, the assets and liabilities of Kingway were adjusted to
their fair market values for both book and tax purposes. The types of
differences that give rise to significant portions of SAC's deferred income tax
liabilities and assets are shown in the accompanying table.

Deferred Income Tax Sources

<TABLE>
<CAPTION>
At December 31,
1998
---------------
(in thousands)
<S> <C>
Deferred income tax liabilities:
Goodwill................................................. $327
Depreciation............................................. 103
Other.................................................... 19
----
Deferred income tax liabilities........................ 449
----
Deferred income tax assets:
Loss carryforwards....................................... 440
Book reserves............................................ 86
Other.................................................... 7
----
Deferred income tax assets............................. 533
Valuation allowance for deferred income tax assets....... (84)
----
Deferred income tax assets, net........................ 449
----
Deferred income taxes, net............................. $--
====
</TABLE>

F-90
<PAGE>

STANWICH ACQUISITION CORP.

NOTES TO THE FINANCIAL STATEMENTS--(Continued)

SFAS No. 109 requires a valuation allowance where it is "more likely than
not that some portion or all of the deferred tax assets will not be realized."
It further states that "forming a conclusion that a valuation allowance is not
needed is difficult when there is negative evidence such as losses in recent
years." The ultimate realization of SAC's deferred income tax assets depends on
its ability to generate sufficient taxable income in the future. While SAC
believes that the deferred income tax assets will be realized by future
operating results, such realization is uncertain. At December 31, 1998, SAC had
net operating loss carryforwards totalling $1.1 million, all of which expire in
2018.

The current and noncurrent classifications of deferred income tax
liabilities and assets are shown in the accompanying table.

Classifications Deferred Income Taxes

<TABLE>
<CAPTION>
At December 31,
1998
---------------
(in thousands)
<S> <C>
Current:
Deferred tax assets...................................... $ 86
Deferred tax liabilities................................. (19)
Less: valuation allowance................................ (67)
-----
Current deferred income taxes.......................... --
-----
Noncurrent:
Deferred tax assets...................................... 447
Deferred tax liabilities................................. (430)
Less: valuation allowance................................ (17)
-----
Noncurrent deferred income taxes....................... --
-----
Deferred income taxes, net............................. $ --
=====
</TABLE>

NOTE 13: LEASES

Lease rental expense for 1998 totalled $82,416. At December 31, 1998, SAC
had minimum rental commitments under noncancelable operating leases as follows:
1999--$89,192; 2000--$84,692; 2001--$83,192; 2002--$25,248; 2003--$5,171.

NOTE 14: CONTINGENT LIABILITIES AND COMMITMENTS

There were no legal proceedings against SAC at December 31, 1998.
Additionally, there were no other contingent liabilities or commitments at
December 31, 1998 that would have a material impact on the financial position
or results of operations of SAC.

NOTE 15: FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:

Cash in banks; Accounts receivable; Accounts payable; Due to related
parties--The carrying amounts of these financial instruments at December 31,
1998 approximate fair value due to their short maturities.

F-91
<PAGE>

STANWICH ACQUISITION CORP.

NOTES TO THE FINANCIAL STATEMENTS--(Continued)

Revolver, related party; Term Loan--The Revolver has a fixed interest rate
and the Term Loan has a variable interest rate with an interest rate floor,
both of which approximate current market rates. Accordingly, management
estimates that their carrying amounts approximate fair value at December 31,
1998.

NOTE 16: SUBSEQUENT EVENTS

The Revolver

On March 2, 1999, SAC and SFSC executed an amendment to the Revolver
pursuant to which the Revolver's maturity date was extended to the earlier of
the merger of SAC with and into Reunion or September 2, 1999. SAC agreed to pay
SFSC a $15,000 extension fee in consideration of this amendment. See "The
Merger" below.

The Merger

On March 31, 1999, Reunion announced that it entered into a merger agreement
with Chatwins. This merger has been approved by the Boards of Directors of both
Reunion and Chatwins and the shareholders of Chatwins. This merger is subject
to, among other things, submission to a vote of Reunion's shareholders and had
a designated closing date of June 29, 1999. In connection with this merger,
Reunion announced that, on March 30, 1999, it entered into a merger agreement
with SAC. Pursuant to this merger agreement, SAC's existing indebtedness would
be assumed by Reunion and SAC's Series A Preferred Stock would be replaced by a
new Reunion Series B Preferred Stock.

On May 14, 1999, Reunion announced that its proposed merger with Chatwins
has been delayed due to unfavorable market conditions for long-term bond
financing, but that it intends to continue to pursue the merger in the hope
that market conditions will improve. Reunion further announced that it and
Chatwins were simultaneously pursuing other long-term financing options in an
effort to consummate the merger in the next several months. There can be no
assurances that the merger and related assumption of SAC's indebtedness
will occur.

F-92
<PAGE>

STANWICH ACQUISITION CORP.
(D/B/A KINGWAY MATERIAL HANDLING COMPANY)

BALANCE SHEET
(In Thousands)
(Unaudited)

<TABLE>
<CAPTION>
At June 30,
1999
-----------
<S> <C>
ASSETS:
Cash in banks..................................................... $ 894
Accounts receivable (net of allowance for doubtful accounts of
$96)............................................................. 4,091
Inventories....................................................... 1,043
Prepaid and other current assets.................................. 268
-------
Total current assets............................................ 6,296
Plant and equipment (net of accumulated depreciation of $455)..... 2,350
Goodwill (net of accumulated amortization of $1,469).............. 11,911
Deferred financing costs (net of accumulated amortization of
$403)............................................................ 82
Other noncurrent assets........................................... 49
-------
Total assets.................................................... $20,688
=======
LIABILITIES AND SHAREHOLDERS' EQUITY:
Revolver, related party........................................... $ 7,565
Term loan......................................................... 6,180
Accounts payable.................................................. 1,011
Due to related parties............................................ 1,716
Other current liabilities......................................... 399
-------
Total liabilities 16,871
-------
Contingent liabilities and commitments............................ --
Preferred stock, $.10 par value (10,000 shares authorized; 5,000
issued and outstanding).......................................... 6,250
Shareholders' equity (note 10):
Common stock, $.01 par value (1,000 shares authorized, issued and
outstanding)..................................................... --
Additional paid-in-capital........................................ 25
Accumulated deficit............................................... (2,458)
-------
Total shareholders' equity...................................... (2,433)
-------
Total liabilities and shareholders' equity...................... $20,688
=======
</TABLE>

The accompanying notes are an integral part of these unaudited financial
statements.

F-93
<PAGE>

STANWICH ACQUISITION CORP.
(D/B/A KINGWAY MATERIAL HANDLING COMPANY)

STATEMENT OF OPERATIONS
(In Thousands)
(Unaudited)

<TABLE>
<CAPTION>
Six months ended
June 30,
------------------
1999 1998
-------- --------
<S> <C> <C>
Net sales.................................................. $ 7,827 $ 7,635
Cost of sales.............................................. 5,338 5,487
-------- --------
Gross profit............................................. 2,489 2,148
Selling, general and administrative........................ 1,406 1,241
Amortization of goodwill................................... 446 440
-------- --------
Operating profit......................................... 637 467
Interest expense........................................... 1,427 1,004
Interest income............................................ 18 24
-------- --------
Loss before taxes........................................ (772) (513)
Income taxes............................................... -- --
-------- --------
Net loss................................................. $ (772) $ (513)
======== ========
</TABLE>

The accompanying notes are an integral part of these unaudited financial
statements.

F-94
<PAGE>

STANWICH ACQUISITION CORP.
(D/B/A KINGWAY MATERIAL HANDLING COMPANY)

STATEMENT OF CASH FLOWS
(In Thousands)
(Unaudited)

<TABLE>
<CAPTION>
Six months ended
June 30
------------------
1999 1998
-------- --------
<S> <C> <C>
Operating Activities:
Net loss................................................. $ (772) $ (513)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation........................................... 194 86
Amortization of goodwill............................... 446 440
Amortization of deferred financing costs............... 244 79
Changes in assets and liabilities:
Accounts receivable.................................. 112 279
Inventories.......................................... 27 (50)
Prepaid and other current assets..................... (172) 47
Accounts payable..................................... (42) 274
Other current liabilities............................ 463 (247)
Other................................................ (1) (21)
-------- --------
Net cash provided by operating activities.................. 499 374
-------- --------
Investing Activities:
Capital expenditures..................................... (266) (749)
-------- --------
Net cash used in investing activities.................... (266) (749)
-------- --------
Increase (decrease) in cash.............................. 233 (375)
Cash at beginning of period.............................. 661 1,050
-------- --------
Cash at end of period.................................... $ 894 $ 675
======== ========
Supplemental Disclosures:
Cash paid for interest................................... $ 1,131 $ 821
======== ========
</TABLE>

The accompanying notes are an integral part of these unaudited financial
statements.

F-95
<PAGE>

STANWICH ACQUISITION CORP.

NOTES TO THE UNAUDITED FINANCIAL STATEMENTS

NOTE 1: BASIS OF PRESENTATION AND GOING CONCERN CONSIDERATIONS

Basis of Presentation

These financial statements have been prepared by SAC's management in
conformity with generally accepted accounting principles and include such
estimates and adjustments as deemed necessary to present fairly the financial
position of SAC at June 30, 1999 and the results of its operations and its cash
flows for the six month periods ended June 30, 1999 and 1998. The use of
estimates affects the reported amounts of assets, liabilities, revenues,
expenses and disclosures of contingencies during the reporting period which, in
the normal course of business, are subsequently adjusted to actual results.
Actual results could differ from those estimates.

Going Concern Considerations

The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the settlement of
liabilities and commitments in the normal course of business. SAC has the
Revolver with outstanding borrowings of $7,564,700 at June 30, 1999, which was
due on September 2, 1999. SAC has the Term Loan with outstanding borrowings of
$6,180,000 at June 30, 1999, which was due on September 1, 1999. SAC has
negotiated two-month extensions of each of these debts. See note 6. As of June
30, 1999, SAC had and continues to have a working capital deficiency.

Without the assumption of SAC's debt by Reunion in the merger or other
restructuring of its obligations, SAC will not have sufficient resources to
meet its debt maturities in September 1999. If the merger and related
assumption of SAC's debt or other restructuring of its obligations are delayed
or do not occur, management intends to attempt to negotiate extensions of the
maturity dates of SAC's debt and/or seek replacement financing.

SAC's Revolver is with a related party, Stanwich Financial Services Corp.
(SFSC). SAC's Term Loan is with an unrelated third party but is guaranteed by
related parties. Through the date of this report, SAC has not had any
discussions with its lenders regarding extensions of the maturity dates of the
Revolver and Term Loan beyond November 1999. There can be no assurances that
SAC would be able to obtain extensions of its debt maturities from its current
lenders or be able to arrange replacement financing on acceptable terms or at
all. If SAC is unable to arrange sufficient financing, it may be necessary to
curtail operations and/or sell assets to meet its obligations.

F-96
<PAGE>

STANWICH ACQUISITION CORP.

NOTES TO THE UNAUDITED FINANCIAL STATEMENTS--(Continued)

NOTE 2: RELATED PARTY TRANSACTIONS

The following is a discussion of related party transactions of SAC and other
parties.

Chatwins Services Agreement--During the six-month period ended June 30, 1999
SAC was charged $1,597,202 for manufacturing, selling and administrative
services under the Chatwins services agreement. At June 30, 1999, SAC owed
Chatwins $1,293,430 under the Chatwins services agreement which is included in
due to related parties in the accompanying balance sheet. During the first half
of 1999, SAC paid Chatwins $1,084,421 in cash pursuant to its obligation under
the Chatwins services agreement. Although SAC's management believes that
amounts paid for manufacturing, selling and administrative services under the
Chatwins services agreement were reasonable for the amount and nature of
services received, it is possible that the costs of these services might not
have been the same had they been provided by wholly unrelated third parties.

Revolver--SFSC has provided SAC with a revolving credit facility. During the
first half of 1999, $573,486 of interest was paid by SAC to SFSC under the
Revolver. At June 30, 1999, SAC had accrued interest payable to SFSC of
$282,899, which is included in due to related parties in the accompanying
balance sheet. SAC's management believes that the terms and conditions of the
Revolver are comparable to those that SAC may be able to obtain from a wholly
unrelated third party lender.

Term Loan--During 1998, SAC refinanced portions of the Revolver with another
lender. SFSC paid $180,000 of SAC's closing expenses related to these
refinancings. During the first half of 1999, SAC repaid $40,000 of such
expenses. The remaining $140,000 is included in due to related parties in the
accompanying balance sheet.

NOTE 3: INVENTORIES

Inventories

(in thousands)
<TABLE>
<CAPTION>
At June 30, 1999
----------------
<S> <C>
Raw materials............................................... $ 848
Work-in-process............................................. 29
Finished goods.............................................. 166
------
Inventories............................................... $1,043
======
</TABLE>

NOTE 4: SHAREHOLDERS' EQUITY

Shareholders' Equity

(in thousands)
<TABLE>
<CAPTION>
Common Capital Accumulated
Stock Paid-In Deficit Total
------ ------- ----------- -------
<S> <C> <C> <C> <C>
At January 1, 1999..................... $-- $ 25 $(1,311) $(1,286)
Activity for the three month period
ended June 30, 1999:
Net loss............................. -- -- (772) (772)
Preferred stock dividend accretions.. -- -- (375) (375)
---- ---- ------- -------
At June 30, 1999....................... $-- $ 25 $(2,458) $(2,433)
==== ==== ======= =======
</TABLE>

F-97
<PAGE>

STANWICH ACQUISITION CORP.

NOTES TO THE UNAUDITED FINANCIAL STATEMENTS--(Continued)

Common stock outstanding totalled 1,000 shares and has a $.01 per share par
value. All of these shares are pledged as security for borrowings under the
Revolver and Term Loan.

SAC's Series A Preferred Stock has dividends accreted from retained earnings
since its issuance totalling $1,250,000 at June 30, 1999.

NOTE 5: CONTINGENT LIABILITIES AND COMMITMENTS

Debt

At June 30, 1999, SAC was in compliance with all financial and other
covenants pursuant to its term loan agreement.

Legal Proceedings and Other Commitments

There were no legal proceedings against SAC at June 30, 1999. Additionally,
there were no other contingent liabilities or commitments at June 30, 1999 that
would have a material impact on the financial position or results of operations
of SAC.

NOTE 6: SUBSEQUENT EVENTS

SAC's Revolver and Term Loan were due on September 2, 1999 and September 1,
1999, respectively. Prior to these maturity dates, SAC and SFSC in regards to
the Revolver and SAC and its third party lender in regards to the Term Loan
negotiated and agreed to extensions of the maturity dates of these obligations.

F-98
<PAGE>

ANNEX A

AMENDED AND RESTATED MERGER AGREEMENT

Amended and Restated Merger Agreement (this "Agreement"), dated as of July
28, 1999, by and between Reunion Industries, Inc., a Delaware corporation
("Reunion"), and Chatwins Group, Inc. a Delaware corporation ("Chatwins").

W I T N E S S E T H:

WHEREAS, Reunion and Chatwins entered into a Merger Agreement, dated as of
March 30, 1999 (the "Merger Agreement"), pursuant to which Reunion and Chatwins
agreed that Reunion would acquire Chatwins on the terms and conditions set
forth in the Merger Agreement;

WHEREAS, the parties to the Merger Agreement now desire to amend and restate
the Merger Agreement as set forth below;

WHEREAS, the Boards of Directors of Chatwins and Reunion have approved and
adopted this Agreement and have authorized the execution hereof; and

WHEREAS, the holders of a majority of Chatwins Common Stock and Series A
Preferred, Series B Preferred and Series C Preferred, each as defined below,
have by written consent voted in favor of the Merger Agreement; and

WHEREAS, the shareholders of Reunion shall vote for or against the adoption
of this Agreement at a meeting thereof to be called as promptly as possible
following the execution of this Agreement.

NOW, THEREFORE, in consideration of the mutual benefits to be derived from
this Agreement and the representations, warranties, conditions and promises
hereinafter contained, the parties to this Agreement hereby agree as follows:

ARTICLE I
THE MERGER

1.1. The Merger.

(a) At the Effective Time (as defined in Section 1.1(b)), Chatwins shall be
merged with and into Reunion (the "Merger"), in accordance with the General
Corporation Law of the State of Delaware (the "Delaware GCL"), whereupon the
separate existence of Chatwins shall cease and Reunion shall be the surviving
corporation.

(b) As soon as practicable after satisfaction or waiver of all conditions to
the Merger, Chatwins and Reunion will file a certificate of merger (which shall
be in form and substance reasonably satisfactory to the parties hereto) with
the Secretary of State of the State of Delaware (the "Secretary of State") in
accordance with Section 251(c) of the Delaware GCL and make all other filings
or recordings required by the Delaware GCL in connection with the Merger. The
Merger shall become effective on such date as the certificate of merger is duly
filed with the Secretary of State or at such later date as is specified in the
certificate of merger (the "Effective Time").

(c) From and after the Effective Time, Reunion shall possess all the rights,
privileges, powers and franchises and be subject to all of the restrictions,
disabilities, liabilities and duties of Chatwins as provided in the Delaware
GCL.

A-1
<PAGE>

1.2. Conversion of Shares. By virtue of the Merger and without any action on
the part of Reunion or Chatwins:

(a) The aggregate number of shares of the common stock of Chatwins, par
value $.01 per share, issued and outstanding immediately prior to the Effective
Time (the "Chatwins Common Stock") shall be automatically converted into the
right to receive the following consideration in the manner and at the time
described below:

(i) at the Effective Time, 9,500,000 fully-paid and nonassessable shares
of common stock of Reunion, par value $.01 per share ("Reunion Common Stock");
and

(ii) up to an additional 500,000 shares of Reunion Common Stock (the
"Additional Shares") to be issued within 30 days after the filing by Reunion of
its Annual Report on Form 10-K for the year ending December 31, 2000 (the
"Filing Date") as follows:

(x) no shares of Reunion Common Stock unless EBITDA (as defined in
clause (z) below) earned by the Chatwins Divisions (as defined
in clause (z) below) during the year ending December 31, 2000
("2000 EBITDA") is at least $19,000,000; and

(y) .5 shares of Reunion Common Stock for each dollar of 2000 EBITDA
earned by the Chatwins Divisions in excess of $19,000,000 up to
a maximum of $20,000,000.

(z) For purposes of this Agreement, "EBITDA" shall mean the earnings
before interest, taxes, depreciation and amortization of the
Chatwins Divisions, determined in accordance with GAAP applied
on a consistent basis, without, however, any allocations related
to headquarters overhead or expense, as audited by
PriceWaterhouseCoopers, LLP, and the "Chatwins Divisions" shall
mean the operating divisions of Chatwins known as "CPI",
"Alliance", "Hanna", "Steelcraft" and "Auto-Lok", the Kingway
material handling business of Stanwich Acquisition Corp.
("SAC"), which will be merged into Reunion and operated within
the Auto-Lok division and the Naptech business of NPS
Acquisition Corp. ("NPS"), which will be merged into Reunion and
operated within the CPI division.

(iii) the Reunion Common Stock to be issued in accordance with this
Section 1.2(a) shall be allocated among the holders of the Chatwins Common
Stock of record at the Effective Time pro rata based upon their percentage
ownership of the Chatwins Common Stock at the Effective Time.

(b) (i) The aggregate number of shares of Class D, Series A Preferred Stock
of Chatwins, par value $.01 per share (the "Series A Preferred"), Class D,
Series B Preferred Stock of Chatwins, par value $.01 per share, (the "Series B
Preferred"), and Class D, Series C Preferred Stock of Chatwins, par value $.01
per share (the "Series C Preferred"), issued and outstanding immediately prior
to the Effective Time shall be automatically converted into the right to
receive preferred stock of Reunion (the "Series A Reunion Preferred") with an
initial redemption value (the "Initial Redemption Value") equal to the
aggregate redemption price of such Chatwins preferred stock on the Closing Date
(as defined in Section 1.4) determined as provided in Chatwins's Restated
Certificate of Incorporation. The Series A Reunion Preferred will be redeemable
when no shares of Series B Preferred Stock of Reunion (the "Series B Reunion
Preferred") to be issued in connection with the merger of SAC into Reunion are
outstanding at any time at the option of Reunion at a redemption value (the
"Total Redemption Value") equal to the Initial Redemption Value plus all
accrued but unpaid preferred dividends. The Series A Reunion Preferred will
accrue a cumulative dividend equal to 10% of the Initial Redemption Value per
annum, which will accrue from the Effective Time (the "Series A Preferred
Dividend"). The Series A Preferred Dividend will be junior in right of payment
to dividends on the Series B Reunion Preferred, will be payable as and when the
Board of Directors of Reunion determines and will be senior in right of payment
to dividends on shares of Reunion Common Stock. The Series A Reunion Preferred
will not be voting, except as required by law, and will not have any right of
conversion into the Reunion

A-2
<PAGE>

Common Stock or any other securities of Reunion. Upon a liquidation of Reunion,
the holders of the Series A Reunion Preferred will be entitled to be paid, out
of the assets of Reunion available for payment to the holders of Reunion's
capital stock, an amount equal to the Total Redemption Value on the date of
payment. In the event of a liquidation of Reunion no payments will be made and
no assets will be distributed to the holders of the Reunion Common Stock or any
other class of capital stock of Reunion, including the Series B Reunion
Preferred, until the holders of the Series A Reunion Preferred shall have been
paid the Total Redemption Value. The Series A Reunion Preferred will have such
other preferences, privileges, restrictions and rights as are determined by the
Board of Directors of Reunion prior to the Effective Time.

(ii) The Series A Reunion Preferred shall be allocated among the holders
of the Series A Preferred, Series B Preferred and Series C Preferred of record
at the Effective Time pro rata in accordance with such holders' applicable
Redemption Percentages at the Effective Time. For these purposes, a particular
holder's "Redemption Percentage" shall mean the fraction (expressed as a
percentage) obtained by dividing (y) the aggregate Initial Redemption Value of
the Series A Preferred, Series B Preferred and Series C Preferred held by such
holder immediately prior to the Effective Time by (z) the aggregate Initial
Redemption Value of the shares of Series A Preferred, Series B Preferred and
Series C Preferred issued and outstanding immediately prior to the Effective
Time.

(c) All shares of Chatwins Common Stock, Series A Preferred, Series B
Preferred and Series C Preferred (collectively, the "Chatwins Capital Stock")
shall automatically be cancelled and retired and shall cease to exist and each
holder of a certificate representing any such Chatwins Capital Stock (a
"Certificate") shall cease to have any rights with respect thereto, except the
right to receive consideration (the "Merger Consideration") consisting of the
number of shares of Reunion Common Stock or Series A Reunion Preferred
specified herein, together with any cash in lieu of fractional shares of
Reunion Common Stock to be paid pursuant to Section 1.3(c), upon the surrender
of such Certificate in accordance with Section 1.3(a), without interest.

(d) All shares of Chatwins Capital Stock held by Chatwins as treasury shares
shall be cancelled and retired and shall cease to exist and no shares of
Reunion Common Stock or Series A Reunion Preferred shall be issuable in respect
thereof.

(e) Chatwins agrees that the 1,450,000 shares of Reunion Common Stock owned
by Chatwins as of the date hereof shall be retired by Reunion, and Chatwins
shall thereupon cease to have any rights with respect thereto, including any
right of exchange in connection with the Merger.

1.3. Surrender of Certificates; Payment of Merger Consideration

(a) Surrender of Certificates. At or after the Closing (as defined in
Section 1.4), upon presentation by the holder thereof, duly endorsed, each
Certificate shall be cancelled and exchanged and, simultaneously with such
cancellation and exchange, (i) in respect of Chatwins Common Stock a new
certificate shall be issued representing the number of shares of Reunion Common
Stock into which the Chatwins Common Stock formerly held by such shareholder
shall have been converted in the Merger in accordance with Section 1.2 (a)(i)
hereof, together with a check payable to such shareholder representing any
payment of cash in lieu of fractional shares determined in accordance with
Section 1.3(c) hereof and (ii) in respect of Series A Preferred, Series B
Preferred and Series C Preferred, a new certificate shall be issued
representing the number of shares of Series A Reunion Preferred determined in
accordance with the applicable Redemption Percentages. Within 30 days following
the Filing Date, a certificate shall be issued representing Additional Shares,
if any, into which the Chatwins Common Stock formerly held by such shareholder
shall have been converted in the Merger in accordance with Section 1.2(a)(ii)
hereof, together with a check payable to such shareholder representing any
payment of cash in lieu of fractional shares determined in accordance with
Section 1.3(c) hereof. All of the shares of Reunion Common Stock and Series A
Reunion Preferred issued in the Merger shall be duly authorized, validly
issued, fully paid and nonassessable and, at the time of issuance, shall be
free and clear of all liens, claims, encumbrances, security interests and
rights of redemption (together, "Liens").

A-3
<PAGE>

(b) No Further Ownership Rights in Chatwins Capital Stock. The Merger
Consideration issued upon the surrender for exchange of Certificates in
accordance with the terms of this Agreement (including any cash paid pursuant
to Section 1.3(c)) shall be deemed to have been issued (or paid, as the case
may be) in full satisfaction of all rights pertaining to the Chatwins Capital
Stock represented thereby. From and after the Closing, the stock transfer books
of Chatwins shall be closed and there shall be no further registration of
transfers on the stock transfer books of Chatwins or Reunion of the Chatwins
Capital Stock which was outstanding immediately prior to the Effective Time.
If, after the Closing, Certificates are presented to Reunion for any reason,
they shall be cancelled and exchanged as provided in this Agreement.

(c) No Fractional Shares. No certificate or scrip representing fractional
shares of Reunion Common Stock will be issued in the Merger upon the surrender
for exchange of Certificates, and such fractional share interests will not
entitle the owner thereof to vote or to any rights of a stockholder of Reunion.
In lieu of any such fractional shares, each holder of Chatwins Common Stock,
who would otherwise have been entitled to a fraction of a share of Reunion
Common Stock in exchange for Certificates pursuant to this Agreement shall
receive from Reunion a cash payment in lieu of such fractional share equal to
the product of the market price of Reunion Common Stock at the close of
business on the Closing Date and the fractional share interest to which such
holder would otherwise be entitled.

1.4. Closing. The closing of the transactions contemplated by this Agreement
(the "Closing") will take place at the offices of Buchanan Ingersoll
Professional Corporation, One Oxford Centre, 301 Grant Street, 20th Floor,
Pittsburgh, Pennsylvania 15219 at 10:00 a.m. on September 30, 1999, or at such
other place or time as the parties may mutually agree (the "Closing Date").

1.5. Further Assurances. At the Closing and thereafter, each party hereto
will execute such further documents and instruments and take such further
actions as may reasonably be requested by one or more of the others to
consummate the Merger, to vest Reunion with full title to all assets,
properties, rights, approvals, immunities and franchises of Chatwins and to
effect the other purposes of this Agreement.

ARTICLE II
THE SURVIVING CORPORATION

2.1. Certificate of Incorporation. The Certificate of Incorporation of
Reunion in effect at the Effective Time shall be the Certificate of
Incorporation of the surviving corporation until amended in accordance with
applicable law.

2.2. By-Laws. The By-laws of Reunion in effect at the Effective Time shall
be the By-laws of the surviving corporation until amended in accordance with
applicable law.

2.3. Officers. The persons listed on Schedule 2.3 shall serve in the offices
shown opposite their names on Schedule 2.3 at the Effective Time and shall
continue in the same offices on behalf of the surviving corporation until their
resignation or removal in accordance with the By-laws.

2.4. Directors. The Directors of Reunion serving on the Reunion Board of
Directors at the Effective Time shall continue to serve as members of the Board
of Directors of the surviving corporation until their resignation or until
their successors are duly elected and qualified. In addition, at the first
meeting of the Board of Directors occurring after the Effective Time, the total
number of persons serving on the Board of Directors shall be increased by two
and two additional persons nominated by Chatwins shall be appointed by the
Board of Directors of Reunion to fill the vacancies, effective at such meeting
of the Board, thereby created.

ARTICLE III
REPRESENTATIONS AND WARRANTIES OF CHATWINS

Chatwins hereby represents and warrants to Reunion on the date hereof and as
of the Effective Time as follows (it being understood that for purposes of this
Section 3, Chatwins shall include each of its subsidiaries):

A-4
<PAGE>

3.1. Chatwins' Organization and Good Standing. Chatwins is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Delaware and has all corporate power and authority to own, lease and
operate its properties and to carry on its business as now conducted. Chatwins
is duly qualified to do business and in good standing in each jurisdiction
where the character of property owned or leased by it or the nature of its
activities makes such qualification necessary except for those jurisdictions
where the failure to be so qualified would not, individually or in the
aggregate, have a Chatwins Material Adverse Effect. As used herein, a "Chatwins
Material Adverse Effect" means a material adverse effect on the condition
(financial or otherwise), business, assets or results of operations of Chatwins
or on the ability of Chatwins to consummate the transactions contemplated by
this Agreement.

3.2. Power and Authority; Execution and Delivery. Chatwins has all requisite
corporate power and authority to execute, deliver and perform its obligations
under this Agreement. Except for shareholder approval as required by the
Delaware GCL, the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby have been duly approved
and authorized by all requisite corporate action of Chatwins. Except for such
shareholder approval and the filing of a certificate of merger in accordance
with Section 1.1(b), no further corporate actions or approvals on the part of
Chatwins are required under applicable law for the consummation of the Merger.
This Agreement has been duly executed and delivered by Chatwins and, subject
only to the approval of its shareholders in accordance with the Delaware GCL,
constitutes the legal, valid and binding obligation of Chatwins, enforceable
against it in accordance with its terms except to the extent that
enforceability may be limited by applicable bankruptcy, insolvency, or similar
laws affecting the enforcement of creditors' rights generally and subject to
general principles of equity (regardless of whether enforcement is sought in a
court of law or equity).

3.3. Capitalization and Voting Rights

(a) The authorized capital of Chatwins consists entirely of the following,
the rights, privileges and preferences of which are as stated in the
Certificate of Incorporation of Chatwins:

(i) 3,000 shares of Series A Preferred, of which 2,249 shares are issued
and outstanding as of the date hereof;

(ii) 800 shares of Series B Preferred, of which 800 shares are issued and
outstanding as of the date hereof;

(iii) 2,500 shares of Series C Preferred, of which 1,510 shares are issued
and outstanding as of the date hereof; and

(iv) 400,000 shares of Chatwins Common Stock, of which 289,787.4 shares
are issued and outstanding and 41,109 shares are held by Chatwins as treasury
shares.

(b) Except as set forth on Schedule 3.3, Chatwins has no outstanding
subscriptions, options, warrants, calls or other agreements or commitments by
which Chatwins is bound in respect of the capital stock of Chatwins, whether
issued or unissued, and no outstanding rights or securities convertible into or
exchangeable for any such capital stock, and Chatwins is not a party or subject
to any agreement or understanding, and to Chatwins's knowledge, there is no
agreement or understanding between any persons and/or entities, which affects
or relates to the voting or giving of written consents with respect to any
security of Chatwins. All shares of Class A, B, C and E Preferred Stock
authorized to be issued by the Certificate of Incorporation of Chatwins have
been retired, and no shares thereof or rights with respect thereto are
outstanding.

3.4. Subsidiaries. Except as set forth in Schedule 3.4, Chatwins does not
own or control, directly or indirectly, any interest in any other corporation,
association or other business entity.

A-5
<PAGE>

3.5. Valid Issuance of Preferred and Common Stock. Except as set forth on
Schedule 3.5, the outstanding shares of Chatwins Capital Stock are duly and
validly authorized and issued, fully paid and nonassessable.

3.6. Reports and Financial Statements. Chatwins has previously furnished to
Reunion a true and complete copy of its (i) Annual Report on Form 10-K for the
fiscal year ended December 31, 1998 (the "Chatwins 10-K") as filed with the
Securities and Exchange Commission ("SEC"), (ii) Quarterly Report on Form 10-Q
for the quarter ended March 31, 1999 as filed with the SEC; and (iii) Current
Reports on Form 8-K as filed with the SEC since March 31, 1999. Chatwins will
provide Reunion with a true and complete copy of each Quarterly Report on Form
10-Q and each Current Report on Form 8-K promptly after filing such report
with the SEC. As of their respective dates, the Chatwins 10-K, Quarterly
Reports on Form 10-Q and Current Reports on Form 8-K referred to above did
not, and will not, when filed, contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading. The audited consolidated financial statements and
unaudited consolidated interim financial statements included in such reports
or other filings have been prepared in accordance with GAAP applied on a
consistent basis (except as may be indicated therein or in the notes thereto)
and fairly present the consolidated financial position of Chatwins and its
subsidiaries as of the dates thereof and the consolidated results of
operations and changes in cash flow of Chatwins and its subsidiaries for the
periods then ended, subject in the case of unaudited interim financial
statements, to normal year-end adjustments which are neither individually nor
in the aggregate expected to be material.

3.7. Changes. Except as set forth on schedule 3.7 or in the reports
described in section 3.6 or in the registration statement (as defined in
section 9.8) since march 31, 1999, there has not been:

(a) any adverse change in the assets, condition (financial or otherwise),
affairs, business, operations, properties, or liabilities of Chatwins from
that reflected in the balance sheet as at March 31, 1999, referred to in
Section 3.6 above, except for changes in the ordinary course of business which
do not constitute, either individually or in the aggregate, a Chatwins
Material Adverse Effect;

(b) any material change in the liabilities or obligations of Chatwins,
contingent or otherwise, whether due or to become due, whether by way of
guaranty, endorsement, indemnity, warranty or otherwise, except for the
incurrence of current liabilities in the ordinary course of business, none of
which has had a Chatwins Material Adverse Effect;

(c) any damage, destruction or loss, whether or not covered by insurance,
materially and adversely affecting the properties, operations or business of
Chatwins;

(d) any waiver by Chatwins of a valuable right or of a material debt owed
to it;

(e) any loans made by Chatwins other than advances of expenses made in the
ordinary course of business;

(f) any declaration or payment of any dividend or other distribution of the
assets of Chatwins or any direct or indirect redemption, purchase or
acquisition of any securities of Chatwins;

(g) any incurrence of indebtedness for money borrowed or any other
liabilities individually in excess of $50,000 or, in the case of indebtedness
and/or liabilities individually less than $50,000, in excess of $100,000 in
the aggregate;

(h) any sale, exchange or other disposition of any of Chatwins's assets,
other than in the ordinary course of business;

(i) to the best of Chatwins's knowledge, any other event or condition of
any character which could reasonably be expected to result in a Chatwins
Material Adverse Effect;

A-6
<PAGE>

(j) any increase in compensation of any of its existing officers, or the
rate of pay of its employees as a group, except as part of regular compensation
increases in the ordinary course of business;

(k) any resignation or termination of employment of any officer or key
employee of Chatwins; or

(l) any agreements to do or enter into any of the foregoing.

3.8. Governmental Approvals and Filings. Except as set forth in Schedule 3.8
and for the filing of a certificate of merger in accordance with the Delaware
GCL, no approval, authorization, consent, license, clearance or order of,
declaration or notification to, or filing, registration or compliance with, any
governmental or regulatory authority, is required in order to permit Chatwins
to enter into this Agreement or to consummate the transactions contemplated
herein.

3.9. Litigation. Except as set forth in the reports described in Section 3.6
or the Registration Statement, (i) there is no action, suit, proceeding or
investigation pending or, to Chatwins's knowledge, currently threatened in
writing against Chatwins or its property, assets or business which might
reasonably be expected to result, either individually or in the aggregate, in a
Chatwins Material Adverse Effect, including without limitation, actions pending
or threatened involving the prior employment of any of Chatwins's employees,
their use in connection with Chatwins's business of any information or
techniques allegedly proprietary to any of their former employers, or their
obligations under any agreements with prior employers; and (ii) Chatwins is not
a party or subject to the provisions of any order, writ, injunction, award,
judgment or decree of any court, arbitration panel or government agency or
instrumentality.

3.10. Patents and Trademarks. Chatwins has sufficient title and ownership of
all patents, trademarks, service marks, trade names, copyrights, trade secrets,
information, proprietary rights and processes necessary for its business as now
conducted and without any conflict with or infringement of the rights of others
which could reasonably be expected to result in a Chatwins Material Adverse
Effect. Schedule 3.10 contains a complete list of patents and patent
applications owned by Chatwins. Except as set forth in Schedule 3.10, there are
no outstanding options, licenses or agreements of any kind relating to the
foregoing, nor is Chatwins bound by or a party to any options, licenses or
agreements of any kind with respect to the patents, trademarks, service marks,
trade names, copyrights, trade secrets, licenses, information, proprietary
rights and processes owned by any other person or entity. Chatwins has not
received any communications or claims alleging that Chatwins has violated or,
by conducting its business as currently conducted, would violate any of the
patents, trademarks, service marks, trade names, copyrights, trade secrets,
licenses, information, proprietary rights and processes of any other person or
entity. Chatwins is not aware that any of its employees is obligated under any
contract (including licenses, covenants or commitments of any nature) or other
agreement, or subject to any judgment, decree or order of any court of
administrative agency, that would interfere with the use of such employee's
best efforts to promote the interests of Chatwins or that would conflict with
Chatwins's business as proposed to be conducted. Neither the execution and
delivery of this Agreement nor the carrying on of Chatwins's business by the
employees of Chatwins will, to Chatwins's knowledge, conflict with or result in
a breach of the terms, conditions or provisions of or constitute a default
under any contract, covenant or instrument under which any of such employees is
now obligated.

3.11. No Conflict. Except as set forth on Schedule 3.11, neither the
execution, delivery and performance of this Agreement by Chatwins, nor the
consummation by Chatwins of the transactions contemplated hereby will (i)
conflict with, or result in a breach of any of the terms, conditions or
provisions of the Certificate of Incorporation or By-laws of Chatwins, (ii)
conflict with, result in a breach or violation of, give rise to a default under
or result in the acceleration of performance under any mortgage, lease,
agreement, note, bond, indenture, guarantee or any statute, regulation,
ordinance, writ, injunction, order, judgment or decree to which Chatwins may be
subject, which conflict, breach, default, violation or acceleration could
reasonably be expected to have a Chatwins Material Adverse Effect, or (iii)
give rise to an imposition of any Lien of any nature whatsoever upon any of the
assets of Chatwins.

A-7
<PAGE>

3.12. Agreements

(a) Except as set forth in Schedule 3.12, there are no agreements,
understandings or transactions between Chatwins and any of its officers or
directors or any affiliate thereof.

(b) Except as set forth in Schedule 3.12, there are no agreements,
understanding or transactions to which Chatwins is a party or by which it is
bound which (i) involve obligations (contingent or otherwise) of, or payments
to, Chatwins in excess of $500,000 other than in the ordinary course of
business, (ii) are material to the conduct and operations of Chatwins' business
or properties (including, without limitation, the license of any patent,
copyright, trade secret or other proprietary rights to or from Chatwins), (iii)
restrict or adversely affect the development, manufacture or distribution of
Chatwins' products or services, (iv) involve any written employment or
consulting arrangement between Chatwins and any person, or (v) involve any
material oral employment or consulting arrangement between Chatwins and any
person.

3.13. Title to Property and Assets. Except as set forth on Schedule 3.13,
Chatwins has good title to its property and assets free and clear of all Liens,
except such Liens which do not materially impair Chatwins' ownership or use of
such property or assets. With respect to the property and assets it leases,
Chatwins is in substantial compliance with such leases and, to its knowledge,
holds a valid leasehold interest free of any Liens. All of Chatwins' properties
and assets are, in all material respects, in good operating condition, subject
to normal wear and tear.

3.14. Labor Agreements and Actions; Employee Benefits. Except as set forth
on Schedule 3.14, Chatwins is not bound by or subject to (and none of its
assets or properties is bound by or subject to) any written or oral, express or
implied, contract, commitment or arrangement with any labor union, and within
the last two (2) years no labor union has requested or, to the knowledge of
Chatwins, has sought to represent any of the employees, representatives, or
agents of Chatwins; there is no strike or other labor dispute involving
Chatwins pending or, to the knowledge of Chatwins, threatened, which could
reasonably be expected to have a Chatwins Material Adverse Effect, nor is
Chatwins aware of any labor organization activity involving its employees.
Except as noted in Schedule 3.14 hereto, Chatwins does not have any employee
benefit plans presently in force with respect to profit-sharing or pensions.

3.15. Tax Matters. Chatwins (i) has timely filed all tax returns that are
required to have been filed by it with all appropriate governmental agencies
(and all such returns are true and correct and fairly reflect in all material
respects its operations for tax purposes); and (ii) has timely paid all taxes
owed or assessed against it (other than taxes the validity of which are being
contested in good faith by appropriate proceedings). The assessment of any
additional taxes for periods for which returns have been filed is not expected
to exceed the reserves therefor reflected in the Chatwins' publicly-filed
financial statements and, to Chatwins' knowledge, there are no material
unresolved questions or claims concerning Chatwins' tax liability. Chatwins
1995 federal corporate income tax return was audited by the Internal Revenue
Service and all additional tax and interest assessed as a result of such audit
has been paid and all required state tax filings as a result thereof have been
made. Except as provided in the preceding sentence, Chatwins' federal income
tax returns have not been reviewed or audited by any taxing authority. There is
no pending dispute with any taxing authority relating to any of said returns
which, if determined adversely to Chatwins, would result in the assertion by
any taxing authority of any valid material tax deficiency.

3.16. Minute Books. The minute books of Chatwins contain a complete and
accurate record of all meetings of directors and stockholders since the date of
incorporation and all actions by written consent.

3.17. Purchase Method. To the best knowledge of Chatwins, neither Chatwins
nor any of its affiliates has taken or agreed to take any action inconsistent
with Reunion's accounting for the Merger under the "purchase method".

A-8
<PAGE>

3.18. Disclosure. Neither this Agreement nor any document or information
furnished to Reunion by Chatwins pursuant to this Agreement contains any untrue
statement of a material fact or omits to state a material fact necessary to
make the statements of Chatwins contained herein or therein not misleading.

3.19. S-4 Registration Statement. At the time the Registration Statement
becomes effective and at the Effective Time, the Registration Statement and the
Proxy Statement/Prospectus included therein, to the extent that material is
prepared or furnished by Chatwins for inclusion therein, and the Chatwins SEC
filings incorporated by reference therein, will not contain any statement
which, at the time and in light of the circumstances under which it is made, is
false or misleading with respect to any material fact, or shall omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein not misleading, or necessary to correct any statement
which has become false or misleading with respect to the transactions
contemplated hereby and will comply in all material respects with the
requirements of the Securities Act of 1933 (the "Securities Act") and the rules
and regulations thereunder (provided that no representation or warranty is made
with respect to the information not prepared or furnished by Chatwins
specifically for use therein or not contained in Chatwins SEC filings
incorporated by reference therein).

3.20. Broker's or Finder's Fees. Except as set forth in Schedule 3.20,
neither Chatwins nor any of its affiliates has authorized any person to act as
broker, finder, banker, consultant, intermediary or in any other similar
capacity which would entitle such person to any investment banking, brokerage,
finder's or similar fee from Chatwins in connection with the transactions
contemplated by this Agreement.

3.21. Permits, Licenses, Authorizations; Compliance with Laws. Chatwins has
all licenses, franchises, certificates of occupancy, permits and other
governmental authorizations which are material and necessary to conduct its
business, and Chatwins is not in violation in any material respect of any such
license, franchise, certificate of occupancy, permit or other governmental
authorization, or any statute, law, ordinance, rule regulation, judgment, order
or decree applicable to it or any of its properties.

ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF REUNION

Reunion represents and warrants to Chatwins as of the date hereof and as at
the Effective Time as follows (it being understood that for purposes of this
Section 4, Reunion shall include each of its subsidiaries):

4.1. Organization and Good Standing. Reunion is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware and has all corporate power and authority to own, lease and operate
its properties and to carry on its business as now being conducted. Reunion is
duly qualified to do business and in good standing in each jurisdiction where
the character of property owned or leased by it or the nature of its activities
makes such qualification necessary, except for those jurisdictions where the
failure to be so qualified would not, individually or in the aggregate, have a
Reunion Material Adverse Effect. As used herein, the term "Reunion Material
Adverse Effect" means a material adverse effect on the condition (financial or
otherwise), business, assets or results of operations of Reunion and its
subsidiaries, taken as a whole, or on the ability of Reunion to consummate the
transactions contemplated by this Agreement.

4.2. Power and Authority; Execution and Delivery. Reunion has all requisite
corporate power and authority to execute, deliver and perform its obligations
under this Agreement. Except for shareholder approval as required by the
Delaware GCL, the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby have been duly approved
and authorized by all requisite corporate action of Reunion. Except for such
shareholder approval and the filing of a certificate of merger in accordance
with Section 1.1(b), no further corporate actions or approvals on the part of
Reunion are required under applicable law for the consummation of the Merger.
This Agreement has been duly executed and delivered by Reunion and, subject
only to the approval of its shareholders in accordance with the Delaware GCL,
constitutes the legal, valid and binding obligation of Reunion, enforceable
against Reunion in accordance

A-9
<PAGE>

with its terms except to the extent that enforceability may be limited by
applicable bankruptcy, insolvency, or similar laws affecting the enforcement of
creditors' rights generally and subject to general principles of equity
(regardless of whether enforcement is sought in a court of law or equity).

4.3. Governmental Approvals and Filings. Except as set forth in Schedule
4.3, and for the filing of a certificate of merger in accordance with the
Delaware GCL, no approval, authorization, consent, license, clearance or order
of, declaration or notification to, or filing, registration or compliance with,
any governmental or regulatory authority, is required in order to permit
Reunion to enter into this Agreement or to consummate the transactions
contemplated herein.

4.4. No Conflict. Except as set forth in Schedule 4.4, neither the
execution, delivery and performance of this Agreement by Reunion, nor the
consummation by Reunion of the transactions contemplated hereby will (i)
conflict with, or result in a breach of any of the terms, conditions or
provisions of the Certificate of Incorporation or By-laws of Reunion, (ii)
conflict with, result in a breach or violation of, give rise to a default under
or result in the acceleration of performance under any mortgage, lease,
agreement, note, bond, indenture, guarantees or any statute, regulation,
ordinance, writ, injunction, order, judgment or decree to which Reunion
may be subject, which conflict, breach, default, violation or acceleration
would have a Reunion Material Adverse Effect, or (iii) give rise to an
imposition of any Lien, charge, security interest or encumbrance of any nature
whatsoever upon any of the assets of Reunion.

4.5. Merger Consideration. When issued, the shares of Reunion Common Stock
and Series A Reunion Preferred to be issued in the Merger will be duly
authorized, validly issued, fully-paid and nonassessable and free and clear of
all Liens and preemptive rights. The certificates or instruments representing
such shares will be in due and proper form.

4.6. Reports and Financial Statements. Reunion has previously furnished to
Chatwins a true and complete copy of its (i) Annual Report on Form 10-K for the
fiscal year ended December 31, 1998 (the "Reunion 10-K") as filed with the SEC;
(ii) Quarterly Report on Form 10-Q for the quarter ended March 31, 1999 as
filed with the SEC; and (iii) Current Reports on Form 8-K as filed with the SEC
since March 31, 1999. Reunion will provide Chatwins with a true and complete
copy of each Quarterly Report on Form 10-Q and each current report on Form 8-K
promptly after filing such report with the SEC. As of their respective dates,
the Reunion 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-
K referred to above, did not, and will not, when filed, contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The audited
consolidated financial statements and unaudited consolidated interim financial
statements included in such reports or other filings have been prepared in
accordance with GAAP applied on a consistent basis (except as may be indicated
therein or in the notes thereto) and fairly present the consolidated financial
position of Reunion and its subsidiaries as of the dates thereof and the
consolidated results of operations and changes in cash flow of Reunion and its
subsidiaries for the periods then ended, subject in the case of unaudited
interim financial statements, to normal year-end adjustments which are neither
individually nor in the aggregate expected to be material.

4.7. Absence of Material Adverse Change. Except as set forth on Schedule 4.7
or in the reports described in Section 4.6 or the Registration Statement, there
has not been any Reunion Material Adverse Effect since March 31, 1999.

4.8. Capitalization of Reunion. Reunion's authorized capital stock consists
of (i) 20,000,000 shares of Reunion Common Stock of which 3,940,100 are
outstanding on the date hereof, and (ii) 10,000,000 shares of preferred stock,
par value $.01 per share, none of which are outstanding on the date hereof. All
of the issued and outstanding shares of capital stock of Reunion are duly
authorized and validly issued, fully-paid and nonassessable.

A-10
<PAGE>

4.9. Certificates of Incorporation and By-laws.

(a) Reunion has delivered to Chatwins copies of its Certificate of
Incorporation and all amendments thereto, which copies are complete and
correct. Reunion is not in default under, or in violation of, any provisions of
its Certificate of Incorporation. Reunion's Certificate of Incorporation has
not been amended since December 31, 1998 and, except as contemplated by this
Agreement or in connection with the Acquisitions (as defined in Section
6.2(c)), no action has been taken for the purpose of effecting any amendment
thereto.

(b) Reunion has delivered to Chatwins copies of its By-laws and all
amendments thereto, which copies are complete and correct. Reunion is not in
default under, or in violation of, any provision of its By-laws. Reunion's By-
laws have not been amended since the date of certification thereof and no
action has been taken for the purpose of effecting any amendment thereto.

4.10. Legal Proceedings. Except as set forth in the reports described in
Section 4.6 or the Registration Statement, (i) there are no suits, actions,
claims, proceedings (including, without limitation, arbitration or
administrative proceedings) or investigations pending or to the knowledge of
Reunion threatened in writing against Reunion or its property, assets or
business which could reasonably be expected, individually or in the
aggregate, to have a Reunion Material Adverse Effect; and (ii) Reunion is not a
party or subject to the provisions of any judgment, order, injunction, decree
or award of any court, arbitration panel or government agency or
instrumentality.

4.11. Purchase Method. To the best knowledge of Reunion, neither Reunion nor
any of its affiliates has taken or agreed to take any action inconsistent with
the accounting treatment of the Merger under the "purchase method".

4.12. Disclosure. Neither this Agreement nor any document or information
furnished to Chatwins by Reunion pursuant to this Agreement contains any untrue
statement of a material fact or omits to state a material fact necessary to
make the statements of Reunion contained herein or therein not misleading.

4.13. S-4 Registration Statement. At the time the Registration Statement
becomes effective and at the Effective Time, the Registration Statement and the
Proxy Statement/Prospectus included therein and the Reunion SEC filings
incorporated by reference therein, will not contain any statement which, at the
time and in light of the circumstances under which it is made, is false or
misleading with respect to any material fact, or shall omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein not misleading, or necessary to correct any statement which
has become false or misleading with respect to the transactions contemplated
hereby and will comply in all material respects with the requirements of the
Securities Act and the rules and regulations thereunder (provided that no
representation or warranty is made with respect to the information prepared or
furnished by Chatwins to Reunion specifically for use therein or contained in
Chatwins SEC filings incorporated by reference therein).

4.14. Broker's or Finder's Fees. Except for Legg Mason Wood Walker, Inc. and
Robert Gray, neither Reunion nor any of its affiliates has authorized any
person to act as broker, finder, banker, consultant, intermediary or in any
other similar capacity which would entitle such person to any investment
banking, brokerage, finder's or similar fee from Reunion in connection with the
transactions contemplated by this Agreement.

4.15. Permits, Licenses, Authorizations; Compliance with Laws. Reunion has
all licenses, franchises, certificates of occupancy, permits and other
governmental authorizations which are material and necessary to conduct its
business, and Reunion is not in violation in any material respect of any such
license, franchise, certificate of occupancy, permit or other governmental
authorization, or any statute, law, ordinance, rule regulation, judgment, order
or decree applicable to it or any of its properties.

A-11
<PAGE>

ARTICLE V
COVENANTS OF CHATWINS

Chatwins covenants and agrees that:

5.1. Regular Course of Business. Except as otherwise consented to in writing
by Reunion, prior to the Closing Chatwins will carry on its businesses only in
the ordinary course and substantially in accordance with past practices, and
Chatwins will use commercially reasonable efforts to preserve its present
business organization intact and keep available the services of its present
executive officers.

5.2. Restricted Activities and Transactions. Except as otherwise consented
to in writing by Reunion or contemplated by this Agreement, or as resulting
from the consummation of the transactions contemplated by this Agreement, prior
to the Closing Chatwins will not:

(a) amend its Certificate of Incorporation or By-laws;

(b) except in the ordinary course of business and substantially in
accordance with past practices, (i) borrow or agree to borrow any funds or
mortgage or pledge any of its assets, tangible or intangible, (ii) voluntarily
incur, assume or become subject to, whether directly or by way of guarantee or
otherwise, any material
obligation or liability (absolute or contingent), (iii) cancel or agree to
cancel any material debts or claims, or (iv) lease, sell, transfer or encumber,
agree to lease, sell, transfer or encumber, or grant or agree to grant any
preferential rights to lease or acquire, any of its assets, property or rights;

(c) except as set forth on the Schedules hereto, (i) grant any increase in
compensation or benefits, or (ii) make, pay or accrue any bonuses, pension,
profit sharing or similar payment to any director, officer or employee of
Chatwins other than payment of 1998 performance bonuses accrued as of December
31, 1998;

(d) acquire control or ownership of any other corporation, association,
joint venture, partnership, business trust or other business entity, or acquire
control or ownership of all or a substantial portion of the assets of any of
the foregoing, or merge, consolidate or otherwise combine with any other
corporation or enter into any agreement providing for any of the foregoing;

(e) except as set forth on the Schedules hereto or in the ordinary course of
business consistent with past practice, hire any additional professional
personnel or make any change in the responsibilities or office of any officer
of Chatwins;

(f) except as set forth on the Schedules hereto or in the ordinary course of
business consistent with past practice, enter into any material contract or
agreement or materially modify any existing material agreement;

(g) declare, set aside, make or pay any dividend or other distribution with
respect to its capital stock, or retire or redeem any of such capital stock, or
take any action which would have an effect equivalent to any of the foregoing;
or

(h) agree or commit to do any of the foregoing.

Notwithstanding the foregoing, Chatwins may (i) enter into a purchase and
sale agreement with respect to its Klemp Division on substantially the terms
contemplated by the Letter of Intent, dated May 28, 1999, between Chatwins and
Alabama Metal Industries Corporation, as amended on July 12, 1999, and
consummate the transactions contemplated thereby (the "Klemp Sale") and (ii)
sell its Shanghai Klemp operations at the fair value thereof, as determined in
good faith by the Board of Directors of Chatwins (the "Shanghai Disposition").

A-12
<PAGE>

5.3. Approval of Shareholders.

(a) Chatwins shall through its Board of Directors duly solicit the waiver of
all rights available to its shareholders who have not already voted in favor of
the Merger Agreement to demand appraisal of their shares of Chatwins Common
Stock under the Delaware GCL, as soon as reasonably practicable after the date
hereof.

(b) Chatwins will provide such shareholders with, or give such shareholders
access to, all material information about the transactions contemplated by this
Agreement. The written information provided to the Chatwins shareholders will
be, when so provided, true and accurate in all material respects, and such
information will not, when so provided, contain any untrue statement of a
material fact or omit to state a material fact with respect to such written
information. Copies of all written information delivered or to be delivered to
the shareholders shall be offered for review and approval to Reunion prior to
its delivery to the Chatwins shareholders.

5.4. Consents, Approvals and Filings. Chatwins will use its best efforts to
obtain on or before the Closing all necessary approvals, authorizations,
registrations, consents, licenses, clearances or orders of governmental and
regulatory authorities referred to in Section 3.8.

5.5. Access to Books, Records and Other Information. Chatwins will afford to
Reunion and its accountants, attorneys and agents such information as Reunion
may reasonably request (including such copies of documents as Reunion may
reasonably request) and reasonable access to the books and records of Chatwins.

5.6. Amended Schedules. Promptly after the consummation of the Klemp Sale,
Chatwins shall supplement or amend the schedules to this Agreement to the
extent required to accurately reflect the transactions contemplated by the
Klemp Sale. Any representation of Chatwins that is affected by such
supplemented or amended schedules shall be deemed to have been amended
accordingly for all purposes of this Agreement.

ARTICLE VI
COVENANTS OF REUNION

Reunion covenants and agrees that:

6.1. Regular Course of Business. Except as otherwise consented to in writing
by Chatwins, prior to the Closing, Reunion will carry on its businesses only in
the ordinary course and substantially in accordance with past practices, and
will use commercially reasonable efforts to preserve its present business
organization intact and keep available the services of its present executive
officers.

6.2. Restricted Activities and Transactions. Except as otherwise consented
to in writing by Chatwins or contemplated by this Agreement or as resulting
from the consummation of the transactions contemplated by this Agreement, prior
to the Closing Reunion will not:

(a) amend its Certificate of Incorporation or By-laws except in connection
with the Acquisitions (as defined in Section 6.2(c));

(b) except in the ordinary course of business and substantially in
accordance with past practices, (i) borrow or agree to borrow any funds or
mortgage or pledge any of its assets, tangible or intangible, (ii) voluntarily
incur, assume or become subject to, whether directly or by way of guarantee or
otherwise, any material obligation or liability (absolute or contingent), (iii)
cancel or agree to cancel any material debts or claims, or (iv) lease, sell,
transfer or encumber, agree to lease, sell, transfer or encumber, or grant or
agree to grant any preferential rights to lease or acquire, any of its assets,
property or rights;

A-13
<PAGE>

(c) acquire control or ownership of any other corporation, association,
joint venture, partnership, business trust or other business entity, or acquire
control or ownership of all or a substantial portion of the assets of any of
the foregoing, or merge, consolidate or otherwise combine with any other
corporation or enter into any agreement providing for any of the foregoing;
provided that Reunion, or one of its subsidiaries, may enter into a merger or
other acquisition agreement with each of SAC and NPS (collectively, the
"Acquisitions").

(d) issue or sell any shares of its capital stock or other equity interests
or issue or award any options, warrants or other rights with respect to its
capital stock or other equity interests, except in connection with the
Acquisitions; or

(e) agree or commit to do any of the foregoing.

6.3. Approval of Shareholders

(a) Reunion shall through its Board of Directors duly call, give notice of,
convene and hold a meeting of its shareholders for the purpose of voting on the
adoption and approval of this Agreement as soon as reasonably practicable after
the date hereof.

(b) Reunion will provide its shareholders with, or give its shareholders
access to, all material information about the transactions contemplated by this
Agreement. The written information provided to the Reunion shareholders will
be, when so provided, true and accurate in all material respects, and such
information will not, when so provided, contain any untrue statement of a
material fact or omit to state a material fact with respect to such written
information.

6.4. Consents, Approvals and Filings. Reunion will use its best efforts to
obtain on or before the Closing all necessary approvals, authorizations,
registrations, consents, licenses, clearances or orders of governmental and
regulatory authorities referred to in Section 4.3.

6.5. Access to Books, Records and Other Information. Reunion will afford to
Chatwins and its accountants, attorneys and agents such information as Chatwins
may reasonably request (including such copies of documents as Chatwins may
reasonably request) and reasonable access to its books and records.

ARTICLE VII
MUTUAL COVENANTS

7.1. Payment of Expenses. Except for the fees, costs and expenses charged in
connection with any refinancing of Reunion to be consummated in connection with
the Merger, which shall be paid one-half by Reunion and one-half by Chatwins,
and except as otherwise specifically provided elsewhere herein, each party to
this Agreement shall be responsible for its own costs and expenses incurred in
connection with the transactions contemplated by this Agreement, and in
particular, Reunion shall be responsible for the fees and expenses of Legg
Mason Wood Walker, Incorporated. All expenses incurred in connection with the
Registration Statement shall be borne by Reunion.

7.2. Public Announcements. Reunion and Chatwins shall to the maximum extent
feasible advise and confer with each other prior to the issuance of any
reports, public statements or releases pertaining to this Agreement or any
transaction contemplated hereby.

7.3. Public Disclosure. None of the information supplied by Reunion and
Chatwins for inclusion or incorporation by reference in the Registration
Statement (as defined below) at the time the Registration Statement is filed
with the SEC and the time such document becomes effective under the Securities
Act, will contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading.

A-14
<PAGE>

7.4. Refinancing. Reunion and Chatwins shall, and shall cause their
respective affiliates, agents and employees to, cooperate and expend all
efforts reasonably necessary to consummate on the Closing Date the currently
contemplated refinancing of the outstanding indebtedness of Reunion and
Chatwins through lenders reasonably acceptable to Chatwins and Reunion, and any
refinancing in lieu or supplemental thereof.

7.5. No Shop. From the date hereof until the Effective Time, except in
connection with the Acquisitions, the Shanghai Disposition and the Klemp Sale,
and as otherwise required to comply with applicable law, Reunion and Chatwins
shall not and shall not permit any officer, director or other agent of Reunion
or Chatwins, directly or indirectly, to take any action to seek, initiate,
negotiate or encourage or enter into or participate in any discussions
regarding, any offer from any third party to acquire any shares of capital
stock or other equity interest of such third party, or to sell to such third
party any shares of capital stock or other equity interest of Reunion or
Chatwins, to merge or consolidate with Reunion or Chatwins, or to otherwise
acquire any significant portion of the assets of Reunion or Chatwins or to
acquire any significant portion of the assets of such third party.

ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF REUNION

The obligation of Reunion to consummate the transactions contemplated by
this Agreement shall be subject to the fulfillment, on or prior to the Closing,
of the following conditions:

8.1. Representations and Warranties True at the Closing. The representations
and warranties of Chatwins contained in this Agreement shall be true and
correct in all material respects, except to the extent such representations
were made as of a specific date other than the date hereof.

8.2. Performance of Covenants. Chatwins shall have performed in all material
respects all covenants required to be performed by it under this Agreement
prior to the Closing.

8.3. Opinion of Counsel. Chatwins shall have delivered to Reunion an
opinion, dated the Closing Date and addressed to Reunion, of Richards & O'Neil,
LLP in form and substance reasonably satisfactory to Reunion and its counsel.

8.4. Shareholder Approvals. This Agreement shall have been adopted by the
requisite vote of the shareholders of Reunion under the Delaware GCL; and
holders of no more than 5% of Chatwins Common Stock shall have exercised their
rights of appraisal under the Delaware GCL, provided that the Board of
Directors of Reunion may elect to proceed with the Merger in the event that
more than 5% of holders of Chatwins Common Stock exercise such rights of
appraisal.

8.5. Other Approvals and Consents. All required approvals and authorizations
of governmental and regulatory authorities, including those listed on Schedule
3.8 and Schedule 4.3, shall have been obtained.

8.6. No Governmental or Other Proceeding. No order of any court or
administrative agency of competent jurisdiction shall be in effect which
restrains or prohibits any transaction contemplated hereby or which would limit
or otherwise affect in any material respect the Merger.

8.7. No Material Adverse Change. There shall not have been since the date
hereof any occurrence which could reasonably be expected to have a Chatwins
Material Adverse Effect.

8.8. Certificate of Chatwins. Chatwins shall have furnished Reunion with a
Certificate of Chatwins signed by its principal executive officer to the effect
that the representations and warranties of Chatwins contained in this Agreement
are true and correct in all material respects at and as of the Closing Date as
though such representations and warranties were made on such date (except as to
representations and warranties which are expressly limited to a state of facts
existing at a time prior to the Closing Date) and that Chatwins has

A-15
<PAGE>

performed or complied in all material respects with all terms, covenants and
provisions of this Agreement required to be performed or complied with by it
prior to or at the Closing.

8.9. Certificate of Merger. Chatwins shall have executed and delivered to
Reunion the certificate of merger to be filed with the Secretary of State in
connection with the Merger.

8.10. Fairness Opinion. Reunion's Board of Directors shall have received the
opinion of Legg Mason Wood Walker, Inc., in a form reasonably satisfactory to
the Board, that the consideration to be paid for Chatwins pursuant to this
Agreement is fair to Reunion and its stockholders, other than Chatwins, from a
financial point of view.

8.11. Refinancing; Chatwins Warrants. Reunion shall have an enforceable
agreement or agreements with one or more lenders, to consummate and/or continue
one or more credit facilities, the proceeds of which will be sufficient to
redeem the $50,000,000 principal amount Senior Notes of Chatwins due 2003 (the
"Senior Notes") and to provide adequate working capital resources to Reunion
after giving effect to the Merger, and all conditions precedent to the
amendment and/or funding of such credit facilities shall have been satisfied
other than the consummation of the Merger. Chatwins shall have issued the
requisite "bring along notice" to its warrantholders and all Chatwins warrants
shall have been exercised or terminated.

8.12. Klemp Sale. Reunion shall have been provided the opportunity to review
and approve the definitive purchase and sale agreement with respect to the
Klemp Sale and Chatwins shall have consummated the Klemp Sale on such terms.

ARTICLE IX
CONDITIONS TO OBLIGATIONS OF CHATWINS

The obligations of Chatwins to consummate the transactions contemplated by
this Agreement shall be subject to the fulfillment, on or prior to the Closing,
of the following conditions:

9.1. Representations and Warranties True at the Closing Date. The
representations and warranties of Reunion contained in this Agreement shall be
true and correct in all material respects, except for representations and
warranties which were made as of a specified date other than the date hereof.

9.2. Performance of Covenants. Reunion shall have performed in all material
respects all covenants required to be performed by it under this Agreement
prior to the Closing.

9.3. Opinion of Counsel. Reunion shall have delivered to Chatwins an
opinion, dated the Closing Date and addressed to Chatwins, of Buchanan
Ingersoll Professional Corporation, in form and substance reasonably
satisfactory to Chatwins and its counsel.

9.4. Shareholder Approvals. This Agreement shall have been adopted by the
requisite vote of the shareholders of Reunion under the Delaware GCL and
holders of no more than 5% of Chatwins Common Stock shall have exercised their
rights of appraisal under the Delaware GCL; provided that the Board of
Directors of Chatwins may elect to proceed with the Merger in the event that
more than 5% of holders of Chatwins Common Stock exercise such rights of
appraisal.

9.5. Other Approvals and Consents. All required approvals and authorizations
of governmental and regulatory authorities, including those listed on Schedule
3.8 and Schedule 4.3, shall have been obtained.

9.6. No Governmental or Other Proceeding. No order of any court or
administrative agency of competent jurisdiction shall be in effect which
restrains or prohibits any transaction contemplated hereby or which would limit
or otherwise affect in any material respect the Merger.

A-16
<PAGE>

9.7. Certificate of Reunion. Reunion shall have furnished Chatwins with a
Certificate of Reunion signed by its respective President or any Vice President
to the effect that, except for changes thereto agreed to in writing by
Chatwins, the representations and warranties of Reunion contained in this
Agreement are true and correct in all material respects at and as of the
Closing Date as though such representations and warranties were made on such
date (except as to representations and warranties which are expressly limited
to a state of facts existing at a time prior to the Closing) and that Reunion
has performed or complied in all material respects with all terms, covenants
and provisions of this Agreement required to be performed or complied with by
it prior to or at the Closing.

9.8. Registration. Reunion shall have filed with the SEC the Registration
Statement and the Registration Statement shall be effective in accordance with
Section 8(a) of the Securities Act of 1933, as amended (the "Securities Act").
For the purposes of this Agreement, "Registration Statement" shall mean the
registration statement on Form S-4 of Reunion covering the shares of Reunion
Common Stock to be issued to the Chatwins's shareholders upon conversion of the
Chatwins Common Stock in connection with the Merger, including a proxy
statement/prospectus, amendments and supplements to such Registration
Statement, including post-effective amendments, all exhibits and all material
incorporated by reference in such Registration Statement. Reunion shall have
complied in all material respects with all "Blue Sky" obligations applicable to
the transactions contemplated by this Agreement and by the Registration
Statement.

9.9. Listing. Reunion shall have taken such actions as are necessary to
cause the shares registered by the Registration Statement to be listed on the
Pacific Exchange and the NASDAQ Small-Cap Market.

9.10. Certificate of Merger. Reunion shall have executed and delivered to
Chatwins the certificate of merger to be filed with the Secretary of State in
connection with the Merger.

9.11. No Material Adverse Change. There shall not have been since the date
hereof any occurrence which could reasonably be expected to have a Reunion
Material Adverse Effect.

9.12. Refinancing. Reunion shall have an enforceable agreement or agreements
with one or more lenders, to consummate and/or continue one or more credit
facilities, the proceeds of which will be sufficient,
to redeem the Senior Notes and to provide adequate working capital resources to
Reunion after giving effect to the Merger, and all conditions precedent to the
amendment and/or funding of such credit facilities shall have been satisfied
other than the consummation of the Merger.

9.13. Reunion Preferred. The Board of Directors of Reunion shall have
approved and Reunion shall have filed with the Secretary of the State and
delivered to Chatwins a Certificate of Designations with respect to the Series
A Reunion Preferred having the terms described in Section 1.2(b) hereof.

9.14. Klemp Sale. Reunion shall have been provided the opportunity to review
and approve the definitive purchase and sale agreement with respect to the
Klemp Sale and Chatwins shall have consummated the Klemp Sale on such terms.

ARTICLE X
TERMINATION

10.1. Termination. This Agreement may be terminated (i) by the mutual
consent of Reunion and Chatwins; (ii) by Reunion or Chatwins at any time after
120 days after the date hereof if for any reason the Merger shall not by such
date have been consummated and such failure to consummate the Merger is not
caused by a breach of this Agreement by the terminating party; (iii) by Reunion
if there has been a misrepresentation or breach on the part of Chatwins in the
representations, warranties and covenants of Chatwins set forth herein which,
if curable, has not been cured within 10 days of notice thereof by Reunion and
which breach, if not cured, would cause a failure of the conditions set forth
in Section 8.1 or 8.2; (iv) by

A-17
<PAGE>

Chatwins if there has been a misrepresentation or breach on the part of Reunion
in the representations, warranties and covenants of Reunion set forth herein
which, if curable, has not been cured within 10 days of notice thereof by
Chatwins and which breach, if not cured, would cause a failure of the
conditions set forth in Section 9.1 or 9.2; and (v) by Reunion or Chatwins if
any court or administrative agency of competent jurisdiction shall have issued
an order which restrains or prohibits any transaction contemplated hereby or
which would limit or otherwise affect in any material respect the Merger and
such order shall have become final and nonappealable.

10.2. Effect of Termination. If this Agreement is validly terminated by
Reunion or Chatwins pursuant to Section 10.1, this Agreement will forthwith
become null and void and there will be no liability or obligation on the part
of Reunion or Chatwins (or any of their respective subsidiaries,
representatives or affiliates), except (i) that the provisions of Sections 7.1
and 7.2 will continue to apply following any such termination and (ii) that
nothing contained herein shall relieve any party hereto from liability for
breach of its representations, warranties, covenants or agreements contained in
this Agreement.

10.3. Termination After Shareholder Vote. At any time prior to the Effective
Time this Agreement may be terminated by the Board of Directors of Reunion or
Chatwins pursuant to Section 10.1 hereof notwithstanding the prior approval of
this Agreement and the Merger by their respective stockholders.

ARTICLE XI
INDEMNIFICATION

11.1. Indemnification

(a) Reunion shall indemnify and hold harmless Chatwins, each of its
directors and officers, and each person or entity, if any, who controls
Chatwins within the meaning of the Securities Act against all losses, claims,
damages or liabilities, joint or several, to which Chatwins or any such
director, officer or controlling person may become subject (i) which arise out
of or are caused by any breach by Reunion of any representation or warranty of
Reunion contained in this Agreement or any related agreement, (ii) which arise
out of or are caused by any breach or other failure to perform any covenant,
agreement or other obligation of Reunion contained in this Agreement or any
related agreement, or (iii) under the Securities Act insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement or arise out of or are based upon
the omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading;
and Reunion shall reimburse Chatwins or any such director, officer or
controlling person for any reasonable legal or other expenses in connection
with investigating or defending any such loss, claim, damage, liability or
action; provided, however, that Reunion shall not be required to indemnify and
hold harmless or reimburse Chatwins to the extent that any such loss, claim,
damage, liability or expense arises out of or is based upon an untrue statement
or alleged untrue statement or omission or alleged omission in any document
made in reliance upon and in conformity with written information furnished to
Reunion by or on behalf of Chatwins for use in the preparation of such
documents.

(b) Chatwins shall indemnify and hold harmless Reunion, each of its
directors and officers, and each person or entity, if any, who controls Reunion
within the meaning of the Securities Act, against all losses, claims, damages
or liabilities to which Reunion or any such director or officer or controlling
person may become subject (i) which arise out of or are caused by any breach by
Chatwins of any representation or warranty of Chatwins contained in this
Agreement or any related agreement, (ii) which arise out of or are caused by
any breach or other failure to perform any covenant, agreement or other
obligation of Chatwins contained in this Agreement or any related agreement, or
(iii) under the Securities Act insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the Registration Statement or arise out of or are

A-18
<PAGE>

based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case only to the extent that such untrue statement or
alleged untrue statement or omission was made in reliance upon and in
conformity with written information furnished to Reunion by or on behalf of
Chatwins; and Chatwins shall reimburse Reunion for any reasonable legal or
other expenses reasonably incurred by Reunion or any such director or officer
or controlling person in connection with investigating or defending any such
loss, claim, damage, liability or action.

(c) Promptly after receipt by a party who is, under paragraphs (a) or (b) of
this Section 11.1 an indemnified party, of notice of the commencement of any
action with respect to which indemnification may be sought under this Section
11.1, such indemnified party shall notify the indemnifying party. Such notice
shall be a condition precedent to any liability of the indemnifying party for
indemnification contained in this Section 11.1; provided, however, that the
rights of the indemnified party to indemnification or compensation hereunder
will only be affected by its failure to give prompt notice to the indemnifying
party of the commencement of such action if and to the extent that such failure
prejudices the indemnifying party in the defense of such action. In case any
such action is being brought against any indemnified party and it notifies an
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to assume and control the defense of the action at its expense and if
the indemnifying party gives notice to such indemnified party of its election
to assume and control the defense, the indemnifying party will not be liable to
such indemnified party for any legal expenses subsequently incurred by the
indemnified party in connection with the defense or investigation of the
action, so long as and to the extent that the indemnifying party continues to
diligently defend the indemnified party.

(d) No action for indemnity under this Article XI may be brought or
maintained by either party after the Effective Time.

ARTICLE XII
MISCELLANEOUS PROVISIONS

12.1. Notices, Etc. All notices, requests, demands, and other communications
hereunder shall be in writing and shall be deemed to have been duly given, when
delivered in person, telegraphed, or when mailed by certified or registered
mail, postage prepaid, or when given by telex or facsimile transmission
(promptly confirmed in writing), as follows:

(a) If to Chatwins:

Chatwins Group, Inc.
300 Weyman Plaza, Suite 340
Pittsburgh, Pennsylvania 15236
Telephone: 412-885-5501
Facsimile: 412-885-5512
Attention: President

with copies to:

Richards & O'Neil, LLP
885 Third Avenue
New York, New York 10022-4873
Telephone: 212-207-1200
Facsimile: 212-750-9022
Attention: Brian D. Beglin, Esq.

A-19
<PAGE>

(b) If to Reunion:

Reunion Industries, Inc.
One Stamford Landing, 62 Southfield Avenue
Stamford, Connecticut 06902
Telephone: 203-324-8858
Facsimile: 203-967-3923
Attention: President

with copies to:

Buchanan Ingersoll Professional Corporation
One Oxford Centre
301 Grant Street, 20th Floor
Pittsburgh, PA 15219
Telephone: (412) 562-8800
Facsimile (412) 562-1041
Attention: Herbert B. Conner, Esq.

or such other person as the person entitled to notice shall designate in
writing, such writing to be delivered to the other parties hereto in the manner
provided in this Section 12.1.

12.2. Survival of Representations and Warranties. The representations and
warranties contained herein and in any certificate delivered pursuant hereto
shall not survive the Closing Date and the consummation of any or all of the
transactions contemplated hereby.

12.3. Entire Agreement; Amendment. This Agreement (including the various
Schedules hereto) sets forth the entire agreement and understanding of the
parties in respect of the transactions contemplated hereby and supersedes all
prior agreements, arrangements and understandings relating to the subject
matter hereof. This Agreement may be amended or modified only by a written
instrument executed by Reunion and Chatwins. The Boards of Directors of
Chatwins and Reunion may amend this Agreement at any time prior to the time
that this Agreement (or a certificate in lieu thereof) filed with the Secretary
of State becomes effective in accordance with Section 103 of the Delaware GCL,
provided that an amendment made subsequent to the adoption of this Agreement by
the stockholders of Chatwins or Reunion may not (1) alter or change the amount
or kind of shares, securities, cash, property and/or rights to be received in
exchange for or on conversion of all or any of the shares of any class or
series thereof, (2) alter or change any term of the certificate of
incorporation of Reunion to be effected by the Merger, or (3) alter or change
any of the terms and conditions of this Agreement if such alteration or change
would adversely affect the holders of any class or series of capital stock of
Reunion or Chatwins.

12.4. Individual Provisions. If any provision of this Agreement is held to
be illegal, invalid or unenforceable under any present or future law, and if
the rights or obligations of any party hereto under this Agreement will not be
materially and adversely affected thereby, (i) such provision will be fully
severable, (ii) this Agreement will be construed and enforced as if such
illegal, invalid and unenforceable provision had never comprised a part hereof,
(iii) the remaining provisions of this Agreement will remain in full force and
effect and will not be affected by the legal, invalid or unenforceable
provision, and (iv) there will be added
automatically as a part of this Agreement a legal, valid and enforceable
provision as similar in terms to such illegal, invalid or unenforceable
provision as may be possible.

12.5. General. This Agreement: (i) shall be governed by and construed and
enforced in accordance with the laws of the State of Delaware, without giving
effect to the choice of law principles thereof; (ii) shall inure to the benefit
of the parties hereto and their heirs, personal representatives, successors and
permitted assigns, nothing in this Agreement, expressed or implied, being
intended to confer upon any other person any

A-20
<PAGE>

rights or remedies hereunder; (iii) may not be assigned by a party without the
prior written consent of the other parties; and (iv) may be executed in two or
more counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument. The Section, Schedule
and other headings contained in this Agreement are for reference purposes only
and shall not affect in any way the meaning or interpretation of this
Agreement.

IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement the
day and year first above written.

REUNION INDUSTRIES, INC.

By: /s/ Richard L. Evans
-----------------------------
Richard L. Evans
Executive Vice President

CHATWINS GROUP, INC.

By: /s/ Joseph C. Lawyer
-----------------------------
Joseph C. Lawyer
President

A-21
<PAGE>

Annex B

July 30, 1999

The Board of Directors
Reunion Industries, Inc.
62 Southfield Avenue
One Stamford Landing
Stamford, CT 06902

Members of the Board:

Reunion Industries, Inc. ("Reunion") and Chatwins Group, Inc. ("Chatwins")
have entered into the Amended and Restated Merger Agreement dated as of July
30, 1999 (the "Agreement"). The Agreement provides, among other things, for the
merger of Chatwins with and into Reunion (the "Merger"). You have requested our
opinion (the "Opinion") as to the fairness, from a financial point of view, to
Reunion and its stockholders, other than Chatwins, of the consideration to be
paid for Chatwins pursuant to the Agreement.

Pursuant to the Agreement, the shareholders of Chatwins will receive
9,500,000 newly issued shares of Reunion Common Stock plus up to an additional
500,000 contingent shares based on satisfaction of certain year 2000
performance goals. The 9,500,000 shares will represent approximately 71% of the
outstanding shares of Reunion. Simultaneous with the Merger, shares of Reunion
currently owned by Chatwins will be retired, resulting in the present
shareholders of Chatwins owning approximately 79% of the outstanding common
stock of Reunion after the Merger. The outstanding Preferred Stock of Chatwins
(plus accumulated dividends) will be converted into Preferred Stock of Reunion
with a stated dividend of 10% per annum. The net debt of Chatwins will be
repaid or refinanced by Reunion upon the Merger. The terms and conditions of
the Merger are more fully set forth in the Agreement.

Legg Mason has acted as the financial advisor to the Board of Directors of
Reunion in connection with the Board's analysis of the financial terms of the
Merger and in connection with the Board's analyses of certain related
transactions and has received a fee for these services. In addition, Legg Mason
will receive a separate fee for providing this Opinion and certain related
opinions.

In arriving at our Opinion set forth below, we have, among other things: (i)
reviewed the Agreement; (ii) reviewed certain publicly available audited and
unaudited financial statements of Reunion and Chatwins and certain other
publicly available information of Reunion and Chatwins; (iii) reviewed certain
internal information, primarily financial in nature, concerning Reunion and
Chatwins prepared by their respective managements; (iv) discussed the past and
current operations and financial condition and prospects of Reunion with the
senior management of Reunion; (v) discussed the past and current operations and
financial condition and prospects of Chatwins with the senior management of
Chatwins; (vi) reviewed forecast financial statements of Reunion prepared and
furnished to us by the senior management of Reunion; (vii) reviewed forecast
financial statements of Chatwins prepared and furnished to us by the senior
management of Chatwins; (viii) held meetings and discussions with certain
officers and employees of Reunion and Chatwins concerning the operations,
financial condition and future prospects of the combined company; (ix) reviewed
certain publicly available financial and stock market data relating to selected
public companies that we considered relevant to our inquiry; (x) considered the
pro forma financial effects of the Merger on Reunion; and, (xi) conducted such
other financial studies, analyses and investigations and considered such other
information as we deemed necessary or appropriate.

We are not expressing an opinion as to the price or trading range at which
shares of Reunion Common Stock may trade following the Merger.
<PAGE>

In connection with our review, we have assumed and relied upon the accuracy
and completeness of all financial and other information supplied to us by
Reunion and Chatwins, and all publicly available information, and we have not
independently verified such information. We also have relied upon the
managements of Reunion and Chatwins as to the reasonableness and achievability
of the financial projections (and the assumptions and bases therein) provided
to us for Reunion and Chatwins, respectively, and we have assumed that such
projections have been reasonably prepared on bases reflecting the best
currently available estimates and judgments of management as to the future
operating performance of each respective entity, including without limitation,
the tax benefits available to the combined company as well as to Reunion on a
stand alone basis. Neither Reunion nor Chatwins publicly discloses internal
management projections of the type provided to Legg Mason in connection with
Legg Mason's review of the Merger. Such projections were not prepared with the
expectation of public disclosure. The projections were based on numerous
variables and assumptions that are inherently uncertain, including without
limitation, factors related to general economic and competitive conditions.
Accordingly, actual results could vary significantly from those set forth in
such projections.

We have not been requested to make, and we have not made, an independent
appraisal or evaluation of the assets, properties, facilities or liabilities of
either Reunion or Chatwins and, with the exception of certain appraisals
relating to the Juliana Preserve, we have not been furnished with any such
appraisals or evaluations. Estimates of values of companies and assets do not
purport to be appraisals or necessarily reflect the prices at which companies
and assets may actually be sold. Because such estimates are inherently subject
to uncertainty, Legg Mason assumes no responsibility for their accuracy.

Our Opinion is necessarily based on share prices and economic and other
conditions and circumstances as in effect on, and the information made
available to us as of July 22, 1999. In arriving at our Opinion, we were not
authorized to solicit, and did not solicit, third party indications of interest
from any party with respect to an acquisition of Reunion, its assets, or any
part thereof. We have assumed that the Merger and related transactions
described above will be consummated on the terms and conditions described in
the Agreement, without any waiver of material terms or conditions by Reunion or
Chatwins, and that obtaining any necessary regulatory approvals or satisfying
any other conditions for consummation of the Merger will not have an adverse
effect on the combined company.

It is understood that this letter is directed to Reunion's Board of
Directors and the Opinion expressed herein is provided for the use of the Board
in its evaluation of the proposed Merger. This letter does not constitute a
recommendation of the Merger over any other alternative transaction which may
be available to Reunion and does not address the underlying business decision
of the Board of Directors of Reunion to proceed with or effect the Merger. In
addition, this Opinion does not constitute a recommendation to any stockholder
of Reunion as to how such stockholder should vote at the stockholder's meeting
to be held in connection with the Merger. This letter is not to be quoted or
referred to, in whole or in part, in any registration statement, prospectus or
proxy statement, or in any other document used in connection with the offering
or sale of securities, nor shall this letter be used for any other purposes,
without the prior written consent of Legg Mason Wood Walker, Incorporated,
provided that this Opinion may be included in its entirety in any filing made
by Reunion with the Securities and Exchange Commission with respect to the
Merger and the transactions related thereto.

Based upon and subject to the foregoing, we are of the opinion that, as of
July 22, 1999, the consideration to be paid for Chatwins pursuant to the
Agreement is fair to Reunion and its stockholders, other than Chatwins, from a
financial point of view.

Very truly yours,

LEGG MASON WOOD WALKER, INCORPORATED
<PAGE>

Annex C

DELAWARE CODE ANNOTATED
TITLE 8. CORPORATIONS
CHAPTER 1. GENERAL CORPORATION LAW
SUBCHAPTER IX. MERGER OR CONSOLIDATION
Copyright (C) 1975-1998 by The State of Delaware. All rights reserved.
Current through End of 1998 Reg. Sess.

(S) 262 Appraisal rights.

(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d)
of this section with respect to such shares, who continuously holds
such shares through the effective date of the merger or consolidation,
who has otherwise complied with subsection (d) of this section and who
has neither voted in favor of the merger or consolidation nor consented
thereto in writing pursuant to (S) 228 of this title shall be entitled
to an appraisal by the Court of Chancery of the fair value of the
stockholder's shares of stock under the circumstances described in
subsections (b) and (c) of this section. As used in this section, the
word "stockholder" means a holder of record of stock in a stock
corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by
those words and also membership or membership interest of a member of a
nonstock corporation; and the words "depository receipt" mean a receipt
or other instrument issued by a depository representing an interest in
one or more shares, or fractions thereof, solely of stock of a
corporation, which stock is deposited with the depository.

(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or
consolidation to be effected pursuant to (S) 251 (other than a merger
effected pursuant to (S) 251(g) of this title), (S) 252, (S) 254,
(S) 257, (S) 258, (S) 263 or (S) 264 of this title:

(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock,
which stock, or depository receipts in respect thereof, at the
record date fixed to determine the stockholders entitled to receive
notice of and to vote at the meeting of stockholders to act upon
the agreement of merger or consolidation, were either (i) listed on
a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or (ii) held of record by
more than 2,000 holders; and further provided that no appraisal
rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not
require for its approval the vote of the stockholders of the
surviving corporation as provided in subsection (f) of (S) 251 of
this title.

(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class
or series of stock of a constituent corporation if the holders
thereof are required by the terms of an agreement of merger or
consolidation pursuant to (S)(S) 251, 252, 254, 257, 258, 263 and
264 of this title to accept for such stock anything except:

a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;

b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts
in respect thereof) or depository receipts at the effective date
of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market
system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc. or held of
record by more than 2,000 holders;

c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of
this paragraph; or

C-1
<PAGE>

d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a., b. and c.
of this paragraph.

(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under (S) 253 of this title is not owned
by the parent corporation immediately prior to the merger,
appraisal rights shall be available for the shares of the
subsidiary Delaware corporation.

(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares
of any class or series of its stock as a result of an amendment to its
certificate of incorporation, any merger or consolidation in which the
corporation is a constituent corporation or the sale of all or
substantially all of the assets of the corporation. If the certificate
of incorporation contains such a provision, the procedures of this
section, including those set forth in subsections (d) and (e) of this
section, shall apply as nearly as is practicable.

(d) Appraisal rights shall be perfected as follows:

(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at
a meeting of stockholders, the corporation, not less than 20 days
prior to the meeting, shall notify each of its stockholders who was
such on the record date for such meeting with respect to shares for
which appraisal rights are available pursuant to subsection (b) or
(c) hereof that appraisal rights are available for any or all of
the shares of the constituent corporations, and shall include in
such notice a copy of this section. Each stockholder electing to
demand the appraisal of such stockholder's shares shall deliver to
the corporation, before the taking of the vote on the merger or
consolidation, a written demand for appraisal of such stockholder's
shares. Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such
stockholder's shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder
electing to take such action must do so by a separate written
demand as herein provided. Within 10 days after the effective date
of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted
in favor of or consented to the merger or consolidation of the date
that the merger or consolidation has become effective; or

(2) If the merger or consolidation was approved pursuant to (S) 228 or
(S) 253 of this title, each consitutent corporation, either before
the effective date of the merger or consolidation or within ten
days thereafter, shall notify each of the holders of any class or
series of stock of such constitutent corporation who are entitled
to appraisal rights of the approval of the merger or consolidation
and that appraisal rights are available for any or all shares of
such class or series of stock of such constituent corporation, and
shall include in such notice a copy of this section; provided that,
if the notice is given on or after the effective date of the merger
or consolidation, such notice shall be given by the surviving or
resulting corporation to all such holders of any class or series of
stock of a constituent corporation that are entitled to appraisal
rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such
stockholders of the effective date of the merger or consolidation.
Any stockholder entitled to appraisal rights may, within 20 days
after the date of mailing of such notice, demand in writing from
the surviving or resulting corporation the appraisal of such
holder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that
the stockholder intends thereby to demand the appraisal of such
holder's shares. If such notice did not notify stockholders of the
effective date of the merger or consolidation, either (i) each such
constitutent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the
holders of any class or series of stock of such constitutent
corporation that are entitled to appraisal rights of the effective
date of the merger or consolidation or (ii) the surviving or
resulting corporation shall send such a

C-2
<PAGE>

second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is
sent more than 20 days following the sending of the first notice,
such second notice need only be sent to each stockholder who is
entitled to appraisal rights and who has demanded appraisal of such
holder's shares in accordance with this subsection. An affidavit of
the secretary or assistant secretary or of the transfer agent of the
corporation that is required to give either notice that such notice
has been given shall, in the absence of fraud, be prima facie
evidence of the facts stated therein. For purposes of determining
the stockholders entitled to receive either notice, each
constitutent corporation may fix, in advance, a record date that
shall be not more than 10 days prior to the date the notice is
given, provided, that if the notice is given on or after the
effective date of the merger or consolidation, the record date shall
be such effective date. If no record date is fixed and the notice is
given prior to the effective date, the record date shall be the
close of business on the day next preceding the day on which the
notice is given.

(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any
stockholder who has complied with subsections (a) and (d) hereof and
who is otherwise entitled to appraisal rights, may file a petition in
the Court of Chancery demanding a determination of the value of the
stock of all such stockholders. Notwithstanding the foregoing, at any
time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw such
stockholder's demand for appraisal and to accept the terms offered upon
the merger or consolidation. Within 120 days after the effective date
of the merger or consolidation, any stockholder who has complied with
the requirements of subsections (a) and (d) hereof, upon written
request, shall be entitled to receive from the corporation surviving
the merger or resulting from the consolidation a statement setting
forth the aggregate number of shares not voted in favor of the merger
or consolidation and with respect to which demands for appraisal have
been received and the aggregate number of holders of such shares. Such
written statement shall be mailed to the stockholder within 10 days
after such stockholder's written request for such a statement is
received by the surviving or resulting corporation or within 10 days
after expiration of the period for delivery of demands for appraisal
under subsection (d) hereof, whichever is later.

(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation,
which shall within 20 days after such service file in the office of the
Register in Chancery in which the petition was filed a duly verified
list containing the names and addresses of all stockholders who have
demanded payment for their shares and with whom agreements as to the
value of their shares have not been reached by the surviving or
resulting corporation. If the petition shall be filed by the surviving
or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the
Court, shall give notice of the time and place fixed for the hearing of
such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a
newspaper of general circulation published in the City of Wilmington,
Delaware or such publication as the Court deems advisable. The forms of
the notices by mail and by publication shall be approved by the Court,
and the costs thereof shall be borne by the surviving or resulting
corporation.

(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become
entitled to appraisal rights. The Court may require the stockholders
who have demanded an appraisal for their shares and who hold stock
represented by certificates to submit their certificates of stock to
the Register in Chancery for notation thereon of the pendency of the
appraisal proceedings; and if any stockholder fails to comply with such
direction, the Court may dismiss the proceedings as to such
stockholder.

(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of
any element of value arising from the accomplishment or

C-3
<PAGE>

expectation of the merger or consolidation, together with a fair rate of
interest, if any, to be paid upon the amount determined to be the fair
value. In determining such fair value, the Court shall take into account
all relevant factors. In determining the fair rate of interest, the
Court may consider all relevant factors, including the rate of interest
which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by
the surviving or resulting corporation or by any stockholder entitled to
participate in the appraisal proceeding, the Court may, in its
discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of
the stockholder entitled to an appraisal. Any stockholder whose name
appears on the list filed by the surviving or resulting corporation
pursuant to subsection (f) of this section and who has submitted such
stockholder's certificates of stock to the Register in Chancery, if such
is required, may participate fully in all proceedings until it is
finally determined that such stockholder is not entitled to appraisal
rights under this section.

(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting
corporation to the stockholders entitled thereto. Interest may be
simple or compound, as the Court may direct. Payment shall be so made
to each such stockholder, in the case of holders of uncertificated
stock forthwith, and the case of holders of shares represented by
certificates upon the surrender to the corporation of the certificates
representing such stock. The Court's decree may be enforced as other
decrees in the Court of Chancery may be enforced, whether such
surviving or resulting corporation be a corporation of this State or of
any state.

(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances.
Upon application of a stockholder, the Court may order all or a portion
of the expenses incurred by any stockholder in connection with the
appraisal proceeding, including, without limitation, reasonable
attorney's fees and the fees and expenses of experts, to be charged pro
rata against the value of all the shares entitled to an appraisal.

(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any
purpose or to receive payment of dividends or other distributions on
the stock (except dividends or other distributions payable to
stockholders of record at a date which is prior to the effective date
of the merger or consolidation); provided, however, that if no petition
for an appraisal shall be filed within the time provided in subsection
(e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such
stockholder's demand for an appraisal and an acceptance of the merger
or consolidation, either within 60 days after the effective date of the
merger or consolidation as provided in subsection (e) of this section
or thereafter with the written approval of the corporation, then the
right of such stockholder to an appraisal shall cease. Notwithstanding
the foregoing, no appraisal proceeding in the Court of Chancery shall
be dismissed as to any stockholder without the approval of the Court,
and such approval may be conditioned upon such terms as the Court deems
just.

(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had
they assented to the merger or consolidation shall have the status of
authorized and unissued shares of the surviving or resulting
corporation.

C-4
<PAGE>

ANNEX D

FINANCIAL PROJECTIONS

The following pages contain projected financial information for Reunion
Industries and Chatwins Group for the periods indicated. This information was
provided to Legg Mason in connection with the preparation of their opinion as
to the fairness to Reunion Industries stockholders (other than Chatwins Group)
of the consideration being paid in the merger from a financial point of view.
These projections were prepared for internal management purposes only and not
with the expectation that they would be disclosed to the public. These
projections involve numerous and significant subjective assumptions, which may
or may not be correct. In fact, the actual results of both companies have been
different from the projected results set forth on the following pages.
Management of both companies expect that actual results in future periods will
also be materially different from the projected results. Due to the inherent
uncertain nature of projections and the fact that each company failed to meet
its 1998 projections, Legg Mason gave less weight to valuation methodologies
that rely on projected financial information than it gave to other valuation
methodologies in rendering its opinion. Neither Reunion Industries nor Chatwins
Group has updated or expects to update or otherwise revise these projections.
You should not rely on these projections for any reason.

D-1
<PAGE>

Reunion Industries, Inc.

Summary Projected Financial Data
(Dollars in Millions, except per share data)

<TABLE>
<CAPTION>
Projected Results for the
Years Ending December 31,
-----------------------------
1999 2000 2001 2002
----- ------ ------ ------
<S> <C> <C> <C> <C>
Income Statement
Sales............................................ $98.5 $102.0 $106.5 $111.0
% Growth Rate.................................. 3.6% 3.6% 4.5% 4.2%
Gross Profit..................................... 15.8 17.6 18.5 19.6
% of Sales..................................... 16.0% 17.2% 17.4% 17.7%
Operating Expenses............................... 11.6 12.0 12.3 12.8
% of Sales..................................... 11.8% 11.7% 11.6% 11.5%
EBIT............................................. 4.2 5.6 6.2 6.8
% of Sales..................................... 4.3% 5.5% 5.8% 6.1%
Other Expense (Income)........................... 3.7 3.7 3.7 3.7
% of Sales..................................... 3.8% 3.6% 3.4% 3.3%
EBT.............................................. 0.5 1.9 2.5 3.1
% of Sales..................................... 0.5% 1.9% 2.4% 2.8%
Net Income (Fully Taxed)......................... $ 0.3 $ 1.2 $ 1.6 $ 2.0
% of Sales..................................... 0.3% 1.2% 1.5% 1.8%
EPS (Fully Taxed).............................. $0.08 $ 0.31 $ 0.41 $ 0.50
Net Income (Utilizing NOL)....................... $ 0.5 $ 1.9 $ 2.4 $ 3.0
% of Sales..................................... 0.5% 1.8% 2.3% 2.7%
EPS (Utilizing NOL)............................ $0.12 $ 0.48 $ 0.62 $ 0.77
Other
Capital Expenditures............................. $ 2.9 $ 3.7 $ 4.2 $ 3.8
Dep. & Amort..................................... 4.5 4.5 4.5 4.5
EBITDA........................................... 8.7 10.1 10.7 11.3
% of Sales..................................... 8.8% 9.9% 10.0% 10.2%
</TABLE>

D-2
<PAGE>

Chatwins Group, Inc.

Summary Projected Financial Data
(Dollars in Millions)

<TABLE>
<CAPTION>
Projected Results for the
Years Ending December 31,
------------------------------
1999 2000 2001 2002
------ ------ ------ ------
<S> <C> <C> <C> <C>
Income Statement
Sales........................................... $141.6 $151.3 $163.1 $175.1
% Growth Rate................................. 3.3% 6.9% 7.8% 7.4%
Gross Profit.................................... 29.3 33.9 38.6 44.2
% of Sales.................................... 20.7% 22.4% 23.7% 25.2%
Operating Expenses.............................. 17.4 18.3 19.5 20.7
% of Sales.................................... 12.3% 12.1% 12.0% 11.8%
EBIT............................................ 11.9 15.6 19.1 23.6
% of Sales.................................... 8.4% 10.3% 11.7% 13.4%
Interest Expense................................ 10.1 10.1 10.1 10.1
% of Sales.................................... 7.1% 6.7% 6.2% 5.8%
EBT............................................. 1.8 5.5 9.0 13.5
% of Sales.................................... 1.3% 3.6% 5.5% 7.7%
Net Income...................................... $ 1.1 $ 3.3 $ 5.4 $ 8.1
% of Sales.................................... 0.8% 2.2% 3.3% 4.6%
Other
Capital Expenditures............................ $ 1.8 $ 1.7 $ 2.1 $ 2.2
Dep. & Amort.................................... 3.3 3.4 2.8 2.7
EBITDA.......................................... 15.2 19.0 21.9 26.2
% of Sales.................................... 10.7% 12.5% 13.4% 15.0%
</TABLE>

D-3
<PAGE>

PART II. INFORMATION NOT REQUIRED IN PROSPECTUS

Item 20. Indemnification of Directors and Officers

Reunion Industries' Certificate of Incorporation and Bylaws provide that
present and former directors of Reunion Industries, or persons serving at the
request of the corporation, shall be indemnified and held harmless by the
corporation to the fullest extent authorized by the Delaware General
Corporation Law against all losses, liabilities, and expenses incurred in
connection with any threatened, pending, or completed action suit or proceeding
instituted against such person by virtue of his or her position as a director
of the corporation or person serving at the request of the corporation.
Generally, Delaware General Corporation Law Section 145 permits such
indemnification where the party seeking indemnification acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, or, in the case of any criminal action or
proceeding, where such person had no reasonable cause to believe his conduct
was unlawful. A similar standard of care is applicable in the case of
derivative actions except that in such cases indemnification only extends to
expenses (including attorneys' fees) incurred in connection with defense or
settlement of such an action and then, where the person is adjudged to be
liable to the corporation, only if and to the extent that the Court of Chancery
of the State of Delaware or the court in which such action was brought
determines that such person is fairly and reasonably entitled to such indemnity
and then only for such expenses as the court shall deem proper.

Section 145 further provides that where a director, officer, employee or
agent of a corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding he shall be indemnified against
expenses, including attorneys' fees, incurred in connection therewith.

Reunion Industries maintains insurance policies under which directors and
officers are insured, within the limits and subject to the limitations of the
policies, against expenses in connection with the defense of actions, suits or
proceedings, and certain liabilities that might be imposed as a result of such
actions, suits or proceedings, to which they are parties by reason of being or
having been directors or officers of Reunion Industries.

Item 21. Exhibits and Financial Statement Schedules

(a) Exhibits

<TABLE>
<C> <S>
2.1 --Merger Agreement by and between Reunion Resources Company and
Reunion Industries, Inc. Incorporated by reference to Exhibit 2.1
to Registration Statement on Form S-4 (File No. 33-64325).

2.2 --Amended and Restated Merger Agreement, dated as of July 28, 1999,
between Reunion Industries, Inc. and Chatwins Group, Inc.
Incorporated by reference from Annex A to the proxy
statement/prospectus which is part of this Registration Statement
(schedules are omitted; Reunion Industries, Inc. agrees to furnish
copies of such schedules to the Commission upon request).

3.1 --Certificate of Incorporation of Reunion Industries, Inc.
Incorporated by reference to Exhibit 3.1 to Registration Statement
on Form S-4 (File No. 33-64325).

3.2 --Bylaws of Reunion Industries, Inc. Incorporated by reference to
Exhibit 3.2 to Registration Statement on Form S-4 (File No. 33-
64325).

4.1 --Specimen Stock Certificate evidencing the Common Stock, par value
$.01 per share, of Reunion Industries, Inc. Incorporated by
reference to Exhibit 4.1 to Registration Statement on Form S-4
(Registration No. 33-64325).

*5.1 --Opinion of Buchanan Ingersoll Professional Corporation re: validity
of shares.

*8.1 --Opinion of Finn Dixon and Herling LLP re: transfer restrictions.

*8.2 --Opinion of Finn Dixon and Herling LLP re: tax consequences.
</TABLE>

II-1
<PAGE>

<TABLE>
<C> <S>
10.1 --Buttes Gas & Oil Co. 1992 Nonqualified Stock Option Plan.
Incorporated by reference to Exhibit 10.35 to Reunion Industries'
Annual Report on Form 10-K for the year ended December 31, 1992
(File No. 001-07726).

10.2 --Form of Stock Option Agreement for options issued pursuant to the
1992 Nonqualified Stock Option Plan. Incorporated by reference to
Exhibit 10.36 to Reunion Industries' Annual Report on Form 10-K for
the year ended December 31, 1992 (File No. 001-07726).

10.3 --Reunion Resources Company 1993 Incentive Stock Plan. Incorporated
by reference to Exhibit 10.34 to Reunion Industries' Annual Report
on Form 10-K for the year ended December 31, 1993 (File No. 001-
07726).

10.4 --Form of Stock Option Agreement for options issued pursuant to the
1993 Incentive Stock Plan. Incorporated by reference to Exhibit
10.35 to Reunion Industries' Annual Report on Form 10-K for the
year ended December 31, 1993 (File No. 001-07726).

10.5 --The 1998 Stock Option Plan of Reunion Industries, Inc. Incorporated
by reference to Exhibit 2.2 to Registration Statement on Form S-4
(Registration No. 333-56153).

10.6 --Form of Stock Option Agreement for options issued pursuant to the
1998 Stock Option Plan of Reunion Industries, Inc. Incorporated by
reference to Exhibit 10.7 to Reunion Industries' Annual Report on
Form 10-K for the year ended December 31, 1998 (File No. 33-64325).

10.7 --Loan and Security Agreement dated as of October 16, 1998 among
Oneida Rostone Corp., Reunion Industries, Inc. and DPL Acquisition
Corp. and The CIT Group/Business Credit, Inc. Incorporated by
reference to Exhibit 10.1 to Reunion Industries' Current Report on
Form 8-K dated October 19, 1998 (File No. 33-64325).

10.8 --Amendment No. 1 to Loan and Security Agreement dated as of December
31, 1998 modifying original Loan and Security Agreement dated as of
October 16, 1998 among Oneida Rostone Corp., Reunion Industries,
Inc. and DPL Acquisition Corp. and The CIT Group/Business Credit,
Inc. Incorporated by reference to Exhibit 10.9 to Reunion
Industries' Annual Report on Form 10-K for the year ended December
31, 1998. (File No. 33-64325)

*10.9 --Amendment No. 2 to Loan and Security Agreement dated as of July 14,
1999 modifying original Loan and Security Agreement dated as of
October 16, 1998 among Oneida Rostone Corp., Reunion Industries,
Inc. and DPL Acquisition Corp. and The CIT Group/Business Credit,
Inc.

*10.10 --Amendment No. 3 to Loan and Security Agreement dated as of August
31, 1999 modifying original Loan and Security Agreement dated as of
October 16, 1998 among Oneida Rostone Corp., Reunion Industries,
Inc. and DPL Acquisition Corporation and The CIT Group/Business
Credit, Inc.

10.11 --Share Purchase Agreement dated October 17, 1996 between Allied
Irish Banks Holdings and Investments Limited and DPL Acquisition
Corp. Incorporated by reference to Exhibit 2.1 to Reunion
Industries' Current Report on Form 8-K dated October 17, 1996 (File
No. 33-64325).

10.12 --Stock Purchase Agreement dated as of October 17, 1996 among Frank
J. Guzikowski, DPL Acquisition Corp., Reunion Industries, Inc.,
Data Packaging International, Inc. and DPL Holdings, Inc.
Incorporated by reference to Exhibit 2.2 to Reunion Industries'
Current Report on Form 8-K dated October 17, 1996 (File No. 33-
64325).

10.13 --Asset Purchase Agreement between Oneida Rostone Corp., Quality
Molded Products, Inc. and Don A. Owen, dated November 18, 1996.
Incorporated by reference to Exhibit 2.1 to Reunion Industries'
Current Report on Form 8-K dated November 18, 1996 (File No. 33-
64325).

*10.14 --Employment Agreement between Robert L. Snyder and Reunion
Industries, Inc. dated as of May 3, 1999.

</TABLE>

II-2
<PAGE>

<TABLE>
<C> <S>
10.15 --Asset Purchase Agreement, dated September 30, 1999, by and between
Chatwins Group, Inc. and Alabama Metal Industries Corporation.

11.1 --Computation of Earnings Per Share. Incorporated by reference to
Exhibit 11.1 to Reunion Industries Annual Report on Form 10-K for
the year ended December 31, 1998 (File No. 33-64325).

21.1 --List of Subsidiaries of Reunion Industries. Incorporated by
reference to Exhibit 21.1 to Reunion Industries' Annual Report on
Form 10-K for the year ended December 31, 1998 (File No. 33-64325).

23.1 --Consent of Independent Public Accountants for Reunion Industries,
Inc.--PricewaterhouseCoopers LLP.

23.2 --Consent of Independent Public Accountants for Chatwins Group, Inc.
and Stanwich Acquisition Corp.--PricewaterhouseCoopers LLP.

*23.3 --Consent of Legg Mason Wood Walker, Incorporated.

*23.4 --Consent of Finn Dixon and Herling LLP (included as part of Exhibits
8.1 and 8.2).

*23.5 --Consent of Buchanan Ingersoll Professional Corporation (included as
part of Exhibit 5.1).

*24.1 --Form of Power of Attorney.

99.1 --Opinion of Legg Mason Wood Walker, Incorporated. Incorporated by
reference from Annex B to the proxy statement/prospectus which is
part of this Registration Statement.

99.2 --Form of proxy card for the annual meeting of the stockholders of
Reunion Industries, Inc.

99.3 --Indenture, dated as of May 1, 1993, by and between Chatwins Group,
Inc. and The First National Bank of Boston, as trustee.
Incorporated by reference to Exhibit 4.4 to Chatwins Group, Inc.'s
Registration Statement on Form S-1 filed on July 30, 1993 (File No.
33-63274).

99.4 --First Supplemental Indenture and Waiver of Covenants of Indenture
between The First National Bank of Boston, as trustee, and Chatwins
Group, Inc. Incorporated by reference to Exhibit 4.32 to Chatwins
Group, Inc.'s Current Report on Form 8-K dated June 30, 1995 and
filed with the Commission on July 3, 1995.

99.5 --Second Supplemental Indenture between The First National Bank of
Boston, as trustee, and Chatwins Group, Inc. Incorporated by
reference to Exhibit 4.33 to Chatwins Group, Inc.'s Current Report
on Form 8-K dated June 30, 1995 and filed with the Commission July
3, 1995.
</TABLE>
- - - --------
* Exhibit previously filed.
<TABLE>
<S> <C>
</TABLE>

(b) Financial Statement Schedules

None required.

Item 22. Undertakings

The undersigned Registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;

II-3
<PAGE>

(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement;

(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.

(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.

(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offer.

The undersigned Registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.

The Registrant undertakes that every prospectus (i) that is filed pursuant
to the paragraph immediately preceding, or (ii) that purports to meet the
requirements of section 10(a)(3) of the Securities Act of 1933 and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.

The undersigned Registrant hereby undertakes to supply by means of a post-
effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and included in
the registration statement when it became effective.

II-4
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Post-Effective Amendment No. 5 to the Registration
Statement on Form S-4 originally filed on June 5, 1998 (File No. 333-56153) to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Stamford, State of Connecticut on the 4th day of November, 1999.

REUNION INDUSTRIES, INC.

/s/ Richard L. Evans
By: _________________________________
Richard L. Evans
Executive Vice President,
Chief Financial Officer, and
Secretary

Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment No. 5 has been signed by the following persons in the
capacities indicated as of this 4th day of November, 1999.

<TABLE>
<CAPTION>
Signature Title
--------- -----

<S> <C> <C>
* President and Chief
______________________________________ Executive Officer
Charles E. Bradley, Sr. (principal executive
officer)

* Director
______________________________________
Thomas N. Amonett

* Director
______________________________________
Thomas L. Cassidy

/s/ Richard L.
Evans*
___________________
* Director Richard L. Evans,
______________________________________ for himself and as
W.R. Clerihue attorney-in-fact
for each director,
on November 4, 1999
* Director
______________________________________
Franklin Myers

* Director
______________________________________
John G. Poole

* Executive Vice President,
______________________________________ Chief Financial Officer,
Richard L. Evans and Secretary
(principal financial and
accounting officer)
</TABLE>

II-5
<PAGE>

INDEX TO EXHIBITS

3.1 --Certificate of Incorporation of Reunion Industries, Inc.
Incorporated by reference to Exhibit 3.1 to Registration Statement
on Form S-4 (File No. 33-64325).

3.2 --Bylaws of Reunion Industries, Inc. Incorporated by reference to
Exhibit 3.2 to Registration Statement on Form S-4 (File No. 33-
64325).

*5.1 --Opinion of Buchanan Ingersoll Professional Corporation re: validity
of shares.

*8.1 --Opinion of Finn Dixon and Herling LLP re: transfer restrictions.

*8.2 --Opinion of Finn Dixon and Herling LLP re: tax consequences.

10.1 --Buttes Gas & Oil Co. 1992 Nonqualified Stock Option Plan.
Incorporated by reference to Exhibit 10.35 to Reunion Industries'
Annual Report on Form 10-K for the year ended December 31, 1992
(File No. 001-07726).

10.5 --The 1998 Stock Option Plan of Reunion Industries, Inc. Incorporated
by reference to Exhibit 2.2 to Registration Statement on Form S-4
(Registration No. 333-56153).

II-6
<PAGE>

<TABLE>
<C> <S>
*10.10 --Amendment No. 3 to Loan and Security Agreement dated as of August
31, 1999 modifying original Loan and Security Agreement dated as of
October 16, 1998 among Oneida Rostone Corp., Reunion Industries,
Inc. and DPL Acquisition Corporation and The CIT Group/Business
Credit, Inc.

*10.14 --Employment Agreement between Robert L. Snyder and Reunion
Industries, Inc. dated as of May 3, 1999.

10.15 --Asset Purchase Agreement, dated September 30, 1999, by and between
Chatwins Group, Inc. and Alabama Metal Industries Corporation.

11.1 --Computation of Earnings Per Share. Incorporated by reference to
Exhibit 11.1 to Reunion Industries Annual Report on Form 10-K for
the year ended December 31, 1998 (File No.
33-64325).

23.1 --Consent of Independent Public Accountants for Reunion Industries,
Inc.--PricewaterhouseCoopers LLP.

23.2 --Consent of Independent Public Accountants for Chatwins Group, Inc.
and Stanwich Acquisition Corp.--PricewaterhouseCoopers LLP.

*23.3 --Consent of Legg Mason Wood Walker, Incorporated.

*23.4 --Consent of Finn Dixon and Herling LLP (included as part of Exhibits
8.1 and 8.2).

*23.5 --Consent of Buchanan Ingersoll Professional Corporation (included as
part of Exhibit 5.1).

*24.1 --Form of Power of Attorney.

99.1 --Opinion of Legg Mason Wood Walker, Incorporated. Incorporated by
reference from Annex B to the proxy statement/prospectus which is
part of this Registration Statement.

99.2 --Form of proxy card for the annual meeting of the stockholders of
Reunion Industries, Inc.
</TABLE>

II-7
<PAGE>

<TABLE>
<C> <S>
99.3 --Indenture, dated as of May 1, 1993, by and between Chatwins Group,
Inc. and The First National Bank of Boston, as trustee.
Incorporated by reference to Exhibit 4.4 to Chatwins Group, Inc.'s
Registration Statement on Form S-1 filed on July 30, 1993 (File No.
33-63274).

II-8

<PAGE>
Exhibit 10.15

ASSET PURCHASE AGREEMENT

between

ALABAMA METAL INDUSTRIES CORPORATION

"Purchaser"

CHATWINS GROUP, INC.

"Seller"

DATED SEPTEMBER 30, 1999
<PAGE>

TABLE OF CONTENTS

<TABLE>
<S> <C> <C>
ARTICLE 1 PURCHASE AND SALE OF ASSETS....................................................1
1.1 Purchase and Sale of Assets....................................................1
1.2 Excluded Assets................................................................5

ARTICLE 2 ASSUMPTION OF LIABILITIES......................................................6
2.1 Assumption.....................................................................6
2.2 Excluded Liabilities...........................................................6

ARTICLE 3 CALCULATION AND PAYMENT OF PURCHASE PRICE......................................9
3.1 Calculation of Final Purchase Price............................................9
3.2 Determination of Estimated Purchase Price.....................................10
3.3 Determination of Final Purchase Price.........................................10
3.4 Reconciliation of Estimated and Final Purchase Price..........................11
3.5 Payment of Estimated Purchase Price and Purchase Price Adjustment.............11
3.6 Transfer Expenses.............................................................12
3.7 Allocation of Purchase Price..................................................12

ARTICLE 4 PROCEDURE FOR CLOSING.........................................................12
4.1 Time and Place of Closing.....................................................12
4.2 Transactions at the Closing...................................................13
4.3 Conveyance of Title to Real Property..........................................15
4.4 Survey and Inspection of Property.............................................16
4.5 Certain Consents..............................................................16
4.6 Further Assurances............................................................17

ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF SELLER......................................17
5.1 Organization and Qualification................................................17
5.2 Authority.....................................................................17
5.3 Subsidiaries; Joint Ventures..................................................18
5.4 Financial Statements..........................................................18
5.5 Inventories...................................................................19
5.6 Accounts Receivable...........................................................19
5.7 Personal Property.............................................................20
5.8 Real Property: Leased Real Property...........................................20
5.9 Contracts.....................................................................23
5.10 Intellectual Property.........................................................25
5.11 Insurance.....................................................................26
5.12 Environmental Matters and OSHA................................................26
5.13 Litigation....................................................................28
5.14 Absence of Changes............................................................29
5.15 Brokers and Finders...........................................................31
5.16 Labor Matters.................................................................31
5.17 Governmental Approval and Consents............................................32

</TABLE>

-i-
<PAGE>

<TABLE>
<S> <C> <C>
5.18 Taxes.........................................................................32
5.19 Employee Benefit Plans........................................................33
5.20 Compliance with Laws..........................................................35
5.21 Governmental Approval and Consents............................................36
5.22 Adequacy of Acquired Assets...................................................36
5.23 Compliance with the Immigration Reform and Control Act........................36
5.24 Correctness of Representations................................................36
5.25 Definition of knowledge.......................................................37

ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF PURCHASER...................................37
6.1 Organization and Qualification................................................37
6.2 Authority.....................................................................37
6.3 Brokers and Finders...........................................................38
6.4 Governmental Approval and Consents............................................38
6.5 Correctness of Representations................................................38

ARTICLE 7 OTHER AGREEMENTS OF THE PARTIES...............................................38
7.1 Consents......................................................................38
7.2 Conditions Precedent..........................................................39
7.3 Environmental Permits.........................................................39
7.4 Discharge of Liens and Encumbrances...........................................40
7.5 Illinois Real Property........................................................40
7.6 Orem City Bonds...............................................................40
7.7 Transferred Benefit Plans.....................................................40
7.8 Pittsburgh Real Property......................................................41
7.9 Oak Brook Real Property.......................................................41

ARTICLE 8 CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER..............................42
8.1 Certificate Regarding Schedules and Representations and Warranties............42
8.2 Compliance by Seller..........................................................42
8.3 No Injunction; Etc............................................................42
8.4 Operation in the Ordinary Course..............................................42
8.5 Consents; Authorizations; Approval of Legal Matters...........................42
8.6 Leases........................................................................42
8.7 Incumbency....................................................................43
8.8 Certified Resolutions.........................................................43
8.9 Basic Corporate Documents.....................................................43
8.10 Satisfaction of Title Objections and Release of Certain Liens.................43
8.11 Accuracy of Schedules.........................................................43
8.12 No Adverse Change.............................................................44
8.13 Instruments of Transfer.......................................................44
8.14 Acquisition Documents.........................................................44
8.15 Opinion of Seller's Counsel...................................................44
8.16 Title Commitments; Surveys....................................................44
</TABLE>

-ii-
<PAGE>

<TABLE>
<S> <C> <C>
8.17 Real and Leased Property Certificates.........................................44
8.18 Proceedings...................................................................44
8.19 Names.........................................................................44
8.20 Condition of Acquired Assets..................................................45
8.21 Financing Arrangements........................................................45
8.22 HSR Act.......................................................................45

ARTICLE 9 CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER.................................45
9.1 Certificate Regarding Representations and Warranties..........................46
9.2 Compliance by Purchaser.......................................................46
9.3 Certified Resolutions.........................................................46
9.4 Basic Corporate Documents.....................................................46
9.5 No Injunction; Etc............................................................46
9.6 Incumbency....................................................................46
9.7 Certificates..................................................................47
9.8 Acquisition Documents.........................................................47
9.9 Opinion of Purchaser's Counsel................................................47
9.10 HSR Act.......................................................................47
9.11 Proceedings...................................................................47

ARTICLE 10 MUTUAL COVENANTS..............................................................47
10.1 Governmental Filings..........................................................47
10.2 Further Mutual Covenants......................................................47
10.3 Prorations....................................................................48

ARTICLE 11 POST CLOSING MATTERS..........................................................49
11.1 Employment of Employees.......................................................49
11.2 Seller's Benefit Plans........................................................50
11.3 Vacation Pay..................................................................50
11.4 Purchaser's Benefit Plans.....................................................51
11.5 Employee Files................................................................51
11.6 Non-Solicitation..............................................................51
11.7 Discharge of Excluded Obligations.............................................51
11.8 Maintenance of Books and Records..............................................51
11.9 Payments Received.............................................................52
11.10 UCC Matters...................................................................52
11.11 Covenant Not to Compete.......................................................52
11.12 Cooperation...................................................................53

ARTICLE 12 CONFIDENTIALITY; PUBLIC ANNOUNCEMENTS.........................................53
12.1 Confidentiality...............................................................53
12.2 Public Announcements..........................................................54

ARTICLE 13 TERMINATION...................................................................54
13.1 Termination...................................................................54
13.2 Effect of Termination.........................................................54
</TABLE>

-iii-
<PAGE>

<TABLE>
<S> <C> <C>
ARTICLE 14 INDEMNIFICATION...............................................................55
14.1 Agreement of Seller to Indemnify..............................................55
14.2 Agreement of Purchaser to Indemnify Seller....................................55
14.3 Procedures for Indemnification................................................56
14.4 Defense of Third Party Claims.................................................57
14.5 Settlement of Third Party Claims..............................................57
14.6 Duration......................................................................58
14.7 Limitations...................................................................58

ARTICLE 15 GENERAL PROVISIONS............................................................59
15.1 Fees and Expenses.............................................................59
15.2 Notices.......................................................................59
15.3 Assignment; Binding Effect....................................................61
15.4 No Benefit to Others..........................................................61
15.5 Headings, Gender, and Person..................................................61
15.6 Counterparts..................................................................61
15.7 Integration of Agreement......................................................61
15.8 Time of Essence...............................................................62
15.9 Governing Law.................................................................62
15.10 Partial Invalidity............................................................62
15.11 Investigation.................................................................62

</TABLE>

-iv-
<PAGE>

TABLE OF EXHIBITS

Exhibit A License Agreement
Exhibit B Seller Opinion
Exhibit C Assignment and Assumption Agreement
Exhibit D Purchaser Opinion
Exhibit E Illinois Sublease
Exhibit F Oak Brook Sublease

-v-
<PAGE>

SCHEDULES
<TABLE>
<S> <C> <C>
Schedule 1.1.1 Noncurrent Assets
Schedule 1.2.1 Foreign Excluded Assets
Schedule 1.2.2 Additional Excluded Assets
Schedule 5.1.1 Jurisdictions Where Qualified As a Foreign Corporation
Schedule 5.1.2 Locations of the Acquired Assets and Trade Names
Schedule 5.4 Financial Statements
Schedule 5.4.1 Special or Nonrecurring Income
Schedule 5.5 Inventory
Schedule 5.7.1 Vehicles
Schedule 5.7.2 Equipment
Schedule 5.7.3 Furniture and Fixtures
Schedule 5.7.4 Personal Property Liens
Schedule 5.7.5 Leased Personal Property
Schedule 5.8.1 Real Property
Schedule 5.8.2 Leased Real Property
Schedule 5.8.3 Commitments Affecting Real Property
Schedule 5.8.4 Subdivided Real Property
Schedule 5.9.1 Contracts
Schedule 5.9.2 Commitments for Capital Expenditures
Schedule 5.9.3 Customer List
Schedule 5.10 Intellectual Property
Schedule 5.12.1 Environmental Matters
Schedule 5.12.2 Environmental Permits and Licenses
Schedule 5.12.3 Pending Environmental Claims
Schedule 5.12.4 Release of Hazardous Materials
Schedule 5.12.5 Storage Tanks and Audits
Schedule 5.12.6 Environmental Audit Reports
Schedule 5.12.7 Employee Health and Safety Matters
Schedule 5.13 Litigation Matters
Schedule 5.14 Certain Changes
Schedule 5.16 Employees
Schedule 5.17 Permits and Licenses
Schedule 5.18.1 Tax Bills
Schedule 5.18.2 Federal and State Tax Disputes
Schedule 5.19 Benefit Plans
Schedule 5.25 Seller's Knowledge
Schedule 11.1 Employee List
</TABLE>

-vi-
<PAGE>

CROSS REFERENCES TO DEFINED TERMS
<TABLE>
<CAPTION>
TERM SECTION IN WHICH DEFINED
<S> <C>
Accounts Receivable Section 1.1(1)
Acquired Asset(s) Section 1.1
Acquisition Documents Section 5.2
Adjustment Date Section 3.4
Air Permits Section 7.3
Agreement Preamble
Assumed Liabilities Section 2.1
Assignment and Assumption Agreement Section 4.2(b)(ii)
Beneficiary Section 10.3(d)
Benefit Plans Section 5.19(a)(ii)
Bond Counsel Section 7.6
Books and Records Section 1.1(g)
Business Recital B
CERCLA Section 2.2(g)
Code Section 4.2(a)(xi)
Closing Section 4.1
Closing Date Section 4.1
Closing Date Balance Sheet Section 3.3(a)
Closing Schedule Section 3.3(a)
Competing Business Section 11.11
Contract(s) Section 1.1(c)
Determination Materials Section 3.3(b)
Division Recital A
Effective Time Section 4.1
Employees Section 5.19(a)
Environmental Permits Section 5.12(a)(v)
Environmental Audit Reports Section 5.12(a)
Equipment Section 1.1(b)
Equipment Charges Section 10.3(b)(iii)
ERISA Section 5.19(a)(i)
Estimated Net Capital Employed Section 3.2
Estimated Purchase Price Section 3.2
Excluded Assets Section 1.2
Excluded Liabilities Section 2.2
Final Purchase Price Section 3.1(a)
Financial Statements Section 5.4
Furniture and Fixtures Section 1.1(i)
GAAP Section 3.1(b)
Goods Contracts Section 5.9(a)(iii)
Hired Employee(s) Section 11.1
Illinois Lease Agreement Section 1.1(a)
Illinois Real Property Section 1.1(a)

</TABLE>

-vii-
<PAGE>

<TABLE>
<S> <C>
Illinois Sublease Section 7.5
Immigration Laws Section 5.23
Indemnification Claim Section 14.3(a)
Indemnitee Section 14.3
Indemnitor Section 14.3
Information Section 12.1
Intellectual Property Section 1.1(f)
Inventory Section 1.1(d)
Knowledge Section 5.25
Labor Claims Section 5.16
Leased Real Property Section 1.1(a)
Lender(s) Section 8.21
License Agreement Section 1.1
Losses Article 14
Mexican Subsidiary Section 1.1
Negotiation Period Section 14.3(c)
Net Capital Employed Section 3.1(b)
Notice Period Section 14.4(a)
Oak Brook Lease Agreement Section 1.1(a)
Oak Brook Property Section 1.1(a)
Oakbrook Sublease Section 7.9
Objection Section 3.3(b)
Orem City Bonds Section 14.1(e)
Payor Section 10.3(d)
Payee Section 10.3(d)
Permits Section 1.1(h)
Permitted Encumbrances Section 1.1
Person Section 15.5
Personal Property Taxes Section 10.3(b)(v)
Pittsburgh Agreement Section 1.1(a)
Pittsburgh Property Section 1.1(a)
Proration Items Section 10.3(a)
Purchaser Preamble
Purchaser Indemnitees Section 14.1
Purchaser Opinion Section 4.2(b)(vi)
Purchaser's Accountants Section 3.3(a)
Real Property Section 1.1(a)
Real Property Leases Section 5.8(b)
Real Property Taxes Section 10.3(b)(iv)
Recipient Section 10.3(d)
Rental Charges Section 10.3(b)(ii)
Required Consents Section 7.1
Seller Preamble
Seller Indemnitees Section 14.2
Seller Opinion Section 4.2(a)(iv)
Services Contracts Section 5.9(a)(iii)

</TABLE>

-viii-
<PAGE>

<TABLE>
<S> <C>
Territory Section 11.11
Threshold Amount Section 14.7(a)
Third Party Claim Section 14.4
Title Commitments Section 8.16
Transferred Benefit Plans Section 7.7(a)
Utility Charges Section 10.3(b)(i)
Vehicles Section 1.1(e)
Workpapers Section 3.3(b)
</TABLE>

-ix-
<PAGE>

ASSET PURCHASE AGREEMENT

THIS ASSET PURCHASE AGREEMENT (the "Agreement") is made and entered
into as of this 30th day of September, 1999, between ALABAMA METAL INDUSTRIES
CORPORATION, a Delaware corporation ("Purchaser"), and CHATWINS GROUP, INC., a
Delaware corporation ("Seller").

A. Seller is engaged in the manufacture, sale and distribution of metal
and fiberglass reinforced plastic grating products through its Klemp Division
(the "Division").

B. Purchaser desires to purchase substantially all of the business
operations of the Division on and subject to the terms contained in this
Agreement. All of the business and operations of the Division which are located
in the United States are hereinafter referred to as the "Business."

C. Subject only to the limitations and exclusions contained in this
Agreement and on the terms and conditions hereinafter set forth, Seller desires
to sell and Purchaser desires to purchase the Business, and substantially all of
the assets of Seller used therein.

NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants, and agreements contained herein, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

ARTICLE 1
PURCHASE AND SALE OF ASSETS

1.1 Purchase and Sale of Assets. At the Closing (as hereinafter
---------------------------
defined), on and subject to the terms and conditions of this Agreement, Seller
shall sell, assign, transfer, convey, and deliver to Purchaser, and Purchaser
shall purchase, acquire, and accept from Seller, all of the right, title, and
interest of Seller in and to (i) the Business and all goodwill related
exclusively to the Business, (ii) the name(s) "Klemp" and all marks and goodwill
associated therewith, whether or not registered (including the name, marks and
goodwill associated with Shanghai Klemp, Klemp de Mexico, S.A. de C.V. (the
"Mexican Subsidiary") and CFI Klemp which names shall be licensed to Seller
following the Effective Time pursuant to the License Agreement attached hereto
as Exhibit A (the "License Agreement")), and (iii) all of the assets,
properties, and rights of Seller constituting the Business or used by Seller
exclusively therein, of every type and description, tangible and intangible,
wherever located and whether or not reflected on the books of the Seller (except
as may be specifically excluded by this Agreement), free and clear of all liens,
claims, charges, security interests, and encumbrances of any kind or

-1-
<PAGE>

nature other than Permitted Encumbrances (as hereinafter defined), including,
without limitation, the following, as the same shall exist at the Closing Date
(as hereinafter defined) and to the extent the same are used exclusively in the
Business:

(a) All real property owned by Seller and used exclusively in
the Business, and all of Seller's right, title, and interest in the buildings,
fixtures, and improvements located thereon, together with all water lines,
rights of way, uses, licenses, easements, hereditaments, tenements, and
appurtenances belonging or appertaining thereto and any and all assignable
warranties of third parties with respect thereto (the "Real Property") and, by
assignment of leases, all of Seller's rights in, to, and under any real estate
leases (including, without limitation, any assignment of a real estate lease or
sublease) to which Seller is a party which are used exclusively in the Business
(other than (i) the certain Lease Agreement (the "Illinois Lease Agreement")
between Seller and Temperature Equipment Corporation relating to real property
located at 902 E. Park Avenue, Libertyville, Illinois (the "Illinois Real
Property"), (ii) the Lease Agreement (the "Oak Brook Lease Agreement") between
Seller and American National Bank and Trust Company of Chicago, Trustee under
Trust No. 113883.03 by Riverside Terrace Partnership, an Illinois General
Partnership, its sole beneficiary and Agent for the property relating to real
property located at 1100 Joire Boulevard, Suite 330, Oak Brook, Illinois 60521
(The "Oak Brook Real Property"), and (iii) the verbal intra company agreement
(the "Pittsburgh Agreement") between Seller and Klemp Corporation relating to
real property located at 2214 Walnut Street, McKeesport, PA 15132 (the
"Pittsburgh Real Property")), together with all of Seller's right, title, and
interest in the buildings, fixtures and improvements, including construction-in-
progress, and appurtenances thereto, located on the real property subject to
such real estate leases, and any and all assignable warranties of third parties
with respect thereto (the "Leased Real Property");

(b) All machinery, equipment, tools, computers, terminals,
computer equipment, office equipment, business machines, telephones and
telephone systems, parts, accessories, and the like, wherever located (including
all such assets located on the Real Property and the Leased Real Property, and
certain of such assets located on the Illinois Real Property, the Oak Brook Real
Property and the Pittsburgh Real Property), but excluding the property and
assets listed on Schedule 1.2.2, and any and all assignable warranties of third
parties with respect thereto, together with all rights of Seller against the
manufacturers or suppliers of such items (the "Equipment");

(c) To the extent permitted by applicable law, all of the
contracts and agreements listed on Schedules 5.7.5, 5.9.1, 5.10 and 5.16
(including, specifically, the collective bargaining agreements relating to the
employees of the Division's Libertyville, Illinois facility and the Liberty,
Missouri facility), those contracts and agreements relating to the Business
which by the terms of Section 5.9(a) are not required to be listed on Schedule
5.9.1, all orders for the goods and services of the Business, whether oral or in
writing, and the benefit of all warranties and guarantees of third parties with
respect to

-2-
<PAGE>

any of the foregoing, together with the right to receive income in respect of
such contracts, agreements and purchase orders on and after the Closing Date
(individually, a "Contract" and collectively, the "Contracts");

(d) All raw materials, work-in-progress, finished goods, goods
held for resale, spare parts, waste materials, scrap, consignment inventory,
samples, promotional literature, and supplies wherever located (including all
such assets located on the Real Property and the Leased Real Property, and
certain of such assets located on the Illinois Real Property, the Oak Brook Real
Property and the Pittsburgh Real Property), including inventory in transit to or
from any Seller's facility or on order and not yet delivered (the "Inventory"),
together with all rights of Seller against suppliers of the Inventory including,
without limitation, Seller's rights to receive refunds or rebates in connection
with its purchase of such Inventory;

(e) All motor vehicles, trucks, forklifts, and other rolling
stock and all assignable warranties of third parties related thereto (the
"Vehicles");

(f) All patents, designs, art work, labels, specifications,
designs-in-progress, formulations, know-how, prototypes, inventions, trademarks,
trade names, domain names, websites, trade styles, service marks, and copyrights
(including those set forth on Schedule 5.10 hereto); all registrations and
applications therefor, both registered and unregistered, foreign and domestic;
all trade secrets, technology or processes; all assignable computer software
(including documentation and related object and, if applicable, source codes);
and all confidential or proprietary information that are either (i) owned by or
negotiated in the name of the Division or Seller or (ii) as to which the
Division or Seller has rights as licensee, constituting all of the intellectual
property of the Division or Seller used or contemplated for use exclusively in
the Business (the "Intellectual Property");

(g) All existing data, data bases, books, records (except
those records in Seller's corporate offices or at off-site storage facilities
which are duplicates of the books and records of the Business), correspondence,
business plans and projections, records of sales, customer and vendor lists,
files, papers, and, to the extent permitted under applicable law or regulation,
copies of historical personnel payroll and medical records of each of the Hired
Employees (as defined in Section 11.1 hereof) in the possession of Seller,
including without limitation, employment applications, corrective action
reports, disciplinary reports, notices of transfer, notices of rate changes,
other similar documents, and any summaries of such documents regularly prepared
by Seller; all reported medical claims made for each Hired Employee; and all
manuals and printed instructions of Seller relating to the Acquired Assets (as
hereinafter defined) and to the operation of the Business (the "Books and
Records");

-3-
<PAGE>

(h) To the extent permitted under applicable law or
regulation, all licenses, franchises, permits, certificates, consents, and other
governmental, quasi-governmental and/or third party authorizations of Seller
(the "Permits");

(i) All furniture, fixtures, and leasehold improvements
wherever located, and any and all assignable warranties covering such furniture,
fixtures, and leasehold improvements owned by Seller or in which Seller has an
interest ("Furniture and Fixtures");

(j) All cash and cash equivalents and petty cash, if any,
located on the Real Property or the Leased Real Property; all prepaid expenses;
all causes of action (except for those causes of action which are not related to
the Acquired Assets), claims, and demands of Seller, including without
limitation, rights to returned or repossessed goods and rights as an unpaid
vendor; all security deposits and utility deposits (except as related to the
Illinois Lease Agreement); and all other assets used in the Business by Seller
wherever located, tangible or intangible, provided, however, that the Acquired
Assets shall not include, and Purchaser shall not acquire, any right, title, or
interest of Seller in or to the Excluded Assets (as defined in Section 1.2
hereof);

(k) All noncurrent assets identified on Schedule 1.1.1;

(l) All accounts, notes and other receivables of Seller
arising out of the conduct of the Business (the "Accounts Receivable"); and

(m) All of Seller's right, title and interest in the lockboxes
referenced as Lockbox No. 95060 located at Harris Trust and Savings Bank and all
cash and other property in such lockbox; and

All of the items described in this Section 1.1 to be purchased by
Purchaser and which are not Excluded Assets as defined in Section 1.2 hereof are
hereinafter collectively referred to as the "Acquired Assets." For purposes of
this Agreement, "Permitted Encumbrances" shall mean (i) liens for taxes and
assessments not yet due and payable (other than taxes arising out of the
transactions contemplated by this Agreement); (ii) such minor imperfections of
title not otherwise waived by Purchaser as set forth on Schedule B to the final
title binders delivered at Closing related to the Real Property and such
encumbrances, if any, that, in the aggregate, do not materially and adversely
detract from the value, or materially and adversely interfere with the present
use of any of the Acquired Assets, including the Real Property or Leased Real
Property; (iii) other nonmonetary liens, claims, and nonmonetary encumbrances
relating to the Acquired Assets that (A) secure the Assumed Liabilities (as
hereinafter defined) and (B) have been properly disclosed to Purchaser on an
appropriate Schedule to this Agreement; and (iv) matters shown on the surveys
delivered at Closing.

-4-
<PAGE>

1.2 Excluded Assets. Seller shall not sell and Purchaser shall not
---------------
purchase or acquire and the Acquired Assets shall not include:

(a) Any right, title, or interest of Seller in or to any right
to use the name "Chatwins" and any name, expression, trade name, logo, trademark
or service mark, whether or not registered, similar to or including such name;

(b) Any assets, properties, or rights of Seller not used
exclusively in the Business;

(c) The assets of any employee benefit plan (other than the
Transferred Benefit Plans) maintained by Seller for the benefit of the employees
of the Division or to which Seller has made any contribution;

(d) The assets and properties used in the Business which have
been disposed of since the date of this Agreement, provided such disposition has
been made in accordance with the terms hereof;

(e) Seller's corporate franchise, stock record books,
corporate record books containing minutes of meetings of directors and
stockholders, tax returns and records, books of account and ledgers, and such
other records having to do with Seller's organization or stock capitalization;

(f) Any rights which accrue or will accrue to Seller under
this Agreement;

(g) Any rights to any of Seller's insurance policies,
premiums, or proceeds from insurance coverages relating to the Business (except
as provided in Section 8.21 hereof );

(h) Any rights to any of Seller's claims for any federal,
state, local, or foreign tax refund;

(i) The assets, properties, and rights used exclusively in the
Chinese and Mexican operations of the Division and specifically listed and
described on Schedule 1.2.1, and all of Seller's interest (however evidenced) in
Shanghai Klemp, the Mexican Subsidiary and CFI Klemp;

(j) All rights of Seller under or with respect to the Illinois
Lease Agreement, the Oak Brook Lease Agreement and the Pittsburgh Agreement; and

(k) The property and assets listed on Schedule 1.2.2.

-5-
<PAGE>

The assets described in this Section 1.2 are hereinafter collectively
referred to as the "Excluded Assets".

ARTICLE 2
ASSUMPTION OF LIABILITIES

2.1 Assumption. Subject to Section 2.2 hereof, as of the Effective
----------
Time, Purchaser shall assume responsibility for the performance and satisfaction
when due of the following liabilities (collectively, the "Assumed Liabilities"):

(a) The (i) trade accounts payable of the Business (excluding
those accounts that have been paid by Seller pursuant to issued checks that
remain outstanding) (ii) accrued payroll, (iii) accrued taxes, (iii) accrued
pension, and (iv) other accrued expenses incurred in the normal course of
business, in each case as the same exist on the Closing Date, but only in the
amount and to the extent reflected on the Closing Date Balance Sheet (as defined
in Section 3.3(a) hereof); and

(b) All of the executory obligations and liabilities of Seller
to be performed or paid arising from and after the Closing Date, pursuant to (i)
the terms of the Real Property Leases identified in Schedule 5.8.2 (other than
the Illinois Lease Agreement, the Oak Brook Lease Agreement and the Pittsburgh
Agreement), (ii) the Contracts described in Section 1.1(c), and (iii) any other
contract, agreement or purchase order not described in Section 1.1(c) but with
respect to which Purchaser elects to receive the substantial benefit thereof,
but, in each case, excluding any obligations or liabilities arising from or
relating to any breach or violation existing on or arising prior to the Closing
Date of such Real Property Leases or Contracts by Seller or default under such
Real Property Leases or Contracts by Seller.

2.2 Excluded Liabilities. Seller shall retain and pay, perform and
--------------------
satisfy when due the Excluded Liabilities (as hereinafter defined). Purchaser
shall not assume or become liable for any obligations, commitments, or
liabilities of Seller, whether known or unknown, absolute, contingent, or
otherwise, and whether or not related to the Acquired Assets, except for the
Assumed Liabilities (the obligations and liabilities of Seller not assumed by
Purchaser are hereinafter referred to as the "Excluded Liabilities"). Without
limiting the generality of the preceding sentences, the Excluded Liabilities
include all obligations and liabilities of Seller not specifically described in
subsection Sections 2.1(a) and 2.1(b) hereof, including without limitation, the
following:

(a) To the extent not reflected on the Closing Date Balance
Sheet, all pension, retirement, healthcare or other benefits arising out of or
payable on account of service prior to the Effective Time pursuant to any
employee benefit plan maintained by Seller or to which Seller has made any
contribution or to which Seller could be subject to any liability for the
benefit of any of the employees of the Business (including, without

-6-
<PAGE>

limitation, liability for post retirement benefits and accrued pension
liabilities), all liability, if any, now existing or hereafter arising for post
retirement medical or health benefits under any Transferred Benefit Plan, and
all liability through the Closing Date for withdrawal from any "multi-employer
plan" based upon or arising out of any event or circumstance occurring prior to
or on the Closing Date or as a result of the consummation of the transactions
provided for herein;

(b) Any losses, costs, expenses, damages, claims, demands and
judgments of every kind and nature (including the defenses thereof and
reasonable attorneys' and other professional fees) related to, arising out of,
or in connection with Seller's failure to comply with the Bulk Transfer Act or
any similar statute as enacted in any jurisdiction, domestic or foreign;

(c) Any liability or obligation arising or accruing under any
Contract, Real Property Lease or Permit prior to the Effective Time, and any
liability or obligation arising from or related to any breach or violation by
Seller of or default by Seller under any provision of any Contract or Real
Property Lease or Permit prior to the Effective Time;

(d) Any liability of Seller with respect to any claim or cause
of action, regardless of when made or asserted, which arises (i) out of or in
connection with the operations of the Business by Seller prior to the Effective
Time and which is not specifically listed or described in Section 2.1 hereof, or
(ii) out of or in connection with any federal, state or local law, rule or
regulation relating to employee health and safety prior to the Effective Date;

(e) Any liabilities or obligations of Seller relating to the
Excluded Assets;

(f) To the extent not reflected on the Closing Date Balance
Sheet, any liability or obligation (including, without limitation, salaries,
bonus, vacation pay, sick pay, holiday pay, severance pay and other like
obligations or payments), arising prior to or as a result of the Closing, to any
present or former employee, agent, or independent contractor of Seller, whether
or not employed or retained by Purchaser after the Closing;

(g) Any liability (whether or not based upon or arising out of
any condition, event or circumstance disclosed in the Environmental Audit
Reports attached hereto as Schedule 5.12.6) arising out of or relating to (i)
any provision of environmental law, rule or regulation relating to environmental
protection as it pertains to, or arising out of, any act or omission of Seller,
its employees, agents or representatives related to or arising out of, the
operation of the Business prior to the Effective Time, or (ii) the ownership,
use, control or operation prior to the Effective Time of any plant, facility,
site, area, or property used by the Business (including, without limitation, any
plant, facility,

-7-
<PAGE>

site, area or property currently or previously owned or leased by Seller and
used by the Business) at which a non-lawful release of a Hazardous Material has
occurred (together, (i) and (ii) are individually, and collectively, an
"Environmental Liability"). For purposes of this Agreement, "Hazardous Material"
means any hazardous waste, toxic substance, asbestos, agricultural chemicals,
petroleum or any related material and substances defined as "hazardous
substances" or "toxic substances" in the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, 42 U.S.C. (S) 9601 et seq.
("CERCLA"), the Hazardous Materials Transportation Act, 49 U.S.C. (S) 1802, the
Resource Conservation and Recovery Act, 42 U.S.C. (S) 6901 et seq., and any
applicable state law;

(h) Any liability or obligation of Seller arising or incurred
in connection with the negotiation, preparation and execution of this Agreement
and the consummation of the transactions contemplated hereby, including without
limitation, fees and expenses of its brokers, counsel, accountants, and other
experts;

(i) To the extent not reflected on the Closing Date Balance
Sheet, any liability or obligation of Seller for all federal, state or local
income, excise, franchise and capital stock taxes, charges, fees, levies or
other assessments measured on the basis of net income, gross receipts, sales,
use, ad valorem, franchise, profits, license, withholding, payroll, employment,
social security, unemployment, severance, property or other taxes, duties, fees,
assessments or charges of any kind whatsoever, including any interest,
penalties, or additional amounts attributable thereto imposed by any federal,
state, local or foreign governmental authority and payable by Seller or any
member of any affiliated group or any combined or consolidated group on account
of the Business, for all periods through and including the period ending at the
Effective Time, including, without limitation, income arising as a result of the
transactions contemplated herein. For the period that ends at the Effective
Time, the taxable income attributable to such period shall be determined based
on a full closing of the books of the Business in a manner sufficient to support
for tax purposes the allocation to such period of each item of income and
expense accrued on the books in each jurisdiction in which the Business
operates;

(j) The amount of all issued and outstanding checks as of the
Closing Date drawn on the Harris Trust and Savings Bank Klemp Disbursing Account
314-405-2;

(k) Any liability of Seller for any actual or alleged breach
of, or noncompliance with, any federal, state, or local law, rule, regulation,
order or decree applicable to any Contract, Real Property Lease or Permit or
otherwise applicable to the Seller prior to the Effective Time; and

(l) To the extent not reflected on the Closing Date Balance
Sheet, all indebtedness of Seller, whether secured or unsecured, due or to
become due, including without limitation all liabilities under or with respect
to the Orem City Bonds (as

-8-
<PAGE>

hereinafter defined) other than any liability thereunder arising as a result of
the breach by Purchaser of its covenant set forth in Section 7.6 hereof;

(m) All liability with respect to any express or implied
warranty made by Seller in connection with any product manufactured (including
work in progress or unshipped product), designed and sold by Seller prior to the
Effective Time or any service performed by Seller prior to the Effective Time;

(n) All liability with respect to claims for personal injury
(including death) or property damage based upon any doctrine of product
liability, with regard to any product that was manufactured (including work in
progress or unshipped product) or sold by Seller prior to the Effective Time;
and

(o) All liability for worker's compensation claims asserted
by, or with respect to, any employee or former employee of Seller with respect
to the Business in respect of any injury or other compensable event or
occupational illness or disease, to the extent occurring prior to the Effective
Time and all costs and expenses (including legal fees, administrative and other
like expenses) incurred in connection with any such claims.

ARTICLE 3
CALCULATION AND PAYMENT OF PURCHASE PRICE

3.1 Calculation of Final Purchase Price.
-----------------------------------

(a) The total consideration to be paid to Seller for the sale,
transfer, and conveyance of the Acquired Assets, and the covenant not to compete
set forth in Section 11.11 hereof shall be an amount equal to the sum of (i) the
Net Capital Employed as of the Effective Time, and (ii) $12,776,000 (which
amount includes $25,000 as an amount agreed upon by the parties to compensate
Seller for lost revenues resulting from the determination of the Net Capital
Employed being conducted on the Closing Date rather than after the Effective
Time) (the "Final Purchase Price"), plus the assumption of the Assumed
Liabilities.

(b) For purposes of determining the Final Purchase Price only,
the term "Net Capital Employed" means (i) the book value of the tangible and
intangible Acquired Assets as of the Effective Time determined in accordance
with generally accepted accounting principles ("GAAP") consistently applied,
less (ii) the amount of the Assumed Liabilities as of the Effective Time to the
extent such Assumed Liabilities would be reflected on or reserved against in a
balance sheet as of the Closing Date prepared in accordance with GAAP
consistently applied. The determination of the application of accounting
principles on a basis consistent with prior periods shall be made by reference
to Seller's prior application of such principles unless such principles or such
prior application thereof was not in accordance with GAAP, in which case GAAP

-9-
<PAGE>

determined by Purchaser shall be used without regard to the consistency of the
application thereof with Seller's prior accounting periods.

3.2 Determination of Estimated Purchase Price. Not later than five (5)
-----------------------------------------
business days prior to the Closing Date, Seller shall furnish to Purchaser
Seller's best estimate of the Net Capital Employed as of the Effective Time (the
"Estimated Net Capital Employed"). The purchase price paid at Closing (the
"Estimated Purchase Price") shall be the sum of (i) the Estimated Net Capital
Employed, plus (ii) $12,776,000. For illustrative purposes only, if the
Estimated Net Capital Employed is equal to $19,276,000, then the Estimated
Purchase Price will be $32,052,000.

3.3 Determination of Final Purchase Price.
-------------------------------------

(a) Not later than ninety (90) days following the Closing
Date, Purchaser shall, at its sole cost and expense, furnish to Seller (i) the
audited statement of Net Capital Employed, as of the Effective Time (the
"Closing Date Balance Sheet"), prepared by Purchaser and audited by Deloitte &
Touche LLP ("Purchaser's Accountants"). The Closing Date Balance Sheet will (i)
be prepared in accordance with the books and records of Seller, (ii) be prepared
in accordance with GAAP used to prepare annual financial statements without
regard to accounting practices that normally may be followed at interim dates by
the Business, consistently applied with prior periods. The determination of the
application of accounting principles on a basis consistent with prior periods
shall be made by reference to Seller's prior application of such principles
unless such principles or the prior application thereof was not in accordance
with GAAP, in which case GAAP as determined by Purchaser shall be used without
regard to the consistency of the application thereof with Seller's prior
accounting periods, and (iii) as to the valuation of Inventory shown thereon,
such inventory shall be valued on a first-in-first-out basis based on a physical
count of the inventory of the Business conducted on the Closing Date at which
Seller shall have a right to be present upon Purchaser's reasonable written
notice to Seller. The Closing Date Balance Sheet shall include a schedule,
prepared by Purchaser's Accountants, showing the difference, if any, between the
Estimated Purchase Price and the Final Purchase Price, as determined from the
Closing Date Balance Sheet (the "Closing Schedule").

(b) Seller shall have thirty (30) days from the date of its
receipt of the Closing Date Balance Sheet and the Closing Schedule to review the
Closing Date Balance Sheet and the Closing Schedule, and to agree or disagree as
to the Final Purchase Price reflected thereon. If requested to do so by Seller,
Purchaser will instruct Purchaser's Accountants to make available to Seller and
its representatives all work papers and schedules (including all posted and
passed adjustments) prepared or used by Purchaser or Purchaser's Accountants in
connection with the preparation of the Closing Date Balance Sheet (the
"Workpapers"). If Seller does not agree with the Final Purchase Price reflected
on the Closing Date Balance Sheet or the Closing Schedule, then Seller

-10-
<PAGE>

shall, within such thirty (30) day period or fifteen (15) days after receipt of
the Workpapers, whichever is later, deliver a written objection to Purchaser
which shall specify in reasonable detail the basis for the objection, and a
computation of the Final Purchase Price asserted by Seller (collectively, the
"Objection"). Upon Purchaser's receipt of such Objection, Purchaser shall cause
the Closing Date Balance Sheet and the Closing Schedule, the objection and
computations of Seller, and all work papers related thereto (collectively, the
"Determination Materials"), to be submitted to Arthur Andersen LLP. Arthur
Andersen LLP shall review the Determination Materials and determine which of the
positions asserted, either that asserted by Purchaser in the Closing Date
Balance Sheet and Closing Schedule or that asserted by Seller in the Objection,
is the more correct, and notify Purchaser and Seller of its determination within
thirty (30) days following the receipt of the Determination Materials, which
determination shall be final and conclusive.

(c) The fees and expenses of Purchaser's Accountants shall be
borne by Purchaser, and the fees and expenses of Seller's Accountants shall be
borne by Seller. The fees and expenses of Arthur Andersen LLP shall be split
equally between the Purchaser and Seller.

3.4 Reconciliation of Estimated and Final Purchase Price. If the Final
----------------------------------------------------
Purchase Price (as determined in Section 3.3 hereof) is greater than the
Estimated Purchase Price (as determined in Section 3.2 hereof), Purchaser shall
pay the difference between such amounts, together with interest thereon as
provided below, to Seller. If the Final Purchase Price is less than the
Estimated Purchase Price, Seller shall pay the difference between such amounts,
together with interest thereon as provided below, to Purchaser. The payments
required by this subsection shall be made by certified check or by wire transfer
in immediately available funds to an account designated in writing by the
recipient within ten (10) days after the earlier to occur of (i) the date
Purchaser and Seller agree as to the Final Purchase Price or (ii) Arthur
Andersen LLP notifies Purchaser and Seller of its determination of the Final
Purchase Price according to the provisions of Section 3.3 hereof (the
"Adjustment Date"). The payment, whether to or from Purchaser, shall bear
interest from the Closing Date until the date of payment at an annual interest
rate equal to the Prime Rate, as published in the "Money Rates" column of The
Wall Street Journal, Eastern Edition, on the Closing Date.

3.5 Payment of Estimated Purchase Price and Final Purchase Price
------------------------------------------------------------
Adjustment. Subject to the fulfillment of the conditions set forth herein:
- - - ----------

(a) on the Closing Date, Purchaser shall pay or deliver to
Seller the Estimated Purchase Price by wire transfer in immediately available
funds to an account designated in writing by Seller. A Federal Reserve Reference
Number shall be requested by Purchaser at the time of the transfer for the
purpose of assisting Seller in confirming receipt of the transfer; and

-11-
<PAGE>

(b) on the Adjustment Date (as defined in Section 3.4 hereof),
Purchaser shall pay Seller or Seller shall pay Purchaser, as the case may be,
such amount resulting from the adjustments provided for in Section 3.4 hereof to
reach the Final Purchase Price (plus interest as provided in Section 3.4), by
certified check or wire transfer in immediately available funds to an account
designated in writing by Seller or Purchaser, as the case may be.

3.6 Transfer Expenses. Seller and Purchaser shall each pay one-half
-----------------
(1/2) of any sales and use, transfer, documentary, or other taxes levied on the
transfer of the Acquired Assets. All Inventory shall be claimed as exempt from
sales or use tax by Purchaser and Purchaser shall furnish Seller at Closing with
appropriate sales tax exemption certificates as reasonably requested by Seller
for the Inventory. Seller and Purchaser shall timely report and remit any such
taxes to the appropriate revenue authorities. In the event any tax is paid in
full by either Purchaser or Seller, the other party shall promptly reimburse the
paying party, on demand, for the other party's portion of such payment.

3.7 Allocation of Purchase Price. The consideration paid for the
----------------------------
covenant not to compete set forth in Section 11.11 hereof, the assumption of the
Assumed Liabilities that are taken into account in determining the amount
realized for tax purposes, and for the Acquired Assets (which shall equal the
Final Purchase Price) shall be allocated among the Acquired Assets in accordance
with the provisions contained in Treasury Regulation Section 1.1060-1T(d). The
parties agree to be bound by such allocation and to report the transaction
contemplated herein for federal income tax purposes in accordance with such
allocation; provided, however, that if adjustments are made to the Estimated
Purchase Price in calculating the Final Purchase Price, then corresponding
adjustments shall be made to the allocation. In furtherance of the foregoing,
the parties hereto agree to execute and deliver Internal Revenue Service Form
8594 reflecting such allocation.

ARTICLE 4
PROCEDURE FOR CLOSING

4.1 Time and Place of Closing. The closing for the purchase and sale
-------------------------
contemplated by this Agreement (the "Closing") shall be held at the offices of
Alston & Bird, One Atlantic Center, 1201 West Peachtree Street, Atlanta, Georgia
30309, on September 30, 1999, commencing at 9:00 A.M., Eastern Daylight Time, or
at such other time and place as the parties hereto may agree in writing (the
date on which the Closing actually occurs is hereinafter referred to as the
"Closing Date"). Subject to the consummation of the Closing on the Closing Date,
the sale, assignment, transfer, and conveyance to Purchaser of the Acquired
Assets and the assumption of the Assumed

-12-
<PAGE>

Liabilities will be effective as of 12:01 AM Eastern Daylight Time on the day
following the Closing Date (the "Effective Time").

4.2 Transactions at the Closing. At the Closing, each of the following
---------------------------
items shall be delivered:

(a) Seller shall deliver or make available to Purchaser the
following:

(i) such bills of sale, motor vehicle titles, special
or warranty deeds, quitclaim deeds, assignments, consents, endorsements, and
other good and sufficient instruments and documents of conveyance and transfer,
in form reasonably satisfactory to Purchaser and its counsel, as shall be
necessary and effective to transfer and assign to, vest in, and purchase all of
Seller's right, title, and interests in and to the Acquired Assets, including
without limitation, good, marketable and insurable title in and to all of the
Acquired Assets owned by Seller free and clear of all liens (subject only to
Permitted Encumbrances), and valid leasehold interests in and to all of the
Acquired Assets leased by Seller as lessee, and all of Seller's rights under all
Contracts;

(ii) a certificate of Seller with respect to the
matters described in Sections 8.1, 8.2, 8.5, 8.6, 8.13, and 8.21 hereof;

(iii) a certificate of the Secretary or Assistant
Secretary of Seller with respect to the matters described in Sections 8.8, 8.9
and 8.10 hereof;

(iv) the opinion of Buchanan Ingersoll, counsel to
Seller, in substantially the form of Exhibit B hereto (the "Seller Opinion");

(v) copies of the consents and waivers described in
Section 8.5 hereof;

(vi) satisfactory evidence of the approvals described
in Section 8.5 hereof;

(vii) certificates of existence or certificates of
good standing of Seller, as of a date within a reasonable period of time prior
to the Closing Date, from the State of Delaware and each jurisdiction listed in
Schedule 5.1.1 hereto;

(viii) the Agreements of Estoppel, Consent and Waiver
and the Landlords' Consent to Lease Assignment described in Section 8.18 hereof;

(ix) affidavit(s) of title stating that (a) there are
no parties in possession of any of the Real Property or Leased Real Property
other than Seller (or otherwise specifically setting forth any such other
parties' rights and the source and extent

-13-
<PAGE>

of such parties' rights), and (b) Seller has not caused any work to be performed
on any of the Real Property or Leased Real Property within one hundred (100)
days of the date of such affidavit(s), or if Seller has caused any such work to
be performed within one hundred (100) days of such date(s) that all such work
has been completed and fully paid for, and such other affidavits and
documentation as Purchaser's title insurance company may reasonably request;

(x) a duly executed certificate stating that Seller
is exempt from withholding under all applicable laws;

(xi) a duly executed certificate stating that Seller
is not a "foreign person" for United States income tax purposes, in accordance
with Section 1445 and Section 897 of the Internal Revenue Code of 1986, as
amended (the "Code");

(xii) such other evidence of the performance of all
covenants and the satisfaction of all conditions required of Seller by this
Agreement at or prior to the Closing Date as Purchaser or its counsel may
reasonably require.

The documents and certificates to be delivered hereunder by or on
behalf of Seller on the Closing Date shall be in form and substance reasonably
satisfactory to Purchaser and its counsel.

(b) Purchaser shall deliver to Seller the following:

(i) a wire transfer in the amount equal to the
Estimated Purchase Price in immediately available funds to an account designated
by Seller;

(ii) an instrument or instruments of assumption of the
Assumed Liabilities in substantially the form of Exhibit C attached hereto (the
"Assignment and Assumption Agreement"), duly executed by Purchaser, and
reasonably satisfactory in form and substance to Seller and its counsel;

(iii) a certificate of Purchaser with respect to the
matters described in Sections 9.1 and 9.2;

(iv) a certificate of the Secretary or Assistant
Secretary of Purchaser with respect to the matters described in Sections 9.3,
9.4 and 9.6 hereof;

(v) the opinion of Alston & Bird LLP, counsel to
Purchaser, in substantially the form of Exhibit D hereto (the "Purchaser
Opinion");

-14-
<PAGE>

(vi) certificates of existence or certificates of good
standing of Purchaser, as of a date within a reasonable period of time prior to
the Closing Date, from the States of Delaware and Alabama;

(vii) such other evidence of the performance of all
covenants and satisfaction of all of the conditions required of Purchaser by
this Agreement, at or before the Closing Date, as Seller or its counsel may
reasonably require.

(viii) a letter identifying those exceptions to title
set forth on Schedule B to the final title binders to be delivered at Closing
which Purchaser has agreed to waive.

The documents and certificates to be delivered hereunder by or on
behalf of the Purchaser on the Closing Date shall be in form and substance
reasonably satisfactory to the Seller and its counsel.

4.3 Conveyance of Title to Real Property.
------------------------------------

(a) Seller shall convey title to the Real Property to
Purchaser by special or general warranty deed in a form customarily used in the
locality in which the Real Property is located, subject, however, to Permitted
Encumbrances. Each such deed shall be executed in accordance with the
requirements of the laws of the state in which such Real Property is located and
shall be in such form as will permit the deed to be recorded. Seller shall
transfer and assign to Purchaser its rights under the Real Property Leases (and
its rights in and to all deposits thereunder, if any (other than with respect to
the Illinois Lease Agreement, the Oak Brook Lease Agreement and the Pittsburgh
Agreement), and all buildings, other structures, and improvements permitted to
be retained or removed by the lessee thereunder) by transfer and assignment in
form reasonably acceptable to Purchaser and its counsel. Regardless of whether
Purchaser objects to the same as provided hereinbelow, the Real Property and the
Leased Real Property shall not be subject to (i) any mortgage, deed of trust,
security deed, security agreement, judgment, lien or claim of lien, or any other
title exception or defect created, caused, suffered or incurred by Seller that
is monetary in nature, Seller hereby agreeing to pay and satisfy of record any
such monetary title defects or encumbrances prior to or at Closing at Seller's
expense, or (ii) any leases, rental agreements or other rights of occupancy of
any kind (other than the Real Property Leases), whether oral or written, except
as disclosed to and accepted by Purchaser as provided elsewhere herein.

(b) Purchaser has examined the title to and has obtained a
current survey of each parcel of Real Property and Leased Real Property and has
heretofore notified Seller in writing of any objections to, defects in or
encumbrances upon Seller's title to or interest in such Real Property or Leased
Real Property, other than Permitted Encumbrances. Seller covenants and agrees
that it will, at Seller's own cost and

-15-
<PAGE>

expenses, satisfy those material title defects and encumbrances of which
Purchaser has notified Seller in writing as of the Closing Date.

4.4 Survey and Inspection of Property.
---------------------------------

(a) Seller has granted to Purchaser and Purchaser's agents,
employees and independent contractors the right and privilege to enter upon the
Real Property and the Leased Real Property prior to the date hereof to inspect
the Real Property and the Leased Real Property and to conduct soil borings and
other environmental, geological, engineering, percolation, hydrologic,
feasibility, or landscaping tests or studies, all at Purchaser's sole cost and
expense, provided such testing does not unreasonably interfere with the
operation of the Business at that location. Purchaser agrees to defend and
indemnify Seller from and against any liability or obligation arising out of
such entry or testing by Purchaser or Purchaser's agents under this subsection.
Prior to the Closing Date, Purchaser shall provide copies of all drafts and
finished reports of the Phase I environmental assessment reports prepared by
GaiaTech Inc. in connection with the transactions contemplated herein to Seller,
as soon as practicable. Prior to the Closing Date, the reporting of any
detection of a violation or possible violations to appropriate governmental
authorities shall be controlled by Seller.

(b) Each parcel of Real Property shall be described in the
deed conveying such parcel and other closing documents either by (i) the metes
and bounds description set forth for such parcel (if any) on Exhibit A attached
to and incorporated into Schedule 5.8.1 hereto, or (ii) the metes and bounds
description of such parcel set forth in the deed vesting title to such parcel in
Seller, as said metes and bounds descriptions in item (i) or (ii) may be
modified by mutual agreement of the parties acting in good faith with respect
thereto, provided, however, in the event Purchaser or Seller causes a new survey
of a parcel of Real Property to be made by a land surveyor registered or
licensed in the state in which such Real Property is located, and the resulting
plat of survey accurately depicts the boundaries of such Real Property and those
characteristics of such Real Property that would be revealed by a careful
inspection of such Real Property and is otherwise reasonably acceptable to
Seller, then reference shall be made to such new plat in the description of such
Real Property and the legal description of such Real Property in the closing
documents shall be prepared therefrom.

4.5 Certain Consents. To the extent that Seller's rights under any
----------------
agreement, Contract, commitment, lease, Permit, Real Property Lease or other
Acquired Asset to be assigned to Purchaser hereunder may not be assigned without
the consent of another person which has not been obtained prior to the Closing
Date, and which is important to the ownership, use or disposition by Purchaser
of an Acquired Asset, this Agreement shall not constitute an agreement to assign
the same if an attempted assignment would constitute a breach thereof or be
unlawful, and Seller, at its expense, shall use its commercially reasonable best
efforts to obtain any such required consent(s) as promptly

-16-
<PAGE>

as possible. If any such consent shall not be obtained or if any attempted
assignment would be ineffective or would impair Purchaser's rights under the
Acquired Asset in question, so that Purchaser would not in effect acquire the
benefit of all such rights, Seller, to the maximum extent permitted by law, and
the specific Acquired Asset and at Seller's expense, shall act after the Closing
as Purchaser's agent in order to obtain for the Purchaser the benefits
thereunder, and Seller shall cooperate, to the maximum extent permitted by law
and the specific Acquired Assets with Purchaser in any other reasonable
arrangement designed to provide such benefits to Purchaser, including any
sublease or subcontract or similar arrangement.

4.6 Further Assurances. Each of the parties will, from time to
------------------
time after the Closing Date at the other party's request and without further
compensation, execute, acknowledge, and deliver to the other party such
additional instruments of conveyance and transfer and will take such other
actions and execute and deliver such other documents, certifications, and
further assurances as the other party may reasonably require in order to vest
more effectively in Purchaser, or to put Purchaser more fully in possession of,
any of the Acquired Assets, or to better enable Purchaser to complete, perform,
or discharge any of the Assumed Liabilities. Each of the parties hereto will
cooperate with the other and execute and deliver to the other parties hereto
such other instruments and documents and take such other actions as may be
reasonably requested from time to time by any other party hereto as necessary to
carry out, evidence, and confirm the intended purposes of this Agreement.

ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF SELLER

Seller hereby represents and warrants to Purchaser that:

5.1 Organization and Qualification. Seller is a corporation duly
------------------------------
organized, validly existing, and in good standing under the laws of the State of
Delaware. Seller is duly qualified and is in good standing as a foreign
corporation in each of the jurisdictions set forth on Schedule 5.1.1, which
constitute all of the jurisdictions where Seller owns or leases property that is
used in the Business or where Seller conducts the Business. Schedule 5.1.2
hereto contains the address (including city, county, state, or other
jurisdiction and zip code) of each location where any of the Acquired Assets are
located and each trade name under which Seller operates at each such address and
any additional business and trade names under which the Business has been
operated at each such address in the five (5) years preceding the date of this
Agreement.

5.2 Authority. Seller has full power and authority to enter into
---------
this Agreement and the agreements to which it is a party contemplated hereby, or
executed in connection herewith (collectively, this Agreement and the other
documents or agreements to be executed in connection herewith shall be referred
to hereinafter as the "Acquisition

-17-
<PAGE>

Documents"), and to consummate the transactions contemplated hereby and thereby.
The execution, delivery and performance by Seller of each of the Acquisition
Documents to which Seller is a party has been duly and validly authorized and
approved by all necessary action on the part of Seller. Each of the Acquisition
Documents to which Seller is a party is the legal, valid, and binding obligation
of Seller enforceable against Seller in accordance with its terms, except as
enforceability may be limited by applicable equitable principles (whether
applied in a proceeding at law or in equity) or by bankruptcy, insolvency,
reorganization, moratorium, or similar laws affecting creditors' rights
generally, to the exercise of judicial discretion in accordance with general
equitable principles, and to equitable defenses that may be applied to the
remedy of specific performance. Neither the execution and delivery by Seller of
any of the Acquisition Documents to which Seller is a party nor, subject to
obtaining the consents and approvals described in Schedules 5.7.5, 5.8.2, and
5.9.1, and the transfer of the Permits described in Schedule 5.17, the
consummation by Seller of the transactions contemplated hereby and thereby will
(i) violate Seller's Certificate of Incorporation or Bylaws, (ii) violate any
provisions of law or any order of any court or any governmental entity to which
Seller is subject, or by which the Acquired Assets may be bound, (iii) conflict
with, result in a breach of, or constitute a default under any indenture,
mortgage, lease, agreement, or other instrument to which Seller is a party or by
which it or any of the Acquired Assets may be bound, or (iv) result in the
creation of any lien, charge, or encumbrance upon any of the Acquired Assets, or
result in the acceleration of the maturity of any payment date of any of the
Assumed Liabilities, or increase or adversely affect the obligations of Seller
under any of the Assumed Liabilities.

5.3 Subsidiaries; Joint Ventures. No shares of any corporation or
----------------------------
any ownership or other investment interest, either of record, beneficially or
equitably, in any association, partnership, joint venture or other legal entity
are included in the Acquired Assets.

5.4 Financial Statements. Attached as Schedule 5.4 are true,
--------------------
correct, and complete copies of the unaudited balance sheets and related
statements of income and cash flows of the Business as, at and for the fiscal
years ended December 31, 1997, December 31, 1998 and for the periods then ended,
and the unaudited financial statements of the Business prepared by Seller at and
for the three (3) month periods ended March 31, 1999 and June 30, 1999
(collectively, the "Financial Statements"). The Financial Statements have been
prepared from the books and records of Seller, and present fairly in accordance
with GAAP, consistently applied, the financial position and results of operation
of the Business as at the dates and for the periods indicated (other than as
disclosed in the footnotes thereto), such Financial Statements having been
included in the preparation of Seller's consolidated financial statements. The
Business has no liabilities or obligations (secured or unsecured, whether
accrued, absolute, direct, indirect, contingent or otherwise, and whether due or
to become due) which are not fully and adequately accrued or reserved against in
the Financial Statements in accordance

-18-
<PAGE>

with GAAP consistently applied. Seller has not received any advice or
notification from its independent certified public accountants that Seller has
used any improper accounting practice that would have the effect of not
reflecting or incorrectly reflecting in the Financial Statements or the books
and records, any properties, assets, liabilities, revenues, or expenses. Except
as set forth on Schedule 5.4.1, the Financial Statements do not contain any
items of special or nonrecurring income, or other income not earned in the
ordinary course of business, individually in excess of $10,000 and in the
aggregate in excess of $60,000. The books, records, and accounts of Seller
maintained with respect to the Business accurately and fairly reflect, in
reasonable detail, the transactions and the assets and liabilities of Seller
with respect to the Business. Seller has not engaged in any transaction with
respect to the Business, maintained any bank account for the Business, or used
any of the funds of Seller in the conduct of the Business, except for
transactions, bank accounts, and funds which have been and are reflected in the
normally maintained books and records of the Business.

5.5 Inventories. All Inventory, whether reflected on the Financial
-----------
Statements or subsequently acquired, (a) is now and at the Closing Date will be
on those locations described on Schedule 5.5 or located on the Real Property
described on Schedule 5.8.1 or on the Leased Real Property described on Schedule
5.8.2 consistent with past practices, (b) has been or will be acquired by Seller
only in bona fide transactions entered into in the ordinary course of business,
(c) is of good and merchantable quality except to the extent adequately reserved
for in the Financial Statements, (d) is not now and at the Closing Date will not
be subject to any write-down or write-off in excess of the reserves established,
and (e) is valued at the lesser of cost or net realizable market value, with
appropriate adjustments for stale and slow moving Inventory in accordance with
GAAP. Except as described in Schedule 5.5, Seller has now and on the Closing
Date will have valid legal title to its Inventory free and clear of any
consignments, liens, claims, charges, and encumbrances, other than encumbrances
which shall be removed prior to Closing. Seller is not under any liability or
obligation with respect to the return of inventory in the possession of
wholesalers, retailers, or other customers which shall not be reserved against
in the Closing Date Balance Sheet.

5.6 Accounts Receivable. All Accounts Receivable shown on the
-------------------
Financial Statements represent, and the Accounts Receivable of Seller
outstanding on the Closing Date will represent, sales actually made or services
actually performed in the ordinary course of business in bona fide transactions
completed in accordance with the terms and provisions contained in any documents
relating thereto and are fully collectible to the extent not reserved for in the
Closing Date Balance Sheet. The reserves for uncollectible Accounts Receivable
reflected on the Financial Statements were established in accordance with GAAP
and are adequate in light of all the facts then known to Seller and Seller's
historical methods and practices in establishing such reserves. The Accounts
Receivable outstanding on the Closing Date are subject to no defenses,
counterclaims, or

-19-
<PAGE>

rights of setoff other than those arising in the ordinary course of business and
for which adequate reserves have been established.

5.7 Personal Property.
-----------------

(a) Schedule 5.7.1 contains a true and correct list and a
description (including serial number) of all Vehicles indicating, with respect
to each, those which are owned by Seller and those which are leased by Seller.
Schedule 5.7.2 contains a true and correct list of all Equipment (excluding
items of Equipment having a value of less than $1,000 individually, or $10,000
in the aggregate) indicating, with respect to each, those which are owned by
Seller and those which are leased by Seller. Schedule 5.7.3 contains a true and
correct list of all Furniture and Fixtures and all other items of personal
property (excluding items of Furniture and Fixtures and other personal property
having a value of less than $1,000 individually, or $10,000 in the aggregate)
indicating, with respect to each, those which are owned by Seller and those
which are leased by Seller. Seller has good and marketable title to all of its
Furniture and Fixtures, Equipment, Vehicles, and other items of personal
property included among the Acquired Assets (whether or not disclosed in
Schedules 5.7.1, 5.7.2, or 5.7.3), free and clear of all liens, claims, charges,
security interests, and other encumbrances of any kind and of any nature, except
as disclosed on Schedule 5.7.4.

(b) Schedule 5.7.5 contains a list of all leases for Vehicles,
Equipment, Furniture and Fixtures, or other items of personal property included
among the Acquired Assets (except miscellaneous leases having an aggregate
value, if capitalized, of less than $10,000) leased by Seller and included in
the Acquired Assets. True and correct copies of each lease listed on Schedule
5.7.5 and any amendments, extensions, and renewals thereof are attached thereto.
Each of the leases described on Schedule 5.7.5 is in full force and effect and
there are no existing defaults or events of default, real or claimed, or events
which with notice or lapse of time or both would constitute defaults, the
consequences of which, severally or in the aggregate, would have an adverse
effect on the Business. No rights of Seller under such leases have been assigned
or otherwise transferred as security for any obligation of Seller. Except as
described on Schedule 5.7.5 and 5.9.2(a), all such leases are fully assignable
without the consent of any third party.

5.8 Real Property: Leased Real Property.
-----------------------------------

(a) Schedule 5.8.1 contains a true and correct list of each
parcel of Real Property. Except as reflected in the original or amended title
insurance binders delivered to Purchaser or otherwise in Schedule 5.8.1, Seller
has good and marketable fee simple title to the Real Property, free and clear of
all mortgages, liens, charges, encumbrances, and purchase options and other
rights to or against such property, other than Permitted Encumbrances. The
conveyance of the Real Property to Purchaser shall

-20-
<PAGE>

not cause a breach, default, or event of default under any of the mortgages
except for those mortgages identified on Schedule 5.8.1 as requiring consents.

(b) Schedule 5.8.2 contains a true and correct list of
each parcel of Leased Real Property. Attached to Schedule 5.8.2 is a true and
correct copy of each Lease pursuant to which Seller leases the Leased Real
Property and any amendments, extensions, and renewals thereof (the "Real
Property Leases"). Seller hereby represents that it is the lessee under each of
the Real Property Leases. Each Real Property Lease is in full force and effect
and there is no existing default or event of default, real or claimed, or event
which with notice or lapse of time or both would constitute a default thereunder
by Seller or, to the knowledge of Seller, any other party to such Real Property
Leases. Except for Permitted Encumbrances, or as described in Schedule 5.8.2,
Seller's interest in each of the Real Property Leases is free and clear of any
mortgages and liens, and is not subject to any deeds of trust, assignments,
subleases, or rights of any third parties known to or created or permitted by
Seller other than the lessor thereof or any mortgagees of such lessors. The
assignment of any of the Leased Real Property to Purchaser shall not cause a
breach, default, or event of default under any lease or, to Seller's knowledge
without independent inquiry, mortgage relating to such parcel except for those
leases or mortgages identified on Schedule 5.8.2 as requiring consents. Seller
shall use its commercially reasonable best efforts to obtain the necessary
consents or estoppels pursuant to Sections 7.5 and 8.18 hereof; provided
however, the failure to obtain any such consent after Seller has used its
commercially reasonable best efforts to do so shall not constitute a breach of
this Agreement but obtaining such consent shall remain a condition precedent to
Purchaser's obligations hereunder as and to the extent provided in Section 8.5
below.

(c) To Seller's Knowledge, all improvements on the Real
Property and the Leased Real Property conform to all applicable state and local
laws, use restrictions, building ordinances, building and fire codes the
noncompliance of which would have a material adverse effect on Seller's current
ownership or use of such property by Seller, and the property is zoned for the
various purposes for which the Real Property and the Leased Real Property and
improvements thereon are presently being used.

(d) Seller has received no written notice of any pending or
threatened condemnations, planned public improvements, annexation, special
assessments, zoning or subdivision changes, or other adverse claims affecting
the Real Property or the Leased Real Property.

(e) There is no private restrictive covenant or governmental
use restriction (including zoning) known to Seller, on all or any portion of the
Real Property or the Leased Real Property which prohibits the current use of the
Real Property and the Leased Real Property.

-21-
<PAGE>

(f) To Seller's Knowledge, all licenses, permits and approvals
required for the occupancy and operation of the Real Property and the Leased
Real Property (with appurtenant parking uses) as presently being used have been
obtained and are in full force and effect. Seller has received no written
notices of violations in connection with such items, except as disclosed in the
Environmental Audit Reports attached to Schedule 5.12.6 hereto.

(g) Seller does not have in its possession any studies or
reports which indicate any defects in the design or construction of any of the
improvements on the Real Property or the Leased Real Property.

(h) Seller has not failed to pay any taxes, assessments, or
other charges adversely affecting the present use of the Real Property or Leased
Real Property which are due and payable.

(i) There is no pending litigation or dispute, and Seller has
received no notice of any disputes, concerning the location of the lines and
corners of the Real Property, and Seller has not been served with any legal
action concerning the location of the lines and corners of the Real Property.

(j) No person or entity, other than Purchaser, has any right,
agreement, commitment, option, right of first refusal or any other agreement,
whether oral or written, with respect to the purchase, assignment or transfer of
all or any portion of the Real Property.

(k) The Real Property is not subject to or affected by any
special assessment for public improvements or otherwise, whether or not there is
presently a lien upon the Real Property. Except as described on Schedule 5.8.3,
Seller has made no commitment to any governmental authority, utility company,
school board, church or other religious body, homeowner or homeowner's
association or any other organization, group or individual relating to the Real
Property which would impose an obligation upon Seller or its successors or
assigns to make any contributions or dedications of money or land, or to
construct, install or maintain any improvements of a public or private nature as
part of the Real Property or upon separate lands. No governmental authority has
imposed any requirement that Seller pay, directly or indirectly, any special
fees or contributions or incur any expenses or obligations in connection with
the development of the Real Property or any portion thereof, other than any
regular and nondiscriminatory local real estate or school taxes assessed against
the Real Property. The parcels comprising the Real Property are separately
assessed for real property tax assessment purposes and are not combined with any
other real property for tax assessment purposes. Seller has received no notice
of any contemplated or actual reassessment of the Real Property or any portion
thereof for general real estate tax purposes. As of the date hereof, all due and
payable taxes, assessments, water charges and sewer charges affecting the Real
Property

-22-
<PAGE>

and, to Seller's knowledge, the Leased Real Property, or any portion thereof
have been paid.

(l) To Seller's Knowledge, Seller has complied with all
applicable laws, ordinances, regulations, statutes, rules and restrictions
pertaining to and affecting the Real Property which relate to such subdivision,
except as disclosed in the Environmental Audit Reports attached to Schedule
5.12.6.

(m) There is no default or breach by Seller nor, to the best
of Seller's knowledge, any other party thereto, under any covenants, conditions,
restrictions or easements which may affect the Real Property or the Leased Real
Property or any portion or portions thereof which are to be performed or
complied with by the owner of the Real Property or the Leased Real Property, and
no condition or circumstance exists which, with the giving of notice or the
passage of time, or both, would constitute a default or breach by Seller nor, to
the best of Seller's knowledge, any other party thereto, under any such
covenants, conditions, restrictions, rights-of-way or easements.

5.9 Contracts.
---------

(a) Schedule 5.9.1 contains a true and correct list of all
Contracts not otherwise listed on Schedules 5.7.5, 5.8.2, 5.10 or 5.16, together
with a true and correct copy (and, if oral, a description) of each such Contract
(other than Real Property Leases, personal property leases, and purchase
orders), that: (i) has a duration of twelve (12) months or more, (ii) requires
or could require any party thereto to pay $20,000 or more, or (iii) is between
Seller and any officer, stockholder, director, employee, or affiliate and all
modifications, amendments, renewals, or extensions thereof. Each of the
Contracts was entered into prior to the Closing Date in the ordinary course of
business on terms substantially consistent with Seller's practice prior thereto.
Except as listed on Schedules 5.7.5, 5.8.2, 5.9.1, 5.10 or 5.16, Seller is not a
party to any written or legally binding oral:

(i) agreement, contract, or commitment with any
present or former employee or consultant or for the employment of any person,
including any consultant, who is engaged in the conduct of the Business;

(ii) agreement, contract, or commitment for the
future purchase of, or payment for, supplies or products, or for the performance
of services by a third party which supplies, products or services are used in
the conduct of the Business involving in any one case $20,000 or more;

(iii) agreement, contract or commitment to sell or
supply products ("Goods Contracts") or to perform maintenance, services or
similar duties

-23-
<PAGE>

("Services Contracts") in connection with the Business involving in any one case
$20,000 or more;

(iv) distribution, dealer, representative, or
sales agency agreement, contract, or commitment relating to the Business;

(v) lease under which Seller is lessor relating
to the Acquired Assets or any property at which the Acquired Assets are located;

(vi) note, debenture, bond, equipment trust
agreement, letter of credit agreement, loan agreement, or other contract or
commitment for the borrowing or lending of money relating to the Business or
agreement or arrangement for a line of credit or guarantee, pledge, or
undertaking of the indebtedness of any other person relating to the Business;

(vii) agreement, contract, or commitment for any
charitable or political contribution relating to the Business;

(viii) agreement, contract, or commitment limiting
or restraining the Business or any successor thereto from engaging or competing
in any manner or in any business, nor, to Seller's knowledge, is any employee of
Seller engaged in the conduct of the Business subject to any such agreement,
contract, or commitment;

(ix) material agreement, contract, or commitment
relating to the Business not made in the ordinary course of business; or

(x) agreement, contract or transaction with the
Seller or any affiliate thereof.

(b) Schedule 5.9.2 contains a true and correct list of all
commitments for capital expenditures that have been approved or made prior to
the date of this Agreement in excess of $10,000 by Seller and that remain
outstanding as of the date hereof.

(c) Each of the Contracts is in full force and effect and
there exists no breach or violation of or default under any of such Contracts by
Seller or, to the knowledge of Seller, any other party to such Contracts or any
event which, with notice or the lapse of time, or both, will create a breach or
violation thereof or default thereunder by Seller or, to the knowledge of
Seller, any other party to such Contracts. Schedule 5.9.2(a) hereto sets forth,
as of the Closing Date, the assignment status for the Contracts set forth on
Schedules 5.7.5, 5.8.2, 5.9.1, 5.10 and 5.16 (including, the Contracts that are
(i) freely assignable, (ii) assignable with third party consent, (iii) silent as
to assignment, and (iv) not assignable.

-24-
<PAGE>

(d) Except as indicated on Schedule 5.14, there exists no
actual or, to the best knowledge of Seller, any threatened termination,
cancellation, or limitation of, or any amendment, modification, or change to any
Contract, which would have [a material] adverse effect on the business or
condition, financial or otherwise, of the Business, including without
limitation, (i) the business relationship of Seller with any customer,
distributor, or related group of customers or distributors whose purchases
individually or in the aggregate are material to the operations and financial
condition of the Business, (ii) the requirements of any customer or related
group of customers of Seller whose purchases individually or in the aggregate
are material to the operations and financial condition of the Business, or (iii)
the business relationship of Seller with any material supplier to the Business.

(e) Seller has not granted any power of attorney affecting or
with respect to the Business or the Acquired Assets that remains outstanding
(other than powers of attorney entered into in the ordinary course of business
with freight forwarders for shipping product).

(f) Schedule 5.9.3 contains a true and correct list of
customers which collectively accounted for forty-two and thirteen one-hundredths
percent (42.13%) of Seller's revenues during the fiscal year ended December 31,
1998, and for the period commencing January 1, 1999 through the last day of the
month preceding the date hereof, together with the dollar amount of sales made
to each customer for each such period. To the knowledge of Seller, no person or
entity listed on Schedule 5.9.3 has indicated or threatened that it intends to
materially decrease the amount of business that it does with Seller related to
the Business. Schedule 5.9.3 also describes all discount, rebate, consignment,
make and hold and similar arrangements offered by Seller to customers of the
Business.

5.10 Intellectual Property. Schedule 5.10 contains a true and
---------------------
correct list of all patents, domain names, websites, registered copyrights, and
commercially significant trademarks, trade names, service marks included in the
Intellectual Property, containing a brief description of each item of
Intellectual Property and the nature of Seller's interest therein. The Acquired
Assets include and, upon the purchase of those assets, Purchaser will own or
have the uncontested right to use all, patents, designs, art work, designs-in-
progress, formulations, know-how, inventions, trademarks, trade names, trade
styles, service marks, copyrights, manufacturing processes, logos, and
confidential or proprietary information necessary for the conduct of the
Business as presently conducted. No claim is pending or, to the best of Seller's
knowledge threatened, and Seller has received no notice that the conduct of the
Business (including without limitation, Seller's use of any Intellectual
Property) infringes upon or conflicts with any rights claimed therein by any
third party, nor is Seller aware of any unasserted claim the assertion of which
is probable. No use by Seller of any Intellectual Property licensed to it
violates the

-25-
<PAGE>

terms of any agreement pursuant to which it is licensed. No claim is pending, or
to the best of Seller's knowledge threatened, which alleges that any
Intellectual Property owned or licensed by Seller or which Seller otherwise has
the right to use is invalid or unenforceable by Seller, nor is Seller aware of
any such claim that is unasserted, but the assertion of which is probable.
Except as set forth on Schedule 5.10, Seller does not manufacture products which
are the subject of patents, patent applications, copyrights, copyright
applications, trademarks, trademark applications, trade styles, service marks,
or trade secrets owned by or licensed from third parties. Except as shown on
Schedule 5.10, no royalties or fees are payable by Seller to anyone for use of
any Intellectual Property. True, correct, and complete copies of all agreements
pursuant to which Seller has any license or right to use any Intellectual
Property are attached to Schedule 5.10. All such agreements are in full force
and effect and, there are no existing defaults or events of default, real or
claimed, or events which with or without notice or lapse of time or both would
constitute defaults under such agreements that would give the non-defaulting
party a right to terminate such agreement or a right to receive any payment
pursuant to such agreement. Seller has not received any notice that the
manufacture, use, or sale by Seller of its products, or any component or part
thereof, nor any manufacturing operation or machinery employed by Seller,
violates or infringes upon any claims of any United States or foreign patent or
patent application owned or held by any third party, nor is Seller aware of any
unasserted claim the assertion of which is probable. All Seller's Intellectual
Property and registrations, applications, and agreements related thereto are
fully assignable to Purchaser without the consent of any third party, except as
shown on Schedule 5.10.

5.11 Insurance. The Acquired Assets and the Business are insured
---------
under various policies of general liability and other forms of insurance, which
policies are in amounts adequate in the reasonable judgment of Seller. Seller
has not been refused any insurance with respect to the Business, by any
insurance carrier to which it has applied for insurance or with which it has
carried insurance during the past five (5) years. There are no outstanding
requirements or recommendations by any current insurer or underwriter with
respect to the Business or the Acquired Assets which require or recommend
changes in the conduct of the Business, or require any repairs or other work to
be done with respect to any of the Acquired Assets or operations of the
Business.

5.12 Environmental Matters and OSHA.
------------------------------

(a) Except as set forth in Schedule 5.12.1 and disclosed in
the environmental audit reports attached hereto as Schedule 5.12.6
("Environmental Audit Reports") hereto, Seller, with respect to the Business,

(i) is in compliance with all laws, rules, and
regulations relating to environmental protection. Seller has not (A) been
notified that it is potentially liable under or (B) received any requests for
information or other correspondence

-26-
<PAGE>

concerning any site or facility under, nor has Seller any reason to believe that
it is considered potentially liable under the CERCLA, or any similar law;

(ii) has accurately prepared and timely filed with the
appropriate jurisdictions all reports and filings required pursuant to any
federal, state, or local law, regulation, statute, or order applicable to or
affecting the Business of the Seller or the Acquired Assets;

(iii) has not entered into or received any consent
decree, compliance order, or administrative order relating to environmental
protection;

(iv) has not entered into or received nor is Seller
in default under any judgment, order, writ, injunction or decree of any federal,
state, or municipal court or other governmental authority relating to
environmental protection;

(v) has obtained all permits, licenses, approvals,
consents, orders, and authorizations relating to environmental protection
("Environmental Permits") which are required under federal, state, or local
laws, rules, and regulations in connection with the Business or the ownership,
use, or lease of the Acquired Assets, and which, if not so obtained, would cause
a material adverse effect on the ownership, operation or disposal of the
Business or the Acquired Assets, taken as a whole, and Schedule 5.12.2 contains
a complete list and description of each such Environmental Permit. Except as
described in Schedule 5.12.2, Seller is in compliance with each such
Environmental Permit and no Environmental Permit restricts Seller from operating
any Equipment covered by such Environmental Permit as currently being conducted;
and

(vi) has not been, and currently is not, a
"generator" of "hazardous waste" (as those terms are defined by the Resource
Conservation and Recovery Act of 1976 and the regulations promulgated
thereunder), for the purposes of obtaining an EPA identification number under 40
C.F.R. (S)262.12(a) or complying with the manifest system under Subpart 8 of 40
C.F.R. Part 262.

(b) With respect to the Business,

(i) except as set forth on Schedule 5.12.3 or as
described in the Environmental Audit Reports, there are no actions, suits,
claims, arbitration proceedings, or complaints pending or, to the best of
Seller's knowledge, threatened by any governmental authority, municipality,
community, citizen, or other entity, against Seller relating to environmental
protection, compliance with environmental laws, or the condition of the Real
Property or the Leased Real Property;

(ii) except as set forth on Schedule 5.12.4 or as
described in the Environmental Audit Reports, there has been no disposal,
release, burial, or

-27-
<PAGE>

placement of hazardous or toxic substances, pollutants, contaminants, petroleum,
gas products, or asbestos-containing materials (as any of such terms may be
defined under federal, state, or local law) or other Hazardous Materials by
Seller or, to the best of Seller's knowledge, by any other party on, in, at, or
about any of the Real Property or Leased Real Property or any facilities used
for or in connection with the Business that could subject Purchaser to damages,
costs, penalties or expenses, or recovery or remediation requirements under any
current federal, state or local law, rule or regulation;

(iii) all above-ground and underground storage tanks
located on the Real Property and the Leased Real Property have been identified
in Schedule 5.12.5, together with a description of the materials stored therein
and a statement as to whether such tanks are currently used by Seller;

(iv) no lien has arisen on any of the Acquired Assets
under or as a result of any federal, state, or local law, rule, or regulation
relating to environmental protection;

(v) except as identified in Schedule 5.12.6, no audit
or other investigation has been conducted as to environmental matters at any of
Seller's properties by any private party during or, to the best of Seller's
knowledge, prior to the period during which Seller owned, leased or operated
such properties.

(c) Except as set forth in Schedule 5.12.7, Seller is in
material compliance with all applicable laws relating to employee health and
safety; and Seller has not received any written notice that the Acquired Assets
violate any applicable legal requirements or otherwise can be made the basis of
any claim, citations, proceeding, or investigation, based on or related to
violations of employee health and safety requirements.

5.13 Litigation. Except as listed and briefly described on Schedule
----------
5.13, there are no claims, charges, arbitrations, grievances, actions, suits,
proceedings, or investigations pending or to Seller's knowledge threatened
against, or adversely affecting the Business or any of the Acquired Assets, at
law or in equity or admiralty, or before or by any federal, state, municipal, or
other governmental department, commission, board, bureau, agency, or
instrumentality, domestic or foreign, nor is Seller aware of any unasserted
claim, charge, arbitration, grievance, action, suit, proceeding or
investigation, the assertion of which is probable. Seller is not in default
under or in violation of any order, writ, injunction, or decree of any federal,
state, municipal court, or other governmental department, commission, board,
bureau, agency, or instrumentality, domestic or foreign, affecting the Business
or the Acquired Assets.

-28-
<PAGE>

5.14 Absence of Changes. Except as set forth on Schedule 5.14 or on
------------------
the monthly financial statements referenced in Section 5.4, since March 31,
1999, there has not been any transaction or occurrence in which Seller, with
respect to the Business, has:

(a) suffered any material adverse change in the business,
operations, condition (financial or otherwise), liabilities, assets, or earnings
of the Business nor, to Seller's knowledge, has there been any event which has
had or may reasonably be expected to have a material adverse effect on any of
the foregoing;

(b) incurred any obligations or liabilities of any nature
other than items incurred in the regular and ordinary course of business,
consistent with past practice, or increased (or experienced any change in the
assumptions underlying or the methods of calculating) any bad debt, contingency,
or other reserve, other than in the ordinary course of business consistent with
past practice;

(c) paid, discharged, or satisfied any claim, lien,
encumbrance, obligation, or liability (whether absolute, accrued, contingent,
and whether due or to become due), other than the payment, discharge, or
satisfaction in the ordinary course of business consistent with past practice of
claims, liens, encumbrances, obligations, or liabilities of the type reflected
or reserved against in the Financial Statements or which were incurred since
March 31, 1999 in the ordinary course of business consistent with past practice;

(d) permitted, allowed, or suffered any of its properties or
assets (real, personal or mixed, tangible, or intangible) to be subjected to any
mortgage, pledge, lien, encumbrance, restriction, or charge of any kind, other
than Permitted Encumbrances;

(e) written down or written up the value of any Inventory
(including write-downs by reason of shrinkage or markdowns), determined as
collectible any Accounts Receivable or any portion thereof which were previously
considered uncollectible, or written off as uncollectible any Accounts
Receivable or any portion thereof, except for write-downs, write-ups, and write-
offs in the ordinary course of business consistent with past practice, none of
which is material in amount;

(f) canceled any debts or waived any claims or rights in
excess of $5,000.00 individually or $10,000.00 in the aggregate;

(g) disposed of or permitted to lapse any right to the use of
any patent, trademark, assumed name, service mark, trade name, copyright,
license, or application therefor or disposed of or to the best of Seller's
knowledge disclosed to any person not authorized to have such information any
trade secret, proprietary information, formula, process, or know-how not
previously a matter of public knowledge or existing in the public domain;

-29-
<PAGE>

(h) except for the capital expenditure commitments described
on Schedule 5.9.2, made any significant capital expenditure or commitment for
additions to property, plant, equipment, intangible, or capital assets or for
any other purpose, other than for emergency repairs or replacement;

(i) incurred any long term indebtedness;

(j) paid, loaned, distributed, or advanced any amounts to,
sold, transferred, or leased any properties or assets (real, personal or mixed,
tangible or intangible) to, purchased, leased, licensed, or otherwise acquired
any properties or assets from, or entered into any other agreement or
arrangement with (i) any stockholder, officer, employee, or director of Seller,
(ii) any corporation or partnership in which any affiliate is an officer,
director, or holder directly or indirectly of five percent (5%) or more of the
outstanding equity or debt securities, or (iii) any person controlling,
controlled by, or under common control with any such partner, stockholder,
officer, director, or affiliate except for compensation not exceeding the rate
of compensation set forth on Schedule 5.16 or permitted by Section 5.14(m) and
for routine travel advances to officers and employees;

(k) entered into any collective bargaining or labor agreement
(oral and legally binding or written), or experienced any organized slowdown,
work interruption, strike, or work stoppage;

(l) sold, transferred, or otherwise disposed of any of the
Acquired Assets except in the ordinary course of business consistent with past
practice;

(m) granted or incurred any obligation for any increase in
the compensation of any officer or employee of Seller (including, without
limitation, any increase pursuant to any bonus, pension, profit-sharing,
retirement, or other plan or commitment) except for raises to employees in the
ordinary course of business consistent with past practice;

(n) made any material change in any method of accounting or
accounting principle, practice, or policy;

(o) suffered any casualty loss or damage in excess of $25,000
in the aggregate (whether or not insured against);

(p) made or agreed to make any charitable contributions or
incurred or agreed to incur any non-business expenses in excess of $5,000 in the
aggregate;

-30-
<PAGE>

(q) taken any other action neither in the ordinary course of
business and consistent with past practice nor provided for in this Agreement;
or

(r) agreed, so as to legally bind Seller whether in writing or
otherwise, to take any of the actions set forth in this Section 5.14 and not
otherwise permitted by this Agreement.

5.15 Brokers and Finders. Neither Seller nor any affiliate of
-------------------
Seller has incurred any obligation or liability to any party for any brokerage
fees, agent's commissions, or finder's fees in connection with the transactions
contemplated by the Acquisition Documents.

5.16 Labor Matters. Schedule 5.16 contains a true and correct and
-------------
complete list of all present employees and sales representatives employed or
engaged by Seller in the Business, their total remuneration for the year ended
December 31, 1998, their current remuneration, and a description of all
perquisites and fringe benefits they receive or are eligible to receive. Except
as described on Schedule 5.16, Seller, within the last three (3) years, has not
experienced any organized slowdown, work interruption, strike, or work stoppage
by employees of Seller engaged in the Business. Except as set forth on Schedule
5.16, Seller is not a party to nor does Seller have any obligation pursuant to
any oral and legally binding or written agreement, collective bargaining or
otherwise, with any party regarding the rates of pay or working conditions of
any of the employees of Seller engaged in the Business, nor is Seller obligated
under any agreement to recognize or bargain with any labor organization or union
on behalf of such employees. Neither Seller, with respect to the Business, nor
any of its officers, directors, or employees has been charged or, to Seller's
knowledge, threatened with the charge of any unfair labor practice, with respect
to the Business within the last two (2) years. Seller, with respect to the
Business, is in material compliance with all applicable federal, state, local
and foreign laws and regulations concerning the employer-employee relationship
and with all agreements relating to the employment of Seller's employees,
including applicable wage and hour laws, fair employment laws, safety laws,
worker compensation statutes, unemployment laws, and social security laws.
Except as described on Schedule 5.16, with respect to the Business, there are no
pending or, to Seller's knowledge, threatened claims, investigations, charges,
citations, hearings, consent decrees, or litigation concerning: wages,
compensation, bonuses, commissions, awards, or payroll deductions; equal
employment or human rights violations regarding race, color, religion, sex,
national origin, age, handicap, veteran's status, marital status, disability, or
any other recognized class, status, or attribute under any federal, state, local
or foreign equal employment law prohibiting discrimination; representation
petitions or unfair labor practices; grievances or arbitrations pursuant to
current or expired collective bargaining agreements; occupational safety and
health; workers' compensation; wrongful termination, negligent hiring, invasion
of privacy or defamation; immigration or any other claim based on the employment
relationship or termination of the employment relationship (collectively,

-31-
<PAGE>

"Labor Claims"). With respect to the Business, Seller is not liable for any
unpaid wages, bonuses, or commissions (other than those not yet due) or any tax,
penalty, assessment, or forfeiture for failure to comply with any of the
foregoing. Except as described on Schedule 5.16, there is no outstanding
agreement or arrangement with respect to severance payments with respect to any
Employee.

5.17 Governmental Approval and Consents. Except as described on
----------------------------------
Schedule 5.17 and as set forth in the Environmental Audit Reports, Seller, with
respect to the Business, has obtained all governmental approvals,
authorizations, permits, licenses, and orders required for the lawful operation
of the Business as presently conducted the absence of which would materially and
adversely affect the operation of the Business. Schedule 5.17 contains a true
and correct copy of each such approval, authorization, permit, license, and
order.

5.18 Taxes.
-----

(a) Seller has timely filed, and as of the Closing Date will
have timely filed, all federal and foreign income tax returns, and, with respect
to the Business, all state, county, and local income, franchise, property,
sales, use, unemployment, and other tax returns in each jurisdiction where such
returns are required to be filed on or prior to the Closing Date, taking into
account any extensions of the filing deadlines which have been validly granted
to Seller, and such returns are and will be true and correct in all material
respects. Seller, with respect to the Business, has paid, or by the Closing Date
will have paid, all federal, state, county, and local income, franchise,
property, sales, use, and all other taxes and assessments (including penalties
and interest in respect thereof, if any) that have become or are due with
respect to any period ended on or prior to the Closing Date whether shown as due
on such returns or not, or Seller is contesting in good faith such taxes and
assessments, in which event Seller has disclosed the details of such contests on
Schedule 5.18.1.

(b) Schedule 5.18.1 provides a brief description of any
pending federal and state tax disputes in which Seller, with respect to the
Business, is alleged to be liable or in which Seller is claiming a refund,
including the nature and amount of the controversy, the respective positions of
the parties as to any amounts claimed to be due thereunder, and the current
status thereof.

(c) All taxes required to be withheld prior to the Closing
Date from employees of Seller engaged in the Business for income taxes and
social security taxes have been properly withheld and, if required prior to the
Closing Date, have been deposited with the appropriate governmental agency.

(d) No claim or investigation is pending, or to the best of
Seller's knowledge, threatened, by any state, local, or other jurisdiction
alleging that Seller has a

-32-
<PAGE>

duty to file tax returns and pay taxes or is otherwise subject to the taxing
authority of any jurisdiction not included in Schedule 5.18.1 with respect to
any taxes covered by Section 10.3, nor has Seller received any notice or
questionnaire from any such jurisdiction which suggests or asserts that Seller,
with respect to the Business, may have a duty to file such returns and pay such
taxes, or otherwise is subject to the taxing authority of such jurisdiction.

5.19 Employee Benefit Plans.
----------------------

(a) Schedule 5.19 contains a true and complete list of all the
following agreements or plans which are presently in effect (and with respect to
multi-employer plans, those plans which have previously been in effect) and
which cover employees of Seller engaged in the Business ("Employees"),
including, without limitation, incentive, bonus, vacation and severance
programs:

(i) Any employee benefit plan as defined in Section
3(3) of the Employee Retirement Income Security Act of 1974 ("ERISA") or under
which Seller, with respect to Employees, has any outstanding, present, or future
obligation or liability, or under which any Employee has any present or future
right to benefits which are covered by ERISA; or

(ii) Any other pension, profit sharing, retirement,
deferred compensation, stock purchase, stock option, stock appreciation, phantom
stock or other equity-based, incentive, bonus, performance vacation,
termination, retention, change of control, severance, "golden parachute,"
disability, hospitalization, medical, life insurance, or other employee benefit
plan, program, policy, or arrangement, which Seller, with respect to the
Business, maintains or to which Seller, with respect to the Business, has any
outstanding, present, or future obligations to contribute or make payments
under, whether voluntary, contingent, or otherwise.

The plans, programs, policies, or arrangements described in subparagraph (i) or
(ii) are hereinafter collectively referred to as the "Benefit Plans."

(b) The Benefit Plans have been or will be made available to
the Purchaser for review, including, but not limited to, correct and complete
copies of (i) all trust agreements or other funding arrangements for such
Benefit Plans and all amendments thereto, (ii) with respect to any such Benefit
Plans or amendments, all determination letters, rulings, opinion letters,
information letters, advisory opinions issued by the Internal Revenue Service or
the Department of Labor, and voluntary filings or other corrective actions
described in Revenue Procedure 98-22.

-33-
<PAGE>

(c) Seller and each of the Benefit Plans are in compliance
with the applicable provisions of ERISA, those provisions of the Code applicable
to the Benefit Plans and all other laws, restrictions, rulings, etc. applicable
to such Benefit Plans.

(d) All contributions to, and payments from, the Benefit Plans
which may have been required to be made in accordance with the Benefit Plans
and, when applicable, Section 302 of ERISA or Section 412 of the Code, have been
timely made.

(e) There are (i) no pending investigations by any
governmental authority involving the Benefit Plans, (ii) no termination
proceedings involving the Benefit Plans, (iii) no threatened or pending claims
(except for claims for benefits payable in the normal operation of the Benefit
Plans), suits or proceedings against any Benefit Plan or asserting any rights or
claims to benefits under any Benefit Plan which could give rise to any material
liability, and (iv) no facts which could give rise to any material liability in
the event of such investigation, claim, suit or proceeding.

(f) Neither the Benefit Plans, Seller, any Employee nor any
trusts created thereunder or any trustee, administrator or other fiduciary
thereof, has engaged in a "prohibited transaction" (as such term is defined in
Section 4975 of the Code or Section 406 of ERISA) which could subject Seller to
the tax or penalty on prohibited transactions imposed by such Section 4975 or
the sanctions imposed under Title I of ERISA.

(g) Neither Seller nor any entity aggregated with the Company
at any time under Code Section 414 (an "ERISA Affiliate") has at anytime
sponsored, contributed to or been obligated under Title I or Title IV of ERISA
to contribute to a "defined benefit plan" (as defined in ERISA Section 3(35)).

(h) Except as described on Schedule 5.19, neither Seller nor
any ERISA Affiliate has had an "obligation to contribute" (as defined in ERISA
Section 4212) to a "multiemployer plan" (as defined in ERISA Sections 4001(a)(3)
and 3(37)(A)) or has incurred a "complete or partial withdrawal" (as defined in
ERISA Sections 4203 and 4205).

(i) Seller has not incurred nor is it reasonably likely to
incur any liability with respect to any plan or arrangement that would be
included within the definition of "Benefit Plan" hereunder but for the fact that
such plan or arrangement was discontinued or terminated before the date of this
Agreement.

(j) Seller has not incurred any liability to provide, and no
Transferred Benefit Plan includes an obligation to provide, death or medical
benefits with respect to any current or former employee of Seller with respect
to the Business beyond retirement or other termination of employment other than
as required by Section 4890B of the Code.

-34-
<PAGE>

(k) All annual returns and reports, audited or unaudited
financial statements, actuarial reports, summary annual reports and summary plan
descriptions issued with respect to the Benefit Plans are correct and complete,
have been timely filed with the IRS and timely delivered to participants and
there has been no material changes in the information set forth therein. No
material oral or written representation or communication with respect to any
aspect of the Benefit Plans has been made to employees of Seller that is not in
accordance with the written terms of such plans.

(l) Except as set forth on Schedule 5.19, neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated by this Agreement will (i) entitle any current or
former employee or director of Seller to severance pay, unemployment
compensation or any payment contingent upon a change in control or ownership of
Seller, (ii) increase or enhance any benefits payable under any Benefit Plan or
(iii) accelerate the time of payment or vesting, or increase the amount, of any
compensation due to any such employee or former employee or director.

(m) Seller has complied in all material respects with the
continuation coverage requirements of Section 1001 of the Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended, and ERISA Sections 601 through
608. Seller shall be responsible for complying with the requirements of Code
Section 4980 B and Part 6 of Title 1 of ERISA for its employees (including the
Hired Employees, as hereinafter defined) and their "qualified beneficiaries"
whose "qualifying event" (as such terms are defined in Code Section 4980 B)
occurs on or prior to the Closing Date.

5.20 Compliance with Laws. Except as set forth on the Environmental
--------------------
Audit Reports, Seller, with respect to the Business, is not engaging in any
activity or omitting to take any action with respect to the Business or the
Acquired Assets that is or creates a material violation of any law, statute,
ordinance, or regulation applicable to the Business, or to the Acquired Assets.
Neither the Business nor any of the Acquired Assets are subject to any judgment,
order, writ, injunction, or decree issued by any court or any governmental or
administrative body or agency which has a material effect on either of them.
Seller possesses all permits and licenses material to the operation of the
Business as presently conducted and is in compliance with all applicable laws,
regulations, and orders issued by any court or governmental or administrative
body or agency where a failure so to comply would have a material adverse effect
on either the Business or the Acquired Assets. Seller, with respect to the
Business, has not at any time during the last five (5) years (i) made any
unlawful contribution to any political candidate, or failed to disclose fully
any contribution in violation of law, or (ii) made any payment to any federal,
state or local governmental, regulatory or administrative officer or official,
or other person charged with similar public or quasi-public duties, other than
payments required or permitted by the laws of the United States or any
jurisdiction thereof.

-35-
<PAGE>

5.21 Governmental Approval and Consents. Except for the filing of
----------------------------------
the appropriate documents pertaining to the Hart-Scott-Rodino Anti-trust
Improvements Act of 1976, as amended (the "HSR Act") with the United States
Federal Trade Commission and the United States Department of Justice, and the
expiration of the applicable waiting period or the receipt of an order of
termination of the waiting period therefrom, no consent, approval, or
authorization of or declaration, filing, or registration with any governmental
or regulatory authority is required in connection with the execution, delivery,
and performance of this Agreement by Seller or the consummation by Seller of the
transactions contemplated hereby.

5.22 Adequacy of Acquired Assets. The Acquired Assets include all
---------------------------
rights, properties, interests in properties, and assets necessary to permit
Purchaser to carry on the Business as presently conducted by Seller. To Seller's
knowledge, with no duty of independent inquiry, the Equipment, Furniture and
Fixtures and the improvements on the Real Property are individually and in the
aggregate in good condition and state of repair, reasonable wear and tear and
normal depreciation excepted. To Seller's knowledge, with no duty of independent
inquiry, Seller has no reason to anticipate, nor has it received any written
notice from its representatives, that capital expenditures of greater than an
aggregate of $50,000 will be required within twelve (12) months after the
Closing Date to repair or replace any of such assets, other than non-capital
expenditures for routine, preventive or remedial maintenance in the ordinary
course of business and capital expenditures consistent in amount with past
annually budgeted capital expenditures.

5.23 Compliance with the Immigration Reform and Control Act. To the
------------------------------------------------------
best of Seller's knowledge, Seller is in full compliance with and has not
violated the terms and provisions of the Immigration Reform and Control Act of
1986, and all related regulations promulgated thereunder (the "Immigration
Laws"). With respect to each employee (as defined in Section 274a.1(f) of Title
8, Code of Federal Regulations) of the Seller for whom compliance with the
Immigration Laws by an employer (as defined in Section 274a.1(g) of Title 8,
Code of Federal Regulations) is required, the Seller, upon request of Purchaser,
will make available to Purchaser prior to the Closing Date, such employee's Form
I-9 (Employment Eligibility Verification Form) and all other records, documents
or other papers which are retained with the Form I-9 by the employer pursuant to
the Immigration Laws. The Seller has never been the subject of any inspection or
investigation relating to its compliance with or violation of the Immigration
Laws, nor has it been warned, fined or otherwise penalized by reason of any
failure to comply with the Immigration Laws, nor is any such proceeding pending
or, to the best of Seller's knowledge, threatened.

5.24 Correctness of Representations. No representation or warranty
------------------------------
of Seller in this Agreement or in any Exhibit, certificate, or Schedule attached
hereto or furnished pursuant hereto, contains, or on the Closing Date will
contain, any untrue statement of material fact or omits, or on the Closing Date
will omit, to state any fact necessary in

-36-
<PAGE>

order to make the statements contained therein not misleading in any material
respect, and all such statements, representations, warranties, Exhibits,
certificates, and Schedules shall be true and complete in all material respects
on and as of the Closing Date as though made on that date. True copies of all
mortgages, indentures, notes, leases, agreements, plans (except Company Benefit
Plans), Contracts, and other instruments listed on the Schedules delivered or
furnished to Purchaser pursuant to this Agreement have been delivered to
Purchaser.

5.25 Definition of "knowledge". The phrases "to the knowledge of
-------------------------
Seller", "Seller has not received notice", "to Seller's knowledge", "Seller has
not been notified" and any other similar phrases as used in this Article 5 refer
to the knowledge of the executive officers and general managers for each
facility of Seller and the Division and, as to specific areas which are the
subject of the representations and warranties, the knowledge of those employees
of Seller and the Division having management responsibilities related to such
specific areas. The list of such executive officers, general managers and
employees is set forth on Schedule 5.25.

ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF PURCHASER

Purchaser hereby represents and warrants to Seller as follows:

6.1 Organization and Qualification. Purchaser is a corporation
------------------------------
duly organized, validly existing, and in good standing under the laws of the
State of Delaware and has all corporate power and authority to conduct its
business, to own, lease, or operate its properties in the places where such
business is conducted and such properties are owned, leased, or operated.

6.2 Authority. Purchaser has full power and authority to enter
---------
into this Agreement and each of the other Acquisition Documents to which it is a
party and consummate the transactions contemplated hereby and thereby. The
execution, delivery and performance by Purchaser of this Agreement and each of
the other Acquisition Documents to which Purchaser is a party have been duly and
validly authorized and approved by all necessary action on the part of
Purchaser. This Agreement and each of the other Acquisition Documents to which
Purchaser is a party are the legal, valid, and binding obligations of Purchaser
enforceable against Purchaser in accordance with their terms, except as
enforceability may be limited by applicable equitable principles or by
bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting
creditors' rights generally, and by the exercise of judicial discretion in
accordance with equitable principles. Neither the execution and delivery by
Purchaser of this Agreement or any of the other Acquisition Documents to which
Purchaser is a party nor the consummation by Purchaser of the transactions
contemplated hereby or thereby will (i) violate Purchaser's Articles of
Incorporation or Bylaws, (ii) violate any provisions of law or any order of any

-37-
<PAGE>

court or any governmental unit to which Purchaser is subject, or by which its
assets are bound, or (iii) conflict with, result in a breach of, or constitute a
default under any indenture, mortgage, lease, agreement, or other instrument to
which Purchaser is a party or by which its assets or properties are bound.

6.3 Brokers and Finders. Neither Purchaser nor any affiliate of
-------------------
Purchaser has incurred any obligation or liability to any party for any
brokerage fees, agent's commissions, or finder's fees in connection with the
transactions contemplated by the Acquisition Documents.

6.4 Governmental Approval and Consents. Except for the filing of
----------------------------------
the appropriate documents pertaining to the HSR Act with the United States
Federal Trade Commission and the United States Department of Justice, and the
expiration of the applicable waiting period or the receipt of an order of
termination of the waiting period therefrom, no consent, approval, or
authorization of or declaration, filing, or registration with any governmental
or regulatory authority is required in connection with the execution, delivery,
and performance by Purchaser of this Agreement or the consummation of the
transactions contemplated hereby.

6.5 Correctness of Representations. No representation or warranty
------------------------------
of Purchaser in this Agreement or in any Exhibit, certificate, or Schedule
attached hereto or furnished pursuant hereto contains, or on the Closing Date
will contain, any untrue statement of material fact or omits or, on the Closing
Date, will omit, to state any fact necessary in order to make the statements
contained therein not misleading in any material respect, and all such
statements, representations, Exhibits, and certificates shall be true and
complete on and as of the Closing Date as though made on that date.

ARTICLE 7
OTHER AGREEMENTS OF THE PARTIES

7.1 Consents. Prior to the date hereof, Purchaser has advised
--------
Seller in writing of all consents and estoppels which, in the reasonable
judgment of Purchaser, are necessary or appropriate for the transfer or
assignment of each of the material Acquired Assets and the Business to Purchaser
and the consummation of the transactions contemplated hereby (each a "Required
Consent" and together the "Required Consents"). All Required Consents so
obtained shall be in writing and in form and substance reasonably satisfactory
to Purchaser, and executed counterparts thereof will be delivered to Purchaser
promptly after receipt thereof but in no event later than the Closing. In any
case where a necessary Required Consent has not been obtained at or prior to the
Closing, Seller shall assist Purchaser, at Purchaser's request, after Closing in
every reasonable effort to obtain such Required Consent. Seller shall also
assist Purchaser, at Purchaser's request, after Closing in every reasonable
effort to obtain any consents and estoppels

-38-
<PAGE>

relating to the transfer or assignment of any Acquired Asset or the consummation
of the transactions provided for herein that is not a Required Consent.

7.2 Conditions Precedent. Seller shall use its best efforts to
--------------------
satisfy the conditions enumerated in Article 8 hereof.

7.3 Environmental Permits.
---------------------

(a) Seller has filed a Notice of Intent with applicable
governmental authorities for the issuance of storm water permits with respect to
each of Seller's facilities at which the Business is conducted and at which such
permits are required by applicable law. Seller and Purchaser shall cooperate at
all times following the date of this Agreement (i) to diligently prosecute in
the name of Seller each such Notice of Intent, (ii) to seek the issuance at the
earliest practical time of the storm water permits to which each Notice of
Intent relates, and (iii) upon issuance of each such permit, promptly file and
diligently prosecute an application for the transfer of such permit to
Purchaser. Seller covenants and agrees that it will not do, or cause, permit or
allow others under its control to do, any act that would prevent or delay, or
that might reasonably be expected to prevent or delay, the issuance and
subsequent transfer to Purchaser of any such permit. Seller shall pay and shall
indemnify and hold harmless Purchaser against (i) all fees and charges of
governmental agencies in connection with the issuance of the storm water
permits, (ii) all reasonable fees and charges of personnel, counsel and advisors
of both Purchaser and Seller incurred in connection with the application for and
the issuance and transfer of such storm water permits, and (iii) any penalties
or like charges levied or assessed against Seller or Purchaser based upon or
arising out of the failure to have a storm water permit as required at a
facility based upon operations conducted at that facility as of the Closing Date
at any time prior to the date of issuance thereof.

(b) As soon as practical following the Closing Date, Purchaser
shall file with applicable governmental authorities and shall diligently
prosecute applications for air emission permits or approvals ("Air Permits")
with respect to each facility at which the Business is conducted and with
respect to which Purchaser is advised by its environmental consultants and legal
counsel that such Air Permit is reasonably likely to be required by applicable
law based upon operations conducted at that facility as of the Closing Date.
Seller shall cooperate with Purchaser in any way reasonably requested by
Purchaser, but at Seller's own cost and expense, in filing and prosecuting such
applications for Air Permits and in seeking the issuance thereof to Purchaser.
Prior to filing with applicable governmental authorities, Purchaser shall
provide Seller a copy of any such Air Permit applications for Seller's review
and comment which shall be completed so as to not unreasonably delay the filing
of any such applications. Seller shall pay, and indemnify and hold harmless
Purchaser against, (i) all fees and charges of governmental agencies in
connection with the issuance of the Air Permits, (ii) all reasonable fees and
charges of personnel, counsel, and advisors of both Purchaser and

-39-
<PAGE>

Seller incurred in connection with the application for and the issuance of such
Air Permits, and (iii) any penalties or like charges levied or assessed against
Purchaser or Seller based upon or arising out of the failure to have an Air
Permit as required at a facility based on operations conducted at that facility
as of the Closing Date at any time prior to the issuance of the date thereof.

7.4 Discharge of Liens and Encumbrances. All liens, claims,
-----------------------------------
charges, security interests, pledges, assignments, or encumbrances relating to
the Acquired Assets that are not Permitted Encumbrances shall be satisfied,
terminated, and discharged by Seller on or prior to the Closing and evidence
reasonably satisfactory to Purchaser and its counsel of such satisfaction,
termination, and discharge shall be delivered to Purchaser at or prior to the
Closing.

7.5 Illinois Real Property. At the Closing, Seller and Purchaser
----------------------
shall enter into the Sublease Agreement attached as Exhibit E hereto with
respect to the Illinois Real Property (the "Illinois Sublease"). Seller shall
use its commercially reasonable best efforts to procure the consent of the
Landlord under the Illinois Lease Agreement to the Illinois Sublease; provided
however, the failure to obtain such consent after Seller has used its
commercially reasonable best efforts to do so shall not constitute a breach of
this Agreement but obtaining such consent shall remain a condition precedent to
Purchaser's obligations hereunder as and to the extent provided in Section 8.5
below. Seller shall use its best efforts to procure the termination of the
Illinois Lease Agreement as soon as possible following the termination or
expiration of the term of the Illinois Sublease. If Seller is required to make
any payment with respect to the termination of the Illinois Lease Agreement,
Purchaser shall, in addition to rental and other charges payable by Purchaser,
as lessee, under the Illinois Sublease, pay and reimburse Seller in the amount
of the lesser of (a) one-half of the aggregate amount so paid or (b) $500,000.

7.6 Orem City Bonds. Purchaser agrees to use the Division's Orem,
---------------
Utah facilities, financed with the Orem City Bonds, for the business of
designing, manufacturing, producing, and marketing metal bar gratings,
fiberglass reinforced plastic gratings and related products, respectively, or
Purchaser will obtain the opinion of Bond Counsel to the effect that any other
proposed use will not affect adversely the validity or tax exempt status of the
Orem City Bonds. For purposes of this covenant, "Bond Counsel" shall mean an
attorney or firm whose legal and tax opinion on municipal bond issues is
nationally recognized and who shall be acceptable to the trustee for the Orem
City Bonds and who will not be an employee of Orem City, the Seller or the
Purchaser.

7.7 Transferred Benefit Plans.
-------------------------

(a) Seller shall within ninety (90) days of the Closing, take
such action as is reasonably necessary to transfer sponsorship, together with
all assets and liabilities, including but not limited to insurance contracts, of
the following Benefit Plans to which

-40-
<PAGE>

Seller contributes pursuant to the collective bargaining agreements for the
Division's Liberty, Missouri and Libertyville, Illinois facilities: (i) the
Arrowhead Grating & Metalworks, Inc. Union Retirement Plan (a 401(k) plan), and
(ii) the Libertyville Multi-employer Pension Plan (the "Transferred Benefit
Plans"). For avoidance of doubt, the Transferred Benefit Plans do not include
the Arrowhead Grating & Metalworks, Inc. Union Pension Plan, which is a frozen
money purchase pension plan.

On or before the effective date of such transfer, Seller will provide
to Purchaser all records, data, and information maintained by Seller or its
affiliates relating to the foregoing Transferred Benefit Plans. Thereafter,
Seller will make its personnel available to Purchaser, under reasonable
conditions, to answer questions regarding the administration or operation of the
Transferred Benefit Plans.

(b) Prior to the Closing, Seller shall contribute to the
Transferred Benefit Plans an amount equal to the employer contribution accrued
under such Transferred Benefit Plans through the Closing, assuming such
contribution accrued ratably over the Transferred Benefit Plan year and without
regard to requirements relating to minimum hours or employment on the last date
of such Transferred Benefit Plan year.

7.8 Pittsburgh Real Property. Purchaser shall have the right for a
------------------------
period of sixty (60) days following the Closing, without payment of rent or any
other fee or charge, to enter upon, and to have its agents, employees and
representatives enter upon the premises of Seller's Pittsburgh, Pennsylvania
facility for the purpose of removing in a commercially reasonable manner, any of
the Acquired Assets that are located on such premises. Thereafter, Purchaser may
extend such license for thirty (30) day periods of time for $6,000 per thirty
(30) day period. Purchaser agrees to indemnify and hold harmless the Seller for
any damage to such premises caused by the acts of Purchaser, or its agents,
employees or representatives, in removing the Acquired Assets from the premises.

7.9 Oak Brook Real Property. At the Closing, Seller and Purchaser
-----------------------
shall enter into the Sublease Agreement attached as Exhibit F hereto with
respect to the Oak Brook Real Property (the "Oak Brook Sublease"). Seller shall
use its commercially reasonable best efforts to procure the consent of the
Landlord under the Oak Brook Lease Agreement to the Oak Brook Sublease; provided
however, the failure to obtain such consent after Seller has used its
commercially reasonable best efforts to do so shall not constitute a breach of
this Agreement but obtaining such consent shall remain a condition precedent to
Purchaser's obligations hereunder as and to the extent provided in Section 8.5
below. The Oak Brook Sublease shall be for a term not to exceed one hundred and
eighty (180) days, but may be terminated prior to the expiration of such period
on ten (10) days notice from Purchaser to Seller.

-41-
<PAGE>

ARTICLE 8
CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER

The obligation of Purchaser to consummate the transactions contemplated
by this Agreement shall be subject to the satisfaction, on or before the Closing
Date, of each of the following conditions all or any of which may be waived in
writing, in whole or in part, by Purchaser:

8.1 Certificate Regarding Schedules and Representations and
-------------------------------------------------------
Warranties. All information required to be furnished or delivered by Seller
- - - ----------
pursuant to this Agreement shall have been furnished or delivered as of the
Closing Date, as required hereunder; the representations and warranties made by
Seller in Article 5 shall be true and correct in all material respects on and as
of the Closing Date with the same force and effect as though such
representations and warranties had been made on and as of the Closing Date
(except that such representations and warranties may be untrue or incorrect as a
result of actions or transactions expressly permitted by this Agreement or
actions or transactions of Seller made with the prior written consent of
Purchaser); and Purchaser shall have received a certificate dated as of the
Closing Date executed by an authorized officer of Seller to such effect.

8.2 Compliance by Seller. Seller shall have duly performed in all
--------------------
material respects all of the covenants, agreements, and conditions contained in
this Agreement to be performed by Seller on or prior to the Closing Date, and
Purchaser shall have received a certificate, dated as of the Closing Date,
executed by an authorized officer of Seller, to such effect.

8.3 No Injunction; Etc. No action, proceeding, investigation,
------------------
regulation, or legislation shall be pending or threatened which seeks to enjoin,
restrain, or prohibit Purchaser, or to obtain substantial damages from
Purchaser, in respect of the consummation of the transactions contemplated
hereby, or which seeks to enjoin the operation of all or a material portion of
the Business or the Acquired Assets, which, in the reasonable judgment of
Purchaser, would make it inadvisable to consummate the transactions contemplated
by this Agreement.

8.4 Operation in the Ordinary Course. Since March 31, 1999, Seller
--------------------------------
shall have operated the Business of Seller in the ordinary course (except as
otherwise permitted by this Agreement or as agreed to by Purchaser as evidenced
by Purchaser's prior written consent).

8.5 Consents; Authorizations; Approval of Legal Matters. Purchaser
---------------------------------------------------
shall have received a true and correct copy of each Required Consent.

8.6 Leases. Seller shall have obtained the written consent of each
------
lessor of the Leased Real Property to the assignment of the Real Property Leases
to Purchaser and

-42-
<PAGE>

Seller shall have delivered copies of such consents to Purchaser. Seller shall
have obtained the consent of each lessor to, and approval of, the Illinois
Sublease and the Oakbrook Sublease, respectively.

8.7 Incumbency. Purchaser shall have received a certificate of
----------
incumbency of Seller executed by an executive officer and Secretary or Assistant
Secretary of Seller listing the officers of Seller authorized to execute the
agreement and the instruments of transfer on behalf of Seller, certifying the
authority of each such officer to execute the agreements, documents, and
instruments on behalf of Seller in connection with the consummation of the
transactions contemplated herein.

8.8 Certified Resolutions. Purchaser shall have received a
---------------------
certificate of the Secretary or Assistant Secretary of Seller containing a true
and correct copy of the resolutions duly adopted by the board of directors of
Seller, approving and authorizing each Acquisition Document and the transactions
contemplated hereby and thereby. The Secretary or Assistant Secretary of Seller
shall also certify that such resolutions have not been rescinded, revoked,
modified, or otherwise affected and remain in full force and effect.

8.9 Basic Corporate Documents. Seller shall have delivered to
-------------------------
Purchaser on the Closing Date copies of certificates from the Secretaries of
State in each jurisdiction listed on Schedule 5.1.1, indicating that, as of a
date within a reasonable period of time prior to the Closing Date, Seller was in
good standing and had paid all taxes required to have been paid as of such date
(except those taxes being disputed in good faith as described in Schedule
5.18.1).

8.10 Satisfaction of Title Objections and Release of Certain Liens.
-------------------------------------------------------------
Seller shall have satisfied Purchaser's title objections to the extent required
under Section 4.3 and, in addition, Purchaser at its discretion shall have
received Uniform Commercial Code searches (which searches shall be made or
caused to be made by and at the expense of Purchaser) of filings made pursuant
to Article 9 thereof in all jurisdictions where any of the Acquired Assets are
located, in form, scope, and substance reasonably satisfactory to Purchaser and
its counsel, which searches shall reflect the release or termination of liens,
claims, security interests, or encumbrances against any of the Acquired Assets
disclosed thereby that are not Permitted Encumbrances, and to the extent any
such release or termination is not reflected of record, Purchaser shall have
received evidence satisfactory to it, that all such liens and encumbrances
against the Acquired Assets other than Permitted Encumbrances have been released
or terminated prior to or at the Closing.

8.11 Accuracy of Schedules. Examination by Purchaser shall not have
---------------------
disclosed any material inaccuracy in the representations and warranties of
Seller, set forth in this Agreement or in the Schedules delivered to Purchaser
pursuant hereto.

-43-
<PAGE>

8.12 No Adverse Change. There shall not have been any material
-----------------
adverse change in the Acquired Assets or the Business since March 31, 1999,
except as reflected in the monthly financial statements included in the
Financial Statements, and Purchaser shall have received a certificate dated as
of the Closing Date, executed by an authorized officer of Seller to such effect.

8.13 Instruments of Transfer. Seller shall have delivered to
-----------------------
Purchaser such warranty deeds, quitclaim deeds, bills of sale, motor vehicle
titles, endorsements, assignments, licenses, and other good and sufficient
instruments of conveyance and transfer and any other instruments reasonably
deemed appropriate by counsel to Purchaser all in form and substance reasonably
satisfactory to counsel to Purchaser to vest in Purchaser all of Seller's
rights, title, and interest with respect to the Acquired Assets, free and clear
of all liens, charges, encumbrances, pledges, or claims of any nature, except
for Permitted Encumbrances, and Purchaser's assumption of Seller's obligations
thereunder, including, but not limited to, the Assumption Agreement.

8.14 Acquisition Documents. Purchaser shall have received the
---------------------
Acquisition Documents, the Sublease Agreement and the License Agreement to which
Seller is a party, executed by Seller.

8.15 Opinion of Seller's Counsel. Purchaser shall have received the
---------------------------
Seller Opinion.

8.16 Title Commitments; Surveys. Purchaser, provided that Purchaser
--------------------------
has used its best efforts to acquire the following at Purchaser's sole cost and
expense, shall have received title commitments from Commonwealth Land Title
Insurance Company for the issuance to Purchaser at the Closing of an owner's
policy of title insurance on ALTA Form A, and surveys, for the Real Property
(the "Title Commitments"), which shall be reasonably satisfactory to Purchaser.

8.17 Real and Leased Property Certificates. Purchaser shall have
-------------------------------------
received prior to Closing, in form and substance reasonably satisfactory to
Purchaser, the Agreements of Estoppel, Consent and Waiver and Landlords' Consent
to Lease Assignments for the Leased Real Property.

8.18 Proceedings. The form and substance of all opinions,
-----------
certificates, assignments, orders, and other documents and instruments,
hereunder shall be satisfactory in all reasonable respects to Purchaser and its
counsel.

8.19 Names. Seller shall have ceased to use in any manner
-----
whatsoever the trade names included among the Acquired Assets and described on
Schedules 5.1.2 and 5.10, except in connection with tax returns, filings with
other governmental authorities, and similar purposes and except as permitted
pursuant to the License Agreement.

-44-
<PAGE>

8.20 Condition of Acquired Assets. On the Closing Date, all of
----------------------------
the Acquired Assets shall be in substantially the same condition as at the
close of business on March 31, 1999, except for ordinary use and wear thereof
and changes occurring in the ordinary course of business or expressly
permitted by this Agreement, and Purchaser shall have received a certificate
dated as of the Closing Date, executed by an authorized officer of Seller to
such effect; provided, however, if on or prior to the Closing Date any of the
Acquired Assets shall have suffered loss or damage on account of fire, flood,
accident, act of war, civil commotion, or any other cause or event beyond the
reasonable power and control of Seller (whether or not similar to the
foregoing) to an extent which, in the reasonable opinion of Purchaser,
materially affects the value of the Acquired Assets, taken as a whole,
Purchaser shall have the right either (a) to terminate this Agreement and all
of Purchaser's obligations hereunder without incurring any liability to Seller
as a result of such termination or (b) to consummate the transactions provided
for herein and be paid the full amount of all insurance proceeds, if any, paid
or payable to Seller, in respect of such loss plus an amount equal to any
deductible or co-insurance reserve applicable to such loss. If under the
circumstances described in the foregoing sentence, Purchaser shall elect to
consummate the transactions provided for herein, Seller shall, on demand, pay
to Purchaser the full amount of any insurance proceeds received by Seller in
respect of any such loss, together with any deductible or co-insurance reserve
applicable to such loss.

8.21 Financing Arrangements. Purchaser shall have consummated
-----------------------
borrowings from one or more lenders (the "Lender(s)") under terms satisfactory
to Purchaser, which borrowings, when taken in the aggregate with other funds
available to Purchaser, are received from the Lender sufficient to pay the
Final Purchase Price and all expenses and fees of Purchaser arising out of the
negotiation, documentation, and consummation of the transactions contemplated
hereby and provide adequate working capital for the operation of the Business
following the Closing.

8.22 HSR Act. The consent or approval of, or the expiration of
-------
the applicable waiting period imposed by, any governmental authority under the
HSR Act, shall have been obtained or shall have expired, and documentation
relating thereto shall be presented by Purchaser.

ARTICLE 9
CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER

The obligation of Seller to consummate the transactions contemplated
by this Agreement shall be subject to the satisfaction, on or before the
Closing Date hereunder, of each of the following conditions, all or any of
which may be waived, in whole or in part, by Seller.

-45-
<PAGE>

9.1 Certificate Regarding Representations and Warranties. All
----------------------------------------------------
information required to be furnished or delivered by Purchaser pursuant to
this Agreement shall have been furnished or delivered as of the Closing Date
as required hereunder; the representations and warranties made by Purchaser in
Article 6 hereof shall be true and correct in all material respects on and as
of the Closing Date with the same force and effect as though such
representations and warranties had been made on and as of the Closing Date;
and Seller shall have received a certificate dated the Closing Date, executed
by an authorized officer of Purchaser to such effect.

9.2 Compliance by Purchaser. Purchaser shall have duly performed
-----------------------
in all material respects all of the covenants, agreements, and conditions
contained in this Agreement to be performed by Purchaser on or before the
Closing Date, and Seller shall have received a certificate dated the Closing
Date, executed by an authorized officer of Purchaser, to such effect.

9.3 Certified Resolutions. Seller shall have received from
---------------------
Purchaser a certificate executed by the Secretary of Purchaser containing a
true and correct copy of resolutions duly adopted by Purchaser's Board of
Directors approving and authorizing this Agreement and each of the other
Acquisition Documents to which Purchaser is a party and each of the
transactions contemplated thereby. The Secretary or Assistant Secretary of
Purchaser shall also certify that such resolutions have not been rescinded,
revoked, modified, or otherwise affected and remain in full force and effect.

9.4 Basic Corporate Documents. Purchaser shall have delivered to
-------------------------
Seller on the Closing Date copies of certificates from the Secretaries of
State in Delaware and Alabama, indicating that, as of a date within a
reasonable period of time prior to the Closing Date, Purchaser was in good
standing, and had paid all taxes required to have been paid as of such date.

9.5 No Injunction; Etc. No action, proceeding, investigation,
------------------
regulation, or legislation shall be pending or overtly threatened which seeks
to enjoin, restrain, or prohibit Seller, or to obtain substantial damages from
Seller, in respect of the consummation of the transactions contemplated
hereby, which, in the reasonable judgment of Seller, would make it inadvisable
to consummate such transactions.

9.6 Incumbency. Seller shall have received a certificate of
----------
incumbency of Purchaser executed by the Chairman or President and attested by
the Secretary or Assistant Secretary of Purchaser listing the officers of
Purchaser authorized to execute this Agreement and the other Acquisition
Documents to which Purchaser is a party and the instruments of assumption on
behalf of Purchaser and certifying the authority of each such officer to
execute the agreements, documents, and instruments on behalf of Purchaser in
connection with the consummation of the transactions contemplated herein.

-46-
<PAGE>

9.7 Certificates. Seller shall have received from Purchaser all
------------
such certificates, dated as of the Closing Date, as Seller shall reasonably
request to evidence the fulfillment by Purchaser, or such other satisfaction
as the Closing Date, of the terms and conditions of this Agreement.

9.8 Acquisition Documents. Seller shall have received the
---------------------
Acquisition Documents, the Sublease Agreement and the License Agreement to
which Purchaser is a party, executed by Purchaser.

9.9 Opinion of Purchaser's Counsel. Seller shall have received
------------------------------
the Purchaser Opinion.

9.10 HSR Act. The consent or approval of, or the expiration of
-------
the applicable waiting period imposed by, any governmental authority under the
HSR Act, shall have been obtained or shall have expired, and documentation
relating thereto shall be presented by Seller.

9.11 Proceedings. The form and substance of all opinions,
-----------
certificates, assignments, orders and other documents and instruments
hereunder shall be satisfactory in all reasonable respects to Seller and its
counsel.

ARTICLE 10
MUTUAL COVENANTS

10.1 Governmental Filings. Purchaser and Seller, to the extent
--------------------
legally required, shall promptly prepare, file, and diligently prosecute at
the earliest practicable time after the date hereof all applications and
filings required by federal or state law in order to effect the transactions
contemplated by this Agreement.

10.2 Further Mutual Covenants. Purchaser and Seller shall each
------------------------
take all actions contemplated by this Agreement, and, subject to Purchaser's
and Seller's right to terminate this Agreement pursuant to Article 13 hereof,
do all things reasonably necessary to effect the consummation of the
transactions contemplated by this Agreement. Except as otherwise provided in
this Agreement, Purchaser and Seller shall each refrain from knowingly taking
or failing to take any action which would render any of the representations or
warranties contained in Articles 5 or 6 of this Agreement in any material
respect inaccurate as of the Closing Date. Each party shall promptly notify
the other party of any action, suit, or proceeding that shall be instituted or
threatened against such party to restrain, prohibit, or otherwise challenge
the legality of any transaction contemplated by this Agreement

-47-
<PAGE>

10.3 Prorations.
----------

(a) To the extent not included in the Assumed
Liabilities and not reflected or reserved for on the Closing Date Balance
Sheet, Utility Charges, Rental Charges, Equipment Charges, Real Property
Taxes, Personal Property Taxes, and Service Contracts including, without
limitation, accruals or prepayments thereof (all as individually defined below
and collectively called the "Proration Items"), shall be prorated directly
between the Seller and the Purchaser as provided in this Section 10.3.

(b) For purposes of this Section 10.3, the capitalized
terms set forth below shall have the following meanings:

(i) "Utility Charges" shall mean water, sewer,
electricity, gas and other utility charges, if any, applicable to the Leased
Real Property;

(ii) "Rental Charges" shall mean common area
maintenance charges, merchant association dues, insurance reimbursement and
rental charges payable or receivable and other payments or receipts (other
than Real Property Taxes) applicable to the Leased Real Property;

(iii) "Equipment Charges" shall mean rental charges
payable or receivable and other payments or receipts applicable to the
Equipment;

(iv) "Real Property Taxes" shall mean ad valorem
taxes imposed upon the Real Property and any portion of the Leased Real
Property, general assessments imposed with respect to the Leased Real Property
and special assessments upon the Leased Real Property, whether payable in full
or by installments prior to the Closing Date; and

(v) "Personal Property Taxes" shall mean ad
valorem taxes imposed upon the Assets other than the Real Property or the
Leased Real Property.

(c) As soon as practicable after the Closing Date, all
Utility Charges, Rental Charges, Equipment Charges, Real Property Taxes,
Personal Property Taxes, and Service Contracts (including amounts owed
pursuant to transferable state licenses applicable to the Acquired Assets and
transferred to Purchaser hereunder) which are not included in the Assumed
Liabilities shall be apportioned to the Closing Date, and representatives of
the Seller and Purchaser will examine all relevant books and records as of the
Closing Date in order to make the determination of the apportionments, which
determinations shall be calculated based upon the number of days in the
relevant billing period (e.g. month, fiscal year, calendar year, quarterly
period, semi-annual period, etc.) that elapse to and including the Closing
Date and the number of days after the Closing Date remaining in such period
and with regard to Real Property Taxes such prorations

-48-
<PAGE>

shall be in accordance with the past practices of the relevant taxing
authority. Payments in respect thereof shall be made to the appropriate party
by check within thirty (30) days after such determination, except that
payments for Real Property Taxes and Personal Property Taxes shall initially
be determined based on the previous year's taxes and shall later be adjusted
to reflect the current year's taxes when the tax bills are finally rendered.
The parties shall fully cooperate to avoid, to the extent legally possible,
the payment of duplicate Personal Property Taxes, and each party shall
furnish, at the request of the other, proof of payment of any Personal
Property Taxes or other documentation which is a prerequisite to avoiding
payment of a duplicate tax.

(d) In the event that either party (the "Payor") pays a
Proration Item (other than if and to the extent included in the Assumed
Liabilities) for which the other party (the "Payee") is obligated in whole or
in part under this Section 10.3, the Payor shall present to the Payee evidence
of payment and a statement setting forth the Payee's proportionate share of
such Proration item, and the Payee shall promptly pay such share to the Payor.
In the event either party (the "Recipient") receives payments of a Proration
Item to which the other party (the "Beneficiary") is entitled in whole or in
part under this Agreement, the Recipient shall promptly pay such share to the
Beneficiary.

(e) In the event there exists as of the Closing Date
any pending appeals of ad valorem tax assessments with regard to any Acquired
Assets, the continued prosecution and/or settlement of such appeals shall be
subject to the direction and control of Purchaser with respect to assessments
for the year within which the Closing occurs.

ARTICLE 11
POST CLOSING MATTERS

11.1 Employment of Employees. On the Closing Date, Purchaser
------------------------
shall offer employment to: (i) all of the salaried and non-salaried
manufacturing and production employees at the Division's manufacturing
facilities, and (ii) substantially all of the salaried and non-salaried
administrative and clerical employees of the Business (except, in both cases,
for employees who are (a) on Seller's salary continuation program for
employees of the Business, (b) employees who are otherwise on any leave or
part-time status, other than vacation leave, maternity leave or any leaves
taken in connection with the Family and Medical Leave Act of 1993 at the
Closing Date, and (c) those employees listed on Schedule 11.1 hereto) at
substantially equivalent rates of pay and working conditions, respectively,
offered by Seller to such Employees on the date of this Agreement. All
employees of the Business accepting Purchaser's offer of employment are
hereinafter referred to as the "Hired Employees." To the extent not reflected
on the Closing Date Balance Sheet or otherwise defined as an Assumed
Liability, Seller shall be responsible for the payment of all earned but
unpaid salaries, bonus, vacation pay, sick pay, holiday pay, severance pay and
other like obligations and payments to the employees of the Business for all
periods ending on or prior to the Effective Time. To

-49-
<PAGE>

the extent not reflected on the Closing Date Balance Sheet or otherwise
defined as an Assumed Liability, Seller shall be responsible for the payment
of any amounts due to its employees (including the Hired Employees) pursuant
to the Benefit Plans as a result of the employment of its employees, and, in
determining bonuses and other similar payments due to Hired Employees for any
period ended on or prior to the Effective Time, Seller shall, if payment
thereof will occur after the Effective Time, waive any requirement that such
employees be employees of Seller on the date such bonuses or other similar
payments are paid. To the extent not reflected on the Closing Date Balance
Sheet or otherwise defined as an Assumed Liability, Seller shall be
responsible for all medical claims (including all incurred but unreported or
unpaid) arising out of treatment provided on or prior to, or hospitalization
or confinement for medical reasons in any health care or treatment facility
that commenced on or prior to and continues through and after, the Effective
Time and for all costs associated with such medical claims. Purchaser shall
become responsible for all salaries and compensation payable to Hired
Employees for employment services first provided on or after the Effective
Time; provided, however, that Purchaser shall not be responsible for (a)
liabilities arising under the Benefit Plans (other than the Transferred
Benefit Plans), or (b) liabilities associated with any leaves taken prior to
the Closing Date in connection with the Family and Medical Leave Act of 1993
unless such liability arises from Purchaser's failure to comply with the
Family and Medical Leave Act of 1993. Effective on the Closing Date, Seller
shall, and hereby does, release all Hired Employees from any employment and/or
confidentiality agreement previously entered into between Seller and such
Hired Employees relating to the Business to the extent (but only to the
extent) necessary for Purchaser to operate the Business in the same manner as
operated by Seller prior to the Closing Date. Seller does not release any
Hired Employee from any confidentiality agreement executed by such Hired
Employee in favor of third parties relating to receipt of confidential
information in connection with potential business acquisitions.

11.2 Seller's Benefit Plans. Purchaser shall assume no
-----------------------
responsibility with regard to any Benefit Plans of Seller other than with
respect to the Transferred Benefit Plans and other than the payment of the
accrued pension amount as and to the extent reflected on the Closing Balance
Sheet. To the extent necessary, Seller may continue to communicate with the
Hired Employees regarding their rights and entitlement to any benefits under
the Benefit Plans, subject to Purchaser's prior approval, which shall not be
unreasonably withheld, and the parties shall cooperate with each other in the
administration of all applicable employee benefit plans and programs.

11.3 Vacation Pay. Purchaser agrees to give each Hired Employee
-------------
credit for prior years of service with Seller for purposes of calculating
vacation pay that may be received pursuant to the vacation pay policy of
Purchaser as may be in effect from time to time after the Closing, and will
waive any eligibility requirements of such policy with respect to Hired
Employees.

-50-
<PAGE>

11.4 Purchaser's Benefit Plans. If Purchaser establishes
--------------------------
employee benefit plans, then each Hired Employee shall receive credit for
prior years of service with Seller for all purposes of such plans (except for
purposes of benefits accrued under a defined benefit plan) and shall be
entitled to participate in any such Purchaser's employee benefit plans without
the application of any applicable waiting periods. Purchaser shall also permit
the Hired Employees and their eligible dependents to participate in its
applicable group medical plans. Purchaser shall recognize all medical expenses
incurred by Hired Employees and eligible dependents during the calendar year
of the Closing and prior to the Closing Date for purposes of satisfying the
existing calendar year deductibles and such calendar year's co-payment
limitations, if any.

11.5 Employee Files. To the extent permitted by law, on the
--------------
Closing Date, or as soon as practicable thereafter, Seller shall deliver or
make available to a designee of Purchaser a copy of all historical personnel
records of each of the Hired Employees, including, but not limited to,
employment agreements, confidentiality and noncompete agreements, employment
applications, corrective action reports, disciplinary reports, notices of
transfer, notices of rate changes, other similar documents.

11.6 Non-Solicitation. Seller shall terminate effective as of
----------------
the Closing Date all employment agreements it has with any of the Hired
Employees. Until the expiration of eighteen (18) months after the month in
which the Closing Date occurs, Seller shall not directly or indirectly solicit
or offer employment to any Hired Employee who is then an employee of
Purchaser, or who has terminated such employment without the consent of
Purchaser within one hundred eighty (180) days of such solicitation or offer,
and Purchaser shall not directly or indirectly solicit or offer employment to
any person who, after the Closing Date is then an employee of Seller or who
has terminated such employment without the consent of Seller within one
hundred eighty (180) days of such solicitation or offer.

11.7 Discharge of Excluded Obligations. From and after the
---------------------------------
Closing Date, Seller shall pay and discharge, in accordance with past practice
but not less than on a timely basis subject to all defenses and set-offs
lawfully available to Seller, all Excluded Liabilities.

11.8 Maintenance of Books and Records. Each of Seller and
--------------------------------
Purchaser shall preserve until the seventh anniversary of the Closing Date all
Books and Records possessed or to be possessed by such party relating to any
of the assets, liabilities or business of the Business prior to the Closing
Date. Seller shall give Purchaser written notice of any Books and Records
discovered by Seller that were not transferred to Purchaser because such Books
and Records were not located on the Real Property or the Leased Property.
After the Closing Date, where there is a legitimate purpose, such party shall
provide the other parties and their representatives with access, upon prior
reasonable written request specifying the need therefor, during regular
business hours, to (i) the

-51-
<PAGE>

officers and employees of such party and (ii) the Books and Records of such
party, but, in each case, only to the extent relating to the assets,
liabilities or business of the Business prior to the Closing Date, and the
other parties and their representatives shall have the right to make copies of
such Books and Records; provided, however, that the foregoing right of access
shall not be exercisable in such a manner as to interfere unreasonably with
the normal operations and business of such party; and further, provided, that,
as to such information as constitutes trade secrets or confidential business
information of such party, the requesting party, its affiliates, officers,
directors and representatives will use due care to not disclose such
information except (i) as required by law, (ii) with the prior written consent
of such party, which consent shall not be unreasonably withheld, or (iii)
where such information becomes available to the public generally, or becomes
generally known to competitors of such party, through sources other than the
requesting party, its affiliates or its officers, directors or
representatives. Such records may nevertheless be destroyed by a party if such
party sends to the other party written notice of its intent to destroy such
records, specifying with particularity the contents of the records to be
destroyed. Such records may then be destroyed only after written consent to
such destruction is delivered.

11.9 Payments Received. Seller and Purchaser each agree that
------------------
after the Closing they will hold and will promptly transfer and deliver to the
other, from time to time as and when received by them, any cash, checks with
appropriate endorsements (using their best efforts not to convert such checks
into cash), or other property that they may receive on or after the Closing
which properly belongs to the other party, including without limitation, any
insurance proceeds, and will account to the other for all such receipts. From
and after the Closing, Purchaser shall have the right and authority to endorse
without recourse the name of Seller on any check or any other evidences of
indebtedness received by Purchaser on account of the Business and the Acquired
Assets transferred to Purchaser hereunder.

11.10 UCC Matters. From and after the Closing Date, Seller will
-----------
promptly refer all inquiries with respect to ownership of the Acquired Assets
or the Business to Purchaser. In addition, Seller will execute such documents
and financing statements as Purchaser may reasonably request from time to time
to evidence transfer of the Acquired Assets to Purchaser, including any
necessary assignments of financing statements.

11.11 Covenant Not to Compete. Seller agrees that for a period
------------------------
of five (5) years commencing on the Closing Date, it will not, within the
Territory (as hereinafter defined), either directly or indirectly, own,
manage, operate, join, control or participate in the ownership, management,
operation or control of, any business, whether in corporate, proprietorship or
partnership form or otherwise where such business is engaged in the design,
manufacture, production, sale of metal and fiberglass reinforced plastic
grating (a "Competing Business"); provided however that this covenant does not
apply to and is not intended to restrict the sales and activities of Shanghai
Klemp, Klemp de Mexico, S.A. de C.V. and the Mexican Subsidiary outside of the
Territory. As used herein, the term

-52-
<PAGE>

"Territory" means the territorial United States. The parties hereto
specifically acknowledge and agree that the remedy at law for any breach of
the foregoing will be inadequate and that the Purchaser, in addition to any
other relief available to it, shall be entitled to temporary and permanent
injunctive relief without the necessity of proving actual damage. In the event
that the provisions of this Section 11.11 should ever be deemed to exceed the
limitation provided by applicable law, then the parties hereto agree that such
provisions shall be reformed to set forth the maximum limitations permitted.

11.12 Cooperation. Seller and Purchaser shall cooperate with each
-----------
other in all reasonable respects in connection with the defense of any claim
included within any Assumed Liability or Excluded Liability, as the case may
be, including making available records relating to such claim and furnishing,
without expense, management employees of the party as may be reasonably
necessary for the preparation of the defense of any such claim or for
testimony as a witness in any proceeding relating to such claim; provided,
however, that the foregoing right to cooperation shall not be exercisable by
one party in such a manner as to interfere unreasonably with the normal
operations and business of the other party.

ARTICLE 12
CONFIDENTIALITY; PUBLIC ANNOUNCEMENTS

12.1 Confidentiality. Consummation of the transactions
---------------
contemplated by this Agreement has involved, and will continue to involve, the
written or verbal disclosure and communication to Purchaser of information or
documentation owned by Seller, which information may include, but is not
necessarily limited to, financial data, business plans, personnel information,
drawings, samples, devices, trade secrets, technical information, computer
systems and software, results of research and other data in either oral or
written form (collectively and individually referred to as the "Information").
Purchaser agrees that the following terms and conditions will apply:

(a) The Information is disclosed to Purchaser solely
for Purchaser's use in completing corporate investigation procedures
incidental to this Agreement, and Purchaser agrees not to use the Information
prior to the Closing Date for any other purpose, not to disclose or
communicate the Information to any third party, except to those employees,
agents, attorneys, accountants, lenders, or consultants who shall have a need
to know the Information for the purpose described above and for whom the
Purchaser shall be responsible.

(b) Except to the extent contemplated by this
Agreement, the Information and all rights to the Information which have been
or will be provided by Seller to Purchaser shall remain the exclusive world-
wide property of Seller prior to the Closing Date and shall be held in trust
by Purchaser for the benefit of Seller. Neither party will, directly or
indirectly, deal with, use, exploit, or disclose such Information to

-53-
<PAGE>

any person or entity for any purpose prior to the Closing Date, except as
described herein or unless and until expressly authorized in writing to do so
by the other. If the transactions contemplated hereby are not consummated,
each party will return or destroy as much of such written Information as the
party furnishing such Information shall reasonably request.

(c) The restrictions of this Section 12.1 shall
terminate on the Closing Date, and thereafter, the Information may be used by
Purchaser free of any restriction imposed by this Agreement.

12.2 Public Announcements. Seller and Purchaser will consult
--------------------
with each other before issuing any press releases or otherwise making any
public statements or filings with governmental entities with respect to this
Agreement or the transactions contemplated hereby and shall not issue any
press releases or make any public statements or filings with governmental
entities prior to such consultation and shall modify any portion thereof if
the other party reasonably objects thereto, unless the same may be required by
applicable law.

ARTICLE 13
TERMINATION

13.1 Termination. This Agreement may be terminated:
-----------

(a) by the mutual consent of Purchaser and Seller;

(b) by Purchaser: (i) if any condition in Article 8
becomes impossible of performance or has not been satisfied in full or
previously waived by Purchaser in writing at or prior to the Closing Date,
(ii) as provided in Sections 4.3(b), 4.6, or 8.21 hereof;

(c) by Seller if any condition in Article 9 becomes
impossible of performance or has not been satisfied in full or previously
waived by Seller in writing at or prior to the Closing Date; or

(d) by either party (other than a party that is in
material breach of its obligations under this Agreement) if the Closing shall
not have occurred on or before September 30, 1999.

13.2 Effect of Termination. If this Agreement is terminated by
a party due to or based upon the breach or default by the other party of any
provision of this Agreement, such termination shall not affect any right or
remedy of the terminating party arising out of such breach or default, and
such party shall be entitled to pursue its rights or remedies

-54-
<PAGE>

against the other party to the extent such rights or remedies may be available
at law or in equity.

ARTICLE 14
INDEMNIFICATION

For the purposes of this Article 14, "Losses" shall mean any and all
demands, claims, actions or causes of action, assessments, losses, damages,
liabilities, costs, removal and remediation requirements and expenses,
including without limitation, interest, penalties, and reasonable attorneys'
and other professional fees and expenses.

14.1 Agreement of Seller to Indemnify. Subject to the terms
-----------------------------------
and conditions of this Article 14, Seller agrees to indemnify, defend, and
hold harmless Purchaser and its officers, directors, and employees
(collectively, the "Purchaser Indemnitees") from, against, for, and in respect
of any and all Losses relating to, imposed upon, or incurred by the Purchaser
Indemnitees by reason of, resulting from, based upon, or arising out of:

(a) the breach of any representation or warranty of
Seller contained in or made pursuant to this Agreement or any other
Acquisition Document or in any certificate, Schedule, or Exhibit furnished by
Seller in connection herewith or therewith;

(b) the breach of any covenant or agreement of Seller
contained in or made pursuant to this Agreement or any other Acquisition
Document;

(d) the failure to deliver good, valid and marketable
title to any of the Acquired Assets, subject only to the Permitted
Encumbrances;

(e) any duties, obligations, liabilities or other
Losses in connection with those certain industrial development revenue bonds
issued by Orem City, Utah in 1981 in the principal amount of $680,000 for the
benefit of Klemp Corporation (the "Orem City Bonds") and any and all loan
agreements, promissory notes or other documents, agreements or instruments
executed in connection therewith (other than any duties, obligations,
liabilities or other Losses with respect to the Orem City Bonds arising as a
result of the breach by Purchaser of its covenant set forth in Section 7.6
hereof); and

(f) as provided in Section 7.3.

14.2 Agreement of Purchaser to Indemnify Seller. Subject to the
------------------------------------------
terms and conditions of this Article 14, Purchaser agrees to indemnify,
defend, and hold harmless Seller and its officers, directors, and employees
(collectively, the "Seller Indemnitees")

-55-
<PAGE>

from, against, for, and in respect of any and all Losses relating to, imposed
upon, or incurred by the Seller Indemnities arising out of:

(a) the breach of any representation or warranty of
Purchaser contained in or made pursuant to this Agreement or any other
Acquisition Document or in any certificate, Schedule, or Exhibit furnished by
Purchaser in connection herewith or therewith;

(b) the breach of any covenant or agreement of
Purchaser contained in or made pursuant to this Agreement or any other
Acquisition Document; and

14.3 Procedures for Indemnification. As used herein, the term
------------------------------
"Indemnitor" means the party against whom indemnification hereunder is sought,
and the term "Indemnitee" means the party seeking indemnification hereunder.

(a) A claim for indemnification hereunder
("Indemnification Claim") shall be made by the Indemnitee by delivery of a
written declaration to the Indemnitor requesting indemnification and
specifying the basis on which indemnification is sought and the amount of
asserted Losses and, in the case of a Third Party Claim (as hereinafter
defined), containing (by attachment or otherwise) such other information as
the Indemnitee shall have concerning such Third Party Claim.

(b) If the Indemnification Claim involves a Third Party
Claim, the procedures set forth in Section 14.4 hereof shall be observed by
the Indemnitee and the Indemnitor.

(c) If the Indemnification Claim involves a matter
other than a Third Party Claim, the Indemnitor shall have twenty (20) business
days to object to such Indemnification Claim by delivery of a written notice
of such objection to the Indemnitee specifying in reasonable detail the basis
for such objection. Failure to timely so object shall constitute a final and
binding acceptance of the Indemnification Claim by the Indemnitor and the
Indemnification Claim shall be paid in accordance with Section 14.3(d) hereof.
If an objection is timely interposed by the Indemnitor, then the Indemnitee
and the Indemnitor shall negotiate in good faith for a period of forty-five
(45) business days from the date (such period is hereinafter referred to as
the "Negotiation Period") the Indemnitee receives such objection prior to
commencing any formal legal action, suit or proceeding with respect to such
Indemnification Claim.

(d) Upon determination of the amount of an
Indemnification Claim that is binding on both the Indemnitor and the
Indemnitee, the Indemnitor shall pay the

-56-
<PAGE>

amount of such Indemnification Claim by check within ten (10) days of the date
such amount is determined.

14.4 Defense of Third Party Claims. Should any claim be made, or
-----------------------------
suit or proceeding (including, without limitation, a binding arbitration or an
audit by any taxing authority) be instituted against the Indemnitee which, if
prosecuted successfully, would be a matter for which the Indemnitee is
entitled to indemnification under this Agreement (a "Third Party Claim"), the
obligations and liabilities of the parties hereunder with respect to such
Third Party Claim shall be subject to the following terms and conditions:

(a) The Indemnitor shall have thirty (30) days (or such
lesser time as may be necessary to comply with statutory response requirements
for litigation claims) from receipt of the Indemnification Claim (the "Notice
Period") to notify the Indemnitee, (i) whether or not the Indemnitor disputes
its liability to the Indemnitee with respect to such claim, and (ii)
notwithstanding any such dispute, whether or not the Indemnitor desires, at
its sole cost and expense, to defend the Indemnity against such claim.

(i) In the event that the Indemnitor notifies the
Indemnitee within the Notice Period that it desires to defend the Indemnitee
against such claim then, except as hereinafter provided, the Indemnitor shall
have the right to defend the Indemnitee by appropriate proceedings, which
proceedings shall be promptly settled or prosecuted by the Indemnitor to a
final conclusion. If the Indemnitee desires to participate in, but not
control, any such defense or settlement, it may do so at its sole cost and
expense.

(ii) Except where the Indemnitor (A) timely elects
to defend the Indemnitee against such claim or demand (in which case Section
14.4(a)(i) shall govern), or (B) Indemnitor disputes its liability in a timely
manner under this Section 14.4, the Indemnitor shall be conclusively liable
for the amount of any such claim or defense which is unsuccessful.

(b) The Indemnitee and the Indemnitor shall cooperate
with each other in all reasonable respects in connection with the defense of
any Third Party Claim, including making available records relating to such
claim and furnishing, without expense to the Indemnitor, management employees
of the Indemnitee as may be reasonably necessary for the preparation of the
defense of any such claim or for testimony as witness in any proceeding
relating to such claim.

14.5 Settlement of Third Party Claims. No settlement of a Third
--------------------------------
Party Claim involving the asserted liability of the Indemnitee under this
Article 14 shall be made without the prior written consent by or on behalf of
the Indemnitee, which consent shall not be unreasonably withheld or delayed.
Consent shall be presumed in the case of settlements of $20,000 or less where
the Indemnitee has not responded within twenty (20)

-57-
<PAGE>

business days of written notice of a proposed settlement. In the event of any
dispute regarding the reasonableness of a proposed settlement, the party that
will bear the larger financial loss resulting from such settlement shall make
the final determination in respect thereto, which determination shall be final
and binding on all involved parties.

14.6 Duration. The indemnification rights of the parties hereto
--------
for Losses resulting from a breach of representations and warranties contained
in this Agreement or any other Acquisition Document (other than for tax,
employee benefit, and environmental matters) is subject to the condition that
the Indemnitor shall have received written notice of the Losses for which
indemnity is sought within eighteen (18) months after the Closing Date. The
indemnification rights of the parties hereto for Losses resulting from a
breach of representations and warranties for or that are related to
environmental matters is subject to the condition that the Indemnitor shall
have received written notice of the Losses for which indemnity is sought
within seven (7) years of the Closing Date. The indemnification rights of the
parties hereto for Losses resulting from a breach of representations and
warranties for or that are related to tax or employee benefit matters is
subject to the condition that the Indemnitor shall have received written
notice of the Losses for which indemnity is sought prior to the later of the
date on which a claim which would result in such Loss is barred by all
applicable statues of limitation. The indemnification rights of the parties
hereto for Losses resulting from a breach of any representation and warranty
with respect to title to any of the Acquired Assets, or resulting from a
breach of any covenant or agreement contained herein, or with respect to the
breach of any agreement or undertaking with respect to payment of the Excluded
Liabilities or Assumed Liabilities is subject to the condition that the
Indemnitor shall have received written notification of the Losses for which
indemnity is sought prior to the seventh anniversary of the Closing Date.

14.7 Limitations.
-----------

(a) The Indemnitor shall be obligated to indemnify the
Indemnitee under Section 14.1(a) or Section 14.2(a) only when the aggregate of
all Losses suffered or incurred by the Indemnitee as to which a right of
indemnification is provided under Section 14.1(a) or Section 14.2(a) exceeds
Two Hundred and Fifty Thousand Dollars ($250,000) (the "Threshold Amount").
After the aggregate of all Losses suffered or incurred by the Indemnitee as to
which a right of indemnification is provided under either of such sections
exceeds the Threshold Amount, the Indemnitor shall be obligated to indemnify
such Indemnitee for all such Losses without reduction by the Threshold Amount.
Notwithstanding the above, the Threshold Amount limitation shall not apply to
the indemnification rights of the parties hereto for Losses resulting from
those liabilities described in Sections 14.1(b), 14.1(c), 14.1(d), 14.1(e),
14.1(f), 14.2(b) or 14.2(c).

(b) The Indemnitor shall be obligated to indemnify the
Indemnitee for all Losses under Sections 7.3, 14.1(a) (as it relates to the
breach of any representation or

-58-
<PAGE>

warranty set forth in Section 5.12), 14.1 (c) (as it relates to Environmental
Liabilities) and 14.1(f) only when the aggregate amount of all Losses suffered
or incurred by the Indemnitee as to which a right of indemnification is
provided under Section, 7.3, 14.1(a) (as it relates to the breach of any
representation or warranty set forth in Section 5.12), 14.1(c) (as it relates
to Environmental Liabilities) or 14.1(f) exceeds Fifty Thousand Dollars
($50,000) (the "Environmental Loss Deductible") and then only to the extent
the aggregate amount of such Losses exceeds the Environmental Loss Deductible;
provided, however the Indemnitor shall not be obligated to indemnify the
Indemnitee under Sections 7.3, 14.1(a) (as it relates to the breach of any
representation or warranty set forth in Section 5.12), 14.1(c) (as it relates
to Environmental Liabilities) or 14.1(f) for fees, charges, penalties and
other costs described in the last sentence of each of Sections 7.3(a) and
7.3(b) and any Losses arising therefrom or based thereon with respect to storm
water permits or Air Permits for Seller's Libertyville, Illinois facility in
an aggregate amount in excess of Two Hundred Thousand Dollars ($200,000).

(c) The Indemnitor shall not be liable for damages in
excess of the actual damages suffered by the Indemnitee as a result of the
act, circumstance, or condition for which indemnification is sought net of any
insurance proceeds received by the Indemnitee or any tax benefits realized by
the Indemnitee as a result of the Losses for which indemnification is claimed.
In no event shall Seller be liable as an Indemnitor hereunder in an aggregate
amount greater than the Final Purchase Price.

ARTICLE 15
GENERAL PROVISIONS

15.1 Fees and Expenses. Except as specifically provided in this
-----------------
Agreement, Seller and Purchaser each shall pay their respective fees and
expenses in connection with the transactions contemplated by this Agreement.
Purchaser shall pay for any and all owner's title insurance policies, surveys
and fees related to the title insurance company's participation in the Closing
in connection with the Acquired Assets. Notwithstanding anything to the
contrary set forth herein, Seller shall not pay any Excluded Liabilities or
any fees or expenses incurred by Seller in connection with the transactions
contemplated by this Agreement by using the Acquired Assets or any portion
thereof, and if prior to the Effective Time a portion of the Acquired Assets
is used to pay any Excluded Liabilities, or any of such fees and expenses,
Seller shall reimburse Purchaser by the amount of Acquired Assets so used.

15.2 Notices. All notices, requests, demands, and other
-------
communications hereunder shall be in writing (which shall include
communications by telex and telecopy) and shall be delivered (a) in person or
by courier or overnight service, (b) mailed by first class registered or
certified mail, postage prepaid, return receipt requested, or (c) by facsimile
transmission, as follows:

-59-
<PAGE>

(a) If to Seller:

Chatwins Group, Inc.
300 Weyman Plaza, Suite 340
Pittsburgh, PA 15236
Attention: Mr. Kimball Bradley
Telephone: 412-885-5571
Facsimile: 412-885-5512

with a copy (which shall not constitute notice) to:

Buchanan Ingersoll
One Oxford Center
301 Grant Street, 20th Floor
Pittsburgh, PA 15219
Attention: Herbert Bennett Conner, Esq.
Telephone: 412-562-8800
Facsimile: 412-562-1041

(b) If to Purchaser:

Alabama Metal Industries Corporation
3245 Fayette Avenue
Birmingham, AL 35208
Attention: Mr. Roland Short
Telephone: 205-787-2611
Facsimile: 205-786-3833

with a copy (which shall not constitute notice) to:

Alston & Bird
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309
Attention: Sidney J. Nurkin, Esq.
Facsimile: (404) 881-7777

or to such other address as the parties hereto may designate in writing to the
other in accordance with this Section 15.2. Any party may change the address
to which notices are to be sent by giving written notice of such change of
address to the other parties in the manner above provided for giving notice.
If delivered personally or by courier, the date on which the notice, request,
instruction or document is delivered shall be the date on which such delivery
is made and if delivered by facsimile transmission or mail as

-60-
<PAGE>

aforesaid, the date on which such notice, request, instruction or document is
received shall be the date of delivery.

15.3 Assignment; Binding Effect. Except as provided in this
--------------------------
Section 15.3, prior to the Closing, this Agreement shall not be assignable by
any of the parties hereto without the written consent of the other; provided,
however, that (a) at the Closing Purchaser may assign all of its rights herein
to any lender or lenders providing financing to Purchaser subject to all of
the provisions hereof and subject to all rights, remedies and defenses that
Seller could assert against Purchaser, and (b) after the Closing, Purchaser
may assign its interest in this Agreement to any person or entity (subject to
all rights, remedies and defenses that Seller could assert against Purchaser)
without the written consent of Seller, which consent shall not be unreasonably
withheld or delayed; provided, however, in no event shall Seller's obligations
hereunder be increased by such assignment. From and after any such assignment,
the word "Purchaser" shall mean such assignee.

15.4 No Benefit to Others. The representations, warranties,
--------------------
covenants, and agreements contained in this Agreement are for the sole benefit
of the parties hereto and, in the case of Article 14 hereof, the Purchaser
Indemnitees and the Seller Indemnitees and their heirs, executors,
administrators, legal representatives, successors and assigns, and they shall
not be construed as conferring any rights on any other persons.

15.5 Headings, Gender, and "Person". All section headings
------------------------------
contained in this Agreement are for convenience of reference only, do not form
a part of this Agreement and shall not affect in any way the meaning or
interpretation of this Agreement. Words used herein, regardless of the number
and gender specifically used, shall be deemed and construed to include any
other number, singular or plural, and any other gender, masculine, feminine,
or neuter, as the context requires. Any reference to a "person" herein shall
include an individual, firm, corporation, partnership, trust, governmental
authority or body, association, unincorporated organization or any other
entity.

15.6 Counterparts. This Agreement may be executed in two (2) or
------------
more counterparts, all of which shall be considered one and the same
agreement, and shall become effective when one counterpart has been signed by
each party and delivered to the other party hereto.

15.7 Integration of Agreement. This Agreement supersedes all
------------------------
prior agreements, oral and written, between the parties hereto with respect to
the subject matter hereof. Neither this Agreement, nor any provision hereof,
may be changed, waived, discharged, supplemented, or terminated orally, but
only by an agreement in writing signed by the party against which the
enforcement of such change, waiver, discharge, or termination is sought.

-61-
<PAGE>

15.8 Time of Essence. Time is of the essence in this Agreement.
---------------

15.9 Governing Law. This Agreement shall be construed under the
-------------
laws of the State of Delaware without regard to conflict of laws.

15.10 Partial Invalidity. Whenever possible, each provision hereof
------------------
shall be interpreted in such manner as to be effective and valid under
applicable law, but in case any one or more of the provisions contained herein
shall, for any reason, be held to be invalid, illegal, or unenforceable in any
respect, such invalidity, illegality, or unenforceability shall not affect any
other provisions of this Agreement, and this Agreement shall be construed as
if such invalid, illegal, or unenforceable provision or provisions had never
been contained herein unless the deletion of such provision or provisions
would result in such a material change as to cause completion of the
transactions contemplated hereby to be unreasonable.

15.11 Investigation. Purchaser acknowledges that its officers,
-------------
directors, employees and authorized representatives and agents have been given
an opportunity to examine the agreements, instruments, documents and other
information, including the Acquired Assets, relating to the Business that they
have requested to examine. Any inspection, preparation, or compilation of
information or Schedules, or audit of the inventories, properties, financial
condition, or other matters relating to the Business conducted by or on behalf
of Purchaser pursuant to this Agreement shall in no way limit, affect, or
impair the ability of Purchaser to rely upon the representations, warranties,
covenants, and agreements of Seller set forth herein. The covenants and
representations and warranties of Seller and Purchaser shall survive the
Closing and the execution and delivery of all instruments of conveyance for
the periods set forth in Section 14.6.

(SIGNATURES APPEAR ON THE FOLLOWING PAGE)

-62-
<PAGE>

IN WITNESS WHEREOF, each party hereto has caused this Agreement to be
executed on its behalf by its duly authorized officer, all as of the day and
year first above written.

PURCHASER:
ALABAMA METAL INDUSTRIES CORPORATION

By: /s/ William S. Baird
_________________________________

Name: William S. Baird
_______________________________

Title: President & CEO
______________________________

SELLER:
CHATWINS GROUP, INC.

By: /s/ Kimball J. Bradley
_________________________________

Name: Kimball J. Bradley
_______________________________

Title: Senior Vice President
______________________________

-63-

<PAGE>

EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in this Post-Effective Amendment No. 5 to Form S-4
of Reunion Industries, Inc. of our report dated March 17, 1999 relating to the
consolidated financial statements of Reunion Industries, Inc., which appears in
such Form S-4. We also consent to the references to us under the headings
"Experts" and "Selected Financial Data" in such Form S-4. However, it should be
noted that PriewaterhouseCoopers LLP has not prepared or certified such
"Selected Financial Data."

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP
New York, NY
November 4, 1999

<PAGE>

EXHIBIT 23.2

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in this Post-Effective Amendment No. 5 to Form S-4
of Reunion Industries, Inc. of our report dated March 26, 1999, except as to
Note 20 which is as of May 28, 1999, relating to the consolidated financial
statements of Chatwins Group, Inc., and our report dated March 31, 1999, except
as to Note 16 which is as of May 14, 1999, relating to the financial statements
of Stanwich Acquisition Corp. (D/B/A Kingway Material Handling Company), which
appear in such Form S-4. We also consent to the references to us under the
headings "Experts" and "Selected Financial Data" in such Form S-4. However, it
should be noted that PricewaterhouseCoopers LLP has not prepared or certified
such "Selected Financial Data."

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania
November 4, 1999

<PAGE>

EXHIBIT 99.2

REVOCABLE PROXY
REUNION INDUSTRIES, INC.

[X] PLEASE MARK VOTES AS IN THIS EXAMPLE
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING OF
STOCKHOLDERS TO BE HELD ON DECEMBER 15, 1999.

The undersigned stockholder of Reunion Industries, Inc. (the "Company") hereby
appoints Charles E. Bradley, Sr., Thomas L. Cassidy, or Franklin Myers, or any
of them, attorneys and proxies of the undersigned; each with full power of
substitution, to vote on behalf of the undersigned at the Annual Meeting of
Stockholders of the Company to be held at the Holiday Inn Select Stamford, 700
Main Street, Stamford, Connecticut, on Wednesday, December 15, 1999, at 10:00
a.m., local time, and at any adjournments thereof, all of the shares of common
stock in the name of the undersigned or which the undersigned may be entitled to
vote. Among the matters to be voted upon at the meeting is the approval and
adoption of the Amended and Restated Merger Agreement, dated as of July 28,
1999, between the Company and Chatwins Group, Inc. which provides for the
issuance to Chatwins Group common stockholders of 9,500,000 shares of the
Company's common stock, plus up to an additional 500,000 shares if performance
goals are met, and the issuance to Chatwins Group preferred stockholders of
Reunion Industries 10% Series A Preferred Stock having an aggregate redemption
price of $8.9 million.

Please be sure to sign and date this Proxy in the box below.

- - - -----------------------------------
Date

- - - -----------------------------------
Stockholder sign above

- - - -----------------------------------
Co-holder (if any) sign above

WITH- FOR ALL
1. The election as directors (except as FOR HOLD EXCEPT
indicated below) of all nominees. [_] [_] [_]

THOMAS N. AMONETT FRANKLIN MYERS
JOHN G. POOLE THOMAS L. CASSIDY
CHARLES E. BRADLEY, SR. W.R. CLERIHUE

INSTRUCTIONS: to withhold authority to vote for any individual nominee, mark
"For All Except" and write that nominee's name in the space provided below.

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

FOR AGAINST ABSTAIN
2. The approval and adoption of the [_] [_] [_]
Amended and Restated Merger Agreement,
dated as of July 28, 1999, between the
Company and Chatwins Group, Inc.

FOR AGAINST ABSTAIN
3. In their discretion, upon such other [_] [_] [_]
matters as may properly come before
the meeting, hereby revoking any
proxy or proxies heretofore given by
the undersigned.

Please check box if you plan to attend the Annual Meeting. [_]

The Board of Directors recommends a vote FOR each of the proposals set forth
above; if no specification is made, the shares will be voted FOR such proposals.

- - - --------------------------------------------------------------------------------
DETACH ABOVE CARD, SIGN, DATE AND MAIL IN POSTAGE PAID ENVELOPE PROVIDED.
REUNION INDUSTRIES, INC.
- - - --------------------------------------------------------------------------------

The above signed hereby acknowledges receipt of the Notice of Annual Meeting of
stockholders and the Proxy Statement furnished herewith.

Signatures should agree with name printed hereon. If Stock is held in the name
of more than one person, EACH joint owner should sign. Executors,
administrators, trustees, guardians and attorneys should indicate the capacity
in which they sign. Attorneys should submit powers of attorney.

PLEASE ACT PROMPTLY
SIGN, DATE & MAIL YOUR PROXY CARD TODAY
- - - --------------------------------------------------------------------------------