<PAGE>
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM 8-K/A
AMENDMENT NO. 1 TO
CURRENT REPORT ON FORM 8-K
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES ACT OF 1934
Date of Report (Date of earliest event reported) September 14, 1995
REUNION RESOURCES COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 1-7726 76-0404108
(State or other jurisdiction of (Commission File No.) (I.R.S. Employer
incorporation or organization) Identification Number)
2801 POST OAK BOULEVARD
SUITE 400
HOUSTON, TEXAS 77056
(Address of principal executive offices)
(713) 627-9277
(Registrant's telephone number, including area code)
================================================================================
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On September 14, 1995 (the "Closing Date"), Reunion Resources Company (the
"Registrant" or the "Company") purchased all of the issued and outstanding
shares of common stock and preferred stock of Oneida Molded Plastics Corporation
("Oneida"), a New York corporation, from Chatwins Holdings, Inc., a Delaware
corporation and a wholly-owned subsidiary of Chatwins Group, Inc. (collectively
referred to as "Chatwins"). Chatwins owns approximately 38% of the common stock
of the Company and exercises voting rights over an aggregate of approximately
45% of the Company's Common Stock. Mr. Charles E. Bradley is Chairman,
President, Chief Executive Officer and a director of the Company and the
Chairman, a director and the majority shareholder of Chatwins. Mr. Thomas L.
Cassidy also is a director of the Company and a director of Chatwins. The
aggregate purchase price for the shares totaled $3,107,000, which was funded
entirely from internal cash reserves of the Company. Oneida's liabilities at
the time of acquisition included a $4,268,000 note payable to a bank and
$4,933,000 payable to Chatwins. The Stock Purchase Agreement between the
Company and Chatwins requires the Company to cause Oneida to repay the
indebtedness to Chatwins, plus interest thereon at 10% per annum from September
1, 1995, on or before the second anniversary of the Closing Date, or earlier
from the net proceeds, if any, from the sale of the Company's other material
assets. The financial terms of the transaction were determined based on
Oneida's financial position and results of the operations at and for the six
months ended June 30, 1995. The terms of the transaction were approved by the
unanimous vote of the directors of the Company with Messrs. Bradley and Cassidy
abstaining. Prudential Securities Incorporated acted as financial advisor to
the Company in connection with the Oneida transaction and rendered its opinion
to the Board of Directors of the Company that the consideration paid by the
Company was fair to the Company from a financial point of view. Such opinion is
filed as an exhibit to this report.
Oneida manufactures precision plastic products and provides engineered
plastics services. Oneida's principal products consist of components for office
equipment, recreational products, computer and other consumer electronics and
telecommunications equipment. Oneida operates three injection molding
facilities in Oneida and Phoenix, New York and Clayton, North Carolina including
two related tooling facilities.
Oneida was acquired by Chatwins effective April 1, 1994. For the nine months
ended December 31, 1994, Oneida had net sales of $23,195,000, operating profit
of $742,000 and a pre-tax loss of $95,000. Oneida's unaudited results of
operations for the six months ended June 30, 1995, were a net sales of
$18,263,000, operating income of $1,479,000 and pre-tax income of $866,000.
In June, 1995, Chatwins acquired approximately 38% of the Company's
outstanding common stock, together with the right to vote an additional 7% of
the outstanding common stock. In connection with the transaction two directors
of the Registrant resigned and were replaced by two persons who are directors of
Chatwins. With this change in the ownership of a significant equity position
in the Company, the Company embarked upon a strategy to enter the plastic
products manufacturing business. As a result of the acquisition of Oneida, the
Company's principal operations are in the plastics industry. The Company is
considering additional acquisitions to increase its customer base and expand its
product offerings and service capabilities in the plastics industry. In
addition, the Company may consider acquisitions in other industries. In
conjunction with this new strategic direction, the Company is exploring the sale
of its oil and gas operations which, prior to the acquisition of Oneida,
represented its primary business. While the Company is in the process of
receiving indications of interest from various parties regarding the sale of its
oil and gas operations, no understandings or agreements have been entered into
as of the date hereof.
1
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
A. FINANCIAL STATEMENTS OF ONEIDA:
1. December 31, 1994:
Reports of Independent Accountants
Consolidated Balance Sheet at December 31, 1994 (Post-Acquisition)*
and March 31, 1994 (Pre-Acquisition)*
Consolidated Statement of Income for the nine months ended
December 31, 1994 (Post -Acquisition)*, eleven months ended
March 31, 1994 (Pre-Acquisition)*, and year ended
April 30, 1993 (Pre-Acquisition)*
Consolidated Statement of Cash Flows for the nine months ended
December 31, 1994 (Post-Acquisition)*, eleven months ended
March 31, 1994 (Pre-Acquisition)*, and year ended
April 30, 1993 (Pre-Acquisition)*
Notes to the Consolidated Financial Statements, December 31, 1994
(* Refers to Chatwins purchase of Oneida on April 1, 1994.)
2. June 30, 1995:
Unaudited Consolidated Condensed Balance Sheet at June 30, 1995
Unaudited Consolidated Condensed Statement of Income for the six months
ended June 30, 1995 and 1994
Unaudited Consolidated Condensed Statement of Cash Flows for the six
months ended June 30, 1995 and 1994
Notes to the Unaudited Consolidated Condensed Financial Statements,
June 30, 1995
B. PRO FORMA FINANCIAL INFORMATION OF THE COMPANY AND ONEIDA COMBINED:
Unaudited Pro Forma Consolidated Condensed Balance Sheet, as of
June 30, 1995
Unaudited Pro Forma Consolidated Condensed Statement of Operations, for
the year ended December 31, 1994
Unaudited Pro Forma Consolidated Condensed Statement of Operations, for
the six months ended June 30, 1995
Notes to Unaudited Pro Forma Consolidated Condensed Financial
Statements
C. EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
10.44 Stock Purchase Agreement dated September 14, 1995, between
Reunion Resources Company and Chatwins Holdings, Inc.,
relating to the purchase of Oneida Molded Plastics Corporation.
10.45 Letter Agreement between Chatwins Group, Inc. and Reunion
Resources Company dated September 14, 1995.
23.1 Consent of Independent Accountants
99.1 Opinion of Prudential Securities Incorporated
</TABLE>
2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS (POST-ACQUISITION)
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
OF ONEIDA MOLDED PLASTICS CORPORATION
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income and of cash flows present fairly, in all
material respects, the financial position of Oneida Molded Plastics Corporation
and its subsidiary (collectively, Oneida), a wholly-owned subsidiary of Chatwins
Group, Inc. (Chatwins), at December 31, 1994, and the results of their
operations and their cash flows for the nine months ended December 31, 1994, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of Oneida's and Chatwins' management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit 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 audit provides a reasonable basis for the opinion expressed
above.
As discussed in Note 1 to the accompanying financial statements, effective April
1, 1994, all of Oneida's outstanding stock was acquired by Chatwins in a
transaction that Chatwins is accounting for under the purchase method. As this
transaction resulted in Oneida becoming wholly-owned by Chatwins, a new basis of
accounting for Oneida was established. This new basis of accounting has been
"pushed-down" to Oneida's accompanying consolidated balance sheet at December
31, 1994, and the related consolidated statements of income and cash flows for
the nine months ended December 31, 1994 and, therefore, such consolidated
statements are not comparable to prior years.
As discussed in Notes 1, 3, 7 and 10 to the accompanying financial statements,
Oneida is a wholly-owned subsidiary of Chatwins and has engaged in various
transactions and has established certain relationships with Chatwins and its
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.
Price Waterhouse LLP
600 Grant Street
Pittsburgh, Pennsylvania 15219
August 22, 1995
3
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS (PRE-ACQUISITION)
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
OF ONEIDA MOLDED PLASTICS CORPORATION
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income and of cash flows present fairly, in all
material respects, the financial position of Oneida Molded Plastics Corporation
and its subsidiary (collectively, Oneida), a wholly-owned subsidiary of Chatwins
Group, Inc. (Chatwins), at March 31, 1994, and the results of their operations
and their cash flows for the eleven months ended March 31, 1994, and year ended
April 30, 1993, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of Oneida's and Chatwins'
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.
As discussed in Note 1 to the accompanying financial statements, effective April
1, 1994, all of Oneida's outstanding stock was acquired by Chatwins in a
transaction that Chatwins is accounting for under the purchase method. The
accompanying consolidated balance sheet at March 31, 1994 and related
consolidated statements of income and cash flows for the eleven months ended
March 31, 1994, and year ended April 30, 1993, have been prepared on the basis
of accounting used by Oneida prior to this transaction.
As discussed in Notes 1, 3, 7 and 10 to the accompanying financial statements,
Oneida has engaged in various transactions and has established certain
relationships with 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.
As discussed in Note 2 to the accompanying financial statements, on May 1, 1993,
Oneida adopted Statement of Financial Accounting Standard No. 109, "Accounting
for Income Taxes".
Price Waterhouse LLP
600 Grant Street
Pittsburgh, Pennsylvania 15219
August 22, 1995
4
<PAGE>
ONEIDA MOLDED PLASTICS CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF CHATWINS GROUP, INC.)
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
(POST-ACQUISITION) (PRE-ACQUISITION)
AT DECEMBER 31, 1994 AT MARCH 31, 1994
- - ----------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Cash $ - $ -
Accounts receivable (net of allowance
for doubtful accounts of $249 and $143)
(note 2) 3,656 3,515
Inventories (notes 2 and 4) 2,601 2,065
Customer tooling-in-process (note 2) 1,591 1,130
Prepaid and other current assets 22 36
- - ----------------------------------------------------------------------------------
Total current assets 7,870 6,746
Plant and equipment (net of accumulated
depreciation of $368 and $7,947)
(notes 2 and 5) 5,458 2,417
Goodwill (net of accumulated
amortization of $159) (notes 2 and 3) 3,023 -
Other noncurrent assets 33 53
- - ----------------------------------------------------------------------------------
Total assets $16,384 $ 9,216
==================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT):
Current portion of long-term debt (note 7) $ 4,382 $ 5,738
Current portion of long-term debt,
related parties (note 7) 866 1,134
Accrued interest payable, related
parties (note 7) 37 312
Accounts payable 3,097 2,942
Advances from customers (note 2) 2,205 1,647
Other current liabilities (note 6) 1,981 1,939
- - ----------------------------------------------------------------------------------
Total current liabilities 12,568 13,712
Long-term debt (note 7) 637 477
Long-term debt, related parties (note 7) 3,232 -
Accrued fees, related parties (note 10) 41 638
- - ----------------------------------------------------------------------------------
Total liabilities 16,478 14,827
- - ----------------------------------------------------------------------------------
Contingent liabilities and commitments (note 14) - -
SHAREHOLDERS' EQUITY (DEFICIT) (NOTES 3 AND 8):
Preferred stock, $100 par value (35,000
shares authorized, 25,000 issued and
outstanding) - -
Common stock, $100 par value (2,500 shares
authorized, 601 shares issued and
outstanding) 1 60
Paid-in capital - 23,389
Accumulated deficit (95) (29,060)
- - ----------------------------------------------------------------------------------
Total shareholders' deficit (94) (5,611)
- - ----------------------------------------------------------------------------------
Total liabilities and shareholders' deficit $16,384 $ 9,216
==================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
5
<PAGE>
ONEIDA MOLDED PLASTICS CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF CHATWINS GROUP, INC.)
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
(POST-ACQUISITION) (PRE-ACQUISITION) (PRE-ACQUISITION)
NINE MONTHS ENDED ELEVEN MONTHS ENDED YEAR ENDED
DECEMBER 31, 1994 MARCH 31, 1994 APRIL 30, 1993
- - ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales (note 2) $ 23,195 $ 26,031 $ 30,861
Cost of sales (19,695) (22,499) (26,277)
- - ----------------------------------------------------------------------------------------------
Gross profit 3,500 3,532 4,584
Selling, general and administrative
(note 10) (2,758) (3,008) (5,150)
- - ----------------------------------------------------------------------------------------------
Operating profit (loss) 742 524 (566)
Interest expense (note 7) (714) (792) (818)
Other income (expense), net (note 9) (123) 8 134
- - ----------------------------------------------------------------------------------------------
Loss before taxes (95) (260) (1,250)
Income taxes (note 12) - - -
- - ----------------------------------------------------------------------------------------------
Net loss $ (95) $ (260) $ (1,250)
==============================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
6
<PAGE>
ONEIDA MOLDED PLASTICS CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF CHATWINS GROUP, INC.)
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
(POST-ACQUISITION) (PRE-ACQUISITION) (PRE-ACQUISITION)
NINE MONTHS ENDED ELEVEN MONTHS ENDED YEAR ENDED
DECEMBER 31, 1994 MARCH 31, 1994 APRIL 30, 1993
- - ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities:
Net loss $ (95) $ (260) $(1,250)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation 368 574 819
Amortization of goodwill 159 - -
Provision for losses on accounts 106 67 -
receivable
Provision for obsolete and excess - 74 -
inventories
Gain on sales of assets (19) (8) (6)
Changes in assets and liabilities:
Accounts receivable (247) 415 (151)
Inventories (536) (287) (21)
Customer tooling-in-process (461) 1,043 (947)
Prepaid and other current
assets 14 38 (52)
Accounts payable 155 (152) (110)
Other current liabilities (363) 474 (118)
Advances from customers 558 (934) 1,419
Other noncurrent assets and
accrued fees (577) (37) 288
- - ------------------------------------------------------------------------------------------
Net cash provided by (used in)
operating activities (938) 1,007 (129)
- - ------------------------------------------------------------------------------------------
Investing Activities:
Capital expenditures (315) (262) (231)
Proceeds from sales of assets 33 8 12
Loans to parent companies - - 783
- - ------------------------------------------------------------------------------------------
Net cash provided by (used in)
investing activities (282) (254) 564
- - ------------------------------------------------------------------------------------------
Financing Activities:
Net change in revolving credit facility
borrowings 227 (173) 555
Advances from Chatwins Group, Inc. 3,727 - -
Proceeds from issuances of debt 418 1,075 336
Repayments of debt (3,152) (1,655) (1,326)
- - ------------------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities 1,220 (753) (435)
- - ------------------------------------------------------------------------------------------
Increase (decrease) in cash - - -
Cash at beginning of period - - -
- - ------------------------------------------------------------------------------------------
Cash at end of period $ - $ - $ -
==========================================================================================
NONCASH FINANCING AND INVESTING
ACTIVITY:
INCREASE IN CAPITAL LEASE ASSETS AND
OBLIGATIONS $ 111 $ - $ -
==========================================================================================
SUPPLEMENTAL DISCLOSURES:
CASH PAID FOR INTEREST $ 596 $ 561 $ 823
==========================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
7
<PAGE>
ONEIDA MOLDED PLASTICS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
Oneida Molded Plastics Corporation (Oneida) is a wholly-owned subsidiary of
Chatwins Group, Inc. (Chatwins) and is a distinct legal entity. Chatwins is
incorporated in the state of Delaware. Oneida is incorporated in the state of
New York.
Oneida was acquired by Chatwins for $251 in a stock purchase effective April 1,
1994 (the Acquisition). See note 3. Prior to April 1, 1994, Oneida was a
wholly-owned subsidiary of Oneida Products Corporation (OPC). In June 1988, all
of the outstanding common stock of OPC was acquired by Oneida Products
Acquisition Corporation (OPAC), a wholly-owned subsidiary of Texon Energy
Corporation (Texon). Charles E. Bradley, Sr. (Mr. Bradley) is a director, the
President and the acting Chief Financial Officer of Texon. Mr. Bradley is also
the President and a principal of Stanwich Partners, Inc. (SPI), the President of
Stanwich Oil & Gas, Inc. (SOG), and the Chairman of the Board and majority
shareholder of Chatwins. At December 31, 1994, the principals of SPI
beneficially owned approximately 90% of the outstanding common stock of
Chatwins. Subsequent to the Acquisition, Oneida's fiscal year-end was changed
from April 30 to December 31.
Oneida manufactures high volume, precision plastic products and provides
engineered plastics services. Oneida also designs and produces injection molded
parts and provides secondary services such as hot stamping, ultrasonic welding,
printing, painting and assembly of such products. Oneida's principal products
consist of specially designed and manufactured components for office equipment,
office furniture, recreational products, computer parts, consumer electronics
and telecommunications equipment. Oneida also designs and builds custom molds at
its tool shops in order to produce component parts for specific customers.
Oneida's operations are conducted from five facilities; three injection molding
and administrative facilities located in Oneida, NY, Phoenix, NY and Clayton,
NC, and two tooling facilities located in Phoenix, NY and Clayton, NC. The
Oneida, NY facility and the tooling facility in Phoenix, NY are owned by Oneida.
The remaining facilities are leased.
Historically, Oneida's results of operations have been included in the
consolidated U.S. federal income tax returns of its parent companies. The
income tax related information in these statements has been calculated as if
Oneida had not been eligible to be included in the consolidated tax returns of
its parent (i.e., Oneida on a stand-alone basis). The calculation of current
and deferred taxes required certain assumptions, allocations and estimates which
management believes are reasonable to accurately reflect the tax reporting for
Oneida as a stand-alone taxpayer.
As noted above, Chatwins acquired all of Oneida's outstanding stock effective
April 1, 1994. Chatwins accounted for the Acquisition under the purchase
method, which has been "pushed-down" and is the basis of accounting used for
Oneida's consolidated financial statements at and for the nine months ended
December 31, 1994. Accordingly, a solid black line has been inserted throughout
this report separating the financial information at and for the nine months
ended December 31, 1994 from the financial information prior to April 1, 1994
since they are not prepared on comparable bases of accounting.
These consolidated financial statements have been prepared by Oneida and
Chatwins management in conformity with generally accepted accounting principles
and include such estimates and adjustments as deemed necessary to present fairly
the consolidated financial position of Oneida at December 31, 1994 (post-
acquisition) and March 31, 1994 (pre-acquisition), and the results of its
operations and its cash flows for the nine months ended December 31, 1994 (post-
acquisition), eleven months ended March 31, 1994 (pre-acquisition), and year
ended April 30, 1993 (pre-acquisition).
8
<PAGE>
ONEIDA MOLDED PLASTICS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
These consolidated financial statements include the accounts of Oneida and its
wholly-owned subsidiary, Oneida Molded Plastics of North Carolina, after
elimination of all significant intercompany accounts and transactions between
Oneida and its subsidiary.
REVENUE RECOGNITION, ADVANCES FROM CUSTOMERS AND CUSTOMER TOOLING-IN-PROCESS
Oneida designs and manufactures most of its products by injection molding to
customer specifications. In most cases, Oneida obtains a contract to produce a
specified number of custom designed products using custom built molds. The
customer either provides its own molds, or has Oneida design and build the molds
or obtain them from a third-party supplier. In either case, generally the
customer owns the molds. Contracts are usually not long-term and 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 these consolidated financial statements.
CONCENTRATIONS OF CREDIT RISK AND SALES TO MAJOR CUSTOMER
Oneida's customers are primarily engaged in the manufacture of office equipment
and consumer products.
For the nine months ended December 31, 1994, eleven months ended March 31, 1994,
and year ended April 30, 1993, Oneida had sales to a single customer which
represented 51%, 48% and 52%, respectively, of consolidated net sales. At
December 31, 1994 and March 31, 1994, approximately 48% and 45%, respectively,
of accounts receivable were from this single customer.
Accounts receivable at December 31, 1994 and March 31, 1994 included no
significant geographic concentrations of credit risk. Oneida performs ongoing
credit evaluations of its customers and generally does not require collateral.
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.
PLANT AND EQUIPMENT
Through March 31, 1994, plant and equipment was recorded at cost. In connection
with the Acquisition, effective April 1, 1994, the assets comprising Oneida's
plant and equipment were adjusted to their estimated fair market values on that
date. See note 3. Fair market value was based on estimates included in an
independent appraisal. Subsequent to April 1, 1994, additions to plant and
equipment were recorded at cost.
Plant and equipment is depreciated using the straight-line method over the
estimated useful lives of individual assets or asset groups. Expenditures for
additions and improvements are capitalized. See note 5.
GOODWILL
Goodwill recorded as a result of the Acquisition is being amortized using the
straight-line method over 15 years.
Oneida 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, Oneida uses an estimate of undiscounted future cash
flows over the goodwill's remaining estimated useful life. Should this analysis
indicate that goodwill is impaired, Oneida would write-down its carrying value
to fair market value.
9
<PAGE>
ONEIDA MOLDED PLASTICS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
CHANGE IN ACCOUNTING PRINCIPLE
On May 1, 1993, Oneida adopted Statement of Financial Accounting Standards
(SFAS) No. 109, "Accounting for Income Taxes." This statement requires
measurement and recognition of a deferred tax asset for deductible temporary
differences and operating loss and tax credit carryforwards, as well as a
valuation allowance if it is more likely than not that some portion or all of
the deferred tax asset will not be realized. A deferred tax liability generally
is recognized for all taxable temporary differences. See note 12.
NOTE 3: THE CHATWINS ACQUISITION
Effective April 1, 1994, Chatwins acquired all of the outstanding stock of
Oneida from OPC for $251. At the time of the Acquisition, the controlling
shareholders of Chatwins directly and indirectly owned approximately 16% of
Oneida's issued and outstanding common stock. Except for the related-party
interests in Oneida, which were accounted for at the historical costs of the
assets and liabilities, Chatwins accounted for the Acquisition under the
purchase method. Accordingly, on April 1, 1994, the carrying values of Oneida's
assets and liabilities were adjusted to their estimated fair market values,
Oneida's paid-in capital and retained deficit were eliminated, and the excess of
liabilities assumed over assets acquired was recorded as goodwill. See notes 2,
5 and 8.
Contemporaneously with the Acquisition, Oneida assumed $2,500,000 of OPAC
indebtedness, of which $1,602,000 was converted at par to preferred stock. Of
the remaining OPAC debt assumed by Oneida totalling $898,000, $392,000
represented debt payable to SPI, $40,000 represented debt payable to an officer
of Oneida, and $466,000 was payable to a former owner of Oneida. Additionally,
Oneida debt and related accrued interest to SOG totalling $898,000 was converted
at par to preferred stock. See note 8.
In connection with the Acquisition and the exchange of debt for preferred stock,
described above, Signal Capital Corporation (Signal) released its security
interest in Oneida's common stock and entered into a Deferred Payments Agreement
(DPA) with Oneida and Chatwins wherein Oneida is obligated to pay to Signal, 50%
of its consolidated earnings before taxes, as defined in the DPA, in excess of
$750,000 for each of the five calendar years ended December 31, 1994 through
December 31, 1998, and 20% of the net proceeds of any sales of Oneida's capital
stock in any public offering through December 31, 1998. Through December 31,
1994, no amounts have been paid or are due to Signal under the DPA.
Additionally, Congress Financial Corporation (Congress), under its loan
agreements with Oneida, consented to the change of control resulting from the
Acquisition and reduced its credit line of $8 million to $5 million. See
note 7.
Immediately after the Acquisition, Chatwins advanced $1,000,000 to Oneida
pursuant to its agreement to advance up to $2,100,000 to Oneida from time-to-
time through December 31, 1994. Oneida used $800,000 of this initial advance to
repay a portion of a note due to General Electric (GE) Corporation (Old GE Note)
and the remainder to pay certain GE trade payables. The remaining $687,000 of
the Old GE Note was replaced by a new note (New GE Note) and Signal was released
from its guarantor obligation under the Old GE Note. The New GE Note is
guaranteed by SPI and Mr. Bradley.
10
<PAGE>
ONEIDA MOLDED PLASTICS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 4: INVENTORIES
INVENTORIES
(in thousands)
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------
(POST-ACQUISITION) (PRE-ACQUISITION)
AT DECEMBER 31, 1994 AT MARCH 31, 1994
- - ----------------------------------------------------------------------------------
<S> <C> <C>
Raw materials $1,467 $ 1,175
Work-in-process 990 737
Finished goods 144 153
- - ----------------------------------------------------------------------------------
INVENTORIES $2,601 $ 2,065
==================================================================================
</TABLE>
NOTE 5: PLANT AND EQUIPMENT
PLANT AND EQUIPMENT
(in thousands)
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------
(POST-ACQUISITION) (PRE-ACQUISITION)
AT DECEMBER 31, 1994 AT MARCH 31, 1994
- - ----------------------------------------------------------------------------------
<S> <C> <C>
Machinery and equipment $3,912 $ 7,684
Buildings and improvements 1,818 2,579
Land and improvements 96 101
- - ----------------------------------------------------------------------------------
Plant and equipment 5,826 10,364
Accumulated depreciation (368) (7,947)
- - ----------------------------------------------------------------------------------
PLANT AND EQUIPMENT, NET $5,458 $ 2,417
==================================================================================
</TABLE>
Plant and equipment at December 31, 1994 included various machinery and
equipment under capital leases with a net book value of $811,000. Such
machinery and equipment secures Oneida's obligations under capital leases. In
connection with the Acquisition, the assets comprising Oneida's plant and
equipment were adjusted to their estimated fair market values as of April 1,
1994, resulting in an increase in plant and equipment, net, of approximately
$3.0 million. See notes 2 and 3.
NOTE 6: OTHER CURRENT LIABILITIES
OTHER CURRENT LIABILITIES
(in thousands)
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------
(POST-ACQUISITION) (PRE-ACQUISITION)
AT DECEMBER 31, 1994 AT MARCH 31, 1994
- - ----------------------------------------------------------------------------------
<S> <C> <C>
Accrued wages, vacations and other $ 669 $ 575
benefits (note 11) 680 799
Accrued pension costs (note 11) 41 50
Accrued interest payable (note 7) 591 515
Other
- - ----------------------------------------------------------------------------------
OTHER CURRENT LIABILITIES $1,981 $ 1,939
==================================================================================
</TABLE>
11
<PAGE>
ONEIDA MOLDED PLASTICS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 7: LONG-TERM DEBT
The following table sets forth Oneida's related- and third-party long-term debt
for the periods presented:
LONG-TERM DEBT
(in thousands)
<TABLE>
<CAPTION>
(POST-ACQUISITION) (PRE-ACQUISITION)
AT DECEMBER 31,1994 AT MARCH 31, 1994
- - ---------------------------------------------------------------------------------
<S> <C> <C>
Third-party:
Revolving credit facility (1) $2,922 $2,695
Term loans payable (1) 787 1,201
Note payable to General Electric
Company (2) 264 1,487
Other (3) 1,046 832
- - ---------------------------------------------------------------------------------
Total third-party debt 5,019 6,215
- - ---------------------------------------------------------------------------------
Related-party:
Advances from Chatwins (4) 3,727 -
Note payable to Stanwich Oil & Gas,
Inc. (5) - 634
Loans from other related parties (6) 371 500
- - ---------------------------------------------------------------------------------
Total related-party debt 4,098 1,134
- - ---------------------------------------------------------------------------------
Total debt (7) 9,117 7,349
- - ---------------------------------------------------------------------------------
Less amounts due within twelve months:
Third-party 4,382 5,738
Related-party 866 1,134
- - ---------------------------------------------------------------------------------
Total amounts due within twelve months 5,248 6,872
- - ---------------------------------------------------------------------------------
Total long-term debt:
Third-party 637 477
Related-party 3,232 -
- - ---------------------------------------------------------------------------------
Total long-term debt $3,869 $ 477
=================================================================================
</TABLE>
(1) On August 12, 1991, Oneida and its subsidiaries obtained a financing
facility of up to $8,000,000 from Congress. This facility consisted of
term loans of $2,750,000, and revolving loans with an initial maximum of
$5,250,000 based on the value, as defined, of Oneida's accounts receivable
and inventory. In connection with the Acquisition, the maximum
availability under this facility was reduced to $5,000,000, consisting of
an initial term loan of $3,000,000, and an initial revolving loan maximum
of $2,000,000. Subject to the availability of collateral, the revolving
loans generally increase as the term loans are paid down. Interest on the
revolving and term loans is Congress' prime rate plus 2.5%, subject to an
additional 3% default increment. In addition, there is an annual facility
fee of $50,000 and quarterly audit fees as defined. The loans are secured
by substantially all of Oneida's assets and are subject to early
termination fees. The initial term of this facility was three years, from
August 12, 1991 through August 12, 1994, with one-year renewals thereafter
absent termination notification at least sixty days prior to a renewal
anniversary. As Oneida had not received any such notification at least
sixty days prior to August 12, 1995, the facility has been extended to
August 12, 1996.
12
<PAGE>
ONEIDA MOLDED PLASTICS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
At December 31, 1994 and March 31, 1994, Oneida was not in compliance with
certain financial covenants contained in the loan agreement with Congress
relating to maintaining specific minimum levels of working capital.
Accordingly, borrowings under these loan facilities are classified as
current at the aforementioned dates.
(2) The Old GE Note in the amount of $1,487,000 was due December 1992. During
1992, Oneida renegotiated the interest rate terms and reduced the monthly
payments to $37,500. The due date of the Old GE Note was extended to
December 1993. Subsequent to the Acquisition, Chatwins advanced funds to
Oneida to pay down $800,000 of this note and the remaining $687,000 was
restructured into the New GE Note. The New GE Note bears interest at 7%
per annum.
(3) Other third-party debt includes capital lease obligations, economic
development loans, small business loans and an obligation to a former owner
for his agreement not to compete. Some of these obligations are secured by
equipment or other assets of Oneida. These obligations vary in terms and
conditions and bear rates of interest ranging from 5% to 19% at December
31, 1994.
(4) Subsequent to the Acquisition, Chatwins made advances to Oneida totalling
$3.7 million through December 31, 1994. Oneida used $1 million of such
advances from Chatwins to repay a portion of the Old GE Note and certain GE
trade payables. The remainder was used for working capital and the
repayment of certain related-party payables. These advances bear interest
at 7.5% per annum. Through December 31, 1994, interest expense included in
the advances totalled $141,000.
(5) In conjunction with the Acquisition, the note payable to SOG of $634,000
and related interest payable, which was originally due on August 12, 1994,
was exchanged for preferred stock.
(6) In conjunction with the Acquisition, the related-party loans from Mr.
Bradley and SPI which existed at March 31, 1994 were restructured into non-
interest bearing notes, which were subordinated to the Congress debt, and
$432,000 of additional loans, payable to SPI and an officer of Oneida, were
assumed. Congress permitted Oneida to repay all of the existing March 31,
1994 loans during the nine months ended December 31, 1994. Accordingly,
such amounts were classified as current debt at March 31, 1994. At December
31, 1994, loans from other related parties included a non-interest bearing
note payable of $347,000 and a $24,000 note payable which bears interest at
9% per annum.
(7) Maturities of long-term debt, including the principal portions of
obligations under capital leases, during the next five years and thereafter
as of December 31, 1994 were as follows: 1995 - $5,248,000; 1996 -
$1,021,000; 1997 - $862,000; 1998 - $793,000; 1999 - $775,000; thereafter -
$418,000.
13
<PAGE>
ONEIDA MOLDED PLASTICS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 8: SHAREHOLDERS' EQUITY (DEFICIT)
SHAREHOLDERS' EQUITY (DEFICIT)
(in thousands)
<TABLE>
<CAPTION>
PREFERRED COMMON PAID-IN ACCUMULATED
STOCK STOCK CAPITAL DEFICIT TOTAL
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances at April 30, 1992 $ - $60 $23,389 $(27,550) $(4,101)
Activity for the year ended
April 30, 1993:
Net loss - - - (1,250) (1,250)
- - ----------------------------------------------------------------------------------------------------------------------------------
Balances at April 30, 1993 - 60 23,389 (28,800) (5,351)
Activity for the eleven
months ended March 31,
1994:
Net loss - - - (260) (260)
- - ----------------------------------------------------------------------------------------------------------------------------------
Balances at March 31, 1994 $ - $60 $23,389 $(29,060) $(5,611)
==================================================================================================================================
Balances at April 1, 1994 $ - $ 1 $ - $ - $ 1
Activity for the nine
months ended December 31,
1994:
Net loss - - - (95) (95)
- - ----------------------------------------------------------------------------------------------------------------------------------
Balances at December 31,
1994 $ - $ 1 $ - $ (95) $ (94)
==================================================================================================================================
</TABLE>
As discussed in note 3, Oneida issued preferred stock contemporaneously with the
Acquisition. The preferred stock has a par value of $100 per share and a total
of 25,000 shares were issued. Cumulative dividends accrue on the preferred stock
at $7 per share per annum. No dividends have been declared since their issuance.
Dividends in arrears totalled $131,000 at December 31, 1994. Holders of the
preferred stock have no voting rights. However, in the event of Oneida's
voluntary or involuntary liquidation, the holders are entitled to $100 per
share, or a total liquidation value of $2,500,000, plus accrued dividends.
The carrying values of Oneida's common and preferred stocks at April 1, 1994 and
December 31, 1994 reflect Chatwins' bases as the post-acquisition accounting has
been "pushed-down" to these financial statements. See note 1.
14
<PAGE>
ONEIDA MOLDED PLASTICS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 9: OTHER INCOME (EXPENSE), NET
OTHER INCOME (EXPENSE), NET
(in thousands)
<TABLE>
<CAPTION>
(POST-ACQUISITION) (PRE-ACQUISITION) (PRE-ACQUISITION)
NINE MONTHS ENDED ELEVEN MONTHS ENDED YEAR ENDED
DECEMBER 31, 1994 MARCH 31, 1994 APRIL 30, 1993
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Amortization of goodwill $ (159) $ - $ -
Royalty and management fee income 35 - 56
Reserve adjustment - - 48
Gain on sales of assets 19 8 6
Interest income 4 12 6
Other, net (22) (12) 18
- - ----------------------------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE), NET $ (123) $ 8 $134
==================================================================================================================================
</TABLE>
NOTE 10: RELATED-PARTY TRANSACTIONS
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
For the year ended April 30, 1993, approximately $865,000 of advances receivable
from Texon and its subsidiaries were written-off and are included in selling,
general and administrative expenses. No advances between Oneida and Texon were
made subsequent to April 30, 1993.
GUARANTEES
Through the years, SPI and/or Mr. Bradley have guaranteed and provided
collateral for various indebtedness of Oneida.
Through December 1994, Mr. Bradley was entitled to a guarantee fee from Oneida
in connection with his guarantee in August 1991 of up to $2.0 million of
Congress loans. The amount of the fee was calculated as 5% per year of the
amount of the loans guaranteed.
Through December 1994, SPI or Mr. Bradley were entitled to fees from Oneida in
connection with their guarantees of the Old and New GE Notes. The amount of the
fee was calculated as 2.5% per year of the principal amount of such notes.
At December 31, 1994 and March 31, 1994, $28,000 and $191,000, respectively, of
the above guarantee fees were accrued and unpaid. During the nine months ended
December 31, 1994, Oneida accrued $78,000 of additional guarantee fees and paid
$241,000 of such fees.
CREDIT SUPPORT FEE
In connection with a stock pledge agreement between Oneida, SOG and Signal,
wherein SOG pledged its legal and beneficial holdings of the common stock of
another corporation in support of Oneida's borrowings from Signal, from April
1990 through December 1993, SOG was entitled to a credit support fee from
Oneida. The amount of the fee was $75,000 annually. During the nine months
ended December 31, 1994, Oneida paid the credit support fees in full, which
totalled $277,000.
15
<PAGE>
ONEIDA MOLDED PLASTICS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
CONSULTING FEE
Prior to April 1994, SPI was entitled to a fee from Oneida in return for
consulting services provided to Oneida. The amount of the fee was $50,000
annually. At December 31, 1994 and March 31, 1994, $13,000 and $170,000,
respectively, of such consulting fees were accrued and unpaid. During the nine
months ended December 31, 1994, Oneida paid $157,000 of the consulting fees.
BALANCE SHEET CLASSIFICATIONS
At December 31, 1994 and March 31, 1994, all indebtedness to SPI and Mr. Bradley
for interest and guarantee and consulting fees were classified as noncurrent
liabilities as they were subordinated to Oneida's obligations to Congress and
could not be paid prior to satisfaction of such obligations, absent Congress'
permission.
NOTE 11: EMPLOYEE BENEFITS
PENSIONS
Oneida 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. The following table sets forth the net periodic pension cost for
the periods presented:
NET PERIODIC PENSION COST
(IN THOUSANDS)
<TABLE>
<CAPTION>
(POST-ACQUISITION) (PRE-ACQUISITION) (PRE-ACQUISITION)
NINE MONTHS ENDED ELEVEN MONTHS ENDED YEAR ENDED
DECEMBER 31, 1994 MARCH 31, 1994 APRIL 30, 1993
- - -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 93 $ 144 $190
Interest cost on projected benefit
obligation 64 90 74
Net amortization and deferral of gains
and losses (4) 21 14
Actual return on plan assets (47) (117) (75)
- - -------------------------------------------------------------------------------------------
Net periodic pension cost $106 $ 138 $203
===========================================================================================
</TABLE>
16
<PAGE>
ONEIDA MOLDED PLASTICS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table sets forth the funded status of the pension plan as of the
periods presented based on the most recent actuarial valuation, which was
September 30, 1994:
FUNDED STATUS OF DEFINED BENEFIT PENSION PLAN
(in thousands)
<TABLE>
<CAPTION>
(POST-ACQUISITION) (PRE-ACQUISITION)
AT DECEMBER 31, 1994 AT MARCH 31, 1994
- - --------------------------------------------------------------------------------
<S> <C> <C>
Accumulated benefit obligation $1,124 $ 890
Effect of projected future
compensation levels 843 584
- - --------------------------------------------------------------------------------
Projected benefit obligation for
service rendered to date 1,967 1,474
Plan assets at fair value 1,209 1,044
- - --------------------------------------------------------------------------------
Projected benefit obligation in
excess of plan assets 758 430
Unrecognized net obligation - 287
Unrecognized prior service cost - 133
Unrecognized net gain (78) (51)
- - --------------------------------------------------------------------------------
Accrued pension cost (note 6) $ 680 $ 799
================================================================================
</TABLE>
The following table sets forth the actuarial assumptions used to develop the net
periodic pension costs for the periods presented:
ACTUARIAL ASSUMPTIONS
<TABLE>
<CAPTION>
(PRE-ACQUISITION)
(POST-ACQUISITION) ELEVEN MONTHS (PRE-ACQUISITION)
NINE MONTHS ENDED ENDED YEAR ENDED
DECEMBER 31, 1994 MARCH 31, 1994 APRIL 30, 1993
- - ------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 7.50% 8.50% 8.50%
Expected rate of return on
plan assets 9.00% 9.00% 9.00%
Assumed compensation rate
increase 4.00% 4.00% 4.00%
==============================================================================
</TABLE>
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Oneida does not sponsor, contribute to, or participate in any postretirement
benefit plans other than the defined benefit pension plan discussed previously.
POSTEMPLOYMENT BENEFITS
Other than unemployment compensation benefits required by law, Oneida does not
provide postemployment benefits to former or inactive employees. The estimated
future cost of unemployment compensation benefits is accrued for in these
financial statements. See note 6.
17
<PAGE>
ONEIDA MOLDED PLASTICS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 12: INCOME TAXES
No provisions for income taxes were made for the nine months ended December 31,
1994, eleven months ended March 31, 1994, and year ended April 30, 1993 due to
Oneida's operating losses in those periods.
Deferred income taxes result from temporary differences in the financial bases
and tax bases of assets and liabilities. For tax purposes, Chatwins elected to
treat the Acquisition under Section 338(a) of the Internal Revenue Code.
This section permits the purchase of stock to be treated as a purchase of
assets. Accordingly, as of April 1, 1994, the assets and liabilities of Oneida
were adjusted to their fair market values for both book and tax purposes. As
such, presentation of deferred tax balances for periods prior to April 1, 1994
was deemed unnecessary. The types of differences that gave rise to significant
portions of Oneida's deferred income tax liabilities and assets are shown in the
accompanying table.
<TABLE>
<CAPTION>
CONSOLIDATED DEFERRED INCOME TAX SOURCES
(in thousands)
- - --------------------------------------------------------------
(POST-ACQUISITION)
AT DECEMBER 31, 1994
- - --------------------------------------------------------------
<S> <C>
Deferred income tax liabilities:
Goodwill $(318)
- - --------------------------------------------------------------
Gross deferred income tax liabilities (318)
- - --------------------------------------------------------------
Deferred income tax assets:
Deferred compensation 272
Book reserves 161
Accumulated depreciation 40
Operating loss carryforwards 39
- - --------------------------------------------------------------
Gross deferred income tax assets 512
Valuation allowance for deferred income
tax assets (194)
- - --------------------------------------------------------------
Deferred income tax assets, net 318
- - --------------------------------------------------------------
Deferred income tax liability, net $ -
==============================================================
</TABLE>
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 Oneida's deferred income tax assets depends
on its ability to generate sufficient taxable income in the future. While Oneida
believes that the deferred income tax assets will be realized by future
operating results, prior losses and a desire to be conservative make it
appropriate to record a valuation allowance.
18
<PAGE>
ONEIDA MOLDED PLASTICS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 13: LEASES OPERATING LEASES
Oneida leases two properties used in its manufacturing operations from an
individual who was the Company's former principal owner. Oneida is obligated to
pay all taxes, utilities, maintenance, repairs and insurance. These leases
expire in 1998, but are renewable by Oneida for additional five-year terms.
At December 31, 1994, minimum rental commitments under noncancelable operating
leases for buildings and equipment are as follows: 1995 - $131,000; 1996 -
$117,000; 1997 - $112,000; 1998 -$61,000; 1999 - $6,000.
CAPITAL LEASES
Oneida has obligations under capital leases secured by the machinery and
equipment to which they relate. The maturities of the principal portions of
capital lease obligations are included in the maturities of long-term debt. See
notes 5 and 7.
NOTE 14: CONTINGENT LIABILITIES AND COMMITMENTS
There were various legal proceedings against Oneida at December 31, 1994. While
the outcome of these proceedings is currently not determinable, it is the
opinion of management that their resolution will not have a material adverse
effect on the financial position of Oneida.
There was no other material pending or overtly threatened litigation related to
Oneida at December 31, 1994. Additionally, there were no other contingent
liabilities or commitments at December 31, 1994 that would have a material
impact on the financial position or results of operations of Oneida.
NOTE 15: SUBSEQUENT EVENT
In a Quarterly Report on Form 10-Q dated and filed with the United States
Securities and Exchange Commission on August 10, 1995, Chatwins announced that
it is currently considering the sale of all of its holdings of Oneida common
stock to Reunion Resources Company (RRC), a public company, and that this
potential transaction has been proposed to the Board of Directors of RRC.
As of August 22, 1995, this proposed transaction has not been consummated.
19
<PAGE>
ONEIDA MOLDED PLASTICS CORPORATION
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEET
As of June 30, 1995
(In Thousands)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS
Cash and Cash Equivalents $ -
Accounts Receivable 5,291
Inventories 2,460
Customer Tooling-in-process 1,598
Other Current Assets 21
-------
TOTAL CURRENT ASSETS 9,370
-------
PROPERTY, PLANT AND EQUIPMENT, NET 5,238
GOODWILL 2,910
-------
$17,518
=======
</TABLE>
The accompanying notes are an integral part of these
unaudited consolidated condensed financial statements.
20
<PAGE>
ONEIDA MOLDED PLASTICS CORPORATION
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEET
As of June 30, 1995
(In Thousands)
<TABLE>
<CAPTION>
<S> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current Portion of Long-Term Debt $ 4,905
Current Portion of Long-Term Debt, Related Party 790
Accounts Payable 2,939
Advances from Customers 1,824
Other Current Liabilities 2,606
-------
13,064
LONG-TERM DEBT 583
LONG-TERM DEBT, RELATED PARTY 3,472
-------
17,119
-------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred Stock ($100 par value; 35,000 shares
authorized, 25,000 shares issued and
outstanding) --
Common Stock ($100 par value; 2,500 authorized,
601 issued and outstanding) 1
Additional Paid-in Capital --
Retained Earnings (Since April 1, 1994) 398
-------
TOTAL SHAREHOLDERS' EQUITY 399
-------
$17,518
=======
</TABLE>
The accompanying notes are an integral part of these
unaudited consolidated condensed financial statements.
21
<PAGE>
ONEIDA MOLDED PLASTICS CORPORATION
UNAUDITED CONSOLIDATED CONDENSED STATEMENT OF INCOME
For the Six Months Ended June 30, 1995 and 1994
(In Thousands)
<TABLE>
<CAPTION>
(POST-ACQUISITION) (PRE-ACQUISITION)
SIX MONTHS THREE MONTHS THREE MONTHS
ENDED ENDED ENDED
JUNE 30, 1995 JUNE 30, 1994 MARCH 31, 1994
------------- ------------- --------------
<S> <C> <C> <C>
Net Sales $ 18,263 $ 7,766 $ 7,575
------------- ------------- -------------
OPEATING COSTS AND EXPENSES
Cost of Sales 15,111 6,684 6,420
Selling, General and Administrative 1,673 837 852
------------- ------------- -------------
16,784 7,521 7,272
------------- ------------- -------------
OPERATING INCOME (LOSS) 1,479 245 303
------------- ------------- -------------
OTHER INCOME AND EXPENSE
Other, Including Interest Income (98) (30) (14)
Interest Expense (515) (186) (160)
------------- ------------- -------------
(613) (216) (174)
------------- ------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES 866 29 129
Provision for Income Taxes 403 12 -
------------- ------------- -------------
NET INCOME (LOSS) $ 463 17 129
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these
unaudited consolidated condensed financial statements.
22
<PAGE>
ONEIDA MOLDED PLASTICS CORPORATION
UNAUDITED CONSOLIDTED CONDENSED STATEMENT OF CASH FLOWS
For the Six Months Ended June 30, 1995 and 1994
(In Thousands)
<TABLE>
<CAPTION>
(POST-ACQUISITION) (PRE-ACQUISITION)
SIX MONTHS THREE MONTHS THREE MONTHS
ENDED ENDED ENDED
JUNE 30, 1995 JUNE 30, 1994 MARCH 31, 1994
------------- ------------- --------------
<S> <C> <C> <C>
Net Cash used in Operating Activities $ (613) $ (920) $ (464)
------------- ------------- -------------
INVESTING ACTIVITIES:
Capital Expenditures (72) (88) (55)
Other 26 - -
------------- ------------- -------------
Net Cash Used in Investing Activities (46) (88) (55)
------------- ------------- -------------
FINANCING ACTIVITIES:
Net Change in Revolving Credit
Facility Borrowings 1,187 700 173
Advances from Chatwins 164 1,070 1,000
Proceeds from Issuances of Debt - 88 392
Repayments of Debt (692) (850) (1,046)
------------- ------------- -------------
Net Cash Provided by Financing Activities 659 1,008 519
------------- ------------- -------------
Increase (Decrease) in Cash - - -
Cash at Beginning of Period - - -
------------- ------------- -------------
Cash at End of Period $ - $ - $ -
============= ============= =============
SUPPLEMENTAL DISCLOSURES:
Cash Paid for Interest $ 297 $ 152 $ 160
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these
unaudited consolidated condensed financial statements.
23
<PAGE>
ONEIDA MOLDED PLASTICS ORPORATION
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 1. BASIS OF PRESENTATION
These consolidated condensed financial statements include the accounts of
Oneida Molded Plastics Corporation and its wholly-owned subsidiary, Oneida
Molded Plastics of North Carolina (collectively referred to as "Oneida"), after
elimination of all significant intercompany accounts and transactions.
The Consolidated Condensed Balance Sheet at June 30, 1995, and the
Consolidated Condensed Statements of Income and Cash Flows for the six months
ended June 30, 1995 and 1994 included herein are unaudited; however, in the
opinion of management of Oneida, 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 due to seasonal
variations, changes in market conditions and other significant transactions.
NOTE 2. INVENTORIES
Inventories at June 30, 1995 consist of the following:
<TABLE>
<CAPTION>
<S> <C>
Raw Materials $1,454
Work-in-Process 782
Finished Goods 224
------
Total $2,460
======
</TABLE>
NOTE 3. COMMITMENTS AND CONTINGENCIES
There were various legal proceedings against Oneida at June 30, 1995.
While the outcome of these proceedings is currently not determinable, it is the
opinion of management that their resolution will not have an adverse effect on
the financial position of Oneida.
24
<PAGE>
REUNION RESOURCES COMPANY 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 Securities and
Exchange Commission rules and regulations to show the pro forma effects of the
Company's acquisition of the outstanding stock of Oneida Molded Plastics
Corporation ("Oneida"). On September 14, 1995, the Company acquired all the
issued and outstanding capital stock of Oneida for $3,107,000. This acquisition
will be accounted for using the purchase method. The Pro Forma Consolidated
Condensed Balance Sheet is based on the assumption that the transaction was
completed on June 30, 1995. The pro forma consolidated condensed statements of
operations for the year ended December 31, 1994, and for the six months ended
June 30, 1995, are presented as if the transaction had occurred on January 1,
1994.
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 January
1, 1994 and as of June 30, 1995, 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 notes thereto, the
Company's Annual Report on Form 10-K for the year ended December 31, 1994 and
its Quarterly Report on Form 10-Q for the quarter ended June 30, 1995, which
have been previously filed, and Oneida's audited financial statements for the
nine months ended December 31, 1994 and unaudited consolidated condensed
financial statements as of and for the six months ended June 30, 1995, which are
filed herewith.
25
<PAGE>
REUNION RESOURCES COMPANY AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
AS OF JUNE 30, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
ONEIDA
REUNION MOLDED PRO FORMA
HISTORICAL PLASTICS ADJUSTMENTS PRO FORMA
---------- -------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash
Equivalents $ 7,154 $ -- $(3,107)/(1)/ $ 4,047
Receivables 1,675 5,291 -- 6,966
Inventories -- 2,460 -- 2,460
Customer
Tooling-in-Process -- 1,598 -- 1,598
Other Current Assets 674 21 -- 695
------- ------- ------- -------
TOTAL CURRENT ASSETS 9,503 9,370 (3,107) 15,766
------- ------- ------- -------
PROPERTY, PLANT AND
EQUIPMENT, NET
Proved Oil and Gas
Properties (Full
Cost Method) 16,719 -- -- 16,719
Plastics Plant and
Equipment -- 5,238 103 /(2)/ 5,341
------- ------- ------- -------
16,719 5,238 103 22,060
OTHER ASSETS 19,395 -- -- 19,395
GOODWILL, NET -- 2,910 2,895 /(3)/ 5,805
------- ------- ------- -------
$45,617 $17,518 $ (109) $63,026
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
consolidated condensed financial statements.
26
<PAGE>
REUNION RESOURCES COMPANY AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
AS OF JUNE 30, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
ONEIDA
REUNION MOLDED PRO FORMA
HISTORICAL PLASTICS ADJUSTMENTS PRO FORMA
---------- -------- ----------- ---------
<S> <C> <C> <C> <C>
LIABILITIES AND
SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current Portion of
Long-Term Debt $ 728 $ 4,905 $ -- $ 5,633
Current Portion of
Long-Term Debt,
Related Party -- 790 (790)/(5)/ --
Accounts Payable 2,222 2,939 -- 5,161
Advances from
Customers -- 1,824 -- 1,824
Other Current
Liabilities 1,719 2,606 (579)/(5)/
290 /(4)/ 4,036
-------- ------- ------- ---------
4,669 13,064 (1,079) 16,654
LONG-TERM DEBT 2,411 583 -- 2,994
LONG-TERM DEBT,
RELATED PARTY -- 3,472 1,369 /(5)/ 4,841
OTHER 504 -- -- 504
-------- ------- ------- ---------
7,584 17,119 290 24,993
-------- ------- ------- ---------
COMMITMENTS AND
CONTINGENCIES
SHAREHOLDERS' EQUITY
Common Stock ($.01 par
value; 8,000
authorized; 4,102
issued; 3,845
outstanding) 40 1 (1) 40
Additional Paid-in
Capital 30,988 -- -- 30,988
Retained Earnings
(Since January 1,
1989) 8,803 398 (398) /(6)/ 8,803
Less Treasury
Shares, at cost
(257 shares) (1,798) -- -- (1,798)
-------- ------- ------- ---------
TOTAL SHAREHOLDERS'
EQUITY 38,033 399 (399) 38,033
-------- ------- ------- ---------
$ 45,617 $17,518 $ (109) $ 63,026
======== ======= ======= =========
</TABLE>
The accompanying notes are an integral part of these
unaudited pro forma consolidated condensed financial statements.
27
<PAGE>
REUNION RESOURCES COMPANY AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ONEIDA MOLDED PLASTICS
------------------------------------
THREE MONTHS NINE MONTHS
ENDED ENDED
REUNION MARCH 31, 1994 DECEMBER 31, 1994 PRO FORMA
HISTORICAL (PRE-ACQUISITION)* (POST-ACQUISITION)* ADJUSTMENTS PRO FORMA
---------- ------------------ ------------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUE
Plastic Products $ -- $7,575 $23,195 $ -- $30,770
Oil and Gas 5,886 -- -- -- 5,886
Agriculture 1,619 -- -- -- 1,619
------- ------ ------- ----- -------
7,505 7,575 23,195 -- 38,275
OPERATING COSTS AND EXPENSES
Plastic Products - Cost of Sales -- 6,420 19,695 10 (a) 26,125
Oil and Gas - Operating Costs 3,218 -- -- -- 3,218
Oil and Gas - DD&A 2,923 -- -- -- 2,923
Agriculture - Operating Costs 1,423 -- -- -- 1,423
Impairment of Oil and Gas Assets 3,183 -- -- -- 3,183
Selling, General and Administrative 3,055 852 2,758 -- 6,665
------- ------ ------- ----- -------
13,802 7,272 22,453 10 43,537
OPERATING INCOME (LOSS) (6,297) 303 742 (10) (5,262)
------- ------ ------- ----- -------
OTHER INCOME AND EXPENSE
Gain on Sale of Mineral Property 2,139 -- -- -- 2,139
Other, Including Interest Income 369 (14) (123) (126)(b)
(156)(c) (50)
Interest Expense (301) (160) (714) (70)(d) (1,245)
------- ------ ------- ----- -------
2,207 (174) (837) (352) 844
------- ------ ------- ----- -------
INCOME (LOSS) FROM CONTINUING
OPERATINGS BEFORE INCOME TAXES (4,090) 129 (95) (362) (4,418)
Provisions for Income Taxes -- -- -- -- --
------- ------ ------- ----- -------
INCOME (LOSS) FROM CONTINUING
OPERATIONS $(4,090) $ 129 $ (95) $(362) $(4,418)
======= ====== ======= ===== =======
LOSS FOR COMMON SHARE AND
COMMON SHARE EQUIVALENT
Loss from Continuing Operations $ (1.08) $ (1.16)
======= =======
WEIGHTED AVERAGE COMMON SHARES
AND SHARES EQUIVALENT OUTSTANDING 3,794 3,794
======= =======
</TABLE>
- - --------------------
* Refers to Chatwins Purchase of Oneida on April 1, 1994.
The accompanying notes are an integral part of these unaudited pro forma
consolidated condensed financial statements.
28
<PAGE>
REUNION RESOURCES COMPANY AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ONEIDA
REUNION MOLDED PRO FORMA
HISTORICAL PLASTICS ADJUSTMENTS PRO FORMA
---------- -------- ----------- ---------
<S> <C> <C> <C> <C>
OPERATING REVENUE
Plastic Products $ -- $18,263 $ -- $18,263
Oil and Gas 2,800 -- -- 2,800
------- ------- ------ -------
2,800 18,263 -- 21,063
OPERATING COSTS AND
EXPENSES
Plastic Products -
Cost of Sales -- 15,111 5 /(a)/ 15,116
Oil and Gas -
Operating Costs 1,590 -- -- 1,590
Oil & Gas -
DD&A 1,245 -- -- 1,245
Impairment of Oil
and Gas Properties 5,515 -- -- 5,515
Selling, General and
Administrative 1,850 1,673 -- 3,523
------- ------- ------ -------
10,200 16,784 5 26,989
OPERATING INCOME (LOSS) (7,400) 1,479 (5) (5,926)
------- ------- ------ -------
OTHER INCOME AND EXPENSE
Other, Including Interest
Income 401 (98) (89)/(b)/
(78)/(c)/ 136
Interest Expense (143) (515) (75)/(d)/ (733)
------- ------- ------ -------
258 (613) (242) (597)
------- ------- ------ -------
INCOME (LOSS) FROM
CONTINUING OPERATIONS
BEFORE INCOME TAXES (7,142) 866 (247) (6,523)
Provision for Income
Taxes -- 403 (383)/(e)/ 20
------- ------- ------ -------
INCOME (LOSS) FROM
CONTINUING OPERATIONS $(7,142) $ 463 $ 136 $(6,543)
======= ======= ====== =======
LOSS PER COMMON SHARE
AND COMMON SHARE
EQUIVALENT
Loss from Continuing
Operations $ (1.87) $ (1.72)
======= =======
WEIGHTED AVERAGE COMMON
SHARES AND SHARES
EQUIVALENT OUTSTANDING 3,815 3,815
======= =======
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
consolidated condensed financial statements.
29
<PAGE>
REUNION RESOURCES COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The unaudited pro forma consolidated condensed balance sheet is based on the
Company's and Oneida's unaudited balance sheets at June 30, 1995, and upon the
adjustments described below. The unaudited pro forma consolidated condensed
statements of operations are based on the Company's audited financial statements
for the year ended December 31, 1994, Oneida's unaudited (pre-acquisition)
financial statements for the three months ended March 31, 1994 and audited
(post-acquisition) financial statements for the nine months ended December 31,
1994, and on the Company's and Oneida's unaudited consolidated financial
statements for the first six months of 1995 and upon the adjustments described
below.
NOTE 2. PRO FORMA ADJUSTMENTS
The unaudited pro forma consolidated condensed balance sheet reflects the
following adjustments as though the transaction had occurred on June 30, 1995:
(1) To record the net cash payment of $3,107,000 related to the purchase
of Oneida.
(2) To record the step-up of Oneida's historical basis of property, plant
and equipment resulting from the allocation of the purchase price to fixed
assets in connection with the purchase of Oneida.
(3) To reverse unamortized goodwill recognized in Chatwins 1994 purchase
of Oneida and to record goodwill of $5,805,000 resulting from Reunion's
purchase of Oneida.
(4) To accrue estimated transaction costs of $290,000 incurred in
connection with the acquisition.
(5) To record the increase, pursuant to the Purchase Agreement, in
principal indebtedness due to Chatwins for accrued but unpaid interest of
$179,000 and estimated income taxes of $400,000 associated with Oneida's
operations to the date of acquisition by Reunion. The entire Chatwins
indebtedness is classified long term, pursuant to the Purchase Agreement,
which requires repayment of this amount on or before September 14, 1997.
This indebtedness is required to be prepaid from the net proceeds of any
sale by the Company of any of its material assets.
(6) To eliminate Oneida's common stock and retained earnings at the date
of acquisition.
The unaudited pro forma consolidated condensed statements of operations
reflect the following adjustments as though the transaction had occurred on
January 1, 1994:
(a) To record incremental depreciation and amortization expense resulting
from the allocation of purchase price to fixed assets in connection with
the purchase of Oneida.
(b) To eliminate interest income earned by Reunion for the respective
periods presented, resulting from the $3,107,000 decrease in cash related
to the payment of the purchase price, assuming actual historical bank
interest rates received during the respective time periods.
30
<PAGE>
REUNION RESOURCES COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(c) To reverse amortization of goodwill associated with Chatwins
acquisition of Oneida and record amortization of goodwill resulting from
Reunion's purchase of Oneida on the straight-line method, over a 15 year
period.
(d) To record incremental interest expense on amounts due Chatwins
resulting from an interest rate of 10% pursuant to the Purchase Agreement,
compared to 7.5% historically, and for reclassification of intercompany
interest and income tax liabilities.
(e) To eliminate the federal income tax provision of Oneida due to the
allocation of the Company's net operating losses carried forward.
31
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Reunion Resources Company
(Registrant)
By /s/RICHARD L. EVANS
------------------------------
Richard L. Evans
Executive Vice President and Chief
Financial Officer
(Principal Financial and Accounting Officer)
Date: November 9, 1995
32
<PAGE>
EXHIBIT INDEX
EXHIBIT 10.44 Stock Purchase Agreement dated September 14, 1995, *
between Reunion Resources Company and Chatwins
Holdings, Inc., relating to the purchase of Oneida
Molded Plastics Corporation.
EXHIBIT 10.45 Letter Agreement between Chatwins Group, Inc. and *
Reunion Resources Company dated September 14, 1995.
EXHIBIT 23.1 Consent of Independent Accountants
EXHIBIT 99.1 Opinion of Prudential Securities Incorporated
*Previously filed.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements on Form S-3 (No. 33-77566 and
No. 33-96750) and in the Registration Statement on Form S-8 (No. 33-77232) of
Reunion Resources Company of our reports dated August 22, 1995, relating to the
consolidated financial statements of Oneida Molded Plastics Corporation, which
appear in the Current Report on Form 8-K/A of Reunion Resources Company dated
November 9, 1995.
PRICE WATERHOUSE LLP
Pittsburgh, Pennsylvania
November 9, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 7,154
<SECURITIES> 0
<RECEIVABLES> 1,890
<ALLOWANCES> (215)
<INVENTORY> 0
<CURRENT-ASSETS> 9,503
<PP&E> 38,468
<DEPRECIATION> (21,749)
<TOTAL-ASSETS> 45,617
<CURRENT-LIABILITIES> 4,669
<BONDS> 0
<COMMON> 40
0
0
<OTHER-SE> 37,993
<TOTAL-LIABILITY-AND-EQUITY> 45,617
<SALES> 2,800
<TOTAL-REVENUES> 2,800
<CGS> 0
<TOTAL-COSTS> 10,200
<OTHER-EXPENSES> (401)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 143
<INCOME-PRETAX> (7,142)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,142)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,142)
<EPS-PRIMARY> (1.87)
<EPS-DILUTED> (1.87)
</TABLE>
<PAGE>
Exhibit 99.1
[Letterhead of Prudential Securities]
September 7, 1995
Board of Directors
Reunion Resources Company
2801 Post Oak Boulevard
Houston, TX 77056
Dear Sirs:
Reunion Resources Company, a Delaware corporation ("Reunion"), and Chatwins
Holdings, Inc., ("Chatwins") a Delaware corporation, have entered into a Stock
Purchase Agreement dated as of September 7, 1995 (the "Purchase Agreement")
pursuant to which, among other things, Reunion will purchase all of the 601
issued and outstanding shares of common stock, par value $100 per share, and all
of the 25,000 issued and outstanding shares of preferred stock, par value $100
per share, of Oneida Molded Plastics Corporation, ("Oneida") a New York
corporation and a wholly-owned subsidiary of Chatwins, for approximately $3.1
million in cash. (The 601 issued and outstanding shares of common stock and the
25,000 issued and outstanding shares of preferred stock of Oneida are
collectively referred to herein as the "Shares".) As of September 5, 1995,
Oneida has (i) approximately $4.4 million in indebtedness to Congress Financial
Corporation, which indebtedness is secured by substantially all of Oneida's
assets; (ii) approximately $826,000 in indebtedness to other parties; and (iii)
approximately $4.9 million in indebtedness to Chatwins. All of the indebtedness
will remain outstanding following consummation of the transaction and Reunion is
not assuming any obligation with respect to any of such indebtedness, except as
provided in section 3.2 of the Purchase Agreement. After the purchase of the
Shares by Reunion, Oneida will become a wholly-owned subsidiary of Reunion. The
terms and conditions of the acquisition are more fully set forth in the Purchase
Agreement.
You have asked us to render an opinion with respect to the fairness, from a
financial point of view, of the consideration to be paid by Reunion for the
Shares pursuant to the Purchase Agreement.
In conducting our analysis and arriving at the opinion stated herein, we have
reviewed such information and considered such financial data and other factors
as we deemed appropriate under the circumstances, including but not limited to
the following: (i) certain of Oneida's historical financial data and certain
internal financial statements and other financial and operating data of Oneida
prepared by the management of Oneida; (ii) Oneida's projections as to future
financial performance; (iii) industry data relating to Oneida's business; (iv)
the financial terms of the Purchase Agreement as
<PAGE>
Board of Directors
Reunion Resources Company
September 7, 1995
Page 2
compared to the financial terms of certain other transactions we deemed
relevant; (v) publicly available information concerning certain other companies
that we deemed comparable to Oneida and the trading history of the stock of each
such company; (vi) the Purchase Agreement and certain related documents; and
(vii) such other factors as we deemed relevant to our opinion. We have met with
the senior officers of Oneida to discuss its financial condition and prospects
and such other matters as we deemed relevant. Our opinion is based on economic,
financial and market conditions as they exist and can be evaluated on the date
hereof.
In connection with our review and analysis, we have relied upon the accuracy
and completeness of the financial data and other information that was provided
to us by Oneida or is publicly available, and have not independently verified
any such information. With respect to the financial projections, we have
assumed that they have been reasonably prepared on bases reflecting the best
current available estimates and judgments of Oneida's management as to the
future financial performance of Oneida, including the maintenance of its
relationships with significant customers at recent historical net sales levels.
We have neither made nor obtained any independent appraisals of the properties
or facilities of Oneida.
We have also assumed that the Congress Financial Corporation indebtedness
will be extended for one year from the date of closing which is expected to be
no later than September 11, 1995, and that the transaction contemplated herein
will not give rise to any acceleration of such indebtedness.
It is understood that this letter is for the information of the Board of
Directors of Reunion only and must not be used for any other purpose without our
prior written consent.
Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the consideration to be paid by Reunion pursuant to the Purchase
Agreement is fair to Reunion from a financial point of view.
Very truly yours,
By /s/ Prudential Securities Incorporated
--------------------------------------------
