<PAGE>
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 EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) February 2, 1996
REUNION RESOURCES COMPANY
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
DELAWARE 1-7226 76-0404108
(State or other jurisdiction (Registration No.) (IRS Employer
of incorporation) (Commission File Number) Identification No.)
</TABLE>
62 SOUTHFIELD AVENUE, ONE STAMFORD LANDING, STAMFORD, CONNECTICUT 06902
(Address of principal executive offices) (Zip Code)
(203) 324-8858
(Registrant's telephone number, including area code)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On February 2, 1996 (the "Closing Date"), Rostone Corporation ("Rostone"),
a Delaware corporation, was merged (the "Merger") with and into Oneida Molded
Plastics Corp. ("Oneida"), a New York corporation and a wholly-owned subsidiary
of Reunion Resources Company (the "Company" or "Registrant") pursuant to a
Merger Agreement, dated as of December 22, 1995 (the "Merger Agreement").
Pursuant to the Merger Agreement, Oneida, as the surviving corporation, changed
its name to Oneida Rostone Corp. ("ORC"). The purchase price payable by ORC
under the Merger Agreement to the stockholders of Rostone is an amount up to
$4,000,503 as follows: (i) $503 in 1996, (ii) up to $2,000,000 in 1997 if
Rostone achieves specified levels of earnings before interest and taxes (as
provided in the Merger Agreement) for the calendar year 1996 and (iii) up to
$2,000,000 in 1998 if Rostone achieves specified levels of earnings before
interest and taxes (as provided in the Merger Agreement) for the calendar year
1997. Under the terms of ORC's Loan Facility (described below), all such
payments may only be made from equity contributions the Company may provide to
ORC. 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.
In connection with the acquisition of Rostone by ORC, the Company hired
Prudential Securities Incorporated ("Prudential") to act as its financial
advisor. In a letter dated January 15, 1996, Prudential rendered its opinion to
the Board of Directors of the Company that, as of the date thereof, the merger
consideration to be paid pursuant to the Merger Agreement was fair, from a
financial point of view, to the Company. In arriving at its opinion,
Prudential, among other things: (i) reviewed Rostone's historical financial
data and other information regarding Rostone prepared by the management of
Rostone and the Company ("Management"); (ii) reviewed financial projections
prepared by Management, relating to the sales, earnings and prospects for
Rostone's business; (iii) reviewed the financial terms of a draft of the Merger
Agreement dated January 3, 1996; (iv) reviewed the financial terms of certain
other transactions deemed relevant by Prudential; (v) reviewed publicly
available information concerning certain other companies that Prudential deemed
to be comparable to Rostone, and the trading history of the common stock of each
such company; and (vi) conducted discussions with senior officers of Rostone and
the Company concerning the financial condition and prospects of Rostone.
Rostone, located in Lafayette, Indiana, compounds and molds thermoset
polyester resins. Rostone's products consist of proprietary bulk and sheet
molding compounds, both for internal use and for sale to other manufacturers,
and custom molded parts for the electrical, appliance, business machine and
other markets. For the nine months ended September 30, 1995 (unaudited),
Rostone had net sales of approximately $21.1 million, operating profit of
approximately $1.4 million and net income of approximately $0.3 million. For
the year ended December 31, 1994, Rostone had net sales of approximately $25.6
million, operating profit of approximately $1.3 million and a net loss of
approximately $0.2 million.
Contemporaneous with the Rostone acquisition, ORC and its wholly-owned
subsidiary, Oneida Molded Plastics, Corp. of North Carolina ("OMPC-NC"), amended
and restated the terms of their
<PAGE>
secured credit facility (the "Loan Facility") with Congress Financial
Corporation ("Congress") to provide for term loans in an aggregate principal
amount of $6,600,000 and revolving loans initially in an aggregate principal
amount of up to $9,400,000. The loan proceeds borrowed on the Closing Date were
primarily used to refinance Rostone's bank and institutional debt.
In the Merger 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 Group Inc. ("Chatwins"), and minority
shareholders. Mr. Charles E. Bradley, Mr. John G. Poole and Mr. Richard Evans
are officers, directors and/or shareholders of SPI. Mr. Bradley is the Company's
President and Chief Executive Officer and Mr. Evans is Executive Vice President
of the Company. Mr. Bradley is also a controlling shareholder and the Chairman
of the Board of Chatwins which owns 38% of the Company's outstanding common
stock. Mr. Thomas L. Cassidy, a director of the Company, and Mr. Poole, an
officer of Oneida and a nominee for a directorship of the Company, are also
directors of Chatwins. Prior to the Merger certain officers and directors of
Oneida, including Messrs. Bradley and Poole, were also serving as officers and
directors of Rostone and CGII.
Prior to the Merger, Rostone was indebted to CGII pursuant to a $250,000
promissory note dated May 21, 1993. The note, which had an outstanding balance
of $367,742 (principal and accrued interest) on the Closing Date and continues
as an obligation of ORC, is subordinated to the prior payment of indebtedness
owing by ORC to Congress, except that if certain conditions are met, regularly
scheduled monthly interest payments may be paid when due.
Prior to the Merger, Oneida was indebted to Chatwins pursuant to a 10%
promissory note in the original principal amount of $4,932,940 due on the
earlier of September 14, 1997 and the date on which the Company sells any of its
material assets (the "Oneida/Chatwins Debt"). Interest on this note is payable
monthly. The note, which had an outstanding balance of $3,553,952 (principal
and accrued interest) on the Closing Date and continues as an obligation of ORC,
is subordinated to the prior payment of indebtedness owing by ORC to Congress,
except that if certain conditions are met, regularly scheduled monthly interest
payments may be paid when due and principal may be paid out of equity or
subordinated loans that may be advanced by the Company to ORC.
Prior to the Merger, Rostone was the lessee of certain equipment
beneficially owned by Chatwins and Mr. Bradley. Chatwins and Mr. Bradley share
the risks and benefits under the lease pro rata in proportion to the purchase
price of the equipment paid to the equipment manufacture by each (57% for
Chatwins and 43% for Mr. Bradley). At any time during the lease term Rostone
(ORC) may purchase the equipment upon the payment of the amount which, when
combined with its prior lease payments, will return to Chatwins and Mr. Bradley
the amounts paid by each of them to the manufacturer plus interest thereon at
13.5% per annum, compounded monthly from the date of each co-venturer's payment
to the equipment manufacturer. Chatwins and Mr. Bradley's rights to payment
under the lease are subordinated to the prior payment of
2
<PAGE>
indebtedness owing by ORC to Congress, except that if certain conditions are
met, regularly scheduled monthly lease payments may be made when due and the
amount due on exercise of ORC's purchase option may be paid out of the proceeds
of purchase money financing provided by a non-affiliate of ORC and permitted
under the terms of the Loan Facility.
On November 1, 1995 and November 2, 1995, respectively, Mr. Bradley made
loans of $850,000 and $500,000 to the Company, which the Company then used as
part of a $1,550,000 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 the Oneida/Chatwins Debt. The Company issued two notes to Mr.
Bradley for the $1,350,000 he advanced, each bearing interest at a rate of 10%
per annum and each due and payable on September 14, 1997. According to the
terms of these notes, should the Company sell any of its material assets it will
prepay these notes in an amount equal to the proceeds of such sale which remain
(if any) after the Company loans to ORC a portion of the net proceeds of such
sale in an amount sufficient to permit ORC to repay the Oneida/Chatwins Debt.
The Company's rights to payment under the $1,550,000 note issued by ORC are
subordinated to the prior payment of indebtedness owing by ORC to Congress,
except that if certain conditions are met, regularly scheduled monthly interest
payments may be paid when due.
To facilitate the closing of the Merger and the Loan Facility Mr. Bradley
entered into several financial arrangements with Congress and an existing
creditor of Rostone. To induce Congress to consummate the Loan Facility Mr.
Bradley guaranteed the obligations of ORC and OMPC-NC under the Loan Facility
subject to a cap of $4 million, which cap declines over time to $2 million. Mr.
Bradley will receive a credit support fee from ORC and OMPC-NC in an aggregate
amount equal to one percent (1%) 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 Congress, except that if certain conditions are met, the monthly
installments may be paid when due. As a further inducement to Congress Mr.
Bradley entered into an environmental indemnity agreement pursuant to which Mr.
Bradley agrees 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 them.
To induce an existing creditor of Rostone to permit the Merger and Loan
Facility to be consummated, Mr. Bradley agreed to purchase from this creditor
50% of the $2,034,225 owing to him by Rostone on the Closing Date if this
indebtedness was restated to provide for quarterly amortization over a two year
period with interest at 10% per annum 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
$1,017,112.50 bearing interest at 10% per annum which is subordinated to the
prior payment of indebtedness owing by
3
<PAGE>
ORC to Congress, except that if certain conditions are met, regularly scheduled
payments of interest may be paid when due.
Management of the Company believes that the acquisition of Rostone will
further the Company's objective of increasing ORC's customer base and expanding
its product offerings and service capabilities in the plastics industry. The
Company currently intends to continue to use the assets of Rostone in
substantially the same manner as they were used prior to the Merger.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
a. Financial Statements of Rostone Corporation:
Report of Independent Accountants
Balance Sheet, December 31, 1995 and 1994
Statement of Operations and Accumulated Deficit for the Years Ended
December 31, 1995, 1994 and 1993
Statement of Cash Flows for the Years Ended December 31, 1995, 1994
and 1993
Notes to Financial Statements
b. Pro Forma Financial Information:
Unaudited Pro Forma Consolidated Condensed Balance Sheet, December 31,
1995
Unaudited Pro Forma Consolidated Condensed Statement of Operations for the
Year Ended December 31, 1995
Notes to Unaudited Pro Forma Consolidated Condensed Financial Statements
c. Exhibits:
The following exhibits are filed herewith in accordance with Item 601
of Regulation S-K:
Exhibit No. Exhibit Description
----------- -------------------
2.1 Merger Agreement, dated as of December 22, 1995
(executed February 2, 1996) between Oneida Molded
Plastics Corp. and Rostone Corporation.
23.1 Consent of Independent Accountants.
99.1 Opinion of Prudential Securities Incorporated.
4
<PAGE>
Report of Independent Accountants
March 6, 1996
To the Board of Directors and
Stockholders of Rostone Corporation
(a 94% owned subsidiary of CGI
Investment Corporation)
In our opinion, the accompanying balance sheet and the related statement of
operations and accumulated deficit and of cash flows present fairly, in all
material respects, the financial position of Rostone Corporation (a 94% owned
subsidiary of CGI Investment Corporation) at December 31, 1995, and 1994, and
the results of its operations and its cash flows for each of the three years in
the period ended December 31, 1995 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 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 Note 12 to the accompanying financial statements, effective
January 1, 1995, the Company changed its method of accounting for postretirement
healthcare benefits by adopting Statement of Financial Accounting Standards No.
106, "Employers' Accounting for Postretirement Benefits Other than Pensions".
As discussed throughout the Notes to Financial Statements, the Company 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 would result from
transactions among wholly unrelated parties.
As discussed in Note 19 to the accompanying financial statements, the
shareholders approved and authorized the sale and merger of the Company into an
affiliated company effective February 2, 1996.
PRICE WATERHOUSE LLP
Price Waterhouse LLP
South Bend, Indiana
5
<PAGE>
ROSTONE CORPORATION
(A 94% OWNED SUBSIDIARY OF CGI INVESTMENT CORPORATION)
BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
1995 1994
<S> <C> <C>
ASSETS
Current assets:
Cash (Note 6) $ 105,944 $ 32,580
Accounts receivable (Note 2):
Trade, less allowance of $36,000 at
December 31, 1995 and 1994 2,922,936 2,840,433
Other 63,930 37,189
Inventories (Notes 2 and 3) 1,874,067 1,566,440
Deferred income taxes (Note 8) 68,000 172,000
Customer tooling (Note 2) 777,749 1,110,714
Other 88,293 37,367
----------- -----------
Total current assets 5,900,919 5,796,723
Property, plant and equipment, net
(Notes 2, 4, 6 and 7) 6,942,396 7,400,187
Intangible assets (Note 5) 241,754 488,420
Restricted cash (Note 6) 250,000 250,000
----------- -----------
Total assets $13,335,069 $13,935,330
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable, trade $ 2,038,394 $ 2,144,000
Note payable (Note 6) 3,060,941 3,139,898
Current portion of long-term debt (Note 7) 6,079,450 7,287,978
Customer deposits (Note 2) 496,298 161,886
Accrued liabilities:
Salaries and wages (Note 18) 817,130 879,146
Taxes, other than income 282,963 321,411
Interest (Note 7) 1,432,068 802,687
Other 525,448 159,078
----------- -----------
Total current liabilities 14,732,692 14,896,084
----------- -----------
Long-term debt (Note 7) 65,702 89,285
Deferred income taxes (Note 8) 78,000 182,000
Postretirement benefits (Note 12) 1,512,000 --
----------- -----------
Total liabilities 16,388,394 15,167,369
Contingencies (Note 16) -- --
Class A redeemable common stock (Note 9) 7,770 7,194
Stock warrant (Note 10) -- --
Stockholders' equity (deficit)
(Notes 11 and 14):
Preferred stock, $.40 par value--726 shares
authorized, issued and outstanding 290 290
Class A common stock, $.40 par value--27,119
shares authorized, 25,000 issued and
outstanding, including 1,250 redeemable
shares at December 31, 1995 and 1994 9,500 9,500
Capital in excess of par value 2,994,166 2,994,166
Accumulated deficit (6,046,094) (4,224,232)
Cost of common stock held in treasury--
3,750 shares at December 31, 1995
and 1994 (18,957) (18,957)
----------- -----------
Total stockholders' deficit (3,061,095) (1,239,233)
----------- -----------
Total liabilities and stockholders'
deficit $13,335,069 $13,935,330
=========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
6
<PAGE>
ROSTONE CORPORATION
(A 94% OWNED SUBSIDIARY OF CGI INVESTMENT CORPORATION)
STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------
1995 1994 1993
<S> <C> <C> <C>
Net sales (Note 2) $28,310,176 $25,637,583 $23,418,488
Cost of goods sold (Note 2) 24,878,697 22,018,761 20,552,236
----------- ----------- -----------
Gross profit 3,431,479 3,618,822 2,866,252
Expenses:
General and administrative 1,693,770 1,769,551 2,105,534
Selling expenses 673,590 587,434 544,776
----------- ----------- -----------
Operating profit 1,064,119 1,261,837 215,942
Other (expenses) income:
Interest expense and loan renewal
fees (Note 6) (1,362,741) (1,219,579) (1,300,463)
Amortization of intangible
assets (Note 5) (288,838) (566,985) (566,985)
Loss on disposal of fixed assets
(Note 4) (8,525) (21,616) (212,045)
Gain on sale of joint venture
(Note 17) -- -- 819,522
Disclosure fee income (Note 17) -- -- 250,000
Royalty income 198,010 177,400 166,341
Gain in equity of joint venture
(Note 17) -- -- 29,172
Other, net (Note 15) (6,651) 192,088 (31,639)
----------- ----------- -----------
Loss before income taxes and
cumulative effect of change
in accounting principle (404,626) (176,855) (630,155)
Income tax expense (Note 8) 7,998 11,194 3,000
----------- ----------- -----------
Loss before cumulative effect of
changes in accounting principle (412,624) (188,049) (633,155)
Cumulative effect of change in
accounting for postretirement
obligations (Note 12) (1,408,662) -- --
----------- ----------- -----------
Net loss (1,821,286) (188,049) (633,155)
Accumulated deficit, beginning
of year (4,224,232) (4,054,722) (3,420,270)
Decrease in redemption value of
stock warrants (Note 10) -- 19,237 --
Increase in redeemable stock
(Note 9) (576) (698) (1,297)
----------- ----------- -----------
Accumulated deficit,end of year $(6,046,094) $(4,224,232) $(4,054,722)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
7
<PAGE>
ROSTONE CORPORATION
(A 94% OWNED SUBSIDIARY OF CGI CORPORATION)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------
1995 1994 1993
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,821,286) $ (188,049) $ (633,155)
Adjustments to reconcile net loss
to net cash flow provided by
operating activities:
Cumulative effect of change in
accounting for postretirement
benefits (Note 12) 1,408,662 -- --
Depreciation and amortization 1,108,599 1,113,627 1,008,789
Amortization of intangibles
(Note 5) 246,666 566,985 566,985
Equity in joint venture income
(Note 17) -- -- (29,172)
Gain on disposal of joint venture
(Note 17) -- -- (819,522)
Loss on disposal of assets (Note 4) 8,525 21,616 212,045
Changes in:
Accounts receivable (109,244) (548,038) 473,314
Inventories (307,627) 320,294 325,207
Accounts payable and accrued
liabilities 1,227,431 271,468 911,576
Other 282,039 (458,615) (161,115)
----------- ----------- -----------
Net cash provided by operating
activities 2,043,765 1,099,288 1,854,952
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and
equipment (659,333) (210,162) (78,323)
Proceeds from sale of property,
and equipment (Note 4) -- 18,500 267,790
----------- ----------- -----------
Net cash (used in) provided by
investing activities (659,333) (191,662) 189,467
----------- ----------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES
Purchases of treasury stock -- (2,387) (12,975)
(Decrease) increase in note payable (78,957) 275,006 (612,249)
Long-term borrowings paid (1,232,111) (1,313,471) (1,269,901)
----------- ----------- -----------
Net cash used in financing
activities (1,311,068) (1,040,852) (1,895,125)
----------- ----------- -----------
INCREASE (DECREASE) IN CASH 73,364 (133,226) 149,294
CASH AT BEGINNING OF PERIOD 32,580 165,806 16,512
----------- ----------- -----------
CASH AT END OF PERIOD $ 105,944 $ 32,580 $ 165,806
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid for interest (Notes 6
and 7) $ 662,360 $ 720,660 $ 825,232
Cash paid for income taxes 19,500 2,000 4,000
SUPPLEMENTAL DISCLOSURE OF NONCASH
FINANCIAL ACTIVITIES:
In 1994, the Company capitalized $562,018 of deferred interest on its senior
subordinated debt. See Note 7.
</TABLE>
The accompanying notes are an integral part of this statement.
8
<PAGE>
ROSTONE CORPORATION
(A 94% OWNED SUBSIDIARY OF CGI INVESTMENT CORPORATION)
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation and Description of Business
The accompanying financial statements include the assets and liabilities and
results of operations and cash flows of Rostone Corporation (the "Company" or
"Rostone"), a 94% owned subsidiary of CGI Investment Corporation (the "Parent").
Transactions between the Company and the Parent have not been eliminated. This
basis of presentation contemplates realization of assets and payment of
liabilities in the normal course of business and does not reflect any
adjustments that may result from the sale and merger of the Company on February
2, 1996 (Note 19).
The financial statements include the accounts of Rostone Corporation and its
wholly-owned subsidiary, Rostone P.R., Inc. prior to the sale of Rostone P.R.
Inc. effective June 30, 1993. All intercompany balances and transactions
between these entities are eliminated. Rostone P.R., Inc. is a holding company
for an investment in Rostone de Puerto Rico, a Puerto Rican joint venture, which
was carried in the consolidated financial statements at Rostone P.R., Inc.'s
share of the partnership's underlying deficit until June 30, 1993 (Note 17).
The Company is engaged in the manufacturing and selling of engineered thermoset
moldings primarily to the electrical, appliance, and business machine markets.
2. Summary of Significant Accounting Policies
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 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.
Financial Instruments
The Company's financial instruments consist primarily of cash, trade receivables
and payables, and obligations under notes payable and long-term debt. In
accordance with the requirements of Statement of Financial Accounting Standard
(SFAS) No. 107, "Disclosures about Fair Value of Financial Instruments," the
Company is providing the following fair value estimates and information
regarding valuation methodologies. The carrying value for cash, trade
receivables and trade payables approximates fair value based on the short-term
maturities of these instruments. The carrying value for all long-term debt
outstanding at December 31, 1995 approximates fair value where fair value is
based on market prices for the same or similar debt and maturities.
Inventories
Inventories are valued at the lower of cost or market using the last-in, first-
out (LIFO) method.
Property, Plant and Equipment
Property, plant and equipment are carried at cost and include expenditures which
substantially increase their useful lives. Expenditures for repairs and
maintenance are expensed as incurred.
Depreciation is provided on the straight line method. The estimated useful
lives used in computing depreciation are 15 years for land improvements, 25
years for buildings and 4-10 years for machinery and equipment and furniture and
fixtures. Deprecation includes amortization of capital leases.
9
<PAGE>
ROSTONE CORPORATION
(A 94% OWNED SUBSIDIARY OF CGI INVESTMENT CORPORATION)
NOTES TO FINANCIAL STATEMENTS
Customer Tooling
All tooling projects are customer funded with recognition of income deferred
until project completion and recognition of losses recorded when estimated costs
exceed customer funding. Tooling revenue and the associated costs are included
within net sales and cost of sales, respectively. For 1995, 1994 and 1993,
tooling revenue was $2,926,000, $1,508,000 and $364,000, respectively, and
tooling cost was $2,771,000, $1,351,000 and $228,000, respectively. At December
31, 1995, 1994 and 1993, $609,000, $704,000 and $298,000, respectively, has been
progress billed to customers and included within Accounts receivable. Customer
deposit liabilities represent customer advances in excess of costs incurred to
date on tooling projects.
The Company is responsible for routine tooling repair and maintenance
expenditures for customer owned tooling. These costs are expensed as incurred.
Accounting Changes
Effective January 1, 1995, the Company adopted the provisions of SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions". In
doing so, the Company changed its practice from expensing these costs as
incurred to accruing these costs during the employees' active working careers
(Note 12).
Prior to 1993, the Company accounted for income taxes using the guidelines of
Statement of Financial Accounting Standards (SFAS) No. 96, "Accounting for
Income Taxes". Effective January 1, 1993, the Company changed its method of
accounting for income taxes by adopting the asset and liability method, as
prescribed by the Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes". There was no
cumulative effect on prior years as a result of this change in accounting.
In March 1995, the FASB issued Statement No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This
Statement, which must be adopted in 1996, requires companies to investigate
potential impairments of long-lived assets, certain identifiable intangibles and
associated goodwill on an exception basis, when there is evidence that events or
changes in circumstances have made recovery of an asset's carrying value
unlikely. The Company does not believe that the adoption of this standard will
have a material effect on its financial position or results of operations.
Income Taxes
Deferred income taxes are provided using the liability method in accordance with
SFAS No. 109, "Accounting for Income Taxes".
Concentration of Credit Risk
The Company sells its products to customers primarily in the domestic
electrical, appliance and business machine markets. The Company performs
ongoing credit evaluations of its customers to minimize credit risk. The
Company generally does not require collateral. The Company had three customers
in 1995, 1994 or 1993 that individually represented more than 10% of total
sales.
10
<PAGE>
ROSTONE CORPORATION
(A 94% OWNED SUBSIDIARY OF CGI INVESTMENT CORPORATION)
NOTES TO FINANCIAL STATEMENTS
The following summarizes sales and accounts receivable information for these
major customers:
<TABLE>
<CAPTION>
Sales Percent of Accounts
(000's) Receivable at Year End
Customer 1995 1994 1993 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
A $8,395 $8,495 $9,154 25% 39% 47%
B 4,372 5,081 5,479 12 18 29
C 2,465 2,690 2,302 3 8 2
------- ------- ------- --- --- ---
$15,232 $16,266 $16,935 40% 65% 78%
======= ======= ======= === === ===
</TABLE>
Reclassifications
The Company has reclassified certain prior year financial information to conform
with the current year's presentation.
3. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31,
1995 1994
<S> <C> <C>
At current cost:
Raw material $838,575 $615,314
Work in process 391,402 283,956
Finished goods 522,226 481,524
---------- ----------
1,752,203 1,380,794
Excess of LIFO cost over current cost 121,864 185,646
---------- ----------
Inventories at LIFO $1,874,067 $1,566,440
========== ==========
</TABLE>
The LIFO reserve of $121,864 represents the remaining difference at December 31,
1995 between the fair market value used to cost the initial LIFO layer and the
current replacement cost.
During 1994 and 1993, inventory quantities were reduced. This reduction
resulted in a liquidation of a portion of the initial LIFO layer carried at fair
market value as of the acquisition date, the effect of which increased cost of
goods sold and decreased net income by approximately $47,000 and $3,000 in 1994
and 1993, respectively.
11
<PAGE>
ROSTONE CORPORATION
(A 94% OWNED SUBSIDIARY OF CGI INVESTMENT CORPORATION)
NOTES TO FINANCIAL STATEMENTS
4. Property, Plant and Equipment
Property, plant and equipment are summarized as follows:
<TABLE>
<CAPTION>
December 31,
1995 1994
<S> <C> <C>
Land improvements $ 322,572 $ 322,572
Buildings 3,346,638 3,346,638
Machinery and equipment 7,936,568 7,477,040
Furniture and fixtures 522,631 385,510
---------- ----------
12,128,409 11,531,760
Accumulated depreciation (5,546,983) (4,473,177)
---------- ----------
6,581,426 7,058,583
Land 292,093 292,093
Construction in process 68,877 49,511
---------- ----------
Net property, plant
and equipment $6,942,396 $7,400,187
========== ==========
</TABLE>
5. Intangible Assets
Intangible assets at December 31, 1995 represent debt issuance costs which are
being amortized over the original terms of the related debt instruments,
generally seven years. These debt issuance costs were expensed in 1996 upon
extinguishment of the related debt (Note 19). Intangible assets at December 31,
1994 consist of debt issuance costs of $349,000 and other costs relating to a
non-compete agreement with the former majority shareholder of $133,000. The
non-compete costs were amortized over the five year non-compete term.
Amortization expenses of $289,000, $550,000 and $550,000 were recorded in 1995,
1994 and 1993, respectively, relating to these intangible assets.
6. Note Payable
The Company maintains a secured line of credit agreement with a bank at 1-1/2%
above the prime lending rate (totalling 10% at December 31, 1995 and 1994).
This line of credit expired April 30, 1995 and was renewed periodically
throughout 1995. The line is limited to the lesser of $4,000,000 or an amount
equal to (a) $250,000 plus (b) the sum of 85% of eligible accounts receivable,
plus (c) the lesser of $1,000,000 or 30% of eligible raw materials and 60% of
eligible finished goods inventory. The line of credit borrowing limit under
this formula was $3,350,000 at December 31, 1995 and $3,185,000 at December 31,
1994. Borrowings under the line of credit were $3,061,000 and $3,140,000 at
December 31, 1995 and 1994, respectively. The Company pays a commitment fee of
one-fourth percent per annum on the average daily difference between $4,000,000
and the balance outstanding. Average daily short-term borrowings were
$3,061,000, $3,031,000, and $3,124,000 in 1995, 1994 and 1993, respectively.
The weighted average interest rate, computed by relating interest expense to
average daily short-term borrowings, was 12.8% at December 31, 1995, 8.7% at
December 31, 1994 and 7.6% at December 31, 1993. The maximum amount of short-
term borrowings at the end of any month was $3,464,000 in 1995, $3,458,000 in
1994 and $3,673,000 in 1993. In order to renew the line of credit through
December 31, 1995, the Company was charged $71,000 of renewal fees by the bank
in 1995.
The credit agreement entered into for both the secured line of credit and
secured term notes (Note 7) requires, among other things, that the Company
maintain certain agreed upon minimum net
12
<PAGE>
ROSTONE CORPORATION
(A 94% OWNED SUBSIDIARY OF CGI INVESTMENT CORPORATION)
NOTES TO FINANCIAL STATEMENTS
worth levels and cash flow ratios. Additionally, the agreement contains
restrictions regarding the Company's ability to enter into other borrowing
arrangements, pay dividends, acquire fixed assets and pay management fees.
The line of credit and the two long-term secured notes (Note 7) are secured by
substantially all of the Company's assets including $250,000 of cash, which is
restricted from use.
7. Long-term Debt
Long-term debt is comprised of the following:
<TABLE>
<CAPTION>
December 31,
1995 1994
<S> <C> <C>
Secured term note - interest at the prime rate plus 1-1/2%
(totalling 10% at December 31, 1995 and 1994); pay-
able in monthly installments of $82,143 plus interest through
maturity with the remaining balance payable May 1, 1997 $1,642,857 $2,628,571
Secured term note - interest at the prime rate plus 2%
(totalling 10.5% at December 31, 1995 and 1994);
payable in monthly installments of $15,000 plus interest
through maturity with remaining balance payable May 1, 1997 779,650 959,650
Senior subordinated bank note - interest payable quarterly
at 15%, adjustable under certain conditions (totalling 17.5%
at December 31, 1995 and 1994), principal repayment
postponed under subordination agreement 1,958,184 1,958,184
Junior subordinated note to former majority stockholder -
interest payable quarterly at 14%, principal repayment
postponed under subordination agreement 1,350,000 1,350,000
Subordinated promissory note to Parent Company -
principal plus interest at 15%, payable subject to attaining
certain criteria set forth in the Company's debt agreements 250,000 250,000
Capital leases - secured by equipment, interest ranging from
8.3% to 13.2%, payable in varying monthly installments
through 1998 164,461 230,858
---------- ---------
6,145,152 7,377,263
Less current maturities 6,079,450 7,287,978
---------- ---------
Long-term debt $ 65,702 $ 89,285
---------- ---------
</TABLE>
The Company was in violation of certain debt covenants at December 31, 1995 and
1994. A waiver was not requested for the violations existing at December 31,
1995 as the related debt was fully extinguished February 2, 1996 (Note 19). All
debt, except for the long term maturity of capital leases, was classified as
current at December 31, 1995 and 1994. All associated accrued interest was
classified as current at December 31, 1995 and 1994.
The two secured term notes were subject to an interest rate agreement with the
bank which established a prime interest rate cap of 11.75% and floor of 10.375%,
through April 16, 1993. Additionally, mandatory prepayment of the term notes is
required equal to 50% of the excess over
13
<PAGE>
ROSTONE CORPORATION
(A 94% OWNED SUBSIDIARY OF CGI INVESTMENT CORPORATION)
NOTES TO FINANCIAL STATEMENTS
$250,000 of the prior year net earnings plus amortization and depreciation less
capital distributions, principal repayments and capital expenditures. No such
prepayment was required in 1995, 1994 or 1993. The notes were repaid February
2, 1996 (Note 19).
On April 1, 1994, the senior subordinated promissory note was reissued with
certain modifications, principally pertaining to the interest rate and its
adjustment based on the occurrence of certain events. The promissory note rate
is 15%, subject to an increase to 17.5% if an event of default occurs. At
December 31, 1995 and 1994, the Company was in default of certain of its debt
covenants resulting in a 17.5% interest rate on the note. Prior to the April 1,
1994 reissuance of the note, the promissory note rate of 15% was adjustable to
17% as long as deferred interest remained outstanding and by an additional two
percentage points if an event of default existed. The 19% rate at December 31,
1993 reflects the fact that deferred interest was outstanding and the Company
was in default of certain of its covenants. Scheduled maturities on the note
were to begin March 31, 1995 in three annual installments of $490,505, $490,505
and $981,009. Due to the Company being in violation of certain debt covenants
under the secured term notes and line of credit, no principal payments were
allowed during 1995. The note was repaid February 2, 1996 (Note 19).
The scheduled maturities on the junior subordinated promissory note were to
begin April 15, 1995 in three annual installments of $450,000. Due to the
Company being in violation of certain covenants under the secured term notes and
line of credit, no principal payments were allowed during 1995.
Equipment acquired under capital leases has a book value of $191,000, $419,000
and $509,000, net of accumulated amortization of $565,000, $290,000 and $200,000
at December 31, 1995, 1994 and 1993, respectively.
Scheduled principal payments on long-term debt, including the capital leases,
without regard to accelerated payment associated with the merger of the Company
on February 2, 1996 (Note 19), are $3,391,000 in 1996, $2,308,000 in 1997,
$206,000 in 1998, $180,000 in 1999 and $60,000 in 2000. No debt obligations
extend beyond 2000.
The amount of deferred interest outstanding at December 31, 1995 and 1994 is as
follows:
<TABLE>
<CAPTION>
Amounts deferred at
December 31,
1995 1994
<S> <C> <C> <C>
Senior subordinated July 1, 1994 -
December 31, 1995 $574,463 $166,147
Junior subordinated July 15, 1992 -
December 31, 1995 666,900 475,275
Subordinated May 21, 1993 -
December 31, 1995 114,350 76,850
---------- --------
$1,355,713 $718,272
========== ========
</TABLE>
Deferred interest on the senior subordinated bank note is payable when the
Company is in compliance with certain provisions of the credit agreement as
amended on April 1, 1994. Unpaid interest amounting to $562,018 was capitalized
into the note on April 30, 1994. This interest relates to the period March 31,
1992 - April 30, 1994. This interest was repaid February 2, 1996 (Note 19).
14
<PAGE>
ROSTONE CORPORATION
(A 94% OWNED SUBSIDIARY OF CGI INVESTMENT CORPORATION)
NOTES TO FINANCIAL STATEMENTS
Deferred interest on the junior subordinated note is payable the later of April
15, 1997 or when the secured term notes obligations have been settled. Interest
on the subordinated note was due on December 1, 1994 or when deferred interest
on all other notes have been paid and when certain other financial conditions
have been met.
8. Income Taxes
The Company elected a March 31 year end for tax reporting purposes and files
with the Parent as a consolidated group. The income tax provisions presented in
these financial statements were prepared on a standalone Company basis for each
of the three years ended December 31, 1995. The provision for income taxes was
$7,998, $11,194 and $3,000 for the years ended December 31, 1995, 1994 and 1993,
respectively. As a result of the Company's financial condition, no deferred
income tax provision was required for any of the three years ended December 31,
1995.
For the years ended December 31, 1995, 1994 and 1993, respectively, $367,000,
$419,000 and $1,121,000 of net operating loss carryforwards were utilized to
reduce current federal income taxes. For tax purposes, the net operating loss
carryforward was approximately $5,600,000, $5,400,000 and $4,900,000 at
December 31, 1995, 1994, and 1993, respectively. The net operating loss
carryforwards for tax and financial reporting purposes expire in 2005 through
2008. Due to the merger of the Company on February 2, 1996 (Note 19), the
utilization of operating loss carryforwards may be limited.
A valuation allowance of $2,199,000 has been provided against gross deferred tax
assets at December 31, 1995. During 1995, the valuation allowance increased
$388,000 as a result of a net increase in deductible temporary differences.
9. Redeemable Common Stock
Upon acquisition, the Company had put and call option agreements covering 5,000
shares of its Class A common stock. At December 31, 1995, 3,750 have been
exercised and the remaining 1,250 options are exercisable. The repurchase
prices are dependent upon the timing and nature of future events and are set by
a formula contained in the agreements. These shares of Class A common stock are
considered redeemable and, accordingly, are excluded from stockholders' equity.
10. Stock Warrant
A warrant to purchase 2,119 shares of Class B common stock at $2.00 per share
was issued to the purchaser of the senior subordinated note. The warrant
provides for adjustment of the exercise price and number of shares issuable
thereunder in the event that the Company issues additional shares of common
stock for less than $4.00 per share or the market price as of the date of sale.
The warrant is exercisable through April 16, 2000. The Company entered into a
put and call option agreement with the purchaser of the warrant. This agreement
allows the Company to call the underlying common stock after April 16, 1998.
The agreement allows the purchaser to require the Company to repurchase the
underlying common stock on or after April 16, 1995 and under certain
circumstances earlier in 1995. The repurchase price is the greater of an agreed
upon formula value or the market value of outstanding common shares excluding
the common stock shares underlying the warrant.
The warrant was reissued May 21, 1993 and reflected the one for forty reverse
stock split (Note 11). Additionally, the warrant price was changed to $2.00 per
share. The adjustment feature of the warrant was also changed from $.10 per
share to $4.00 per share.
The warrant is classified as a debt instrument and is currently being valued at
zero as the fair market value of the stock, as calculated, is below that of the
exercise price.
15
<PAGE>
ROSTONE CORPORATION
(A 94% OWNED SUBSIDIARY OF CGI INVESTMENT CORPORATION)
NOTES TO FINANCIAL STATEMENTS
11. Stockholders' Equity
Effective May 21, 1993, a 1 for forty stock reversal was approved by the
Company's Board of Directors. Each share of Class A Common Stock and Class B
Common Stock authorized immediately prior to the stock split was changed to one-
fortieth of a share.
The Company's preferred stock consists of 726 authorized shares of $.40 par
value Preferred Stock of which 726 shares were outstanding at December 31, 1995.
The Preferred Stock voting rights are limited to certain matters, including:
merger or consolidation (Note 19); creation of, issuance of, or increase in the
authorized number of shares of any class ranking prior to the Preferred Stock;
amendment, alteration or repeal of any Certificate of Incorporation provisions
which adversely affect the preferences, special rights or powers of the
Preferred Stock; and authorization of any reclassification of the Preferred
Stock.
The Preferred Stock has preference to the Company's Common stock in liquidation
(Note 19) and is entitled to $4,000 per share, $2,904,000 in the aggregate, plus
any dividends declared and unpaid in the event of liquidation. The Preferred
stock dividend rate is up to $400 per share annually, and is not cumulative.
The shares of Class A Common Stock are convertible into an equal number of
shares of Class B Common Stock. Class B Common Stock is convertible into the
same number of Class A Common Stock only upon the occurrence of certain
specified events including a public offering or a change in control of the
Company through a merger, consolidation or similar transaction (Note 19).
The Company is required to reserve in both Class A and B Common Stock the number
of shares issuable under the Stock Warrant Agreement: 2,119 shares of each at
December 31, 1995.
12. Benefit Plans
Defined Contribution Plans
The Company has two qualified contributory retirement plans which cover
substantially all employees. The Company contributes 10% on the first 6% of
employees' contributions. The Company's contributions were $24,000, $26,000 and
$25,000 for the years ended December 31, 1995, 1994 and 1993, respectively.
Postretirement health plans
The Company provides health care benefits for certain 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. The Company'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.
Effective January 1, 1995, the Company implemented SFAS 106 which requires
accrual of retiree medical benefits as earned rather than recognition of these
costs as claims are paid. In 1995, the excess of total postretirement benefit
expense recorded under SFAS 106 over the Company's former method of accounting
for these benefits was approximately $133,000. In 1995, 1994 and 1993,
respectively, the Company's cash payments for such benefits were approximately
$29,000, $44,000, and $53,000, respectively.
16
<PAGE>
ROSTONE CORPORATION
(A 94% OWNED SUBSIDIARY OF CGI INVESTMENT CORPORATION)
NOTES TO FINANCIAL STATEMENTS
Health care benefits are funded as claims are paid; thus adoption of SFAS 106
has no impact on the cash flows of the Company. The Company elected the
immediate recognition method for the transition obligation, which resulted in a
non-cash charge of $1,408,662.
The components of postretirement benefit cost are as follows:
<TABLE>
<CAPTION>
1995
<S> <C>
Service cost $ 42,689
Interest cost 119,737
--------
Net postretirement benefit cost $162,426
========
</TABLE>
The accumulated postretirement benefit obligation consisted of the following
components:
<TABLE>
<CAPTION>
1995
December 31, January 1,
<S> <C> <C>
Retirees $ 611,168 $ 626,165
Fully eligible active participants 23,542 8,763
Other active participants 907,249 773,734
---------- ----------
Total 1,541,959 1,408,662
Plan assets at fair value - -
---------- ----------
APBO in excess of plan assets 1,541,959 1,408,662
Unrecognized net gain 391 -
---------- ----------
Postretirement benefit liability $1,542,350 $1,408,662
========== ==========
</TABLE>
Benefit costs were estimated assuming retiree health care costs would initially
increase at an 11% annual rate, decreasing gradually to 6% after 15 years. A
1.0% increase in the assumed health care cost trend rate would have increased
the APBO at December 31, 1995 and postretirement benefit cost for 1995 by
$174,000 and $21,000, respectively. The discount rate used to estimate the
accumulated postretirement benefit obligation was 8.25% and 7.0% at January 1,
1995 and December 31, 1995, respectively.
13. Leases
The Company leases certain equipment under noncancellable operating leases.
Total rental expenses were $89,000, $6,000 and $9,000 for the years ended
December 31, 1995, 1994 and 1993, respectively. Future minimum lease payments
will be $245,000 in 1996 and 1997, $244,000 in 1998 and 1999 and $156,000 in
2000. No lease obligations extend past 2000. Included within the information
above is a five year operating lease negotiated with two related parties in
1995. Gross rentals under this lease of three injection presses was $78,000
during 1995.
14. Related Party Agreements
The Company is party to a five year management consulting agreement with the
majority stockholder of the Parent. The Company is also party to a three year
consulting agreement with a stockholder owning 1,250 shares of redeemable Class
A common stock. Each of the agreements requires the Company to remit consulting
fees for annual consulting services as well as
17
<PAGE>
ROSTONE CORPORATION
(A 94% OWNED SUBSIDIARY OF CGI INVESTMENT CORPORATION)
NOTES TO FINANCIAL STATEMENTS
reimbursement of related expenses. The accrual and payment of these consulting
fees is restricted by various debt agreements. The consulting agreements
provide for aggregate fee amounts and are automatically extended until such
aggregate fees are paid. Unpaid and unaccrued amounts totalled $1,215,000 at
December 31, 1995, 1994 and 1993 (Note 19).
During 1995, 1994 and 1993, the Company incurred consulting and management fees
under other related party consulting agreements of $50,000, $80,000 and $63,000,
respectively.
15. Other Income and Expense
Other income (net) for the year ended December 31, 1994 includes an adjustment
for $144,000 for a check issued February 20, 1992 by the Company but never
presented for payment and an $85,000 refund received in 1994 related to
retroactive utility rate adjustments for the period July 1987 - February 1991.
16. Contingencies
Certain processes in the manufacture of the Company's current and past products
create hazardous waste by-products as currently defined by federal and state
laws and regulations. The Company has not been notified nor is it aware that it
is or may be a Potential Responsible Party regarding hazardous waste remediation
at any non-Company sites. However, pursuant to the Company's policies, periodic
on-site sampling is performed to determine the extent of any potential on-site
environmental risks or exposures resulting from its manufacturing processes. On
February 26, 1996, the Company was informed by a contracted environmental
services consulting firm that potential soil and ground water contamination may
exist on-site. Although investigation as to the extent of contamination is not
complete, management estimates the range of loss to be $238,000 to $350,000.
Management has accrued $238,000 at December 31, 1995 which is included in other
accrued liabilities and in cost of sales.
17. Sale of Investment in Joint Venture and Technology License Agreement
On June 30, 1993, the Company sold 100% of the common stock of its wholly-owned
subsidiary, Rostone P.R., Inc. to Westinghouse for $10. The Company had
recorded its 50% share of the joint venture's accumulated deficit as a
liability. As a result of the sale of Rostone P.R., Inc. the recorded liability
at June 30, 1993 of $819,522 was recognized as a gain on sale of joint venture
in the Company's 1993 statement of operations.
The license agreement dated June 26, 1986 between the Company and Rostone de
Puerto Rico was superseded by a new agreement on June 30, 1993. Terms under the
former agreement provided for payment of royalties to the Company at 1-1/2% of
the joint venture's net thermoset polyester product sales. Terms under the new
agreement provide for payment of royalties to the Company of $.04 per pound of
licensed compound produced by the former joint venture. Royalty income earned
from the former and present license agreements of $117,000, $96,000 and $86,000
is included in the Company's statement of operations in 1995, 1994 and 1993,
respectively. Under the new license agreement a one-time disclosure fee of
$250,000 was paid to the Company in 1993.
18. Wage Deferral
Effective November 2, 1992, the Company implemented a wage deferral of $.75 per
hour for all hourly employees and a deferral of approximately 7% for all
salaried employees. The wage deferral was discontinued on May 31, 1993.
Deferred wages, including 5% interest, were scheduled to be repaid in six equal
monthly installments beginning July, 1993. However, adequate
18
<PAGE>
ROSTONE CORPORATION
(A 94% OWNED SUBSIDIARY OF CGI INVESTMENT CORPORATION)
NOTES TO FINANCIAL STATEMENTS
cash flow did not exist, therefore the Company and the Union agreed to repayment
of 40% of the deferred wages and interest in December, 1993, with the remaining
balance payable in six equal monthly installments beginning January, 1994.
Under the terms of this agreement, the remainder of the deferred wages were
repaid in 1994, with no wages being deferred at December 31, 1994. Hourly and
salaried employee wages totaling $206,000 were deferred at December 31, 1993.
19. Subsequent Events
Merger of the Company
On February 2, 1996, the Company was merged (the "Merger") with and into Oneida
Molded Plastics Corporation ("Oneida"), a wholly owned subsidiary of Reunion
Resources Company ("Reunion") pursuant to a merger agreement dated December 22,
1995 (the "Merger Agreement"). Pursuant to the Merger Agreement, Oneida, as the
surviving corporation, changed its name to Oneida Rostone Corp. ("ORC"). In the
Merger, ORC acquired 100% of the preferred stock and 94% of the common stock of
the Company from the Parent Company. The remaining 6% of the common stock was
acquired from the minority shareholders for $27,500 under a separate agreement.
The purchase price payable by ORC is contingent upon future earnings of Rostone
on a standalone basis ("Contingent Consideration"). The total purchase price is
calculated as follows: (1) $503 in 1996, (2) up to $2,000,000 in 1997 if Rostone
achieves specified levels of earnings before interest and taxes ("EBIT", as
defined in the Merger Agreement) for the calendar year 1996 and (3) up to
$2,000,000 in 1998 if Rostone achieves specified EBIT levels for the calendar
year 1997.
Under the terms of the ORC loan facility (described below), all Contingent
Consideration payments by ORC to the Company's shareholders may only be made
from equity contributions that Reunion may provide to ORC. The rights of the
Parent Company to receive the Contingent Consideration are subordinated in right
of payment to Congress Financial Corporation (described below). The Contingent
Consideration is payable according to specific terms in the Merger Agreement
which stipulate, among other things, that payment cannot occur until a Former
Rostone Stockholder (defined below) has been paid the amount owing him under a
restated junior subordinated note (discussed below).
Restructuring of Debt
Contemporaneous with the merger of the Company, ORC amended and restated the
terms of its secured credit facility (the "Loan Facility") with Congress
Financial Corporation ("Congress") to provide for term loans of $6,600,000 and
revolving loans initially in an aggregate principal amount of up to $9,400,000.
The proceeds from the refinancing were used primarily to extinguish Rostone's
bank debt (Notes 6 and 7).
The $250,000 promissory note payable to the Parent Company remains payable,
along with the associated accrued interest of approximately $110,000 at February
2, 1996, but is subordinated to the ORC amounts owing to Congress, except that
monthly interest payments may be made under certain conditions.
To facilitate the closing of the Merger and the Loan Facility, an individual,
who is the majority shareholder in both Stanwich Partners Inc. and Chatwins
(stockholders of the Parent Company) and also president and a director of
Reunion, agreed to purchase 50% of the $1,350,000 junior subordinated note
("Junior Debt"), and 50% of the associated accrued interest of approximately
$684,000, from a former majority stockholder of Rostone ("Former Rostone
Stockholder")
19
<PAGE>
ROSTONE CORPORATION
(A 94% OWNED SUBSIDIARY OF CGI INVESTMENT CORPORATION)
NOTES TO FINANCIAL STATEMENTS
contingent upon the restatement of the note to incorporate certain terms and
conditions ("Restated Junior Debt"). The Restated Junior Debt therefore
consists of two notes of approximately $1,017,000. The interest rate is 10%,
subject to an increase of 1% if an event of default occurs. Equal quarterly
principal payments are scheduled to begin April 1, 1996 in the amount of
$50,000, plus accrued interest.
Principal and interest payable under the Restated Junior Debt are subordinated
to the indebtedness owing by ORC to Congress.
Related Party Consulting Agreements
To facilitate the closing of the Merger and Loan Facility on February 2, 1996,
the related party consulting agreements described in Note 14 were settled. The
Company agreed to pay the former stockholder $503,481 as the settlement amount
for any future liability under the three year consulting agreement. To
facilitate the closing of the Merger and Loan Facility, the Parent Company
assumed any future liability under the five year management consulting agreement
with Stanwich Partners Inc. (51% owner of the Parent Company).
20
<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 (the "Commission") rules and regulations to show the pro
forma effects of the Company's acquisition of the outstanding stock of Rostone
Corporation ("Rostone"). On February 2, 1996, the Company's wholly-owned
subsidiary, Oneida Molded Plastics Corp. ("Oneida") acquired Rostone (the
"Rostone Acquisition") which was merged with and into Oneida. The surviving
corporation changed its name to Oneida Rostone Corp. ("ORC"). The purchase
price payable to the stockholders of Rostone is an amount up to $4,000,503 as
follows: (1) $503 in 1996, (ii) up to $2,000,000 in 1997 if Rostone achieves
specified levels of earnings before interest and taxes (as provided in the
Merger Agreement) for 1996 and (iii) up to $2,000,000 in 1998 if Rostone
achieves specified levels of earnings before interest and taxes for 1997. The
Company acquired Oneida (the "Oneida Acquisition") on September 14, 1995. The
Rostone Acquisition will be accounted for using the purchase method. The
unaudited pro forma consolidated condensed balance sheet is based on the
assumption that the Rostone Acquisition was completed on December 31, 1995. The
unaudited pro forma consolidated condensed statement of operations for the year
ended December 31,1995 is presented as if both the Oneida Acquisition and the
Rostone Acquisition had occurred on January 1, 1995.
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, 1995 and as of December 31, 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, 1995, which has been previously filed with the Commission; and
Rostone's audited financial statements for the year ended December 31, 1995,
which have been filed herewith.
21
<PAGE>
REUNION RESOURCES COMPANY
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
DECEMBER 31, 1995
(In Thousands)
<TABLE>
<CAPTION>
Reunion Rostone Pro Forma
Historical (pre-acquisition) Adjustments Pro Forma
ASSETS
<S> <C> <C> <C> <C>
Current Assets
Cash and Cash Equivalents $ 529 $ 106 $ (1)/1/
250 /2/ $ 884
Receivables 4,792 2,987 7,779
Inventories 2,560 1,874 (121)/3/ 4,313
Other Current Assets 2,244 934 3,178
------- ------- ------- -------
Total Current Assets 10,125 5,901 128 16,154
Property, Plant and Equipment, Net 20,224 6,942 (418)/4/ 26,748
Net Assets of Discontinued
Operations 11,590 0 11,590
Goodwill 4,591 0 4,535 /5/ 9,126
Other Assets 5,405 492 (250)/2/
413 /6/ 6,060
------- ------- ------- -------
$51,935 $13,335 $ 4,408 $69,678
======= ======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current Portion of Long-Term Debt $ 4,279 $ 9,140 $(5,425)/8/ $ 7,994
Accounts Payable 3,376 2,038 5,414
Other Current Liabilities 4,460 3,554 755 /7/
(1,356)/8/
600 /6/ 8,013
------- ------- -------- -------
Total Current Liabilities 12,115 14,732 (5,426) 21,421
Long-term Debt 3,132 66 4,400 /8/ 7,598
Long-term Debt - Related Parties 4,815 0 2,381 /8/ 7,196
Other Liabilities 619 1,590 2,209
------- ------- -------- -------
Total Liabilities 20,681 16,388 1,355 38,424
------- ------- -------- -------
Stockholders' Equity
Common Stock 40 18 (18)/9/ 40
Additional Paid-in Capital 31,037 2,994 (2,994)/9/ 31,037
Retained Earnings 1,975 (6,046) 6,046 /9/ 1,975
Less Treasury Shares (1,798) (19) 19 /9/ (1,798)
------- ------- -------- -------
Total Shareholders' Equity 31,254 (3,053) 3,053 31,254
------- ------- -------- -------
$51,935 $13,335 $ 4,408 $69,678
======= ======= ======= =======
</TABLE>
22
<PAGE>
REUNION RESOURCES COMPANY
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(In Thousands, except per share amounts)
<TABLE>
<CAPTION>
Oneida Rostone
Eight and 1/2 Year
Months Ended Ended
Reunion Sept. 14, 1995 December 31, 1995 Pro Forma
Historical (pre-acquisition) (pre-acquisition) Adjustments Pro Forma
<S> <C> <C> <C> <C> <C>
Operating Revenue
Plastic Products $ 10,855 $26,225 $28,310 $65,390
Agriculture 0
-------- ------- ------- ------- -------
10,855 26,225 28,310 0 65,390
Operating Costs and Expenses
Plastic Products - Cost of Sales 9,251 21,948 24,879 (555)/a/ 55,523
Agriculture - Operating Costs 291 291
Selling, General and
Administrative 4,648 2,442 2,367 499 /b/ 9,956
-------- ------- ------- ------- -------
14,190 24,390 27,246 (56) 65,770
Operating Income (Loss) (3,335) 1,835 1,064 56 (380)
Other Income and (Expense)
Interest Expense (508) (627) (1,363) (95)/c/ (2,593)
Gain on Sale of Property 169 169
Other, Including Interest Income 93 (122) (106) 266 /b/
(125)/d/
289 /e/ 295
-------- ------- ------- ------- -------
(246) (749) (1,469) 335 (2,129)
Income (Loss) Before Taxes (3,581) 1,086 (405) 391 (2,509)
Provision for Income Taxes (420) (8) 340 /f/ (88)
-------- ------- ------- ------- -------
Income (Loss) form Continuing
Operations $ (3,581) $ 666 $ (413) $ 731 $(2,597)
-------- ------- ------- ------- -------
Earnings per Common and Common
Equivalent Share $ (0.93) $ (0.68)
-------- -------
Weighted Average Number of Common
and Common Equivalent Shares 3,832 3,832
======== =======
</TABLE>
23
<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 Rostone's audited balance sheets at December 31, 1995, and
upon the adjustments described below. The unaudited pro forma consolidated
condensed statement of operations is based on the Company's audited financial
statements for the year ended December 31, 1995, Oneida's unaudited (pre-
acquisition) financial statements for the eight and one-half months ended
September 14, 1995 and Rostone's audited (pre-acquisition) financial statements
for the year ended December 31, 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 Rostone Acquisition had occurred on December
31, 1995:
(1) To record the net cash payment of $503 related to the purchase of
Rostone.
(2) To reclassify cash collateralizing debt which will no longer be
restricted because the debt has been refinanced.
(3) To record allocation of purchase price to inventory (elimination of
LIFO reserve).
(4) To record the step-down of Rostone'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 Rostone.
(5) To record goodwill of $4,535,000 resulting from the purchase of
Rostone.
(6) To eliminate unamortized debt issuance costs and accrue $600,000 debt
issuance costs for the related refinancing of ORC's bank debt.
(7) To accrue estimated transaction costs of $755,000 incurred in
connection with the acquisition.
24
<PAGE>
(8) To reclassify certain accrued interest and debt as long-term
obligations in connection with the Rostone Acquisition and the related
refinancing of ORC's bank debt.
(9) To eliminate Rostone's capital accounts and accumulated deficit at the
date of acquisition.
The unaudited pro forma consolidated condensed statement of operations reflects
the following adjustments as though both the Oneida Acquisition and the Rostone
Acquisition had occurred on January 1, 1995:
(a) To record adjustments to depreciation and amortization expense
resulting from the allocation of purchase price to fixed assets in connection
with the purchase of Oneida ($27,000 increase) and Rostone ($582,000 decrease).
(b) To reverse amortization of goodwill recorded in Oneida's pre-
acquisition financial statements and record amortization of goodwill resulting
from the Oneida Acquisition and the Rostone Acquisition on the straight-line
method over a 15 year period.
(c) To record incremental interest expense on amounts due an affiliate
resulting from an interest rate of 10% pursuant to the Oneida Acquisition,
compared to 7.5% historically, and from reclassification of intercompany
interest and income tax liabilities.
(d) To eliminate interest income earned by Reunion for the pre-acquisition
period resulting from the $3,107,000 decrease in cash related to the payment of
the Oneida Acquisition purchase price, assuming actual historical bank interest
rates received during the pre-acquisition period.
(e) To eliminate amortization recorded in Rostone's pre-acquisition
financial statements related to a now-expired covenant not to compete.
(f) To eliminate the federal income tax provision of Oneida due to the
allocation of the Company's net operating losses carried forward.
25
<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 of the
undersigned hereunto duly authorized.
REUNION RESOURCES COMPANY
Dated: April 12, 1996 By: /s/ Richard L. Evans
--------------------------------------------
Name: Richard L. Evans
Title: Executive Vice President
26
<PAGE>
EXHIBIT INDEX
- -------------
EXHIBIT NO. EXHIBIT DESCRIPTION
2.1 Merger Agreement, dated as of December 22, 1995 (executed February 2,
1996) between Oneida Molded Plastics Corp. and Rostone Corporation. *
23.1 Consent of Independent Accountants.
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 Statement on Form S-3 (No. 33-77566) and
in the Registration Statement on Form S-8 (No. 33-77232) of Reunion Resources
Company of our report dated March 6, 1996, relating to the financial statements
of Rostone Corporation, which appears in the Current Report on Form 8-K/A of
Reunion Resources Company dated April 12, 1996.
PRICE WATERHOUSE LLP
South Bend, Indiana
April 11, 1996
