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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
FORM 10-K/A (Amendment No. 1)
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
----- EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the fiscal year ended December 31, 2003, Or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
----- EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
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Commission File Number 33-64325
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REUNION INDUSTRIES, INC.
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(Exact name of Registrant as specified in its charter)
DELAWARE 06-1439715
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(State of Incorporation) (I.R.S. Employer Identification No.)
11 STANWIX STREET, SUITE 1400, PITTSBURGH, PENNSYLVANIA 15236
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(Address of principal executive offices, including zip code)
(412) 281-2111
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class: COMMON STOCK, $.01 par value
Name of Each Exchange on Which Registered: AMERICAN STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
-----
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Act). Yes No X
----- -----
At June 30, 2003, 16,278,519 shares of common stock were issued and
outstanding. As of June 30, 2003, the aggregate market value of the voting
stock held by non-affiliates of the registrant (computed by reference to the
average of the high and low sales prices on the American Stock Exchange) was
$1,151,414.
DOCUMENTS INCORPORATED BY REFERENCE: NONE.
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Reunion Industries, Inc. (the "Company", "Reunion Industries" or
"Reunion") is filing this Amendment No. 1 to its Annual Report on Form 10-K
for the year ended December 31, 2003 as filed with the Securities and Exchange
Commission on March 30, 2004, to provide certain information previously
omitted from such report and to correct a typographical error in such report.
Five items that were previously omitted and one item being corrected
include:
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
NOTE 18: QUARTERLY DATA (unaudited) is amended to correct the operating
costs and expenses and operating income for the fourth quarter of 2003.
The information required by such items is provided herein as follows:
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
As of April 29, 2004, the following individuals were directors and/or
named executive officers of Reunion Industries, Inc. (the "Company", "Reunion
Industries" or "Reunion").
Director
Name Principal Position Age Since
----------------------- ------------------------- --- --------
Thomas N. Amonett(1)(2) Director 60 1992
Charles E. Bradley, Sr. Director, Chairman & CEO 74 1995
Kimball J. Bradley Director, President & COO 38 2000
Thomas L. Cassidy(1)(2) Director 75 1995
David E. Jackson(1)(2) Director 45 2003
Joseph C. Lawyer Director, Vice Chairman 58 2000
John G. Poole Director 61 1996
John M. Froehlich Executive Vice President, 61 N/A
Chief Financial Officer
and Secretary
(1) Member, Compensation Committee of the Board of Directors.
(2) Member, Audit Committee of the Board of Directors.
THOMAS N. AMONETT has served as a director of Reunion Industries since
July 1, 1992 and served as its President and Chief Executive Officer from
July 1, 1992 until October 26, 1995. He also served as the President of
Reunion Energy Company, then a wholly-owned subsidiary of Reunion Industries
in the oil and gas operating business, from July 1, 1992 until May 24, 1996.
Mr. Amonett is President and Chief Executive Officer of Champion Technologies,
Inc., a manufacturer and distributor of specialty chemicals and related
services, primarily to the oil and gas industry. From November 1998 to
June 1999, he was President, Chief Executive Officer and a director of
American Residential Services, Inc., a company providing equipment and
services relating to residential heating, ventilating, air conditioning,
plumbing, electrical and indoor air quality systems and appliances. From July
1996 until June 1997, Mr. Amonett was Interim President and Chief Executive
Officer of Weatherford Enterra, Inc., an energy services and manufacturing
company. Mr. Amonett serves as a director of Petro Corp. Incorporated, a
Houston-based oil and gas company, and Stelmar Shipping Ltd., an international
provider of petroleum product and crude oil transportation services.
- 2 -
CHARLES E. BRADLEY, SR. became a director of Reunion Industries on
June 20, 1995 and was appointed President and Chief Executive Officer of
Reunion Industries on October 26, 1995. He became Chairman effective March
16, 2000. Mr. Bradley, Sr. was a co-founder of Stanwich Consulting Corp.,
formerly known as Stanwich Partners, Inc. (SPI), in 1982 and has served as its
President since that time. SPI is a private investment company. He was a
director of Chatwins Group, Inc. (Chatwins Group) from 1986 until its merger
with Reunion Industries on March 16, 2000 and was Chairman of the Board of
Chatwins Group from 1988 until the merger. Mr. Bradley, Sr. is currently the
President and a director of Sanitas, Inc. and Texon Energy Corporation, both
inactive companies. Since May 1997, he has been President and sole director
of Stanwich Financial Services Corp. (SFSC), which, on June 25, 2001, filed a
voluntary petition in the United States Bankruptcy Court for the District of
Connecticut for reorganization under Chapter 11 of the United States
Bankruptcy Code. SFSC is in the structured settlement business. Mr. Bradley,
Sr. was chairman of the board of directors of DeVlieg-Bullard, Inc. when, on
July 15, 1999, it filed a voluntary petition in the United States Bankruptcy
Court for the Northern District of Ohio for reorganization under Chapter 11 of
the United States Bankruptcy Code. Mr. Bradley is the father of Kimball J.
Bradley.
KIMBALL J. BRADLEY became President and Chief Operating Officer of
Reunion Industries effective May 1, 2000. He was Executive Vice President of
Operations of Reunion Industries following the Chatwins Group merger and was a
Senior Vice President of Chatwins Group from August 1998 until the merger and
a Vice President of Chatwins Group from January 1996 to August 1998. From
November 1995 until August 1998, Mr. Bradley was President of the Auto-Lok
division of Chatwins Group, having served as acting President of Auto-Lok
beginning in August 1995. Prior to assuming that position, he managed various
special projects at Chatwins Group's corporate office beginning in
November 1993 and at Chatwins Group's CP Industries division from
February 1993 to November 1993. Mr. Bradley is the son of Charles E. Bradley,
Sr.
THOMAS L. CASSIDY became a director of Reunion Industries on June 20,
1995. He was a Managing Director of Trust Company of the West, an investment
management firm, from 1984 until his retirement in 1999. Mr. Cassidy is a
Partner of TCW Capital, an affiliate of Trust Company of the West. Mr.
Cassidy was a director of Chatwins Group from March 1993 to June 1997.
DAVID E. JACKSON became a director of Reunion Industries on June 26,
2003. He is the CEO of Bingo Country Holdings, Ltd. in Toronto, Canada. He
has over fifteen years experience as a portfolio manager investing in
distressed securities having worked as a portfolio manager with Avenue Capital
Management, Oppenheimer & Co. Inc., EBF & Associates and Cargill, Inc.
JOSEPH C. LAWYER became Vice Chairman of Reunion Industries effective May
1, 2000. He was President and Chief Operating Officer of Reunion Industries
following the Chatwins Group merger and was President, Chief Executive Officer
and a director of Chatwins Group from 1988 until the merger. Mr. Lawyer is a
director of Respironics, Inc., a company engaged in design, manufacture and
sale of home and hospital respiratory medical products.
JOHN G. POOLE became a director of Reunion Industries on April 19, 1996.
Mr. Poole is a private investor. He was a co-founder of Stanwich Partners
with Charles E. Bradley, Sr. in 1982 and served as Stanwich Partners' Vice
President until 2001. Mr. Poole was a director of Chatwins Group from 1988
until the merger. He is also a director of Consumer Portfolio Services, Inc.,
engaged in the business of purchasing, selling and servicing retail automobile
installment sales contracts.
- 3 -
JOHN M. FROEHLICH became Executive Vice President of Finance and Chief
Financial Officer of Reunion Industries on March 16, 2000. He became
Secretary on June 12, 2002. He was a Vice President of Chatwins Group from
1989 until the merger of Chatwins Group and Reunion Industries on March 16,
2000 and its Chief Financial Officer and Treasurer from 1988 until the merger.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
Reunion's directors and officers and persons who own beneficially more than
10% of the common stock of Reunion Industries to file with the Securities and
Exchange Commission and the American Stock Exchange initial reports of
beneficial ownership and reports of changes in beneficial ownership of the
common stock of Reunion Industries. Directors, officers and persons owning
more than 10% of the common stock of Reunion Industries are required to
furnish Reunion Industries with copies of all such reports. Based solely on
Reunion's review of the copies of such forms it has received and
representations from certain persons that they were not required to file
reports on Form 5 for 2003, Reunion Industries believes that all its officers,
directors and greater than 10% beneficial owners complied with all filing
requirements applicable to them with respect to transactions during 2003,
except that (1) Mr. Bradley, Sr. filed five late reports (by a Form 5)
relating to eight transactions, (2) Mr. Kimball J. Bradley filed four late
reports (by a Form 5) relating to seven transactions, (3) The Charles E.
Bradley, Sr. Family Limited Partnership filed three late reports (by a Form 5)
relating to five transactions and (4) Mr. Lawyer filed one late report
relating to two transactions.
ITEM 11. EXECUTIVE COMPENSATION
The following table reflects all forms of compensation for services to
Reunion Industries by our executive officers for the last three completed
fiscal years. There was no other annual compensation for any executive of the
Company in the last three completed fiscal years.
Long-Term
Compensation
------------
Annual Compensation Shares
------------------- Underlying All Other
Name and Position Year Salary Bonus(1) Stock Option Compensation
----------------------- ---- -------- -------- ------------ ------------
Charles E. Bradley, Sr. 2003 $400,024 $ 0 100,000 $ 1,020(2)
Chairman and Chief 2002 400,024 0 0 6,516(2)
Executive Officer 2001 400,024 0 5,000 6,266(2)
Joseph C. Lawyer 2003 200,000 0 0 1,020(3)
Vice Chairman 2002 245,830 0 0 1,020(3)
2001 289,011 0 10,000 9,520(3)
Kimball J. Bradley 2003 366,819 0 300,000 15,480(4)
President and Chief 2002 347,765 0 0 1,020(4)
Operating Officer 2001 318,238 0 50,000 9,520(4)
John M. Froehlich 2003 210,001 0 0 8,801(5)
Executive Vice 2002 206,246 0 0 1,020(5)
President of Finance 2001 180,000 0 25,000 9,520(5)
and Chief Financial
Officer
Jack T. Croushore 2003 209,000 0 50,000 7,020(6)
President CPI Division 2002 209,000 0 0 6,476(6)
2001 212,360 100,000 25,000 14,223(6)
- 4 -
(1) Amounts shown for bonuses are amounts earned for the period shown,
although such bonuses are generally paid in the subsequent year.
(2) Includes 401(k) matching payments of $5,496 in 2002 and $5,246 in 2001.
Includes a healthcare benefit credit of $1,020 in each year.
(3) Includes payments under the Chatwins Group, Inc. Money Purchase Pension
Plan of $8,500 in 2001. Includes a healthcare benefit credit of $1,020 in
each year.
(4) Includes payments of life insurance premiums of $14,460 in 2003 and
payments under the Chatwins Group, Inc. Money Purchase Pension Plan of $8,500
in 2001. Includes a healthcare benefit credit of $1,020 in each year.
(5) Includes payments of life insurance premiums of $7,781 in 2003 and
payments under the Chatwins Group, Inc. Money Purchase Plan of $8,500 in 2001.
Includes a healthcare benefit credit of $1,020 in each year.
(6) Includes a car allowance of $6,000 in 2003; 401(k) matching payments of
$5,456 in 2002 and $4,703 in 2001; and payments under the Chatwins Group, Inc.
Money Purchase Plan of $8,500 in 2001. Includes a healthcare benefit credit
of $1,020 in each year.
Option Grants
There were 570,000 options granted in the year ended December 31, 2003,
of which 550,000 were granted to employees of Reunion and 20,000 were granted
to a non-employee director. The following table shows all options to acquire
Reunion Industries common stock granted to the named executive officers during
the fiscal year ended December 31, 2003.
Projected Realiz-
Individual Grants(1) able Value at
---------------------------------------- Assumed Annual
% of Rates of Stock
Number of Options Price Appreci-
Securities Granted to ation for
Underlying Employees Exercise Expi- Option Term(2)
Options in Fiscal Price ation -----------------
Name Granted Year ($/Share) Date 5% 10%
----------------- ---------- ---------- --------- -------- -------- --------
C.E. Bradley, Sr. 100,000(3) 18.18% $0.3520 12/01/08 $ 5,641 $16,336
K.J. Bradley 100,000(4) 18.18% $0.2750 06/26/08 $ 4,407 $12,763
K.J. Bradley 300,000(3) 54.55% $0.3520 12/01/08 $16,923 $49,009
J.T. Croushore 50,000(5) 9.09% $0.2500 06/26/13 $ 7,861 $19,722
(1) Options granted to Charles E. Bradley, Sr. and Kimball J. Bradley have an
exercise price equal to 110% of the fair market value of Reunion Industries'
common stock on the grant date. The remaining options have an exercise price
of 100% of the fair market value on the grant date. Reunion Industries has
not issued any stock appreciation rights.
(2) As required by SEC rules, these columns show potential gains that may
exist for the respective options, assuming that the market price for Reunion's
common stock appreciated from the grant date to the end of the option terms at
rates of 5% and 10%, respectively. The amounts are not estimates of Reunion's
future stock price performance and are not necessarily indicative of Reunion's
future stock performance. If the price of Reunion's common stock does not
increase above the exercise price, no value will be realized from these
options.
- 5 -
(3) These options were granted on December 1, 2003. Assuming continued
employment with Reunion, these options have a 5-year term and will become
exercisable in one-third increments on the first, second and third
anniversaries of their issuance.
(4) These options were granted on June 26, 2003. Assuming continued
employment with Reunion, these options have a 5-year term and will become
exercisable in one-third increments on the first, second and third
anniversaries of their issuance.
(5) These options were granted on June 26, 2003. Assuming continued
employment with Reunion, these options have a 10-year term and will become
exercisable in one-third increments on the first, second and third
anniversaries of their issuance.
Option Exercises
There were no options exercised during 2003.
Equity Compensation Plan Information
See ITEM 5. "MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS."
Director Compensation
Directors not otherwise compensated by Reunion receive annual retainers
of $18,000 for service on the board and $500 for each board or committee
meeting attended. Compensation paid to non-employee directors during 2003 for
service in all board capacities aggregated $86,000. Directors are reimbursed
for the actual cost of any travel expenses incurred. In addition to his
director's fees, Mr. Poole received $42,000 for consulting services during
2003.
Non-employee directors of Reunion Industries are eligible for awards
under the 1998 Stock Option Plan. During 2003, 20,000 options were granted to
one non-employee director.
Key Person Insurance
As of June 29, 1994, Chatwins Group and Charles E. Bradley, Sr. agreed to
a split-dollar life insurance arrangement. Pursuant to this arrangement,
Chatwins Group agreed to maintain three universal type life policies on Mr.
Bradley, Sr. and his wife. Chatwins Group will be reimbursed for the premiums
it pays for such policies from either the death benefit of the policies or
their cash surrender value. Mr. Bradley, Sr. agreed with Chatwins Group that
if the policy proceeds are insufficient to reimburse Chatwins Group for the
full amount of premiums paid, he would pay the shortfall to Chatwins Group.
This arrangement was assumed by Reunion in connection with the merger of
Chatwins Group with and into Reunion Industries on March 16, 2000. No
premiums were paid by the Company in 2003.
As of October 24, 1994, Chatwins Group and Joseph C. Lawyer agreed to a
split-dollar life insurance arrangement. Pursuant to this arrangement,
Chatwins Group agreed to maintain a universal type life policy on Mr. Lawyer.
Chatwins Group will be reimbursed for the premiums it pays for such policy
from either the death benefit of the policy or its cash surrender value. Mr.
Lawyer agreed with Chatwins Group that if the policy proceeds are insufficient
to reimburse Chatwins Group for the full amount of premiums paid, he would pay
the shortfall to Chatwins Group. This arrangement was assumed by Reunion in
connection with the merger of Chatwins Group with and into Reunion on March
16, 2000. No premiums were paid by the Company in 2003.
- 6 -
As of December 12, 1995, Chatwins Group and John G. Poole agreed to a
split-dollar life insurance arrangement. Pursuant to this arrangement,
Chatwins Group agreed to maintain two universal type life policies on Mr.
Poole. Chatwins Group will be reimbursed for the premiums it pays for these
policies from either the death benefit of the policies or their cash surrender
value. Mr. Poole agreed with Chatwins Group that if the policy proceeds are
insufficient to reimburse Chatwins Group for the full amount of premiums paid,
he would pay the shortfall to Chatwins Group. This arrangement was assumed by
Reunion in connection with the merger of Chatwins Group with and into Reunion
on March 16, 2000. No premiums were paid by the Company in 2003.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reunion Industries has 16,278,519 shares of common stock outstanding as
of April 29, 2004. The following table sets forth information regarding the
beneficial ownership of our common stock by (i) each stockholder known to us
to own 5% or more of our common stock, (ii) each director of Reunion
Industries, (iii) each of the chief executive officer and the other named
executives of Reunion, and (iv) all current directors and executive officers
as a group. Except as set forth in the footnotes to the following table, each
stockholder has sole dispositive and voting power with respect to the shares
of our common stock shown as beneficially owned by him.
% of
Outstanding
Beneficial Owner Shares Owned Shares
-------------------------------- ------------------------- -----------
Kimball J. Bradley 6,050,335 (1) 37.1%
c/o Reunion Industries, Inc.
11 Stanwix Street, suite 1400
Pittsburgh, PA 15222
The Charles E. Bradley, Sr.
Family Limited Partnership 4,310,813 (5) 26.5%
c/o Stanwich Partners, Inc.
62 Southfield Ave.
One Stamford Landing
Stamford, CT 06902
Charles E. Bradley, Sr. 1,877,174 (2)(3)(4) 11.5%
c/o Stanwich Partners, Inc.
62 Southfield Ave.
One Stamford Landing
Stamford, CT 06902
Stanwich Financial Services Corp. 1,651,697 10.1%
62 Southfield Ave.
One Stamford Landing
Stamford, CT 06902
The John Grier Poole Family
Limited Partnership 1,499,747 (5) 9.2%
c/o Stanwich Partners, Inc.
62 Southfield Ave.
One Stamford Landing
Stamford, CT 06902
Thomas N. Amonett 78,000 0.5%
Thomas L. Cassidy 62,362 0.4%
David E. Jackson 6,667 (6) less than 0.1%
Joseph C. Lawyer 701,751 (7) 4.3%
John G. Poole 757,438 (8) 4.7%
John M. Froehlich 74,008 0.5%
Jack T. Croushore 211,854 (9) 1.3%
All Officers and Directors as
a group (9 individuals) 9,819,589 (10) 60.3%
- 7 -
(1) Includes (a) 4,310,813 shares owned by The Charles E. Bradley, Sr.
Family Limited Partnership (the "Bradley Partnership") of which Kimball J.
Bradley is general partner and (b) 33,333 shares subject to an option
exercisable within 60 days.
(2) Mr. Bradley, Sr. and his wife own, respectively, a 28% and a 1% limited
partnership interest in the Bradley Partnership, which in turn beneficially
owns 4,310,813 shares of common stock. Because Mr. Bradley, Sr. and his wife
have no dispositive power as to the shares owned by the Bradley Partnership,
he disclaims any beneficial ownership thereof, and none of such shares are
included as being beneficially owned by him in the table above.
(3) Includes 1,651,697 shares owned by Stanwich Financial Services Corp.,
with which Mr. Bradley, Sr. shares voting and dispositive power. Mr. Bradley,
Sr. owns 100% of the parent company of Stanwich Financial Services Corp., and
may be deemed to be the beneficial owner of these shares. Disposition of
these shares is subject to the approval of the bankruptcy court before which
Stanwich Financial Services Corp.'s Chapter 11 case is pending.
(4) Includes 100,000 shares owned by Hanna Investment Corporation, with
which Mr. Bradley, Sr. shares voting and dispositive power. Mr. Bradley, Sr.
is the controlling stockholder of the parent company of Hanna Investment
Corporation and may be deemed to be the beneficial owner of these shares.
(5) Pursuant to the Securities Pledge Agreement dated as of May 1, 1993
among the Charles E. Bradley, Sr. Family Limited Partnership, the John Grier
Poole Family Limited Partnership, and U.S. Bank, National Association, as
successor Collateral Agent to State Street Bank and Trust Company and the
First National Bank of Boston, the Bradley Partnership pledged 4,145,247
shares and the Poole Partnership pledged 552,703 shares to secure the
obligations of Reunion Industries under the Indenture, dated as of May 1,
1993, between Reunion and the Collateral Agent relating to certain Senior
Notes issued by Reunion Industries in 1993 that were due in 2003.
(6) Represents shares subject to an option exercisable within 60 days.
(7) Includes 3,567 shares beneficially owned by Mr. Lawyer's wife, as to
which he has no voting or dispositive power. Mr. Lawyer may be deemed to be
the beneficial owner of these shares.
(8) Includes 139,808 shares as to which Mr. Poole has voting rights, but not
dispositive rights.
(9) Includes 16,666 shares subject to an option exercisable within 60 days.
(10) Includes 56,666 shares subject to options exercisable within 60 days.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Related Parties
Reunion Industries, Inc. - Reunion is a publicly traded Delaware
corporation headquartered in Pittsburgh, Pennsylvania. Charles E. Bradley,
Sr. (Mr. Bradley) is chairman of the board and Chief Executive Officer of
Reunion. Kimball J. Bradley is President, Chief Operating Officer, a director
of Reunion and son of Mr. Bradley.
Stanwich Consulting Corp. - Stanwich Consulting Corp. (SCC), formerly
known as Stanwich Partners, Inc. (SPI), is engaged in consulting services in
the field of financial planning and reporting. Mr. Bradley is the President
of SCC.
- 8 -
Stanwich Financial Services Corp. - SFSC is a privately held corporation
in the structured settlement business. SFSC is owned 100% by Mr. Bradley.
The Company has been named as a defendant in several lawsuits filed against
SFSC. See ITEM 8, Note 14: Commitments and Contingencies.
NPS Acquisition Corp. - NPS Acquisition Corp. (NPSAC) was formed by Mr.
Bradley to acquire and hold NAPTech Pressure Systems (NAPTech). NAPTech was
based in Clearfield, Utah and manufactures seamless steel pressure vessels, an
existing Metals product line. In January 2001, NPSAC was merged into the
Company.
CPS Leasing, Inc. - CPS Leasing, Inc. (CPSL) is a subsidiary of Consumer
Portfolio Services, Inc. (CPS). Mr. Bradley and Mr. Poole are stockholders of
CPS. Mr. Poole is a director of CPS and Mr. Bradley was a director until July
2001. Charles E. Bradley Jr., Mr. Bradley's son and Kimball J. Bradley's
brother, is President of CPS. CPSL is primarily engaged in machinery and
equipment lease financing.
Transactions and Balances
SPI Consulting Agreement
Reunion maintained a consulting agreement with SPI under which $300,000
was recorded as expense during the year ended December 31, 2001. The
agreement was terminated effective September 30, 2002. During 2002, $225,000
was expensed related to this agreement. The Company made advances during 2002
totaling $127,795 to SPI related to this agreement, including $25,000 relating
to stock options exercised by Mr. Bradley. At December 31, 2003 and 2002,
$117,205 was owed to SPI under this agreement and is classified as due to
related parties in the consolidated balance sheet in ITEM 8.
SFSC Notes Payable
The Company assumed three notes payable to SFSC related to acquisitions
in 2000 and 2001. At December 31, 2003 and 2002, their balances of
$2,998,000, $500,000 and $100,000 are included in notes payable - related
parties in the accompanying consolidated balance sheet. During 2003 and 2002,
no interest was paid to SFSC related to these notes payable. At December 31,
2003 and 2002, accrued and unpaid interest due to SFSC related to these notes
payable of $1,844,283 and $1,219,572, respectively, is included in due to
related parties in the consolidated balance sheet in ITEM 8. These notes
payable are included in the SFSC bankruptcy settlement described in ITEM 8,
Note 14 under the heading "SFSC Litigation."
SFSC Note Receivable
In August 1999, pre-merger Reunion loaned $310,000 to SFSC. The loan was
scheduled to be repaid in December 1999 with interest at 15%. In December
1999, the Company agreed to extend the maturity to March 2000 and loaned an
additional $40,000 to SFSC also with interest at 15%, which was repaid in
March 2000. The remaining balance including accrued and unpaid interest due
from SFSC at December 31, 2003 and 2002 is $465,000 and is included in due
from related parties in the consolidated balance sheet in ITEM 8. This note
receivable is included in the SFSC bankruptcy settlement described in ITEM 8,
Note 14 under the heading "SFSC Litigation."
CPS Leasing, Inc.
Reunion entered into various operating lease agreements with CPSL.
During 2003 and 2002, lease payments totaling $336,000 and $580,000,
respectively, were paid to or accrued for CPSL. At December 31, 2003, the
Company has future minimum rental commitments under noncancellable operating
leases with CPSL totaling $1,460,000.
- 9 -
SFSC Collateral Fees
To close on the BOA refinancing in March 2000, SFSC provided side
collateral in the form of CPS debt and common stock to support the borrowings.
Under this arrangement, SFSC was to receive a 5% collateral fee for as long as
the collateral was in place. Such collateral remained in place until the
Congress refinancing in December 2003. However, in January 2003, Mr. Bradley
agreed to absorb this collateral fee expense to SFSC on a going forward basis
with no further obligation to the Company. In each of 2002 and 2001, the
Company recorded interest expense of $283,000 related to this arrangement. No
payments have been made under this arrangement during 2003 or 2002. During
2001, the Company made a $100,000 payment related to this arrangement. At
December 31, 2003 and 2002, $690,041 is included in due to related party in
the consolidated balance sheet in ITEM 8. These collateral fees are included
in the SFSC bankruptcy settlement described in ITEM 8, Note 14 under the
heading "SFSC Litigation."
In March 2000, SFSC pledged a $5.0 million note from CPS to secure the
obligations of NPSAC to the former owners of the business. NPSAC agreed to
pay SFSC a 2% credit support fee for this pledge. The Company assumed this
credit support obligation in the acquisition of NPSAC. No payments have been
made under this arrangement during 2003 or 2002. At December 31, 2003 and
2002, accrued and unpaid fees totaling $293,943 and $226,990, respectively,
were due to SFSC under this credit support obligation and included in due to
related parties in the consolidated balance sheet in ITEM 8.
Cash Surrender Value of Life Insurance Policies
The Company pays the premiums on life insurance policies covering Mr.
Bradley, Mr. Joseph C. Lawyer (Mr. Lawyer), the Company's vice chairman and a
director, and Mr. Poole. Pursuant to these arrangements, the Company will be
reimbursed for the premiums it pays for such policies from either the death
benefit of the policy or their cash surrender value. The covered individuals
have agreed with the Company that if the policy proceeds are insufficient to
reimburse the Company for the full amount of the premiums paid, they will
cover the shortfall. As of December 31, 2003 and 2002, premiums paid by the
Company in excess of the cash surrender values of the policies totaled
$940,000 and $1,031,000, respectively, and are included in due from related
parties in the consolidated balance sheet in ITEM 8.
Mr. Bradley Notes Payable
At the time of the merger, the Company assumed a note payable to Mr.
Bradley related to pre-merger Reunion's plastics business. At December 31,
2002 and 2001, the balance of $1,017,000 is included in notes payable -
related parties in the consolidated balance sheet in ITEM 8. No interest was
paid in 2003 or 2002. The note payable and any accrued and unpaid interest
have been assigned to SFSC. During 2001, $55,000 was paid to SFSC related to
this note payable. At December 31, 2003 and 2002, accrued and unpaid interest
due related to this note payable of $280,166 and $168,283, respectively, is
included in due to related parties in the consolidated balance sheet in ITEM
8. This note payable is included in the SFSC bankruptcy settlement described
in ITEM 8, Note 14 under the heading "SFSC Litigation."
In January 2003, Mr. Bradley made a $500,000 payment on behalf of the
Company to the Shaw Group, former owner of Naptech Pressure Systems and holder
of a $3,644,000 15% note payable assumed by Reunion in the NPSAC acquisition
in January 2001. In exchange for the payment, the Company issued a $500,000
10% note payable to Mr. Bradley. The note payable and any accrued but unpaid
interest is due on October 31, 2004. At December 31, 2003, accrued and unpaid
interest related to this note totaled $50,000 and is included in due to
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related parties in the consolidated balance sheet in ITEM 8. Mr. Bradley's
rights under this note are subordinate to the Company's indebtedness to
Congress.
Mr. Bradley Guarantees
To facilitate the closing of the refinancing of the Company's bank debt
with Congress in December 2003, Mr. Bradley provided a personal guarantee of
$1.5 million of the revolving credit portion of the new facilities. In
exchange for his guarantee, the Board of Directors approved a 2% guarantee fee
to be paid to Mr. Bradley during the time period such guarantee is in place.
Amounts payable under this arrangement are being offset against an employee
advance previously received by Mr. Bradley and owed to the Company. Such
advance totaled $58,000 at the time of the refinancing and, through December
31, 2003, $2,384 of guarantee fees had been offset against such advance. See
"Employee Advances" below.
At the time of the NPSAC acquisition by the Company, NPSAC was indebted
to Mr. Bradley in connection with an agreement whereby Mr. Bradley guaranteed
certain obligations of NPSAC to its former owners. At December 31, 2001, the
Company owed Mr. Bradley a total of $90,000 related to this agreement. During
2002, Mr. Bradley assigned his right to this guarantee fee plus interest at
approximately 11%, totaling $100,000, to two employees of the Company in
repayment of loans totaling $100,000 made to Mr. Bradley by these employees.
These employees also had received a total of $100,000 in advances from the
Company during 2001. See "Employee Advances" below.
Kimball Bradley Guarantees
To facilitate obtaining new financing with two private investment funds
and the closing of the refinancing of the Company's bank debt with Congress in
December 2003, Kimball Bradley provided personal guarantees totaling $9.2
million, including guarantees of two notes payable totaling $7.7 million and
$1.5 of the revolving credit portion of the new Congress facilities. In
exchange for his guarantees, the Board of Directors approved 2% guarantee fees
to be paid to Kimball Bradley during the time period such guarantees are in
place. Amounts payable under these arrangements are being offset against an
employee advance previously received by Kimball Bradley and owed to the
Company. Such advance totaled $55,000 at the time of the refinancing. In
addition, Kimball Bradley owed the Company $19,000 for the December 2002
exercise of 95,000 options which had been repriced to $0.20. Through December
31, 2003, guarantee fees totaling $74,963 had been incurred by the Company, of
which $74,000 was offset against amounts due from Kimball Bradley. The
remaining $963 is included in due to related parties at December 31, 2003 in
the consolidated balance sheet in ITEM 8. See "Employee Advances" below.
Employee Advances
At December 31, 2002, the Company had non-interest bearing advances due
from two employees totaling $113,000. The highest balance during 2003 was
$113,000. The highest balance during 2002 was $213,000. During 2002, two
employees with advances totaling $100,000 repaid their advances by waiving
their rights to the guarantee fee plus interest they received from Mr.
Bradley. See "Mr. Bradley Guarantees" and "Kimball Bradley Guarantees" above.
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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Fees Paid to Ernst & Young LLP, Mahoney Cohen & Company, CPA, P.C.
and Wiss & Company, LLP
The following table presents fees paid by Reunion Industries for
professional services rendered by Ernst & Young LLP, Mahoney Cohen & Company,
CPA, P.C. and Wiss & Company, LLP for the years ended December 31, 2003 and
2002.
Fee category and service provider 2003 2002
------------------------------------------------------- -------- --------
Audit fees - Ernst & Young LLP $ 18,300 $178,000
Audit fees - Mahoney Cohen & Company, CPA, P.C. 156,500 -
Audit fees - Wiss & Company, LLP 6,500 -
Audit-related fees - Ernst & Young LLP 47,675 36,500
-------- --------
Total fees $228,975 $214,500
======== ========
Audit fees were for professional services rendered for the audit of Reunion
Industries' consolidated financial statements and review of the interim
consolidated financial statements included in quarterly reports and services
that are normally provided in connection with statutory and regulatory filings
or engagements.
Audit-related fees were for assurance and related services that are
reasonably related to the performance of the audit or review of Reunion
Industries' consolidated financial statements and are not reported under audit
fees. These services primarily include employee benefit plan audits not
necessarily required by statute or regulation.
Reunion Industries paid no tax or other fees in either 2003 or 2002.
Policy on Audit Committee Pre-Approval of Audit and Permissible
Non-Audit Services of Independent Auditors
The audit committee pre-approves all audit and permissible non-audit
services provided by the independent auditors. These services may include
audit services, audit-related services, tax services and other services. Pre-
approval is generally provided for up to one year, and any pre-approval is
detailed as to the particular service or category of services and is generally
subject to a specific budget. The independent auditors and management are
required to periodically report to the audit committee regarding the extent of
services provided by the independent auditors in accordance with this pre-
approval, and the fees for the services performed to date. The audit
committee may also pre-approve particular services on a case-by-case basis.
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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
The Company hereby amends Item 15 to correct an error relating to NOTE
18: QUARTERLY DATA (unaudited) in the consolidated financial statements for
the year ended December 31, 2003. Specifically, NOTE 18: QUARTERLY DATA
(unaudited) is amended to correct the operating costs and expenses and
operating income for the fourth quarter of 2003 to the amounts indicated
below:
2003 Quarter Ended
--------------------------------------
March 31 June 30 Sept 30 Dec 31
-------- -------- -------- --------
Operating revenue $ 21,263 $ 18,076 $ 14,707 $ 14,463
Operating costs and expenses 19,845 17,488 14,431 6,224
-------- -------- -------- --------
Operating income (loss) $ 1,418 $ 588 $ 276 $ 8,239
======== ======== ======== ========
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: April 29, 2004 REUNION INDUSTRIES, INC.
--------------
By: /s/ Charles E. Bradley, Sr.
----------------------------
Charles E. Bradley, Sr.
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report on Form 10-K/A has been signed by the following persons in the
capacities and on this 29th day of April, 2004.
Signature Title
--------- -----
/s/ Kimball J. Bradley President, Chief Operating Officer
--------------------------- and Director
Kimball J. Bradley
/s/ Joseph C. Lawyer Vice Chairman and Director
---------------------------
Joseph C. Lawyer
/s/ John M. Froehlich Executive Vice President, Chief
--------------------------- Financial Officer, Treasurer and
John M. Froehlich Assistant Secretary (chief financial
and accounting officer)
/s/ Thomas N. Amonett Director
---------------------------
Thomas N. Amonett
/s/ Thomas L. Cassidy Director
---------------------------
Thomas L. Cassidy
/s/ David E. Jackson Director
---------------------------
David E. Jackson
/s/ John G. Poole Director
---------------------------
John G. Poole
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