REINHOLD INDUSTRIES, INC.
                               1996 ANNUAL REPORT


<PAGE>
TO OUR STOCKHOLDERS


KEENE  CORPORATION'S  PLAN  OF  REORGANIZATION  As  previously  reported,  Keene
Corporation's  Fourth Amended Plan of Reorganization  went effective on July 31,
1996. Under that plan, Reinhold Industries, Inc., Keene's subsidiary, was merged
up and into Keene with the surviving company being re-named Reinhold Industries,
Inc. New stock was issued in Reinhold's name to existing Keene stockholders.
         Also under the plan, a Creditor's Trust was established for the benefit
of  asbestos-related  claimants  and was awarded 51% of the equity in  Reinhold.
Reinhold,  in turn, received the benefit of a permanent  channeling  injunction,
one feature of which is judicial  protection in the form of indemnification  for
any costs  related to asbestos  matters that occur  subsequent  to the Effective
Date of July 31, 1996.

THE  REINHOLD  MISSION  The  business  objective  of  Reinhold is to identify or
develop  niche market  opportunities  where  metals  replacement  with  advanced
composites makes sense.
         Reinhold manufactures products made from advanced composites.  Advanced
composites are fiber  reinforced resin matrices.  We use advanced  composites to
replace  metals - where light weight,  corrosion  resistance or the need to form
complex shapes inexpensively are required.
         Today,   Reinhold  uses  the  unique  qualities   offered  by  advanced
composites  to  manufacture  graphite  composite  commercial  aircraft  seatback
structures   and   molded   composite    in-ground   lighting   housings.    Our
Aerospace/Defense  Business Unit manufactures ablative composite components used
in solid propellant  rockets.  Ablative  composites  absorb heat and are used to
produce exit cones,  nozzles and motor case  insulation  for rockets such as the
Pegasus satellite launch rocket.

PERFORMANCE  Net sales for 1996  increased 18% over 1995,  from $11.1 million to
$13.1 million, reflecting increased sales of aircraft seatback components. Gross
profit  grew  from  15.5%  in  1995 to  23.2%  in 1996  because  of the  greater
absorption of overhead that resulted from the increase in sales.
         Selling and  general  and  administrative  expenses  dropped  from $3.6
million  and 32% of  sales  in 1995 to $3.0  million  and  23.1%  in  1996.  The
principal  reasons for the improvement  were lower head count and the absence of
any need to add to our reserve for bad debts, savings that were partially offset
by higher costs for public compliance.

ACQUISITIONS  Reinhold acquired the capital stock of Reynolds & Taylor,  Inc. in
1992. In 1994, we purchased  essentially  all of the assets of  CompositAir.  In
1996, sales derived from these acquired companies represented approximately $7.7
million or 57.8% of total sales.
         It is expected that a portion of  Reinhold's  future growth will result
from  acquiring  other  companies.  Our  acquisition  strategy  is  to  identify
companies that have  capitalized on a niche where advanced  composites are being
successfully  employed,  or companies that  manufacture  products which would be
improved by changing from metal to advanced composites.

OUTLOOK  The  bankruptcy,  with  its  attendant  ills,  is now  behind  us.  The
possibility for future growth appears positive for all business units.
         We are focused on expanding our business by developing  new markets and
increasing our market share where we already have a niche. We took a step toward
this goal in 1996 with our CompositAir  Business Unit. We secured a new customer
for our  composite  seatbacks  in  Europe.  In  1996  composite  seatback  sales
increased  almost 50% over 1995.  We expect this  positive  trend to continue in
1997 as a result of an upturn in commercial  aircraft  production and increasing
acceptance of advanced  composites for seatback design.  We now hold a 20% share
of the total market.
         To meet the  anticipated  increase in sales of aircraft  seatbacks,  we
have signed a lease and will move into a more efficient facility in Camarillo in
the  first  quarter  of 1997.  The  laminating  and  curing  operations  will be
performed there. As previously  reported,  we have  consolidated the numerically
controlled machining, bonding, finishing,  inspection, and shipping functions in
our Santa Fe Springs facility.
         Two major new customers were added to our Commercial  Lighting Products
Business Unit in 1996 and are a major reason for our projected  increase of more
than 50% in sales of these products in 1997.
         Because of reduced spending by the government for military purposes, we
foresee  lower  sales  through  1998 for the  Aerospace/Defense  segment  of our
business.
         On balance,  we are optimistic  that 1997 will be an  improvement  over
1996.


/s/Michael T. Furry
Michael T. Furry
President and Chief Executive Officer
February 28, 1997

                                       1
<PAGE>
<TABLE>

Reinhold Industries, Inc.
Selected Financial Data
<CAPTION>

                                                                      1996        1995         1994        1993          1992
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                           <C>               <C>          <C>        <C>           <C>
SUMMARY OF OPERATIONS (in thousands)
Net sales                                                     $     13,120      11,122       14,824      11,612        13,193
Gross profit                                                  $      3,046       1,728        4,579       4,123         4,448
Operating profit (loss)                                       $         17      (1,832)       1,628         904         1,538
Interest income, net                                          $      1,159       2,202        2,108       6,282         8,289
Corporate expenses                                            $          -           -            -       4,686         6,100
Reorganization expenses                                       $      3,139       9,492       11,230         250             -
Asbestos-related expenses                                     $          -           -            -           -        75,819
(Loss) income from continuing operations                      $     (2,198)     (8,983)      (7,792)      2,021       (77,186)
Net (loss) income                                             $     (2,198)     (8,983)      (7,792)      2,793       (75,871)
-----------------------------------------------------------------------------------------------------------------------------

YEAR END POSITION (in thousands)
Cash and marketable securities                                $      2,522      34,660       42,833      88,892        93,117
Working capital                                               $      3,602      39,105       48,682      56,523        54,720
Net property and equipment                                    $      5,158       5,607        6,201       4,447         3,576
Total assets                                                  $     12,540      64,705       75,321     114,444       135,065
Long term debt                                                $          -           -          475           -             -
Stockholders' equity                                          $      5,719      41,990       51,251      59,453        56,537
-----------------------------------------------------------------------------------------------------------------------------

PER SHARE DATA
(Loss) income from continuing operations:
  Primary & fully diluted (note 1)                            $      (0.05)      (0.86)       (0.75)       0.20         (7.39)
Net (loss) income:
  Primary & fully diluted (note 1)                            $      (0.05)      (0.86)       (0.75)       0.27         (7.27)
Cash dividends                                                $          -           -            -           -          0.10
Stockholders' equity                                          $       2.86        4.02         4.91        5.69          5.41
Market price range: (note 2)
  High                                                        $      4 1/8       N.M.*        N.M.*       N.M.*         N.M.*
  Low                                                         $      3 1/4       N.M.*        N.M.*       N.M.*         N.M.*
-----------------------------------------------------------------------------------------------------------------------------

OTHER DATA (in thousands except stockholder & employee data)
Orders on hand                                                $      5,292       6,635        3,514       5,400         7,143
Average shares outstanding                                          Note 1      10,442       10,442      10,442        10,442
Average number of common stockholders                                2,099       2,396        2,434       2,511         2,678
Average number of employees                                            105         104          119          93           105
-----------------------------------------------------------------------------------------------------------------------------


<FN>

Note 1: Keene emerged from bankruptcy on July 31, 1996. Reinhold was merged into
and with Keene,  with the surviving  company being renamed Reinhold  Industries,
Inc. The outstanding common stock of Keene on July 31, 1996,  10,746,235 shares,
was  canceled  and  replaced  by  980,000  shares  of Class A Common  Stock  and
1,020,000 shares of Class B Common Stock.

Note 2: The  historical  market  value of the old Keene  stock (the  predecessor
company) is not meaningful  since the company has been  recapitalized as of July
31, 1996.

See management analysis and Note 1 to the financial statements for discussion of
Chapter 11 bankruptcy  proceedings  and the Effective Date of the Fourth Plan of
Reorganization.

*N.M. - Not Meaningful
</FN>
</TABLE>
                                       2
<PAGE>
Reinhold Industries, Inc.
Management's Discussion and Analysis of Financial Condition
and Results of Operations

The  following  discussion  should  be read in  conjunction  with the  financial
statements and related notes, along with Form 8-K, which was dated June 14, 1996
and filed with the  Securities  and Exchange  Commission  on June 28,  1996.  It
pertains to the confirmation of Keene's Fourth Amended Plan of Reorganization.
         For purposes of Management  Analysis and Discussion and to facilitate a
meaningful comparison for the years ended December 31, 1996 and 1995, net sales,
gross profit margin, selling,  general and administrative expenses, and interest
income prior and subsequent to the Effective Date of the Plan of  Reorganization
were used in the computations of the year ended December 31, 1996.
         Reinhold is a manufacturer of advanced custom composite  components and
sheet molding compounds for a variety of applications. Reinhold derives revenues
from the United States defense  contract  industry,  the aerospace  industry and
other commercial industries.

1996 COMPARED WITH 1995 Backlog at December 31, 1996 was $5.3 million,  down 20%
from December 31, 1995  primarily due to decline in aerospace  orders.  In 1996,
order input  decreased 19% to $11.7 million and net sales increased 18% to $13.1
million  from  $11.1  million  in 1995,  reflecting  higher  sales  of  aircraft
seatbacks partially offset by lower commercial sales of pool filter housings and
lower aerospace sales.
         Gross profit margin  increased to 23.2% from 15.5%,  reflecting  higher
absorption of overhead due to higher sales volume. In 1996, selling, general and
administrative  expenses were $3.0 million  (23.1% of sales)  compared with $3.6
million  (32.0%  of sales) in 1995 as the  result of lower  headcount  and lower
legal costs,  partially offset by higher costs for public compliance.  Operating
profit was $0.02 million in 1996 compared with an operating loss of $1.8 million
in 1995.
         Interest  income  declined  47.4% to $1.2  million  in 1996  from  $2.2
million in 1995 due to the transfer of most of the  investment  portfolio to the
Creditors'  Trust  on the  Effective  Date of the  Plan of  Reorganization.  The
average  yield was 5.17% in 1996  compared  with 5.33% in 1995 due to  increased
investment in lower yield shorter term securities.
         During 1996,  $3.1 million was  incurred  for  reorganization  expenses
compared with $9.5 million in 1995.  Reorganization  expenses  included  Chapter
11-related  professional fees of $1.5 million in 1996 compared with $6.8 million
in 1995. Reorganization expenses in 1996 only included expenses through July 31,
1996.
         A tax  provision of $0.2 million was recorded in 1996 for certain state
tax expenses compared with a benefit of $0.1 million in 1995.
         The net loss totaled $2.2 million, or $0.05 per share (based on average
10,485,427  old Keene shares  through July 31, 1996 and  2,000,000  new Reinhold
shares beginning August 1, 1996), in 1996 compared with a net loss of
$9.0 million, or $0.86 per share in 1995.

LIQUIDITY  AND CAPITAL  RESOURCES As of December 31, 1996,  working  capital was
$3.6  million,  down  $35.5  million  from  December  31,  1995.  Cash  and cash
equivalents  of $1.5 million held at December 31, 1996 were $19.3  million lower
than cash and cash  equivalents  held at December 31, 1995  primarily due to the
transfer  of $17.3  million of cash to the  Creditors'  Trust and the payment of
Notes  Payable of $0.5  million.  Marketable  securities of $1.0 million held at
December 31, 1996 declined  $12.8  million  compared with those held at December
31, 1995 primarily due to the transfer of $6.1 million of pledged  securities to
the Creditors'  Trust and the transfer of $6.1 million to a disbursing agent for
bankruptcy administrative costs.
         On the Effective Date, the Creditors' Trust and Reinhold entered into a
Credit Facility.  Pursuant to the terms of the Credit  Facility,  Reinhold shall
have the ability to draw on a $1.5  million  line of credit for up the two years
and all obligations  incurred  thereunder shall be due and payable at the end of
the third  year.  A copy of the Credit  Facility  is annexed as Exhibit F to the
Plan, which was a part of Form 8-K, which was dated June 14, 1996 and filed with
the  Securities  and Exchange  Commission on June 28, 1996. To date,  there have
been no borrowings against this Credit Facility.

     During  1996,   Reinhold  spent   approximately  $0.4  million  on  capital
expenditures.  Management  believes  that  the  available  cash  and the  amount
available under the Credit Facility, described above, will be sufficient to fund
the Company's operating and capital expenditure requirements.

INFLATION  In management's  opinion,  changes in net sales and  earnings  (loss)
before income taxes between the years ended December 31, 1996 and 1995 that have
resulted from inflation and changing prices have not been material.

                                       3
<PAGE>
Reinhold Industries, Inc.
Independent Auditors' Reports

The Board of Directors
Reinhold Industries, Inc.

We have audited the accompanying balance sheet of Reinhold Industries, Inc. (the
Company) as of  December  31, 1996 and the  related  statements  of  operations,
stockholders'  equity and cash flows for the period from August 1, 1996  through
December 31, 1996.  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 audit.
         We conducted our audit in accordance with generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
         In our opinion,  the  financial  statements  referred to above  present
fairly, in all material respects, the financial position of Reinhold Industries,
Inc. as of December  31,  1996 and the  results of its  operations  and its cash
flows for the period from August 1, 1996 through December 31, 1996 in conformity
with generally accepted accounting principles.
         As discussed in note 1 to the financial statements,  the Company's Plan
of  Reorganization  was confirmed by the United States  Bankruptcy Court on June
14, 1996 and became effective July 31, 1996. As a result,  Reinhold  Industries,
Inc. was merged into and with Keene  Corporation (the Predecessor  Company) with
Keene becoming the surviving corporation. Keene was renamed Reinhold Industries,
Inc.  (Reorganized  Company).  The Company  also adopted  fresh-start  reporting
effective  July 31, 1996,  and as a result,  the financial  information  for the
period after July 31, 1996 is presented on a different  basis of accounting than
for the period before August 1, 1996 and, therefore, is not comparable.

Los Angeles, California
January 17, 1997



The Board of Directors
Reinhold Industries, Inc.

We  have  audited  the  accompanying   consolidated  statements  of  operations,
stockholders'  equity  and  cash  flows of Keene  Corporation  (the  Predecessor
Company)  and  subsidiary  for the period from  January 1, 1996 through July 31,
1996 and for the year ended  December 31,  1995.  These  consolidated  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements based on our audits.
         We conducted our audits in accordance with generally  accepted auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
         In  our  opinion,  the  consolidated   financial  statements  of  Keene
Corporation  referred to above present  fairly,  in all material  respects,  the
results of their  operations and their cash flows for the period from January 1,
1996  through  July  31,  1996  and for the  year  ended  December  31,  1995 in
conformity with generally accepted accounting principles.

Los Angeles, California
January 17, 1997

                                       4
<PAGE>
<TABLE>

Reinhold Industries, Inc.
Statements of Operations
(Amounts in thousands, except for per share data)
<CAPTION>
                                                        Reorganized Company     Predecessor Company
------------------------------------------------------------------------------------------------------------------------------
                                                                Period from              Period from  
                                                     August 1, 1996 through  January 1, 1996 through                Year ended
                                                          December 31, 1996            July 31, 1996         December 31, 1995
------------------------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>                      <C>                       <C>
Net sales                                                            $6,323                    6,797                    11,122
Cost of sales                                                         4,515                    5,559                     9,394
------------------------------------------------------------------------------------------------------------------------------

     Gross profit                                                     1,808                    1,238                     1,728
Selling, general and administrative expenses                          1,445                    1,584                     3,560
------------------------------------------------------------------------------------------------------------------------------

     Operating income (loss)                                            363                     (346)                   (1,832)

Interest income, net                                                     54                    1,105                     2,202

     Income (loss) before reorganization expenses and
         income taxes                                                   417                      759                       370
Reorganization expenses                                                   -                    3,139                     9,492
------------------------------------------------------------------------------------------------------------------------------

     Income (loss) before income taxes                                  417                   (2,380)                   (9,122)
Income tax provision (benefit)                                           16                      219                      (139)
------------------------------------------------------------------------------------------------------------------------------

     Net income (loss)                                                 $401                   (2,599)                   (8,983)



Net income (loss) per share                                            $.20                    N.M.*                     N.M.*

Weighted average common shares outstanding                            2,000                    N.M.*                     N.M.*
------------------------------------------------------------------------------------------------------------------------------

<FN>
*N.M. not meaningful - historical per share data  for the Predecessor Company is 
   not meaningful since the Company has been recapitalized and has adopted fresh
   -start reporting as of July 31, 1996.

See accompanying notes to financial statements.
</FN>
</TABLE>
                                       5
<PAGE>


Reinhold Industries, Inc.
Balance Sheet
December 31, 1996
(Amounts in thousands, except for share data)
<TABLE>
<CAPTION>


Assets
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                                                                                   <C>
Current assets:
     Cash and cash equivalents                                                                                        $ 1,522
     Marketable securities                                                                                                250
     Accounts receivable (less allowance for doubtful accounts of $501)                                                 1,823
     Inventories                                                                                                        1,491
     Prepaid expenses and other current assets                                                                            458
-----------------------------------------------------------------------------------------------------------------------------
       Total current assets                                                                                             5,544

Marketable securities                                                                                                     750

Property and equipment, at cost                                                                                         7,896
     Less accumulated depreciation and amortization                                                                     2,738
-----------------------------------------------------------------------------------------------------------------------------
       Net property and equipment                                                                                       5,158

Other assets                                                                                                            1,088
-----------------------------------------------------------------------------------------------------------------------------
                                                                                                                      $12,540

Liabilities and Stockholders' Equity Current liabilities:
     Accounts payable                                                                                                  $  758
     Accrued expenses                                                                                                     938
     Amount due to Furon Corp.                                                                                            246
-----------------------------------------------------------------------------------------------------------------------------
       Total current liabilities                                                                                        1,942

Long-term pension liability                                                                                             2,591
Other long-term liabilities                                                                                             2,288

Stockholders' equity:
     Common stock, $.01 par value:
       Class A - authorized 1,480,000 shares; issued and outstanding 980,000 shares                                        10
       Class B - authorized 1,020,000 shares; issued and outstanding 1,020,000 shares                                      10
     Additional paid-in capital                                                                                         7,791
     Retained earnings                                                                                                    401
     Additional pension liability in excess of unrecognized prior service cost                                         (2,493)
-----------------------------------------------------------------------------------------------------------------------------
       Net stockholders' equity                                                                                         5,719

Commitments and contingencies (note 7)
-----------------------------------------------------------------------------------------------------------------------------
                                                                                                                      $12,540

<FN>

See accompanying notes to financial statements.
</FN>
</TABLE>
                                       6
<PAGE>
<TABLE>

Reinhold Industries, Inc.
Statements of Cash Flows
(Amounts in thousands)
<CAPTION>
                                                       Reorganized Company     Predecessor Company
-----------------------------------------------------------------------------------------------------------------------------
                                                               Period from             Period from
                                                    August 1, 1996 through January 1, 1996 through                 Year ended
                                                         December 31, 1996           July 31, 1996          December 31, 1995
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>                  <C>                         <C> 
Cash flows from operating activities:
     Net income (loss)                                                $401                  (2,599)                    (8,983)
     Adjustments to reconcile net income (loss) to net cash
     provided by (used in) operating activities:
          Depreciation and amortization                                285                     455                        708
          Obligations subject to Chapter 11 proceedings,
        including reorganization cost                                   --                 (15,131)                      (876)
          Assets transferred to Creditors' Trust                        --                  42,561                         --
          Charges due to reorganization activities                      --                 (34,118)                        --
          Change in assets and liabilities:
             Accounts receivable, net                                 (151)                   (497)                       929
             Accounts receivable - other                                --                      --                      1,129
             Inventories                                              (159)                     --                       (246)
             Other current assets                                     (159)                  1,654                        346
             Other assets                                              (32)                   (155)                      (309)
             Accounts payable                                         (332)                    123                       (424)
             Accrued expenses                                          358                    (379)                      (428)
             Other liabilities                                         (23)                    169                        949
             Other, net                                                (79)                     94                       (419)
-----------------------------------------------------------------------------------------------------------------------------

Net cash provided by (used in) operating activities                    109                  (7,823)                    (7,624)

Cash flows used in investing activities:
     Proceeds from sale of marketable securities                       351                  12,457                     16,270
     Proceeds from sale of equipment                                    --                      10                         --
     Capital expenditures                                             (207)                   (153)                      (114)
-----------------------------------------------------------------------------------------------------------------------------

Net cash provided by investing activities                              144                  12,314                     16,156
-----------------------------------------------------------------------------------------------------------------------------

Cash flows from financing activities:
     Repayment of notes payable                                         --                    (475)                        --
     Cash paid for acquisition of Reynolds and Taylor                   --                    (206)                      (576)
     Cash distributions at date of consummation                         --                 (23,393)                        --
-----------------------------------------------------------------------------------------------------------------------------

Net cash used in financing activities                                   --                 (24,074)                      (576)
-----------------------------------------------------------------------------------------------------------------------------

Net increase (decrease) in cash and cash equivalents                   253                 (19,583)                     7,956

Cash and cash equivalents at beginning of period                     1,269                  20,852                     12,896
-----------------------------------------------------------------------------------------------------------------------------

Cash and cash equivalents at end of period                          $1,522                   1,269                     20,852
-----------------------------------------------------------------------------------------------------------------------------

Supplementary  disclosures of cash flow  information
   - cash paid during the period for:
        Income taxes                                                  $ --                     194                        180
        Interest                                                      $ --                      45                         17
-----------------------------------------------------------------------------------------------------------------------------

<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
                                       7
<PAGE>
<TABLE>

Reinhold Industries, Inc.
Statements of Stockholders' Equity
(Amounts in thousands, except for share data)

<CAPTION>
                                                                    Common stock,                               Common stock,
                                                                    $0.01 par value                         $0.0001 par value
                                                                    Class A               Class B
                                                                     Shares    Amount      Shares   Amount    Shares   Amount

-----------------------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>            <C>  <C>             <C>   <C>          <C>
Balance, December 31, 1994                                               --        --          --       --    10,442       $1

Net loss for the year ended December 31, 1995                            --        --          --       --        --       --

Increase in additional pension liability in excess of
     unrecognized prior service cost                                     --        --          --       --        --       --

Decrease in unrealized gain on marketable securities                     --        --          --       --        --       --
-----------------------------------------------------------------------------------------------------------------------------

Balance, December 31, 1995                                               --        --          --       --    10,442        1

Net loss for the period January 1, 1996 through July 31, 1996            --        --          --       --        --       --

Stock options exercised                                                  --        --          --       --       304       --

Impact of reorganization:
     Elimination of former equity interests related to
          emergence from bankruptcy                                      --        --          --       --  (10,746)      (1)

     Issuance of new equity interests related to emergence
          from bankruptcy                                           980,000        10   1,020,000       10        --       --

Net income for the period August 1, 1996 through
     December 31, 1996                                                   --        --          --       --        --       --

Increase in additional pension liability in excess of
     unrecognized prior service cost                                     --        --          --       --        --       --
-----------------------------------------------------------------------------------------------------------------------------

Balance, December 31, 1996                                          980,000       $10   1,020,000      $10        --       --
-----------------------------------------------------------------------------------------------------------------------------

<FN>

See accompanying notes to financial statements.

</FN>
</TABLE>

NOTES TO FINANCIAL STATEMENTS
Year ended  December  31, 1995.  Period from  January 1, 1996,  through July 31,
1996, and the period from August 1, 1996, through December 31, 1996.

(1)  ORGANIZATION
     DESCRIPTION OF BUSINESS Reinhold Industries, Inc. (Reinhold or the Company)
     is a manufacturer of advanced custom composite components and sheet molding
     compounds for a variety of applications. Reinhold derives revenues from the
     United States defense contract  industry,  the aerospace industry and other
     commercial industries.

     CHAPTER  11  REORGANIZATION  Reinhold  was  acquired  by Keene  Corporation
     (Keene)  in 1984 and  operated  as a division  of Keene  until  1990,  when
     Reinhold  was  incorporated  in the  state of  Delaware  as a wholly  owned
     subsidiary of Keene.

     On December 3, 1993,  Keene filed a  voluntary  petition  for relief  under
     Chapter 11 of Title 11 of the United States Code (the  Bankruptcy  Code) in
     the United States Bankruptcy Court (Bankruptcy  Court).  Keene's Chapter 11
     filing  came as a direct  result of the  demands on Keene of  thousands  of
     asbestos-related lawsuits which named Keene as a party.

     On July 31,  1996  (the  Effective  Date),  Keene  consummated  its Plan of
     Reorganization  under the  Bankruptcy  Code (the  Plan)  and  emerged  from
     bankruptcy. On the Effective Date, Reinhold was merged into and with Keene,
     with Keene becoming the surviving corporation. Pursuant to the

                                       8
<PAGE>
<TABLE>
Reinhold Industries, Inc.




  

<CAPTION>
                                                                            Additional pension liability
                         Unrealized gain (loss) on         Retained earnings   in excess of unrecognized
Additional paid-incapital     marketable securities    (accumulated deficit)          prior service cost   Net stockholders' equity
-----------------------------------------------------------------------------------------------------------------------------------
                 <C>                          <C>                   <C>                       <C>                      <C>        
                  120,286                     (168)                 (66,900)                  (1,986)                  51,233

                       --                        --                  (8,983)                       --                  (8,983)


                       --                        --                       --                    (428)                   (428)

                       --                       168                       --                       --                     168
-----------------------------------------------------------------------------------------------------------------------------------

                  120,286                        --                 (75,883)                  (2,414)                  41,990

                       --                        --                  (2,599)                       --                  2,599)

                      124                        --                       --                       --                     124



                (120,410)                        --                   78,482                       --                 (41,929)


                    7,791                        --                       --                       --                   7,791



                       --                        --                      401                       --                     401

                       --                        --                       --                     (79)                    (79)
-----------------------------------------------------------------------------------------------------------------------------------

                    7,791                        --                      401                  (2,493)                   5,719
-----------------------------------------------------------------------------------------------------------------------------------



</TABLE>

     merger,  all of the issued and  outstanding  capital  stock of Reinhold was
     canceled.  Keene, as the surviving  corporation of the merger,  was renamed
     Reinhold. On the Effective Date, Reinhold issued 2,000,000 shares of Common
     Stock,  of which  1,020,000  of  Class B Common  Stock  was  issued  to the
     Trustees of a Creditors' Trust (the Creditors'  Trust) set up to administer
     Keene's  asbestos  claims.  The remaining  980,000 shares of Class A Common
     Stock were issued to Keene's former  stockholders  as of record date,  June
     30, 1996. All of Keene's previous outstanding Common Stock was canceled.

     The payments and distributions made to the Creditors' Trust pursuant to the
     terms  and  conditions  of the Plan  were  made in  complete  satisfaction,
     release and discharge of all claims and demands  against,  liabilities  of,
     liens on, obligations of and interest in Reinhold (Reorganized Company).


     On the Effective Date, the Plan of Reorganization provided for, among other
     things,  the  transfer of  approximately  $6 million to  Continental  Stock
     Transfer  and  Trust  Company  for  the  payment  of  Class  6  Claims  and
     administrative costs related to the bankruptcy. Also on the Effective Date,
     $17.3 million of cash, $6.1 million of securities pledged as collateral for
     appeal  bonds and escrow  accounts  and $19.1  million of other assets were
     transferred to the Creditors' Trust.  Certain assets that were not recorded
     on Keene's  Financial  Statements due to their contingent  nature were also
     transferred to the Creditors' Trust.

     As part of the reorganization,  certain assets and liabilities were kept by
     the surviving  entity  (Reinhold).  These  included the  long-term  pension
     liability of $2.5 million,  a current prepaid pension asset of $125,000 and
     an underfunded  pension  liability in excess of unrecognized  prior service
     cost of $2.4 million (a reduction of stockholders' equity).

                                       9
<PAGE>
     On the Effective  Date,  the Creditors'  Trust and Reinhold  entered into a
     Credit  Facility.  Pursuant to the terms of the Credit  Facility,  Reinhold
     shall have the ability to draw on a $1.5  million line of credit for up the
     two years and all obligations  incurred thereunder shall be due and payable
     at the end of the third year.

     Reorganization  expenses  are  segregated  from  normal  operations  in the
     Statements of Operations  and reflect the costs  incurred by the Company in
     the  implementation of its plan of reorganization as well as costs directly
     associated with the bankruptcy case. The major component of  reorganization
     costs was  professional  fees.

     Reorganization  expenses  consisted  of (in thousands):
<TABLE>
<CAPTION>

                                           Reorganized Company             Predecessor Company
----------------------------------------------------------------------------------------------------------------------------
                                     Period from August 1,1996     Period from January 1, 1996                    Year Ended
                                    Through December 31, 1996                    July 31, 1996              December 31, 1995
----------------------------------------------------------------------------------------------------------------------------
<S>                                                     <C>                              <C>                           <C>  
Professional Fees                                       $   --                           1,500                         6,800
All other costs                                         $   --                           1,639                         2,692
----------------------------------------------------------------------------------------------------------------------------
                                                        $   --                           3,139                         9,492
----------------------------------------------------------------------------------------------------------------------------

</TABLE>

     FRESH-START REPORTING  Pursuant to the guidelines  provided by the American
     Institute of Certified  Public  Accountants  in Statement of Position 90-7,
     "Financial  Reporting by Entities in  Reorganization  under the  Bankruptcy
     Code" (SOP 90-7), the Company adopted fresh-start reporting as of the close
     of business on July 31, 1996.  The Company  adopted  fresh-start  reporting
     because   holders  of  existing  shares   immediately   before  filing  and
     confirmation of the Plan received less than 50% of the voting shares of the
     emerging  entity  and the  Company's  reorganized  value  is less  than its
     postpetition  liabilities  and  allowed  claims.  None  of  the  assets  or
     liabilities  were revalued at the Effective  Date because the book value of
     the assets and liabilities approximated their fair value.

     The significant fresh-start adjustments are summarized as follows:

     o Cancellation of all prepetition ownership interests in the  Company as of
       the Effective Date.

     o Historical balance of accumulated deficit set to zero.

     The  adjustments  to the  Company's  balance  sheet as of July 31, 1996, to
     record confirmation of the Plan, are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                        Adjustments to record confirmation of the Plan
                                                                        ----------------------------------------------
                                                                Predecessor       Distributions to                      Reorganized
                                                                  Company's   Creditors' Trust and                      Company's
                                                             Balance Sheet,      Continental Stock     Fresh-Start  Balance Sheet,
Assets                                                       July 31, 1996   Transfer and Trust Co.    Adjustments  July 31, 1996
----------------------------------------------------------------------------------------------------------------------------------
     <S>                                                          <C>                     <C>             <C>             <C>       
     Current assets:
       Cash and cash equivalents                                   $ 24,651               (23,382)              --         1,269
       Marketable securities                                          7,456                (6,105)              --         1,351
       Accounts receivable                                           19,981               (18,309)              --         1,672
       Inventories                                                    1,332                    --               --         1,332
       Other current assets                                           1,042                  (743)              --           299
----------------------------------------------------------------------------------------------------------------------------------

     Total current assets                                            54,462               (48,539)              --         5,923

     Net property and equipment                                       5,308                   (72)              --         5,236
     Deferred costs and other assets                                  1,056                    --               --         1,056
----------------------------------------------------------------------------------------------------------------------------------

                                                                   $ 60,826               (48,611)              --        12,215
----------------------------------------------------------------------------------------------------------------------------------

Liabilities and Stockholders' Equity (Deficit)
----------------------------------------------------------------------------------------------------------------------------------

     Current liabilities:
       Accounts payable                                             $ 1,090                    --               --         1,090
       Accrued expenses                                                 826                    --               --           826
----------------------------------------------------------------------------------------------------------------------------------

     Total current liabilities                                        1,916                    --               --         1,916
----------------------------------------------------------------------------------------------------------------------------------

     Liabilities subject to Chapter 11 proceedings                   14,493               (14,493)              --            --
     Long-term pension liability                                      2,539                    --               --         2,539
     Other long-term liabilities                                      2,363                    --               --         2,363

     Stockholders' equity (deficit):
       Common stock                                                       1                    19               --            20
       Additional paid-in capital                                   120,410                    --         (112,619)        7,791
       Additional pension liability in excess of
         unrecognized prior service cost                             (2,414)                   --               --        (2,414)
       Retained earnings (accumulated deficit)                      (78,482)              (34,137)         112,619            --
----------------------------------------------------------------------------------------------------------------------------------

     Net stockholders' equity (deficit)                              39,515               (34,118)              --         5,397

                                                                   $ 60,826               (48,611)              --        12,215
----------------------------------------------------------------------------------------------------------------------------------
   
</TABLE>
                                       10
<PAGE>

(2)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
     PRINCIPLES OF CONSOLIDATION The accompanying financial statements as of and
     for the  five-month  period ended December 31, 1996 include the accounts of
     Reinhold.  The accompanying financial statements for the seven-month period
     ended July 31,  1996 and the year  ended  December  31,  1995  include  the
     accounts of Keene  Corporation and subsidiary  (Predecessor  Company).  All
     material  inter-company  accounts and transactions  have been eliminated in
     consolidation.

     CASH AND CASH EQUIVALENTS The Company  considers cash in banks,  commercial
     paper,  demand  notes and similar  short-term  investments  purchased  with
     maturities of less than three months as cash and cash  equivalents  for the
     purpose of the statements of cash flows.

     Cash and cash equivalents consist of the following at December 31, 1996 (in
thousands):
<TABLE>
<CAPTION>
     <S>                                               <C> 
     Cash in banks                                     $   459
     Money market funds                                  1,063
--------------------------------------------------------------

     Total                                             $ 1,522
--------------------------------------------------------------
</TABLE>

     INVENTORIES  Inventories  are  stated  at the  lower of cost or market on a
     first-in,  first-out (FIFO) basis.  Inventoried costs relating to long-term
     contracts and programs are stated at the actual production costs, including
     factory  overhead,  initial  tooling and other related  nonrecurring  costs
     incurred to date, reduced by amounts related to revenue recognized on units
     delivered.

     ACCOUNTING  FOR  GOVERNMENT  CONTRACTS  Substantially  all of the Company's
     government  contracts are firm fixed price. Sales and cost of sales on such
     contracts  are recorded on units  delivered.  Estimates of cost to complete
     are reviewed and revised  periodically  throughout  the contract  term, and
     adjustments  to profit  resulting  from such  revisions are recorded in the
     accounting  period in which the revisions are made. Losses on contracts are
     recorded in full as they are identified.

     Amounts billed to contractors of the U.S.  Government  included in accounts
     receivable at December 31, 1996 were $887,000.

     MARKETABLE  SECURITIES  The Company  adopted  provisions  of  Statement  of
     Financial  Accounting  Standards No. 115,  "Accounting for Certain Debt and
     Equity  Securities"  (Statement 115), at December 31, 1994. Under Statement
     115, the Company must classify its debt and marketable equity securities in
     one of three categories: trading, available-for-sale or held-to-maturity.

     Available-for-sale securities are recorded at fair value.Unrealized holding
     gains and losses, net of the tax effect,  on available-for-sale  securities
     are  excluded  from  earnings and are  reported  as a separate component of
     stockholders' equity  until  realized.  Declines  in  the  market  value of
     available-for-sale securities  deemed to  be other  than  temporary  result
     in charges to current earnings and establishment of a new cost basis.

     At  December  31,  1996,  the  Company's   marketable   securities  consist
     principally of highly liquid U.S.  Government Treasury notes and bills with
     various  maturity dates through 1998. The Company has classified all of its
     marketable securities as available-for-sale. At December 31, 1996 and 1995,
     unrealized holding gains or losses were immaterial.  Approximately $750,000
     of marketable securities are due after one year through five years.

     Proceeds  from the sale of  marketable  securities  available for sale were
     $351,000 during the five months ended December 31, 1996, $12,457,000 during
     the seven months ended July 31, 1996 and $16,270,000  during the year ended
     December 31, 1995.  Gross realized  gains and losses  included in income in
     1996 and 1995 were immaterial.

     PROPERTY AND  EQUIPMENT  The Company  depreciates  property  and  equipment
     principally  on a  straight-line  basis based on  estimated  useful  lives.
     Leasehold improvements are amortized  straight-line over the shorter of the
     lease term or estimated useful life of the asset.

     Property and equipment,  at cost, consists of the following at December 31,
     1996 (in thousands):

<TABLE>
<CAPTION>
                                Useful life
--------------------------------------------------------------
    <S>                        <C>                   <C>
     Undeveloped land           --                    $    900
     Leasehold improvements     5-6 years                1,093
     Machinery and equipment    5-25 years               5,359
     Furniture and fixtures     3-10 years                 404
     Construction in process   --                          140
--------------------------------------------------------------
                                                         7,896
     Less accumulated depreciation
        and amortization                                 2,738

                                                       $ 5,158
--------------------------------------------------------------
</TABLE>

     When  property  is sold or  otherwise  disposed  of,  the  asset  cost  and
     accumulated  depreciation  are removed from the accounts and any  resulting
     gain or loss is included in the statement of operations.

     Maintenance and repairs are expensed as incurred. Renewals and  betterments
     are capitalized.

                                       11
<PAGE>
     OTHER  ASSETS  Other  assets  consist   primarily  of  goodwill.   Goodwill
     represents  the  excess of  purchase  price  over fair  value of net assets
     acquired,  and is  amortized  on a  straight-line  basis over the  expected
     periods  to be  benefited,  10  years.  Goodwill  and  related  accumulated
     amortization  at December  31, 1996  amounted  to  $999,000  and  $130,000,
     respectively.

     The Company assesses the recoverability of goodwill by determining  whether
     the  amortization  of the goodwill  balance over its remaining  life can be
     recovered through  undiscounted future operating cash flows of the acquired
     operation. The amount of goodwill impairment,  if any, is measured based on
     projected  discounted  future  operating  cash flows using a discount  rate
     reflecting  the  Company's  average cost of funds.  The  assessment  of the
     recoverability  of goodwill will be impacted if estimated  future operating
     cash flows are not achieved.

     On March 2, 1992, the Company acquired  Reynolds & Taylor,  Inc. (R&T) from
     Furon Company (Furon). The acquisition was accounted for as a purchase. The
     acquisition agreement provided that Reinhold was required to pay additional
     cash  consideration over the years ended December 31, 1992 through December
     31, 1996 (inclusive). The amount of the contingent payment for each year is
     equal to the sum of $3,000,000  multiplied by a fraction,  the numerator of
     which is R&T sales for the year then ended and the  denominator of which is
     $27,000,000.  The amount  owed for the year  ended  December  31,  1996 was
     approximately   $246,000.   The   obligation  to  Furon  was  offset  by  a
     corresponding increase in goodwill.

     INCOME  TAXES The Company  accounts  for income  taxes under  Statement  of
     Financial  Accounting  Standards No. 109 (Statement  109),  "Accounting for
     Income  Taxes."  Under the asset and  liability  method of  Statement  109,
     deferred  tax  assets and  liabilities  are  recognized  for the future tax
     consequences  attributable to differences  between the financial  statement
     carrying  amounts of existing assets and  liabilities and their  respective
     tax bases.  Deferred tax assets and  liabilities are measured using enacted
     tax rates expected to apply to income in the years in which those temporary
     differences  are expected to be recovered or settled.  Under Statement 109,
     the effect on deferred tax assets and  liabilities of a change in tax rates
     is recognized in income in the period that includes the enactment date.

     NET INCOME (LOSS) PER SHARE  Computation of net income (loss) per share was
     based on the weighted  average number of common shares  outstanding for all
     periods  presented plus common stock  equivalents  arising from outstanding
     options using the Treasury-stock method.

     STOCK OPTION PLAN Prior to January 1, 1996,  the Company  accounted for its
     stock  option  plan  in  accordance   with  the  provisions  of  Accounting
     Principles  Board (APB)  Opinion No. 25,  "Accounting  for Stock  Issued to
     Employees,"  and related  interpretations.  As such,  compensation  expense
     would be recorded on the date of grant only if the current  market price of
     the underlying  stock exceeded the exercise  price. On January 1, 1996, the
     Company adopted SFAS No. 123,  "Accounting  for Stock-Based  Compensation,"
     which permits  entities to recognize as expense over the vesting period the
     fair value of all stock-based  awards on the date of grant.  Alternatively,
     SFAS No. 123 also allows  entities to continue to apply the  provisions  of
     APB Opinion No. 25 and provide pro forma net income and pro forma  earnings
     per share  disclosures  for employee  stock option  grants made in 1995 and
     future years as if the fair-value-based  method defined in SFAS No. 123 had
     been applied.  The Company has elected to continue to apply the  provisions
     of APB Opinion No. 25 and provide the pro forma  disclosure  provisions  of
     SFAS No. 123, if required.

     PENSION AND OTHER  POSTRETIREMENT  PLANS The Company has a defined  benefit
     pension plan covering substantially all of its employees.  The benefits are
     based on years of service and the employee's  compensation  during the last
     years of  service  before  retirement.  The cost of this  program  is being
     funded currently.

     USE OF ESTIMATES  Management  of the Company has made a number of estimates
     and  assumptions  relating to the  reporting of assets and  liabilities  to
     prepare these financial  statements in conformity  with generally  accepted
     accounting principles. Actual results could differ from those estimates.

     IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF The
     Company  adopted  the  provisions  of SFAS  No.  121,  "Accounting  for the
     Impairment of Long-Lived  Assets and for  Long-Lived  Assets to Be Disposed
     Of," on January 1, 1996. This Statement requires that long-lived assets and
     certain identifiable intangibles be reviewed for impairment whenever events
     or changes in  circumstances  indicate that the carrying amount of an asset
     may not be  recoverable.  Recoverability  of  assets to be held and used is
     measured by a comparison  of the carrying  amount of an asset to future net
     cash  flows  expected  to be  generated  by the asset.  If such  assets are
     considered to be impaired,  the  impairment to be recognized is measured by
     the  amount by which the  carrying  amount of the assets  exceeds  the fair
     value of the assets.  Assets to be disposed of are reported at the lower of
     the  carrying  amount or fair value,  less costs to sell.  Adoption of this
     Statement  did  not  have a  material  impact  on the  Company's  financial
     position, results of operations or liquidity.

     FAIR VALUE OF FINANCIAL  INSTRUMENTS The carrying  amounts of the following
     financial instruments  approximate fair value because of the short maturity
     of those instruments: cash and cash equivalents, accounts receivable, other
     current assets, other assets, accounts payable, and accrued expenses.

     The fair values of  marketable  securities  are based on the quoted  market
     prices at the reporting date for those investments.

     Reclassifications  Certain amounts in the prior period financial statements
     have been reclassified to conform with the current presentation.

                                       12
<PAGE>
(3)  INCOME TAXES
     The income tax provision (benefit) consists of (in thousands):
<TABLE>
<CAPTION>
                                              Reorganized Company          Predecessor Company
-----------------------------------------------------------------------------------------------------------------------------
                                                      Period from                  Period from
                                           August 1, 1996 through      January 1, 1996 through                     Year ended
                                                December 31, 1996                July 31, 1996              December 31, 1995
-----------------------------------------------------------------------------------------------------------------------------
     <S>                                                     <C>                           <C>                           <C>     
     Federal                                                 $ --                           --                             --
     State                                                     16                          219                           (139)
     Deferred                                                  --                           --                             --
-----------------------------------------------------------------------------------------------------------------------------
     Total                                                   $ 16                          219                           (139)
-----------------------------------------------------------------------------------------------------------------------------

</TABLE>


     The income tax expense  (benefit) for the years ended December 31, 1996 and
     1995 was  $235,000 and  $(139,000),  respectively,  and  differed  from the
     amounts  computed by applying  the U.S.  Federal  income tax rate of 35% to
     pretax income (loss) as a result of the following (in thousands):
<TABLE>

<CAPTION>
                                              Reorganized Company          Predecessor Company
-----------------------------------------------------------------------------------------------------------------------------
                                                      Period from                  Period from
                                           August 1, 1996 through      January 1, 1996 through                     Year ended
                                                December 31, 1996                July 31, 1996              December 31, 1995
-----------------------------------------------------------------------------------------------------------------------------
     <S>                                                    <C>                       <C>                              <C>
     Statutory taxes at Federal rate                        $ 146                        (832)                         (3,193)
     State taxes, net of Federal tax benefits                  10                          142                            (90)
     Reduction of net operating loss                           --                       25,027                             --
     Change in valuation allowance                           (155)                    (24,124)                          2,679
     Other                                                     15                            6                            465
-----------------------------------------------------------------------------------------------------------------------------
        Total provision for income tax expense (benefit)    $  16                          219                           (139)
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>


     The significant components of deferred income tax  benefit were  as follows
     (in thousands):

<TABLE>
<CAPTION>
                                              Reorganized Company          Predecessor Company
-----------------------------------------------------------------------------------------------------------------------------
                                                      Period from                  Period from
                                           August 1, 1996 through      January 1, 1996 through                     Year ended
                                                December 31, 1996                July 31, 1996              December 31, 1995
-----------------------------------------------------------------------------------------------------------------------------
     <S>                                                    <C>                        <C>                             <C>
     Current deferred tax benefit                           $ 155                       24,124                         (2,679)
     Change in valuation allowance for deferred tax asset    (155)                     (24,124)                         2,679
-----------------------------------------------------------------------------------------------------------------------------
     Total deferred tax benefit                             $  --                           --                             --
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>


     The tax  effects of  temporary  differences  that give rise to  significant
     portions of the deferred tax assets and deferred tax  liabilities  based on
     an effective tax rate of 35% at December 31, 1996 are presented below:
<TABLE>
<CAPTION>
     <S>                                              <C> 
     Deferred tax assets:
        Adjustments from quasi-reorganization         $  2,404
        Net operating loss carryforwards                 5,032
        Inventory reserves                                  49
        Other reserves                                     972
--------------------------------------------------------------
           Total gross deferred tax assets               8,457

        Less valuation allowance                        (7,903)
--------------------------------------------------------------

           Net deferred tax assets                         554
--------------------------------------------------------------

Deferred tax liabilities:
        Pension                                            (76)
        Depreciation                                      (478)
--------------------------------------------------------------

           Total gross deferred tax liabilities           (554)
--------------------------------------------------------------

           Net deferred tax assets                    $     --
--------------------------------------------------------------

</TABLE>


     In assessing the realizability of deferred tax assets, management considers
     whether it is more likely than not that some portion or all of the deferred
     tax assets will not be realized.  The ultimate  realization of deferred tax
     assets is dependent upon the generation of future taxable income during the
     periods in which those temporary differences become deductible.

     Based on the level of historical  taxable income and  projections of future
     taxable  income  over  the  periods  which  the  deferred  tax  assets  are
     deductible,  management believes it is more likely than not the Company may
     not realize the benefits of these  deductible  differences  at December 31,
     1996.

     At December  31,  1996,  the  Company  had  generated  net  operating  loss
     carryovers  for Federal income tax purposes of  approximately  $14,400,000.
     The Company may utilize these net operating losses by carrying them forward
     to offset future Federal taxable income, if any, through 2011.

     Pursuant  to the Plan,  Keene  (predecessor  company)  transferred  certain
     assets on July 31, 1996 to the Creditors' Trust. Certain assets at the date
     of  transfer  were not  capable of being  valued  until the  resolution  of
     pending litigation.  The Company anticipates a future tax benefit; however,
     since the value of certain  assets is not  currently  quantifiable  and the
     extent of any potential  benefit  resultant upon the transfer of the assets
     is not estimable, the Company has not disclosed nor recorded a deferred tax
     benefit in the accompanying financial statements.

                                       13
<PAGE>
(4)  STOCKHOLDERS' EQUITY
     Common stock consists of 2,500,000  authorized  shares,  $.01 par value per
     share,  of which  1,020,000  shares of Class B and  980,000 of Class A were
     issued and  outstanding  at December 31, 1996.  At such time as the Class B
     Common  Stock  shall  represent  less than 10% of the  aggregate  shares of
     Common Stock then  outstanding,  all the shares of the Class B Common Stock
     shall convert to Class A Common Stock.

     In 1990, Keene  established a Preferred Share Purchase Rights Plan pursuant
     to which a dividend of one right was issued for each  outstanding  share of
     common stock. The right was eliminated on the Effective Date.

(5)  STOCK OPTIONS
     Prior to the Effective  Date,  the Company had a stock  incentive plan (the
     Stock  Plan) which was  established  in 1990.  The number of common  shares
     subject to awards under the Stock Plan could not exceed  1,000,000  shares.
     The Stock Plan  permited  the Board of  Directors  of the  Company to grant
     nonqualified  common stock  options to key  employees  and directors at not
     less than  either  the fair  market  value per share or the book  value per
     share on the date of grant.  Options granted expired ten years from date of
     grant and were  exercisable at the rate of 25% per year commencing one year
     after date of grant for employees and 33 1/3% per year  commencing one year
     after date of grant for  directors.  All options were  extinguished  on the
     Effective Date.

     Changes in stock options at December 31, 1996 were as follows:

<TABLE>
     <S>                                                               <C>
     Outstanding  options,  beginning of year                           639,000
     Options  exercised between  $.03 and $.25 per share               (304,275)
     Options granted between $.03 and $.25 per share                         --
     Options canceled between $.03 and $1.75 per share                 (334,725)
--------------------------------------------------------------------------------
     Outstanding options between $.03 and
        $1.75 per share, end of year                                         --
--------------------------------------------------------------------------------


</TABLE>
     As of the Effective  Date,  the Company  established a new stock  incentive
     plan (the New Stock Plan) for key employees. The New Stock Plan permits the
     grant of stock options, stock appreciation rights and restricted stock. The
     total  number of shares of stock  subject to  issuance  under the New Stock
     Plan may not exceed  100,000.  The  maximum  number of shares of stock with
     respect to which options or stock appreciation rights may be granted to any
     eligible  employee  during  the term of the New Stock  Plan may not  exceed
     10,000.  The shares to be delivered under the New Stock Plan may consist of
     authorized but unissued stock or treasury stock, not reserved for any other
     purpose.

     The exercise  price of the options is  established  at the  discretion of a
     Committee of the Board of Directors (the  Committee),  provided that it may
     not be less than the  estimated  fair  value at the time of grant.  The New
     Stock Plan  provides  that the  options  are  exercisable  based on vesting
     schedules,  provided  that in no event shall such options vest more rapidly
     than 33 1/3% annually.  The options expire no later than ten years from the
     date of grant.

     The Committee,  in its  discretion,  in connection with grant of an option,
     may grant to the optionee  stock  appreciation  rights  (SARs).  A SAR will
     entitle  the  holder of the  related  option,  upon  exercise  of the stock
     appreciation  right,  to surrender such option,  and receive  payment of an
     amount determined by multiplying (i) the excess of the fair market value of
     a share  of stock on the  date of  exercise  of such SAR over the  purchase
     price of a share of stock under the related  option,  by (ii) the number of
     shares as to which the SARs has been exercised.

     The Committee may grant shares of  restricted  stock to eligible  employees
     and in such amounts as it shall determine in its sole discretion.

     No options, SARs or restricted stock were granted under the New Stock Plan.

                                       14
<PAGE>
(6)  PENSION PLAN
     The Company has a pension plan covering  substantially  all employees.  The
     benefits  paid under the pension plan  generally are based on an employees'
     years of service  and  compensation  during  the last years of  employment.
     Annual  contributions made to the pension plan are determined in compliance
     with the minimum funding  requirements of ERISA using a different actuarial
     cost method and actuarial assumptions than are used for determining pension
     expense for book accounting purposes.  Annual contributions to the plan are
     made in amounts  approximately  equal to the  amounts  accrued  for pension
     expense. Plan assets consist principally of publicly traded equity and debt
     securities.

     Net pension cost included the following (in thousands):

<TABLE>
<CAPTION>

                                              Reorganized Company          Predecessor Company
-----------------------------------------------------------------------------------------------------------------------------
                                                      Period from                  Period from
                                           August 1, 1996 through      January 1, 1996 through                     Year ended
                                                December 31, 1996                July 31, 1996              December 31, 1995
-----------------------------------------------------------------------------------------------------------------------------
     <S>                                                    <C>                           <C>                          <C>  
     Service cost                                           $  51                           71                            113
        Interest cost on benefits earned in prior years       353                          495                            863
        Return on assets:

        Actual gain                                          (228)                        (319)                        (1,327)
        Deferred (loss) gain                                 (108)                        (149)                           602
-----------------------------------------------------------------------------------------------------------------------------
            Expected return                                  (336)                        (468)                          (725)
-----------------------------------------------------------------------------------------------------------------------------

     Amortization of net obligation at transition               8                           12                             20
     Amortization of net loss                                  52                           71                            142
-----------------------------------------------------------------------------------------------------------------------------
     Net pension cost                                        $128                          181                            413
-----------------------------------------------------------------------------------------------------------------------------

</TABLE>
     The funded  status of the plan at  December  31,  1996 was as  follows  (in
thousands):

<TABLE>
<CAPTION>
     Estimated amounts of assets required to provide funds for future payment of
        accumulated benefits based on employment service to date and present pay
        levels:
     <S>                                                                <C> 
           Vested                                                       $11,651
           Non-vested                                                        67
--------------------------------------------------------------------------------
              Accumulated benefit obligation                             11,718

     Additional amounts related to projected pay increases                  229
--------------------------------------------------------------------------------

           Projected benefit obligation                                  11,947

     Actual amount of assets available for benefits at fair value         9,311
--------------------------------------------------------------------------------
              Assets (less than) Projected benefit obligation            (2,636)

     Unrecognized prior service cost                                         14
     Unrecognized net obligation at transition                               85
     Unrecognized net loss                                                2,722
--------------------------------------------------------------------------------
              Prepaid pension cost at September 30, 1996                    185

     Fourth quarter accruals                                                (77)
     Fourth quarter contributions                                           174
              Prepaid pension cost at December 31, 1996                 $   282
--------------------------------------------------------------------------------
              Additional minimum liability at December 31, 1996         $(2,591)
--------------------------------------------------------------------------------

</TABLE>
     Assumptions used in accounting for the pension plan as of December 31, 1996
were:

<TABLE>
<CAPTION>
     <S>                                                   <C>
     Discounted rate                                       7.5%
     Rate of increase in compensation levels               5.0
     Expected long-term rate of return on assets           9.0
---------------------------------------------------------------

</TABLE>

     The unrecognized prior service cost and the unrecognized net loss are being
     amortized  on a  straight-line  basis over the  average  future  service of
     employees  expected to receive  benefits under the plans.  The unrecognized
     net obligation at transition is being  amortized on a  straight-line  basis
     over 15 years.

                                       15
<PAGE>
(7)  COMMITMENTS AND CONTINGENCIES
     Leases  Reinhold  leases certain  facilities and equipment  under operating
     leases. Total rental expense on all operating leases approximated  $712,000
     and $811,000 for 1996 and 1995, respectively.

     Minimum future rental commitments under  noncancelable  operating leases in
     force at December 31, 1996 are payable as follows (in thousands):

<TABLE>
     <S>                                             <C>
     1997                                            $    429
     1998                                                 429
     1999                                                 429
     2000                                                 239
     2001                                                 104
     Thereafter                                            17
-------------------------------------------------------------
                                                     $  1,647
-------------------------------------------------------------

</TABLE>

     Legal  Proceedings  The  Company is  involved  in various  claims and legal
     actions  arising in the  ordinary  course of  business.  In the  opinion of
     management,  the  ultimate  disposition  of these  matters  will not have a
     material effect on the Company's financial position,  results of operations
     or liquidity.


(8)  BUSINESS AND CREDIT CONCENTRATIONS
     As the United  States  continues to reduce budget  allocations  for defense
     expenditures, sales to customers operating in the defense contract industry
     may be adversely  affected.  The Company has been  successful  in replacing
     sales lost to  customers  in the defense  contract  industry  to  companies
     operating in the aerospace and other commercial industries.  Changes in the
     marketplace of any of the above-named  industries may significantly  affect
     management's estimates and the Company's performance.

     The  Company's  principal  customers  are  prime  contractors  to the  U.S.
     Government  and aircraft seat  manufacturers.  Sales to each customer which
     exceed 10% of total net sales for the periods presented were as follows (in
     thousands):

<TABLE>
<CAPTION>
                                              Reorganized Company          Predecessor Company
-----------------------------------------------------------------------------------------------------------------------------
                                                      Period from                  Period from
                                          (August 1, 1996 through      January 1, 1996 through                     Year ended
                                                December 31, 1996)               July 31, 1996              December 31, 1995
-----------------------------------------------------------------------------------------------------------------------------
     <S>                                                  <C>                            <C>                            <C> 
     Alliant Technology                                   $ 1,300                            *                              *
     BE Aerospace                                           2,216                        3,308                          3,459
-----------------------------------------------------------------------------------------------------------------------------


</TABLE>
     *Sales  to these  customers  were  less than 10% of total net sales for the
      period.

     BE Aerospace  accounted for  approximately  36% of the  Company's  accounts
     receivable  balance before any  adjustments  for the allowance for doubtful
     accounts.  No other customer  exceeded 10% of the Company's  gross accounts
     receivable  balance.  The  Company  estimates  an  allowance  for  doubtful
     accounts based on the  creditworthiness of its customers as well as general
     economic conditions. Consequently, an adverse change in those factors could
     affect the Company's estimate of its bad debts.

                                       16
<PAGE>
<TABLE>
<CAPTION>

CORPORATE DIRECTORY


<S>                            <C>                            <C>                             <C>  
BOARD OF DIRECTORS             CORPORATE OFFICES              FORM 10-KSB                     STOCK LISTING 
Lawrence H. Diamond            12827 East Imperial Hwy        Stockholders may obtain a       Reinhold common stock
Chairman                       Santa Fe Springs, CA 90670     copy of Reinhold's 10-KSB by    is listed on the OTC Bulletin
Consultant                     562 944-3281                   writing to Investor Relations   Board
Ernst & Young LLP                                             Department                      Symbol - RNHDA
                               INVESTOR RELATIONS
MICHAEL T. FURRY               Contact Judy Sanson            TRANSFER AGENT
President and CEO              Reinhold Industries, Inc.      Continental Stock Transfer &
Reinhold Industries, Inc.                                     Trust Company
                               REGISTRAR                      2 Broadway
Robert B. Steinberg            Continental Stock Transfer &   New York, New York 10004
Senior Partner                 Trust Company                  212 509-4000
Rose, Klein & Marias           2 Broadway
                               New York, New York 10004       INDEPENDENT PUBLIC
CORPORATE OFFICERS                                            Accountants
Michael T. Furry               ANNUAL MEETING                 KPMG Peat Marwick LLP
President and CEO              The Annual Stockholders'       One World Trade Center
                               Meeting will be held at the    Suite 1700
David M. Blakesley             offices of Reinhold            Long Beach, CA 90831
Vice-President - Finance       Industries, Inc.
Administration, Treasurer and  12827 East Imperial Hwy        ATTORNEYS
Secretary                      Santa Fe Springs, CA           Petillon & Hansen
                               on May 1, 1997 at 10:00 a.m.   1260 Union Bank Tower
                                                              21515 Hawthorne Boulevard
                                                              Torrance, California 90503

                                                              Wapnic & Alvarado
                                                              11300 West Olympic Boulevard
                                                              Suite 700
                                                              Los Angeles, California
                                                              90664-1644
</TABLE>