SALEM CORP, 8-K, 1996-07-09

SALEM CORP
8-K, 1996-07-09
METALWORKG MACHINERY & EQUIPMENT

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<PAGE> 1

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported) June 28, 1996

SALEM CORPORATION
(Exact name of registrant as specified in its charter)

Commonwealth of Pennsylvania 1-3931 25-0923435
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)

P.O. Box 2222, Pittsburgh, Pennsylvania 15230
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code (412) 923-2200

N/A
.................................................................................
(Former name or former address, if changed since last report.)
<PAGE> 2
ITEM 5. OTHER EVENTS.

On June 28, 1996, Salem Corporation (the "Company") announced that the
Company, Salem Group, Inc., a Delaware corporation (the "Parent"), and SC
Acquisition Corporation, a Pennsylvania corporation and wholly-owned subsidiary
of the Parent (the "Subsidiary"), entered into a definitive Agreement and Plan
of Merger (the "Merger Agreement") providing for the merger of the Subsidiary
with and into the Company with the Company as the surviving corporation.
Following the approval and adoption of the Merger Agreement by the affirmative
vote of a majority of the votes cast by all holders of the Company's
outstanding shares of common stock, par value $.50 per share (the "Shares"),
and satisfaction or waiver of all other conditions precedent, the Subsidiary
will merge with the Company and each Share, other than Shares held by the
Parent or the Subsidiary, will be converted automatically into the right to
receive $25.00 in cash per Share.

For additional information concerning the foregoing, reference is made to the
Company's press release issued June 28, 1996 and the Merger Agreement, copies
of which are attached as exhibits to this Current Report.

ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
2.1 Agreement and Plan of Merger, dated as of June 28,
1996, among Salem Corporation, Salem Group, Inc.
and SC Acquisition Corporation

20.1 Press Release issued June 28, 1996
</TABLE>

Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

SALEM CORPORATION
(Registrant)

By /s/ A.A. FORNATARO
-------------------------------------
A.A. Fornataro
President and Chief Operating Officer
<PAGE> 3
INDEX TO EXHIBITS

20.1 Press Release issued June 28, 1996
</TABLE>

<PAGE> 1

EXHIBIT 2.1

AGREEMENT AND PLAN OF MERGER

DATED AS OF
JUNE 28, 1996

BY AND AMONG

SALEM GROUP, INC.,

SC ACQUISITION CORPORATION

AND

SALEM CORPORATION
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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<S> <C>
ARTICLE I THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Effective Time of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

ARTICLE II THE SURVIVING AND PARENT CORPORATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.1 Articles of Incorporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.2 By-Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.3 Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.4 Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

ARTICLE III CONVERSION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 3.1 Conversion of Company Shares in the Merger . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 3.2 Conversion of Subsidiary Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 3.3 Exchange of Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 3.4 Dissenting Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 3.5 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 3.6 Closing of the Company's Transfer Books . . . . . . . . . . . . . . . . . . . . . . . . . 5

ARTICLE IV REPRESENTATIONS AND WARRANTIES
OF PARENT AND SUBSIDIARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 4.1 Organization and Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 4.2 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 4.3 Authority; Non-Contravention; Approvals . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 4.4 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 4.5 Proxy Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 4.6 Financial Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 4.7 Voting Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE
COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 5.1 Organization and Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 5.2 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 5.3 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 5.4 Authority; Non-Contravention; Approvals . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 5.5 Reports and Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 5.6 Absence of Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 5.7 Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 5.8 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 5.9 Proxy Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>

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<TABLE>
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<S> <C>
Section 5.10 No Violation of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 5.11 Compliance with Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 5.12 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 5.13 Employee Benefit Plans; ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 5.14 Labor Controversies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 5.15 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 5.16 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 5.17 Title to Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 5.18 Fairness Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 5.19 Affiliate Transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

ARTICLE VI CONDUCT OF BUSINESS PENDING THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 6.1 Conduct of Business by the Company Pending
the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 6.2 Control of the Company's Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 6.3 Acquisition Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

ARTICLE VII ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 7.1 Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 7.2 Proxy Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 7.3 Shareholders' Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 7.4 Provision for Expenses and Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 7.5 Agreement to Cooperate; Additional Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 7.6 Public Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 7.7 Notification of Certain Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 7.8 Directors' and Officers' Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 7.9 Indemnification of Brokerage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 7.10 Indemnification by the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 7.11 Corrections to the Proxy Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

ARTICLE VIII CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 8.1 Conditions to Each Party's Obligation to Effect the
Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 8.2 Conditions to Obligation of the Company to Effect the
Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 8.3 Conditions to Obligations of Parent and Subsidiary
to Effect the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

ARTICLE IX TERMINATION, AMENDMENT AND WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 9.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 9.2 Fees and Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 9.3 Procedure for and Effect of Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
</TABLE>

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<TABLE>
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Section 9.4 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 9.5 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

ARTICLE X GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 10.1 Non-Survival of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 10.2 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 10.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 10.4 Interpretation; Material Adverse Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 10.5 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 10.6 Governing Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 10.7 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 10.8 Parties In Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
</TABLE>

SCHEDULES

<TABLE>
<S> <C>
Schedule 5.2 Voting Trusts, Proxies and Other Agreements Concerning Capital Stock
Schedule 5.3(b) Liens, Claims and Other Exceptions Regarding Subsidiaries' Stock
Schedule 5.4 Violation of Agreements
Schedule 5.5 SEC Reports
Schedule 5.6 Undisclosed Liabilities
Schedule 5.7 Material Adverse Changes
Schedule 5.8(a) Litigation
Schedule 5.8(b) Judgments, Injunctions and Court Orders
Schedule 5.10 Violations of Law
Schedule 5.11 Violations of Agreements
Schedule 5.12 Tax Matters
Schedule 5.13 Employee Benefit Plans
Schedule 5.14 Labor Matters
Schedule 5.15 Environmental
Schedule 5.16(a) Intellectual Property
Schedule 5.16(b) Intellectual Property - Liens and Other Interests
Schedule 5.17 Liens and Encumbrances
Schedule 5.19 Affiliate Transactions
</TABLE>

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<PAGE> 5

AGREEMENT AND PLAN OF MERGER

AGREEMENT AND PLAN OF MERGER, dated as of June 28, 1996, (the "Agreement"),
by and among SALEM GROUP, INC., a Delaware corporation ("Parent"), SC
ACQUISITION CORPORATION, a Pennsylvania corporation and a wholly-owned
subsidiary of Parent ("Subsidiary"), and SALEM CORPORATION, a Pennsylvania
corporation (the "Company"). The Company and Subsidiary are sometimes
collectively referred to herein as the "Constituent Corporations."

WHEREAS, the Boards of Directors of Parent, Subsidiary and the Company have
each determined that it is in the best interests of their respective
shareholders for Parent, through Subsidiary, to acquire the Company by
effectuating the merger of Subsidiary with and into the Company (the "Merger"),
as a result of which the Company will become a wholly-owned subsidiary of
Parent; and

NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein, the parties hereto,
intending to be legally bound, agree as follows:

ARTICLE I

THE MERGER

SECTION 1.1 THE MERGER. Upon the terms and subject to the conditions of
this Agreement, at the Effective Time (as defined in Section 1.2) in accordance
with the Pennsylvania Business Corporation Law of 1988, as amended (the "BCL"),
Subsidiary shall be merged with and into the Company and the separate existence
of Subsidiary shall thereupon cease. The Company shall be the surviving
corporation in the Merger and is hereinafter sometimes referred to as the
"Surviving Corporation."

SECTION 1.2 EFFECTIVE TIME OF THE MERGER. The Merger shall become effective
at such time (the "Effective Time") as shall be stated in the Articles of
Merger, in the form attached hereto and made a part hereof as Exhibit A, to be
filed with the Secretary of State of the Commonwealth of Pennsylvania in
accordance with the BCL (the "Merger Filing"). The Merger Filing shall be made
simultaneously with or as soon as practicable after the closing of the
transactions contemplated by this Agreement in accordance with Section 3.5.
The parties acknowledge that it is their mutual desire and intent to consummate
the Merger as soon as practicable after the date hereof. Accordingly, the
parties shall use all reasonable efforts to consummate, as soon as practicable,
the transactions contemplated by this Agreement in accordance with Section 3.5.
<PAGE> 6
ARTICLE II

THE SURVIVING AND PARENT CORPORATIONS

SECTION 2.1 ARTICLES OF INCORPORATION. The Articles of Incorporation of the
Surviving Corporation shall be amended and restated at and as of the Effective
Time to be identical to the Articles of Incorporation of Subsidiary as in
effect immediately prior to the Effective Time (except that the name of the
Surviving corporation will remain unchanged), and thereafter may be amended in
accordance with its terms and as provided in the BCL.

SECTION 2.2 BY-LAWS. The by-laws of the Surviving Corporation shall be as
amended at and as of the Effective Time to be identical to the by-laws of
Subsidiary as in effect immediately prior to the Effective Time, and thereafter
may be amended in accordance with their terms and as provided by the Articles
of Incorporation of the Surviving Corporation and the BCL.

SECTION 2.3 DIRECTORS. The directors of Subsidiary immediately prior to the
Effective Time shall be the initial directors of the Surviving Corporation,
each to hold office in accordance with the Articles of Incorporation and
by-laws of the Surviving Corporation.

SECTION 2.4 OFFICERS. Except as otherwise agreed, the officers of
Subsidiary in office immediately prior to the Effective Time shall be the
officers of the Surviving Corporation, to serve in accordance with the by-laws
of the Surviving Corporation until their respective successors are duly elected
or appointed and qualified.

ARTICLE III

CONVERSION OF SHARES

SECTION 3.1 CONVERSION OF COMPANY SHARES IN THE MERGER. At the Effective
Time, by virtue of the Merger and without any action on the part of any holder
of any capital stock of the Company:

(a) each share of common stock, par value $0.50 per share, of the Company
(the "Company Common Stock"; shares of Company Common Stock being hereinafter
collectively referred to as the "Shares") issued and outstanding immediately
prior to the Effective Time, subject to Sections 3.3 and 3.4, shall be
automatically cancelled and extinguished and converted automatically into the
right to receive, an amount equal to $25.00 per share (the "Per Share Amount")
in cash (the "Merger Consideration") payable, without interest, to the holder
of such Share, upon surrender, in the manner provided in Section 3.3, of the
certificate that formerly evidenced such Share; and
<PAGE> 7
(b) each share of capital stock of the Company, if any, owned by Parent or
any subsidiary of Parent or held in treasury by the Company or any subsidiary
of the Company immediately prior to the Effective Time shall be cancelled and
shall cease to exist from and after the Effective Time.

SECTION 3.2 CONVERSION OF SUBSIDIARY SHARES. At the Effective Time, by
virtue of the Merger and without any action on the part of Parent as the sole
shareholder of Subsidiary, each issued and outstanding share of common stock,
par value $0.01 per share, of Subsidiary ("Subsidiary Common Stock") shall be
converted into one share of common stock, par value $0.01 per share, of the
Surviving Corporation.

SECTION 3.3 EXCHANGE OF CERTIFICATES.

(a) From and after the Effective Time, each holder of a certificate or
certificates which immediately prior to the Effective Time represented
outstanding Shares (the "Company Certificates") shall be entitled to receive in
exchange therefor, upon surrender thereof to an exchange agent reasonably
satisfactory to Parent and the Company (the "Exchange Agent"), the Merger
Consideration to which such holder is entitled pursuant to Section 3.1(a).
Notwithstanding any other provision of this Agreement, without regard to when
such Company Certificates are surrendered for exchange as provided herein, no
interest shall be paid on any payment of the Merger Consideration.

(b) If any Merger Consideration is to be issued in a name other than that in
which the Company Certificate surrendered in exchange therefor is registered,
it shall be a condition of such exchange that the person requesting such
exchange shall pay any transfer or other taxes required by reason of the
issuance of such Merger Consideration in a name other than that of the
registered holder of the Company Certificate surrendered, or shall establish to
the satisfaction of Parent that such tax has been paid or is not applicable.

(c) Promptly at the Effective Time, Parent shall make available to the
Exchange Agent the cash for payment of all the Merger Consideration in
immediately available United States funds.

(d) Promptly after the Effective Time, the Exchange Agent shall mail to each
holder of record of a Company Certificate (i) a form letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and
title to the Company Certificates shall pass, only upon actual delivery of the
Company Certificates to the Exchange Agent) and (ii) instructions for use in
effecting the surrender of the Company Certificates in exchange for the
applicable Merger Consideration. Upon surrender of Company Certificates for
cancellation to the Exchange Agent, together with a duly executed letter of
transmittal and such other documents as the Exchange Agent shall reasonably
require, the holder of such Company Certificates shall be entitled to receive
in exchange therefor the applicable Merger Consideration into which the Shares
theretofore represented by the Company Certificates so surrendered shall have
been converted pursuant to the provisions of Section 3.1(a), and the Company
Certificates so surrendered shall

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<PAGE> 8
forthwith be cancelled. Notwithstanding the foregoing, neither the Exchange
Agent nor any party hereto shall be liable to a holder of Shares for Merger
Consideration delivered to a public official pursuant to applicable abandoned
property, escheat or similar laws.

(e) Promptly following the date which is nine months after the Effective
Date, the Exchange Agent shall deliver to Parent all cash, certificates and
other documents in its possession relating to the transactions described in
this Agreement, and the Exchange Agent's duties shall terminate. Thereafter,
each holder of a Company Certificate may surrender such Company Certificate to
the Surviving Corporation and (subject to applicable abandoned property,
escheat and similar laws) receive in exchange therefor the Merger
Consideration, without any interest thereon. Notwithstanding the foregoing,
none of the Exchange Agent, Parent, Subsidiary, the Company or the Surviving
Corporation shall be liable to a holder of Company Common Stock for any Merger
Consideration delivered to a public official pursuant to applicable abandoned
property, escheat and similar laws.

(f) In the event any Company Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Company Certificate to be lost, stolen or destroyed, the Surviving
Corporation shall issue in exchange for such lost, stolen or destroyed Company
Certificate the Merger Consideration deliverable in respect thereof determined
in accordance with this Article III. When authorizing such payment in exchange
therefor, the Board of Directors of the Surviving Corporation may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed Company Certificate to give the
Surviving Corporation such indemnity as it may reasonably direct as protection
against any claim that may be made against the Surviving Corporation with
respect to the Company Certificate alleged to have been lost, stolen or
destroyed.

SECTION 3.4 DISSENTING SHARES.

(a) Notwithstanding any provision of this Agreement to the contrary, any
Shares held by a holder who has demanded and perfected his right for payment of
the fair value of such Shares in accordance with the BCL and who, as of the
Effective Time, has not effectively withdrawn or lost such right to payment
("Dissenting Shares"), shall not be converted into or represent a right to
receive the Merger Consideration pursuant to Section 3.1, but the holder
thereof shall only be entitled to such rights as are granted by the BCL.

(b) Notwithstanding the provisions of subsection (a), if any holder of
Shares who demands payment of the fair value of such Shares under the BCL shall
effectively withdraw or lose (through failure to perfect or otherwise) his
right to payment, then, as of the later of Effective Time or the occurrence of
such event, such holder's Shares shall automatically be converted into and
represent only the right to receive the Merger Consideration as provided in
Section 3.1, without interest thereon, upon surrender of the certificate or
certificates representing such Shares.

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<PAGE> 9
(c) The Company shall give Parent (i) prompt notice of any written notice of
dissent, written demands for payment of the fair value of any Shares,
withdrawals of such demands, and any other instruments served pursuant to the
BCL and received by the Company and (ii) the opportunity to participate in all
negotiations and proceedings with respect to demands for payment of the fair
value under the BCL. The Company shall not, except with the prior written
consent of Parent, voluntarily make any payment with respect to any demands for
payment of the fair value of any Shares or offer to settle any such demands.

SECTION 3.5 CLOSING. The closing (the "Closing") of the transactions
contemplated by this Agreement shall take place at a location mutually
agreeable to Parent and the Company on the first business day immediately
following the date on which the last of the conditions set forth in Article
VIII is fulfilled or waived, or at such other time and place as Parent and the
Company shall agree (the date on which the Closing occurs is referred to in
this Agreement as the "Closing Date").

SECTION 3.6 CLOSING OF THE COMPANY'S TRANSFER BOOKS. At and after the
Effective Time, holders of Shares shall cease to have any rights as
shareholders of the Company, except for the right to receive the applicable
Merger Consideration pursuant to Section 3.3. At the Effective Time, the stock
transfer books of the Company shall be closed and no transfer of Shares which
were outstanding immediately prior to the Effective Time shall thereafter be
made.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES
OF PARENT AND SUBSIDIARY

Parent and Subsidiary each represent and warrant to the Company as follows:

SECTION 4.1 ORGANIZATION AND QUALIFICATION. Each of Parent and Subsidiary
is a corporation duly organized, validly existing and in good standing under
the laws of the state of its incorporation and has the requisite power and
authority to own, lease and operate its assets and properties and to carry on
its business as it is now being conducted. Each of Parent and Subsidiary is
qualified to do business and is in good standing in each jurisdiction in which
the properties owned, leased or operated by it or the nature of the business
conducted by it makes such qualification necessary, except where the failure to
be so qualified and in good standing will not, when taken together with all
other such failures, have a Material Adverse Effect (as defined in Section
10.4(b) hereof) with respect to Parent or Subsidiary. True, accurate and
complete copies of each of Parent's and Subsidiary's certificate or articles of
incorporation and by-laws, in each case as in effect on the date hereof,
including all amendments thereto, have heretofore been delivered to the
Company.

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SECTION 4.2 CAPITALIZATION.

(a) The authorized capital stock of Parent consists of (i) 2,000,000 shares
of common stock, par value $0.01 per share, of which 10 shares were outstanding
as of the date hereof and owned beneficially and of record by Three Cities Fund
II, L.P., a Delaware limited partnership, and (ii) 90,000 shares of preferred
stock, par value $100.00 per share, none of which were issued and outstanding
as of the date hereof.

(b) The authorized capital stock of Subsidiary consists of 1,000 shares of
common stock, par value $0.01 per share, all of which shares are issued and
outstanding as of the date hereof, which shares are owned beneficially and of
record by Parent.

SECTION 4.3 AUTHORITY; NON-CONTRAVENTION; APPROVALS.

(a) Parent and Subsidiary each have full corporate power and authority to
enter into this Agreement and, subject to the Parent Required Statutory
Approvals (as defined in Section 4.3(c)), to consummate the transactions
contemplated hereby. This Agreement has been approved by the Boards of
Directors of Parent and Subsidiary, and no other corporate proceedings on the
part of Parent or Subsidiary are necessary to authorize the execution and
delivery of this Agreement or the consummation by Parent and Subsidiary of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by each of Parent and Subsidiary, and, assuming the due
authorization, execution and delivery hereof by the Company, constitutes a
valid and legally binding agreement of each of Parent and Subsidiary
enforceable against each of them in accordance with its terms, except that such
enforcement may be subject to (i) bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting or relating to enforcement of
creditors' rights generally and (ii) general equitable principles.

(b) The execution and delivery of this Agreement by each of Parent and
subsidiary do not violate, conflict with or result in a breach of any provision
of, or constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination or
acceleration under, or result in the creation of any lien, security interest,
charge or encumbrance upon any of the properties or assets of Parent or any of
its subsidiaries under any of the terms, conditions or provisions of (i) the
respective charters or by-laws of Parent or any of its subsidiaries, (ii) any
statute, law, ordinance, rule, regulation, judgment, decree, order, injunction,
writ, permit or license of any court or governmental authority applicable to
Parent or any of its subsidiaries or any of their respective properties or
assets or (iii) any note, bond, mortgage, indenture, deed of trust, license,
franchise, permit, concession, contract, lease or other instrument, obligation
or agreement of any kind to which Parent or any of its subsidiaries is now a
party or by which Parent or any of its subsidiaries or any of their respective
properties or assets may be bound or affected. The consummation by Parent and
Subsidiary of the transactions contemplated hereby will not result in any
violation, conflict, breach, termination, acceleration or creation of liens
under any of the terms, conditions or provisions described in

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clauses (i) through (iii) of the preceding sentence, subject, in the case of
the terms, conditions or provisions described in clause (ii) above, to
obtaining (prior to the Effective Time) the Parent Required Statutory
Approvals.

(c) Except for (i) the filings by Parent and the Company required by the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), and (ii) the making of the Merger Filing with the Secretary of State of
the Commonwealth of Pennsylvania in connection with the Merger (the filings and
approvals referred to in clauses (i) and (ii) are collectively referred to as
the "Parent Required Statutory Approvals"), no declaration, filing or
registration with, or notice to, or authorization, consent or approval of, any
governmental or regulatory body or authority is necessary for the execution and
delivery of this Agreement by Parent or Subsidiary or the consummation by
Parent or Subsidiary of the transactions contemplated hereby.

SECTION 4.4 LITIGATION. On the date hereof, there are no claims, suits,
actions or proceedings pending or, to the knowledge of Parent, threatened
against, relating to or affecting Parent or any of its subsidiaries, before any
court, governmental department, commission, agency, instrumentality or
authority, or any arbitrator. On the date hereof, neither Parent nor any of
its subsidiaries is subject to any judgment, decree, injunction, rule or order
of any court, governmental department, commission, agency, instrumentality or
authority or any arbitrator.

SECTION 4.5 PROXY STATEMENT. None of the information to be supplied by or
on behalf of Parent or its subsidiaries for inclusion in the proxy statement to
be distributed in connection with the Company's meeting of its shareholders
(the "Shareholders Meeting") to vote upon this Agreement and the transactions
contemplated hereby (the "Proxy Statement") will, in the case of the Proxy
Statement or any amendments thereof or supplements thereto, at the time of the
mailing of the Proxy Statement and any amendments or supplements thereto, and
at the time of the Shareholders Meeting contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading.

SECTION 4.6 FINANCIAL RESOURCES. Parent has and will have sufficient
financial resources to enable it to pay the Merger Consideration at the
Effective Time.

SECTION 4.7 VOTING REQUIREMENTS. No action by the shareholders of Parent or
by any affiliate of Parent is required to approve this Agreement and the
transactions contemplated hereby.

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ARTICLE V

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The Company represents and warrants to Parent and Subsidiary as follows:

SECTION 5.1 ORGANIZATION AND QUALIFICATION. The Company is a corporation
duly organized, validly existing and presently subsisting under the laws of the
Commonwealth of Pennsylvania and has the requisite corporate power and
authority to own, lease and operate its assets and properties and to carry on
its business as it is now being conducted. The Company is qualified to do
business and is in good standing in each jurisdiction in which the properties
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification necessary, except where the failure to be so qualified
and in good standing will not, when taken together with all other such
failures, have a Material Adverse Effect with respect to the Company. True,
accurate and complete copies of the Company's articles of incorporation and by-
laws, in each case as in effect on the date hereof, including all amendments
thereto, have heretofore been delivered to Parent.

SECTION 5.2 CAPITALIZATION.

(a) The authorized capital stock of the Company consists of 112,485 shares
of preferred stock, par value $25.00 per share (the "Preferred Stock") and
15,000,000 Shares. As of the date hereof, no shares of Preferred Stock are
issued and outstanding. As of the date hereof, 1,864,871 Shares are issued and
outstanding and 825,442 shares are held in treasury. All of such issued and
outstanding Shares are validly issued and are fully paid, nonassessable and
free of preemptive rights. No subsidiary of the Company holds any Shares.

(b) As of the date hereof there are no outstanding subscriptions, options,
calls, contracts, commitments, understandings, restrictions, arrangements,
rights or warrants, including any right of conversion or exchange under any
outstanding security, instrument or other agreement and also including any
rights plan or other anti-takeover agreement, obligating the Company or any
subsidiary of the Company to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of the capital stock of the Company or
obligating the Company or any subsidiary of the Company to grant, extend or
enter into any such agreement or commitment. Except as set forth on Schedule
5.2 attached hereto, there are no voting trusts, proxies or other agreements or
understandings to which the Company or any subsidiary of the Company is a party
or is bound with respect to the voting of any shares of capital stock of the
Company.

SECTION 5.3 SUBSIDIARIES.

(a) Each direct and indirect corporate subsidiary of the Company is duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has the requisite power and authority to own,
lease and operate its assets and properties and to carry on its business as it
is now being conducted. Each subsidiary of the Company is qualified to do

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business, and is in good standing, in each jurisdiction in which the properties
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification necessary, except where the failure to be so qualified
and in good standing will not, when taken together with all such other
failures, have a Material Adverse Effect with respect to the Company.

(b) All of the outstanding shares of capital stock of each corporate
subsidiary of the Company are validly issued, fully paid, nonassessable and
free of preemptive rights and are owned directly or indirectly by the Company
free and clear of any liens, claims, encumbrances, security interests,
equities, charges and options of any nature whatsoever except as set forth in
Schedule 5.3(b) attached hereto. There are no subscriptions, options,
warrants, rights, calls, contracts, voting trusts, proxies or other
commitments, understandings, restrictions, or arrangements relating to the
issuance, sale, voting, transfer, ownership or other rights with respect to any
shares of capital stock of any corporate subsidiary of the Company, including
any right of conversion or exchange under any outstanding security, instrument
or agreement.

SECTION 5.4 AUTHORITY; NON-CONTRAVENTION; APPROVALS.

(a) The Company has full corporate power and authority to enter into this
Agreement and, subject to the Company Shareholders' Approval (as defined in
Section 7.3), to consummate the transactions contemplated hereby. This
Agreement has been approved by the Board of Directors of the Company, and no
other corporate proceedings on the part of the Company are necessary to
authorize the execution and delivery of this Agreement or, except for the
Company Shareholders' Approval, the consummation by the Company of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Company, and, assuming the due authorization, execution and
delivery hereof by Parent and Subsidiary, constitutes a valid and legally
binding agreement of the Company, enforceable against the Company in accordance
with its terms, except that such enforcement may be subject to (a) bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting or
relating to enforcement of creditors' rights generally and (b) general
equitable principles.

(b) Except as set forth in Schedule 5.4 attached hereto, the execution and
delivery of this Agreement by the Company do not violate, conflict with or
result in a breach of any provision of, or constitute a default (or an event
which, with notice or lapse of time or both, would constitute a default) under,
or result in the termination of, or accelerate the performance required by, or
result in a right of termination or acceleration under, or result in the
creation of any lien, security interest, charge or encumbrance upon any of the
properties or assets of the Company or any of its subsidiaries under any of the
terms, conditions, or provisions of (i) the respective charters or by-laws of
the Company or any of its subsidiaries, (ii) any statute, law, ordinance, rule,
regulation, judgment, decree, order, injunction, writ, permit or license of any
court or governmental authority applicable to the Company or any of its
subsidiaries or any of their respective properties or assets, or (iii) any
note, bond, mortgage, indenture, deed of trust, license, franchise, permit,
concession, contract, lease or other instrument, obligation or agreement of any
kind to which the Company or any of its subsidiaries is now a party or by which
the Company or any of its subsidiaries or any of their respective properties or
assets may

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be bound or affected. The consummation by the Company of the transactions
contemplated hereby will not result in any violation, conflict, breach,
termination, acceleration or creation of liens under any of the terms,
conditions, or provisions described in clauses (i) through (iii) of the
preceding sentence, subject (x) in the case of the terms, conditions or
provisions described in clause (ii) above, to obtaining (prior to the Effective
Time) the Company Required Statutory Approvals and the Company Shareholder's
Approval and (y) in the case of the terms, conditions or provisions described
in clause (iii) above, to obtaining (prior to the Effective Time) the consents
required from commercial lenders, lessors or other third parties set forth on
Schedule 5.4 hereto. Excluded from the foregoing sentences of this paragraph
(b), insofar as they apply to the terms, conditions or provisions described in
clauses (ii) and (iii) of the first sentence of this paragraph (b), are such
violations, conflicts, breaches, defaults, terminations, accelerations or
creations of liens, security interests, charges or encumbrances that would not,
in the aggregate, have a Material Adverse Effect with respect to the Company.

(c) Except for (i) the filings by Parent and the Company required by the HSR
Act, (ii) the filing of the Proxy Statement with the SEC pursuant to the
Exchange Act (iii) the making of the Merger Filing with the Secretary of State
of the Commonwealth of Pennsylvania in connection with the Merger and (iv) the
filings with or approvals from applicable state environmental authorities,
public service commissions and public utility commissions set forth on Schedule
5.4 hereto (the filings and approvals referred to in clauses (i) through (iv)
are collectively referred to as the "Company Required Statutory Approvals"), no
declaration, filing or registration with, or notice to, or authorization,
consent or approval of, any governmental or regulatory body or authority is
necessary for the execution and delivery of this Agreement by the Company or
the consummation by the Company of the transactions contemplated hereby, other
than such declarations, filings, registrations, notices, authorizations,
consents or approvals which, if not made or obtained, as the case may be, would
not, in the aggregate, have a Material Adverse Effect with respect to the
Company.

SECTION 5.5 REPORTS AND FINANCIAL STATEMENTS. Except as set forth on
Schedule 5.5 attached hereto, since December 31, 1992, the Company has filed
with the SEC all forms, statements, reports and documents (including all
exhibits, amendments and supplements thereto) required to be filed by it under
each of the Securities Act, the Exchange Act and the respective rules and
regulations thereunder, all of which, as amended if applicable, complied in all
material respects with all applicable requirements of the appropriate act and
the rules and regulations thereunder. The Company has previously made
available to Parent copies of its (a) Annual Reports on Form 10-K for the
fiscal year ended December 31, 1995 and for each of the two immediately
preceding fiscal years, as filed with the SEC, (b) proxy and information
statements relating to (i) all meetings of its shareholders (whether annual or
special) and (ii) actions by written consent in lieu of a shareholders' meeting
from December 31, 1992 until the date hereof, and (c) all other reports,
including quarterly reports, or registration statements filed by the Company
with the SEC since December 31, 1992 and (the documents referred to in clauses
(a), (b) and (c) are collectively referred to as the "Company SEC Reports").
At the time of filing, the Company SEC Reports did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein,

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in light of the circumstances under which they were made, not misleading. The
audited consolidated financial statements of the Company included in the
Company SEC Reports (collectively, the "Company Financial Statements") have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis (except as may be indicated therein or in the
notes thereto) and fairly present the financial position of the Company and its
subsidiaries as of the dates thereof and the results of their operations and
changes in financial position for the periods then ended, subject, in the case
of the unaudited interim financial statements, to normal year-end audit
adjustments and any other adjustments described therein.

SECTION 5.6 ABSENCE OF UNDISCLOSED LIABILITIES. Except as disclosed in the
Company SEC Reports or in Schedule 5.6 attached hereto, neither the Company nor
any of its subsidiaries had at December 31, 1995, or has incurred since that
date, any liabilities or obligations (whether absolute, accrued, contingent or
otherwise) of any nature, except (a) liabilities, obligations or contingencies
(i) which are fully accrued or reserved against in the Company Financial
Statements or reflected in the notes thereto or (ii) which were incurred after
December 31, 1995, and were incurred in the ordinary course of business and
consistent with past practices, (b) liabilities, obligations or contingencies
which (i) would not, in the aggregate, have a Material Adverse Effect with
respect to the Company, or (ii) have been discharged or paid in full prior to
the date hereof, and (c) liabilities and obligations which are of a nature not
required to be reflected in the consolidated financial statements of the
Company and its subsidiaries prepared in accordance with generally accepted
accounting principles consistently applied and which were incurred in the
normal course of business.

SECTION 5.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in
the Company SEC Reports or in Schedule 5.7 attached hereto, since December 31,
1995 there has not been any condition, event or occurrence that, individually
or in the aggregate, has resulted, or could reasonably be expected to result,
in a Material Adverse Effect with respect to the Company.

SECTION 5.8 LITIGATION.

(a) Except as referred to in the Company SEC Reports or in Schedule 5.8(a)
attached hereto, there are no claims, suits, actions or proceedings pending or,
to the knowledge of the Company, threatened against, relating to or affecting
the Company or any of its subsidiaries, before any court, governmental
department, commission, agency, instrumentality or authority, or any arbitrator
that seek to restrain the consummation of the Merger or which, if determined
adversely, could reasonably be expected, either alone or in the aggregate with
all such claims, actions or proceedings, to have a Material Adverse Effect with
respect to the Company.

(b) Except as referred to in the Company SEC Reports or in Schedule 5.8(b)
attached hereto, neither the Company nor any of its subsidiaries is subject to
any judgment, decree, injunction, rule or order of any court, governmental
department, commission, agency, instrumentality or authority, or any
arbitrator.

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SECTION 5.9 PROXY STATEMENT. The Proxy Statement (as amended or
supplemented) will not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
are made, not misleading. The Proxy Statement will comply, as of its mailing
date, in all material respects with the Exchange Act and the rules and
regulations promulgated thereunder. Notwithstanding the foregoing, no
representation is made by the Company with respect to information supplied by
or on behalf of Parent or Subsidiary for inclusion therein.

SECTION 5.10 NO VIOLATION OF LAW. Except as disclosed in the Company SEC
Reports or in Schedule 5.10 attached hereto, neither the Company nor any of its
subsidiaries is in violation of or has been given notice or been charged with
any violation of, any law, statute, order, rule, regulation, ordinance or
judgment (including, without limitation, any applicable environmental law,
ordinance or regulation) of any governmental or regulatory body or authority.
Except as disclosed in the Company SEC Reports, as of the date of this
Agreement, to the knowledge of the Company, no investigation or review by any
governmental or regulatory body or authority is pending or threatened, nor has
any governmental or regulatory body or authority indicated an intention to
conduct the same. The Company and its subsidiaries have all permits, licenses,
franchises, variances, exemptions, orders and other governmental
authorizations, consents and approvals necessary to conduct their businesses as
presently conducted (collectively, the "Company Permits"), except for permits,
licenses, franchises, variances, exemptions, orders, authorizations, consents
and approvals the absence of which, alone or in the aggregate, would not have a
Material Adverse Effect with respect to the Company. The Company and its
subsidiaries are not in violation of the terms of any Company Permit, except
for delays in filing reports or violations which, alone or in the aggregate,
would not have a Material Adverse Effect with respect to the Company.

SECTION 5.11 COMPLIANCE WITH AGREEMENTS. Except as disclosed in the Company
SEC Reports or Schedule 5.11 attached hereto, the Company and each of its
subsidiaries are not in breach or violation of or in default in the performance
or observance of any term or provision of, and no event has occurred which,
with lapse of time or action by a third party, could result in a default under,
(a) the respective charters, by-laws or similar organizational instruments of
the Company or any of its subsidiaries or (b) any contract, commitment,
agreement, indenture, mortgage, loan agreement, note, lease, bond, license,
approval or other instrument to which the Company or any of its subsidiaries is
a party or by which any of them is bound or to which any of their property is
subject, which breaches, violations and defaults, in the case of clause (b) of
this Section 5.11, would have, in the aggregate, a Material Adverse Effect with
respect to the Company.

SECTION 5.12 TAXES. Except as disclosed in Schedule 5.12 attached hereto,
the Company and its subsidiaries (i) have duly and timely filed with the
appropriate governmental authorities all tax returns required to be filed by
them for all periods ending on or prior to the date hereof and as of any other
date when this representation is repeated or deemed to be made such tax returns
are true, correct and complete in all material respects and (ii) have duly and
timely paid

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in full or made adequate provision for, or will duly and timely pay or make
adequate provision for, the payment of all such taxes for all such periods
ending at or prior to the date hereof and as of any other date when this
representation is repeated or deemed to be made. The liabilities and reserves
for taxes reflected in the Company's balance sheet included in the latest
Company SEC Report are adequate to cover all reasonably anticipated taxes for
all periods ending at or prior to the date hereof and as of any other date when
this representation repeated or is deemed to be made and there are no liens for
taxes upon any property or assets of the Company or any subsidiary thereof,
except for liens for taxes not yet due. The Company and each of its
subsidiaries has made all required current estimated tax payments in amounts
deemed sufficient to avoid any underpayment penalties. The income tax returns
of the Company and its subsidiaries have been audited by the Internal Revenue
Service or other taxing authority, or the statute of limitations has expired
for all taxable years through the dates set forth on Schedule 5.12. Except as
set forth on Schedule 5.12 attached hereto, there are no unresolved issues of
law or fact arising out of a notice of deficiency, proposed deficiency or
assessment from the Internal Revenue Service or any other governmental taxing
authority with respect to taxes of the Company or any of its subsidiaries.
Except as set forth in Schedule 5.12 attached hereto, there are no outstanding
agreements, waivers or arrangements extending the statutory period of
limitation applicable to any claim for, or the period for the collection or
assessment of, taxes due from or with respect to the Company or any subsidiary
for any taxable period. No closing agreement pursuant to section 7121 of the
Internal Revenue Code of 1986, as amended, and the regulations promulgated
thereunder (the "Code") (or any predecessor provision), or any similar
provision of any state, local or foreign law, has been entered into by or with
respect to the Company or any subsidiary. Except as set forth in Schedule 5.12
attached hereto, no audit or other proceeding is pending or threatened with
respect to any taxes due from or with respect to the Company or any subsidiary
or any tax return filed by or with respect to the Company or any subsidiary.
Neither the Company nor any of its subsidiaries is a party to any agreement
providing for the allocation or sharing of taxes with any entity that is not,
directly or indirectly, a wholly-owned corporate subsidiary of the Company.
Neither the Company nor any of its corporate subsidiaries has, with regard to
any assets or property held, acquired or to be acquired by any of them, filed a
consent to the application of section 341(f) of the Code. None of the assets
or properties of the Company or any subsidiary is an asset or property that is
or will be required to be treated as being (i) owned by any person other than
the Company or such subsidiary pursuant to the provisions of section 168(f)(8)
of the Internal Revenue Code of 1954, as amended and in effect immediately
before the enactment of the Tax Reform Act of 1986 or (ii) tax-exempt use
property within the meaning of section 168(h)(1) of the Code. The Company and
its subsidiaries have not agreed to and are not required to make any adjustment
pursuant to section 481(a) of the Code (or any predecessor provision) by reason
of any change in any accounting method, and there is no application by the
Company or any subsidiary pending with any taxing authority requesting
permission for any changes in any accounting method of the Company or any
subsidiary. The Internal Revenue Service has not proposed any adjustment or
change in accounting method with respect to the Company or any subsidiary.

SECTION 5.13 EMPLOYEE BENEFIT PLANS; ERISA. Schedule 5.13, taken together
with the Company's SEC Reports, identifies each employee benefit plan as
defined in Section 3(3) of the

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Employee Retirement Security Act of 1974, as amended, and any successor statute
thereto, and the rules and regulations promulgated thereunder ("ERISA"), that
(a) is subject to any provision of ERISA, (b) is maintained, administered, or
contributed to by the Company or any entity which, together with the Company,
is treated as a single employer under Section 414 of the Code ("ERISA
Affiliate") and (c) covers any employee or former employee of the Company or
any ERISA Affiliate ("Employee Plan"). Schedule 5.13, taken together with the
Company SEC Reports, identifies all employment, severance or similar contract,
arrangement or policy, or any plan or arrangement (whether or not written)
providing for severance benefits, insurance coverage (including any
self-insured arrangements), workers' compensation, disability benefits,
supplemental unemployment benefits, vacation benefits, retirement options,
stock appreciation rights or other forms of incentive benefits that (a) is not
an Employee Plan, (b) is entered into or maintained by the Company or any ERISA
Affiliate and (c) covers any United States employee or former employee of the
Company or any ERISA Affiliate ("Benefit Arrangement"). Copies of Employee
Plans and Benefit Arrangements have been furnished or made available to Parent
(together with the most recent annual report prepared in connection with any
Employee Plan). Each Employee Plan and Benefit Arrangement has been maintained
in substantial compliance with its terms and with the requirements prescribed
by any and all statutes, orders, rules and regulations, including but not
limited to ERISA and the Code, that are applicable to such Employee Plan or
Benefit Arrangement. Neither the Company nor any ERISA Affiliate has any
material unfunded liabilities relating to or arising out of any Employee Plan
or Benefit Arrangement.

SECTION 5.14 LABOR CONTROVERSIES. Except as set forth in the Company SEC
Reports and Schedule 5.14 attached hereto, (a) there are no controversies
pending or, to the knowledge of the Company, threatened between the Company or
its subsidiaries and any representatives of any of their employees, (b) to the
knowledge of the Company, there are no organizational efforts presently being
made involving any of the presently unorganized employees of the Company or any
of its subsidiaries, (c) the Company and its subsidiaries have, to the
knowledge of the Company, complied in all material respects with all laws
relating to the employment of labor, including, without limitation, any
provisions thereof relating to wages, hours, collective bargaining, and the
payment of social security and similar taxes, and (d) no person has, to the
knowledge of the Company, asserted that the Company or any of its subsidiaries
is liable in any amount for any arrears of wages or any taxes or penalties for
failure to comply with any of the foregoing.

SECTION 5.15 ENVIRONMENTAL MATTERS.

(a) Except as set forth in the Company SEC Reports and Schedule 5.15
attached hereto, (i) the Company and its subsidiaries have conducted their
respective businesses in compliance with all applicable Environmental Laws (as
hereinafter defined); without limitation of the foregoing, the Company and its
subsidiaries have all permits, licenses and other approvals and authorizations
necessary for the operation of their respective businesses as presently
conducted, (ii) neither the Company nor any of its subsidiaries has received
any notice, demand letter or request for information from any federal, state,
local or foreign governmental entity or third

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party indicating that the Company or any of its subsidiaries may be in
violation of, or liable under, any Environmental Law in connection with the
ownership or operation of their businesses, (iii) there are no civil, criminal
or administrative actions, suits, demands, claims, hearings, investigations or
proceedings pending or to Company's knowledge threatened, against the Company
or any of its subsidiaries relating to any violation, or alleged violation, of
any Environmental Law or any potential liability under any Environmental Law,
(iv) no reports have been filed, or are required to be filed, by the Company or
any of its subsidiaries concerning the release of any Hazardous Substance (as
hereinafter defined), or the threatened or actual violation of any
Environmental Law, (v) there has been no environmental assessment or test which
is in the possession of the Company or any of its subsidiaries relating to the
activities of the Company or its subsidiaries which has not been delivered to
Parent prior to the date hereof, and (vi) neither the Company nor its
subsidiaries are subject to any material liability or expenditure relating to
any suit, settlement, court order, administrative order, regulatory
requirement, judgment or claim asserted or arising under any Environmental Law
including, without limitation, any material liability arising from conditions
on their respective properties.

(b) As used herein, "Environmental Law" means any federal, state, local or
foreign law, statute, ordinance, rule, rule of common law, regulation, code,
license, permit, authorization, approval, consent, order, judgment, decree,
injunction or requirement or any agreement with any governmental entity
relating to (i) the protection, preservation or restoration of the environment
(including, without limitation, air, surface water, groundwater, surface land,
subsurface land) or to human health or safety or (ii) the exposure to, or the
use, storage, treatment, generation, transportation, processing, handling,
release or disposal of Hazardous Substances, in each case as amended and as in
effect on the date hereof.

(c) As used herein, "Hazardous Substance" means any substance currently
listed, defined, designated or classified as hazardous, toxic, radioactive,
caustic or otherwise hazardous including petroleum, its derivatives, byproducts
and other hydrocarbons regulated under any Environmental Law.

SECTION 5.16 INTELLECTUAL PROPERTY.

(a) Schedule 5.16(a) sets forth a true and complete list and a brief
description, including a complete identification of each patent and patent
application and each trademark or copyright registration or application for
registration thereof, of all Intellectual Property (as herein defined) owned or
licensed by the Company and its subsidiaries which is material to the business
of the Company or its subsidiaries. Except as otherwise described in Schedule
5.16(a), in each case where a registration or patent or application for
registration or patent listed in Schedule 5.16(a) is held by assignment, the
assignment has been duly recorded with the United States Patent Office,
Trademark Office or Copyright Office or state trademark office from which the
original patent or registration issued or before which the application for
trademark or copyright registration is pending. Except as disclosed in
Schedule 5.16(a), to the knowledge of the Company, the rights of the Company or
any subsidiary, as the case may be, in or to such Intellectual Property do not
conflict with or infringe on the rights of any other person, and

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neither the Company nor any subsidiary has received any claim or written notice
from any person to such effect.

(b) Except as disclosed in Schedule 5.16(b): (i) all the Intellectual
Property which is owned by the Company and its subsidiaries is free and clear
of any mortgages, liens, pledges, charges or encumbrances of any nature
whatsoever and (ii) no actions have been made or asserted or are pending (nor,
to the best knowledge of the Company, has any such action been threatened)
against the Company or any subsidiary either (A) based upon or challenging or
seeking to deny or restrict the use by the Company or any subsidiary of any of
Intellectual Property or (B) alleging that any services provided, or products
manufactured or sold by the Company or any subsidiary are being provided,
manufactured or sold in violation of any patents or trademarks, or any other
rights of any person. To the best knowledge of the Company and except as
disclosed in Schedule 5.16(b), no person is using any patents, copyrights,
trademarks, service marks or trade names owned by the Company and its
subsidiaries or that infringe upon the Intellectual Property or upon the rights
of the Company or any subsidiary therein. Except as disclosed in Schedule
5.16(b), neither the Company nor any subsidiary has granted any license or
other right to any other person with respect to the Intellectual Property owned
by the Company and its subsidiaries. The consummation of the transactions
contemplated by this Agreement will not result in the termination or impairment
of any of the Intellectual Property owned by the Company and its subsidiaries.

(c) For purposes hereof, the term "Intellectual Property" shall mean all
computer software, patents and registrations for trademarks, trade names,
service marks and copyrights which are unexpired as of the date of this
Agreement and which are used in connection with the operation of the Company's
and its subsidiaries' businesses, as well as all applications pending on said
date for patents or for trademarks, trade name, service mark or copyright
registrations.

SECTION 5.17 TITLE TO ASSETS. The Company and each of its subsidiaries has
good and marketable title in fee simple to all its real property and good title
to all its leasehold interests and other properties, as reflected in the most
recent balance sheet included in the Company Financial Statements, except for
properties and assets that have been disposed of in the ordinary course of
business since the date of such balance sheet, free and clear of all mortgages,
liens, pledges, charges or encumbrances of any nature whatsoever, except (a)
the lien of current taxes, payments of which are not yet delinquent, (b) such
imperfections in title and easements and encumbrances, if any, as are not
substantial in character, amount or extent and do not interfere with the
present use of the property subject thereto or affected thereby, or otherwise
impair the Company's business operations (in the manner presently carried on by
the Company) or (c) as disclosed in the Company SEC Reports or Schedule 5.17
attached hereto. Copies of all leases under which the Company or any of its
subsidiaries leases any substantial amount of real or personal property have
been delivered or made available to Parent and are in good standing, valid and
effective in accordance with their respective terms, and, to the knowledge of
the Company, there is not, under any such leases, any existing default or event
which with notice or lapse of time or both would become a default other than
defaults under such leases which in the aggregate will not have a Material
Adverse Effect with respect to the Company.

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SECTION 5.18 FAIRNESS OPINION. As of the date of this Agreement, the
Company has received a preliminary verbal opinion from its financial advisor,
M.J. Whitman, Inc., as to the fairness from a financial point of view of the
Merger to the Company.

SECTION 5.19 AFFILIATE TRANSACTIONS. Schedule 5.19, taken together with the
Company's SEC Reports, sets forth a true and complete list and a brief
description of each transaction, agreement and understanding between the
Company or any of its subsidiaries on the one hand and its affiliates (which
shall include, without limitation, Victor Posner, any of his affiliates or
associates, any director or officer of the Company or its subsidiaries, or any
affiliate or associate of any such director or officer) on the other hand.

ARTICLE VI

CONDUCT OF BUSINESS PENDING THE MERGER

SECTION 6.1 CONDUCT OF BUSINESS BY THE COMPANY PENDING THE MERGER. Except
as otherwise contemplated by this Agreement, after the date hereof and prior to
the Closing Date or earlier termination of this Agreement, unless Parent shall
otherwise agree in writing, the Company shall, and shall cause each of its
subsidiaries, to:

(a) conduct its business in the ordinary and usual course of business and
consistent with past practice;

(b) not (i) amend or propose to amend its charter or by-laws, (ii) split,
combine or reclassify its outstanding capital stock or (iii) declare, set aside
or pay any dividend or distribution payable in cash, stock, property or
otherwise, except for the payment of dividends or distributions by a
wholly-owned subsidiary of the Company and except for the declaration and
payment of regular quarterly cash dividends not in excess of $0.15 per Share in
accordance with the Company's past dividend policy and with usual record and
payment dates; provided, however, that the Company's right to continue to pay
such quarterly dividends shall be contingent upon the Company's continued
compliance with Sections 7.2 and 7.3;

(c) not issue, sell or pledge, or agree to issue, sell or pledge any
additional shares of, or any options, warrants or rights of any kind to acquire
any shares of its capital stock of any class or any debt or equity securities
convertible into or exchangeable for such capital stock;

(d) use all reasonable efforts to preserve intact its business organizations
and goodwill, keep available the services of its officers and key employees,
and preserve the goodwill and business relationships with customers and others
having business relationships with the Company and not engage in any action,
directly or indirectly, with the intent to adversely impact the transactions
contemplated by this Agreement;

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<PAGE> 22
(e) confer on a regular and frequent basis with one or more designated
representatives of Parent to report operational matters of materiality and the
general status of ongoing operations;

(f) not enter into or amend any employment, severance, special pay
arrangement with respect to termination of employment or other similar
arrangements or agreements with any directors, officers or key employees;

(g) not adopt, enter into or amend any bonus, profit sharing, compensation,
stock option, pension, retirement, deferred compensation, health care,
employment or other employee benefit plan, agreement, trust, fund or
arrangement for the benefit or welfare of any employee or retiree, except as
required to comply with changes in applicable law;

(h) not enter into any other agreements, commitments or contracts that are
material to the Company and its subsidiaries taken as a whole, other than in
the ordinary course of business consistent with past practice, or otherwise
make any material change in (i) any existing agreement, commitment or
arrangement that is material to the Company and its subsidiaries taken as a
whole or (ii) the conduct of the business or operations of the Company and its
subsidiaries taken as a whole;

(i) not waive or release any rights that are material to the Company and its
subsidiaries taken as a whole or make any payments, direct or indirect, of any
liabilities of the Company or any of its subsidiaries that are material to the
Company and its subsidiaries taken as a whole before the same come due in
accordance with their terms;

(j) neither incur nor pay expenses arising out of, relating to or incidental
to the discussion, evaluation, negotiation, documentation and closing or
potential closing of the transactions contemplated hereby (including, without
limitation, the fees, disbursements and other expenses of lawyers, accountants,
actuaries, investment bankers and any other advisors thereto) and any filing or
other fees incurred in connection with such transactions other than litigation
related expenses (which shall include indemnification payments and expenses of
lawyers in connection therewith (at customary rates)) and other than reimbursed
Parent Transaction Expenses ("Company Transaction Expenses") in excess of
$1,100,000; or

(k) not transfer additional funds in excess of $1,000,000 to or for the
direct benefit of any of the Company's United Kingdom subsidiaries without the
prior consent of Parent, guaranty any additional indebtedness or other
obligations of any of the Company's United Kingdom subsidiaries or permit any
of the Company's United Kingdom subsidiaries to incur any additional
obligations guaranteed by the Company.

Notwithstanding the foregoing provisions of this Section 6.1, (i) the Company
shall be permitted to amend the terms of its non-qualified deferred
compensation plan in order to permit the deferral of bonuses paid from time to
time under the Company's Management Incentive Plan, and (ii) the Company's
wholly-owned subsidiary, Herr-Voss Corporation, shall be permitted to

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enter into an agreement with J&L Specialty Steel Corporation upon substantially
the terms previously approved by the Company's Board of Directors.

SECTION 6.2 CONTROL OF THE COMPANY'S OPERATIONS. Nothing contained in this
Agreement shall give to Parent, directly or indirectly, rights to control or
direct the Company's operations prior to the Effective Time. Prior to the
Effective Time, the Company shall exercise, consistent with the terms and
conditions of this Agreement, complete control and supervision of its
operations.

SECTION 6.3 ACQUISITION TRANSACTIONS.

(a) After the date hereof and prior to the Effective Time or earlier
termination of this Agreement, the Company shall not, and shall not permit any
of its subsidiaries to, initiate, solicit, negotiate, encourage or provide
information to facilitate, and the Company shall, and shall cause its
subsidiaries to, cause any officer, director or employee of, or any attorney,
accountant or other agent retained by it, and any financial advisor or
investment banker retained by it, not to initiate, solicit, negotiate,
encourage or provide information to facilitate, any proposal or offer to
acquire all or any substantial part of the business and properties of the
Company or any capital stock of the Company, whether by merger, purchase of
assets, tender offer or otherwise, whether for cash, securities or any other
consideration or combination thereof (any such transactions being referred to
herein as "Acquisition Transactions"); provided, however, that such persons may
provide documents in the form filed with the SEC after informing Parent of
which documents will be provided and to whom.

(b) Notwithstanding the provisions of paragraph (a) above, following
delivery of the notice required by paragraph (c) below, the Company may, in
response to an unsolicited written proposal with respect to an Acquisition
Transaction furnish (subject to a confidentiality agreement reasonably
acceptable to the Company) confidential or non-public information concerning
its business, properties or assets to a financially capable corporation,
partnership, person or other entity or group (a "Potential Acquirer") or
negotiate with such Potential Acquirer if based upon advice of its outside
legal counsel, the Company's Board of Directors determines in good faith that
the failure to provide such confidential or non-public information to such
Potential Acquirer or negotiate with such Potential Acquirer would constitute a
breach of its fiduciary duty to the Company's shareholders.

(c) In the event the Company shall determine to provide any information or
negotiate as described in paragraph (b) above, or shall receive any offer of
the type referred to in paragraph (b) above, it shall promptly inform Parent
that information is to be provided, that negotiations are to take place or that
an offer has been received and shall furnish to Parent the identity of the
person receiving such information or the proponent of such offer, if
applicable, and, if an offer has been received, a description of the material
terms thereof.

(d) The Company may terminate this Agreement pursuant to Section 9.1 (c) in
order to enter into a definitive agreement for an Acquisition Transaction which
meets the requirements

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<PAGE> 24
set forth above with a Potential Acquirer with which it is permitted to
negotiate pursuant to paragraph (b) above, but only if (i) the Company's Board
of Directors shall have duly determined that such Acquisition Transaction would
yield a higher value to the Company's shareholders than the Merger and that the
execution of such definitive agreement is in the best interests of the Company
and its shareholders and (ii) such definitive agreement is no less favorable
to the Company and its shareholders than this Agreement including, without
limitation, as to conditions to closing.

ARTICLE VII

ADDITIONAL AGREEMENTS

SECTION 7.1 ACCESS TO INFORMATION.

(a) The Company and its subsidiaries shall afford to Parent and Subsidiary
and their respective accountants, counsel, financial advisors and other
representatives (the "Parent Representatives") full access during normal
business hours throughout the period prior to the Effective Time to all of
their respective properties, books, contracts, commitments and records
(including, but not limited to, tax returns) and, during such period, shall
furnish promptly to Parent or the Parent Representatives (i) a copy of each
report, schedule and other document filed by any of them with the SEC in
connection with the transactions contemplated by this Agreement or which may
have a material effect on their respective businesses, properties or personnel
and (ii) such other information concerning the Company's business as Parent or
Subsidiary shall reasonably request; provided that no investigation pursuant to
this Section 7.1 shall amend or modify any representations or warranties made
herein or the conditions to the obligations of the respective parties to
consummate the Merger. Parent and its subsidiaries shall hold and shall use
their reasonable best efforts to cause the Parent Representatives to hold in
strict confidence all non-public documents and information furnished to Parent
and Subsidiary in connection with the transactions contemplated by this
Agreement, except that (i) Parent and Subsidiary may disclose such information
as may be necessary in connection with seeking the Parent Required Statutory
Approvals and (ii) each of Parent and Subsidiary and the Company may disclose
any information that it is required by law or judicial or administrative order
to disclose.

(b) In the event that this Agreement is terminated in accordance with its
terms, Parent and the Parent Representatives shall promptly redeliver to the
other all non-pubic written material provided pursuant to this Section 7.1 and
shall not retain any copies, extracts or other reproductions in whole or in
part of such written material. In such event, all documents, memoranda, notes
and other writings prepared by Parent or the Parent Representatives based on
the information in such material shall be destroyed (and Parent and the Parent
Representatives shall use their best efforts to cause their advisors and
representatives to similarly destroy their documents, memoranda and notes), and
such destruction (and best efforts) shall be certified in writing by an
authorized officer supervising such destruction.

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SECTION 7.2 PROXY STATEMENT. The Company shall file with the SEC as soon as
is reasonably practicable after the date hereof the Proxy Statement. Parent
shall promptly furnish to the Company all information, and take such other
actions, as may reasonably be requested in connection with any action by the
Company in connection with the preceding sentence. The information provided
and to be provided by Parent and the Company, respectively, for use in the
Proxy Statement shall be true and correct in all material respects without
omission of any material fact which is required to make such information not
false or misleading as of the date thereof and in light of the circumstances
under which given or made.

SECTION 7.3 SHAREHOLDERS' APPROVALS. The Company shall, as promptly as
practicable, submit this Agreement and the transactions contemplated hereby for
the approval of its shareholders at a meeting of shareholders and, subject to
the fiduciary duties of the Board of Directors of the Company under applicable
law, shall use its reasonable best efforts to obtain shareholder approval and
adoption (the "Company Shareholders' Approval") of this Agreement and the
transactions contemplated hereby. Such meeting of shareholders shall be held
as soon as practicable following the date upon which the Company has cleared
all comments, if any, from the SEC with respect to the Proxy Statement.
Subject to the fiduciary duties of the Board of Directors of the Company under
applicable law, the Company shall, through its Board of Directors, recommend to
its shareholders approval of this Agreement and the transactions contemplated
by this Agreement.

SECTION 7.4 PROVISION FOR EXPENSES AND FEES. Except as provided in Sections
7.9, 7.10 and 9.2, all costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such costs and expenses.

SECTION 7.5 AGREEMENT TO COOPERATE; ADDITIONAL ACTIONS.

(a) Subject to the terms and conditions herein provided, each of the parties
hereto shall use all reasonable efforts to take, or cause to be taken, all
action and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement, including using its
reasonable efforts to obtain all necessary or appropriate waivers, consents and
approvals to effect all necessary filings and submissions and to lift any
injunction or other legal bar to the Merger (and, in such case, to proceed with
the Merger as expeditiously as possible), subject, however, to the requisite
votes of the shareholders of the Company.

(b) Without limitation of the foregoing, each of Parent and the Company
undertakes and agrees to file as soon as practicable after the date hereof a
Notification and Report Form under the HSR Act with the Federal Trade
Commission (the "FTC") and the Antitrust Division of the Department of Justice
(the "Antitrust Division"). Each of Parent and the Company shall (i) use its
best efforts to comply as expeditiously as possible with all lawful requests of
the FTC or the Antitrust Division for additional information and documents and
(ii) not extend any waiting period under the HSR Act or enter into any
agreement with the FTC or the Antitrust Division

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not to consummate the transactions contemplated by this Agreement, except with
the prior consent of the other parties hereto.

(c) If, at any time after the Effective Time, the Surviving Corporation
shall determine or be advised that any deeds, bills of sale, assignments,
assurances or any other actions or things are necessary or desirable to vest,
perfect or confirm of record or otherwise in the Surviving Corporation the
right, title or interest in, to or under any of the rights, properties or
assets of either of the Constituent Corporations acquired or to be acquired by
the Surviving Corporation as a result of, or in connection with, the Merger or
otherwise to carry out this Agreement, the officers and directors of the
Surviving Corporation shall be authorized to execute and deliver, in the name
and on behalf of each of the Constituent Corporations or otherwise, all such
deeds, bills of sale, assignments and assurances and to take and do, in the
name and on behalf of each of the Constituent Corporations or otherwise, all
such other actions and things as may be necessary or desirable to vest, perfect
or confirm any and all right, title and interest in, to and under such rights,
properties or assets in the Surviving Corporation or otherwise to carry out
this Agreement.

(d) The Surviving Corporation shall take appropriate action by resolution of
its Board of Directors or other formal and binding corporate action to limit to
$250,000 annually, the payment of management fees to, and salaries and bonuses
for officers or directors (other than full time employees) of, an affiliate or
associate (other than subsidiaries) or interested shareholders (as those terms
are defined in Section 2552 of the BCL), provided that the foregoing shall not
prohibit or limit dividends duly declared and paid by the Surviving
Corporation, payments in the ordinary course of business on commercially
reasonable terms, and the repayment by the Surviving Corporation of amounts
advanced on behalf of, or contributed to, the Surviving Corporation together
with commercially reasonable interest, dividend or other similar payments
thereon. This Section 7.5(d) shall not restrict or otherwise prohibit a merger
between Parent and Subsidiary.

SECTION 7.6 PUBLIC STATEMENTS. The parties shall use reasonable efforts to
consult with each other prior to issuing any press release or any written
public statement with respect to this Agreement or the transactions
contemplated hereby and shall not issue any such press release or written
public statement prior to such reasonable efforts.

SECTION 7.7 NOTIFICATION OF CERTAIN MATTERS. Each of the Company, Parent
and Subsidiary agrees to give prompt notice to each other of, and to use their
respective reasonable best efforts to prevent or promptly remedy, (a) the
occurrence or failure to occur or the impending or threatened occurrence or
failure to occur, of any event which occurrence or failure to occur would be
likely to cause any of its representations or warranties in this Agreement to
be untrue or inaccurate in any material respect at the date hereof or the
Effective Time and (b) any material failure on its part to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied
by it hereunder; provided, however, that the delivery of any notice pursuant to
this Section 7.7 shall not limit or otherwise affect the remedies available
hereunder to the party receiving such notice.

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SECTION 7.8 DIRECTORS' AND OFFICERS' INDEMNIFICATION. The certificate of
incorporation and by-laws (or equivalent governing instruments) of the
Surviving Corporation and each of its subsidiaries shall contain provisions no
less favorable with respect to indemnification than are set forth in the
articles of incorporation and by-laws of the Company and its subsidiaries,
which provisions shall not be amended, repealed or otherwise modified for a
period of four years after the Effective Time in any manner that would
adversely affect the rights thereunder of individuals who at the Effective Time
were directors, officers, agents or employees of the Company or any of its
subsidiaries or who were otherwise entitled to indemnification pursuant to the
articles of incorporation and by-laws (or equivalent governing instruments) of
the Company or any of its subsidiaries. The Parent shall cause to be
maintained in effect for three years after the Effective Time the current
policies of the directors' and officers' liability insurance maintained by the
Company and its subsidiaries with respect to matters occurring prior to the
Effective Time to the extent available; provided, however, that Parent may
substitute therefor policies of at least the same coverage containing terms and
conditions that are not less advantageous than the existing policies; provided,
further, however that the Surviving Corporation shall not be required to pay
premiums for such insurance in excess of $370,000 per three-year period or a
proportionate amount thereof for a lesser period.

SECTION 7.9 INDEMNIFICATION OF BROKERAGE. Parent and Subsidiary, on the one
hand, and the Company, on the other hand, each agree to indemnify and save the
other harmless from any claim or demand for commission or other compensation by
any broker, finder, agent or similar intermediary claiming to have been
employed by or on behalf of Parent or Subsidiary or any of their affiliates, on
the one hand, or by the Company or any of its affiliates, on the other hand,
and to bear the cost of legal expenses incurred in defending any such claim or
demand.

SECTION 7.10 INDEMNIFICATION BY THE COMPANY. (a) In addition to all other
sums due hereunder or provided for in this Agreement, the Company agrees to
indemnify and hold harmless Parent and Subsidiary and the respective officers,
directors, agents, employees, subsidiaries, partners, advisors, representatives
and controlling persons of each of the foregoing (each, an "indemnified party")
to the fullest extent permitted by law from and against any and all losses,
claims, damages, expenses (including reasonable fees, disbursements and other
charges of counsel) or other liabilities ("Liabilities") resulting from any
legal, administrative or other actions brought by any person or entity
(including actions brought by the Company or any equity or debt holders of the
Company or derivative actions brought by any person claiming through the
Company or in the Company's name), proceedings or investigations (whether
formal or informal), or written threats thereof, based upon, relating to or
arising out of this Agreement, the transactions contemplated hereby, or any
indemnified party's role therein or in the transactions contemplated hereby;
provided, that the Company shall not be liable under this Section 7.10 to an
indemnified party to the extent that it is finally judicially determined that
such Liabilities resulted primarily from the willful malfeasance of such
indemnified party; and provided, further, that if and to the extent that such
indemnification is unenforceable for any reason other than the immediately
preceding proviso, the Company shall make the maximum contribution to the
payment and satisfaction of such indemnified Liabilities that shall be

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permissible under applicable laws. In connection with the obligation of the
Company to indemnify for Liabilities as set forth above, the Company further
agrees to reimburse each indemnified party for all such expenses (including
reasonable fees, disbursements and other charges of counsel) as they are
incurred by such indemnified party provided that each such indemnified party
shall have undertaken to repay any such amounts in the event that it is finally
judicially determined that the Company is not liable under this Section 7.10
for such Liabilities.

(b) NOTIFICATION. Each indemnified party under this Section 7.10 will,
promptly after the receipt of notice of the commencement of any action or other
proceeding against such indemnified party in respect of which indemnity may be
sought from the Company under Section 7.10, notify the Company in writing of
the commencement thereof. The omission of any indemnified party so to notify
the Company of any such action shall not relieve the Company from any liability
that it may have to such indemnified party unless the Company is materially
prejudiced thereby. In case any such action or other proceeding shall be
brought against any indemnified party and it shall notify the Company of the
commencement thereof, the Company shall be entitled to participate therein and,
to the extent that it may wish, to assume the defense thereof, with counsel
reasonably satisfactory to such indemnified party; provided, however, that any
indemnified party may, at its own expense, retain separate counsel to
participate in such defense. Notwithstanding the foregoing, in any action or
proceeding in which both the Company and an indemnified party is, or is
reasonably likely to become, a party, such indemnified party shall have the
right to employ separate counsel at the Company's expense and to control its
own defense of such action or proceeding if, in the reasonable opinion of
counsel to such indemnified party, there are or may be legal defenses available
to such indemnified party or to other indemnified parties that are different
from or additional to those available to the Company which, if the Company and
such indemnified party were to be represented by the same counsel, would
constitute a conflict of interest for such counsel or materially prejudice the
prosecution of the defenses available to such indemnified party; provided,
however, that in no event shall the Company be required to pay fees and
expenses under this Section 7.10 for more than one firm of attorneys
representing the indemnified parties (together, if appropriate, with one firm
of local counsel per jurisdiction) in any one legal action or group of related
legal actions. In the event that an indemnified party exercises the right to
retain separate counsel pursuant to the provisions of the immediately preceding
sentence, the indemnified party shall take all steps reasonably required to
cause such separate counsel to cooperate with the Company and its counsel in
the defense of the pending action. The Company shall not be liable for any
settlement of such action or proceeding effected without its prior written
consent, not to be unreasonably withheld. The Company agrees that the Company
will not, without the prior written consent of Parent, not to be unreasonably
withheld, settle, compromise or consent to the entry of any judgment in any
pending or threatened claim, action or proceeding relating to any matter
subject to indemnification hereunder unless such settlement, compromise or
consent includes an unconditional release of Parent and each other indemnified
party from all Liabilities and Parent and each other indemnified party are not
obligated to take or forego taking any action, including the payment of money,
thereunder. The rights accorded to indemnified parties hereunder shall be in
addition to any rights that any indemnified party may have at common law, under
federal and state securities laws, by separate agreement or otherwise.

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SECTION 7.11 CORRECTIONS TO THE PROXY STATEMENT. Prior to the date of
approval of the Merger by the shareholders of the Company, each of the Company,
Parent and Subsidiary shall correct promptly any information provided by it to
be used in the Proxy Statement that shall have become false or misleading in
any material respect and shall take all steps necessary to file with the SEC
and have cleared by the SEC and delivered to the shareholders of the Company,
as necessary, any amendment or supplement to the Proxy Statement so as to
correct the same and to cause the Proxy Statement as so corrected to be
disseminated to the shareholders of the Company to the extent required by
applicable law.

ARTICLE VIII

CONDITIONS

SECTION 8.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment at or prior to the Closing Date of the following conditions:

(a) this Agreement and the transactions contemplated hereby shall have been
approved and adopted by the requisite vote of the shareholders of the Company
under applicable law and applicable listing requirements;

(b) the waiting period applicable to the consummation of the Merger under the
HSR Act shall have expired or been terminated;

(c) no preliminary or permanent injunction or other order or decree by any
federal or state court which prevents the consummation of the Merger shall have
been issued and remain in effect (each party agreeing to use its reasonable
efforts to have any such injunction, order or decree lifted);

(d) no action shall have been taken, and no statute, rule or regulation
shall have been enacted, by any state or federal government or governmental
agency in the United States which would prevent the consummation of the Merger
or make the consummation of the Merger illegal; and

(e) all material governmental waivers, consents, orders and approvals
required for the consummation of the Merger and the transactions contemplated
hereby, and all material consents from lenders required to consummate the
Merger, shall have been obtained and be in effect at the Effective Time.

SECTION 8.2 CONDITIONS TO OBLIGATION OF THE COMPANY TO EFFECT THE MERGER.
Unless waived by the Company, the obligation of the Company to effect the
Merger shall be subject to the fulfillment at or prior to the Closing Date of
the following additional conditions:

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(a) Parent and Subsidiary shall have performed in all material respects
their agreements contained in this Agreement required to be performed on or
prior to the Closing Date and the representations and warranties of Parent and
Subsidiary contained in this Agreement shall be true and correct in all
material respects on and as of the date made and on and as of the Closing Date
as if made at and as of such date, and the Company shall have received a
certificate of the Chairman of the Board, Chief Executive Officer, President or
a Vice President of Parent and of the President, Chief Executive Officer or a
Vice President of Subsidiary to that effect;

(b) the Company shall have received an opinion from Paul, Weiss, Rifkind,
Wharton & Garrison counsel to Parent and Subsidiary, dated the Closing Date,
reasonably satisfactory to the Company and covering the due incorporation of
Parent and Subsidiary, the binding nature of this Agreement, the effectiveness
of the Merger and such other matters as may be reasonably requested by the
Company; and

(c) The Company shall have received from M.J. Whitman, Inc. (or other
nationally recognized investment banking firm) an opinion, dated as of a date
on or immediately prior to the date on which the Proxy Statement is first
distributed to the Company's shareholders, to the effect that the Merger is
fair from a financial point of view to the Company and such opinion shall not
have been withdrawn.

SECTION 8.3 CONDITIONS TO OBLIGATIONS OF PARENT AND SUBSIDIARY TO EFFECT THE
MERGER. Unless waived by Parent and Subsidiary, the obligations of Parent and
Subsidiary to effect the Merger shall be subject to the fulfillment at or prior
to the Closing Date of the additional following conditions:

(a) the Company shall have performed in all material respects its agreements
contained in this Agreement required to be performed on or prior to the Closing
Date and the representations and warranties of the Company contained in this
Agreement shall be true and correct in all material respects on and as of the
date made and on and as of the Closing Date as if made at and as of such date,
and Parent shall have received a Certificate of the President and Chief
Operating Officer or of a Vice President of the Company to that effect;

(b) Parent shall have received an opinion from Titus & McConomy LLP, counsel
to the Company, dated the Closing Date, reasonably satisfactory to Parent and
covering the due incorporation of the Company and its subsidiaries, the binding
nature of this Agreement, the effectiveness of the Merger and such other
matters as may be reasonably requested by Parent;

(d) The aggregate amount of Company Transaction Expenses and litigation,
indemnification and all other costs arising out of or related to this Agreement
or the transactions contemplated hereby, incurred or paid on or before the
Closing Date, excluding amounts considered to be Parent Transaction Expenses,
does not exceed $1,600,000; provided that

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<PAGE> 31
amounts paid by Parent or Subsidiary and reimbursed by the Company shall only
be counted once.

ARTICLE IX

TERMINATION, AMENDMENT AND WAIVER

SECTION 9.1 TERMINATION.

This Agreement may be terminated and the Merger contemplated hereby may be
abandoned at any time prior to the Effective Time, whether before or after
adoption by the shareholders of the Company:

(a) By the mutual written consent of Parent, Subsidiary and the Company;

(b) By Parent, Subsidiary or the Company:

(i) if a court of competent jurisdiction or other Governmental Entity of
the United States shall have issued an order or taken any other action
permanently restraining, enjoining or otherwise prohibiting the Merger and such
order or other action shall have become final and nonappealable; or

(ii) if the Effective Time shall not have occurred on or before December
31, 1996; provided, however, that the right to terminate this Agreement under
this Section 9.1(b)(ii) shall not be available to any party whose failure to
fulfill materially any covenant or obligation under this Agreement has been the
cause of, or resulted in, the failure of the Effective Time to occur on or
before such date;

(c) by the Company if, simultaneously with such termination, the Company
executes a definitive agreement in accordance with Section 6.3(d);

(d) by Parent or Subsidiary if the Company's Board of Directors determines
not to give, withdraws, modifies or changes its approval or recommendation of
this Agreement or the transactions contemplated hereby;

(e) by Parent, Subsidiary or the Company if the Company's shareholders fail
to approve this Agreement and the transactions contemplated hereby;

(f) by Parent or Subsidiary if there has been a material breach of any
representation, warranty, covenant or agreement of the Company contained in
this Agreement, which breach is incurable or has not been cured by the Company
within 30 days after written notice from Parent;

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<PAGE> 32
(g) by the Company if there has been a material breach of any
representation, warranty, covenant or agreement of Parent or Subsidiary
contained in this Agreement, which breach is incurable or has not been cured by
Parent or Subsidiary, as the case may be, within 30 days after written notice
from the Company;

(h) by Parent or Subsidiary if the aggregate amount of Company Transaction
Expenses and litigation, indemnification and all other costs arising out of or
related to this Agreement or the transactions contemplated hereby, incurred or
paid on or before the Closing Date, excluding amounts considered to be Parent
Transaction Expenses, exceeds $1,600,000; provided that amounts paid by Parent
or Subsidiary and reimbursed by the Company shall only be counted once; and

(i) by Parent or Subsidiary if any event has occurred since the date hereof,
that has had, or would be reasonably likely to have, a Material Adverse Effect
with respect to the Company.

SECTION 9.2 FEES AND EXPENSES.

(a) If this Agreement is terminated by Parent or Subsidiary pursuant to
Section 9.1(b)(ii), (d) or (f)(other than as a result of a material breach by
the Company which is directly attributable to a Material Adverse Effect with
respect to the Company which was not caused by or directly resulted from the
intentional action or inaction by the Company or any of its subsidiaries and
which would also constitute grounds for termination of this Agreement pursuant
to Section 9.1(i)) or by the Company pursuant to Section 9.1(c), then the
Company shall promptly, but in no event later than one business day after the
date of termination of this Agreement, pay Parent a termination fee of
$1,500,000 and reimburse Parent for all of the expenses of Parent and its
affiliates arising out of, relating to or incidental to the discussion,
evaluation, negotiation, documentation and closing or potential closing of the
transactions contemplated hereby (including, without limitation, the fees,
disbursements and other expenses of lawyers, accountants, actuaries, investment
bankers and any other advisors thereto) and any filing or other fees incurred
in connection with such transactions ("Parent Transaction Expenses") (up to a
maximum amount of $500,000 in the aggregate; provided, that neither this
limitation, nor any limitation on the reimbursement of Parent Transaction
Expenses contained elsewhere in this Agreement, shall limit or in any way
affect the amount of payments to Parent, Subsidiary or any indemnified person
pursuant to indemnification provisions contained elsewhere in this Agreement).

(b) If this Agreement is terminated pursuant to Section 9.1(e) the Company
shall promptly, but in no event later than one business day after the date of
termination of this Agreement, reimburse Parent for all of its Parent
Transaction Expenses (up to a maximum amount of $500,000 in the aggregate),
and, in addition, if on or prior to the date that is nine months from the date
that this Agreement is terminated pursuant to such Section 9.1(e), the Company
announces any transaction described in the definition of "Acquisition Proposal"
or a series of such transactions, then the Company shall pay to the Purchaser a
termination fee equal to $1,500,000.

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<PAGE> 33
(c) If this Agreement is terminated pursuant to Section 9.1(b)(i), (h) or
(i), the Company shall promptly, but in no event later than one business day
after the date of termination of this Agreement, reimburse Parent for all of
its Parent Transaction Expenses (up to a maximum amount of $500,000 in the
aggregate).

(d) In the event that any party (the "plaintiff") brings a legal action
against any other party (the "defendant") for the collection of any termination
fees or Parent Transaction Expenses under this Section 9.2 and thereafter the
plaintiff collects any portion of such fees or Parent Transaction Expenses from
the defendant, the defendant shall also reimburse the plaintiff for all
out-of-pocket costs, fees and expenses, including, without limitation, the fees
and disbursements of counsel and the expenses of litigation, incurred by the
plaintiff in connection with such legal action. If, however, the plaintiff
does not collect any such fees in such legal action, the plaintiff shall
reimburse all out-of-pocket costs, fees and expenses, including, without
limitation, the fees and disbursements of counsel and the expenses of
litigation incurred by the defendant in connection with such legal action.

(e) All amounts payable under this Section 9.2 shall be paid in immediately
available funds to an account or accounts designated by the relevant party.

(f) In order to assure the prompt payment by the Company of any Parent
Transaction Expenses which are payable under this Section 9.2, not later than
July 1, 1996 the Company shall have deposited $154,000 in an escrow account
(the "Escrow Account") with pursuant to an escrow agreement among the Company,
Parent and Arthur Andersen LLP, as escrow agent in form and substance
satisfactory to the parties thereto (the "Escrow Agreement"). On August 1,
1996 and August 31, 1996, the Company shall deposit the additional sums of
$150,000 and $196,000, respectively, into the Escrow Account. Subject to the
terms and conditions of the Escrow Agreement, any interest earned upon the
Escrow Account shall be paid to the Company.

SECTION 9.3 PROCEDURE FOR AND EFFECT OF TERMINATION. In the event that this
Agreement is terminated and the Merger is abandoned by Parent or Subsidiary, on
the one hand, or by the Company, on the other hand, pursuant to Section 9.1,
written notice of such termination and abandonment shall forthwith be given to
the other parties and this Agreement shall terminate and the Merger shall be
abandoned without any further action. If this Agreement is terminated as
provided herein, no party hereto shall have any liability or further obligation
to any other party under the terms of this Agreement except as provided herein
and with respect to the willful breach by any party hereto and except that the
provisions of Section 9.2 and this Section 9.3, Sections 7.1(b), 7.4, 7.8, 7.9,
7.10 and Article X shall survive the termination of this Agreement. Nothing in
this Section 9.3 shall relieve any party from liability for any breach of this
Agreement.

SECTION 9.4 AMENDMENT. This Agreement may not be amended except by action
taken by the respective Boards of Directors of each of the parties hereto or
duly authorized committee thereof and then only by an instrument in writing
signed on behalf of each of the parties hereto and in compliance with
applicable law.

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<PAGE> 34
SECTION 9.5 WAIVER. At any time prior to the Effective Time, the parties
hereto may (a) extend the time for the performance of any of the obligations or
other acts or the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (c) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to
any such extension or waiver shall be valid if set forth in an instrument in
writing signed on behalf of such party.

ARTICLE X

GENERAL PROVISIONS

SECTION 10.1 NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties in this Agreement shall not survive the Merger,
and after the Effective Time of the Merger neither the Company, Parent,
Subsidiary or their respective officers or directors shall have any further
obligation with respect thereto. Notwithstanding the immediately preceding
sentence, the Surviving Corporation's obligations set forth in Section 7.8
shall continue in full force and effect following the Effective Time.

SECTION 10.2 BROKERS. The Company represents and warrants that no broker,
finder or investment banker is entitled to any brokerage, finder's or other fee
(except for the fee payable to the investment banking firm described in Section
8.2(c)) or commission in connection with the Merger or the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
the Company. Parent and Subsidiary represent and warrant that no broker,
finder or investment banker is entitled to any brokerage, finder's or other fee
or commission in connection with the Merger or the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of Parent or
Subsidiary.

SECTION 10.3 NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally, mailed by
registered or certified mail (return receipt requested) or sent via overnight
courier or facsimile to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice):

(a) If to Parent or Subsidiary to:

c/o Three Cities Research, Inc.
157 East 57th Street
New York, NY 10022
Attention: J. William Uhrig

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<PAGE> 35
with a copy to:

Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, NY 10019
Attention: Neale M. Albert

(b) If to the Company, to:

Salem Corporation
P.O. Box 2222
Pittsburgh, PA 15230

Attention: A.A. Fornataro
President

with copies to:

Titus & McConomy LLP
Four Gateway Center, 20th Floor
Pittsburgh, PA 15222
Attention: Paul H. Titus

and

Marco B. Loffredo, Jr.
9999 NE Second Avenue
Miami Shores, FL 33138

SECTION 10.4 INTERPRETATION; MATERIAL ADVERSE EFFECT.

(a) The headings contained in this Agreement are for reference purposes only
and shall not affect in any way the meaning or interpretation of this
Agreement. In this Agreement, unless a contrary intention appears, (a) the
words "herein," "hereof" and "hereunder" and other words of similar import
refer to this Agreement as a whole and not to any particular Article, Section
or other subdivision and (b) reference to any Article or Section means such
Article or Section hereof. No provision of this Agreement shall be interpreted
or construed against any party hereto solely because such party or its legal
representative drafted such provision.

(b) For purposes of this Agreement, the term "Material Adverse Effect" with
respect to any person shall mean a material adverse effect on the business,
assets, properties, condition (financial or other) or results of operations of
such person and its subsidiaries taken as a whole.

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<PAGE> 36
SECTION 10.5 MISCELLANEOUS. This Agreement (including the documents and
instruments referred to herein) constitutes the entire agreement and supersedes
all other prior agreements and understandings, both written and oral, among the
parties, or any of them, with respect to the subject matter hereof.

SECTION 10.6 THIS AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS, INCLUDING
VALIDITY, INTERPRETATION AND EFFECT, BY THE LAWS OF THE COMMONWEALTH OF
PENNSYLVANIA APPLICABLE TO CONTRACTS EXECUTED AND TO BE PERFORMED WHOLLY WITHIN
SUCH COMMONWEALTH.

SECTION 10.7 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.

SECTION 10.8 PARTIES IN INTEREST. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and except for the rights of
indemnified parties under Sections 7.8 and 7.10, nothing in this Agreement,
express or implied, is intended to confer upon any other person any rights or
remedies of any nature whatsoever under or by reason of this Agreement.

IN WITNESS WHEREOF, Parent, Subsidiary and the Company have caused this
Agreement to be singed by their respective officers as of the date first
written above.

SALEM GROUP, INC.

By: /s/ J. WILLIAM UHRIG
-----------------------------
Name: J. William Uhrig
Title: President

SC ACQUISITION CORPORATION

By: /s/ J. WILLIAM UHRIG
-----------------------------
Name: J. William Uhrig
Title: President

SALEM CORPORATION

By: /s/ A.A. FORNATARO
-----------------------------
Name: A.A. Fornataro
Title: President and Chief
Operating Officer

By: /s/ MARCO B. LOFFREDO, JR.
-----------------------------
Name: Marco B. Loffredo, Jr.
Title: Chairman of the Board

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<PAGE> 37
EXHIBIT A

ARTICLES OF MERGER - DOMESTIC BUSINESS CORPORATION
DSCB:15-1926 (REV 90)

In compliance with the requirements of 15 Pa.C.S. Section
1926 (relating to articles of merger or consolidation), the undersigned
business corporations, desiring to effect a merger, hereby state that:

1. The name of the corporation surviving the merger is: Salem Corporation

2. The surviving corporation is a domestic business corporation and the
address of its current registered office in this Commonwealth is (the
Department is hereby authorized to correct the following information
to conform to the records of the Department):

Arch Street, Carnegie, PA 15106, Allegheny County

3. The name and address of the registered office in this Commonwealth or
name of its commercial registered office provider and the county of
venue of each other domestic corporation and qualified foreign
corporation which is a party to the plan of merger is as follows:

SC Acquisition Corporation, c/o Corporation Service Company, Dauphin
County

4. (CHECK, AND IF APPROPRIATE COMPLETE, ONE OF THE FOLLOWING):

--- The plan of merger shall be effective upon filing the
Articles of Merger in the Department of State.

--- The plan of merger shall be effective on: (date) at (hour)

5. The manner in which the plan of merger was adopted by each domestic
corporation is as follows:

Salem Corporation - Adopted by the directors and shareholders pursuant
to 15 Pa.C.S. Section 1924(a)

SC Acquisition Corporation - Adopted by action of the shareholders
pursuant to 15 Pa.C.S. Section 1905
<PAGE> 38
6. (CHECK, AND IF APPROPRIATE, COMPLETE ONE THE FOLLOWING):

--- The plan of merger as set forth in full in Exhibit A is
attached hereto and made a part hereof.

--- Pursuant to 15 Pa.C.S. Section 1901 (relating to omission of
certain provisions from filed plans) the provisions, if any,
of the plan of merger that amend or constitute the operative
Articles of Incorporation of the surviving corporation as in
effect subsequent to the effective date of the plan are set
forth in full in Exhibit A attached hereto and made a part
hereof. The full text of the plan of merger is on file at
the principal place of business of the surviving corporation,
the address of which is:

Arch Street, Carnegie, PA 15106, Allegheny County

IN TESTIMONY WHEREOF, the undersigned corporation or each
undersigned corporation has caused these Articles of Merger to be signed by a
duly authorized officer thereof this _______ day of
______________________________, 1996.

SALEM CORPORATION SC ACQUISITION CORPORATION

By:_______________________ By:__________________________
Title: Title:

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<PAGE> 1

EXHIBIT 20.1

FOR IMMEDIATE RELEASE

SALEM CORPORATION BOARD
APPROVES THREE CITIES FUND MERGER

PITTSBURGH, PENNSYLVANIA, JUNE 28, 1996 - Salem Corporation (AMEX:SBS)
today announced that it has signed a definitive agreement to merge with a
wholly-owned subsidiary of Salem Group, Inc., a newly formed company controlled
by an investor group represented by Three Cities Research, Inc. Under the
agreement Salem Corporation's shareholders will receive $25.00 a share in cash.

The merger agreement is not subject to due diligence or the raising of
financing and was approved by Salem Corporation's Board of Directors. The
agreement will be presented to the company's shareholders for approval as soon
as possible.

Salem Group, Inc., a Delaware corporation, will be controlled by Three
Cities Fund - II L.P. (TCF-II), a $245 million special situation growth fund
capitalized in February of this year and managed by the New York-based private
investment firm of Three Cities Research, Inc. (TCR). TCR intends to retain
the current management of Salem Corporation in Salem Group.

A.A. Fornataro, President, Chief Operating Officer, and a Director of
Salem Corporation, stated: "Management of the company is pleased to be working
with TCR. The proposed transaction is both consistent with the Board's stated
criteria and, in management's opinion, in the best interests of all
shareholders as well as other stakeholders of the company."

TCR is an investment advisor with an established record in the
successful investment of equity capital in medium-sized companies in basic
industries such as distribution, component
<PAGE> 2
Salem Corporation
Page 2

manufacturing, textiles, specialty retailing and industrial services. Since
1976, as an active private equity investor TCR has completed over 60
investments involving nearly $400 million of equity capital.

Salem Corporation, a Pennsylvania corporation which was organized in
1945, is in the business of designing, engineering and installing heavy
industrial equipment primarily for the metals, coal and other minerals
industries. The company presently operates in four business segments: metal
processing equipment, industrial furnaces, minerals processing equipment and
automation controls and systems.

FOR FURTHER INFORMATION, PLEASE CONTACT:

FOR THREE CITIES FUND - II LP: FOR SALEM CORPORATION:
John Walker/John P. Kehoe George A. Douglas
Kehoe, White, Savage & Co., Inc. Controller and Treasurer
(212) 888-1616 Salem Corporation
(412) 276-5700
or
Paul H. Titus
Lindsey D. Alton
Titus & McConomy LLP
Four Gateway Center, 20th Floor
Pittsburgh, PA 15222
(412) 642-2000
(Counsel to Salem Corporation)