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William J. McCarthy
President
and Chief Executive Officer
September 13, 1995
PRIVATE AND CONFIDENTIAL
Mr. Francesco Galesi
Chairman
Galesi Group
110 E. 59th Street - 20th Floor
New York, NY 10022
Dear Franceso,
This letter sets forth a proposal for the acquisition by ABS
Industries, Inc. (ABS) of all the issued and outstanding capital stock of
Mercer Forge Corporation and A & M Corporation, both hereafter referred to as
"Mercer".
In formulating this proposal we have relied upon the information and
financial statements provided to us by Ladenburg, Thalmann & Co. Inc., and
various conversations we have had with representatives of the Company.
1. PURCHASE AGREEMENT. The transaction shall be subject to the
negotiation, execution and delivery of a mutually satisfactory purchase
agreement (the "Purchase Agreement") containing all of the usual and customary
terms, conditions, indemnities, covenants, representations and warranties
normally included in such a transaction, in addition to the contingencies set
forth in this letter.
2. CONSIDERATION. The total consideration for all Mercer stock shall
be in the form of approximately 1,600,000 shares of ABS stock with a current
market value of $10.25 - 11.00 totalling $15,375,000 to 16,500,000.
3. DOCUMENTATION: SCHEDULE. Upon the execution and delivery of this
letter of intent, counsel for the Buyer shall begin to prepare the Purchase
Agreement. This letter of intent will terminate unless the Purchase Agreement
is signed by October 31, 1995.
4. ACCESS TO MERCER: CONFIDENTIALITY. From the date of acceptance
of this letter by Mercer, Mercer shall cause to permit representatives of ABS
to have reasonable access to Mercer; and its management, records and facilities
for the purpose of undertaking due diligence. ABS agrees that it will not
disclose or use any confidential information with respect to
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September 13, 1995
Mercer previously or hereafter provided at any time or in any manner
except that ABS may disclose such confidential information to its
representatives, all of whom shall be instructed by ABS to keep such
information strictly confidential. If the transaction contemplated herein is
not consummated, ABS will promptly return all documents, contracts and records
previously provided to ABS and shall keep strictly confidential any information
(unless ascertainable from public or published information or trade sources)
obtained from or on behalf of Mercer concerning Mercer's operations and
business.
5. CONDUCT OF BUSINESS. Pending execution of the Purchase Agreement,
Mercer will not pay any dividends, issue or repurchase any securities or rights
or options therefore or incur any long-term debt or capital leases; and Mercer
will conduct its business only in the ordinary course and will not take any
steps that will result in any material adverse change in the assets,
liabilities, prospects, business or goodwill of Mercer.
6. NO OTHER NEGOTIATIONS. In consideration for the substantial
expenditure of time, effort and expense to be undertaken by ABS in connection
with the investigation and documentation of this proposed transaction, Mercer
undertakes and agrees that until November 30, 1995 it will negotiate
exclusively and in good faith with ABS and it will not permit any of
its agents or any person acting for Mercer or its shareholders, directly or
indirectly, to enter into or conduct any discussions or solicit, encourage,
receive or entertain any proposals relating to the sale of the stock or assets
of Mercer and any such discussions or solicitations previously commenced shall
be terminated immediately. Mercer will promptly inform ABS of any inquiries,
proposals or offers with respect to the foregoing and instruct its
representatives to abide by the exclusivity portions of this letter.
7. PUBLIC ANNOUNCEMENTS. ABS is obligated to announce significant
developments and will promptly announce in broad terms, the general contents of
this letter and such announcement shall immediately toll any applicable waiting
periods required by the SEC.
8. EXPENSES. Mercer and ABS agree to pay all of their own expenses
incident to the negotiation and preparation of the Purchase Agreement and the
consummation of all transactions contemplated hereby and by the Purchase
Agreement.
9. CONTINGENCIES. The transaction described herein will be subject
to the following conditions:
(a) Negotiations and execution of a mutually
acceptable Purchase Agreement.
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September 13, 1995
(b) Completion of a satisfactory due diligence
review.
(c) Absence of any material adverse change in Mercer
or in the value of Mercer or its assets.
(d) Approval of the directors and shareholders of
Mercer.
10. EMPLOYMENT AGREEMENTS. ABS has achieved rapid increases in sales
and profits for more than five years and does not currently employ any
management depth. A significant portion of ABS interest in Mercer focuses upon
management experience in various skilled areas unfamiliar to ABS. Mark Clark
and others are designated as key employees. Key employees are needed for
continuity and shall be covered under a special agreement including a non
compete provision. Compensation shall be based upon mean salary and bonus for
comparable positions defined by recognized published compensation tables for
the forging and machining industry. After closing, for twelve months, key
employees shall be given severance pay for twelve months if severed without
cause and thirty days severance pay if severed for cause.
11. VALUE. It is expected Mercer will achieve more than $40 million
dollars in sales and more than 5% in after tax profits for fiscal 1995. EBIT
estimate $4,217,000.
12. CONCENTRATION. A very high percentage of Mercer sales are
scheduled for Dana Corporation. ABS wishes to pursue the possibility of the
development of, or a reasonable extension of current contracts.
13. UNITED STEEL WORKERS OF AMERICA. Special concern exists on the
part of ABS for contracts with the United Steel Workers of America. Maximum
consideration should be given to the development of an expansion amendment
addressing current work rules, overtime requirements and arbitration.
14. CLOSING DATE. The closing of the Transaction would occur at the
earliest possible date upon satisfactory completion of the conditions to
closing referenced in paragraph 9, but in all events on or before November 30,
1995, unless the parties otherwise mutually agree. Prior to the date of
closing, Mercer's business will be operated in a manner consistent with past
practices designed to maintain and preserve its relationships with its
customers, suppliers, employees, contractors and agents.
15. CONDITIONS OF CLOSING. The Transaction is conditioned upon the
completion, to the satisfaction of Mercer and ABS and its respective legal
counsel, of the following conditions:
a. approval by ABS' Board of Directors;
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b. the successful completion by the undersigned of
the due diligence review of Mercer as described
in paragraph below and ABS' complete
satisfaction with the results of such review;
and
c. the absence of material adverse changes in the financial
condition, prospects, assets and liabilities of Mercer.
16. AMENDMENT. This letter of intent may be amended only by a writing
signed and delivered by all parties hereto.
17. MISCELLANEOUS. It is understood that this letter is intended to
be, and shall be construed only as, a letter of intent summarizing and
evidencing the discussions between Mercer and ABS to the date hereof and not as
an offer to purchase or sell the stock or assets of Mercer or an agreement with
respect thereto, and that the respective rights and obligations of Mercer and
ABS remain to be defined in the Purchase Agreement, into which this letter of
intent shall merge; provided, however, that the respective obligations of
Mercer and ABS under Sections 4, 5, 6, 7 and 8 above shall be binding and
enforceable upon them.
If the foregoing proposal meets with your approval, kindly so signify
by signing and returning the enclosed copy of this letter, whereupon this
letter shall constitute a Letter of Intent between the parties in accordance
with the terms and provisions set forth above.
We look forward to receiving your reply.
Very truly yours,
ABS INDUSTRIES, INC.
/s/ William J. McCarthy
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William J. McCarthy
President
ABS Industries, Inc.
Agreed this
13th day of September, 1995
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GALESI GROUP
/s/ Francesco Galesi
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Francesco Galesi
Chairman