UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 30, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to ______________________
Commission file number 1-3834
Continental Materials Corporation
(Exact name of registrant as specified in its charter)
Delaware 36-2274391
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
225 West Wacker Drive, Suite 60606
1800 Chicago, Illinois (Zip Code)
(Address of principal
executive offices)
Registrant's telephone number, including area code 312-541-7200
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on
which registered
Common Stock - $.50 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of the Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value (based on March 20, 1996 closing
price) of voting stock held by non-affiliates of registrant:
Approximately $8,974,000.
Number of common shares outstanding at March 20, 1996: 1,105,921.
Incorporation by reference: Portions of registrant's
definitive proxy statement for the 1996 Annual meeting of
stockholders to be held on May 22, 1996 into Part III of this
Form 10-K. (The definitive proxy statement will be filed with
the Securities and Exchange Commission within 120 days after the
close of the fiscal year covered by this Form 10-K.)
Index to Exhibits: on page 37 hereof.
1
<PAGE>
NOTE: References to a "Note" are to the Notes to Consolidated
Financial Statements which are included on pages 16
through 24 of this Annual Report on Form 10-K.
PART I
Item 1. BUSINESS
Continental Materials Corporation, Inc. and its subsidiaries
(collectively referred to as the Company) operate primarily in
two industry segments, the Heating and Air Conditioning segment
and the Construction Materials segment. The Heating and Air
Conditioning segment is comprised of Phoenix Manufacturing, Inc.
of Phoenix, Arizona and Williams Furnace Co. of Colton,
California. The Construction Materials segment is comprised of
Castle Concrete Company and Transit Mix Concrete Co. both of
Colorado Springs, Colorado.
The Heating and Air Conditioning segment manufactures wall
furnaces, console heaters, evaporative air coolers and fan
coil/air handler product lines. Numerous models with differing
heating or cooling capacities as well as exterior appearances are
offered within each line.
The Construction Materials segment is involved in the production
and sale of ready mix concrete and other building materials as
well as the exploration, extraction and sale of limestone, sand
and gravel.
In addition to the above operating segments, a General Corporate
and Other classification is utilized covering the general
expenses of the corporate office which provides treasury,
insurance and tax services as well as strategic business planning
and general management services.
The Company has a 30% interest in Oracle Ridge Mining Partners
(ORMP). ORMP is a general partnership which operates a copper
mine near Tucson, Arizona. The Company is not the managing
partner of ORMP and thus its operations are accounted for on the
equity method with the Company's share of ORMP's operations
presented in the other income and expense section of the
Company's operating statements.
Financial information relating to industry segments appears in
Note 12 on page 24 of this Form 10-K. Summary financial
information on ORMP appears in Note 4 on page 19 and audited
financial statements for ORMP are included in Item 8 of this Form
10-K. See index to Item 8 on page 12.
2
<PAGE>
MARKETING, SALES AND SUPPORT
Marketing
The Heating and Air Conditioning segment markets its products
throughout the United States through plumbing, heating and air
conditioning wholesale distributors as well as direct to some
major retail home-centers and other retail outlets. Phoenix and
Williams utilize independent manufacturers' representatives.
Both companies also employ a small staff of sales and sales
support personnel. Sales in this segment are predominantly in
the United States and are concentrated in the Western and
Southwestern states. Sales of Williams' furnaces usually
increase in the months of September through January. Sales of
Phoenix's evaporative coolers usually increase in the months of
February through June. In order to sell wall furnaces and
evaporative coolers during the off season, Williams and Phoenix
offer extended payment terms to their customers.
The Construction Materials segment markets its products primarily
through its own direct sales representatives and confines its
sales to the Colorado Springs area. Sales are made to general
and sub-contractors, government entities and individuals. The
businesses of Castle and Transit Mix are affected by the general
economic conditions in Colorado Springs (as it relates to
construction) and weather conditions. Revenues usually decline
in the winter months as the pace of construction slows.
During 1995, no customer accounted for 10% or more of the total
sales of either segment.
Customer Service and Support
The companies in the Heating and Air Conditioning segment
maintain parts departments and help lines to assist contractors,
distributors and end users in servicing the companies' products.
The Company does not perform installation services, nor are
maintenance or service contracts offered. In addition, Williams
holds training sessions at its plant for distributors,
contractors, utility company employees and other customers. The
companies in this segment do not derive any revenue from after-
sales service and support other than from parts sales. The
companies in the Construction Materials segment routinely take a
leadership role in formulation of the products to meet the
strength requirements of their customers.
BACKLOG
At December 30, 1995, Williams' order backlog was approximately
$600,000 ($900,000 at December 31, 1994) the majority of which
represented orders for furnaces.
At December 30, 1995, Phoenix had a backlog of approximately
$3,100,000 ($3,000,000 at December 31, 1994) representing
primarily preseason cooler orders.
The above backlogs are all related to the heating and air
conditioning segment and are expected to be filled during the
first quarter of 1996.
At December 30, 1995, Transit Mix and Castle had a backlog of
approximately $4,300,000 ($3,100,000 at December 31, 1994)
primarily relating to construction contracts awarded and expected
to be filled during the first half of 1996.
Management does not believe that any of the above backlogs
represent a trend but rather are indicative only of the timing of
orders received or contracts awarded.
3
<PAGE>
Research and Development/Patents
In general, companies rely upon, and intend to continue to rely
upon, unpatented proprietary technology and information.
However, recent research and development activities in the
Heating and Air Conditioning segment has lead to patent
applications related to Phoenix' Power Cleaning System for the
evaporative coolers and the configuration of the heat exchanger
for Williams' furnaces which has increased efficiency above that
previously offered by the industry. The amounts expended on
research and development are not material and are expensed as
incurred. The Company believes its interests in its patent
applications, as well as its proprietary knowledge, are
sufficient for its businesses as currently conducted.
Manufacturing
The Company conducts its manufacturing operations through a
number of facilities as more completely described in Item 2,
Properties, below.
Due to the seasonality of its businesses, Williams and Phoenix
build inventory during their off seasons in order to have
adequate wall furnace and evaporative cooler inventory to sell
during the season.
In general, raw materials required by the Company can be obtained
from various sources in the quantities desired. The Company has
no long-term supply contracts and does not consider itself
dependent on any individual supplier.
Compliance with environmental protection laws and regulations has
not had any material effect upon the Company's capital
expenditures, earnings, or competitive position.
Competitive Conditions
Heating and Air Conditioning - Williams is one of four principal
companies producing wall furnaces (excluding units sold to the
recreational vehicle industry). The wall furnace market is only
a small component of the heating industry. Williams' covers its
market area from its plant in Colton, California and a warehouse
in Ohio. The sales force consists of Williams' sales personnel
and manufacturers' representatives. The entire heating industry
is dominated by manufacturers (most of which are substantially
larger than the Company) selling diversified lines of heating and
air conditioning units directed primarily toward central heating
and cooling systems.
Williams also manufactures a line of gas fired console heaters.
Distribution is similar to wall furnaces with the principal
market areas in the South and Southeast. There are five other
manufacturers, none of whom is believed to have a dominant share
of the market.
Williams is also a producer of fan coils. Fan coil sales are
usually obtained through a competitive bidding process. This
market is dominated by International Environmental Corp., a
subsidiary of LSB Industries, Inc., a manufacturer of a
diversified line of commercial and industrial products. There
are also a number of other companies that produce fan coils. All
of the producers compete on the basis of price and timeliness of
delivery.
4
<PAGE>
Phoenix produces evaporative air coolers. This market is
dominated by Adobe Air. There is one other principal competitor
plus a number of other small companies that produce evaporative
coolers. All producers of evaporative air coolers compete
aggressively on the basis of price.
Construction Materials - Transit Mix is one of three companies
producing ready mix concrete in the Colorado Springs area.
Although Transit Mix holds a significant share of the market
served, the other two competitors compete aggressively on the
basis of price.
There are a number of producers of aggregates, sand and gravel in
the marketing area served by Transit Mix and Castle who compete
aggressively on the basis of price and service.
Metal doors and door frames, rebar reinforcement and other
building materials sold in the Colorado Springs metropolitan area
are subject to intense competition. Transit Mix competes
aggressively with two larger companies and a number of small
competitors. However, Transit Mix has a slight competitive
advantage in that many of its customers also purchase concrete,
sand and aggregates from Transit Mix and Castle whereas our
competitors for these particular product lines do not offer
concrete, sand or aggregates.
Employees
The Company employed 649 persons as of December 30, 1995.
Employment varies throughout the year due to the seasonal nature
of sales and thus to a lesser extent, production. A breakdown of
the prior three years employment at year end by segment was:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Heating and Air Conditioning 421 335 371
Construction Materials 215 203 188
Corporate Office 13 14 14
--- --- ---
Total 649 552 573
=== === ===
</TABLE>
Factory employees at the Colton, California plant are represented
by the Amalgamated Industrial Workers Union under a contract that
expires in June 1997. Certain drivers, laborers and mechanics at
the Colorado Springs facilities are represented by the Western
Conference of Teamsters under a contract which expires in
February 1998.
The Company considers relations with its employees and with its
unions to be good.
Item 2. PROPERTIES
The heating and air conditioning segment operates out of one
owned (Colton, California) and one leased (Phoenix, Arizona)
facility. Both manufacturing facilities utilized by this segment
are, in the opinion of management, in good condition and
sufficient for the Company's current needs. Productive capacity
exists at the locations such that the Company could exceed the
highest volumes achieved in prior years or expected in the
foreseeable future and maintain timely delivery.
5
<PAGE>
The construction materials segment operates out of two owned
facilities in Colorado Springs, Colorado. Additionally, this
segment owns four mining properties in four counties in the
vicinity of Colorado Springs, Colorado. In the opinion of
management, these four properties contain permitted and minable
reserves sufficient to service sand, rock and gravel requirements
for the foreseeable future.
The corporate office operates out of leased facilities in
Chicago, Illinois.
Item 3. LEGAL PROCEEDINGS
See Management Discussion and Analysis of Financial Condition and
Results of Operations on pages 8 through 10 and Note 6 on page 20
of this Annual Report on Form 10-K.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders
during the fourth quarter of fiscal 1995.
PART II
Item 5. MARKETING FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Continental Materials Corporation shares are traded on the
American Stock Exchange (AMEX) under the symbol CUO. Closing
share prices for each of the periods set forth below as reported
by the AMEX are:
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C> <C>
1995 Fourth 13 11 3/4
Quarter
Third Quarter 13 3/8 12
Second 12 7/8 12
Quarter
First Quarter 12 1/2 10 7/8
1994 Fourth 13 3/4 10 7/8
Quarter
Third Quarter 13 7/8 10 7/8
Second 11 3/8 9 1/8
Quarter
First Quarter 10 3/8 7 7/8
</TABLE>
Trading during the two months ended March 1, 1996 ranged from 11
3/4 to 14 7/8.
At December 30, 1995, the Company had approximately 3,200
shareholders of record.
The Company has never paid a dividend. Payment of cash dividends
is either limited or requires prior approval by the lenders (see
Note 5 on page 19). The Company's policy is to reinvest earnings
from operations, and the Company expects to follow this policy
for the foreseeable future.
6
<PAGE>
Item 6. SELECTED FINANCIAL DATA
Selected Financial Data (Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Net sales from
continuing operations $75,560 $75,294 $62,495 $60,982 $58,043
------- ------- ------- ------- -------
Net income from
continuing operations 681 1,849 1,187 1,201 1,132
Net (loss) income from
discontinued operation -- (464) 188 (1,064) (534)
Extraordinary item, net -- -- (1,335) -- --
------- ------- ------- ------- -------
Net income $ 681 $1,385 $ 40 $ 137 $ 598
======= ======= ======= ======= =======
PER SHARE DATA
Continuing operations $ .60 $ 1.62 $ 1.02 $ 1.02 $ .96
Discontinued operation -- .16 (.90) (.45) (.41)
Extraordinary item -- -- (1.15) -- --
------- ------- ------- ------- -------
Net income $ .60 $ 1.21 $ .03 $ .12 $ .51
======= ======= ======= ======= =======
Average shares
outstanding during year 1,135 1,140 1,164 1,174 1,174
======= ======= ======= ======= =======
FINANCIAL CONDITION
Current ratio 2.0:1 2.0:1 2.2:1 2.5:1 2.5:1
Total assets $47,223 $48,162 $45,424 $54,916 $55,425
Long-term debt,
including current
portion 4,011 4,923 6,819 16,114 17,950
Shareholders' equity 27,281 26,789 25,404 25,660 25,523
Ratio of net worth to
long-term debt 6.80 5.44 3.73 1.59 1.42
Book value per share $ 24.04 $ 23.50 $ 22.28 $ 21.86 $ 21.73
CASH FLOWS
Net cash provided by (used in):
Operating activities 848 7,191 2,727 4,925 5,132
Investing activities (3,751) (1,884) 6,628 (3,182) (1,134)
Financing activities 1,199 (3,596) (9,914) (1,836) (3,112)
------- ------- ------- ------- -------
Net (decrease) increase
in cash and
cash equivalents $(1,704) $ 1,711 $ (559) $ (93) $ 886
======= ======= ======= ======= =======
</TABLE>
7
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(References to a "Note" are to Notes to Consolidated Financial Statements)
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents declined to $1,074,000 at year end
compared to $2,778,000 in the prior year. Cash provided from
operations in 1995 was $848,000 compared to $7,191,000 in 1994
and the $2,727,000 generated in 1993. The decrease in net cash
generated by operating activities in 1995 was mainly due to
decreased levels of accounts payable and accrued expenses. The
expected decrease in accounts payable was due to the early
purchase of raw materials in 1994 for which 1995 price increases
had been announced, and the timing of payments. The decrease in
accruals was also expected and was due primarily to the timing of
payments. The increase in 1994 from the 1993 level was due to
the above items.
Net cash used in investing activities was $3,751,000 in 1995 and
$1,884,000 in 1994. Net cash of $6,628,000 was provided by
investing activities in 1993 primarily as a result of the sale of
Imeco, Inc., which provided $10,750,000, and the receipt of
$704,000 in proceeds from the sale of an equity investment. Cash
invested in Oracle Ridge Mining Partners (ORMP) during 1995, 1994
and 1993 was $883,000, $561,000 and $1,194,000, respectively.
Capital expenditures for 1995, 1994 and 1993 were $3,417,000,
$1,775,000 and $3,677,000, respectively. There were no
significant commitments for capital expenditures at the end of
1995. Budgeted capital expenditures for 1996, exclusive of
equipment that may be acquired under operating leases, are
approximately $3,049,000 (primarily routine replacements and
upgrades), $472,000 more than planned depreciation. The 1996
expenditures will be funded from internal sources and available
borrowing capacity.
In June 1993, the Company sold Imeco for $10,750,000 in cash and
recognized a $1,050,000 pre-tax gain. Imeco had been involved in
the manufacture of thermal transfer equipment, and as such was
the "refrigeration" component of the Company's "Heating, Air
Conditioning and Refrigeration" reportable segment. Subsequent
to the sale of Imeco, the reportable segment has been renamed
"Heating and Air Conditioning." In connection with the sale of
Imeco, the Company retained responsibility for product liability
claims involving Imeco equipment occurring prior to the June 30,
1993 sale date. To date, three suits have been filed against
Imeco for which the Company retained responsibility. As of June
30, 1993, the Company was aware of two of the claims. At that
time, the Company concluded that it was not liable for one of the
claims and not enough information was available for the other
claim to make a reasonable estimate of liability, if any.
Accordingly, no liability was recorded at June 30, 1993 in
connection with these claims. At the end of 1993, management
conducted a complete review of all legal matters and determined
that an accrual of $616,000 was necessary regarding one of the
cases in accordance with the requirements of Statement of
Financial Accounting Standards (SFAS) No. 5, "Accounting for
Contingencies." The fourth quarter 1994 results were reduced by
$726,000, $426,000 after related tax benefits, as a result of new
developments related to these product liability matters. In
March 1995, the Company settled the suit brought by ConAgra and
its insurance carrier. The amount of the settlement was fully
reserved as of December 31, 1994. The suit involving personal
injury was settled during March 1996. The amount of this
settlement was also fully reserved as of December 31, 1994. The
remaining claim against Imeco was withdrawn during 1995. See
Notes 2 and 6.
8
<PAGE>
During 1995, cash of $1,199,000 was provided by financing
activities. Borrowings of $2,300,000 against the short-term line
of credit were offset by the net long-term debt repayment of
$912,000. Cash of $189,000 was used to acquire 15,357 shares of
treasury stock. During 1994, cash of $3,596,000 was used to pay
off the short-term line of credit and the scheduled long-term
debt payments. During 1993, cash of $9,914,000 was used in
financing activities. The Company used cash from the sale of
Imeco, $1,700,000 of borrowings under the line of credit and a
portion of the $3,500,000 received from an amendment to the
Company's credit agreement with two banks, to repay $12,795,000
of fixed rate long-term debt and the related prepayment penalty
of $2,023,000. In addition, the Company acquired 34,000 shares
of treasury stock for $296,000 during 1993.
In February 1996, the Company renegotiated its credit agreement
with two banks. The new agreement provides for a term loan of
$4,000,000 to replace the existing term loan, and an increased
revolving credit facility of $14,500,000 for funding of seasonal
sales programs at Williams Furnace Co. and Phoenix Manufacturing,
Inc. The line is also used for stand-by letters of credit to
insurance carriers in support of deductible amounts under the
Company's insurance program. All borrowings under the new
agreement are unsecured and bear interest at prime or an adjusted
LIBOR rate. See Note 5.
The Company anticipates the primary source of cash flow in 1996
to be from its operating subsidiaries. This cash flow,
supplemented by the line of credit, is sufficient to cover normal
and expected future cash needs, including servicing debt and
planned capital expenditures.
The Company purchases insurance coverage for property loss,
workers' compensation, general, product and automobile liability
maintaining certain levels of retained risk (self-insured
portion). Provisions for claims under the self-insured portion
of the policies are recorded in accordance with the requirements
of SFAS No. 5. The accrual for workers' compensation and
automobile liability claims covers occurrences through December
30, 1995. There were no unasserted claims as of December 30,
1995, that required a reserve or disclosure in accordance with
SFAS No. 5.
During 1995, The Financial Accounting Standards Board issued two
new pronouncements, SFAS No. 121 and No. 123, which are relevant
to the Company's operations. SFAS No. 121 addresses "Accounting
for The Impairment of Long-Lived Assets and for Long-Lived Assets
To Be Disposed Of" while SFAS No. 123 addresses "Accounting for
Stock-Based Compensation." Both statements are effective for
fiscal years beginning after December 15, 1995. The Company
intends to adopt both SFAS No. 121 and No. 123 in 1996 and does
not believe either will have a material effect on the Company's
financial position or results of operations.
9
<PAGE>
OPERATIONS
1995 vs. 1994
Consolidated net sales from continuing operations increased
$266,000. The net sales of the Heating and Air Conditioning
segment rose slightly while the net sales of the Construction
Materials segment declined slightly compared to the previous
year. Sales at Phoenix rose due to new customers and a strong
pre-season sales program during the fourth quarter. Sales at
Williams declined slightly due to new competitive products. A
decline in sales in the Northern California region was possibly
due to publicity of the heat exchanger matter concerning units
manufactured by Williams prior to 1995 (see Note 6).
The Company experienced a high level of price competition at all
of its subsidiaries which is expected to continue into 1996.
During 1995, inflation was not a significant factor at any of the
operations.
Cost of sales (exclusive of depreciation and depletion) increased
from 76% to 77% due to product mix in the Heating and Air
Conditioning segment.
Selling and administrative expenses increased $995,000 (8%) due
to legal and other expenses incurred in regard to the Williams
Furnace heat exchanger matter, additional costs associated with
new products marketing and the accrual of future compensation to
be paid to the Company's former president. As a percentage of
sales, selling and administrative expense increased from 16% to
17%.
The decrease in the operating income reflects the increase in
cost of sales as well as the higher selling and administrative
expense.
The increase in interest expense of $45,000 reflects a higher
interest rate partially offset by lower average borrowings.
The Company recorded a loss of $922,000 related to its investment
in ORMP. This loss represents the Company's share (30%) of the
loss of the partnership for 1995 as well as a $172,000 write down
of the carrying value of the investment to management's best
estimate of net realizable value, $1,500,000, as of December 30,
1995. Production at the mine was halted in February 1996 as the
partners are reassessing their plans, including a possible sale
of the mine.
There were no charges against the discontinued operation during
1995. See "Financial Condition, Liquidity and Capital Resources"
for further discussion.
The Company's 1995 effective income tax rate on income from
continuing operations (24.8%) reflects federal and state
statutory rates adjusted for non-deductible and other tax items.
The current year was favorably impacted by a substantial
percentage depletion allowance. See Note 10.
10
<PAGE>
OPERATIONS
1994 vs. 1993
Consolidated net sales from continuing operations increased
$12,799,000 (21%). A majority of the increase ($7,698,000)
occurred in the Construction Materials segment. Strong economic
conditions and mild weather patterns led to high sales levels
throughout the year, including the normally slow winter months.
The Heating and Air Conditioning segment also realized gains of
$5,100,000. Sales at Williams increased 4% while Phoenix posted
a 28% increase. The latter increase was mainly attributable to
hot and dry weather patterns in the areas serviced.
A high level of price competition was experienced at all of the
Company's subsidiaries during 1994. The Company also experienced
some increases in the cost of key raw materials during 1994.
Selling prices were increased to recover some but not all of such
cost increases.
Cost of sales (exclusive of depreciation and depletion) remained
consistent at 76% between years. The 1.7% decline in the Heating
and Air Conditioning segment, due to price competition and the
raw material cost increases, was offset by 1.5% improvement in
the Construction Materials segment due mainly to increased volume
as a relatively large portion of its operating costs and expenses
are fixed in nature.
Selling and administrative expenses rose $1,297,000 (12%)
although they declined as a percentage of net sales from 17% to
16%.
The increase in operating income is mainly due to the increase in
net sales.
The Company recorded a loss of $545,000 related to its investment
in ORMP compared to $1,188,000 in the prior year. The reduction
in the loss is attributed to increased production and higher
copper prices as well as nonrecurring development costs incurred
in the prior year. In 1993, the project was shut down for a
three-month period to install equipment and facilities to
increase production and improve copper recovery. Copper prices
increased throughout 1994, beginning around 74 cents per pound in
January and ending at $1.38. During 1994, the partnership
entered into a one-year agreement beginning September 1994 which
fixes the price that the partnership receives for the copper it
produces at $1.07 per pound on approximately 50% of ORMP's
production. Copper prices have historically been, and are
expected to remain volatile.
Discussion of the discontinued operation and the prepayment
penalty is presented above under the heading "Financial
Condition, Liquidity and Capital Resources."
The Company's effective income tax rate on income from continuing
operations (34.2%) reflects federal and state statutory rates
adjusted for the effect of non-deductible expenses and other tax
items. The current year was favorably impacted by a
substantially higher percentage depletion allowance. The 1993
rate was favorably influenced by the reversal of $305,000 of
certain income tax contingencies related to matters resolved in
favor of the Company. See Note 10.
11
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGE
Financial Statements and Schedule of Continental
Materials Corporation and report thereon:
Consolidated statements of operations and
retained earnings for fiscal years
1995, 1994 and 1993 13
Consolidated statements of cash flows
for fiscal years ended 1995, 1994 and 1993 14
Consolidated balance sheets at
December 30, 1995 and December 31, 1994 15
Notes to consolidated financial statements 16-24
Report of Independent Accountants 25
Financial Statements of Oracle
Ridge Mining Partners and report thereon:
Independent Auditors' Report 26
Balance sheet at December 31, 1995 and
December 31, 1994 27
Statement of operations for the year ended
December 31, 1995 and fourteen-month
period ended December 31, 1994 28
Statement of partners' deficit for the year
ended December 31, 1995 and fourteen-month
period ended December 31, 1994 29
Statement of cash flows for the year ended
December 31, 1995 and fourteen-month
period ended December 31, 1994 30
Notes to financial statements 31-35
12
<PAGE>
Continental Materials Corporation
Consolidated Statements of Operations and Retained Earnings
For Fiscal Years 1995, 1994 and 1993
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
NET SALES $ 75,560 $ 75,294 $ 62,495
COSTS AND EXPENSES
Cost of sales (exclusive of
depreciation and depletion) 58,497 57,244 47,648
Depreciation and depletion 2,278 2,311 2,353
Selling and administrative 12,779 11,784 10,487
-------- -------- --------
Operating income 2,006 3,955 2,007
Interest expense (812) (767) (770)
Gain on sale of equity investment -- -- 794
Equity loss from mining partnership (922) (545) (1,188)
Other income, net 634 168 252
-------- -------- --------
Income from continuing operations
before income taxes 906 2,811 1,095
Income tax provision (benefit) 225 962 (92)
-------- -------- --------
Income from continuing operations 681 1,849 1,187
Discontinued operation, net of tax:
(Loss) from discontinued operation -- -- (637)
(Loss) gain on sale of
discontinued operation -- (464) 825
-------- -------- --------
(Loss) gain from discontinued operation -- (464) 188
-------- -------- --------
Income before extraordinary item 681 1,385 1,375
Extraordinary item, net of tax:
Prepayment penalty on early
extinguishment of debt -- -- (1,335)
-------- -------- --------
Net income 681 1,385 40
Retained earnings, beginning of year 25,137 23,752 23,712
-------- -------- --------
Retained earnings, end of year $ 25,818 $ 25,137 $ 23,752
======== ======== ========
Net income (loss) per share:
Continuing operations $ .60 $ 1.62 $ 1.02
Discontinued operation -- (.41) .16
Extraordinary (loss) -- -- (1.15)
-------- -------- --------
Net income per share $ .60 $ 1.21 $ .03
======== ======== ========
Weighted average shares outstanding 1,135 1,140 1,164
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
Continental Materials Corporation
Consolidated Statements of Cash Flows For Fiscal Years 1995, 1994, and 1993
(Amounts in thousands)
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Operating activities:
Net income $ 681 $ 1,385 $ 40
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and depletion 2,278 2,311 2,854
Deferred income tax benefit (282) (66) (971)
Provision for doubtful accounts 60 148 79
Gain on disposition of property and equipment (459) (133) (18)
Gain on sale of equity investment -- -- (794)
Gain on sale of discontinued operation -- -- (1,050)
Loss on early retirement of debt -- -- 2,023
Equity loss from mining partnership 922 545 1,188
Changes in operating assets and liabilities,
net of effects from sale of subsidiary:
Receivables (842) (1,395) (841)
Inventories 1,840 (61) 404
Prepaid expenses 8 (92) 38
Income taxes 21 (145) (374)
Accounts payable and accrued expenses (3,267) 5,037 49
Other (112) (343) 100
------- ------- -------
Net cash provided by operating activities 848 7,191 2,727
------- ------- -------
Investing activities:
Capital expenditures (3,417) (1,775) (3,677)
Investment in mining partnership (883) (561) (1,194)
Return of investment in environmental
managment venture -- 250 --
Proceeds from sale of property and equipment 549 202 45
Proceeds from sale of equity investment -- -- 704
Proceeds from sale of discontinued operation -- -- 10,750
------- ------- -------
Net cash (used in) provided by investing (3,751) (1,884) 6,628
------- ------- -------
Financing activities:
Borrowings (repayment) under revolving
credit facilitiy 2,300 (1,700) 1,700
Long-term borrowings 500 -- 3,500
Repayment of long-term debt (1,412) (1,896) (12,795)
Prepayment penalty -- -- (2,023)
Payments to acquire treasury stock (189) -- (296)
------- ------- -------
Net cash provided by (used in)
financing activities 1,199 (3,596) (9,914)
------- ------- -------
Net (decrease) increase in cash and cash
equivalents (1,704) 1,711 (559)
Cash and cash equivalents:
Beginning of year 2,778 1,067 1,626
------- ------- -------
End of year $ 1,074 $ 2,778 $ 1,067
======= ======= =======
Supplemental disclosures of cash flow items:
Cash paid during the year for:
Interest $ 812 $ 773 $ 1,335
Income taxes 500 916 546
</TABLE>
Supplemental Schedule of non-cash investing and financing activities:
A portion of the proceeds from the sale of equity investment was in the
form of preferred stock valued at $90.
A portion of the 1995 proceeds from sale of property and equipment was
in the form of a note receivable valued at $162.
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
Continental Materials Corporation
Consolidated Balance Sheets December 30, 1995 and December 31, 1994
(Amounts in thousands except share data)
<TABLE>
<CAPTION>
December 30, December 31,
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,074 $ 2,778
Receivables less allowance of $259 and $248 12,158 11,376
Inventories 14,657 16,497
Prepaid expenses 2,206 1,505
------------ ------------
Total current assets 30,095 32,156
------------ ------------
Property, plant and equipment:
Land and improvements 1,713 1,713
Buildings and improvements 7,731 7,731
Machinery and equipment 41,078 38,617
Mining properties 2,170 2,329
Less accumulated depreciation and depletion (38,079) (36,664)
------------ ------------
14,613 13,726
Other assets: ------------ ------------
Investment in mining partnership 1,500 1,539
Other 1,015 741
------------ ------------
2,515 2,280
------------ ------------
$ 47,223 $ 48,162
============ ============
LIABILITIES
Current liabilities:
Bank loan payable $ 2,300 $ --
Current portion of long-term debt 1,011 1,411
Accounts payable 4,037 7,017
Income taxes 31 10
Accrued expenses:
Compensation 1,853 1,836
Reserve for self-insured losses 2,984 3,278
Profit sharing 1,031 1,146
Other 1,538 1,433
------------ ------------
Total current liabilities 14,785 16,131
------------ ------------
Long-term debt 3,000 3,512
------------ ------------
Deferred income taxes 2,157 1,730
------------ ------------
Commitments and contingencies (Notes 6 and 8) ------------ ------------
SHAREHOLDERS' EQUITY
Common shares, $.50 par value; authorized
3,000,000 shares; issued 1,326,588 shares 663 663
Capital in excess of par value 3,484 3,484
Retained earnings 25,818 25,137
Treasury shares (2,684) (2,495)
------------ ------------
27,281 26,789
------------ ------------
$ 47,223 $ 48,162
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
Notes to Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include Continental
Materials Corporation and all of its subsidiaries (the Company).
The equity method of accounting is used for the Company's 30%
interest in Oracle Ridge Mining Partners (ORMP). Certain prior
years' amounts have been reclassified to conform with the current
presentation.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities as of December 30, 1995 and December 31, 1994 and the
reported amounts of revenues and expenses during each of the
three years in the period ended December 30, 1995. Actual
results could differ from those estimates.
Inventories
Inventories are valued at the lower of cost or market. Cost is
determined using the last-in, first-out (LIFO) method for
approximately 88% of total inventories at December 30, 1995 (88%
at December 31, 1994). The cost of all other inventory is
determined by the first-in, first-out (FIFO) method.
Property, Plant and Equipment
Property, plant and equipment are carried at cost. Depreciation
is provided over the estimated useful lives of the related assets
using the straight-line method as follows:
Buildings ....................10 to 31 years
Leasehold improvements .......Terms of leases
Machinery and equipment ......3 to 10 years
Depletion of rock and sand deposits is computed by the unit-of-
production method based upon estimated recoverable quantities of
rock and sand.
The cost of property sold or retired and the related accumulated
depreciation or depletion are removed from the accounts and the
resulting gain or loss is reflected in other income. Maintenance
and repairs are charged to expense as incurred. Major renewals
and betterments are capitalized and depreciated over their useful
lives.
Retirement Plans
The Company and certain subsidiaries have various contributory
profit sharing retirement plans for specific employees. The
plans allow qualified employees to make tax deferred
contributions pursuant to Internal Revenue Code Section 401(k).
The Company makes annual contributions, at its discretion, based
primarily on profitability. Costs under the plans are charged to
operations as incurred.
Reserve for Self-Insured Losses
The Company's risk management program provides for certain levels
of loss retention for workers' compensation, automobile liability
and general and product liability claims. The components of the
reserve have been recorded in accordance with the requirements of
Statement of Financial Accounting Standards (SFAS) No. 5,
"Accounting for Contingencies" and represent management's best
estimate of future liability for known claims based upon the
Company's history of claims paid. There were no unasserted
claims as of December 30, 1995 that require a reserve or
disclosure in accordance with SFAS No. 5.
16
<PAGE>
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments
purchased with a maturity of three months or less to be cash
equivalents.
Income Taxes
Income taxes are reported consistent with SFAS No. 109,
"Accounting for Income Taxes." Deferred taxes reflect the future
tax consequences associated with the differences between
financial accounting and tax bases of assets and liabilities.
Concentration of Credit Risk
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of trade
receivables and temporary cash investments. The Company invests
its excess cash in commercial paper of companies with strong
credit ratings. These securities typically mature within 30
days. The Company has not experienced any losses on these
investments.
The Company performs ongoing credit evaluations of its customers
and generally does not require collateral. The Company maintains
reserves for potential credit losses and such losses have been
within management's expectations. See Note 12 for a description
of the Company's customer base and geographical location by
segment.
Fiscal Year End
The Company's fiscal year end is the Saturday nearest December
31. Fiscal 1995, 1994 and 1993 each consist of 52 weeks.
2. DISCONTINUED OPERATION
In June 1993, the Company sold its Imeco, Inc. subsidiary for a
cash payment of $10,750,000. Imeco had been involved in the
manufacture of thermal transfer equipment, and as such was the
"refrigeration" component of the Company's "Heating, Air
Conditioning and Refrigeration" reportable segment. Subsequent
to the sale of Imeco, the reportable segment has been renamed
"Heating and Air Conditioning" representing the businesses of
Williams Furnace Co. and Phoenix Manufacturing, Inc. The sale
resulted in a pre-tax gain of $1,050,000 ($825,000 after-tax or
$0.71 per share).
The Company retained responsibility on product liability claims
involving Imeco equipment occurring prior to the June 30, 1993
sale date. To date, three suits have been filed against Imeco
for which the Company retained responsibility. As of June 30,
1993, the Company was aware of two of the claims. At that time,
the Company concluded that it was not liable for one of the
claims and not enough information was available on the other
claim to make a reasonable estimate of the liability, if any.
Accordingly, no liability was recorded at June 30, 1993 in
connection with these claims. At the end of 1993, management
conducted a complete review of all legal matters and determined
that an accrual of $616,000 was necessary regarding one of the
cases in accordance with the requirements of SFAS No. 5. During
the fourth quarter of 1994, the Company, based on updated
information, recorded an additional $726,000 ($464,000 after-tax
or $0.41 per share). The last of these claims was settled in
early March 1996. See Note 6.
The results of Imeco have been reported separately as a component
of discontinued operations in the Consolidated Statements of
Operations and Retained Earnings. Net sales of Imeco were
$7,513,000 for the six months ended June 30, 1993.
17
<PAGE>
3. INVENTORIES
Inventories consisted of the following (amounts in thousands):
<TABLE>
<CAPTION>
December 30, December 31,
1995 1994
------------ ------------
<S> <C> <C>
Finished goods $ 8,038 $ 8,882
Work in process 2,282 2,208
Raw materials
and supplies 4,337 5,407
------------ ------------
$ 14,657 $ 16,497
============ ============
</TABLE>
If inventories valued on the LIFO basis were valued at current
costs, inventories would be higher as follows: 1995--$2,626,000;
1994--$2,716,000; 1993--$2,456,000.
Reduction in inventory quantities during 1995 resulted in
liquidation of LIFO inventory layers carried at costs which were
lower than the costs of current purchases. The effect of the
reduction in 1995, recorded in the fourth quarter, was to
decrease cost of goods sold by approximately $192,000 and to
increase net earnings by $119,000 or $.10 per share.
4. INVESTMENT IN MINING PARTNERSHIP
The Company has a 30% ownership interest in ORMP, a general
partnership which operates a copper mine primarily situated in
Pima County, Arizona. The equity method of accounting is used to
include 30% of ORMP's income and losses in the Company's
consolidated financial statements.
Production at the mine was halted in February 1996 as the
partners are reassessing their plans including a possible sale of
the mine. The investment in mining partnership has been written
down to management's best estimate of net realizable value,
$1,500,000, as of December 30, 1995. This value is based on the
estimated fair market value of the partnership's property and
assets less liabilities at that date. The related impairment
loss, $172,000, is included in the $922,000 equity loss from
mining partnership. The amounts the Company will ultimately
realize could differ materially in the near term from the amounts
assumed in arriving at the loss included in the current
statements. Concurrently, the partnership also wrote down the
assets to their estimated net realizable value.
18
<PAGE>
The Company's interest in the assets, liabilities, and results of
operations of ORMP as of and for the years ended December 31,
1995 and 1994 is summarized as follows (amounts in thousands):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Current assets $ 1,259 $ 1,300
Non-current assets 7,054 8,259
Current liabilities (3,044) (2,065)
Equity and advances of other
joint venturer (3,793) (5,350)
------- -------
Interest in net assets 1,476 2,144
Difference between interest in net assets
and carrying value of investment 24 (605)
------- -------
Investment at December 31 $ 1,500 $ 1,539
======= =======
Net sales $ 6,888 $ 5,953
======= =======
Gross profit (1,070) (846)
======= =======
Net loss $(5,177) $(1,973)
======= =======
Share of loss reflected in Company's
Statement of Operations $ (922) $ (545)
======= =======
</TABLE>
Included in the partnership net loss of $5,177,000 is an
adjustment to the partnership's asset basis not previously
reflected in the Company's carrying value of the investment.
5. LONG-TERM DEBT
Long-term debt consisted of the following (amounts in thousands):
<TABLE>
<CAPTION>
December 30, December 31,
1995 1994
------------ ------------
<S> <C> <C>
Unsecured term loan $ 4,000 $ 4,900
Other 11 23
------------ ------------
4,011 4,923
Less current portion 1,011 1,411
------------ ------------
$ 3,000 $ 3,512
============ ============
</TABLE>
The Company signed a new Revolving Credit and Term Loan Agreement
(the Agreement) in February 1996. The above table reflects the
payback schedule in the Agreement. Both facilities are
unsecured. The term loan is payable in semi-annual principal
installments of $500,000 with final payment of all then unpaid
principal, on February 15, 1999, including the extension periods.
The loan bears interest at prime or an adjusted LIBOR rate. The
unsecured term loan in effect at December 30, 1995 bore interest
at prime (prime was 8.5% at December 30, 1995).
The Company is required by the Agreement to maintain certain
levels of consolidated tangible net worth, to attain certain
levels of cash flow (as defined) on a rolling four-quarter basis,
and to maintain certain ratios including consolidated debt to
earnings before interest, taxes, depreciation and amortization
and excluding extraordinary items. Additional borrowing,
acquisition of stock of other companies, purchase of treasury
shares and payment of cash dividends are either limited or
require prior approval by the lenders.
19
<PAGE>
Aggregate long-term debt matures as follows under the Agreement
(amounts in thousands):
<TABLE>
<S> <C>
1996 $1,011
1997 1,000
1998 1,000
1999 1,000
------
$4,011
======
</TABLE>
During both 1995 and 1994, the Company had a $12,000,000
unsecured line of credit with two banks to be used for short-term
cash needs and standby letters of credit. Interest was charged
at the rate of prime on cash borrowings (prime plus 1/4% in
1994). The weighted average interest rate was 8.9% for fiscal
1995 and 7.2% for fiscal 1994. The outstanding balance at
December 30, 1995 was $2,300,000. There was no outstanding
balance at December 31, 1994. The Agreement, signed in February
1996, provides for a $14,500,000 line of credit through February
15, 1999.
At December 30, 1995, the Company had letters of credit
outstanding totalling approximately $4,158,000 which primarily
guarantee various insurance activities.
6. COMMITMENTS AND CONTINGENCIES
As discussed in Note 2, the Company retained the responsibility
related to incidents involving Imeco products occurring prior to
June 30, 1993. During 1992 ConAgra, Inc. d/b/a Armour Food
Company and its insurance carrier, Arkwright Mutual Insurance
Company, each filed suit against Imeco and Central Ice Machine
Company in the District Court of Douglas County, Nebraska. In
March 1995, the Company settled the suit. The amount of the
settlement was fully reserved as of December 31, 1994. Imeco was
also named as one of the defendants in a product liability matter
in which an individual was seriously injured while servicing
equipment manufactured by Imeco. In March 1996, the Company
settled the suit. The amount of this settlement was also fully
reserved as of December 31, 1994. During 1995, the third suit
was dropped with no settlement cost to the Company. There are
currently no known asserted or unasserted claims involving Imeco
products for which the Company has retained responsibility. See
Note 2.
During 1995, Williams Furnace Co. was notified by Pacific Gas &
Electric (PG&E) that a recent inspection had discovered a higher
than normal incidence of cracks in the heat exchanger of two
models of furnaces manufactured by Williams prior to 1995.
Independent engineering reports indicate that there is no safety
hazard arising from these cracks. However, PG&E has undertaken
the replacement of approximately 5,900 units purchased during the
period. The Consumer Products Safety Commission (CPSC) has been
notified and Williams is working with independent engineering
firms and the CPSC to resolve the matter. To date, Williams is
aware of one claim alleging injury due to a cracked heat
exchanger. Management believes the ultimate resolution of this
matter will not have a material adverse effect on the Company's
results of operations or financial position. Williams is not
aware of any other claims related to these matters and management
has concluded that no additional amounts should be accrued in
accordance with the requirements of SFAS No. 5.
The Company is also involved in other litigation matters related
to its continuing business. In the Company's opinion, none of
these proceedings, when concluded, will have a material adverse
effect on the Company's results of operations or financial
position.
7. SHAREHOLDERS' EQUITY
Four hundred thousand shares of preferred stock ($.50 par value)
are authorized and unissued.
20
<PAGE>
There was no treasury shares activity during 1994. Activity for
1995 and 1993 was as follows (dollars in thousands):
<TABLE>
<CAPTION>
Number
of
shares Cost
------- ------
<S> <C> <C>
Balance at January 1, 1993 152,310 $2,199
Purchase of treasury shares 34,000 296
------- ------
Balance at January 1
and December 31, 1994 186,310 2,495
Purchase of treasury shares 15,357 189
------- ------
Balance at December 30, 1995 201,667 $2,684
======= ======
</TABLE>
A Stock Option Plan (the Plan) provides for grants of options at
option prices established by the Compensation Committee of the
Board of Directors. Option prices may not be less than the fair
market value of the stock at the date of the grant. Options are
exercisable for a period of no more than ten years from the date
of grant depending upon increases in the trading value of the
stock. The Company has reserved 180,000 shares for distribution
under the Plan. No options were outstanding as of December 31,
1994. During 1995, 78,000 options were granted at an exercise
price of $13.125. Of the 78,000 outstanding options at December
30, 1995, none are exercisable.
8. RENTAL EXPENSE, LEASES AND COMMITMENTS
The Company leases certain of its facilities and equipment and is
required to pay the related taxes, insurance and certain other
expenses. Rental expense was $2,006,000, $1,694,000 and
$1,964,000 for 1995, 1994 and 1993, respectively.
Future minimum rental commitments under non-cancelable operating
leases for 1996 and thereafter are as follows: 1996--$1,555,000;
1997--$1,079,000; 1998--$1,026,000; 1999--$882,000; 2000--
$398,000; and thereafter--$917,000.
The Company also receives annual rental income of $145,000 from a
building it owns. The related lease expires in January 2003 and
contains renewal options.
9. RETIREMENT PLANS
As discussed in Note 1, the Company maintains retirement benefit
plans for eligible employees. Total plan expenses charged to
operations were $979,000, $1,165,000 and $745,000 in 1995, 1994
and 1993, respectively.
10. INCOME TAXES
The provision (benefit) for income taxes is summarized as follows
(amounts in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Federal:Current $ 506 $ 785 $ 121
Deferred (253) (131) (842)
State: Current 1 61 25
Deferred (29) (15) (154)
------ ------- -------
$ 225 $ 700 $ (850)
====== ======= =======
</TABLE>
21
<PAGE>
The provision (benefit) for income taxes has been allocated as
follows (amounts in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Continuing operations $ 225 $ 962 $ (92)
Discontinued operations -- (262) (70)
Extraordinary item -- -- (688)
------ ------ ------
$ 225 $ 700 $ (850)
====== ====== ======
</TABLE>
The difference between the tax rate on income from continuing
operations for financial statement purposes and the federal
statutory tax rate was as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Statutory tax rate 34.0% 34.0% 34.0%
Percentage depletion (13.0) (5.1) (.7)
State income taxes, net of federal benefit 1.6 1.0 (12.7)
Non-deductible expenses 1.4 .5 .6
Reduction of tax contingency recorded
in the fourth quarter -- -- (27.9)
Other .8 3.8 (1.7)
----- ----- -----
24.8% 34.2% (8.4)%
===== ===== ======
</TABLE>
For financial statement purposes, deferred tax assets and
liabilities are recorded at a blend of the current statutory
federal and states' tax rates -- 38%. The principal temporary
differences and their related deferred taxes are as follows
(amounts in thousands):
<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
Reserves for self-insured losses $ 904 $ 842
Deferred compensation 405 348
Asset valuation reserves 435 188
Other 50 21
------- -------
Total deferred tax assets $ 1,794 $ 1,399
======= =======
Depreciation $ 1,324 $ 1,300
Investment in mining partnership 807 745
Other 26 --
------- -------
Total deferred tax liabilities $2,157 $2,045
======= =======
Net deferred tax liabilities $ 363 $ 646
======= =======
</TABLE>
The net current deferred tax assets are $1,794,000 and $1,084,000
at December 30, 1995 and December 31, 1994, respectively, and are
included with "Prepaid expenses" on the Consolidated Balance
Sheets.
22
<PAGE>
11. UNAUDITED QUARTERLY FINANCIAL DATA
The following table provides summarized unaudited quarterly financial data
for 1995 and 1994 (amounts in thousands, except per share amounts):
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
1995
Net sales $16,191 $19,355 $18,183 $21,831
======= ======= ======= =======
Gross profit $ 2,417 $ 3,318 $ 4,366 $ 4,735
======= ======= ======= =======
Depreciation and depletion $ 591 $ 590 $ 569 $ 528
======= ======= ======= =======
Net (loss) income $ (495) $ 52 $ 495 $ 629
======= ======= ======= =======
Net (loss) income per share $ (.43) $ .05 $ .44 $ .56
======= ======= ======= ========
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
1994
Net sales $15,260 $19,265 $19,630 $21,139
======= ======= ======= =======
Gross profit $ 2,354 $ 3,639 $ 4,572 $ 5,333
======= ======= ======= =======
Depreciation and depletion $ 567 $ 568 $ 570 $ 606
======= ======= ======= =======
Net (loss) income
Continuing operations $ (558) $ 392 $ 763 $ 1,252
Discontinued operations -- -- -- (464)
------- ------- ------- -------
$ (558) $ 392 $ 763 $ 788
======= ======= ======= =======
Net (loss) income per share
Continuing operations $ (.49) $ .34 $ .67 $ 1.10
Discontinued operations -- -- -- (.41)
------- ------- ------- -------
$ (.49) $ .34 $ .67 $ .69
======= ======= ======= =======
</TABLE>
Earnings per share are computed independently for each of the
quarters presented. Therefore, the sum of the quarterly earnings
per share may not equal the total for the year.
23
<PAGE>
12. INDUSTRY SEGMENT INFORMATION
The Heating and Air Conditioning segment produces and sells
heating and cooling equipment mainly for residential applications
which is sold primarily to distributors and retail outlets. Sales
are nationwide, but are concentrated in the Southwestern U.S.
The Construction Materials segment is involved in the production
and sale of concrete and other building materials and the
exploration, extraction and sale of limestone, sand and gravel.
Sales of this segment are confined to the Colorado Springs area.
Operating income is determined by deducting operating expenses
from all revenues. In computing operating income, none of the
following has been added or deducted: unallocated corporate
expenses, interest, income or loss from unconsolidated investees,
other income, income taxes, gain or loss on discontinued
operations and extraordinary items.
General corporate assets are principally cash, accounts
receivable and leasehold improvements.
No customer accounts for 10% or more of consolidated sales.
The industry segment information for fiscal years 1995, 1994 and
1993 is as follows (amounts in thousands):
<TABLE>
<CAPTION>
Depreci-
ation
Identifi- and Capital
Net Operating able Deple- Expendi-
Sales Income Assets tion tures
----- --------- --------- ------- --------
1995
<S> <C> <C> <C> <C> <C>
Heating and air
conditioning $43,966 $ 2,316 $25,393 $ 1,027 $ 1,066
Construction materials 31,449 2,912 19,164 1,210 2,337
General corporate
and other 145 (3,222) 2,666 41 14
------- ------- ------- ------- -------
$75,560 $ 2,006 $47,223 $ 2,278 $ 3,417
======= ======= ======= ======= =======
<CAPTION>
1994
Heating and air
conditioning $43,271 $ 3,718 $27,551 $ 1,087 $ 533
Construction materials 31,878 2,645 18,635 1,183 1,211
General corporate
and other 145 (2,408) 1,976 41 31
------- ------- ------- ------- -------
$75,294 $ 3,955 $48,162 $ 2,311 $ 1,775
======= ======= ======= ======= =======
<CAPTION>
1993
Heating and air
conditioning $38,171 $ 3,025 $26,197 $ 1,120 $ 1,027
Construction materials 24,180 1,415 18,300 1,173 2,650
General corporate
and other 144 (2,433) 927 60 --
------- ------- ------- ------- -------
$62,495 $ 2,007 $45,424 $ 2,353 $ 3,677
======= ======= ======= ======= =======
</TABLE>
24
<PAGE>
Report of Independent Accountants
To the Shareholders and Board of Directors of Continental
Materials Corporation
We have audited the accompanying consolidated balance sheets of
Continental Materials Corporation and Subsidiaries as of December
30, 1995 and December 31, 1994, and the related consolidated
statements of operations and retained earnings and cash flows for
each of the three years in the period ended December 30, 1995.
These financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Continental Materials Corporation and
Subsidiaries as of December 30, 1995 and December 31, 1994, and
the consolidated results of their operations and their cash flows
for each of the three years in the period ended December 30, 1995
in conformity with generally accepted accounting principles.
COOPERS & LYBRAND
L.L.P.
Chicago, Illinois
March 14, 1996
25
<PAGE>
INDEPENDENT AUDITORS' REPORT
Oracle Ridge Mining Partners
Tucson, Arizona
We have audited the accompanying balance sheets of Oracle Ridge
Mining Partners (the "Partnership") as of December 31, 1995 and
1994, and the related statements of operations, partners' deficit
and cash flows for the year ended December 31, 1995 and the
fourteen month period ended December 31, 1994. These financial
statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all
material respects, the financial position of the Partnership at
December 31, 1995 and 1994, and the results of its operations and
its cash flows for the year ended December 31, 1995 and the
fourteen month period ended December 31, 1994, in conformity with
generally accepted accounting principles.
As discussed in Note 1 to the financial statements, production at
the mine was halted in February 1996, as the partners reassess
their plans for the mine, including a possible sale to a third
party. Accordingly, the value of the mine has been written down
to the estimated net realizable value.
DELOITTE & TOUCHE LLP
Tucson, Arizona
March 4, 1996
26
<PAGE>
ORACLE RIDGE MINING PARTNERS
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
ASSETS 1995 1994
<S> <C> <C>
CURRENT ASSETS:
Cash $ 61,415 $ 96,754
Accounts receivable 655,856 793,301
Inventories (Note 3) 541,924 410,102
----------- -----------
Total current assets 1,259,195 1,300,157
PROPERTY AND MINERAL INTERESTS (Notes 4 and 9) 7,000,000 8,197,686
OTHER ASSETS (Note 8) 53,876 47,875
----------- -----------
TOTAL $ 8,313,071 $ 9,545,718
=========== ===========
LIABILITIES AND PARTNERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 1,341,468 $ 870,977
Accrued liabilities 258,460 204,523
Accrued payroll taxes 685,270 315,645
Accrued property taxes 528,827 294,826
Accrued use tax 150,649 133,649
Installment purchase liability (Note 9) 59,579 148,746
Due to Union (Note 10) 20,102 96,755
----------- -----------
Total current liabilities 3,044,355 2,065,121
----------- -----------
DEBT DUE TO PARTNERS:
Subordinated debt due to partners (Note 7) 10,456,842 7,491,745
Senior debt - Union (Note 5) 4,760,978 4,760,978
Senior debt - Continental (Note 5) 2,040,418 2,040,418
Union debt (Note 6) 348,492 348,492
----------- -----------
Total debt due to partners 17,606,730 14,641,633
----------- -----------
COMMITMENT AND CONTINGENCIES (Notes 5 and 8)
PARTNERS' DEFICIT (12,338,014) (7,161,036)
----------- -----------
TOTAL $ 8,313,071 $ 9,545,718
=========== ===========
</TABLE>
See notes to financial statements.
- 2 -
<PAGE>
ORACLE RIDGE MINING PARTNERS
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995 AND
FOURTEEN MONTH PERIOD ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
REVENUES - Net value of concentrate $ 6,888,499 $ 6,586,717
OPERATING COSTS AND EXPENSES:
Production costs 6,465,757 6,285,941
General and administrative 1,123,150 999,070
Property and other taxes 305,550 264,651
Depreciation, depletion and amortization 1,196,863 1,211,608
Loss on equipment disposals 108,066 19,227
Interest expense 303,102 221,878
Write-down of property and mineral interests
to net realizable value (Note 1) 2,562,989
----------- -----------
Total operating costs and expenses 12,065,477 9,002,375
----------- -----------
NET LOSS $(5,176,978) $(2,415,658)
=========== ===========
</TABLE>
See notes to financial statements.
- 3 -
<PAGE>
ORACLE RIDGE MINING PARTNERS
STATEMENTS OF PARTNERS' DEFICIT
YEAR ENDED DECEMBER 31, 1995 AND FOURTEEN MONTH PERIOD ENDED
DECEMBER 31, 1994
<TABLE>
<CAPTION>
Union Continental
Copper, Catalina,
Inc. Inc. Total
<S> <C> <C> <C>
PARTNERS' DEFICIT, NOVEMBER 1, 1993 $(3,321,765) $(1,423,613) $ (4,745,378)
Net loss (1,690,961) (724,697) (2,415,658)
----------- ----------- ------------
PARTNERS' DEFICIT, DECEMBER 31,1994 (5,012,726) (2,148,310) (7,161,036)
Net loss
(3,623,885) (1,553,093) (5,176,978)
----------- ----------- ------------
PARTNERS' DEFICIT, DECEMBER 31, 1995 $(8,636,611) $(3,701,403) $(12,338,014)
=========== =========== ============
</TABLE>
See notes to financial statements.
- 4 -
<PAGE>
ORACLE RIDGE MINING PARTNERS
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1995 AND
FOURTEEN MONTH PERIOD ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(5,176,978) $(2,415,658)
Adjustments to reconcile net loss to net
cash used in operating activities:
Write-down of property and mineral
interests to net realizable value 2,562,989
Depreciation, depletion, and
amortization 1,196,863 1,211,608
Loss on equipment disposals 108,066 19,227
Changes in assets and liabilities:
Accounts receivable 137,445 (792,301)
Inventories (131,822) (222,522)
Other assets (6,001) 67,233
Accounts payable and other accrued liabilities 851,601 438,939
Due to Union Copper, Inc. 127,633 91,818
---------- ----------
Net cash used in operating activities (330,204) (1,601,656)
---------- ----------
INVESTING ACTIVITIES:
Additions to plant, equipment and buildings (1,057,087) (578,992)
Proceeds from sale of property, plant and
equipment 54,300
Increase in deferred development costs (1,667,445) (498,166)
----------- ----------
Net cash used in investing (2,670,232) (1,077,158)
----------- ----------
FINANCING ACTIVITIES - Proceeds from
subordinated debt due to partners 2,965,097 2,717,245
----------- ----------
NET (DECREASE) INCREASE IN CASH (35,339) 38,431
CASH, BEGINNING OF PERIOD 96,754 58,323
----------- ----------
CASH, END OF PERIOD $ 61,415 $ 96,754
=========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION -
Interest paid $ 244,746 $ 179,160
=========== ==========
</TABLE>
See notes to financial statements.
- 5 -
<PAGE>
ORACLE RIDGE MINING PARTNERS
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1995 AND
FOURTEEN MONTH PERIOD ENDED DECEMBER 31, 1994
1. ORGANIZATION AND BASIS OF PRESENTATION
Organization - Oracle Ridge Mining Partners (the
"Partnership") is a general partnership formed under the
Arizona Uniform Partnership Act on May 24, 1977 pursuant to a
partnership agreement between Union Copper, Inc. (a Maryland
corporation) ("Union") and Continental Catalina, Inc. (an
Arizona corporation) ("Continental").
Union is a wholly-owned subsidiary of Santa Catalina Mining
Corp. (formerly known as South Atlantic Ventures Ltd.) (a
Canadian corporation). Continental is a wholly-owned
subsidiary of Continental Copper, Inc. (an Arizona
corporation) which in turn is a wholly-owned subsidiary of
Continental Materials Corporation (a Delaware corporation).
The Partnership has a copper mining property with an
underground mine and adjacent crushing and grinding equipment
situated in Pima County, Arizona which commenced commercial
production in 1991. Smelting is performed by an unrelated
third party at another location. All concentrate revenues
are from one customer.
The Fifth Amended and Restated Partnership Agreement dated
October 1, 1994 provides, among other things, the following:
a. Union shall be the managing partner of the project.
b. Profits and losses shall generally be allocated 70% to
Union and 30% to Continental. Certain types of gains or
losses may be subject to an alternative allocation.
Basis of Presentation - Production at the mine was halted in
February 1996, as the partners reassess their plans for the
mine, including a possible sale to a third party.
Accordingly, at December 31, 1995, property and mineral
interests have been written down by $2,562,989 to reflect
management's estimate of the net realizable value.
2. SIGNIFICANT ACCOUNTING POLICIES
A summary of significant accounting policies is as follows:
a. Use of Estimates - The preparation of financial statements
in conformity with generally accepted accounting
principles requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those
estimates.
b. Inventories of concentrate and supplies are stated at the
lower of average cost or estimated market value.
- 6 -
<PAGE>
c. Plant, equipment and buildings are carried at cost less
accumulated depreciation. Depreciation is provided on the
straight-line basis over estimated useful lives which
range from four to fifteen years. Effective December 31,
1995, plant, equipment and buildings are carried at the
lower of cost or net realizable value.
d. Mineral property and claims are carried at cost,
reflecting costs incurred in connection with the
acquisition of the properties, less depletion and write-
downs for recognized impairments in value. The carrying
value of the mineral property and claims will be charged
to operations of the Partnership over future years by
means of depletion charges computed on the basis of actual
ore production and estimated recoverable ore reserves.
Effective December 31, 1995, mineral property and claims
are carried at the lower of cost or net realizable value.
e. Deferred development costs are carried at cost reflecting
all mine development costs incurred since the
recommencement of development in 1989 less depletion and
write-downs of recognized impairments in value. The costs
capitalized include depreciation, only as it relates to
equipment used to develop the mine or install the mill
equipment, interest in accordance with Statement of
Financial Accounting Standards No. 34, Capitalization of
Interest Cost, and administrative expenses that were
directly or indirectly associated with the development and
construction of the mine and related processing
facilities. Through February 1991, there were no proceeds
from production. Since the commencement of production in
March 1991, only direct mine development expenditures have
been deferred. These expenditures include those incurred
to expand the capacity of the mine, develop new ore
bodies, construct access to previously developed ore
bodies and to develop ore zones substantially, in advance
of current production. All deferred development costs
will be charged to operations in the same manner as
mineral property and claims. Effective December 31, 1995,
deferred development costs are carried at the lower of
cost or net realizable value.
f. Revenue recognition - Revenue is recognized when product
is delivered in satisfaction of sales agreements and title
passes to the buyer. Final revenue amounts are adjusted
based on the results of the final assays of the copper
concentrate approximately 60 to 90 days after shipment.
Revenue adjustments have been, and are expected to, remain
immaterial to the reported results of operations.
g. Income taxes - Each partner reflects its share of taxable
income or loss in its tax return and no income taxes are
recorded in the financial statements of the Partnership.
h. Estimated Fair Value of Financial Instruments - The
following disclosure of estimated fair value of the
Company's financial instruments is made in accordance with
the requirements of Statement of Financial Accounting
Standards No. 107, Disclosures About Fair Value of
Financial Instruments. The estimated fair value amounts
have been determined by the Company using available market
information and appropriate valuation methodologies.
However, considerable judgment is required to interpret
the market data in order to develop the estimates of fair
value.
Accordingly, the estimates herein are not necessarily
indicative of the amounts the Company could realized in a
current market exchange. The use of different market
assumptions and/or estimation methodologies may have a
material effect on the estimated fair value amounts.
Management believes that for cash, accounts receivable,
accounts payable, accrued liabilities and other accrued
expenses that the carrying amount is a reasonable estimate
of fair value.
- 7 -
<PAGE>
3. INVENTORIES
Inventories consisted of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Copper concentrate $ 135,000 $ 135,000
Warehouse supplies and stores 206,079 361,739
Other - reagents, explosives 45,185 69,023
---------- ----------
Total inventories $ 541,924 $ 410,102
========== ==========
</TABLE>
4. PROPERTY AND MINERAL INTERESTS
Property and mineral interests consisted of the following at
December 31:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Plant, equipment and buildings:
Crushing and processing plant $ 3,938,962 $ 3,935,880
Underground equipment 2,701,197 2,068,442
Mining and service equipment 1,110,856 1,057,125
Tailing pond 736,978 665,377
Vehicles 154,530 117,651
Buildings 386,547 386,546
Office equipment 174,693 153,147
Road improvements 30,153 30,153
----------- -----------
Total plant, equipment and buildings 9,233,916 8,414,321
Less accumulated depreciation (4,528,644) (3,730,253)
----------- -----------
Plant, equipment and buildings - net 4,705,272 4,684,068
Mineral property and claims and
deferred development costs:
Mineral property and claims 954,185 954,185
Deferred development costs 5,126,915 3,459,470
Total mineral property and claims and
deferred development costs 6,081,100 4,413,655
Less accumulated depletion and
amortization (1,223,383) (900,037)
----------- -----------
Mineral property and claims and
deferred development costs - net 4,857,717 3,513,618
----------- -----------
9,562,989 8,197,686
Less write-down to net realizable value (2,562,989)
----------- -----------
Property and mineral interests - net $ 7,000,000 $ 8,197,686
=========== ===========
</TABLE>
Depreciation expense for the year ended December 31, 1995 and
the fourteen month period ended December 31, 1994 totaled
$873,517 and $874,513, respectively. Depletion and
amortization expense for the year ended December 31, 1995 and
the fourteen month period ended December 31, 1994 totaled
$323,346 and $337,095, respectively.
- 8 -
<PAGE>
5. SENIOR DEBT
As of December 31, 1995 and 1994, the Partnership owed Union
and Continental $4,760,978 and $2,040,418, respectively, as
non-interest bearing senior debt with no defined maturity
date. Such debt is collateralized by substantially all of
the assets of the Partnership.
6. UNION DEBT
As of December 31, 1995 and 1994, the Partnership was
indebted to Union in the amount of $348,492. The loan bears
interest at the prime rate (8.5% at December 31, 1995) plus
2% and does not carry a defined maturity date. Interest is
waived for periods in which the Partnership incurs a net loss
before interest expense for this debt. Interest has been
waived by Union for the year ended December 31, 1995 and the
fourteen month period ended December 31, 1994. This debt is
subordinated to the Senior Debt.
7. SUBORDINATED DEBT DUE TO PARTNERS
As of December 31, 1995 and 1994, the Partnership had
subordinated debt due to the partners of $7,319,578 and
$5,244,011 to Union and $3,137,264 and $2,247,734 to
Continental, respectively. The subordinated debt bears
interest at the prime rate plus 2%. Interest is waived for
periods in which the Partnership incurs a net loss before
interest expense for this debt. Interest has been waived by
Union and Continental for the year ended December 31, 1995
and the fourteen month period ended December 31, 1994. The
debt is subordinated to the Senior Debt (Note 5) and the
Union Debt (Note 6) and does not carry a defined maturity
date.
8. COMMITMENT
Under an arrangement with the State of Arizona, the
Partnership has provided a $45,000 bond to be used for
reclamation purposes. In addition, the agreement requires
that for each ton of ore mined an additional $.05 will be
provided (up to a total of $99,000) for reclamation.
Management believes that the amounts provided under this
agreement will be sufficient to pay for all reclamation
costs.
9. INSTALLMENT PURCHASE
In 1994, the Partnership entered into agreements to purchase
two pieces of equipment on an installment basis. At
December 31, 1995, the remaining liability related to the
purchases was $59,579, all due in 1996. The installment
agreements are collateralized by the related items of
equipment.
10.RELATED PARTY TRANSACTIONS
Related party transactions are disclosed throughout the
financial statements. Additional related party transactions
are as follows for the year ended December 31, 1995 and the
fourteen month period ended December 31, 1994:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Management fees to Union $ 60,000 $ 60,000
======== ========
Reimbursement of expenses incurred by
Union on behalf of the Partnership $164,388 $ 36,755
======== ========
</TABLE>
- 9 -
<PAGE>
Union is entitled to a management fee equal to $12,000 per
month in connection with the performance of its duties as
managing partner of the partnership. However, the managing
partner shall not be entitled to such fee in the event net
operating income for any given month, calculated on an
accrual basis, is less than $15,000.
* * * * * *
- 10 -
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no changes of accountants and/or disagreements on
any matter of accounting principle or financial statement
disclosure during the past 24 months which would require a filing
under Item 9.
PART III
Part III has been omitted from this 10-K Report since Registrant
will file, not later than 120 days following the close of its
fiscal year ended December 30, 1995, its definitive 1996 proxy
statement. The information required by Part III will be included
in that proxy statement and such information is hereby
incorporated by reference, but excluding the information under
the headings "Compensation Committee Report" and "Comparison of
Total Shareholders' Return".
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
(a) 1 Financial statements required by Item 14 are
included in Item 8 of Part II.
(a) 2 The following is a list of financial statement
schedules filed as part of this Report:
Report of Independent Auditors on Schedule
Schedule II Valuation and Qualifying Accounts & Reserves
For Years Ended December 30, 1995, December 31, 1994
and January 1, 1994
All other schedules are omitted because they are not applicable
or the information is shown in the financial statements or notes
thereto.
36
<PAGE>
(a) 3 The following is a list of all exhibits filed as
part of this Report:
Exhibit 3 1975 Restated Certificate of Incorporation dated May
28, 1975 filed as Exhibit 5 to Form 8-K for the month
of May 1975, incorporated herein by reference.
Exhibit 3a Registrant's By-laws as amended September 19, 1975
filed as Exhibit 6 to Form 8-K for the month of
September 1975, incorporated herein by reference.
Exhibit 3b Registrant's Certificate of Amendment of Certificate of
Incorporation dated May 24, 1978 filed as Exhibit 1 to
Form 10-Q for quarter ended June 30, 1978, incorporated
herein by reference.
Exhibit 3c Registrant's Certificate of Amendment of Certificate of
Incorporation dated May 27, 1987 filed as Exhibit 3c to
Form 10-K for the year ended January 1, 1988,
incorporated herein by reference.
Exhibit 10 Continental Materials Corporation Amended and Restated
1994 Stock Option Plan dated May 25, 1994 filed as
Appendix A to the 1994 Proxy Statement, incorporated
herein by reference.*
Exhibit 10a Revolving Credit and Term Loan Agreement between The
Northern Trust Company, LaSalle National Bank and
Continental Materials Corporation dated as of February
28, 1996 (filed herewith).
Exhibit 10b Form of Supplemental Deferred Compensation Agreement
filed as Exhibit 10 to Form 10-Q for the quarter ended
July 1, 1983, incorporated herein by reference.*
Exhibit 10c Continental Materials Corporation Employee Profit
Sharing Retirement Plan Amended and Restated Generally
Effective January 1, 1989 filed as Exhibit 10c to Form
10-K for the year ended December 31, 1994.
Exhibit 11 Computation of Per Share Earnings (filed herewith).
Exhibit 21 Subsidiaries of Registrant (filed herewith).
Exhibit 24 Consent of Independent Accountants (filed herewith).
Exhibit 24a Independent Auditors' Consent (filed herewith).
Exhibit 27 Financial Data Schedule (filed herewith).
Exhibit 28 Continental Materials Corporation Employees Profit
Sharing Retirement Plan on Form 11-K for the year ended
December 30, 1995 (to be filed by amendment).
* - Compensatory plan or arrangement
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter
ended December 30, 1995.
37
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
CONTINENTAL MATERIALS CORPORATION
Registrant
By: /S/Joseph J. Sum
-----------------------------
Joseph J. Sum,
Vice President, Finance
Date: March 27, 1996
-----------------------------
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
SIGNATURE CAPACITY(IES) DATE
- ------------------------ ------------- -------------
/S/ James G. Gidwitz
- ------------------------
James G. Gidwitz Chief Executive
Officer
and a Director March 27, 1996
/S/ Joseph J. Sum
- ------------------------
Joseph J. Sum Vice President and
a Director March 27, 1996
/S/ Mark S. Nichter
- ------------------------
Mark S. Nichter Secretary and March 27, 1996
Controller
/S/ Thomas H. Carmody
- ------------------------
Thomas H. Carmody Director March 27, 1996
/S/ Betsy R. Gidwitz
- ------------------------
Betsy R. Gidwitz Director March 27, 1996
/S/ Ralph W. Gidwitz
- ------------------------
Ralph W. Gidwitz Director March 27, 1996
/S/ Ronald J.Gidwitz
- ------------------------
Ronald J. Gidwitz Director March 27, 1996
/S/ William A. Ryan
- ------------------------
William A. Ryan Director March 27, 1996
/S/ William G. Shoemaker
- ------------------------
William G. Shoemaker Director March 27, 1996
/S/ Theodore R. Tetzlaff
- ------------------------
Theodore R. Tetzlaff Director March 27, 1996
38
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON SCHEDULE
Our report on the consolidated financial statements of
Continental Materials Corporation and Subsidiaries is included on
page 25 of this Annual Report on Form 10-K. In connection with
our audits of such financial statements, we have also audited the
related financial statement schedule listed in the index on page
35 of this Form 10-K.
In our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material
respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
March 14, 1996
<PAGE>
CONTINENTAL MATERIALS CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (c) (d)
for the fiscal years 1995, 1994 and 1993
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C(1) COLUMN D COLUMN E
Additions
Balance at Charged to Deductions Balance at
Beginning Costs and - End of
Description of Period Expenses Describe Period
<S> <C> <C> <C> <C>
Year 1995
Allowance for
doubtful accounts $248,000 $ 60,000 $ 48,000(a) $260,000
Inventory valuation
reserve $223,000 $232,000 $219,00 (b) $236,000
Year 1994
Allowance for
doubtful accounts $139,000 $148,000 $ 39,000(a) $248,000
Inventory valuation
reserve $420,000 $289,000 $486,000(b) $223,000
Year 1993
Allowance for
doubtful accounts $258,000 $101,000 $220,000(e) $139,000
Inventory valuation
reserve $ 40,000 $398,000 $ 18,000(b) $420,000
</TABLE>
[FN]
Notes:
(a) Accounts written off, net of recoveries.
(b) Amounts written off upon disposal of assets.
(c) Reserve deducted in the balance sheet from the asset to which it applies.
(d) Column C(2) has been omitted as the answer would be "none".
(e) Accounts written off, net of recoveries plus $102,000 reserve balance
transferred with sale of subsidiary.
REVOLVING CREDIT AND TERM LOAN AGREEMENT
Dated as of February 28, 1996
CONTINENTAL MATERIALS CORPORATION, a corporation organized under
the laws of the state of Delaware (the "Borrower"), THE NORTHERN
TRUST COMPANY, an Illinois banking corporation ("Northern") and
LASALLE NATIONAL BANK ("LaSalle Bank)" (Northern and LaSalle
Bank referred to individually in this Agreement as a "Lender" and
collectively as the "Lenders"), agree as follows:
RECITALS:
A. The parties hereto have previously entered into that certain
Revolving Credit and Term Loan Agreement dated as of April 20,
1992, as amended up to the date hereof through various amendments
thereto, the last such amendment being the Fifth Amendment
thereto dated as of January 31, 1995 (said Revolving Credit and
Term Loan Agreement as so amended being the "Original
Agreement").
B. Pursuant to the Original Agreement, the Lenders have issued
the following described letters of credit (the "Existing Letters
of Credit") for the account of the Borrower:
Issuing Lender No. Beneficiaries
Northern S262251 St. Paul Fire and Marine Insurance Co.
Northern S258180 The Home Insurance Company
Northern S250189 CNA Insurance Company
Northern S250188 CNA Insurance Company
Northern S249912 Insurance Company of North America
LaSalle Bank 9210002188 St. Paul Fire and Marine Insurance Co.
LaSalle Bank 9200000426 The Home Insurance Company
LaSalle Bank 9260137087 CNA Insurance Company
LaSalle Bank 9260237088 CNA Insurance Company
LaSalle Bank 9260037086 Insurance Company of North America
C. The Original Agreement, the promissory notes of the Borrower
issued and remaining unpaid thereunder (the "Existing Notes"),
the Existing Letters of Credit, and the documents related to or
referenced therein are referred to herein as the "Prior
Documents".
D. The parties to and/or bound by the Prior Documents wish to
consolidate and amend and restate the Prior Documents in their
entirety in order to provide for certain changes and to restate
their agreements with respect to the subject matter hereof.
NOW, THEREFORE, the parties hereto amend and restate the
Original Agreement in its entirety to read as follows:
SECTION 1 DEFINITIONS
SECTION 1.1 GENERAL. As used herein:
The term "affiliate" means any corporation of which the Borrower
owns directly or indirectly 20% or more, but less than 50%, of
the outstanding voting stock, or any partnership, joint venture,
trust or other legal entity of which the Borrower has effective
control, by contract or otherwise.
The term "Applicable LIBOR Margin", for purposes of determining
the interest rate on a LIBOR Loan, shall mean initially 2% (the
"Normal LIBOR Margin"); provided, however, that the Normal LIBOR
Margin shall be subject to semi-annual adjustments as follows:
If EBITDA, as determined no later
than March 31 and September 30
(each, an Applicable LIBOR Margin
Reset Date") of each year, for
the period of the four fiscal
quarters ending at the end of
of the fiscal quarter immediately
preceding an Applicable LIBOR
Margin Reset Date (i.e. fiscal quarters Applicable
ending December 31 and June 30) is: LIBOR Margin is:
$7,000,000 and above 1.25%
$6,000,000 to $6,999,999 1.50%
$5,000,000 to $5,999,999 1.75%
$3,750,000 to $4,999,999 2.00%
Less than $3,749,999 2.50%
Not later than twenty (20) days after the Lenders receipt of the
quarterly financial statements required by Section 6.2(a) hereof
for the quarters ending December 31 and June 30, accompanied by a
certificate of the chief accounting officer or Treasurer of the
Borrower computing EBITDA for the period of the four fiscal
quarters ending on such dates, Northern will determine whether
such financial information indicates such a change in EBITDA as
would justify a change in the Applicable LIBOR Margin and shall
then notify the Borrower and LaSalle Bank of such determination
and of any change in the Applicable LIBOR Margin resulting
therefrom. Any change in the Applicable LIBOR Margin, and in the
rate of interest applicable to LIBOR loans resulting therefrom,
shall be effective prospectively as of the first day after the
relevant Applicable LIBOR Margin Reset Date, and with such new
Applicable LIBOR Margin to continue in effect until the
effectiveness of the next
redetermination thereof. Any determination of Northern of EBITDA
shall be conclusive and binding upon the Borrower and the Lenders
provided that it has been made reasonably and in good faith,
absent manifest error. If the Borrower fails to timely submit
the quarterly financial statements and certificate referred to
above, the rate of interest applicable to LIBOR Loans as of the
next determination date of the Applicable LIBOR Margin shall be
determined and based upon the Default Rate.
The term "Borrowing" shall mean the total of Loans of a single
type (i.e. LIBOR Loan or Prime Rate Loan) made by the Lenders to
the Borrower on a single date and for a single Interest Period.
Borrowings of Loans are made ratably from each of the Lenders
according to their respective commitments.
The term "Business Day" shall mean any day other than a
Saturday, Sunday or other day on which banks in Chicago, Illinois
are authorized to close, and with respect to LIBOR Loans, a day
on which dealings in United States Dollars may be carried on by
the Reference Bank in the London interbank eurodollar market.
The term "Commitment - Revolving Credit" shall mean each such
amount set forth below across from the name of each Lender:
Lender Amount
Northern $7,250,000
LaSalle Bank $7,250,000
Provided that the Commitment-Revolving Credit of each Lender
shall permanently reduce to a maximum of $6,000,000 on June
30, 1997.
The term "Commitment - Term Loan" shall mean each such amount
set forth below across from the name of each Lender:
Lender Amount
Northern $2,000,000
LaSalle Bank $2,000,000
The term "EBITDA", with reference to any period, shall mean, on
a consolidated basis, the sum of the Borrower's:
(i) consolidated net income or loss after all provisions or
credits for any Federal, state or other income taxes,
plus
(ii) Federal, state and other income taxes deducted in the
determination of consolidated net income, plus
(iii) Interest Expense deducted in the determination of
consolidated net income, plus
(iv) depreciation and amortization expense deducted in the
determination of consolidated net income, and minus
(v) any items of gain which are extraordinary items to the
extent reflected in the determination of consolidated
net income.
The term "Fixed Charges" for any Measurement Period shall mean,
on a consolidated basis, the Interest Expense and scheduled
principal payments (including capitalized lease obligations) of
the Borrower.
The term "Fixed Charge Coverage Ratio" shall mean, for any
period (a "Measurement Period") consisting of the four fiscal
quarters of the Borrower ending as of the end of each fiscal
quarter of the Borrower, the ratio of Income Available for Fixed
Charges to Fixed Charges.
The term "Funded Debt" shall mean Indebtedness which by its
terms or by the terms of any instrument or agreement relating
thereto matures more than one year from, or is directly renewable
or extendible at the option of the debtor to a date more than one
year (including an option of the debtor under a revolving credit
or similar agreement obligating the lender or lenders to extend
credit over a period of more than one year) from the date of
creation thereof; provided, however, that in any event "Funded
Debt" includes all Revolving Credit Loans.
The term "Income Available for Fixed Charges" for any
Measurement Period shall mean on a consolidated basis, the sum of
the Borrower's:
(i) consolidated net income or loss before all provisions or
credits for any Federal, state or other income taxes,
plus
(ii) depreciation, depletion and amortization (other than
amortization of debt discount expense), plus
(iii) Interest Expense, minus
(iv) capital expenditures (but excluding therefrom capital
expenditures financed with that portion of Revolving
Credit Loans converted, or intended or anticipated to be
converted, to the Term Loan pursuant to Section 2.2(A)
hereof).
The term "Indebtedness" of any entity or consolidated group
means, without duplication:
(i) all obligations, contingent or otherwise, of such entity
for borrowed money and all obligations of such entity
evidenced by bonds, debentures, notes or other similar
instruments;
(ii) all obligations of such entity as lessee under leases
which have been or should be, in accordance with
generally accepted accounting principles, recorded as
capitalized lease liabilities;
(iii) all guaranties, whether direct or indirect, secured or
unsecured, of Indebtedness of another person by such
entity or any of its subsidiaries;
(iv) net liabilities of such entity under all interest rate
swap agreements, interest rate cap agreements, interest
rate collar agreements and all other agreements or
arrangements designed to protect such entity against
fluctuations in interest rates or currency exchange
rates;
(v) whether or not so included as liabilities in accordance
with generally accepted accounting principles, all
obligations of such entity to pay the deferred purchase
price of property or services, and indebtedness
(excluding prepaid interest thereon) secured by a lien
on property owned or being purchased by such entity
(including indebtedness arising under conditional sales
or other title retention agreements), whether or not
such indebtedness shall have been assumed by such entity
or is limited in recourse; and
(vi) all contingent liabilities of such entity in respect of
any of the foregoing.
For all purposes of this Agreement, the Indebtedness of any
entity shall include its pro rata share of Indebtedness of any
partnership or joint venture in which such entity is a general
partner or a joint venturer, except that any and all Indebtedness
of Oracle Ridge Mining Partners ("Oracle Ridge") shall be
excluded from the definition of Indebtedness for purposes of this
Agreement, if and so long as the Borrower is not the majority
owner of Oracle Ridge, Oracle Ridge is not consolidated with the
Borrower for financial reporting purposes, and the Borrower is
not legally responsible for said Indebtedness of Oracle Ridge.
The term "Interest Expense" shall mean, for any Measurement
Period of the Borrower, all interest accrued (whether or not
actually paid) during such period on Indebtedness of the Borrower
and its subsidiaries (determined on a consolidated basis),
provided that the term "Interest Expense" also shall include
(without limitation) (i) dividends paid on any preferred or
special stock issued by the Borrower, (ii) amortized discount in
respect to Indebtedness of the Borrower and its subsidiaries
issued at a discount and (iii) imputed interest on capitalized
lease obligations of the Borrower and its subsidiaries.
The term "Interest period" shall mean the period commencing on
the date a Borrowing of LIBOR Loans is made and ending on the
date, as the Borrower may select, 1, 2, 3 or 6 months thereafter;
provided, however, that:
(a) the Borrower may not select an Interest Period that
extends beyond the Termination Date;
(b) whenever the last day of any Interest Period would
otherwise be a day that is not a Business Day, the last day of
such Interest Period shall be extended to the next succeeding
Business Day, provided that, if such extension would cause the
last day of such Interest Period to occur in the following
calendar month, the last day of such Interest Period shall be the
immediately preceding Business Day; and
(c) for purposes of determining the Interest Period for a
Borrowing of LIBOR Loans, a month means a period starting on one
day in a calendar month and ending on the numerically
corresponding day in the next calendar month; provided, however,
that if there is no numerically corresponding day in the month in
which such an Interest Period is to end or if such an Interest
Period begins on the last Business Day of a calendar month, then
such Interest Period shall end on the last Business Day of the
calendar month in which such Interest Period is to end.
The term "LIBOR Loan" shall mean a Loan bearing interest at a
rate determined by reference to Adjusted LIBOR (as hereinafter
defined).
The term "Prime Rate" shall mean the rate of interest per year
announced from time to time by Northern called its prime rate,
which may not at any time be the lowest rate of interest charged
by Northern. Changes in the rate of interest resulting from a
change in the Prime Rate shall take effect on the date set forth
in each announcement.
The term "Prime Rate Loan" shall mean a Loan bearing interest at
a rate determined by reference to the Prime Rate.
The term "Reference Bank" shall mean Northern.
The term "subsidiary" means any corporation, partnership, joint
venture, trust, or other legal entity of which the Borrower owns
directly or indirectly 50% or more of the outstanding voting
stock or interest, or of which the Borrower has effective
control, by contract or otherwise.
The term "Tangible Net Worth" means, at any date, net
stockholders' equity, minus goodwill, patents, trademarks,
service marks, trade names, copyrights, and all other intangible
assets and all items that are treated as intangible assets under
generally accepted accounting principles.
The term "Termination Date" shall mean February 15, 1998,
subject to any extension thereof pursuant to Section 2.1(A)
hereof.
The term "Unmatured Event of Default" means an event or
condition which would
become an Event of Default with notice or the passage of time or
both.
SECTION 1.2 APPLICABILITY OF SUBSIDIARY AND AFFILIATE
REFERENCES. Terms hereof pertaining to any subsidiary or
affiliate shall apply only during such times as the Borrower has
any subsidiary or affiliate.
SECTION 1.3 ACCOUNTING TERMS. Except as and unless otherwise
specifically provided herein, all accounting terms in this
Agreement shall have the meanings given to them by generally
accepted accounting principles and shall be applied and all
reports required by this Agreement shall be prepared, in a manner
consistent with generally accepted accounting principles
consistently applied.
SECTION 2 LOANS
SECTION 2.1 REVOLVING CREDIT LOANS. Subject to the terms and
conditions of this Agreement, each Lender, severally and not
jointly, agrees to make loans to the Borrower, from time to time
from the date of this Agreement through the Termination Date, at
such times and in such amounts, not to exceed the amount of each
such Lender's Commitment - Revolving Credit, at any one time
outstanding, as the Borrower may request (the "Revolving Credit
Loan(s)"). During such period, the Borrower may borrow, repay
and reborrow hereunder. Each borrowing shall be in the amount of
at least $25,000.00 or the remaining unused amount of the
Commitment - Revolving Credit. Notwithstanding the generality of
the foregoing, neither Lender shall make any Revolving Credit
Loans under this Agreement or the Revolving Credit Note (as
hereinafter defined) if at any time the sum of: (a) the aggregate
principal amount outstanding under the Revolving Credit Notes and
due such Lender plus (b) the aggregate face amount of all Letters
of Credit (as hereinafter defined) issued by such Lender for the
benefit of the Borrower and any drawn and unpaid amounts
thereunder equals or exceeds such Lender's Commitment - Revolving
Credit.
SECTION 2.1(A) EXTENSIONS OF THE TERMINATION DATE. The Borrower
may advise the Lenders in writing of its desire to extend the
Termination Date for an additional one year, provided (i) such
request is made no later than 90 days prior to such Termination
Date, (ii) not more than one such request for the extension of
the Termination Date may be made in any one calendar year, and
(iii) in no event shall the Termination Date be extended beyond
February 15, 1999. Each Lender shall notify the Borrower and the
other Lender in writing within 45 days after such Lender receives
such request from the Borrower, whether such Lender in its sole
discretion agrees to such extension. In the event that a Lender
shall fail to so notify the Borrower and the other Lender within
such 45 day period, whether it agrees to such extension, such
Lender shall be deemed to have refused to grant the requested
extension. Upon receipt by the Borrower and all Lenders of the
consent of all Lenders within such 45 day period, the Termination
Date shall be automatically extended for an additional one year,
and Northern shall confirm such automatic extension in writing to
the Borrower and LaSalle Bank. In the event the Borrower and all
Lenders do not consent to the requested extension of the
Termination Date, such Termination Date shall take place as
scheduled.
SECTION 2.2 REVOLVING CREDIT NOTE. The Revolving Credit Loans
shall be evidenced by a revolving credit note (the "Revolving
Credit Note"), substantially in the form of Exhibit A, with
appropriate insertions, dated the date hereof, payable to the
order of each Lender, in the principal amount of the Commitment -
Revolving Credit of each such Lender, and with the amounts
borrowed and repaid and the balance indorsed on the grid by such
Lender. As long as such Lender is the holder of such Revolving
Credit Note it may, at its option, in lieu of endorsing the grid,
record the amounts borrowed and repaid under and the balance due
on the Revolving Credit Note in each such Lender's respective
books and records, which books and records may treat each
borrowing as a separate Revolving Credit Loan; such endorsement
or recording by such Lender shall be rebuttably presumptive
evidence of the principal balance due on each Revolving Credit
Note. Subject to Section 2.2(A) hereof, the principal of each
Revolving Credit Note shall be payable in full on the Termination
Date.
SECTION 2.2(A) CONVERSION OF PORTIONS OF REVOLVING CREDIT LOANS.
At any time on or before June 30, 1997, the Borrower may advise
the Lenders in writing (the "Conversion Notice(s)") of its
election to convert up to $1,250,000 of each Lender's Revolving
Credit Loans to such Lender's Term Loan. Any Conversion Notice
must be delivered to the Lenders no later than June 15, 1997, and
not more than one such election may be made. The Conversion
Notice must specify: (i) the amount of each Lender's Revolving
Credit Loans to be converted to such Lender's Term Loan (the
"Converted Amount", which cannot exceed $1,250,000 and which must
be the same amount for each Lender); and (ii) the date on which
the Converted Amount is to be converted to the relevant Term
Loan, which date (the "Conversion Date") cannot be less than
seven nor more than thirty days after the date on which the
Conversion Notice(s) is received by the Lenders, but in any event
can be no later than June 30, 1997. Any Conversion Notice(s),
and the election set forth therein, is irrevocable, but is
ineffective if an Event of Default has occurred and is continuing
on either the date of the Conversion Notice(s) or the Conversion
Date. From and after the Conversion Date, the Converted Amount
payable to each Lender shall be and become part of the Term Loan
payable to such Lender, and is repayable and bears interest as
set forth herein and in the Term Note of such Lender. From and
after the Conversion Date, each Lender's Commitment - Revolving
Credit is permanently reduced by $1,250,000.
SECTION 2.3 LETTERS OF CREDIT. Subject to the terms of this
Agreement, each Lender shall issue stand-by and/or commercial
letters of credit for the account of the Borrower (collectively,
the "Letter(s) of Credit"), from time to time from the date of
this Agreement through the Termination Date or such later date as
may from time to time be agreed upon in writing by the Borrower
and the Lenders, with a maturity date on any Letter of Credit no
later than the Termination Date, at such times and in such
amounts, as the Borrower may request, up to a maximum amount not
in excess of: (a) $14,500,000 minus (b) the aggregate amount of
Revolving Credit Loans outstanding under the Revolving Credit
Notes minus (c) the unexpired portion of all outstanding Letters
of Credit and any amount
drawn under any such Letters of Credit (including without
limitation, any draft drawn under a Letter of Credit and accepted
by such Lender for which the Lender has not been reimbursed). At
any time the Borrower determines that it desires the issuance of
a Letter of Credit, the Borrower may request such Letter of
Credit from the Northern, which request shall be in writing and
irrevocable as to the Borrower and, subject to the terms hereof
and Northern's internal rules regarding the issuance of letters
of credit, Northern will issue a Letter of Credit for one-half
the face amount requested by the Borrower. At the time Northern
receives a request by the Borrower for the issuance of a Letter
of Credit, Northern will inform LaSalle Bank in writing of the
request and, subject to the terms hereof and LaSalle Bank's
internal rules regarding the issuance of letters of credit,
LaSalle Bank will issue a Letter of Credit for one-half the face
amount requested by the Borrower. Notwithstanding the generality
of the foregoing, neither Northern nor LaSalle Bank will issue a
Letter of Credit unless the other Lender agrees in writing to
simultaneously issue an identical Letter of Credit. The Borrower
shall execute, and be subject to, such documentation in form and
substance as may be required by Northern and LaSalle Bank. The
Borrower shall pay each Lender its standard fees, charges,
commissions, and discounts in connection with any Letter of
Credit or any draft drawn under any Letter of Credit, which,
subject to the terms and provisions of the forementioned
documents, is three-quarters of one percent (3/4%) per annum for
each Letter of Credit with a $250.00 minimum, said fee(s) being
payable quarterly in arrears. Any draft drawn under a Letter of
Credit not paid on or before its maturity shall constitute a
Revolving Credit Loan and shall bear interest at the rate and be
payable as provided for other Revolving Credit Loans. The
Borrower shall not request the issuance of any Letter of Credit
and the Lenders shall not issue any Letters of Credit at any time
when the face amount of all unexpired Letters of Credit issued by
all Lenders (including without limitation, any draft drawn under
a Letter of Credit and accepted by any Lender for which the
Lender has not been reimbursed), exceeds $5,000,000. For all
purposes hereof, each Existing Letter of Credit shall be deemed
to be a Letter of Credit issued hereunder.
SECTION 2.4 TERM LOAN. Subject to the terms and conditions of
this Agreement, each Lender, severally and not jointly, agrees to
lend to the Borrower, and the Borrower agrees to borrow from each
Lender, on the date hereof, the amount of each Lender's
Commitment - Term Loan (the "Term Loan"; the Revolving Credit
Loans and the Term Loan, collectively, the "Loans"). Any amount
of Term Loans repaid may not be reborrowed.
SECTION 2.5 TERM NOTE. The Term Loan shall be evidenced by a
term note (the "Term Note"; the Revolving Credit Notes and the
Term Notes, collectively, the "Notes"), substantially in the form
of Exhibit B, with appropriate insertions, dated the date hereof,
payable to the order of each Lender, in the principal amount of
the Commitment - Term Loan of each such Lender. The Term Loan
and Term Note of each Lender is payable in seven (7) consecutive
principal payments consisting of six (6) equal consecutive
principal payments of $250,000 each, each payable on the 15th day
of each June and December of each year beginning with the first
such date to occur after the date of the Term Loan, and a
seventh (7th) and final principal payment of $500,000 and all
then unpaid principal, such seventh (7th) and final payment due
in full on February 15, 1999. Provided, however, that if and
when any Converted Amount is added to the Term Loans of each
Lender pursuant to Section 2.2(A) hereof, that portion of such
Term Loans is payable as follows: commencing on the first semi-
annual principal payment date (June 15 and December 15) after the
Conversion Date, and continuing on each such principal payment
date thereafter, each principal payment of the Term Loan and Term
Note then due shall be increased by an amount equal to ten
percent (10%) of the Converted Amount, with the then unpaid
principal of the Converted Amount and all then unpaid principal
of the Term Loan being due in full on February 15, 1999.
SECTION 2.6 GUARANTY. The Loans and all of the Borrower's
other liabilities, obligations and indebtedness to each of the
Lenders, direct or indirect, absolute or contingent, due or to
become due, now or hereafter existing with respect to principal,
and interest accrued thereon, whether under this Agreement or any
other agreement with either or both of the Lenders or note
payable to either or both of the Lenders, shall be guaranteed by:
(a) Transit Mix Concrete Co., a Colorado corporation ("Transit
Mix"), by execution and delivery of a Guaranty in the form of
Exhibit C hereto with appropriate insertions (the foregoing
Guaranty, and all amendments, restatements, and replacements,
if any, thereto or therefor, collectively, the "Transit Mix
Guaranty");
(b) Phoenix Manufacturing, Inc., an Arizona corporation
("Phoenix"), by execution and delivery of a Guaranty in the
form of Exhibit D hereto with appropriate insertions (the
foregoing Guaranty, and all amendments, restatements, and
replacements, if any, thereto or therefor, collectively, the
"Phoenix Guaranty");
(c) Williams Furnace Co., a Delaware corporation ("Williams"),
by execution and delivery of a Guaranty in the form of Exhibit
E hereto with appropriate insertions (the foregoing Guaranty,
and all amendments, restatements, and replacements, if any,
thereto or therefor, collectively, the "Williams Guaranty");
and
(d) Castle Concrete Company, a Colorado corporation
("Castle"), by execution and delivery of a Guaranty in the
form of Exhibit F hereto with appropriate insertions (the
foregoing Guaranty, and all amendments, restatements, and
replacements, if any, thereto or therefor, collectively, the
"Castle Guaranty").
SECTION 3 INTEREST AND FEES
SECTION 3.1 INTEREST. The Borrower may elect that each
Borrowing of Loans be made by means of a Prime Rate Loan or a
LIBOR Loan; provided, however, that there shall not be more than
six Borrowings of LIBOR Loans outstanding at any time.
(a) Prime Rate Loans. Each Prime Rate Loan made by the
Lenders shall bear interest
on the unpaid principal amount thereof from the date such Loan
is made until maturity (whether by acceleration or otherwise) at
a rate per annum equal to the Prime Rate from time to time in
effect.
(b) LIBOR Loans. Each LIBOR Loan made by the Lenders shall
bear interest on the unpaid principal amount thereof from the
date such Loan is made until maturity (whether by acceleration or
otherwise) at a rate per annum equal to the sum of the Applicable
LIBOR Margin from time to time in effect plus the Adjusted LIBOR.
"Adjusted LIBOR" means, for any Borrowing of LIBOR Loans, a rate
per annum determined in accordance with the following formula:
LIBOR
Adjusted LIBOR = 100% - Eurodollar Reserve Percentage
"LIBOR" means, for an Interest Period for a Borrowing of LIBOR
Loans, the rate of interest per annum (rounded upwards, if
necessary, to nearest 1/100 of 1%) at which deposits in U.S.
dollars in immediately available funds are offered by the
Reference Bank at approximately 11:00 a.m. (London, England time)
two (2) Business Days before the beginning of such Interest
Period by prime banks in the interbank eurodollar market for a
period equal to such Interest Period and in an amount equal or
comparable to the principal amount of the LIBOR Loans scheduled
to be made by the Lenders as part of such Borrowing.
"Eurodollar Reserve Percentage" means, for any Borrowing of
LIBOR Loans, the daily average for the applicable Interest Period
of the maximum rate at which reserves (including, without
limitation, any supplemental, marginal and emergency reserves)
are imposed during such Interest Period by the Board of Governors
of the Federal Reserve System (or any successor) under Regulation
D on "eurocurrency liabilities," as defined in such Board's
Regulation D, (or in respect of any other category of liabilities
that includes deposits by reference to which the interest rate on
LIBOR Loans is determined or any category of extension of credit
or other assets that include loans by non-United States offices
of any Lender to United States residents) subject to any
amendments of such reserve requirement by such Board or its
successor, taking into account any transitional adjustments
thereto. For purposes of this definition, the LIBOR Loans shall
be deemed to be "eurocurrency liabilities" as defined in
Regulation D.
(c) Rate Determinations. Northern shall determine each
interest rate applicable to the Loans hereunder, and its
determination thereof shall be conclusive and binding except in
the case of manifest error.
SECTION 3.2 MINIMUM AND MAXIMUM BORROWING AMOUNTS. Each
Borrowing of Prime Rate Loans (other than an L/C Refinancing
Borrowing) shall be in an amount not less than $25,000 or any
larger amount that is an integral multiple of $25,000. Each
Borrowing of LIBOR Loans shall be in an amount not less than
$500,000, or any
larger amount that is an integral multiple of $100,000.
SECTION 3.3 BASIS OF COMPUTATION. Interest on all Loans shall
be computed for the actual number of days elapsed on the basis of
a year consisting of 360 days, including the date a Loan is made
and excluding the date a Loan or any portion thereof is paid or
prepaid.
SECTION 3.4 INTEREST PAYMENT DATES. Accrued interest on Prime
Rate Loans shall be paid on the fifteenth (15th) day of each
March, June, September and December of each year, at maturity and
upon payment in full, beginning with the first of such dates to
occur after the date of the first such Loan hereunder. Accrued
interest on LIBOR Loans shall be paid on the last day of the
applicable Interest Period and at maturity and, if the applicable
Interest Period is longer than three months, on each day
occurring three months after the date such LIBOR Loan is made.
After maturity, whether by acceleration or otherwise, accrued
interest on all Loans shall be paid upon demand.
SECTION 3.5 DEFAULT RATE. If the Borrower is in default under
any of the financial requirements set forth in Section 6.4
hereof, or if any payment of principal on any Loan or other
monetary obligation is not made when due (whether by acceleration
or otherwise), such Loan or other monetary obligation shall bear
interest, after as well as before judgment, from the date such
payment was due until paid in full, payable on demand, at a rate
per annum (the "Default Rate") equal to:
(a) with respect to any Prime Rate Loan, the sum of two
percent (2%) plus the Prime Rate from time to time in effect; and
(b) with respect to any LIBOR Loan, the sum of two percent
(2%) plus the rate of interest in effect thereon at the time of
such default until the end of the Interest Period applicable
thereto and, thereafter, at a rate per annum equal to the sum of
two percent (2%) plus the Prime Rate from time to time in effect;
and
(c) with respect to other monetary obligations for which a
Default Rate is not otherwise specified, the sum of two percent
(2%) plus the Prime Rate from time to time in effect.
SECTION 3.6 CLOSING FEE. The Borrower agrees to pay each
Lender, on the date of the initial Loans hereunder, an amount
equal to one-eighth of one percent (1/8%) of the aggregate of
such Lender's Commitment - Revolving Credit and Commitment - Term
Loan.
SECTION 3.7 COMMITMENT FEE, REDUCTION OF COMMITMENT. The
Borrower agrees to pay each Lender a commitment fee (the
"Commitment Fee") of three-eighths of one percent (3/8%) per year
on the average daily unused amount of each Lender's Commitment -
Revolving Credit. The Commitment Fee shall commence to accrue on
the date of this Agreement and shall be paid on the fifteenth
(15th) day of each March, June, September and December in each
year, beginning with the first of such dates to occur after
the date of this Agreement, at maturity and upon payment in full.
At any time or from time to time, upon at least ten days' prior
written notice, which shall be irrevocable, the Borrower may
reduce each Lender's Commitment - Revolving Credit in the amount
of at least $25,000.00 or in full, provided, however, that all
such reductions of Commitment -Revolving Credit shall reduce the
Commitment - Revolving Credit of each Lender on a pro rata basis
based on the Commitment - Revolving Credit of each Lender
immediately prior to such reduction. Upon any such reduction of
any part of the unused Commitment - Revolving Credit, the
Commitment Fee on the part reduced shall be paid in full as of
the date of such reduction.
SECTION 4 PAYMENTS AND PREPAYMENTS.
SECTION 4.1 PAYMENTS. All payments and prepayments of
principal, interest, closing fees and Commitment Fee shall be
made in immediately available funds to each respective Lender at
its main banking office in Chicago, Illinois.
SECTION 4.2 MANNER OF BORROWING. The Borrower shall give
Northern written or telephonic prior irrevocable notice (a
"Borrowing Notice") by 11:00 a.m., Chicago, Illinois time, (i) on
the date at least three (3) Business Days prior to the date of
each requested Borrowing of LIBOR Loans and (ii) on the date of
any requested Borrowing of Prime Rate Loans. Each such notice
shall specify the date of Borrowing, which must be a Business
Day, the aggregate amount of the requested Borrowing, the type of
Loans to comprise such Borrowing and, if such Borrowing is to be
comprised of LIBOR Loans, the Interest Period applicable thereto.
Northern will then notify LaSalle Bank in writing or by telephone
by 12:00 noon on the date of receipt of the foregoing notice
(which such notice to LaSalle Bank, if it relates to Revolving
Credit Loan Borrowings constituting Prime Rate Loans, may be made
before or after Northern has funded its 50% portion of such
requested Loans) and, if such notice requests the Lender to make
LIBOR Loans, Northern shall give notice to the Borrower and to
LaSalle Bank of the interest rate applicable thereto promptly
after Northern has made such determination. LaSalle Bank, on
the date of Borrowing of any Revolving Credit Loan, shall remit
50% of any requested Revolving Credit Loan to the Borrower's
account, except to the extent such Borrowing is either a
reborrowing, in whole or in part, of the principal amount of a
maturing Borrowing of Loans (a "Refunding Borrowing") or an L/C
Refinancing Borrowing, in which case each Lender shall record the
Loan made by it as a part of such Refunding Borrowing or L/C
Refinancing Borrowing, as the case may be, on its books or
records or on a schedule to the appropriate Note, and shall
effect the repayment, in whole or in part, as appropriate, of its
maturing Loan or reimbursement obligation through the proceeds of
such new Loan. At the time Northern has made a Revolving Credit
Loan, LaSalle Bank shall be deemed to have funded its 50% share
of such Revolving Credit Loan and the obligation to remit to
Northern on such day its 50% of the Revolving Credit Loan shall
be absolute and irrevocable. Each borrowing from the Lenders
under this Agreement shall be made on a pro rata basis of their
respective Commitment - Revolving Credit and Commitment - Term
Loan. Each payment and prepayment made by the Borrower shall be
made to the Lenders pro rata on the basis of the
respective amounts of the Loans outstanding immediately prior to
such payment or prepayment. In the event the Borrower fails to
give notice pursuant to this Section 4.2 of the reborrowing of
the principal amount of any maturing Borrowing or of a Borrowing
to refinance a reimbursement obligation with respect to a Letter
of Credit (an "L/C Refinancing Borrowing") and has not notified
Northern by 11:00 a.m. (Chicago time) on the day such Borrowing
matures or such reimbursement obligation becomes due that it
intends to repay such Borrowing or such reimbursement obligation
with funds not borrowed hereunder, the Borrower shall be deemed
to have requested a Borrowing of Prime Rate Loans on such day in
the amount of the maturing Borrowing or of the reimbursement
obligation then due, which new Borrowing shall be applied to pay,
as the case may be, the maturing Borrowing or reimbursement
obligation then due.
Each LIBOR Loan shall mature and become due and payable by the
Borrower on the last day of the Interest Period applicable
thereto.
SECTION 4.3 CHANGE IN CIRCUMSTANCES, ETC. (a) The Borrower
agrees to pay to each Lender such amounts as will compensate each
Lender for any increase in the cost to such Lender of making or
maintaining any Loans hereunder or of maintaining its Commitment
- - Revolving Credit to make Revolving Credit Loans hereunder,
caused by any change in any reserve, tax, capital guidelines,
special deposit, or similar requirement with respect to assets
of, deposits with or for the account of, or credit extended by,
or commitments extended by, such Lender which are imposed on such
Lender and which are caused by any change in law, treaty, rule,
regulation (including, without limitation, Regulation D of the
Board of Governors of the Federal Reserve System), any
interpretation thereof by any governmental, fiscal, monetary or
other authority charged with the administration thereof or having
jurisdiction over such Loan or such Lender, or any requirement
imposed by any such authority, whether or not having the force of
law. Such additional amounts shall be payable on demand. Such
Lender's calculation of such additional amounts shall be final
and binding absent manifest error.
(b) Notwithstanding any other provisions of this Agreement or
any Note, if at any time after the date hereof any change in
applicable law or in the interpretation thereof makes it unlawful
for any Lender to make or continue to maintain LIBOR Loans or to
give effect to its obligations as contemplated hereby, such
Lender shall promptly give notice thereof to the Borrower, with a
copy to the other Lender, and such Lender's obligations to make
or maintain LIBOR Loans under this Agreement shall terminate
until it is no longer unlawful for such Lender to make or
maintain LIBOR Loans. The Borrower shall prepay on demand the
outstanding principal amount of any such affected LIBOR Loans,
together with all interest accrued thereon and all other amounts
then due and payable to such Lender under this Agreement;
provided, however, subject to all of the terms and conditions of
this Agreement, the Borrower may then elect to borrow the
principal amount of the affected LIBOR Loan from such Lender by
means of a Prime Rate Loan from such Lender that shall not be
made ratably by the Lenders but only from such affected Lender.
(c) If on or prior to the first day of any Interest Period for
any Borrowing of LIBOR Loans:
(i) Northern advises the Borrower that deposits in United
States Dollars (in the applicable amounts) are not being offered
to it in the interbank eurodollar market, for such Interest
Period, or
(ii) either Lender advises the Borrower that LIBOR as
determined by Northern will not adequately and fairly reflect the
cost to such Lender of funding its LIBOR Loans for such Interest
Period, then, until Northern notifies the Borrower that the
circumstances giving rise to such suspension no longer exist, the
obligation of the Lenders to make LIBOR Loans shall be suspended.
SECTION 4.4 FUNDING INDEMNITY. In the event any Lender shall
incur any loss, cost or expense (including, without limitation,
any loss of profit, and any loss, cost or expense incurred by
reason of the liquidation or re-employment of deposits or other
funds acquired by such Lender to fund or maintain any LIBOR Loan
or the relending or reinvesting of such deposits or amounts paid
or prepaid to such Lender) as a result of:
(a) any payment (including prepayment) of a LIBOR Loan on a
date other than the last day of its Interest Period for any
reason, whether before or after default, and whether or not such
payment is required by any provisions of this Agreement, or
(b) any failure (because of a failure to meet the conditions
of borrowing or otherwise) by the Borrower to borrow a LIBOR Loan
on the date specified in a Borrowing Notice,
then, upon the demand of such Lender, the Borrower shall pay to
such Lender such amount as will reimburse such Lender for such
loss, cost or expense. If any Lender makes such a claim for
compensation, it shall provide to the Borrower, with a copy to
the other Lender, a certificate executed by an officer of such
Lender setting forth the amount of such loss, cost or expense in
reasonable detail (including an explanation of the basis for and
the computation of such loss, cost or expense) and the amounts
shown on such certificate shall be deemed rebuttably presumptive
evidence of the correctness thereof.
SECTION 4.5 DISCRETION OF LENDERS AS TO MANNER OF FUNDING.
Notwithstanding any other provision of this Agreement, each
Lender shall be entitled to fund and maintain its funding of all
or any part of its Loans in any manner it sees fit, it being
understood, however, that for the purposes of this Agreement all
determinations hereunder shall be made as if each Lender had
actually funded and maintained each LIBOR Loan through the
purchase of deposits in the relevant market having a maturity
corresponding to such Loan's Interest Period and bearing an
interest rate equal to LIBOR, for such Interest Period.
SECTION 4.6 PREPAYMENTS. The Borrower shall have the privilege
of prepaying
without premium or penalty and in whole or in part (but, if in
part, then: (i) in an amount not less than $250,000 and in
integral multiples of $25,000 in the case of Prime Rate Loans,
and in an amount not less than $500,000 and in integral multiples
of $100,000 in the case of LIBOR Loans and (ii) in an amount such
that the minimum amount required for a Borrowing pursuant to
Section 3.2 hereof remains outstanding) on any Business Day upon
prior notice to the Lenders which must be received by the Lenders
by no later than 11:00 a.m. (Chicago time) on the date of such
prepayment in the case of Prime Rate Loans and by no later than
11:00 a.m. (Chicago time) on the date three Business Days in
advance of the date of such prepayment in the case of LIBOR
Loans, such prepayment to be made by the payment of the principal
amount to be prepaid and, in the case of LIBOR Loans, any
compensation required by Section 4.4 hereof. Partial prepayments
of any outstanding type of Loan shall be applied to the various
Borrowings thereof in the inverse order of their maturity.
Partial prepayments of the Term Loans shall be applied to
installments thereof in the inverse order of their maturity.
Unless otherwise designated by the Borrower, prepayments shall be
deemed paid with respect to the Revolving Credit Loans which are
Prime Rate Loans.
SECTION 4.7 MANDATORY REPAYMENT. If at any given time from and
after the date of this Agreement, the amount of Revolving Credit
Loans plus all outstanding and unpaid Letters of Credit issued by
all Lenders exceeds the then aggregate amount of the Commitments-
Revolving Credit of all Lenders, THEN the Borrower shall
immediately repay to the Lenders that amount necessary to reduce
the unpaid and outstanding principal amount of the Revolving
Credit Loans such that the amount of Revolving Credit Loans plus
all outstanding and unpaid Letters of Credit issued by all
Lenders is equal to or less than the then aggregate amount of the
Commitments-Revolving Credit of all Lenders. All repayments of
principal under this Section 4.7 shall include interest accrued
to the date of repayment on the principal amount repaid.
SECTION 5 REPRESENTATIONS AND WARRANTIES
To induce each Lender to make each of the Loans, the
Borrower represents and warrants, and at the time the Borrower
requests or accepts any Loan, the Borrower shall be deemed to
represent and warrant, to each Lender that:
SECTION 5.1 ORGANIZATION. The Borrower is a corporation
existing and in good standing under the laws of the state of
Delaware; any subsidiary is a corporation duly existing and in
good standing under the laws of the state of its formation as
indicated on Exhibit G; the Borrower and any subsidiary are duly
qualified, in good standing and authorized to do business in each
jurisdiction where, because of the nature of their activities or
properties, such qualification is required and failure to qualify
could have a material adverse effect on the Borrower and its
Subsidiaries taken as a whole; and the Borrower and any
subsidiary have the power and authority to own their properties
and to carry on their businesses as now being conducted.
SECTION 5.2 AUTHORIZATION; NO CONFLICT. The borrowings
hereunder, the
execution and delivery of the Notes and the performance by the
Borrower of its obligations under this Agreement and the Notes
are within the Borrower's corporate powers, have been authorized
by all necessary corporate action, have received all necessary
governmental approval (if any shall be required) and do not and
will not contravene or conflict with any provision of law or of
the charter or by-laws of the Borrower or any subsidiary or of
any agreement binding upon the Borrower or any subsidiary.
SECTION 5.3 FINANCIAL STATEMENTS. The Borrower's audited
consolidated financial statement as at December 31, 1994 and its
unaudited consolidated financial statement as at September 30,
1995, copies of which have been furnished to both Lenders, have
been prepared in conformity with generally accepted accounting
principles applied on a basis consistent with that of the
preceding fiscal year, and accurately present the financial
condition of the Borrower and any subsidiary as at such dates and
the results of their operations for the respective periods then
ended. Since the date of those financial statements, no
material, adverse change in the business, properties, assets,
operations, conditions or prospects of the Borrower or any
subsidiary has occurred of which each Lender has not been advised
in writing before this Agreement was signed. There is no known
contingent liability of the Borrower or any subsidiary which is
known to be in an amount in excess of $100,000.00 which is not
reflected in such financial statements or in Exhibit I hereto or
of which the Lenders have not been advised in writing before this
Agreement was signed.
SECTION 5.4 TAXES. The Borrower and any subsidiary have filed
or caused to be filed all federal, state and local tax returns
which, to the knowledge of the Borrower or any subsidiary, are
required to be filed, and have paid or have caused to be paid all
taxes as shown on such returns or on any assessment received by
them, to the extent that such taxes have become due (except for
current taxes not delinquent and taxes being contested in good
faith and by appropriate proceedings for which adequate reserves
have been provided on the books of the Borrower or the
appropriate subsidiary, and as to which no foreclosure,
distraint, sale or similar proceedings have been commenced). The
Borrower and any subsidiary have set up reserves which are
adequate for the payment of additional taxes for years which have
not been audited by the respective tax authorities.
SECTION 5.5 LIENS. None of the assets of the Borrower or any
subsidiary are subject to any mortgage, pledge, title retention
lien, or other lien, encumbrance or security interest, except
for: (a) current taxes not delinquent or taxes being contested in
good faith and by appropriate proceedings; (b) liens arising in
the ordinary course of business for sums not due or sums being
contested in good faith and by appropriate proceedings, but not
involving any deposits or advances or borrowed money or the
deferred purchase price of property or services; (c) to the
extent specifically shown in the financial statements referred to
above; and (d) liens existing on the date hereof as listed in
Exhibit H hereto.
SECTION 5.6 ADVERSE CONTRACTS. Neither the Borrower nor any
subsidiary is a party to any agreement or instrument or subject
to any charter or other corporate restriction, nor is it subject
to any judgment, decree or order of any court or governmental
body, which
may have a material and adverse effect on the business, assets,
liabilities, financial condition, operations or business
prospects of the Borrower and its subsidiaries taken as a whole
or on the ability of the Borrower to perform its obligations
under this Agreement or the Notes. Neither the Borrower nor any
subsidiary has, nor with reasonable diligence should have had,
knowledge of or notice that it is in default in the performance,
observance or fulfillment of any of the obligations, covenants or
conditions contained in any such agreement, instrument,
restriction, judgment, decree or order.
SECTION 5.7 REGULATION U. The Borrower is not engaged
principally in, nor is one of the Borrower's important
activities, the business of extending credit for the purpose of
purchasing or carrying "margin stock" within the meaning of
Regulation U of the Board of Governors of the Federal Reserve
System as now and from time to time hereinafter in effect.
SECTION 5.8 LITIGATION AND CONTINGENT LIABILITIES, No
litigation (including derivative actions), arbitration
proceedings or governmental proceedings are pending or threatened
against the Borrower which would (singly or in the aggregate), if
adversely determined, have a material and adverse effect on the
financial condition, continued operations or prospects of the
Borrower or any subsidiary, except as set forth (including
estimates of the dollar amounts involved) in Exhibit I hereto.
SECTION 5.9 SUBSIDIARIES. Attached hereto as Exhibit G is a
correct and complete list of all subsidiaries and affiliates of
the Borrower.
SECTION 5.10 PURPOSE. The Borrower shall use the proceeds of
the Loans to refinance the amounts owing under the Prior
Documents, for working capital purposes, and for general
corporate purposes, including capital expenditures.
SECTION 6 COVENANTS
Until all obligations of the Borrower hereunder and under the
Notes are paid and fulfilled in full, and as a condition
precedent to the Borrower requesting the Term Loans and any
Revolving Credit Loan, the Borrower agrees that it shall, and
shall cause any subsidiary to, comply with the following
covenants, unless the Lenders consent otherwise in writing:
SECTION 6.1 CORPORATE EXISTENCE, MERGERS, ETC. The Borrower and
any subsidiary shall preserve and maintain its corporate
existence, rights, franchises, licenses and privileges, and will
not liquidate, dissolve, or merge, or consolidate with or into
any other corporation, or sell, lease, transfer or otherwise
dispose of all or a substantial part of its assets, except that:
(a) Any subsidiary may merge or consolidate with or into any
one or more wholly-owned subsidiaries;
(b) Any subsidiary may sell, lease, transfer or otherwise
dispose of any of its assets to the Borrower or one or more
wholly-owned subsidiaries; and
(c) The Borrower may liquidate, dissolve, sell, lease,
transfer, or otherwise dispose of the net assets of any
subsidiary whose net assets constitute ten percent (10%) or
less of the Borrower's consolidated net assets. For purposes
of this Section 6.1(c), the Borrower's consolidated net assets
shall be determined immediately prior to any such liquidation,
dissolution, sale, lease, transfer, or other disposition, and
the ten percent limitation applies on a cumulative basis to
all such dispositions during the period beginning on the date
hereof and ending on the Termination Date.
SECTION 6.2 REPORTS, CERTIFICATES AND OTHER INFORMATION.
The Borrower shall furnish to each Lender:
(a) Interim Reports. Within 45 days after the end of each
quarter of each fiscal year of the Borrower, a copy of an
unaudited financial statement of the Borrower and any
subsidiary prepared on a consolidated basis consistent with
the audited consolidated financial statements of the Borrower
and any subsidiary referred to above, signed by an authorized
officer of the Borrower and consisting of at least (i) a
balance sheet as at the close of such quarter and (ii) a
statements of earnings and cash flows for such quarter and for
the period from the beginning of such fiscal year to the close
of such quarter.
(b) Audit Report. Within 100 days after the end of each
fiscal year of the Borrower, a copy of an annual audit report
of the Borrower and any subsidiary prepared on a consolidated
basis and in conformity with generally accepted accounting
principles applied on a basis consistent with the audited
consolidated financial statements of the Borrower and any
subsidiary referred to above, duly certified by independent
certified public accountants of recognized standing
satisfactory to the Lender, accompanied by an opinion without
significant qualification.
(c) Certificates. Contemporaneously with the furnishing of a
copy of each quarterly report provided for in this Section, a
certificate dated the date of such quarterly report and signed
by either the President, the Chief Accounting officer or the
Treasurer of the Borrower, to the effect that no Event of
Default or Unmatured Event of Default has occurred and is
continuing, or, if there is any such event, describing it and
the steps, if any, being taken to cure it, and containing
(except in the case of the certificate dated the date of the
annual report) a computation of, and showing compliance with,
any financial ratio or restriction contained in this
Agreement, and also containing a description of the amount and
type of capital expenditures which are excluded from capital
expenditures pursuant to the parenthetical in clause (iv) of
the definition of Income Available for Fixed Charges.
(d) Reports to SEC and to Shareholders. Copies of each filing
and report made by the Borrower or any subsidiary with or to
any securities exchange or the Securities and
Exchange Commission, except in respect of any single
shareholder, and of each communication from the Borrower or
any subsidiary to Borrower's shareholders generally, promptly
upon the filing or making thereof.
(e) Notice of Default, Litigation and ERISA Matters.
Immediately upon learning of the occurrence of any of the
following, written notice describing the same and the steps
being taken by the Borrower or any subsidiary affected in
respect thereof: (i) the occurrence of an Event of Default or
an Unmatured Event of Default; or (ii) the institution of, or
any adverse determination in, any litigation, arbitration or
governmental proceeding which is material to the Borrower or
any subsidiary on a consolidated basis; or (iii) the
occurrence of a reportable event under, or the institution of
steps by the Borrower or any subsidiary to withdraw from, or
the institution of any steps to terminate, any employee
benefit plans as to which the Borrower or any of its
subsidiaries may have any liability.
(f) Subsidiaries. Promptly from time to time a written report
of any changes in the list of its subsidiaries.
(g) Other Information. From time to time such other
information, financial or otherwise, concerning the Borrower
or any subsidiary as either Lender may reasonably request.
SECTION 6.3 INSPECTION. The Borrower and any subsidiary shall
permit each Lender and its agents at any time during normal
business hours to inspect their properties and to inspect and
make copies of their books and records.
SECTION 6.4 FINANCIAL REQUIREMENTS. Until all of the
obligations of the Borrower under this Agreement and the Notes
are fully paid and performed, neither the Borrower nor any
subsidiary will, unless at any time both Lenders shall otherwise
expressly consent in writing:
(a) Fixed Charge Coverage Ratio. Permit the Fixed Charge
Coverage Ratio, as determined as of December 28, 1996 and as
of the end of each fiscal quarter thereafter of the Borrower's
fiscal year, in all instances for the period of the four
fiscal quarters then ending, to be less than 1.0:1.0;
(b) Current Ratio. Permit the ratio of consolidated current
assets to current liabilities (with current liabilities not
including the final installment on the Term Loans due on
February 15, 1999) as determined as of the end of each fiscal
quarter of the Borrower's fiscal year, to be less than
1.75:1.0;
(c) Tangible Net Worth. Permit the Borrower's consolidated
Tangible Net Worth, determined as of the end of each fiscal
quarter of the Borrower's fiscal year, to be less than
$24,000,000, plus fifty percent (50%) of the Borrower's
cumulative consolidated
net income (disregarding losses) for all periods subsequent to
December 28, 1994); and
(d) Leverage Ratio. Permit the Borrower's ratio of (i)
consolidated Funded Debt as at the end of each fiscal quarter
of the Borrower's fiscal year, to (ii) EBITDA for the
Measurement Period ending at the last day of such quarter, to
exceed 2.75:1.0 as at the end of each fiscal quarter through
September 30, 1996, and 2.5:1.0 as at the end of each fiscal
quarter thereafter.
SECTION 6.5 INDEBTEDNESS, LIENS AND TAXES. The Borrower and
any subsidiary shall:
(a) Indebtedness. Not incur, permit to remain outstanding,
assume or in any way become committed for Indebtedness in
respect of borrowed money, except (i) Indebtedness incurred
hereunder or to either Lender; (ii) Indebtedness existing on
the date of this Agreement shown on the financial statements
furnished to both Lenders before this Agreement was signed;
(iii) other Indebtedness existing on the date hereof as listed
in Exhibit J hereto; (iv) other Indebtedness to which the
Lenders give the Borrower prior written consent; and (v)
Indebtedness in the aggregate amount not greater than 5% of
the Tangible Net Worth of the Borrower at any time or from
time to time.
(b) Liens. Not create, suffer or permit to exist any lien or
encumbrance of any kind or nature upon any of their assets now
or hereafter owned or acquired, or acquire or agree to acquire
any property or assets of any character under any conditional
sale agreement or other title retention agreement, but this
Section shall not be deemed to apply to: (i) liens existing on
the date of this Agreement which are listed on Exhibit H
hereto or of which the Lenders have been advised in writing
before this Agreement was signed; (ii) liens of landlords,
contractors, laborers or supplement, tax liens, or liens
securing performance or appeal bonds or other similar liens or
charges arising out of the Borrower's business, provided that
tax liens are removed before related taxes become delinquent
and other liens are promptly removed, in either case unless
contested in good faith and by appropriate proceedings, and as
to which adequate reserves shall have been established; and
(iii) liens securing borrowings or advances from the Borrower
to wholly-owned subsidiaries.
(c) Taxes. Pay and discharge all taxes, assessments and
governmental charges or levies imposed upon them, upon their
income or profits or upon any properties belonging to them,
prior to the date on which penalties attach thereto, and all
lawful claims for labor, materials and supplies when due,
except that no such tax, assessment, charge, levy or claim
need be paid which is being contested in good faith by
appropriate proceedings and as to which adequate reserves
shall have been established, and as to which no foreclosure,
distraint, sale or similar proceedings have commenced.
(d) Keep Well Agreements. Except as set forth in Exhibit I
hereto, not assume,
guarantee, indorse or otherwise become or be responsible in
any manner (whether by agreement to purchase any obligations,
stock, assets, goods or services, or to supply or advance any
funds, assets, goods or services, or otherwise) with respect
to the obligation of any other person or entity, except by the
endorsement of negotiable instruments for deposit or
collection in the ordinary course of business and except as
permitted by this Agreement.
SECTION 6.6 INVESTMENTS AND LOANS. Neither the Borrower nor
any subsidiary shall make any loan, advance, extension of credit
or capital contribution to, or purchase or otherwise acquire for
a consideration, evidences of indebtedness, capital stock or
other securities of, or all or substantially all of the assets
of, any person in an aggregate amount greater than $1,500,000 (as
determined for the period beginning on the date hereof and ending
on the Termination Date), except that the Borrower and any
subsidiary may:
(a) purchase or otherwise acquire and own short-term money
market items;
(b) extend credit upon customary terms to their customers in
the ordinary course of their business; and
(c) extend credit to officers and employees in accordance with
policies in effect on the date of this Agreement of which the
Lenders have been advised in writing.
SECTION 6.7 CAPITAL STRUCTURE AND DIVIDENDS. Neither the
Borrower nor any subsidiary shall purchase or redeem, or obligate
itself to purchase or redeem, any shares of the Borrower's
capital stock, of any class, issued and outstanding from time to
time, provided, however, that the Borrower may purchase an amount
of shares of the Borrower's capital stock in a total amount not
to exceed $1,000,000 in the aggregate (as determined for the
period beginning on the date hereof and ending on the Termination
Date); or declare or pay any dividend (other than dividends
payable in its own common stock or to the Borrower) or make any
other distribution in respect of such shares other than to the
Borrower. The Borrower shall continue to own, directly or
indirectly, the same (or greater) percentage of the stock of each
subsidiary that it held on the date of this Agreement, and no
subsidiary shall issue any additional securities other than to
the Borrower.
SECTION 6.8 MAINTENANCE OF PROPERTIES. The Borrower and any
subsidiary shall maintain, or cause to be maintained, in good
repair, working order and condition, all their properties
(whether owned or held under lease), and from time to time make
or cause to be made all needed and appropriate repairs, renewals,
replacements, additions, betterments and improvements thereto, so
that the business carried on in connection therewith may be
properly and advantageously conducted at all times.
SECTION 6.9 INSURANCE. The Borrower and any subsidiary shall
maintain insurance in responsible companies in such amounts and
against such risks as is usually carried by owners of similar
businesses and properties in the same general area in which the
Borrower or its subsidiaries operate. The Lenders agree that the
Borrower may self-insure certain risks and that the levels of
such self-insurance shall be reasonably and prudently determined
solely by the Borrower.
SECTION 6.10 USE OF PROCEEDS.
(a) General. The Borrower and any subsidiary shall not use or
permit any proceeds of the Loans to be used, either directly
or indirectly, for the purpose, whether immediate, incidental
or ultimate, of "purchasing or carrying any margin stock'
within the meaning of Regulations U or X of the Board of
Governors of the Federal Reserve System, as amended from time
to time. If requested by either Lender, the Borrower and any
subsidiary will furnish to such Lender a statement in
conformity with the requirements of Federal Reserve Form U-1
to the foregoing effect. No part of the proceeds of the Loans
will be used for any purpose which violates or is inconsistent
with the provisions of Regulation U or X of the Board of
Governors.
(b) Tender Offers and Going Private. Neither the Borrower nor
any subsidiary shall use (or permit to be used) any proceeds
of the Loans to acquire any security in any transaction which
is subject to Section 13 or 14 of the Securities Exchange Act
of 1934, as amended, or any regulations or rulings thereunder.
SECTION 6.11 PURPOSE. The Borrower shall use the proceeds of
the Loans as set forth in Section 5.10 above.
SECTION 7 CONDITIONS OF LENDING
The obligation of each Lender to make the Term Loan and each
of the Revolving Credit Loans is subject to the following
conditions precedent:
SECTION 7.1 DOCUMENTATION; FIRST LOAN. In addition to the
conditions precedent set forth in Section 7.2 hereinbelow, the
obligation of both Lenders to make the Term Loan and the first
Revolving Credit Loan is subject to the conditions precedent that
both Lenders shall have received all of the following, each duly
executed and dated the date of this Agreement, in form and
substance satisfactory to the Lenders and their counsel, at the
expense of the Borrower, and in such number of signed
counterparts as each Lender may request (except for the Notes, of
which only the original of each shall be signed):
(a) Revolving Credit Note. Revolving Credit Notes in the form
of Exhibit A, with appropriate insertions, each payable to
each Lender for the face amount of such Lender's Commitment -
Revolving Credit;
(b) Term Note. Term Notes in the form of Exhibit B, with
appropriate insertions, each payable to each Lender for the
face amount of such Lender's Commitment - Term Loan;
(c) Resolutions. A copy of a resolution of the Board of
Directors of the Borrower authorizing or ratifying the
execution, delivery and performance, respectively, of this
Agreement, the Notes and the other documents provided for in
this Agreement, certified by the Secretary of the Borrower;
copies of the resolutions of the Board of Directors of each
subsidiary authorizing or ratifying the execution, delivery
and performance of its guaranty, certified by its Secretary;
(d) Articles of Incorporation and By-laws; Good Standing
Certificates. A copy of the articles of incorporation and by-
laws of the Borrower and each subsidiary, certified by the
Secretary of the Borrower and each subsidiary, respectively,
or, in lieu thereof, certification by the Secretary of the
Borrower and each subsidiary that there have been no changes
to said articles of incorporation and by-laws since the
date(s) when certified copies thereof were last furnished to
the Lenders; good standing certificates issued by the
Secretary of State of each state in which the Borrower or such
subsidiary is incorporated and qualified to do business;
(e) Certificates of Incumbency. A certificate of the
Secretary of the Borrower and each subsidiary certifying the
names of the officer or officers of the Borrower or such
subsidiary authorized to sign this Agreement, the Notes, its
guaranty and the other documents provided for in this
Agreement to be signed by the Borrower and such subsidiary,
together with a sample of the true signature of each such
officer (the Lender may conclusively rely on such certificate
until formally advised by a like certificate of any changes
therein);
(f) Guaranties. The Transit Mix Guaranty in the form of
Exhibit C, with appropriate insertions; the Phoenix Guaranty
in the form of Exhibit D, with appropriate insertions; the
Williams Guaranty in the form of Exhibit E, with appropriate
insertions; and the Castle Guaranty in the form of Exhibit F,
with appropriate insertions;
(g) Certificate of No Default. A certificate signed by the
President, the Chief Financial Officer or the Treasurer of the
Borrower to the effect that: (i) no Event of Default or
Unmatured Event of Default has occurred and is continuing or
will result from the making of the Term Loan and the first
Revolving Credit Loan; and (ii) the representations and
warranties of the Borrower contained herein are true and
correct as at the date of the Term Loan and the first
Revolving Credit Loan as though made on that date;
(h) Opinion of Counsel to the Borrower and Subsidiaries. An
opinion of counsel to the Borrower and its subsidiaries to
such effect as the Lenders may require; and
(i) Miscellaneous. Such other documents and certificates as
the Lender may request.
SECTION 7.2 REPRESENTATIONS AND WARRANTIES: NO DEFAULT.
(a) Representations and Warranties. At the date of the Term
Loan and each Revolving Credit Loan, the Borrower's
representations and warranties set forth herein shall be true
and correct as at such date with the same effect as though
those representations and warranties had been made on and as
at such date.
(b) No Default. At the time of the Term Loan and each
Revolving Credit Loan, and immediately after giving effect to
the Term Loan and each Revolving Credit Loan, the Borrower
shall be in compliance with all the terms and provisions set
forth herein on its part to be observed or performed, and no
Event of Default or Unmatured Event of Default shall have
occurred and be continuing at the time of any Loan, or would
result from the making of any Loan.
SECTION 7.3 SUCCEEDING LOANS. The application by the Borrower
for any Revolving Credit Loan other than the first shall be
deemed a representation and warranty by the Borrower that the
statements in Section 7.2 are true and correct on and as of the
date of each such Loan.
SECTION 8 DEFAULT
SECTION 8.1 EVENTS OF DEFAULT. Each of the following
occurrences is hereby defined as an "Event of Default":
(a) Nonpayment or Non-Compliance with Financial Requirements.
The Borrower shall fail to make any payment of principal,
interest, or other amounts payable hereunder when and as due,
or shall fail to be in compliance with any of the Financial
requirements set forth at Section 6.4 hereof; or
(b) Default under Related Documents. Any default, event of
default, or similar event shall occur or continue beyond any
applicable grace or notice period under any instrument,
document, note, agreement, or guaranty delivered to either
Lender in connection with the Loans, or any such instrument,
document, note, agreement, or guaranty shall not be, or shall
cease to be, enforceable in accordance with its terms; or
(c) Cross-Default. There shall occur any default or event of
default, or any event which might become such with notice or
the passage of time or both, or any similar event, or any
event which requires the prepayment of borrowed money or the
acceleration of the maturity thereof, under the terms of any
evidence of indebtedness or other agreement issued or assumed
or entered into by the Borrower or any subsidiary or under the
terms of any indenture, agreement or instrument under which
any such evidence of indebtedness or other agreement is
issued, assumed, secured or guaranteed, and such event shall
continue beyond any applicable period of grace; or
(d) Dissolutions, etc, The Borrower shall fail to comply with
any provision concerning
its existence or that of any subsidiary or any prohibition
against dissolution, liquidation, merger, consolidation or
sale of assets; or
(e) Warranties. Any representation, warranty, schedule,
certificate, financial statement, report, notice or other
writing furnished by or on behalf of the Borrower to either
Lender is false or misleading in any material respect on the
date as of which the facts therein set forth are stated or
certified; or
(f) Change in Control. A transfer of or an accumulation of a
majority of the outstanding capital stock of the Borrower
shall be acquired, directly or indirectly, by a person or
entity, or group of persons or entities acting in concert, who
own on the date hereof less than 5% of such voting stock; or
(g) ERISA. Any reportable event shall occur under the
Employee Retirement Income Security Act of 1974, as amended,
in respect of any employee benefit plan maintained for
employees of the Borrower or any subsidiary; or
(h) Litigation. Any suit, action or other proceeding
(judicial or administrative) commenced against the Borrower or
any subsidiary, or with respect to any assets of the Borrower
or any subsidiary, shall threaten to have a material and
adverse effect on the future operations of the Borrower or any
subsidiary; or a final judgment or settlement shall be entered
in, or agreed to in respect of, any such suit, action or
proceeding and said final judgment or settlement is for or in
an amount which would have a material adverse effect on the
Borrower and its subsidiaries taken as a whole (but excluding
in any event from this clause (h) the Lee claim referenced in
Exhibit I hereto); or
(i) Noncompliance with this Agreement. The Borrower shall
fail to comply with any material provision hereof, which
failure does not otherwise constitute an Event of Default, and
such failure shall continue for thirty days after notice
thereof to the Borrower by either Lender or any other holder
of a Note; or
(j) Guaranty. Any guaranty of the Loans (specifically
including but not limited to the Transit Mix Guaranty, the
Phoenix Guaranty, the Williams Guaranty and the Castle
Guaranty) shall be repudiated or become unenforceable or
incapable of performance; or
(k) Voluntary Bankruptcy. The Borrower or any subsidiary
shall file a petition or answer or consent seeking relief
under Title 11 of the United States Code, as now constituted
or hereafter amended, or any other applicable federal, state
or foreign bankruptcy law or other similar law, or the
Borrower or any subsidiary shall consent to the institution of
proceedings thereunder or the filing of any such petition or
to the appointment or taking possession of a receiver,
liquidator, assignee, trustee, custodian, sequestrator or
similar official of the Borrower or any subsidiary; or
(l) Involuntary Bankruptcy. There shall be entered a decree
or order by a court
constituting an order for relief in respect of the Borrower or
any subsidiary under Title 11 of the United States Code, as
now constituted or hereafter amended, or any other applicable
federal, state or foreign bankruptcy law or other similar law,
or appointing a receiver, liquidator, assignee, trustee,
custodian, sequestrator or similar official of the Borrower or
any subsidiary or of any substantial part of their respective
properties, or ordering the winding-up of or liquidation of
the affairs of the Borrower or any subsidiary and any such
decree or order shall continue unstayed and in effect for a
period of forty-five (45) consecutive calendar days; or
(m) Insolvency. The Borrower or any subsidiary shall become
insolvent or shall fail or be unable to pay its debts as they
mature, shall admit in writing its inability to pay its debts
as they mature, shall make a general assignment for the
benefit of its creditors, shall enter into any composition or
similar agreement, or shall suspend the transaction of all or
a substantial portion of its usual business.
SECTION 8.2 REMEDIES. Upon the occurrence of any Event of
Default set forth in subsections (a)-(j) of Section 8.1 and
during the continuance thereof, the Lenders may declare the Notes
and any other amounts owed to the Lenders, including without
limitation any accrued but unpaid Commitment Fee, to be
immediately due and payable, whereupon the Notes and any other
amounts owed to the Lenders shall forthwith become due and
payable. Upon the occurrence of any Event of Default set forth in
subsections (k)-(m) of Section 8.1, all of the Notes and any
other amounts owed to both Lenders, including without limitation
any accrued but unpaid Commitment Fee, shall be immediately and
automatically due and payable without action of any kind on the
part of either Lender or any other holder of a Note. Upon the
occurrence of any Event of Default, any obligation of either
Lender to make Loans shall immediately and automatically
terminate without action of any kind on the part of either Lender
until such Event of Default is waived by the Lenders, if ever.
The Borrower expressly waives presentment, demand, notice or
protest of any kind in connection herewith. The Lenders shall
promptly give the Borrower written notice of any such
declaration, but failure to do so shall not impair the effect of
such declaration. No delay or omission on the part of the
Lenders or any holder of a Note in exercising any power or right
hereunder or under such Note shall impair such right or power or
be construed to be a waiver of any Event of Default or any
acquiescence therein, nor shall any single or partial exercise of
any power or right hereunder preclude other or further exercise
thereof, or the exercise of any other power or right.
SECTION 9 MISCELLANEOUS
SECTION 9.1 WAIVER OF DEFAULT. The Lenders may, by written
notice to the Borrower, at any time and from time to time, waive
any default in the performance or observance of any condition,
covenant or other term hereof, or any Event of Default, which
shall be for such period and subject to such conditions as shall
be specified in any such notice. In the case of any such waiver,
the Lenders and the Borrower shall be restored to their former
position and rights hereunder and under the Notes, respectively,
and any default
or Event of Default so waived shall be deemed to be cured and not
continuing; but no such waiver shall extend to or impair any
right consequent thereon or to any subsequent or other default or
Event of Default.
SECTION 9.2 NOTICES. All notices, requests and demands to or
upon the respective parties hereto shall be deemed to have been
given or made when deposited in the mail, postage prepaid, or
when sent if sent by facsimile, addressed:
(a) if to the Borrower to 225 West Wacker Drive, Chicago,
Illinois 60606 (Attention: Treasurer)
(b) if to Northern to 50 South LaSalle Street, Chicago,
Illinois 60675, (Attention: Joseph M. Kunze, Vice President)
(c) if to LaSalle Bank to 120 South LaSalle Street, Chicago,
Illinois 60603, (Attention: Michael Foster, Senior Vice
President)
or to such other address as may be hereafter designated in
writing by the respective parties hereto.
SECTION 9.3 NONWAIVER: CUMULATIVE REMEDIES. No failure to
exercise, and no delay in exercising, on the part of either or
all of the Lenders of any right, power or privilege hereunder
preclude any other or further exercise thereof or the exercise of
any other right, power or privilege. The rights and remedies of
the Lenders herein provided are cumulative and not exclusive of
any rights or remedies provided by law.
SECTION 9.4 SURVIVAL OF AGREEMENTS. All agreements,
representations and warranties made herein shall survive the
delivery of the Notes and the making of any Loan hereunder.
SECTION 9.5 SUCCESSORS; PARTICIPATIONS. This Agreement shall,
upon execution and delivery by the Borrower, and acceptance by
the Lenders in Chicago, Illinois, become effective and shall be
binding upon and inure to the benefit of the Borrower, the
Lenders and their respective successors and assigns, except that
the Borrower may not transfer or assign any of its rights or
interest hereunder without the prior written consent of all
Lenders. The Lenders may, without notice or consent of any kind,
sell, assign, transfer or grant participations in all or any of
the Loans. In such event each and every immediate and successive
assignee, transferee or holder of or participant in all or any of
the Loans shall have the right to enforce this Agreement, the
Notes, and all of the other document or instrument executed in
connection herewith, by suit or otherwise, for the benefit of
such assignee, transferee, holder or participant as fully as if
such assignee, transferee, holder or participant were herein by
name specifically given such rights, powers and benefits, but the
Lenders shall have an unimpaired right, prior and superior to
that of any assignee, transferee or holder to enforce this
Agreement, the Notes, and all of the other documents or
instrument
executed in connection herewith for the benefit of the Lenders or
any such participant, as to so much of the Loans as it has not
sold, assigned or transferred.
SECTION 9.6 CAPTIONS. Captions in this Agreement are for
convenience of reference only and shall not define or limit any
of the terms or provisions hereof. References herein to Sections
or provisions without reference to the document in which they are
contained are references to this Agreement.
SECTION 9.7 SINGULAR AND PLURAL. Unless the context requires
otherwise, wherever used herein the singular shall include the
plural and vice versa, and the use of one gender shall also
denote the others where appropriate.
SECTION 9.8 COUNTERPARTS. This Agreement may be executed by
the parties on any number of separate counterparts, and by each
party on separate counterparts; each counterpart shall be deemed
an original instrument; and all of the counterparts taken
together shall be deemed to constitute one and the same
instrument.
SECTION 9.9 FEES. The Borrower agrees, upon demand of the
Lenders, to pay or reimburse the Lenders for all reasonable
costs, expenses (including attorneys' fees and legal costs and
expenses, and time charges of attorneys who may be employees of
either of the Lenders, in each case both in and out of court and
in original, appellate and bankruptcy proceedings), and
disbursements incurred or paid by the Lenders in connection with
the preparation, negotiation, documentation, administration,
amendment, modification, waiver or interpretation of this
Agreement, and/or in enforcing or preserving its rights hereunder
or under the Notes or any document or instrument executed in
connection herewith. Notwithstanding the foregoing, the Borrower
shall not be obligated to pay expenses of the Lenders pertaining
to any lawsuit initiated by the Lenders if the Lender's complaint
shall be dismissed with prejudice or if judgment shall be
rendered, in whole, against the Lenders (and shall not be
reversed on appeal).
SECTION 9.10 CONSTRUCTION; PROVISIONS SEVERABLE, This
Agreement, the Notes and any document or instrument executed in
connection herewith shall be governed by, and construed and
interpreted in accordance with, the internal laws of the State of
Illinois, and shall be deemed to have been executed in the State
of Illinois. If any term or provision of this Agreement, the
Notes, or any other documents or instrument executed in
connection herewith shall be unenforceable or invalid, such
unenforceability or invalidity shall not render any other term or
provision hereof unenforceable or invalid, and all other terms
and provisions of this Agreement, the Notes, and any other
documents or instrument executed in connection herewith shall be
enforceable and valid.
SECTION 9.11 SUBMISSION TO JURISDICTION; VENUE. To induce the
Lenders to make the Loans, as evidenced by the Notes and this
Agreement, the Borrower irrevocably agrees that, subject to the
Lender's sole and absolute election, all suits, actions or other
proceedings in any way, manner or respect, arising out of or from
or related to this
Agreement, the Notes or any document or instrument executed in
connection herewith, shall be subject to litigation in courts
having situs within Chicago, Illinois. The Borrower hereby
consents and submits to the jurisdiction of any local, state or
federal court located within Chicago, Illinois. The Borrower
hereby waives any right it may have to transfer or change the
venue of any suit, action or other proceeding brought against the
Borrower by the Lenders in accordance with this Section.
SECTION 9.12 SET-OFF. At any time and without notice of any
kind, any account, deposit or other indebtedness owing by either
Lender to Borrower, and any securities or other property of
Borrower delivered to or left in the possession of either Lender
or its nominee or bailee, may be set off against and applied in
payment of any obligation hereunder (whether as Loans or Letters
of Credit), whether due or not. The Lenders hereby agree that if
either shall, through the exercise of any right of counterclaim,
set-off, banker's lien, or otherwise, receive payment of a
proportion of the aggregate amount of principal and interest due
with respect to its participation in the Loans that is greater
than the proportion received by the Lenders in respect of the
aggregate amount of principal and interest due with respect to
its pro rata share in the Loans, the party receiving such
proportionately greater payment shall increase (the "Set-Off
Increase") its Commitment - Revolving Credit or Commitment -Term
Loan (which it shall be deemed to have done simultaneously upon
receipt of such payment) in the Revolving Credit Loans or Term
Loan, respectively, so that all such recoveries of principal and
interest with respect to all Loans and Letters of Credit shall be
on a pro rata basis. If at any time either Lender is required to
return or refund all or any part of a payment, then after its
refund or repayment, its increased Commitment - Revolving Credit
or Commitment Term Loan shall be computed as if it had never
received such payment.
SECTION 9.13 DOCUMENTATION. Both Lenders represent,
warrant, and covenant to the other Lender that:
(a) In making its decision to enter into this Agreement and
the Notes:
(i) it independently has taken whatever steps it considers
necessary to evaluate the financial condition and affairs of
the Borrower;
(ii)it has made an independent credit judgment;
(iii) it has not relied upon any representation by the
other Lender; and
(iv) neither Lender shall be responsible or liable to the other
Lender for any statements in or omissions from this Agreement,
the Notes, or any other document or instrument executed by the
Borrower or by and among the Borrower and the Lenders and
document or instrument received by either Lender from the
Borrower or concerning the Borrower, and
(b) With respect to the Loans and Letters of Credit and so
long as any portion of the Loans and Letters of Credit,
respectively, remains outstanding, each Lender will continue to
make its own independent evaluation of the financial conditions
and affairs of the Borrower.
SECTION 9.14 LENDERS. Northern and LaSalle Bank agree that any
action taken pursuant to this Agreement, the Notes or any other
document or instrument executed in connection herewith by
Northern will be taken by Northern only after written receipt by
Northern from LaSalle Bank of an agreement and consent to such
action by LaSalle Bank. Except to the extent such actions result
from the gross negligence or willful misconduct of Northern,
Northern will not be liable to LaSalle Bank for any action taken
or omitted to be taken pursuant to this Agreement, the Notes and
all other document or instrument executed in connection herewith.
Nothing in this Agreement, the Notes and all other document or
instrument executed in connection herewith shall make or be
deemed to make the relationship of Northern and LaSalle Bank
hereunder a fiduciary relationship or be deemed to make Northern
the agent hereunder or owe any fiduciary obligations to LaSalle
Bank. Northern and LaSalle Bank agree that neither Lender may
amend, waive, alter or agree to any other modification of this
Agreement, the Notes and all other documents or instruments
executed in connection herewith without the prior written consent
and agreement of the other Lender.
SECTION 9.15 MERGER AND INTEGRATION. Commencing as of the date
of this Agreement, this Agreement, the Notes, the Letters of
Credit, the Guaranties referred to herein, and the other
documents and instruments referred to herein contain the entire
agreement among the parties hereto and thereto with respect to
the subject matter hereof and thereof, and specifically
supersede, amend and restate in their entirety the Prior
Documents and the commitments thereunder shall be deemed
terminated. Notwithstanding the foregoing and without limiting
any other rights that may have accrued under the Prior Documents
prior to the date hereof, all rights of the Lenders under the
Prior Documents to payment under the Prior Documents that have
accrued or arose on or prior to the date hereof, shall survive
the termination of commitments under the Prior Documents, and the
principal amount of all advances made under the Prior Documents
shall not, however, be deemed paid in full but rather transferred
as provided herein. All Notes issued hereunder are, to the
extent of such outstanding indebtedness, in substitution for, and
not in repayment of, the principal indebtedness evidenced by the
Original Agreement.
CONTINENTAL MATERIALS CORPORATION
By: /s/ Joseph J. Sum
--------------------
Its: Vice President
THE NORTHERN TRUST COMPANY
By: /s/ Joseph M. Kunze
--------------------
Its: Vice President
LASALLE NATIONAL BANK
By: /s/ Michael Foster
--------------------
Its: Senior Vice President
COMPUTATION OF PER SHARE EARNINGS
for the fiscal years ended 1995, 1994 and 1993
(Dollar amounts in thousands, except per-share data)
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Primary earnings per share:
Net earnings $ 681 $ 1,385 $ 40
======= ======= =======
Weighted Average Shares Outst anding:
Common Shares 1,129 1,140 1,164
======= ======= =======
Primary Earning Per Share $ .60 $ 1.21 $ .03
======= ======= =======
Fully Diluted Earnings Per Share:
Net Earnings $ 681 $ 1,385 $ 40
======= ======= =======
Weighted Average Shares Outstanding:
Common Shares 1,129 1,140 1,164
======= ======= =======
Fully Diluted Earnings Per Share $ .60 $ 1.21 $ .03
======= ======= =======
</TABLE>
Notes:
Common stock equivalents are excluded from the primary earnings per share
weighted average shares outstanding on the face of the Consolidated
Statements of Operations and Retained Earnings in 1995 because they are
antidilutive and in 1994 and 1993 because there were none outstanding
at either year end.
Fully diluted earnings per share for 1995 are not disclosed on the face
of the Consolidated Statement of Operations and Retained Earnings because
they are antidilutive. There were no options outstanding at either year
end 1994 or 1993.
The above weighted average shares outstanding can also be used to compute
the primary and fully diluted earnings per share for continuing operations,
discontinued operations and extraordinary loss.
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
Registrant has no parent; see proxy statement for
Registrant's principal shareholders. The following are
Registrant's subsidiaries which are included in the
consolidated financial statements:
Name of Subsidiary State or Other
(Each Owned 100% by Registrant Jurisdiction
Except as Otherwise Stated) of
Incorporation
Castle Concrete Company Colorado
Continental Catalina, Inc.* Arizona
Continental Copper, Inc. Arizona
Continental Quicksilver, Inc. Idaho
Continental Uranium, Inc. Colorado
Edens Industrial Park, Inc. Illinois
Phoenix Manufacturing, Inc. Arizona
ProSoft International, Inc.** Colorado
Transit Mix Concrete Co. Colorado
Williams Furnace Co. Delaware
* owned by Continental Copper, Inc.
**owned by Transit Mix Concrete Co.
EXHIBIT 24
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in
the registration statement of Continental Materials
Corporation and Subsidiaries on Form S-8 (File No. 33-
23671) of our report dated March 14, 1996 on our
audits of the consolidated financial statements and
financial statement schedule of Continental Materials
Corporation and Subsidiaries as of December 30, 1995 and
December 31, 1994, and for the three years in the period
ended December 30, 1995, which reports are included in
this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
March 27, 1996
EXHIBIT 24(a)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this
Registration Statement No. 33-23671 of Continental Materials
Corporation and subsidiaries on Form S-8 of our report dated
March 4, 1996, relating to the financial statements of Oracle
Ridge Mining Partners, (which expresses an unqualified opinion
and includes an emphasis of a matter paragraph relating to the
production at the mine being halted in February 1996, as the
partners reassess their plans for the mine, including a
possible sale to a third party), appearing in this Annual
Report on Form 10-k of Continental Materials Corporation and
subsidiaries for the year ended December 31, 1995.
DELOITTE & TOUCHE LLP
Tucson, Arizona
March 27, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-END> DEC-30-1995
<CASH> 1,074
<SECURITIES> 0
<RECEIVABLES> 12,158<F1>
<ALLOWANCES> 259
<INVENTORY> 14,657
<CURRENT-ASSETS> 30,095
<PP&E> 14,613<F2>
<DEPRECIATION> 38,079
<TOTAL-ASSETS> 47,223
<CURRENT-LIABILITIES> 14,785
<BONDS> 0
0
0
<COMMON> 663
<OTHER-SE> 26,618
<TOTAL-LIABILITY-AND-EQUITY> 47,223
<SALES> 75,560
<TOTAL-REVENUES> 75,560
<CGS> 58,497
<TOTAL-COSTS> 60,573
<OTHER-EXPENSES> 13,269
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 812
<INCOME-PRETAX> 906
<INCOME-TAX> 225
<INCOME-CONTINUING> 681
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 681
<EPS-PRIMARY> .60
<EPS-DILUTED> .60
<FN>
<F1>IS NET OF ALLOWANCE
<F2>IS NET OF ACCUMULATED DEPRECIATION
</FN>
</TABLE>
