<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
CONTINENTAL MATERIALS CORPORATION
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
CONTINENTAL MATERIALS CORPORATION
---------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
The 1998 annual meeting of stockholders of Continental Materials Corporation
(the "Company") will be held at The Northern Trust, 50 South LaSalle Street,
Chicago, Illinois, on Wednesday, May 27, 1998, at 10:00 a.m., to consider and
act upon the following matters:
(a) The election of three directors to serve until the 2001 annual
meeting or until their successors are elected and qualified;
(b) The proposal of a stockholder of the Company, if presented at the
meeting, which is more fully described in the attached Proxy Statement;
(c) The ratification of the appointment of independent certified public
accountants to the Company for the fiscal year ending January 2, 1999; and
(d) The transaction of such other business as may properly come before
the meeting or any adjournment thereof.
Only stockholders of record at the close of business on April 3, 1998 are
entitled to notice of and to vote at the annual meeting or any adjournment
thereof.
Accompanying this notice are the Annual Report for the fiscal year ended
January 3, 1998, a proxy statement, a form of proxy, and an envelope for
returning the executed proxy to the Company. Stockholders unable to attend the
annual meeting in person are requested to date, sign and return the enclosed
proxy promptly.
By Order of the Board of Directors,
Mark S. Nichter
Secretary
Chicago, Illinois
April 17, 1998
<PAGE>
CONTINENTAL MATERIALS CORPORATION
225 WEST WACKER DRIVE
CHICAGO, ILLINOIS 60606
PROXY STATEMENT
----------------
GENERAL INFORMATION
The enclosed proxy is solicited by and on behalf of the Board of Directors
(the "Board") of Continental Materials Corporation, a Delaware corporation (the
"Company"), for use at the annual meeting of the Company's stockholders to be
held on May 27, 1998, and is revocable at any time before it is exercised. Such
revocation may be effected by written notice to the Secretary of the Company, by
executing a subsequent proxy or by voting at the meeting in person. All proxies
duly executed and received will be voted on all matters presented at the
meeting. Where a specification as to any matter is indicated, the proxy will be
voted in accordance with such specification. Where, however, no such
specification is indicated, the proxy will be voted for the named nominees,
against the stockholder proposal, if presented, for the ratification of Coopers
& Lybrand LLP, and in the judgment of the Proxies on any other proposals. The
approximate date on which this proxy statement and the enclosed proxy are first
sent or given to stockholders is April 17, 1998.
The holders of record on April 3, 1998, of the 1,075,149 outstanding shares
of common stock of the Company, are entitled to notice of and to vote at the
annual meeting. Each such share is entitled to one vote for each Director.
The three nominees for election as directors at the 1998 annual meeting of
stockholders who receive the greatest number of votes cast for the election of
directors at that meeting by the holders of the Company's common stock entitled
to vote at that meeting, a quorum being present, shall become directors at the
conclusion of the tabulation of votes. An affirmative vote of the holders of a
majority of the voting power of the Company's common stock, present in person or
represented by proxy and entitled to vote at the meeting, a quorum being
present, is necessary to approve the ratification of the appointment of
independent certified public accountants for the fiscal year ending January 2,
1999. An affirmative vote of the holders of a majority of the voting power of
the Company's common stock, present in person or represented by proxy and
entitled to vote at the meeting, a quorum being present, is necessary to approve
the proposal submitted by a stockholder of the Company which is more fully
described herein. Under Delaware law and the Company's Restated Certificate of
Incorporation and By-Laws, the aggregate number of votes entitled to be cast by
all stockholders present in person or represented by proxy at the meeting, will
be counted for purposes of determining the presence of a quorum. Abstentions and
broker non-votes are counted for purposes of determining the presence or absence
of a quorum. If a quorum is present at the meeting, the total number of votes
cast FOR each of these matters will be counted for purposes of determining
whether sufficient affirmative votes have been cast. Shares present in person or
by proxy but not voted, whether by abstention, broker non-vote, or otherwise,
have the same legal effect as a vote AGAINST the matter even though the
stockholder or interested parties analyzing the results of the voting may
interpret such a vote differently.
1
<PAGE>
ELECTION OF DIRECTORS
The Company has a Board of Directors consisting of nine persons, divided
into three classes. At this year's annual meeting three directors will be
elected to serve for a term of three years or until their successors are elected
and qualified. It is the intention of the persons named in the accompanying form
of proxy to vote for the nominees named below. Management has no reason to
believe that any nominee will be unable to serve. If any nominee should not be
available, the persons named in the proxy will vote for the election of such
persons as will continue as nearly as possible the existing management goals of
the Company.
<TABLE>
<CAPTION>
NAME, AGE AND OTHER SERVED AS CURRENT TERM
POSITIONS, IF ANY, DIRECTOR AS DIRECTOR
WITH COMPANY SINCE BUSINESS EXPERIENCE EXPIRES
- - ------------------------------------------ --------- ---------------------------------------------- -------------
<S> <C> <C> <C>
NOMINEE DIRECTORS
James G. Gidwitz, 51, Chairman of the
Board and Chief Executive Officer....... 1978 Chairman of the Board and Chief Executive 1998
Officer of the Company since 1983.
Betsy R. Gidwitz, 57...................... 1996 Former Professor from Massachusetts Institute 1998
of Technology.
Joseph J. Sum, 50, Vice President and
Treasurer............................... 1989 Elected Assistant Treasurer of the Company in 1998
1978. Served as Controller of the Company
from 1979 through January 1989 and Secretary
from 1983 through February 1993. Elected Vice
President and Treasurer on August 8, 1988.
CONTINUING DIRECTORS
Ralph W. Gidwitz, 62...................... 1984 President, Chief Executive Officer and 1999
Director of Financial Capital Corporation, a
financial consulting company, since 1996. Mr.
Gidwitz was previously President, Chief
Executive Officer and Director of RKG
Corporation, a company engaged in mergers and
acquisitions from 1991 through 1996.
William G. Shoemaker, 81.................. 1968 Independent business consultant since January 1999
1991.
Theodore R. Tetzlaff, 53.................. 1981 Partner in the Chicago law firm of Jenner & 1999
Block since 1982.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE AND OTHER SERVED AS CURRENT TERM
POSITIONS, IF ANY, DIRECTOR AS DIRECTOR
WITH COMPANY SINCE BUSINESS EXPERIENCE EXPIRES
- - ------------------------------------------ --------- ---------------------------------------------- -------------
<S> <C> <C> <C>
Thomas H. Carmody, 51..................... 1994 Consultant to Chairman and Chief Executive 2000
Officer of Reebok International, Ltd.,
publicly traded footwear, apparel and fitness
equipment company. Mr. Carmody has also
previously served as Vice President, U.S.
Operations and Vice President, Sports
Division of Reebok.
Ronald J. Gidwitz, 53..................... 1974 President of Helene Curtis, a producer of 2000
personal care products, since July 1, 1979
and Chief Executive Officer since 1985.
Darrell M. Trent, 59...................... 1997 Chairman of the Board and Chief Executive 2000
Officer of Acton Development Company, Inc., a
real estate development and property
management company, since 1988. Mr. Trent was
also Chairman of the Board and Chief
Executive Officer of Clean Earth
Technologies, Inc., an environmental
management venture from 1992 to 1994.
</TABLE>
FAMILY RELATIONSHIPS
James G. Gidwitz and Ronald J. Gidwitz are sons of Gerald S. Gidwitz. The
late Joseph L. Gidwitz was Gerald S. Gidwitz's brother. Ralph W. Gidwitz is a
son of, and Betsy R. Gidwitz is a daughter of, Joseph L. Gidwitz. Gerald S.
Gidwitz, together with his wife, and their descendants as well as the
descendants of Joseph L. Gidwitz are herein referred to as the "Gidwitz Family."
See "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT."
COMMITTEES OF THE BOARD
The Company's Board of Directors has established an Audit Committee and a
Compensation Committee. There is no standing nominating committee or other
committee performing similar functions.
In 1997 the Audit Committee was composed of Theodore R. Tetzlaff, William G.
Shoemaker and Ralph W. Gidwitz. The function of the Audit Committee is to review
and make recommendations regarding: the hiring or retention of an independent
accounting firm to audit the Company's financial statements; the Company's
policies with respect to maintaining its books and records and furnishing
information to its independent auditors; the scope and effectiveness of the
independent auditor's audit procedures; the implementation of recommendations
made by the independent auditors in their annual management letter; the adequacy
and competency of Company personnel engaged in such activities; the procedures
of the Company in furnishing the public financial information, in accordance
with generally accepted accounting principles and practices; and such other
matters relating to the Company's financial affairs and accounts as the Audit
Committee deems desirable or in the best interest of the Company. There were two
committee meetings in 1997.
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<PAGE>
The Compensation Committee was composed of Ronald J. Gidwitz and Theodore R.
Tetzlaff in 1997. See "COMPENSATION COMMITTEE REPORT" for discussion of
responsibilities. The Committee held two meetings in 1997.
BOARD MEETINGS
The Board of Directors held three meetings in fiscal 1997. All directors
except Betsy R. Gidwitz attended 75% or more of the aggregate number of meetings
of the Board of Directors and the Committees of the Board of Directors during
the time when they served.
DIRECTOR'S COMPENSATION
Each director who is not an officer or employee of the Company receives a
set fee of $10,000 per year, plus additional fees of $500 for each board meeting
or board committee meeting which he attends, with a $5,000 cap on the aggregate
meeting fee.
EXECUTIVE COMPENSATION
The following table summarizes the compensation of the Company's chief
executive officer and its two other executive officers for the years 1995
through 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
--------------------------------
PAYOUTS
AWARDS ----------
ANNUAL COMPENSATION -------------------- LONG-TERM
---------------------------------------- RESTRICTED INCENTIVE
NAME AND PRINCIPAL OTHER ANNUAL STOCK STOCK PLAN ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION (1) AWARDS OPTIONS PAYOUTS COMPENSATION (2)
- - ----------------------- --------- --------- --------- ------------------ --------- --------- ---------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James G. Gidwitz -- 1997 $ 359,550 $ 260,900 -- None None None $ 100,559
Chairman and Chief 1996 346,813 246,900 -- None None None 97,918
Executive Officer 1995 338,850 68,000 -- None 30,000 None 72,955
Joseph J. Sum -- 1997 162,591 75,900 -- None None None 31,513
Vice President and 1996 154,958 73,300 -- None None None 29,697
Chief Financial 1995 150,000 11,250 -- None 12,000 None 16,360
Officer
Mark S. Nichter -- 1997 94,750 34,000 $ 15,680 None None None 18,968
Secretary 1996 90,292 31,700 15,125 None None None 17,581
1995 87,218 5,500 -- None None None 8,380
</TABLE>
- - ------------
(1) Where no amounts are shown, Other Annual Compensation does not exceed the
reporting thresholds.
(2) For 1997, the amounts shown represent the employer matching contributions to
the Company's 401(k) Plan. For Messrs. Gidwitz and Sum, these amounts
include amounts deferred under a Supplemental Profit Sharing Plan.
STOCK OPTIONS
The Company's Amended and Restated 1994 Stock Option Plan provides for the
granting of stock options to attract, retain and reward key managerial employees
of the Company or its subsidiaries. The Stock Option Plan provides that grants
of options and option prices will be 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. During 1995 there were options
granted for 78,000 shares of stock at an exercise price of $13.125. All 78,000
options became exercisable during 1996 although none were exercised. There were
no options granted during either 1997 or 1996. During 1997, 12,000 of the shares
were forfeited when the grantee resigned from the Company.
4
<PAGE>
The following table sets forth the number of shares for which stock options
were exercised during the last fiscal year, the value realized, the number of
shares for which options were outstanding and the value of those options as of
the fiscal year end.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
UNEXERCISED
IN-THE-MONEY
OPTIONS AT
FY-END
SHARES ACQUIRED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) VALUE REALIZED ($) UNEXERCISABLE UNEXERCISABLE
- - ---------------------------------------------- --------------------- ----------------------- ------------- --------------
<S> <C> <C> <C> <C>
James G. Gidwitz.............................. 0 0 30,000/0 $412,500/0
Joseph J. Sum................................. 0 0 12,000/0 165,000/0
</TABLE>
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board of Directors has furnished the
following report on executive compensation.
The Executive Compensation Program is administered by the Compensation
Committee of the Board of Directors (the "Committee"). The Committee's major
responsibilities are:
1. Reviewing the Company's major compensation and benefit practices,
policies and programs including administration of the Company's Amended
and Restated 1994 Stock Option Plan with respect to executive officers;
and
2. Reviewing executive officers' salaries and bonuses.
COMPENSATION PHILOSOPHY
It is the philosophy of the Company to ensure that executive compensation is
linked to corporate performance. Accordingly, in years in which performance
goals are achieved or exceeded, executive compensation should be higher than in
years in which the performance is below expectation. At the same time, the
Committee is cognizant of its need to offer compensation that is competitive. By
providing the opportunity for compensation that is comparable to the levels
offered by other similarly situated companies, the Company is able to attract
and retain key executives. The Committee regularly reviews the Company's
compensation programs to ensure that pay levels and incentive opportunities are
competitive and reflect the performance of the Company. In conducting this
review the Committee retains independent compensation consultants.
COMPENSATION PROGRAM COMPONENTS
To achieve its compensation goals, the compensation program consists
primarily of two components, base salary and bonuses. Both components are
adjusted based upon corporate performance and individual initiative and
performance. Total pay levels, that is the aggregate of base salary and annual
bonus, are largely determined through comparisons with companies of similar size
and complexity. Total pay levels for the executive officers are competitive
within a range that the Committee considers to be reasonable and necessary.
PERFORMANCE MEASURES
The Committee uses various performance measures in evaluating annual
executive compensation. The Committee examined earnings as an important measure
of performance. The Committee also considered return on net investment and
personal goals. In its consideration, the Committee did not assign
5
<PAGE>
quantitative relative weights to these factors or follow mathematical formulae.
Rather, the factors discussed above are compared by the Committee with the
Company's annual business plan, the Company's prior year's performance and the
performance of other companies in the industry segments in which the Company
competes. The Committee then made judgments after considering the various
factors. The Committee believes that these performance measures serve to align
the interests of executives with the interests of stockholders.
1997 COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
In evaluating the compensation of the Company's chief executive officer (the
"CEO"), the Committee reviewed the CEO's existing compensation arrangements, the
performance of the Company (taking into account the performance measures
discussed above) and the CEO and compensation of chief executive officers in
similarly situated companies. Based on this review, the Committee increased the
CEO's salary by 3.7% in 1997 as compared with 2.4% in 1996 and 7.5% in 1995. In
setting the 1997 increase, the Committee considered, among other things, the
level of compensation of executives in similarly situated companies. In granting
the CEO's bonus in 1997, the Committee likewise considered the incentive
compensation paid to CEOs of similar companies and the Company's performance in
1997. The Company's performance in 1997 exceeded all goals set forth in the
Company's annual business plan. Net income grew 32% to $3,110,000 compared to
$2,355,000 in 1996. Accordingly, the Committee granted the CEO a bonus of
$260,900 for 1997 compared to $246,900 last year.
STOCK OPTION AND LONG-TERM PLANS
The Company maintains the Continental Materials Corporation Amended and
Restated 1994 Stock Option Plan, as discussed under the heading "Stock Options"
above. The Company has no other long-term compensation plans.
SUMMARY
After reviewing all of its existing compensation programs, the Committee
continues to believe that the total compensation program for executives of the
Company is competitive with the compensation programs provided by other
corporations of similar size and complexity. Moreover, the Committee believes
that it has set compensation at levels that reflect each executive officer's
contribution towards the Company's objectives.
6
<PAGE>
COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
RONALD J. GIDWITZ AND THEODORE R. TETZLAFF
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
Theodore R. Tetzlaff, a member of the Compensation Committee, is a partner
in the Chicago law firm of Jenner & Block. From time to time, the Company
retains Jenner & Block to provide it with legal services. The dollar amount of
fees paid to Jenner & Block by the Company in 1996 did not exceed 5% of that
firm's annual gross revenues.
The Company engaged in various transactions in which members of the Gidwitz
Family, including Ronald Gidwitz, had an interest.
McCord Group, Inc. ("McCord") is a company engaged in the travel agency
business. The ownership of McCord includes members of the Gidwitz Family. The
Company purchased a total of approximately $55,000 in airline tickets and other
travel services from McCord during its last fiscal year. Management believes
that these purchases were on terms that were as favorable as might be obtained
from an unrelated third party.
The Company is currently serving as the sponsoring corporation in an
Insurance Purchasing Group (the "Group"), which consists of the Company and its
subsidiaries and other companies in which the Gidwitz Family are the principal
owners. The cost of such insurance is allocated among all members of the Group
based on such factors as, but not limited to, nature of the risk, loss history
and size of operations. From time to time, the Company will advance payments to
the insurance carriers on behalf of the individual members of the Group. The
Company invoices each member of the Group for their respective share of each
payment. Interest at the rate of prime plus one percent is charged on all
amounts not paid by a member after 30 days from receipt of an invoice sent by
the Company. During fiscal year 1997, certain members of the Group were indebted
to the Company with respect to advances made by the Company under the insurance
purchasing program. The largest aggregate amount of indebtedness outstanding at
any time during fiscal year 1997 with respect to these companies equaled
approximately $400,000. As of the date of this proxy statement, no past due
amounts are owing to the Company from any member of the Group. The Company's
participation in the Group has, in management's opinion, resulted in significant
savings to the Company in terms of the cost of insurance premiums and other
insurance charges.
7
<PAGE>
COMPARISON OF TOTAL SHAREHOLDER RETURN
The following graph compares the Company's cumulative total stockholder
return on its common stock for a five year period (December 31, 1992 to December
31, 1997), with the cumulative total return of the American Stock Exchange
Market Value Index ("ASEMVI"), and a peer group of companies selected by the
Company. The "Peer Group" is more fully described below. Dividend reinvestment
has been assumed with respect to the ASEMVI and the Peer Group. The companies in
the peer group are weighted by market capitalization as of the beginning of the
measurement period. The Company has never paid a dividend.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
CONTINENTAL BROAD PEER
<S> <C> <C> <C>
MATERIALS CP MARKET GROUP
1992 $100.00 $100.00 $100.00
1993 $104.92 $118.81 $117.67
1994 $152.48 $104.95 $115.08
1995 $159.02 $135.28 $147.68
1996 $278.69 $142.74 $187.19
1997 $352.46 $171.76 $262.78
</TABLE>
The Company manufactures and markets products in two separate industries.
These industries are (i) heating and air conditioning and (ii) construction
materials, primarily ready-mix concrete. The Company's principal activities have
occurred exclusively in these two industries for over 15 years. The Peer Group
selected by the Company for the above graph is a combination of companies from
these two industries. The companies included in the Peer Group are: American
Business Computer Corporation; Danaher Corporation; Fedders Corporation; Florida
Rock Industries Inc.; ICC Technologies; Kysor Industrial Corporation; Lancer
Corporation; LSB Industries, Inc.; Mesteck Inc.; Tecumseh Products Inc.;
Westinghouse Electric Corporation; and Wynn's International, Inc.
8
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following information is furnished as to the Common Stock of the Company
owned beneficially as of March 27, 1998 by (i) each director, (ii) the executive
officers named in the summary compensation table, (iii) directors and executive
officers as a group, and (iv) persons that have reported beneficial ownership of
more than 5% of the Company's Common Stock.
<TABLE>
<CAPTION>
PERCENT
NAME AND ADDRESS OF CLASS
OF BENEFICIAL OWNER NO. OF SHARES (1)
- - -------------------------------------- --------------- ------------
<S> <C> <C>
Gidwitz Family
225 West Wacker Drive,
Suite 1800
Chicago, Illinois 60606 393,265(2) 36.6%
Warren G. Lichtenstein
750 Lexington Avenue New York, New
York 10022 96,650(4) 9.0%
Continental Materials Corporation
Employees Profit Sharing Retirement
Plan 45,546 4.2%
Thomas H. Carmody 100
James G. Gidwitz 3,001(2)(3) .3%
Betsy R. Gidwitz 3,001(3) .3%
Ralph W. Gidwitz 3,001(3) .3%
Ronald J. Gidwitz 3,001(3) .3%
Mark S. Nichter --(2)
William G. Shoemaker 160
Joseph J. Sum 200(2)
Theodore R. Tetzlaff 0
Darrell M. Trent 0
All directors and officers as a group
(includes ten persons) 439,271 40.9%
</TABLE>
- - ---------
(1) The shares owned in each case, except as otherwise indicated, constitute
less than 1% of the outstanding shares of the Company's common stock.
(2) Excludes 45,546 shares held by the Company's Employee Profit Sharing
Retirement Plan as to which James G. Gidwitz, Mark S. Nichter and Joseph J.
Sum share voting power as trustees of such Plan.
(3) Excludes shares held indirectly as follows:
(a) 363,563 shares owned by a partnership whose managing partners are Betsy
R. Gidwitz, Gerald S. Gidwitz, James G. Gidwitz, Ralph W. Gidwitz, and
Ronald J. Gidwitz.
(b) 2,457 shares owned by McCord Group, Inc. whose beneficial owners include
members of the Gidwitz Family.
(c) 76 shares owned by a partnership whose beneficial owners are members of
the Gidwitz Family.
9
<PAGE>
(d) 15,165 shares held directly by Gidwitz family members other than those
family members included in the security ownership of management table
above.
With respect to the shares referenced in this Note, the beneficial owners
indicated in (d) have sole voting and investment power and the beneficial owners
indicated in (a), (b) and (c) have shared voting and investment power.
(4) Represents 96,650 shares held by Steel Partners II, L.P. By virtue of his
position with Steel Partners II, Mr. Lichtenstein has sole power to vote and
dispose of such 96,650 shares.
CONSIDERATION OF STOCKHOLDER PROPOSAL
The Company has received the stockholder proposal described below. For the
reasons described in the "STATEMENT OF THE BOARD OF DIRECTORS" responding to the
proposal, the Board of Directors believes that the proposal is not in the best
interests of the Company and its stockholders. Accordingly, the Board of
Directors unanimously recommends that you vote AGAINST the proposal.
Mr. Thomas P. Lowe, 2630 West Lafayette Road, Excelsior, MN 55331, owner of
19,900 shares of common stock of the Company, has submitted the following
proposal and supporting statement:
STOCKHOLDER PROPOSAL
Resolved, that the shareholders of Continental Materials Corporation hereby
recommends to the Board of Directors to hire a nationally recognized investment
banking firm to conduct an auction to sell the company's operating subsidiaries
and distribute the net proceeds to the shareholders.
STATEMENT IN SUPPORT OF STOCKHOLDER PROPOSAL
The author believes that the shares of Continental Materials Corporation are
undervalued in the stock market, and the quickest way to maximize shareholder
value would be to conduct an auction to sell the different business units. At
present, the shares trade below stated book value per share and in comparison to
where recent buyouts have occurred to similar type businesses by strategic
buyers I believe the shares of the company could be worth between $40-$65 per
share (pre-tax). Although there is a wide difference between potential values,
it is my opinion that the shares are undervalued and the board of directors has
a fiduciary obligation to the shareholders to maximize value.
A $40 dollar valuation on the company represents a multiple of only 6 times
the operating income of the company's operating subsidiaries net of debt. In
comparison, Martin Marietta Materials recently purchased American Aggregates for
8.5 times cash flow, and Nortek, Inc. recently purchased Ply-Gem Industries for
7.4 times the operating income of the business, using these multiples net of
debt, Continental Materials Corporation could be worth $65 per share (pre-tax).
If you want to vote in favor of this proposal, you must mark the "FOR" box
on the proxy next to this proposal.
YOUR VOTE IS IMPORTANT!
Please vote "FOR" this proposal and remember to sign and date your proxy
card before returning it. Thank you for your consideration.
The Board of Directors unanimously recommends that you vote AGAINST the
proposal.
STATEMENT OF THE BOARD OF DIRECTORS
The purpose of the Proposal is to have the Board take immediate action
directed at causing the sale or merger of the Company to or with a third party.
The supporting statement for the Proposal suggests that
10
<PAGE>
such a transaction would reward the Company's stockholders better than continued
ownership of shares of the Company's common stock.
The Board is always open to suggestions that would benefit the Company and
enhance value for its stockholders. Although certain sale transactions do
provide a premium over market value for a corporation's stockholders, that
premium is not always large and does not always reflect the true long-term value
of a company's stock.
The Board of Directors of the Company, consistent with its fiduciary duties
to all stockholders, frequently reviews the strategic alternatives available to
the Company, and is committed to maximizing value for all stockholders. The
Board considered the sale of the Company as recently as the end of 1996 when an
investor group made a proposal to the Board of Directors to take the Company
private. An independent investment firm was engaged to evaluate the offer and
advise the Special Committee of the Board of Directors appointed to respond to
the offer. The Special Committee concluded that the offered price was not
adequate and that stockholders' value would be better served by continued
operation.
The Board of Directors believes that a "fire-sale" atmosphere could be
created if the Proposal is approved. In its judgment, this would disadvantage
any efforts to merge or sell the Company, either now, as the proponent suggests,
or in the future. Approval of the Proposal might be regarded as a signal that
the Board of Directors, under pressure from dissident stockholders, has lost its
ability to determine the appropriateness of the timing of the sale of the
Company, and thus has little bargaining power and could be pressured into
accepting a reduced price.
In addition, the Company believes that the statement in support of the
Stockholder Proposal contains a number of assumptions or omits certain relevant
data that materially overstate the estimated value of the Company. First, the
information provided is not adequate to fully understand either the sellers' or
the purchasers' respective reasons for the acquisitions. Also, the companies to
which the Company is compared are much larger than our subsidiaries and their
industries are not necessarily comparable. Ply-Gem is engaged in specialty wood
products and American Aggregates is strictly an aggregates operation. By
comparison, sales of aggregates account for less than ten percent of our
consolidated net sales while wood products account for less than one percent of
net sales. Second, the calculations set forth in the supporting statement do not
necessarily include sales costs (e.g., federal and state taxes, investment
banker fees and legal costs), as well as certain obligations of the Company such
as long-term lease obligations and severance pay. Consideration of these items
would drastically reduce the estimated return from a sale of our subsidiaries
and ultimately the stock price. For example, corporate federal and state taxes
alone would reduce the net proceeds available for distribution to stockholders
by approximately 38% of the sales price in excess of the book value of the
Company ($31,858,000 at January 3, 1998). Finally, the multiples paid in the two
examples cited greatly exceed the multiples that the independent investment firm
hired by the Special Committee at the end of 1996 concluded were reasonable for
our subsidiaries.
The common stock price has performed extremely well during the past two
years registering gains of 26% in 1997 and 75% in 1996 as well as outperforming
the broad market and peer group indices over the five-year period ended December
31, 1995. The Board of Directors believes that this demonstrates that each of
the Company, its Board of Directors and its senior management have provided
superior returns for the Company's stockholders.
FOR THE REASONS STATED ABOVE, THE BOARD OF DIRECTORS BELIEVES THAT THE
PROPOSAL IS NOT IN THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS.
ACCORDINGLY, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE AGAINST
THE PROPOSAL.
Approval of the Proposal requires the affirmative vote of the holders of a
majority of the voting power of the Company's common stock, present in person or
represented by proxy at the 1998 Annual Meeting and entitled to vote on the
Proposal.
11
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In the event the stockholders approve the Proposal, the outside Board
members, in determining what course of action to take, may, among other things,
seek to determine the intentions of the Gidwitz Family Group due to the fact
that pursuant to the Restated Certificate of Incorporation of the Company, any
sale of the Company, or a substantial portion thereof, requires an affirmative
vote of two-thirds of all of the outstanding stock of the Company. Incurring the
expense of engaging investment bankers and other professionals and the resulting
business disruption of an auction process may not be prudent in the event the
Gidwitz Family Group informs the outside directors that they will not vote their
shares in favor of the ultimate consummation of any such transaction. In
addition, as noted above the Board believes that approval of the proposal could
adversely affect the Company's bargaining power, thereby reducing the price in
any such auction.
PROPOSAL FOR RATIFICATION OF ENGAGEMENT OF
INDEPENDENT AUDITORS
The Board of Directors and the Audit Committee recommend ratification of the
continued engagement of Coopers & Lybrand L.L.P., Certified Public Accountants,
to audit the Company's books for the fiscal year ending January 2, 1999. An
appropriate resolution ratifying such employment will be submitted to the
stockholders at the annual meeting. If such resolution is not adopted,
management will reconsider such appointment.
A representative of Coopers & Lybrand is expected to be present at the
stockholders' annual meeting. The representative will have an opportunity to
make a statement if he/she desires to do so, and he/she will be available to
respond to appropriate questions.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THIS PROPOSAL.
STOCKHOLDER PROPOSALS AND OTHER MATTERS
The deadline for receipt of stockholder proposals for inclusion in the
Company's proxy statement for its 1998 fiscal year is December 18, 1998.
The management does not know of any matters to be presented at the annual
meeting other than those set forth in this proxy statement. If any other matters
not now known come before the annual meeting, it is intended that the persons
named in the proxies will act according to their best judgment.
EXPENSES
The entire expense of preparing, printing and mailing the form of proxy and
the material used for the solicitation thereof will be borne by the Company. In
addition, the Company has retained the services of Beacon Hill Partners, Inc. to
solicit proxies from nominees and brokers' accounts at a cost of approximately
$4,500. Solicitation of proxies will be made by mail but also may be made
through oral communications by directors, officers or employees of the Company
who will receive no additional compensation for such efforts.
By Order of the Board of Directors,
James G. Gidwitz
Chairman of the Board
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PROXY PROXY
CONTINENTAL MATERIALS CORPORATION
PROXY CARD FOR ANNUAL MEETING ON MAY 27, 1998
The undersigned hereby appoints Ronald J. Gidwitz and William G. Shoemaker
as Proxies, each with power to appoint his substitute, and hereby authorizes
them to represent and to vote as designated below, all the shares of common
stock of Continental Materials Corporation held of record by the undersigned
on April 3, 1998, at the annual meeting of stockholders to be held on May 27,
1998, or any adjournment thereof.
The Board of Directors unanimously recommends a vote FOR Proposals (1) and
(3) and AGAINST Proposal (2).
THIS PROXY WILL BE VOTED AS DIRECTED, OR IF NO INSTRUCTIONS ARE GIVEN, IT
WILL BE VOTED "FOR" ELECTION OF ALL NOMINEES AS DIRECTORS OF THE COMPANY,
"FOR" APPROVAL AND RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS
AND "AGAINST" THE PROPOSAL BY A STOCKHOLDER, IF PRESENTED. IN THEIR
DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS AS
MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENTS THEREOF.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
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<PAGE>
CONTINENTAL MATERIALS CORPORATION
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY /X/
[ ]
<TABLE>
<S> <C> <C>
FOR all nominees WITHHOLD
listed below AUTHORITY To vote
(except as marked to for all nominees
the contrary below) listed below
1. Election of three nominees to the Board of Directors. / / / /
James G. Gidwitz, Betsy R. Gidwitz and Joseph J. Sum
(Instruction: To withhold authority to vote for any
individual nominee, strike a line through that nominee's
name.)
2. Stockholder proposal regarding a recommendation to
the Board of Directors to hire an investment banking firm
to sell the Company's operating subsidiaries.
For Against Abstain
/ / / / / /
3. Approval and ratification of the Directors' appointment
of Coopers & Lybrand as the Company's independent auditors
for the year ending January 2, 1999.
For Against Abstain
/ / / / / /
In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting or any adjournments thereof.
For Against Abstain
/ / / / / /
THE PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY.
Dated ,1998
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Signature
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Signature if held jointly
Please sign exactly as name appears above. Executors, administrators,
trustees, guardians, attorneys-in-fact, etc. should give their full titles.
If signer is a corporation, please give full corporate name and have a duly
authorized officer sign, stating title. If a partnership, please sign in
partnership name by authorized person. If stock is registered in two names,
both should sign.
</TABLE>
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