UNITED STATES | |||
SECURITIES AND EXCHANGE COMMISSION | |||
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SCHEDULE 14A | |||
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Soliciting Material Pursuant to §240.14a-12 | ||
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Continental Materials Corporation | |||
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CONTINENTAL MATERIALS CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
On behalf of the Board of Directors, you are cordially invited to attend the 2012 Annual Meeting of Stockholders of Continental Materials Corporation (the Company). The meeting will be held in the Orange and Blue Room on the first floor of 200 South Wacker Drive, Chicago, Illinois 60606 on Wednesday, May 23, 2012, at 10:00 a.m. CST, to consider and act upon the following matters:
(a) The election of three directors to serve until the 2015 annual meeting or until their successors are duly elected and qualified;
(b) The ratification of the appointment of BKD LLP (BKD) as independent registered public accounting firm for the Company for the 2012 fiscal year; and
(c) The transaction of such other business as may properly be presented at the meeting.
Only stockholders of record at the close of business on March 28, 2012 are entitled to notice of and to vote at the Annual Meeting or any adjournment thereof. A list of these stockholders will be available to any stockholder, for any germane reason, at the Companys office, 200 South Wacker Drive, Chicago, Illinois, for ten days preceding the meeting and will also be available for inspection at the meeting.
Accompanying this notice are the Annual Report on Form 10-K for the fiscal year ended December 31, 2011, a proxy statement, a form of proxy, and an envelope for returning the executed proxy to the Company. Even if you plan to attend the Annual Meeting in person, please read these proxy materials and cast your vote on the enclosed proxy as soon as possible. Be sure to sign and date the proxy prior to returning it. Any proxy given by a stockholder may be revoked by such stockholder at any time prior to the voting of the proxy at the annual meeting.
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By Order of the Board of Directors, |
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Mark S. Nichter |
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Secretary |
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Chicago, Illinois |
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April 23, 2012 |
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CONTINENTAL MATERIALS CORPORATION
200 South Wacker Drive
Chicago, Illinois 60606
Annual Meeting of Stockholders
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 Companys stockholders to be held at 10:00 a.m. CST on May 23, 2012, in the Orange and Blue Room on the first floor of 200 South Wacker Drive, Chicago, Illinois 60606. Any properly executed proxy may be revoked by the executing stockholder 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, for the ratification of BKD LLP (BKD), and in the judgment of the proxies (named on the accompanying proxy card) 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 23, 2012.
The stockholders of record on March 28, 2012, of the 1,634,674 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 on each matter properly proposed at the annual meeting.
The three nominees who receive the greatest number of votes cast for the election of directors at the 2012 annual meeting by the holders of the Companys common stock entitled to vote at the meeting, a quorum being present, shall become directors at the conclusion of the tabulation of votes. The affirmative vote of the holders of a majority of the voting power of the Companys 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 BKD as independent registered public accounting firm to the Company for the 2012 fiscal year. Under Delaware law and the Companys 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. Because the election of directors is determined on the basis of the greatest number of votes cast, abstentions and broker non-votes have no effect on the election of directors. With respect to other matters, 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.
Stockholders may change their vote at any time prior to the vote at the Annual Meeting. Record holders may accomplish this by granting a new proxy bearing a later date (which automatically revokes the earlier proxy), by providing a written notice of revocation to the Secretary of the Company prior to the Annual Meeting, or by attending the Annual Meeting and voting in person. Beneficial owners may change their vote by submitting new voting instructions to their broker, trustee or nominee, or, if the beneficial owner has obtained a proxy from his or her broker or nominee giving the beneficial owner the right to vote the shares, by attending the meeting and voting in person.
PROPOSAL 1
BOARD OF DIRECTORS
Election of Directors
The Company has a Board of Directors consisting of nine persons, divided into three classes. The directors of each class serve terms of three years. At this years Annual Meeting, three directors are nominated for election to a three-year term to the class of directors with terms expiring in 2015. The Board has nominated Thomas A. Carmody, Ronald J. Gidwitz and Darrell M. Trent for election, all of whom are current directors.
Information regarding each of the nominees is presented in the chart below. All of the nominees have indicated their willingness to serve if elected, but if any should be unable or unwilling to stand for election, proxies may be voted for a substitute nominee designated by the Board of Directors who would be expected to continue, as nearly as possible, the existing management goals of the Company. No nominations for directors were received from stockholders, and no other candidates are eligible for election as directors at the 2012 Annual Meeting.
The Proxy holders (named in the accompanying Proxy Card) intend to vote in favor of all of the Boards nominees, except to the extent a stockholder withholds authority to vote for any of the nominees.
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Position with the Company or Committee Memberships |
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NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS FOR A THREE YEAR TERM |
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Thomas A. Carmody |
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1994 |
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Director, Chairman of Nominating Committee and member of the Audit Committee |
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65 |
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Ronald J. Gidwitz |
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1974 |
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Director |
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67 |
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Darrell M. Trent |
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1997 |
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Director and member of the Audit Committee and member of the Compensation Committee |
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72 |
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The Board of Directors recommends that stockholders | ||||||
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DIRECTORS CONTINUING IN OFFICE UNTIL THE 2013 ANNUAL MEETING |
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William D. Andrews |
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2004 |
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Director |
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64 |
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Betsy R. Gidwitz |
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1996 |
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Director |
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71 |
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James G. Gidwitz |
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1978 |
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Chairman of the Board and Chief Executive Officer of the Company since 1983 |
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65 |
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DIRECTORS CONTINUING IN OFFICE UNTIL THE 2014 ANNUAL MEETING |
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Ralph W. Gidwitz |
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1984 |
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Director |
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76 |
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Peter E. Thieriot |
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2001 |
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Director, Chairman of the Audit Committee and member of the Nominating Committee |
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69 |
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Theodore R. Tetzlaff |
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1981 |
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Director and Chairman of the Compensation Committee |
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68 |
Board Composition and Qualifications
William D. Andrews is retired and has served on the Board since 2004. Mr. Andrews previously served as a Senior Vice President and the Executive Vice President of Fixed Income for Stein, Roe and Farnham, an investment management firm during the period from 1986 to 2002. Mr. Andrews has served on numerous Boards of non-profit organizations and private companies involved in a variety of activities. As a result of his professional experience, the Board has concluded that Mr. Andrews adds invaluable and extensive business, investment banking, finance and corporate management experience, as well as his in-depth understanding of the financial markets and mergers and acquisitions, to the collective experience of the Board.
Thomas H. Carmody has served on the Board since 1994. Mr. Carmody is the Chief Executive Officer of Summit International, LLC, a sports marketing and distribution company he founded in 1999. He has also served as the Chairman of the Board of Ameridream, a charitable organization providing housing down payment assistance for qualifying individuals, since 2003. Mr. Carmody has also served as Vice President of U.S. Operations and Vice President of the Sports Division of a publicly traded footwear, apparel and fitness company. The Board has concluded that Mr. Carmody adds invaluable and extensive marketing and business experience to the Board as well as adding an entrepreneurial approach to situations that have or may face the Company.
Betsy R. Gidwitz is the daughter of one of the founders of the Company and has served on the Board since 1996. She is retired having previously been an instructor at Massachusetts Institute of Technology until 1992. Ms. Gidwitz was involved on a leadership level in a number of community organizations while in Boston and continues to be similarly engaged in community organizations in the Chicago area. The Board has concluded that Ms. Gidwitz adds in-depth insight and knowledge about the short and long-term issues that affect the Company as well as adding a unique academic thought process to the Boards deliberations while also representing the Companys majority stockholder family.
James G. Gidwitz is the son of one of the founders of the Company and has served on the Board since 1978. He has served as the Chairman of the Board and its Chief Executive Officer since 1983. Mr. Gidwitz also serves on the Boards of several non-profit institutions involved in such diverse activities as medical research and political analysis. Mr. Gidwitz served as Chairman of the Endowment Committee of The Hotchkiss School where he continues to serve on the Committee. Mr. Gidwitz also formerly served on the Board of the Hoover Institution, an organization associated with Stanford University. The Board has concluded that Mr. Gidwitz possesses strong leadership experience and knowledge of the Company and its business obtained through his long tenure with the Company. In addition, the Board believes that Mr. Gidwitz possesses the highest degree of integrity while also representing the Companys majority stockholder family.
Ralph W. Gidwitz is the son of one of the founders of the Company and has served on the Board since 1984. Mr. Gidwitz is retired having previously started Capital Results LLC, a financial consulting company, for which he also served as the Managing Partner and Chief Executive Officer until 2009. Mr. Gidwitz has also served as the President and Chief Executive Officer of a private company engaged in manufacturing. Mr. Gidwitz currently serves on the Board of Trustees for a local college as well as serving as its Treasurer and Chairman of its Finance and Investment Committees. He also serves as a Director for three community associations and is a Governor for a Chicago cultural group. The Board has concluded that Mr. Gidwitz adds invaluable and extensive business and financial experience as well as possessing experience in mergers and acquisitions. Mr. Gidwitz also represents the Companys majority stockholder family.
Ronald J. Gidwitz is the son of one of the founders of the Company and has served on the Board since 1974. Mr. Gidwitz is currently a partner in GCG Partners, a strategic consulting and equity capital firm he co-founded in 1998. Mr. Gidwitz served as President and Chief Executive Officer of the Unilever HPC Helene Curtis Business Unit from 1996 to 1998. Prior to that, Mr. Gidwitz served as President (since 1979) and Chief Executive Officer (since 1985) and member of the Board of Directors of Helene Curtis, a Fortune 500 consumer products company. Before being appointed President, Mr. Gidwitz held a number of positions within the company, with responsibilities ranging from sales to manufacturing. Mr. Gidwitz currently serves as a director on the Board of Kapstone Paper and Packaging Corporation, a publicly traded company as well as serving on the Board of numerous non-profit organizations including Rush University Medical Center, the Museum of Science and Industry and the Lyric Opera of Chicago. Mr. Gidwitz has also been appointed to various state and Chicago boards, commission and chambers. In addition, in 2006 Mr. Gidwitz was a candidate for Governor of the State of Illinois. The Board has concluded that Mr. Gidwitz adds invaluable and extensive business and leadership experience as well as diverse experience in politics and state and local organizations which have provided key contacts to the Company on numerous occasions. Mr. Gidwitz also represents the Companys majority stockholder family.
Theodore R. Tetzlaff has served on the Board since 1981. Mr. Tetzlaff is an attorney at law. He was previously of counsel to the law firm of Ungaretti & Harris LLP. from 2005 to 2012. He has also been a partner at other law firms where he served as the Managing Partner of one firms Chicago office and as a member of another firms Executive Committee. He served as General Counsel of Tenneco, Inc., a large publicly traded oil and gas company from 1992 to 1999 and General Counsel for Peoples Energy Corporation, a large publicly traded diversified energy company from 2003 to 2006. Mr. Tetzlaff has also served as Chairman of the Board of a large Chicago civic
organization. The Board has concluded that Mr. Tetzlaffs experience adds invaluable and extensive business experience as well as an in-depth understanding of legal issues that have or may affect the Company.
Peter E. Thieriot has served on the Board since 2001. He is currently the General Manager of EMR Land Co., a privately owned land and livestock company. He has served in that capacity since 2006. He previously served in the same capacity for the predecessor company, Elk Mountain Ranch Company, LLC, from 1993 to 2006. Mr. Thieriot possesses extensive and diverse experience having served in numerous capacities for The Chronicle Publishing Company (The Chronicle), a closely held, family, national media company. His roles have included President, Vice President, Publisher and Station Manager for newspapers and television stations owned by The Chronicle. Over the years, Mr. Thieriot has served as a director or trustee for numerous cultural, civic and other types of non-profit organizations as well as serving as a director of The Chronicle from 1977 to 1993. The Board has concluded that Mr. Thieriots diverse experience in various industries, including The Chronicle, adds a unique perspective to many of the issues and tasks that are the responsibility of the Companys Board.
Darrell M. Trent has served as a Director since 1997. Mr. Trent has served as Chairman of the Board of Directors and Chief Executive Officer of Acton Development Company, Inc., a privately held 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. Mr. Trent took a leave of absence for part of 2003 to serve as a volunteer with the Coalition Provisional Authority in Iraq. Mr. Trent, a former U.S. Undersecretary of Transportation, was in Iraq to oversee the recreation of Iraqs Ministry of Transportation. The Board has concluded that Mr. Trent brings invaluable and extensive business experience in real estate development, a segment of the economy that directly impacts the Companys Concrete, Aggregates and Construction Supply (CACS) business as well as affecting other products offered by the Company. He also provides a unique insiders experience with the federal government to which the CACS business often supplies products through general contractors in the southern portion of the Front Range in Colorado.
Family Relationships
James G. Gidwitz and Ronald J. Gidwitz are cousins of Ralph W. Gidwitz and Betsy R. Gidwitz. James G. Gidwitz and Ronald J. Gidwitz, together with their siblings and all descendants, and Ralph W. Gidwitz and Betsy R. Gidwitz, together with their sibling and all descendants, are herein referred to as the Gidwitz Family. See SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Corporate Governance/Board of Directors
The Board of Directors recognizes the importance of good corporate governance as a means of addressing the needs of the Companys stockholders, employees, customers and community. Pursuant to the Delaware General Corporation Law, under which the Company is organized, the business, property and affairs of the Company are managed under the direction of the Board. Members of the Board are kept informed of the Companys business through discussions with the Chairman and management, by reviewing monthly financial and operational summaries and other materials prepared for them by management and by participating in meetings of the Board and its committees. During 2011, the Board held four meetings and the committees held a total of nine meetings. All directors 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. The Companys policy is to invite and encourage all directors to attend the annual meeting of stockholders. All current directors except Ronald Gidwitz attended the 2011 meeting of stockholders.
In furtherance of its corporate governance responsibilities, during April 2004, the Board of Directors adopted a formal Code of Ethics for the CEO and Senior Financial Officers and a formal General Code of Business Conduct and Ethics which is intended to provide guidelines regarding the actions of all of the Companys directors, officers and employees. A copy of The Code of Ethics for the CEO and Senior Financial Officers as well as the Code of Business Conduct and Ethics are available free of charge at the Companys website at www.continental-materials.com in the section labeled Governance. They are also available on the SECs website at www.sec.gov.
Board Leadership Structure and Role in Risk Oversight
The Companys chief executive officer, Mr. James G. Gidwitz, also serves as chairman of the Board of Directors. The Board of Directors believes that this leadership structure is optimal for the Company at this time because Mr. Gidwitzs extensive experience and history with the Company, together with his familys controlling equity interest provides the Company with strong and consistent leadership representing the interests of the stockholders while also balancing short-term goals with long-term opportunities. The current leadership structure does not hinder the non-management directors from raising issues or concerns for Board consideration; for this reason, the Company has not designated a lead independent director.
Management is responsible for managing the Companys risk and for bringing to the Boards attention, areas of risk which are most material to the Company. The Board, including its Audit Committee, which is comprised solely of independent directors, regularly reviews areas of risk to the Company and advises and directs management on the scope and implementation of policies, strategies and other actions designed to mitigate risk. The Companys Audit Committee also works with management and the Companys independent auditors to identify and address areas of significant risk to the Company.
Director Independence
The Company qualifies as a controlled company under the NYSE Amex corporate governance listing standards because more than 50% of the voting power is held by the Gidwitz family. As such, the Company is exempt from compliance with certain NYSE Amex corporate governance rules such as the requirement that the Board of Directors be composed of a majority of independent directors and that the Compensation and Nominating committees of the Board be comprised exclusively of independent directors. In spite of this exemption, the Company has chosen to strictly comply with these rules and others required of a listed company on the NYSE Amex. The Board, therefore, consists of a majority of independent directors. The Companys Board of Directors has affirmatively determined, after careful review, that William D. Andrews, Thomas H. Carmody, Theodore R. Tetzlaff, Peter E. Thieriot and Darrell M. Trent are independent members as defined by the NYSE Amex corporate governance rules. Board member independence is reviewed periodically. Based upon the Boards determination of member independence, the Board composition satisfies the NYSE Amex requirement for non-controlled companies that a majority of the Board qualify as independent.
Committees of the Board
The Companys Board of Directors has established an Audit Committee, a Compensation Committee and a Nominating Committee. As with the composition of the Board of Directors discussed above, the Company has elected to comply with the NYSE Amex corporate governance rules and the Sarbanes-Oxley Act such that each Board committee consists solely of independent directors. The Company has developed written charters for each of the committees and believes that each charter complies with the applicable rules of the NYSE Amex and the requirements of the Sarbanes-Oxley Act. A copy of the three committee charters are available free of charge at the Companys website at www.continental-materials.com in the section labeled Governance. The Committee charters are also available in print upon request by writing to the Corporate Secretary, Continental Materials Corporation, 200 South Wacker Dr. Suite 4000, Chicago, Illinois 60606.
Audit Committee
The primary function of the Audit Committee is to assist the Board of Directors in fulfilling its oversight responsibilities by reviewing: the financial reports and other financial information provided by the Company to any governmental body or the public; the Companys systems of internal controls regarding finance, accounting, legal compliance and ethics that management and the Board have established; and the Companys auditing, accounting and financial reporting processes generally. A written charter defining the responsibilities of the Committee has been adopted. During 2011, the Audit Committee was (and it still is) composed of Peter E. Thieriot, Chairman, Darrell M. Trent and Thomas H. Carmody. Also see AUDIT COMMITTEE REPORT below for discussion of the Audit Committees responsibilities. There were five Audit Committee meetings in fiscal year 2011. A copy of the Charter and Powers of the Audit Committee, which is reviewed and revised as appropriate, is available as noted above in the Committees of the Board section.
Compensation Committee
The primary function of the Compensation Committee is to establish and administer compensation policy and plans with respect to the officers of the Company and its subsidiaries. A written charter defining the responsibilities of the Compensation Committee has been adopted. During 2011, the Compensation Committee was (and it still is) composed of Theodore R. Tetzlaff, Chairman, and Darrell M. Trent. See COMPENSATION COMMITTEE REPORT for discussion of responsibilities. The Compensation Committee held three meetings in fiscal year 2011. A copy of the Charter of the Compensation Committee, which is reviewed and revised as appropriate, is available as noted above in the Committees of the Board section.
Nominating Committee
The primary function of the Nominating Committee is to (a) review the composition of the Board for succession planning purposes, as well as to ensure that the Board members collectively possess the skills and expertise deemed necessary for effective performance by the Board of its leadership responsibilities; (b) identify individuals qualified to serve as members of the Board; (c) recommend to the Board director nominees to be presented at the annual meeting of stockholders and nominees to fill vacancies on the Board, whether caused by retirement, resignation, death or otherwise; and (d) develop and recommend to the Board such corporate governance policies as the Nominating Committee believes appropriate and desirable. A written charter defining the responsibilities of the Nominating Committee has been adopted. A copy of the Charter of the Nominating Committee, which is reviewed and revised as appropriate, is available as noted above in the Committees of the Board section.
Director nominees are generally identified through recommendations from members of the Board or management, however, candidates recommended by stockholders will be considered. To recommend a candidate for consideration by the Nominating Committee, a stockholder must submit the recommendation in writing to the Companys Corporate Secretary at the following address:
Corporate Secretary
Continental Materials Corporation
200 South Wacker Dr. Suite 4000
Chicago, Illinois 60606
The Nominating Committee requires that the recommendation include the following:
· the name and address of the stockholder making the recommendation and evidence of his or her ownership of Company stock, including the number of shares and period of ownership;
· the name and address of the director candidate, and his or her resume or listing of qualifications, taking into account the criteria described below; and
· the candidates signed consent to be named in the proxy statement and to serve as a director if elected.
For a candidate to be considered by the Nominating Committee for inclusion in the slate of nominees proposed by the Board at the next annual meeting of stockholders, the stockholders recommendation must be received by the Corporate Secretary no later than January 11, 2013. The Company does not intend to evaluate nominees proposed by stockholders any differently than other nominees to the Board.
The Nominating Committee maintains formal criteria for selecting directors to assure that each candidate:
· possesses fundamental qualities of intelligence, honesty, business acumen, good judgment, maturity, high ethics and standards, integrity, fairness and responsibility;
· has a genuine interest in the Company and recognizes that, as a member of the Board, each director is accountable to all Company stockholders;
· has a background that demonstrates an understanding of business and financial affairs;
· is or has been in a senior position in a business, university or major unit of government;
· has no conflict of interest or legal impediment that would interfere with the duty of loyalty owed to the Company and its stockholders;
· has the ability and is willing to spend the time required to function effectively as a director;
· is compatible and able to work well with other directors and executives in a team effort with a view to a long-term relationship with the Company as a director; and
· has independent opinions and is willing to state them in a constructive manner.
In addition to the individual qualities discussed above, the Nominating Committee seeks to ensure that the Board, in the aggregate, is diverse in background and expertise such that the composite Board possesses various viewpoints, strengths and abilities that are of importance to the Company. Nominees are selected on the above criteria and are not selected or discriminated against on the basis of gender, national origin, disability, race, religion, sexual orientation or any other basis proscribed by law.
During 2011, the Nominating Committee was (and it still is) composed of Thomas H. Carmody, Chairman, and Peter E. Thieriot. The Nominating Committee held one meeting, attended by both members, in fiscal year 2011. The Nominating Committee approved the inclusion of the three directors standing for re-election on the Companys proxy card for the 2012 annual meeting.
Executive Sessions
The Companys Board of Directors has determined that, in order to satisfy its corporate governance responsibilities, the Board will meet in executive session without management or any employee director present as often as deemed appropriate. The Audit Committee is also required by its charter to meet at least annually in separate executive sessions with the independent auditor and management. These requirements were met during 2011.
Assessment of Board and Committee Performance
The Board performs an informal review of its own performance, structure and processes in order to assess its effectiveness as often as deemed appropriate. Each committee of the Board also conducts a similar self-evaluation. The Board and the Committees completed a review during 2011 and the results were discussed at the Board of Directors Meeting held on May 25, 2011.
Contacting the Board of Directors
The Company has established a process for sending communications to members of the Board. Specifically, stockholders and other interested parties may contact any of the Companys directors, including the Chairman, by mail at the following address:
Name of Continental Materials Director
c/o Corporate Secretary
Continental Materials Corporation
200 South Wacker Dr. Suite 4000
Chicago, Illinois 60606
All communications will be forwarded by the Companys Corporate Secretary directly to the named director or the Chairman of the Board, if no individual director is specified.
COMPENSATION COMMITTEE REPORT
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis as set forth below with management and, based on such review and discussion, recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement.
Compensation Committee of the Board of Directors
Theodore R. Tetzlaff (Chairman)
Darrell M. Trent
This Compensation Committee Report is not to be deemed soliciting material or deemed to be filed with the SEC or subject to Regulation 14A of the Securities Exchange Act of 1934, as amended, except to the extent specifically requested by the Company or specifically incorporated by reference in documents otherwise filed.
COMPENSATION DISCUSSION AND ANALYSIS
Compensation Philosophy
The Compensation Committee makes recommendations to the Board concerning compensation for the named executive officers and determines compensation for other officers. The Committee also oversees benefit plans in which the named executive officers participate. The Compensation Committee is comprised of independent directors, as discussed above under Corporate Governance, Committees of the Board, and Director Independence. A copy of the Charter of the Compensation Committee of the Board of Directors, which is reviewed and revised as appropriate, is available as noted above in the Committees of the Board section.
The Company believes that executive compensation should be closely 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 expectations. At the same time, the Compensation 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 Companys compensation programs to ensure that pay levels and incentive opportunities are competitive and reflect the performance of the Company. The Committee periodically engages an independent compensation consulting firm to assist it in determining the competitiveness of the Companys overall compensation structure. Compensation is reviewed from a base salary standpoint as well as considering the total compensation package received by each executive. A written report of the conclusions of the independent compensation consulting firm is provided to management and the Compensation Committee. In years that compensation is not reviewed by an independent compensation consultant, the Committee tends to consider the consumer price index as a benchmark for base salary increases. No independent compensation consultant was engaged during the fiscal year ended December 31, 2011.
Compensation Program Components
To achieve its compensation goals, the executive compensation program consists primarily of the following components:
· base salary
· cash bonus
· defined contribution profit sharing plan
· perquisites and other benefits
All components are reviewed annually, individually and in the aggregate, considering corporate performance and individual initiative and performance. While each component is discussed in more detail below, it is the Committees intention to establish base salaries commensurate with those paid by companies of similar size and complexity while providing the named executive officers with the ability to receive a significant portion of their total compensation through the Companys bonus programcontingent on meeting corporate and personal performance goals related to the Companys operations. This places a large percentage of their compensation at risk while more closely aligning their interests with the interests of the Companys stockholders. The employee benefits and perquisites offered by the Company have generally been established in response to competitive offerings and also with the goal of enabling the executives to focus on their job duties. As noted above, the Compensation Committee considers the written report from the independent compensation consulting firm in years when a formal review is performed, the recommendations of the Chief Executive Officer and the Committees own discretion in establishing both the base salary and total compensation packages for the executives.
Base Salaries
Base salaries are used to provide annual cash income to executives to compensate them for services rendered during the fiscal year. The Compensation Committee establishes salaries annually based on a review of each officers individual responsibilities, performance and through comparisons with companies of similar size and complexity. Officer salaries are typically reviewed and adjusted each year at the Committees meeting in either March or May. However, at the suggestion of management, the Committee has not awarded salary increases to the Companys officers since July 2007. Managements suggestion to defer officer increases was based upon the Companys operating results, liquidity and capital resources. The last formal review of salary levels performed by an independent compensation consultant was in early 2006. In preparing its recommendations, the consultant considered each individuals responsibilities and salaries paid by companies of similar size and complexity for similar positions. The Compensation Committee has determined that salary levels be targeted at the median of industry salary levels. For those years that no independent review is performed, increases are generally based upon the Department of Labor index of increases in general compensation levels except for the past four years as noted above. As of the date of this proxy statement, the Committee had not yet met to consider increases for 2012.
Cash Bonuses
The bonus program is intended to provide an opportunity to receive additional cash compensation but only if it is earned through achievement of specified performance goals. At the beginning of each year, the Compensation Committee establishes the annual target goals for earnings and return on net investment considering the Companys annual business plan, the Companys prior years performance and the performance of other companies in the industry segments in which the Company competes. In this context, return on net investment is defined as earnings before interest, income taxes and amortization of intangible assets as a percentage of the sum of the average shareholders equity plus the average funded debt for the year. Other Company-wide goals and personal goals are also considered to the extent these goals further the objectives of the Company. The Committee relies primarily on mathematical formulae in calculating the portion of the bonuses to be granted related to the goals established for earnings and return on net investment. The level of achievement of personal goals is more subjective and is often based on the successful achievement of certain transactions or other goals which may be measured by the Committee on a discretionary, non-quantifiable basis. The Committee also considers the Companys liquidity and capital resources. The Committee believes that these performance measures serve to align the interests of executives with the interests of stockholders.
The Committees policy and belief is that eligible employees should have a reasonable likelihood of achieving the target level of performance such that, over time, the bonuses paid should be at or near the target level.
Profit Sharing Plan, Benefits and Perquisites
Executives participate in each of the benefit plans or arrangements that are made available to all salaried employees generally, including medical and dental benefits, life and disability insurance, and the profit sharing plan which is qualified under Internal Revenue Code Section 401(k). The Compensation Committee considers all of these plans and benefits when reviewing total compensation of the named executive officers. With respect to life insurance, officers receive coverage of three and a half times their
salaries to a maximum of $650,000. The premium associated with this coverage is added to the individuals taxable wages. Life insurance in excess of those amounts is at the discretion of the employee and the associated premiums are paid by the employee. With respect to the 401(k) plan, any individual whose compensation is in excess of the amount eligible for the Company matching contribution to the 401(k) plan as established by the Internal Revenue Service, participates in an unfunded Supplemental Profit Sharing Plan as described below. The Company does not provide any benefit plans intended to benefit only the named executive officers.
The Company provides company-leased cars to the executive officers named in the Executive Compensation Table below for their use. An annual bonus is paid, and included in the individuals taxable wages, which is used to reimburse the Company for the lease expense incurred for the year. This bonus, included in All Other Compensation, is grossed up for the related taxes. In providing the cars to the executives, the Committee considered the frequency that the executives found it necessary to work outside of normal business hours when other forms of transportation were less available or convenient.
The Company has, on occasion, provided the named executive officers with an insignificant amount of tax or legal service. During 2011, no such services were incurred by any of the named officers. The Company does not provide any other perquisites to the named executive officers such as club memberships or personal travel.
Stock Option and Long-Term Equity Plans
There are no equity compensation plans, whether approved by security holders or not, existing as of December 31, 2011 related to the named executive officers. The Compensation Committee believes that equity compensation plans are not a necessary component of executive compensation at the present time due to the number of shares currently held by affiliates of the Company and the limited market liquidity for our shares.
Conclusion
After reviewing all of the components of its existing compensation program, including perquisites, the Compensation Committee has determined that, after giving consideration to the effects of the economy on the Companys operating performance during the past few years, the total annual compensation received by the named executive officers and other officers of the Company is reasonable and competitive with the compensation programs provided by other corporations of similar size and complexity while also considering the liquidity and capital resources currently available to the Company. Moreover, the Committee believes that it has maintained compensation at levels that reflect each executive officers contribution towards the Companys objectives.
Compensation Committee Interlocks and Insider Participation in Compensation Decisions
There are no interlocks or other relationships among the Companys executive officers and directors that are required to be disclosed under applicable executive compensation disclosure requirements.
EXECUTIVE SUMMARY COMPENSATION TABLE
The following table summarizes the compensation of the Companys principal executive officer, principal financial officer and the Companys only other executive officer for 2011. The amounts shown include all compensation for services to the Company and its subsidiaries in all capacities.
Name and |
|
|
|
|
|
|
|
All Other |
|
|
| ||||
Principal Position |
|
Year |
|
Salary |
|
Bonus |
|
Compensation (4) |
|
Total |
| ||||
James G. Gidwitz |
|
2011 |
|
$ |
442,000 |
|
$ |
|
|
$ |
8,041 |
|
$ |
450,041 |
|
Chairman and Chief |
|
2010 |
|
442,000 |
|
|
|
64,410 |
|
506,410 |
| ||||
Executive Officer (1) |
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Joseph J. Sum |
|
2011 |
|
203,000 |
|
|
|
23,994 |
|
226,994 |
| ||||
Vice President and Chief |
|
2010 |
|
203,000 |
|
|
|
43,354 |
|
246,354 |
| ||||
Financial Officer (2) |
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Mark S. Nichter |
|
2011 |
|
141,500 |
|
|
|
20,138 |
|
161,638 |
| ||||
Secretary and |
|
2010 |
|
141,500 |
|
8,500 |
|
7,772 |
|
157,772 |
| ||||
Controller (3) |
|
|
|
|
|
|
|
|
|
|
| ||||
(1) Mr. Gidwitz, age 65, has served as a director of the Company since 1978, and has been Chairman of the Board and Chief Executive Officer of the Company since 1983.
(2) Mr. Sum, age 64, currently serves as Chief Financial Officer, Vice President and Treasurer of the Company, and has been an officer of the Company since 1978. Mr. Sum has been Vice President and Treasurer of the Company since 1988. Mr. Sum previously served as Assistant Treasurer of the Company from 1978 through August 1988, Controller from 1979 through January 1989 and Secretary from 1983 through February 1993.
(3) Mr. Nichter, age 61, currently serves as Secretary and Controller of the Company. Mr. Nichter has been an officer of the Company since 1989. Mr. Nichter has served as the Companys Secretary since 1993 and Corporate Controller since 1989.
(4) All Other Compensation includes other compensation not required to be included in any other column. The items comprised by these totals are set forth in the following table:
Name |
|
Year |
|
Contributions |
|
Contributions to |
|
Imputed Gain |
|
Company |
|
Other |
|
Total |
| |||||
James G. Gidwitz |
|
2011 |
|
$ |
7,350 |
|
$ |
5,910 |
|
$ |
(35,239 |
) |
$ |
30,020 |
|
None |
|
$ |
8,041 |
|
|
|
2010 |
|
3,250 |
|
|
|
29,170 |
|
31,990 |
|
None |
|
64,410 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Joseph J. Sum |
|
2011 |
|
6,090 |
|
|
|
440 |
|
17,464 |
|
None |
|
23,994 |
| |||||
|
|
2010 |
|
1,494 |
|
|
|
23,649 |
|
18,211 |
|
None |
|
43,354 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Mark S. Nichter |
|
2011 |
|
4,245 |
|
None |
|
None |
|
15,893 |
|
None |
|
20,138 |
| |||||
|
|
2010 |
|
884 |
|
None |
|
None |
|
6,888 |
|
None |
|
7,772 |
| |||||
(1) The imputed gain or loss is determined by applying the same rate of return to the deferred balances as the employee has realized on his 401(k) Plan investments exclusive of investments in the Companys common stock, if any.
(2) The amounts paid to Messrs. Gidwitz, Sum and Nichter represent payments to them from which they, in turn, reimbursed the Company for the annual amount expended for the leased cars. The 2011 amounts included a gross-up for taxes of $11,843, $6,540 and $5,157, respectively. The 2010 amounts included a gross-up for taxes of $12,620, $6,820 and $2,235, respectively.
Retirement Benefits
401(k) Plan: The Company has various contributory profit sharing retirement plans qualified pursuant to Internal Revenue Code Section 401(k) for the benefit of qualifying employees, including the named executives. Up until March 2010, the Company matched employees contributions up to 3%. Due to the losses incurred since the third quarter of 2009, the Company suspended the 3% match in March 2010. The Compensation Committee together with management will review all of the relevant factors, primarily profitability, at year-end and decide whether to make a contribution for the year.
Unfunded Supplemental Profit Sharing Plan: The Company also maintains an unfunded supplemental profit sharing plan for salaried employees which enables the Company to pay, to any person whose contribution to the 401(k) plan has been restricted as a result of the limitations imposed by Section 401 of the Internal Revenue Code, an amount equal to the difference between the amount the person would have received as Company matching contributions to his account under the 401(k) plan had there been no limitations and the amount the person will actually receive under the 401(k) plan giving effect to the limitations.
The Supplemental Profit Sharing Plan provides for the employees balances to be credited or charged with a gain or loss determined by applying the same rate of return to the deferred balances as the employees realized on their 401(k) plan investments exclusive of investments in the Companys common stock.
The Supplemental Profit Sharing Plan is unfunded and amounts owed to the employees covered thereby are considered to be general obligations of the Company. The Supplemental Plan was amended in 2007 to remain in compliance with Internal Revenue Service Rule 409A. Two separate plans were created for each participant whose account was credited with contributions both before and after December 31, 2004. The original Supplemental Plan for contributions made prior to 2005 was amended to add provisions which allow an employee to take an in-service withdrawal of amounts accumulated in the Supplemental Plan prior to December 31, 2004 provided the employee forfeits 10% of his then current Supplemental Profit Sharing Plan account balance. The forfeited amount reverts back to the Company. The new Supplemental Plan for contributions after 2004 does not permit in-service withdrawals. Contributions and earnings or loss imputed on the balance are disclosed in the above table.
Equity Compensation Plans
The Company has no equity compensation plans for its employees, whether approved by security holders or not, existing as of December 31, 2011; however effective December 30, 2010, the 2010 Non-Employee Directors Stock Plan was established after being approved by a majority of the security holders.
DIRECTOR COMPENSATION
The Boards policy is to pay each director who is not an officer or employee of the Company an annual retainer (as described below) plus the following fees:
· $750 for each Board meeting attended;
· $750 for each committee meeting attended;
· $6,000 Audit Committee chair retainer fee; and
· $3,000 retainer fee for all other committee chairs.
In December 2010 the holders of shares representing a majority of the voting power of the Companys common stock gave their written consent to a resolution by the Companys Board of Directors adopting the Companys Non-Employee Director Stock Plan, pursuant to which the non-employee directors of the Company will receive their annual base retainer payment in the form of Common Stock, instead of cash. Notice of this resolution was sent to all shareholders by the mailing of a copy of the Information Statement Pursuant to Section 14 of the Securities Exchange Act of 1934 and Regulation 14C and Schedule 14C Thereunder together with a cover letter on December 10, 2010.The Plan became effective December 30, 2010. During July 2011, the Compensation Committee approved a grant of 1,500 shares of Common Stock to each qualifying director for 2011 service. The grant date was set as July 15, 2011. The fair market value of this grant, determined by reference to the closing price of the Companys Common Stock as quoted on the NYSE Amex exchange as of Friday, July 15, 2011 was, $22,530. The number of shares to be granted for future years service will be determined annually.
Director Summary Compensation Table
The table below summarizes the compensation paid by the Company to non-employee directors for the fiscal year ended December 31, 2011. The Company does not currently compensate the Board members except as discussed above.
Name (1) |
|
Total Fees Earned |
|
Total Fees Earned |
|
Total |
| |||
William D. Andrews |
|
$ |
3,000 |
|
$ |
22,530 |
|
$ |
25,530 |
|
Thomas H. Carmody |
|
10,500 |
|
22,530 |
|
33,030 |
| |||
Betsy R. Gidwitz |
|
3,000 |
|
22,530 |
|
25,530 |
| |||
Ralph W. Gidwitz |
|
3,000 |
|
22,530 |
|
25,530 |
| |||
Ronald J. Gidwitz |
|
2,250 |
|
22,530 |
|
24,780 |
| |||
Theodore R. Tetzlaff |
|
7,500 |
|
22,530 |
|
30,030 |
| |||
Peter E. Thieriot |
|
13,500 |
|
22,530 |
|
36,030 |
| |||
Darrell M. Trent |
|
3,000 |
|
22,530 |
|
25,530 |
| |||
(1) James G. Gidwitz, Chief Executive Officer and Chairman of the Board, is not included in this table as he is an employee of the Company and receives no additional compensation for his service as director. Mr. Gidwitz compensation is shown in the above Executive Summary Compensation Table.
(2) None of the directors received perquisites or other personal benefits.
(3) Represents 1,500 shares at $15.02 per share issued July 15, 2011.
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 April 2, 2012 by (i) each director, (ii) the named executive officers, (iii) directors and named executive officers as a group, and (iv) persons that have reported beneficial ownership of more than 5% of the Companys Common Stock.
Name and Address |
|
No. of Shares |
|
Percent of |
|
Gidwitz Family (2) |
|
1,013,977 |
(3) |
62.0 |
% |
Franklin Advisory Services, LLC |
|
129,700 |
(4) |
7.9 |
% |
William D. Andrews |
|
34,575 |
|
2.1 |
% |
Thomas H. Carmody |
|
1,700 |
|
|
* |
James G. Gidwitz |
|
102,452 |
(3)(5) |
6.3 |
% |
Betsy R. Gidwitz |
|
10,502 |
(6) |
|
* |
Ralph W. Gidwitz |
|
10,502 |
(7) |
|
* |
Ronald J. Gidwitz |
|
10,502 |
(8) |
|
* |
Mark S. Nichter |
|
485 |
|
|
* |
Joseph J. Sum |
|
17,500 |
(9) |
1.2 |
% |
Theodore R. Tetzlaff |
|
4,500 |
|
|
* |
Peter E. Thieriot |
|
6,500 |
|
|
* |
Darrell M. Trent |
|
6,500 |
|
|
* |
All directors, nominees and named officers as a group (includes ten persons) |
|
1,102,199 |
(10) |
67.4 |
% |
* Percentage of shares beneficially owned does not exceed 1%.
(1) Calculations are based on 1,634,674 shares of Common Stock outstanding as of April 2, 2012.
(2) The Gidwitz family includes James G. Gidwitz, Ronald J. Gidwitz and their three siblings, and Ralph W. Gidwitz, Betsy R. Gidwitz and their sibling. These eight family members, together with their descendants, are herein referred to as the Gidwitz Family. The Gidwitz Family holdings include the shares identified in the table above and directly owned by James G. Gidwitz, Betsy R. Gidwitz, Ralph W. Gidwitz and Ronald J. Gidwitz, as well as the following shares:
(a) 727,126 shares owned by the CMC Partnership whose managing partners are Betsy R. Gidwitz, James G. Gidwitz, Ralph W. Gidwitz, and Ronald J. Gidwitz;
(b) 118,063 shares owned by the CMC-GFAM Partnership whose beneficial owners are certain members of the Gidwitz Family, including trusts created for the benefit of the children of James G. Gidwitz and Ronald J. Gidwitz; and
(c) 30,330 shares held directly by members of the Gidwitz family other than named directors and executive officers listed in the security ownership table above. James G. Gidwitz, Betsy R. Gidwitz, Ralph W. Gidwitz and Ronald J. Gidwitz disclaim beneficial ownership of the shares referenced in this Note as indirectly owned, except to the extent of their respective beneficial ownership interests in the entities that hold such shares. The combined reporting of the shares referenced in this Note does not constitute an admission on the part of any individual member of the Gidwitz Family that the Gidwitz Family constitutes a group within the meaning of SEC Rule 13D.
(d) 3,000 shares held in a trust for which James G. Gidwitz has uncompensated investment authority but disclaims beneficial ownership of these shares except to the extent of his position as Trustee and investment advisor.
With respect to the shares referenced in this Note, the beneficial owners indicated in (c) have sole voting and investment power and the beneficial owners indicated in (a) and (b) have shared voting and investment power.
(3) Includes 36,450 shares credited to James G. Gidwitzs account in the Employees Profit Sharing Retirement Plan.
(4) Represents ownership of 129,700 shares reported in a Schedule 13G dated December 31, 2011, by Franklin Resources, Inc. (FRI), Charles B. Johnson, Rupert H. Johnson, Jr. and Franklin Advisory Services, LLC (FAS). According to the Schedule 13G, the shares are beneficially owned by one or more open or closed-end investment companies or other managed accounts which are advised by direct and indirect investment advisory subsidiaries of FRI. FAS, as the investment adviser, retains sole investment and voting power over the shares.
(5) Does not include 727,126 shares held indirectly by James G. Gidwitz through CMC Partnership or 118,063 shares held indirectly by James G. Gidwitz through CMC-GFAM Partnership, over which he has shared voting and investment power.
(6) Does not include 727,126 shares held indirectly by Betsy R. Gidwitz through CMC Partnership over which she has shared voting and investment power.
(7) Does not include 727,126 shares held indirectly by Ralph W. Gidwitz through CMC Partnership over which he has shared voting and investment power.
(8) Does not include 727,126 shares held indirectly by Ronald J. Gidwitz through CMC Partnership or 118,063 shares held indirectly by Ronald J. Gidwitz through CMC-GFAM Partnership, over which he has shared voting and investment power.
(9) Includes 12,500 shares credited to Joseph J. Sums account in the Employees Profit Sharing Retirement Plan.
(10) Includes 67,397 shares held by the Companys Employees Profit Sharing Retirement Plan, which includes: (a) 36,450 shares credited to James G. Gidwitzs account, 12,500 shares credited to Joseph J. Sums account and 485 shares credited to Mark S. Nichters account and (b) 17,962 shares credited to other employees accounts, as to which James G. Gidwitz, Mark S. Nichter and Joseph J. Sum share voting power (with respect to certain matters) as trustees of such Plan.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 generally requires the Companys directors, executive officers and owners of more than 10% of a registered class of the Companys equity securities to file with the SEC reports of beneficial ownership and changes in ownership, on Forms 3, 4 and 5, generally within two business days of the date of a purchase or sale transaction. Such officers, directors and 10% owners are required by SEC regulations to furnish to the Company copies of all Section 16(a) reports that they file. To the Companys knowledge, based solely on review of copies of such reports furnished to the Company and representations that no other reports were required to be filed during the fiscal year ended December 31, 2011, all executive officers, directors and 10% owners of the Company complied with the Section 16(a) filing requirements during fiscal year 2011 with the following exceptions: James G. Gidwitz, Ronald J. Gidwitz, Ralph W. Gidwitz and Betsy R. Gidwitz did not timely file three Form 4s in connection with three transactions during the fiscal year; William D. Andrews did not timely file two Form 4s in connection with two transactions during the fiscal year, and; Thomas Carmody and Joseph J. Sum did not timely file one Form 4 in connection with one transaction each during the fiscal year. In addition to the preceding, each of the Companys non-employee directors filed late Form 4s with respect to the grant of 1,500 shares to each for his or her service on the Board during the second half of the 2010 fiscal year (grant date January 1, 2011) and the grant of 1,500 shares to each for his or her annual retainer for service during the 2011 fiscal year (grant date July 15, 2011). See Director Compensation discussion above. To the Companys knowledge, as of the date of this proxy statement, all such reporting obligations have been satisfied.
Certain Relationships and Related Transactions
The Company purchases insurance coverage for workers compensation, general and product liability together with another company controlled by the Gidwitz Family to minimize insurance costs and to obtain other more favorable terms. The cost of such insurance is allocated based upon a formula that considers, among other things, nature of risk, loss history and size of operations. From time to time, the Company will advance payments to the insurance carriers on behalf of the other company. The Company invoices the other company its respective share of each payment. During fiscal 2011, the other company paid its respective share in the same month that it was invoiced. The Companys participation in this arrangement has, in managements opinion, resulted in significant savings to the Company in terms of the cost of insurance premiums and other related charges.
Theodore R. Tetzlaff has served as a director of the Company since 1981. Until April 1, 2012 Mr. Tetzlaff was of counsel to the law firm of Ungaretti & Harris LLP. During fiscal 2011 and the prior fiscal year, the Company retained Ungaretti & Harris to provide it with legal services. During fiscal 2011 and 2010, the dollar amount of fees paid to Ungaretti & Harris was $395,000 and $227,000, respectively, which exceeds the SECs threshold for reporting, however, based upon information supplied by Ungaretti & Harris, this amount did not exceed 5% of the firms gross annual revenues. Although the following policy and procedures are not in writing, the Board of Directors evaluates the types of transactions that are assigned to Ungaretti & Harris other than routine corporate matters such as reviews of reports and information submitted to the SEC.
AUDIT COMMITTEE REPORT
Management is responsible for Continental Materials internal controls and financial reporting process. BKD is responsible for performing an independent audit of the Companys consolidated financial statements in accordance with auditing standards generally accepted in the United States of America and for issuing an opinion on the fairness of the presentation of those statements in accordance with accounting principles generally accepted in the United States. The Audit Committees responsibility is to monitor and oversee these processes. The Audit Committee consists of three directors, each of whom the Board has determined meets the independence criteria of the NYSE Amex and the Sarbanes-Oxley Act. The members of the Audit Committee are Peter E. Thieriot, Chairman, Darrell M. Trent and Thomas H. Carmody. The Board has determined that Peter E. Thieriot qualifies as an audit committee financial expert as defined by the Securities and Exchange Commission.
Charter
The Audit Committees duties and responsibilities are set forth in a written charter, which was initially adopted and approved by the Board on May 24, 2000 and amended in January 2004 to address the requirements of the Sarbanes-Oxley Act and the NYSE Amex corporate governance rules. A copy of the Charter and Powers of the Audit Committee, which is reviewed and revised as appropriate, is available as noted above in the Committees of the Board section.
In the course of fulfilling its responsibilities, the Audit Committee has:
· engaged BKD LLP (BKD) as the Companys independent auditors;
· reviewed and discussed the Companys audited financial statements with management;
· reviewed and discussed with management the selection, application and disclosure of critical accounting policies of the Company and the Companys internal control procedures;
· discussed with BKD the matters required to be discussed by Statement on Auditing Standards No. 61, Communications with Audit Committees, as amended, regarding the auditors judgments about the quality of the Companys accounting principles as applied in its financial reporting;
· discussed with BKD the selection, application and disclosure of the Companys critical accounting policies;
· discussed with BKD the audit plan, scope, identification of audit risks and the Companys internal control procedures;
· received written disclosures and the letter from BKD required by the Public Company Accounting Oversight Board regarding BKDs communications with the Audit Committee concerning independence;
· discussed with representatives of BKD the public accounting firms independence from the Company and management; and
· considered whether the provision by BKD of non-audit services is compatible with maintaining BKDs independence.
Conclusion
Based on the review and discussions referred to above, the Audit Committee recommended to the Board of Directors that the Companys audited financial statements be included in the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2011 for filing with the Securities and Exchange Commission.
Submitted by the Audit Committee of the Board of Directors
Peter E. Thieriot (Chairman)
Darrell M. Trent
Thomas H. Carmody
INDEPENDENT AUDITORS
Fees for services performed by BKD and related expenses for the 2011 and 2010 fiscal years were as follows:
|
|
2011 |
|
2010 |
| ||
Audit Fees (1) |
|
$ |
313,361 |
|
$ |
300,431 |
|
Audit Related Fees (2) |
|
950 |
|
3,575 |
| ||
Tax Fees (3) |
|
31,000 |
|
47,960 |
| ||
All Other Fees (4) |
|
|
|
|
| ||
Total |
|
$ |
345,311 |
|
$ |
351,966 |
|
(1) Consists of fees for the audit of our financial statements and the review of the financial statements included in the quarterly reports on Form 10-Q and the provision of attestation services in connection with statutory and regulatory filings or engagements.
(2) Consists of fees for services relating to the audit of the consolidated annual financial statements and accounting consultations.
(3) Consists of fees for services related to tax compliance, tax advice and tax planning.
(4) There were no fees incurred during either 2011 or 2010 that would be classified in the All Other Fees category.
In accordance with the applicable rules of the SEC, the Audit Committee has established policies and procedures for pre-approval of all audit and permitted non-audit services to be provided by its independent registered public accounting firm. The Audit Committee must separately pre-approve the engagement of the independent registered public accounting firm to audit the Companys consolidated financial statements. The Audit Committee has established a pre-approval policy for engaging the independent registered public accounting firm for other audit and permissible non-audit services. Under the policy, the Audit Committee has specified audit, audit-related, tax and regulatory services that may be performed by the independent registered public accounting firm. The engagement for those services specified in the policy requires the further, separate pre-approval of the Chairman of the Audit Committee or the entire Audit Committee, if specific dollar thresholds set forth in the policy are exceeded. Services not specified in the policy will require separate pre-approval by the Audit Committee. The audit, audit-related, tax and other services provided by BKD in 2011 and 2010, described above, were all approved by the Audit Committee in accordance with this policy.
PROPOSAL 2
RATIFICATION OF ENGAGEMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and the Audit Committee recommend ratification of the continued engagement of BKD as independent registered public accounting firm for the Company for the fiscal year ending December 29, 2012. Although ratification by stockholders is not required by law, the Audit Committee has determined that it is desirable to request ratification of this selection by stockholders. Therefore, an appropriate resolution ratifying the engagement will be submitted to the stockholders at the Annual Meeting. Notwithstanding its selection, the Audit Committee, in its discretion, may appoint a new independent registered public accounting firm at any time during the year if the Audit Committee believes that such a change would be in the best interests of the Company and its stockholders. If the stockholders do not ratify the appointment of BKD, the Audit Committee will consider the selection of another independent registered public accounting firm for 2012 and future years.
A representative of BKD is expected to be present at the stockholders annual meeting to respond to appropriate questions and to make a statement if he/she so desires.
The Audit Committee recommends that stockholders vote FOR the ratification of BKD as independent registered public accounting firm for the Company for the 2012 fiscal year.
STOCKHOLDER PROPOSALS AND OTHER MATTERS
The deadline for receipt of stockholder proposals for inclusion in the Companys proxy statement for its 2013 annual meeting is January 11, 2013. We will decide whether to include a proposal in the proxy statement in accordance with SEC rules governing the solicitation of proxies.
EXPENSES OF PROXY SOLICITATION
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 InvestorCom, Inc. to solicit proxies from nominees and brokers accounts at a cost of approximately $4,250 plus out-of-pocket expenses. 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.
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By Order of the Board of Directors, |
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James G. Gidwitz |
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Chairman of the Board |
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Chicago, Illinois |
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April 23, 2012 |
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CONTINENTAL MATERIALS CORPORATION Proxy Card For Annual Meeting On May 23, 2012 The undersigned hereby appoints Ralph W. Gidwitz and James G. Gidwitz as Proxies, each with power to appoint his substitute, and hereby authorizes them to represent and to vote, either individually or jointly, as designated below, all the shares of common stock of Continental Materials Corporation held of record by the undersigned on March 28, 2012, at the annual meeting of stockholders to be held on May 23, 2012, or any adjournment thereof. This proxy 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. The Board of Directors unanimously recommends a vote FOR Proposals (1) and (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, and FOR approval and ratification of the appointment of the independent registered public accounting firm. In their discretion, the Proxies are authorized to vote upon such other business as may properly come before the meeting or any adjournments thereof. PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED RETURN ENVELOPE. YOUR VOTE IS IMPORTANT. (Continued and to be signed on reverse side) Address Change/Comments (Mark the corresponding box on the reverse side) |
CONTINENTAL MATERIALS CORPORATION Mark Here for Address Change or Comments Signature Signature Date 2012 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. 1. Election of three nominees to the Board of Directors. Nominees: 01 Thomas A. Carmody 02 Ronald J. Gidwitz and 03 Darrell M. Trent (Instruction: To withhold authority to vote for any individual nominee, strike a line through that nominees name.) 2. Approval and ratification of the Directors appointment of BKD LLP as the Companys independent registered public accounting firm for the 2012 fiscal year ending December 29, 2012. The Proxy is solicited on behalf of the Board of Directors of the Company. FOR all nominees listed below (except as marked to the contrary below) WITHHOLD AUTHORITY To vote for all nominees listed below FOR AGAINST PLEASE SEE REVERSE SIDE ABSTAIN |