-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HomF5vpyyNdW9CagzC83HbFOZYmo6Ld1h8/18Y9FOxIVFRn4Tgd2+hdHaeHTEo8z ZxRnX2uvTIZKdKDgAABEbQ== 0000024104-96-000002.txt : 19960401 0000024104-96-000002.hdr.sgml : 19960401 ACCESSION NUMBER: 0000024104-96-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960329 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONTINENTAL MATERIALS CORP CENTRAL INDEX KEY: 0000024104 STANDARD INDUSTRIAL CLASSIFICATION: AIR COND & WARM AIR HEATING EQUIP & COMM & INDL REFRIG EQUIP [3585] IRS NUMBER: 362274391 STATE OF INCORPORATION: DE FISCAL YEAR END: 1228 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-03834 FILM NUMBER: 96541136 BUSINESS ADDRESS: STREET 1: 225 WEST WACKER STREET 2: SUITE 1800 CITY: CHICAGO STATE: IL ZIP: 60606 BUSINESS PHONE: 3126617200 MAIL ADDRESS: STREET 1: 225 WEST WACKER STREET 2: SUITE 1800 CITY: CHICAGO STATE: IL ZIP: 60606 FORMER COMPANY: FORMER CONFORMED NAME: CONTINENTAL URANIUM INC DATE OF NAME CHANGE: 19660830 10-K 1 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 30, 1995 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________________ to ______________________ Commission file number 1-3834 Continental Materials Corporation (Exact name of registrant as specified in its charter) Delaware 36-2274391 (State or other jurisdiction (I.R.S. Employer of incorporation or Identification No.) organization) 225 West Wacker Drive, Suite 60606 1800 Chicago, Illinois (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code 312-541-7200 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Stock - $.50 par value American Stock Exchange Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value (based on March 20, 1996 closing price) of voting stock held by non-affiliates of registrant: Approximately $8,974,000. Number of common shares outstanding at March 20, 1996: 1,105,921. Incorporation by reference: Portions of registrant's definitive proxy statement for the 1996 Annual meeting of stockholders to be held on May 22, 1996 into Part III of this Form 10-K. (The definitive proxy statement will be filed with the Securities and Exchange Commission within 120 days after the close of the fiscal year covered by this Form 10-K.) Index to Exhibits: on page 37 hereof. 1 NOTE: References to a "Note" are to the Notes to Consolidated Financial Statements which are included on pages 16 through 24 of this Annual Report on Form 10-K. PART I Item 1. BUSINESS Continental Materials Corporation, Inc. and its subsidiaries (collectively referred to as the Company) operate primarily in two industry segments, the Heating and Air Conditioning segment and the Construction Materials segment. The Heating and Air Conditioning segment is comprised of Phoenix Manufacturing, Inc. of Phoenix, Arizona and Williams Furnace Co. of Colton, California. The Construction Materials segment is comprised of Castle Concrete Company and Transit Mix Concrete Co. both of Colorado Springs, Colorado. The Heating and Air Conditioning segment manufactures wall furnaces, console heaters, evaporative air coolers and fan coil/air handler product lines. Numerous models with differing heating or cooling capacities as well as exterior appearances are offered within each line. The Construction Materials segment is involved in the production and sale of ready mix concrete and other building materials as well as the exploration, extraction and sale of limestone, sand and gravel. In addition to the above operating segments, a General Corporate and Other classification is utilized covering the general expenses of the corporate office which provides treasury, insurance and tax services as well as strategic business planning and general management services. The Company has a 30% interest in Oracle Ridge Mining Partners (ORMP). ORMP is a general partnership which operates a copper mine near Tucson, Arizona. The Company is not the managing partner of ORMP and thus its operations are accounted for on the equity method with the Company's share of ORMP's operations presented in the other income and expense section of the Company's operating statements. Financial information relating to industry segments appears in Note 12 on page 24 of this Form 10-K. Summary financial information on ORMP appears in Note 4 on page 19 and audited financial statements for ORMP are included in Item 8 of this Form 10-K. See index to Item 8 on page 12. 2 MARKETING, SALES AND SUPPORT Marketing The Heating and Air Conditioning segment markets its products throughout the United States through plumbing, heating and air conditioning wholesale distributors as well as direct to some major retail home-centers and other retail outlets. Phoenix and Williams utilize independent manufacturers' representatives. Both companies also employ a small staff of sales and sales support personnel. Sales in this segment are predominantly in the United States and are concentrated in the Western and Southwestern states. Sales of Williams' furnaces usually increase in the months of September through January. Sales of Phoenix's evaporative coolers usually increase in the months of February through June. In order to sell wall furnaces and evaporative coolers during the off season, Williams and Phoenix offer extended payment terms to their customers. The Construction Materials segment markets its products primarily through its own direct sales representatives and confines its sales to the Colorado Springs area. Sales are made to general and sub-contractors, government entities and individuals. The businesses of Castle and Transit Mix are affected by the general economic conditions in Colorado Springs (as it relates to construction) and weather conditions. Revenues usually decline in the winter months as the pace of construction slows. During 1995, no customer accounted for 10% or more of the total sales of either segment. Customer Service and Support The companies in the Heating and Air Conditioning segment maintain parts departments and help lines to assist contractors, distributors and end users in servicing the companies' products. The Company does not perform installation services, nor are maintenance or service contracts offered. In addition, Williams holds training sessions at its plant for distributors, contractors, utility company employees and other customers. The companies in this segment do not derive any revenue from after- sales service and support other than from parts sales. The companies in the Construction Materials segment routinely take a leadership role in formulation of the products to meet the strength requirements of their customers. BACKLOG At December 30, 1995, Williams' order backlog was approximately $600,000 ($900,000 at December 31, 1994) the majority of which represented orders for furnaces. At December 30, 1995, Phoenix had a backlog of approximately $3,100,000 ($3,000,000 at December 31, 1994) representing primarily preseason cooler orders. The above backlogs are all related to the heating and air conditioning segment and are expected to be filled during the first quarter of 1996. At December 30, 1995, Transit Mix and Castle had a backlog of approximately $4,300,000 ($3,100,000 at December 31, 1994) primarily relating to construction contracts awarded and expected to be filled during the first half of 1996. Management does not believe that any of the above backlogs represent a trend but rather are indicative only of the timing of orders received or contracts awarded. 3 Research and Development/Patents In general, companies rely upon, and intend to continue to rely upon, unpatented proprietary technology and information. However, recent research and development activities in the Heating and Air Conditioning segment has lead to patent applications related to Phoenix' Power Cleaning System for the evaporative coolers and the configuration of the heat exchanger for Williams' furnaces which has increased efficiency above that previously offered by the industry. The amounts expended on research and development are not material and are expensed as incurred. The Company believes its interests in its patent applications, as well as its proprietary knowledge, are sufficient for its businesses as currently conducted. Manufacturing The Company conducts its manufacturing operations through a number of facilities as more completely described in Item 2, Properties, below. Due to the seasonality of its businesses, Williams and Phoenix build inventory during their off seasons in order to have adequate wall furnace and evaporative cooler inventory to sell during the season. In general, raw materials required by the Company can be obtained from various sources in the quantities desired. The Company has no long-term supply contracts and does not consider itself dependent on any individual supplier. Compliance with environmental protection laws and regulations has not had any material effect upon the Company's capital expenditures, earnings, or competitive position. Competitive Conditions Heating and Air Conditioning - Williams is one of four principal companies producing wall furnaces (excluding units sold to the recreational vehicle industry). The wall furnace market is only a small component of the heating industry. Williams' covers its market area from its plant in Colton, California and a warehouse in Ohio. The sales force consists of Williams' sales personnel and manufacturers' representatives. The entire heating industry is dominated by manufacturers (most of which are substantially larger than the Company) selling diversified lines of heating and air conditioning units directed primarily toward central heating and cooling systems. Williams also manufactures a line of gas fired console heaters. Distribution is similar to wall furnaces with the principal market areas in the South and Southeast. There are five other manufacturers, none of whom is believed to have a dominant share of the market. Williams is also a producer of fan coils. Fan coil sales are usually obtained through a competitive bidding process. This market is dominated by International Environmental Corp., a subsidiary of LSB Industries, Inc., a manufacturer of a diversified line of commercial and industrial products. There are also a number of other companies that produce fan coils. All of the producers compete on the basis of price and timeliness of delivery. 4 Phoenix produces evaporative air coolers. This market is dominated by Adobe Air. There is one other principal competitor plus a number of other small companies that produce evaporative coolers. All producers of evaporative air coolers compete aggressively on the basis of price. Construction Materials - Transit Mix is one of three companies producing ready mix concrete in the Colorado Springs area. Although Transit Mix holds a significant share of the market served, the other two competitors compete aggressively on the basis of price. There are a number of producers of aggregates, sand and gravel in the marketing area served by Transit Mix and Castle who compete aggressively on the basis of price and service. Metal doors and door frames, rebar reinforcement and other building materials sold in the Colorado Springs metropolitan area are subject to intense competition. Transit Mix competes aggressively with two larger companies and a number of small competitors. However, Transit Mix has a slight competitive advantage in that many of its customers also purchase concrete, sand and aggregates from Transit Mix and Castle whereas our competitors for these particular product lines do not offer concrete, sand or aggregates. Employees The Company employed 649 persons as of December 30, 1995. Employment varies throughout the year due to the seasonal nature of sales and thus to a lesser extent, production. A breakdown of the prior three years employment at year end by segment was:
1995 1994 1993 ---- ---- ---- Heating and Air Conditioning 421 335 371 Construction Materials 215 203 188 Corporate Office 13 14 14 --- --- --- Total 649 552 573 === === ===
Factory employees at the Colton, California plant are represented by the Amalgamated Industrial Workers Union under a contract that expires in June 1997. Certain drivers, laborers and mechanics at the Colorado Springs facilities are represented by the Western Conference of Teamsters under a contract which expires in February 1998. The Company considers relations with its employees and with its unions to be good. Item 2. PROPERTIES The heating and air conditioning segment operates out of one owned (Colton, California) and one leased (Phoenix, Arizona) facility. Both manufacturing facilities utilized by this segment are, in the opinion of management, in good condition and sufficient for the Company's current needs. Productive capacity exists at the locations such that the Company could exceed the highest volumes achieved in prior years or expected in the foreseeable future and maintain timely delivery. 5 The construction materials segment operates out of two owned facilities in Colorado Springs, Colorado. Additionally, this segment owns four mining properties in four counties in the vicinity of Colorado Springs, Colorado. In the opinion of management, these four properties contain permitted and minable reserves sufficient to service sand, rock and gravel requirements for the foreseeable future. The corporate office operates out of leased facilities in Chicago, Illinois. Item 3. LEGAL PROCEEDINGS See Management Discussion and Analysis of Financial Condition and Results of Operations on pages 8 through 10 and Note 6 on page 20 of this Annual Report on Form 10-K. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the fourth quarter of fiscal 1995. PART II Item 5. MARKETING FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Continental Materials Corporation shares are traded on the American Stock Exchange (AMEX) under the symbol CUO. Closing share prices for each of the periods set forth below as reported by the AMEX are:
High Low ---- --- 1995 Fourth 13 11 3/4 Quarter Third Quarter 13 3/8 12 Second 12 7/8 12 Quarter First Quarter 12 1/2 10 7/8 1994 Fourth 13 3/4 10 7/8 Quarter Third Quarter 13 7/8 10 7/8 Second 11 3/8 9 1/8 Quarter First Quarter 10 3/8 7 7/8
Trading during the two months ended March 1, 1996 ranged from 11 3/4 to 14 7/8. At December 30, 1995, the Company had approximately 3,200 shareholders of record. The Company has never paid a dividend. Payment of cash dividends is either limited or requires prior approval by the lenders (see Note 5 on page 19). The Company's policy is to reinvest earnings from operations, and the Company expects to follow this policy for the foreseeable future. 6 Item 6. SELECTED FINANCIAL DATA Selected Financial Data (Amounts in thousands, except per share amounts)
1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- SUMMARY OF OPERATIONS Net sales from continuing operations $75,560 $75,294 $62,495 $60,982 $58,043 ------- ------- ------- ------- ------- Net income from continuing operations 681 1,849 1,187 1,201 1,132 Net (loss) income from discontinued operation -- (464) 188 (1,064) (534) Extraordinary item, net -- -- (1,335) -- -- ------- ------- ------- ------- ------- Net income $ 681 $1,385 $ 40 $ 137 $ 598 ======= ======= ======= ======= ======= PER SHARE DATA Continuing operations $ .60 $ 1.62 $ 1.02 $ 1.02 $ .96 Discontinued operation -- .16 (.90) (.45) (.41) Extraordinary item -- -- (1.15) -- -- ------- ------- ------- ------- ------- Net income $ .60 $ 1.21 $ .03 $ .12 $ .51 ======= ======= ======= ======= ======= Average shares outstanding during year 1,135 1,140 1,164 1,174 1,174 ======= ======= ======= ======= ======= FINANCIAL CONDITION Current ratio 2.0:1 2.0:1 2.2:1 2.5:1 2.5:1 Total assets $47,223 $48,162 $45,424 $54,916 $55,425 Long-term debt, including current portion 4,011 4,923 6,819 16,114 17,950 Shareholders' equity 27,281 26,789 25,404 25,660 25,523 Ratio of net worth to long-term debt 6.80 5.44 3.73 1.59 1.42 Book value per share $ 24.04 $ 23.50 $ 22.28 $ 21.86 $ 21.73 CASH FLOWS Net cash provided by (used in): Operating activities 848 7,191 2,727 4,925 5,132 Investing activities (3,751) (1,884) 6,628 (3,182) (1,134) Financing activities 1,199 (3,596) (9,914) (1,836) (3,112) ------- ------- ------- ------- ------- Net (decrease) increase in cash and cash equivalents $(1,704) $ 1,711 $ (559) $ (93) $ 886 ======= ======= ======= ======= =======
7 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (References to a "Note" are to Notes to Consolidated Financial Statements) FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents declined to $1,074,000 at year end compared to $2,778,000 in the prior year. Cash provided from operations in 1995 was $848,000 compared to $7,191,000 in 1994 and the $2,727,000 generated in 1993. The decrease in net cash generated by operating activities in 1995 was mainly due to decreased levels of accounts payable and accrued expenses. The expected decrease in accounts payable was due to the early purchase of raw materials in 1994 for which 1995 price increases had been announced, and the timing of payments. The decrease in accruals was also expected and was due primarily to the timing of payments. The increase in 1994 from the 1993 level was due to the above items. Net cash used in investing activities was $3,751,000 in 1995 and $1,884,000 in 1994. Net cash of $6,628,000 was provided by investing activities in 1993 primarily as a result of the sale of Imeco, Inc., which provided $10,750,000, and the receipt of $704,000 in proceeds from the sale of an equity investment. Cash invested in Oracle Ridge Mining Partners (ORMP) during 1995, 1994 and 1993 was $883,000, $561,000 and $1,194,000, respectively. Capital expenditures for 1995, 1994 and 1993 were $3,417,000, $1,775,000 and $3,677,000, respectively. There were no significant commitments for capital expenditures at the end of 1995. Budgeted capital expenditures for 1996, exclusive of equipment that may be acquired under operating leases, are approximately $3,049,000 (primarily routine replacements and upgrades), $472,000 more than planned depreciation. The 1996 expenditures will be funded from internal sources and available borrowing capacity. In June 1993, the Company sold Imeco for $10,750,000 in cash and recognized a $1,050,000 pre-tax gain. Imeco had been involved in the manufacture of thermal transfer equipment, and as such was the "refrigeration" component of the Company's "Heating, Air Conditioning and Refrigeration" reportable segment. Subsequent to the sale of Imeco, the reportable segment has been renamed "Heating and Air Conditioning." In connection with the sale of Imeco, the Company retained responsibility for product liability claims involving Imeco equipment occurring prior to the June 30, 1993 sale date. To date, three suits have been filed against Imeco for which the Company retained responsibility. As of June 30, 1993, the Company was aware of two of the claims. At that time, the Company concluded that it was not liable for one of the claims and not enough information was available for the other claim to make a reasonable estimate of liability, if any. Accordingly, no liability was recorded at June 30, 1993 in connection with these claims. At the end of 1993, management conducted a complete review of all legal matters and determined that an accrual of $616,000 was necessary regarding one of the cases in accordance with the requirements of Statement of Financial Accounting Standards (SFAS) No. 5, "Accounting for Contingencies." The fourth quarter 1994 results were reduced by $726,000, $426,000 after related tax benefits, as a result of new developments related to these product liability matters. In March 1995, the Company settled the suit brought by ConAgra and its insurance carrier. The amount of the settlement was fully reserved as of December 31, 1994. The suit involving personal injury was settled during March 1996. The amount of this settlement was also fully reserved as of December 31, 1994. The remaining claim against Imeco was withdrawn during 1995. See Notes 2 and 6. 8 During 1995, cash of $1,199,000 was provided by financing activities. Borrowings of $2,300,000 against the short-term line of credit were offset by the net long-term debt repayment of $912,000. Cash of $189,000 was used to acquire 15,357 shares of treasury stock. During 1994, cash of $3,596,000 was used to pay off the short-term line of credit and the scheduled long-term debt payments. During 1993, cash of $9,914,000 was used in financing activities. The Company used cash from the sale of Imeco, $1,700,000 of borrowings under the line of credit and a portion of the $3,500,000 received from an amendment to the Company's credit agreement with two banks, to repay $12,795,000 of fixed rate long-term debt and the related prepayment penalty of $2,023,000. In addition, the Company acquired 34,000 shares of treasury stock for $296,000 during 1993. In February 1996, the Company renegotiated its credit agreement with two banks. The new agreement provides for a term loan of $4,000,000 to replace the existing term loan, and an increased revolving credit facility of $14,500,000 for funding of seasonal sales programs at Williams Furnace Co. and Phoenix Manufacturing, Inc. The line is also used for stand-by letters of credit to insurance carriers in support of deductible amounts under the Company's insurance program. All borrowings under the new agreement are unsecured and bear interest at prime or an adjusted LIBOR rate. See Note 5. The Company anticipates the primary source of cash flow in 1996 to be from its operating subsidiaries. This cash flow, supplemented by the line of credit, is sufficient to cover normal and expected future cash needs, including servicing debt and planned capital expenditures. The Company purchases insurance coverage for property loss, workers' compensation, general, product and automobile liability maintaining certain levels of retained risk (self-insured portion). Provisions for claims under the self-insured portion of the policies are recorded in accordance with the requirements of SFAS No. 5. The accrual for workers' compensation and automobile liability claims covers occurrences through December 30, 1995. There were no unasserted claims as of December 30, 1995, that required a reserve or disclosure in accordance with SFAS No. 5. During 1995, The Financial Accounting Standards Board issued two new pronouncements, SFAS No. 121 and No. 123, which are relevant to the Company's operations. SFAS No. 121 addresses "Accounting for The Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of" while SFAS No. 123 addresses "Accounting for Stock-Based Compensation." Both statements are effective for fiscal years beginning after December 15, 1995. The Company intends to adopt both SFAS No. 121 and No. 123 in 1996 and does not believe either will have a material effect on the Company's financial position or results of operations. 9 OPERATIONS 1995 vs. 1994 Consolidated net sales from continuing operations increased $266,000. The net sales of the Heating and Air Conditioning segment rose slightly while the net sales of the Construction Materials segment declined slightly compared to the previous year. Sales at Phoenix rose due to new customers and a strong pre-season sales program during the fourth quarter. Sales at Williams declined slightly due to new competitive products. A decline in sales in the Northern California region was possibly due to publicity of the heat exchanger matter concerning units manufactured by Williams prior to 1995 (see Note 6). The Company experienced a high level of price competition at all of its subsidiaries which is expected to continue into 1996. During 1995, inflation was not a significant factor at any of the operations. Cost of sales (exclusive of depreciation and depletion) increased from 76% to 77% due to product mix in the Heating and Air Conditioning segment. Selling and administrative expenses increased $995,000 (8%) due to legal and other expenses incurred in regard to the Williams Furnace heat exchanger matter, additional costs associated with new products marketing and the accrual of future compensation to be paid to the Company's former president. As a percentage of sales, selling and administrative expense increased from 16% to 17%. The decrease in the operating income reflects the increase in cost of sales as well as the higher selling and administrative expense. The increase in interest expense of $45,000 reflects a higher interest rate partially offset by lower average borrowings. The Company recorded a loss of $922,000 related to its investment in ORMP. This loss represents the Company's share (30%) of the loss of the partnership for 1995 as well as a $172,000 write down of the carrying value of the investment to management's best estimate of net realizable value, $1,500,000, as of December 30, 1995. Production at the mine was halted in February 1996 as the partners are reassessing their plans, including a possible sale of the mine. There were no charges against the discontinued operation during 1995. See "Financial Condition, Liquidity and Capital Resources" for further discussion. The Company's 1995 effective income tax rate on income from continuing operations (24.8%) reflects federal and state statutory rates adjusted for non-deductible and other tax items. The current year was favorably impacted by a substantial percentage depletion allowance. See Note 10. 10 OPERATIONS 1994 vs. 1993 Consolidated net sales from continuing operations increased $12,799,000 (21%). A majority of the increase ($7,698,000) occurred in the Construction Materials segment. Strong economic conditions and mild weather patterns led to high sales levels throughout the year, including the normally slow winter months. The Heating and Air Conditioning segment also realized gains of $5,100,000. Sales at Williams increased 4% while Phoenix posted a 28% increase. The latter increase was mainly attributable to hot and dry weather patterns in the areas serviced. A high level of price competition was experienced at all of the Company's subsidiaries during 1994. The Company also experienced some increases in the cost of key raw materials during 1994. Selling prices were increased to recover some but not all of such cost increases. Cost of sales (exclusive of depreciation and depletion) remained consistent at 76% between years. The 1.7% decline in the Heating and Air Conditioning segment, due to price competition and the raw material cost increases, was offset by 1.5% improvement in the Construction Materials segment due mainly to increased volume as a relatively large portion of its operating costs and expenses are fixed in nature. Selling and administrative expenses rose $1,297,000 (12%) although they declined as a percentage of net sales from 17% to 16%. The increase in operating income is mainly due to the increase in net sales. The Company recorded a loss of $545,000 related to its investment in ORMP compared to $1,188,000 in the prior year. The reduction in the loss is attributed to increased production and higher copper prices as well as nonrecurring development costs incurred in the prior year. In 1993, the project was shut down for a three-month period to install equipment and facilities to increase production and improve copper recovery. Copper prices increased throughout 1994, beginning around 74 cents per pound in January and ending at $1.38. During 1994, the partnership entered into a one-year agreement beginning September 1994 which fixes the price that the partnership receives for the copper it produces at $1.07 per pound on approximately 50% of ORMP's production. Copper prices have historically been, and are expected to remain volatile. Discussion of the discontinued operation and the prepayment penalty is presented above under the heading "Financial Condition, Liquidity and Capital Resources." The Company's effective income tax rate on income from continuing operations (34.2%) reflects federal and state statutory rates adjusted for the effect of non-deductible expenses and other tax items. The current year was favorably impacted by a substantially higher percentage depletion allowance. The 1993 rate was favorably influenced by the reversal of $305,000 of certain income tax contingencies related to matters resolved in favor of the Company. See Note 10. 11 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA PAGE Financial Statements and Schedule of Continental Materials Corporation and report thereon: Consolidated statements of operations and retained earnings for fiscal years 1995, 1994 and 1993 13 Consolidated statements of cash flows for fiscal years ended 1995, 1994 and 1993 14 Consolidated balance sheets at December 30, 1995 and December 31, 1994 15 Notes to consolidated financial statements 16-24 Report of Independent Accountants 25 Financial Statements of Oracle Ridge Mining Partners and report thereon: Independent Auditors' Report 26 Balance sheet at December 31, 1995 and December 31, 1994 27 Statement of operations for the year ended December 31, 1995 and fourteen-month period ended December 31, 1994 28 Statement of partners' deficit for the year ended December 31, 1995 and fourteen-month period ended December 31, 1994 29 Statement of cash flows for the year ended December 31, 1995 and fourteen-month period ended December 31, 1994 30 Notes to financial statements 31-35 12 Continental Materials Corporation Consolidated Statements of Operations and Retained Earnings For Fiscal Years 1995, 1994 and 1993 (Amounts in thousands, except per share data)
1995 1994 1993 -------- -------- -------- NET SALES $ 75,560 $ 75,294 $ 62,495 COSTS AND EXPENSES Cost of sales (exclusive of depreciation and depletion) 58,497 57,244 47,648 Depreciation and depletion 2,278 2,311 2,353 Selling and administrative 12,779 11,784 10,487 -------- -------- -------- Operating income 2,006 3,955 2,007 Interest expense (812) (767) (770) Gain on sale of equity investment -- -- 794 Equity loss from mining partnership (922) (545) (1,188) Other income, net 634 168 252 -------- -------- -------- Income from continuing operations before income taxes 906 2,811 1,095 Income tax provision (benefit) 225 962 (92) -------- -------- -------- Income from continuing operations 681 1,849 1,187 Discontinued operation, net of tax: (Loss) from discontinued operation -- -- (637) (Loss) gain on sale of discontinued operation -- (464) 825 -------- -------- -------- (Loss) gain from discontinued operation -- (464) 188 -------- -------- -------- Income before extraordinary item 681 1,385 1,375 Extraordinary item, net of tax: Prepayment penalty on early extinguishment of debt -- -- (1,335) -------- -------- -------- Net income 681 1,385 40 Retained earnings, beginning of year 25,137 23,752 23,712 -------- -------- -------- Retained earnings, end of year $ 25,818 $ 25,137 $ 23,752 ======== ======== ======== Net income (loss) per share: Continuing operations $ .60 $ 1.62 $ 1.02 Discontinued operation -- (.41) .16 Extraordinary (loss) -- -- (1.15) -------- -------- -------- Net income per share $ .60 $ 1.21 $ .03 ======== ======== ======== Weighted average shares outstanding 1,135 1,140 1,164 ======== ======== ========
The accompanying notes are an integral part of the financial statements. 13 Continental Materials Corporation Consolidated Statements of Cash Flows For Fiscal Years 1995, 1994, and 1993 (Amounts in thousands)
1995 1994 1993 ------- ------- ------- Operating activities: Net income $ 681 $ 1,385 $ 40 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and depletion 2,278 2,311 2,854 Deferred income tax benefit (282) (66) (971) Provision for doubtful accounts 60 148 79 Gain on disposition of property and equipment (459) (133) (18) Gain on sale of equity investment -- -- (794) Gain on sale of discontinued operation -- -- (1,050) Loss on early retirement of debt -- -- 2,023 Equity loss from mining partnership 922 545 1,188 Changes in operating assets and liabilities, net of effects from sale of subsidiary: Receivables (842) (1,395) (841) Inventories 1,840 (61) 404 Prepaid expenses 8 (92) 38 Income taxes 21 (145) (374) Accounts payable and accrued expenses (3,267) 5,037 49 Other (112) (343) 100 ------- ------- ------- Net cash provided by operating activities 848 7,191 2,727 ------- ------- ------- Investing activities: Capital expenditures (3,417) (1,775) (3,677) Investment in mining partnership (883) (561) (1,194) Return of investment in environmental managment venture -- 250 -- Proceeds from sale of property and equipment 549 202 45 Proceeds from sale of equity investment -- -- 704 Proceeds from sale of discontinued operation -- -- 10,750 ------- ------- ------- Net cash (used in) provided by investing (3,751) (1,884) 6,628 ------- ------- ------- Financing activities: Borrowings (repayment) under revolving credit facilitiy 2,300 (1,700) 1,700 Long-term borrowings 500 -- 3,500 Repayment of long-term debt (1,412) (1,896) (12,795) Prepayment penalty -- -- (2,023) Payments to acquire treasury stock (189) -- (296) ------- ------- ------- Net cash provided by (used in) financing activities 1,199 (3,596) (9,914) ------- ------- ------- Net (decrease) increase in cash and cash equivalents (1,704) 1,711 (559) Cash and cash equivalents: Beginning of year 2,778 1,067 1,626 ------- ------- ------- End of year $ 1,074 $ 2,778 $ 1,067 ======= ======= ======= Supplemental disclosures of cash flow items: Cash paid during the year for: Interest $ 812 $ 773 $ 1,335 Income taxes 500 916 546
Supplemental Schedule of non-cash investing and financing activities: A portion of the proceeds from the sale of equity investment was in the form of preferred stock valued at $90. A portion of the 1995 proceeds from sale of property and equipment was in the form of a note receivable valued at $162. The accompanying notes are an integral part of the financial statements. 14 Continental Materials Corporation Consolidated Balance Sheets December 30, 1995 and December 31, 1994 (Amounts in thousands except share data)
December 30, December 31, 1995 1994 ------------ ------------ ASSETS Current assets: Cash and cash equivalents $ 1,074 $ 2,778 Receivables less allowance of $259 and $248 12,158 11,376 Inventories 14,657 16,497 Prepaid expenses 2,206 1,505 ------------ ------------ Total current assets 30,095 32,156 ------------ ------------ Property, plant and equipment: Land and improvements 1,713 1,713 Buildings and improvements 7,731 7,731 Machinery and equipment 41,078 38,617 Mining properties 2,170 2,329 Less accumulated depreciation and depletion (38,079) (36,664) ------------ ------------ 14,613 13,726 Other assets: ------------ ------------ Investment in mining partnership 1,500 1,539 Other 1,015 741 ------------ ------------ 2,515 2,280 ------------ ------------ $ 47,223 $ 48,162 ============ ============ LIABILITIES Current liabilities: Bank loan payable $ 2,300 $ -- Current portion of long-term debt 1,011 1,411 Accounts payable 4,037 7,017 Income taxes 31 10 Accrued expenses: Compensation 1,853 1,836 Reserve for self-insured losses 2,984 3,278 Profit sharing 1,031 1,146 Other 1,538 1,433 ------------ ------------ Total current liabilities 14,785 16,131 ------------ ------------ Long-term debt 3,000 3,512 ------------ ------------ Deferred income taxes 2,157 1,730 ------------ ------------ Commitments and contingencies (Notes 6 and 8) ------------ ------------ SHAREHOLDERS' EQUITY Common shares, $.50 par value; authorized 3,000,000 shares; issued 1,326,588 shares 663 663 Capital in excess of par value 3,484 3,484 Retained earnings 25,818 25,137 Treasury shares (2,684) (2,495) ------------ ------------ 27,281 26,789 ------------ ------------ $ 47,223 $ 48,162 ============ ============
The accompanying notes are an integral part of the financial statements. 15 Notes to Consolidated Financial Statements 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements include Continental Materials Corporation and all of its subsidiaries (the Company). The equity method of accounting is used for the Company's 30% interest in Oracle Ridge Mining Partners (ORMP). Certain prior years' amounts have been reclassified to conform with the current presentation. Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of December 30, 1995 and December 31, 1994 and the reported amounts of revenues and expenses during each of the three years in the period ended December 30, 1995. Actual results could differ from those estimates. Inventories Inventories are valued at the lower of cost or market. Cost is determined using the last-in, first-out (LIFO) method for approximately 88% of total inventories at December 30, 1995 (88% at December 31, 1994). The cost of all other inventory is determined by the first-in, first-out (FIFO) method. Property, Plant and Equipment Property, plant and equipment are carried at cost. Depreciation is provided over the estimated useful lives of the related assets using the straight-line method as follows: Buildings ....................10 to 31 years Leasehold improvements .......Terms of leases Machinery and equipment ......3 to 10 years Depletion of rock and sand deposits is computed by the unit-of- production method based upon estimated recoverable quantities of rock and sand. The cost of property sold or retired and the related accumulated depreciation or depletion are removed from the accounts and the resulting gain or loss is reflected in other income. Maintenance and repairs are charged to expense as incurred. Major renewals and betterments are capitalized and depreciated over their useful lives. Retirement Plans The Company and certain subsidiaries have various contributory profit sharing retirement plans for specific employees. The plans allow qualified employees to make tax deferred contributions pursuant to Internal Revenue Code Section 401(k). The Company makes annual contributions, at its discretion, based primarily on profitability. Costs under the plans are charged to operations as incurred. Reserve for Self-Insured Losses The Company's risk management program provides for certain levels of loss retention for workers' compensation, automobile liability and general and product liability claims. The components of the reserve have been recorded in accordance with the requirements of Statement of Financial Accounting Standards (SFAS) No. 5, "Accounting for Contingencies" and represent management's best estimate of future liability for known claims based upon the Company's history of claims paid. There were no unasserted claims as of December 30, 1995 that require a reserve or disclosure in accordance with SFAS No. 5. 16 Cash and Cash Equivalents The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. Income Taxes Income taxes are reported consistent with SFAS No. 109, "Accounting for Income Taxes." Deferred taxes reflect the future tax consequences associated with the differences between financial accounting and tax bases of assets and liabilities. Concentration of Credit Risk Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of trade receivables and temporary cash investments. The Company invests its excess cash in commercial paper of companies with strong credit ratings. These securities typically mature within 30 days. The Company has not experienced any losses on these investments. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. The Company maintains reserves for potential credit losses and such losses have been within management's expectations. See Note 12 for a description of the Company's customer base and geographical location by segment. Fiscal Year End The Company's fiscal year end is the Saturday nearest December 31. Fiscal 1995, 1994 and 1993 each consist of 52 weeks. 2. DISCONTINUED OPERATION In June 1993, the Company sold its Imeco, Inc. subsidiary for a cash payment of $10,750,000. Imeco had been involved in the manufacture of thermal transfer equipment, and as such was the "refrigeration" component of the Company's "Heating, Air Conditioning and Refrigeration" reportable segment. Subsequent to the sale of Imeco, the reportable segment has been renamed "Heating and Air Conditioning" representing the businesses of Williams Furnace Co. and Phoenix Manufacturing, Inc. The sale resulted in a pre-tax gain of $1,050,000 ($825,000 after-tax or $0.71 per share). The Company retained responsibility on product liability claims involving Imeco equipment occurring prior to the June 30, 1993 sale date. To date, three suits have been filed against Imeco for which the Company retained responsibility. As of June 30, 1993, the Company was aware of two of the claims. At that time, the Company concluded that it was not liable for one of the claims and not enough information was available on the other claim to make a reasonable estimate of the liability, if any. Accordingly, no liability was recorded at June 30, 1993 in connection with these claims. At the end of 1993, management conducted a complete review of all legal matters and determined that an accrual of $616,000 was necessary regarding one of the cases in accordance with the requirements of SFAS No. 5. During the fourth quarter of 1994, the Company, based on updated information, recorded an additional $726,000 ($464,000 after-tax or $0.41 per share). The last of these claims was settled in early March 1996. See Note 6. The results of Imeco have been reported separately as a component of discontinued operations in the Consolidated Statements of Operations and Retained Earnings. Net sales of Imeco were $7,513,000 for the six months ended June 30, 1993. 17 3. INVENTORIES Inventories consisted of the following (amounts in thousands):
December 30, December 31, 1995 1994 ------------ ------------ Finished goods $ 8,038 $ 8,882 Work in process 2,282 2,208 Raw materials and supplies 4,337 5,407 ------------ ------------ $ 14,657 $ 16,497 ============ ============
If inventories valued on the LIFO basis were valued at current costs, inventories would be higher as follows: 1995--$2,626,000; 1994--$2,716,000; 1993--$2,456,000. Reduction in inventory quantities during 1995 resulted in liquidation of LIFO inventory layers carried at costs which were lower than the costs of current purchases. The effect of the reduction in 1995, recorded in the fourth quarter, was to decrease cost of goods sold by approximately $192,000 and to increase net earnings by $119,000 or $.10 per share. 4. INVESTMENT IN MINING PARTNERSHIP The Company has a 30% ownership interest in ORMP, a general partnership which operates a copper mine primarily situated in Pima County, Arizona. The equity method of accounting is used to include 30% of ORMP's income and losses in the Company's consolidated financial statements. Production at the mine was halted in February 1996 as the partners are reassessing their plans including a possible sale of the mine. The investment in mining partnership has been written down to management's best estimate of net realizable value, $1,500,000, as of December 30, 1995. This value is based on the estimated fair market value of the partnership's property and assets less liabilities at that date. The related impairment loss, $172,000, is included in the $922,000 equity loss from mining partnership. The amounts the Company will ultimately realize could differ materially in the near term from the amounts assumed in arriving at the loss included in the current statements. Concurrently, the partnership also wrote down the assets to their estimated net realizable value. 18 The Company's interest in the assets, liabilities, and results of operations of ORMP as of and for the years ended December 31, 1995 and 1994 is summarized as follows (amounts in thousands):
1995 1994 ------- ------- Current assets $ 1,259 $ 1,300 Non-current assets 7,054 8,259 Current liabilities (3,044) (2,065) Equity and advances of other joint venturer (3,793) (5,350) ------- ------- Interest in net assets 1,476 2,144 Difference between interest in net assets and carrying value of investment 24 (605) ------- ------- Investment at December 31 $ 1,500 $ 1,539 ======= ======= Net sales $ 6,888 $ 5,953 ======= ======= Gross profit (1,070) (846) ======= ======= Net loss $(5,177) $(1,973) ======= ======= Share of loss reflected in Company's Statement of Operations $ (922) $ (545) ======= =======
Included in the partnership net loss of $5,177,000 is an adjustment to the partnership's asset basis not previously reflected in the Company's carrying value of the investment. 5. LONG-TERM DEBT Long-term debt consisted of the following (amounts in thousands):
December 30, December 31, 1995 1994 ------------ ------------ Unsecured term loan $ 4,000 $ 4,900 Other 11 23 ------------ ------------ 4,011 4,923 Less current portion 1,011 1,411 ------------ ------------ $ 3,000 $ 3,512 ============ ============
The Company signed a new Revolving Credit and Term Loan Agreement (the Agreement) in February 1996. The above table reflects the payback schedule in the Agreement. Both facilities are unsecured. The term loan is payable in semi-annual principal installments of $500,000 with final payment of all then unpaid principal, on February 15, 1999, including the extension periods. The loan bears interest at prime or an adjusted LIBOR rate. The unsecured term loan in effect at December 30, 1995 bore interest at prime (prime was 8.5% at December 30, 1995). The Company is required by the Agreement to maintain certain levels of consolidated tangible net worth, to attain certain levels of cash flow (as defined) on a rolling four-quarter basis, and to maintain certain ratios including consolidated debt to earnings before interest, taxes, depreciation and amortization and excluding extraordinary items. Additional borrowing, acquisition of stock of other companies, purchase of treasury shares and payment of cash dividends are either limited or require prior approval by the lenders. 19 Aggregate long-term debt matures as follows under the Agreement (amounts in thousands): 1996 $1,011 1997 1,000 1998 1,000 1999 1,000 ------ $4,011 ======
During both 1995 and 1994, the Company had a $12,000,000 unsecured line of credit with two banks to be used for short-term cash needs and standby letters of credit. Interest was charged at the rate of prime on cash borrowings (prime plus 1/4% in 1994). The weighted average interest rate was 8.9% for fiscal 1995 and 7.2% for fiscal 1994. The outstanding balance at December 30, 1995 was $2,300,000. There was no outstanding balance at December 31, 1994. The Agreement, signed in February 1996, provides for a $14,500,000 line of credit through February 15, 1999. At December 30, 1995, the Company had letters of credit outstanding totalling approximately $4,158,000 which primarily guarantee various insurance activities. 6. COMMITMENTS AND CONTINGENCIES As discussed in Note 2, the Company retained the responsibility related to incidents involving Imeco products occurring prior to June 30, 1993. During 1992 ConAgra, Inc. d/b/a Armour Food Company and its insurance carrier, Arkwright Mutual Insurance Company, each filed suit against Imeco and Central Ice Machine Company in the District Court of Douglas County, Nebraska. In March 1995, the Company settled the suit. The amount of the settlement was fully reserved as of December 31, 1994. Imeco was also named as one of the defendants in a product liability matter in which an individual was seriously injured while servicing equipment manufactured by Imeco. In March 1996, the Company settled the suit. The amount of this settlement was also fully reserved as of December 31, 1994. During 1995, the third suit was dropped with no settlement cost to the Company. There are currently no known asserted or unasserted claims involving Imeco products for which the Company has retained responsibility. See Note 2. During 1995, Williams Furnace Co. was notified by Pacific Gas & Electric (PG&E) that a recent inspection had discovered a higher than normal incidence of cracks in the heat exchanger of two models of furnaces manufactured by Williams prior to 1995. Independent engineering reports indicate that there is no safety hazard arising from these cracks. However, PG&E has undertaken the replacement of approximately 5,900 units purchased during the period. The Consumer Products Safety Commission (CPSC) has been notified and Williams is working with independent engineering firms and the CPSC to resolve the matter. To date, Williams is aware of one claim alleging injury due to a cracked heat exchanger. Management believes the ultimate resolution of this matter will not have a material adverse effect on the Company's results of operations or financial position. Williams is not aware of any other claims related to these matters and management has concluded that no additional amounts should be accrued in accordance with the requirements of SFAS No. 5. The Company is also involved in other litigation matters related to its continuing business. In the Company's opinion, none of these proceedings, when concluded, will have a material adverse effect on the Company's results of operations or financial position. 7. SHAREHOLDERS' EQUITY Four hundred thousand shares of preferred stock ($.50 par value) are authorized and unissued. 20 There was no treasury shares activity during 1994. Activity for 1995 and 1993 was as follows (dollars in thousands):
Number of shares Cost ------- ------ Balance at January 1, 1993 152,310 $2,199 Purchase of treasury shares 34,000 296 ------- ------ Balance at January 1 and December 31, 1994 186,310 2,495 Purchase of treasury shares 15,357 189 ------- ------ Balance at December 30, 1995 201,667 $2,684 ======= ======
A Stock Option Plan (the Plan) provides for grants of options at option prices established by the Compensation Committee of the Board of Directors. Option prices may not be less than the fair market value of the stock at the date of the grant. Options are exercisable for a period of no more than ten years from the date of grant depending upon increases in the trading value of the stock. The Company has reserved 180,000 shares for distribution under the Plan. No options were outstanding as of December 31, 1994. During 1995, 78,000 options were granted at an exercise price of $13.125. Of the 78,000 outstanding options at December 30, 1995, none are exercisable. 8. RENTAL EXPENSE, LEASES AND COMMITMENTS The Company leases certain of its facilities and equipment and is required to pay the related taxes, insurance and certain other expenses. Rental expense was $2,006,000, $1,694,000 and $1,964,000 for 1995, 1994 and 1993, respectively. Future minimum rental commitments under non-cancelable operating leases for 1996 and thereafter are as follows: 1996--$1,555,000; 1997--$1,079,000; 1998--$1,026,000; 1999--$882,000; 2000-- $398,000; and thereafter--$917,000. The Company also receives annual rental income of $145,000 from a building it owns. The related lease expires in January 2003 and contains renewal options. 9. RETIREMENT PLANS As discussed in Note 1, the Company maintains retirement benefit plans for eligible employees. Total plan expenses charged to operations were $979,000, $1,165,000 and $745,000 in 1995, 1994 and 1993, respectively. 10. INCOME TAXES The provision (benefit) for income taxes is summarized as follows (amounts in thousands):
1995 1994 1993 ---- ---- ---- Federal:Current $ 506 $ 785 $ 121 Deferred (253) (131) (842) State: Current 1 61 25 Deferred (29) (15) (154) ------ ------- ------- $ 225 $ 700 $ (850) ====== ======= =======
21 The provision (benefit) for income taxes has been allocated as follows (amounts in thousands):
1995 1994 1993 ------ ------ ------ Continuing operations $ 225 $ 962 $ (92) Discontinued operations -- (262) (70) Extraordinary item -- -- (688) ------ ------ ------ $ 225 $ 700 $ (850) ====== ====== ======
The difference between the tax rate on income from continuing operations for financial statement purposes and the federal statutory tax rate was as follows:
1995 1994 1993 ------ ------ ------ Statutory tax rate 34.0% 34.0% 34.0% Percentage depletion (13.0) (5.1) (.7) State income taxes, net of federal benefit 1.6 1.0 (12.7) Non-deductible expenses 1.4 .5 .6 Reduction of tax contingency recorded in the fourth quarter -- -- (27.9) Other .8 3.8 (1.7) ----- ----- ----- 24.8% 34.2% (8.4)% ===== ===== ======
For financial statement purposes, deferred tax assets and liabilities are recorded at a blend of the current statutory federal and states' tax rates -- 38%. The principal temporary differences and their related deferred taxes are as follows (amounts in thousands):
1995 1994 ------ ------ Reserves for self-insured losses $ 904 $ 842 Deferred compensation 405 348 Asset valuation reserves 435 188 Other 50 21 ------- ------- Total deferred tax assets $ 1,794 $ 1,399 ======= ======= Depreciation $ 1,324 $ 1,300 Investment in mining partnership 807 745 Other 26 -- ------- ------- Total deferred tax liabilities $2,157 $2,045 ======= ======= Net deferred tax liabilities $ 363 $ 646 ======= =======
The net current deferred tax assets are $1,794,000 and $1,084,000 at December 30, 1995 and December 31, 1994, respectively, and are included with "Prepaid expenses" on the Consolidated Balance Sheets. 22 11. UNAUDITED QUARTERLY FINANCIAL DATA The following table provides summarized unaudited quarterly financial data for 1995 and 1994 (amounts in thousands, except per share amounts):
First Second Third Fourth Quarter Quarter Quarter Quarter ------- ------- ------- ------- 1995 Net sales $16,191 $19,355 $18,183 $21,831 ======= ======= ======= ======= Gross profit $ 2,417 $ 3,318 $ 4,366 $ 4,735 ======= ======= ======= ======= Depreciation and depletion $ 591 $ 590 $ 569 $ 528 ======= ======= ======= ======= Net (loss) income $ (495) $ 52 $ 495 $ 629 ======= ======= ======= ======= Net (loss) income per share $ (.43) $ .05 $ .44 $ .56 ======= ======= ======= ======== First Second Third Fourth Quarter Quarter Quarter Quarter ------- ------- ------- ------- 1994 Net sales $15,260 $19,265 $19,630 $21,139 ======= ======= ======= ======= Gross profit $ 2,354 $ 3,639 $ 4,572 $ 5,333 ======= ======= ======= ======= Depreciation and depletion $ 567 $ 568 $ 570 $ 606 ======= ======= ======= ======= Net (loss) income Continuing operations $ (558) $ 392 $ 763 $ 1,252 Discontinued operations -- -- -- (464) ------- ------- ------- ------- $ (558) $ 392 $ 763 $ 788 ======= ======= ======= ======= Net (loss) income per share Continuing operations $ (.49) $ .34 $ .67 $ 1.10 Discontinued operations -- -- -- (.41) ------- ------- ------- ------- $ (.49) $ .34 $ .67 $ .69 ======= ======= ======= =======
Earnings per share are computed independently for each of the quarters presented. Therefore, the sum of the quarterly earnings per share may not equal the total for the year. 23 12. INDUSTRY SEGMENT INFORMATION The Heating and Air Conditioning segment produces and sells heating and cooling equipment mainly for residential applications which is sold primarily to distributors and retail outlets. Sales are nationwide, but are concentrated in the Southwestern U.S. The Construction Materials segment is involved in the production and sale of concrete and other building materials and the exploration, extraction and sale of limestone, sand and gravel. Sales of this segment are confined to the Colorado Springs area. Operating income is determined by deducting operating expenses from all revenues. In computing operating income, none of the following has been added or deducted: unallocated corporate expenses, interest, income or loss from unconsolidated investees, other income, income taxes, gain or loss on discontinued operations and extraordinary items. General corporate assets are principally cash, accounts receivable and leasehold improvements. No customer accounts for 10% or more of consolidated sales. The industry segment information for fiscal years 1995, 1994 and 1993 is as follows (amounts in thousands):
Depreci- ation Identifi- and Capital Net Operating able Deple- Expendi- Sales Income Assets tion tures ----- --------- --------- ------- -------- 1995 Heating and air conditioning $43,966 $ 2,316 $25,393 $ 1,027 $ 1,066 Construction materials 31,449 2,912 19,164 1,210 2,337 General corporate and other 145 (3,222) 2,666 41 14 ------- ------- ------- ------- ------- $75,560 $ 2,006 $47,223 $ 2,278 $ 3,417 ======= ======= ======= ======= ======= 1994 Heating and air conditioning $43,271 $ 3,718 $27,551 $ 1,087 $ 533 Construction materials 31,878 2,645 18,635 1,183 1,211 General corporate and other 145 (2,408) 1,976 41 31 ------- ------- ------- ------- ------- $75,294 $ 3,955 $48,162 $ 2,311 $ 1,775 ======= ======= ======= ======= ======= 1993 Heating and air conditioning $38,171 $ 3,025 $26,197 $ 1,120 $ 1,027 Construction materials 24,180 1,415 18,300 1,173 2,650 General corporate and other 144 (2,433) 927 60 -- ------- ------- ------- ------- ------- $62,495 $ 2,007 $45,424 $ 2,353 $ 3,677 ======= ======= ======= ======= =======
24 Report of Independent Accountants To the Shareholders and Board of Directors of Continental Materials Corporation We have audited the accompanying consolidated balance sheets of Continental Materials Corporation and Subsidiaries as of December 30, 1995 and December 31, 1994, and the related consolidated statements of operations and retained earnings and cash flows for each of the three years in the period ended December 30, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Continental Materials Corporation and Subsidiaries as of December 30, 1995 and December 31, 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 30, 1995 in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Chicago, Illinois March 14, 1996 25 INDEPENDENT AUDITORS' REPORT Oracle Ridge Mining Partners Tucson, Arizona We have audited the accompanying balance sheets of Oracle Ridge Mining Partners (the "Partnership") as of December 31, 1995 and 1994, and the related statements of operations, partners' deficit and cash flows for the year ended December 31, 1995 and the fourteen month period ended December 31, 1994. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of the Partnership at December 31, 1995 and 1994, and the results of its operations and its cash flows for the year ended December 31, 1995 and the fourteen month period ended December 31, 1994, in conformity with generally accepted accounting principles. As discussed in Note 1 to the financial statements, production at the mine was halted in February 1996, as the partners reassess their plans for the mine, including a possible sale to a third party. Accordingly, the value of the mine has been written down to the estimated net realizable value. DELOITTE & TOUCHE LLP Tucson, Arizona March 4, 1996 26 ORACLE RIDGE MINING PARTNERS BALANCE SHEETS DECEMBER 31, 1995 AND 1994
ASSETS 1995 1994 CURRENT ASSETS: Cash $ 61,415 $ 96,754 Accounts receivable 655,856 793,301 Inventories (Note 3) 541,924 410,102 ----------- ----------- Total current assets 1,259,195 1,300,157 PROPERTY AND MINERAL INTERESTS (Notes 4 and 9) 7,000,000 8,197,686 OTHER ASSETS (Note 8) 53,876 47,875 ----------- ----------- TOTAL $ 8,313,071 $ 9,545,718 =========== =========== LIABILITIES AND PARTNERS' DEFICIT CURRENT LIABILITIES: Accounts payable $ 1,341,468 $ 870,977 Accrued liabilities 258,460 204,523 Accrued payroll taxes 685,270 315,645 Accrued property taxes 528,827 294,826 Accrued use tax 150,649 133,649 Installment purchase liability (Note 9) 59,579 148,746 Due to Union (Note 10) 20,102 96,755 ----------- ----------- Total current liabilities 3,044,355 2,065,121 ----------- ----------- DEBT DUE TO PARTNERS: Subordinated debt due to partners (Note 7) 10,456,842 7,491,745 Senior debt - Union (Note 5) 4,760,978 4,760,978 Senior debt - Continental (Note 5) 2,040,418 2,040,418 Union debt (Note 6) 348,492 348,492 ----------- ----------- Total debt due to partners 17,606,730 14,641,633 ----------- ----------- COMMITMENT AND CONTINGENCIES (Notes 5 and 8) PARTNERS' DEFICIT (12,338,014) (7,161,036) ----------- ----------- TOTAL $ 8,313,071 $ 9,545,718 =========== ===========
See notes to financial statements. - 2 - ORACLE RIDGE MINING PARTNERS STATEMENTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1995 AND FOURTEEN MONTH PERIOD ENDED DECEMBER 31, 1994
1995 1994 REVENUES - Net value of concentrate $ 6,888,499 $ 6,586,717 OPERATING COSTS AND EXPENSES: Production costs 6,465,757 6,285,941 General and administrative 1,123,150 999,070 Property and other taxes 305,550 264,651 Depreciation, depletion and amortization 1,196,863 1,211,608 Loss on equipment disposals 108,066 19,227 Interest expense 303,102 221,878 Write-down of property and mineral interests to net realizable value (Note 1) 2,562,989 ----------- ----------- Total operating costs and expenses 12,065,477 9,002,375 ----------- ----------- NET LOSS $(5,176,978) $(2,415,658) =========== ===========
See notes to financial statements. - 3 - ORACLE RIDGE MINING PARTNERS STATEMENTS OF PARTNERS' DEFICIT YEAR ENDED DECEMBER 31, 1995 AND FOURTEEN MONTH PERIOD ENDED DECEMBER 31, 1994
Union Continental Copper, Catalina, Inc. Inc. Total PARTNERS' DEFICIT, NOVEMBER 1, 1993 $(3,321,765) $(1,423,613) $ (4,745,378) Net loss (1,690,961) (724,697) (2,415,658) ----------- ----------- ------------ PARTNERS' DEFICIT, DECEMBER 31,1994 (5,012,726) (2,148,310) (7,161,036) Net loss (3,623,885) (1,553,093) (5,176,978) ----------- ----------- ------------ PARTNERS' DEFICIT, DECEMBER 31, 1995 $(8,636,611) $(3,701,403) $(12,338,014) =========== =========== ============
See notes to financial statements. - 4 - ORACLE RIDGE MINING PARTNERS STATEMENTS OF CASH FLOWS YEAR ENDED DECEMBER 31, 1995 AND FOURTEEN MONTH PERIOD ENDED DECEMBER 31, 1994
1995 1994 OPERATING ACTIVITIES: Net loss $(5,176,978) $(2,415,658) Adjustments to reconcile net loss to net cash used in operating activities: Write-down of property and mineral interests to net realizable value 2,562,989 Depreciation, depletion, and amortization 1,196,863 1,211,608 Loss on equipment disposals 108,066 19,227 Changes in assets and liabilities: Accounts receivable 137,445 (792,301) Inventories (131,822) (222,522) Other assets (6,001) 67,233 Accounts payable and other accrued liabilities 851,601 438,939 Due to Union Copper, Inc. 127,633 91,818 ---------- ---------- Net cash used in operating activities (330,204) (1,601,656) ---------- ---------- INVESTING ACTIVITIES: Additions to plant, equipment and buildings (1,057,087) (578,992) Proceeds from sale of property, plant and equipment 54,300 Increase in deferred development costs (1,667,445) (498,166) ----------- ---------- Net cash used in investing (2,670,232) (1,077,158) ----------- ---------- FINANCING ACTIVITIES - Proceeds from subordinated debt due to partners 2,965,097 2,717,245 ----------- ---------- NET (DECREASE) INCREASE IN CASH (35,339) 38,431 CASH, BEGINNING OF PERIOD 96,754 58,323 ----------- ---------- CASH, END OF PERIOD $ 61,415 $ 96,754 =========== ========== SUPPLEMENTAL CASH FLOW INFORMATION - Interest paid $ 244,746 $ 179,160 =========== ==========
See notes to financial statements. - 5 - ORACLE RIDGE MINING PARTNERS NOTES TO FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 1995 AND FOURTEEN MONTH PERIOD ENDED DECEMBER 31, 1994 1. ORGANIZATION AND BASIS OF PRESENTATION Organization - Oracle Ridge Mining Partners (the "Partnership") is a general partnership formed under the Arizona Uniform Partnership Act on May 24, 1977 pursuant to a partnership agreement between Union Copper, Inc. (a Maryland corporation) ("Union") and Continental Catalina, Inc. (an Arizona corporation) ("Continental"). Union is a wholly-owned subsidiary of Santa Catalina Mining Corp. (formerly known as South Atlantic Ventures Ltd.) (a Canadian corporation). Continental is a wholly-owned subsidiary of Continental Copper, Inc. (an Arizona corporation) which in turn is a wholly-owned subsidiary of Continental Materials Corporation (a Delaware corporation). The Partnership has a copper mining property with an underground mine and adjacent crushing and grinding equipment situated in Pima County, Arizona which commenced commercial production in 1991. Smelting is performed by an unrelated third party at another location. All concentrate revenues are from one customer. The Fifth Amended and Restated Partnership Agreement dated October 1, 1994 provides, among other things, the following: a. Union shall be the managing partner of the project. b. Profits and losses shall generally be allocated 70% to Union and 30% to Continental. Certain types of gains or losses may be subject to an alternative allocation. Basis of Presentation - Production at the mine was halted in February 1996, as the partners reassess their plans for the mine, including a possible sale to a third party. Accordingly, at December 31, 1995, property and mineral interests have been written down by $2,562,989 to reflect management's estimate of the net realizable value. 2. SIGNIFICANT ACCOUNTING POLICIES A summary of significant accounting policies is as follows: a. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. b. Inventories of concentrate and supplies are stated at the lower of average cost or estimated market value. - 6 - c. Plant, equipment and buildings are carried at cost less accumulated depreciation. Depreciation is provided on the straight-line basis over estimated useful lives which range from four to fifteen years. Effective December 31, 1995, plant, equipment and buildings are carried at the lower of cost or net realizable value. d. Mineral property and claims are carried at cost, reflecting costs incurred in connection with the acquisition of the properties, less depletion and write- downs for recognized impairments in value. The carrying value of the mineral property and claims will be charged to operations of the Partnership over future years by means of depletion charges computed on the basis of actual ore production and estimated recoverable ore reserves. Effective December 31, 1995, mineral property and claims are carried at the lower of cost or net realizable value. e. Deferred development costs are carried at cost reflecting all mine development costs incurred since the recommencement of development in 1989 less depletion and write-downs of recognized impairments in value. The costs capitalized include depreciation, only as it relates to equipment used to develop the mine or install the mill equipment, interest in accordance with Statement of Financial Accounting Standards No. 34, Capitalization of Interest Cost, and administrative expenses that were directly or indirectly associated with the development and construction of the mine and related processing facilities. Through February 1991, there were no proceeds from production. Since the commencement of production in March 1991, only direct mine development expenditures have been deferred. These expenditures include those incurred to expand the capacity of the mine, develop new ore bodies, construct access to previously developed ore bodies and to develop ore zones substantially, in advance of current production. All deferred development costs will be charged to operations in the same manner as mineral property and claims. Effective December 31, 1995, deferred development costs are carried at the lower of cost or net realizable value. f. Revenue recognition - Revenue is recognized when product is delivered in satisfaction of sales agreements and title passes to the buyer. Final revenue amounts are adjusted based on the results of the final assays of the copper concentrate approximately 60 to 90 days after shipment. Revenue adjustments have been, and are expected to, remain immaterial to the reported results of operations. g. Income taxes - Each partner reflects its share of taxable income or loss in its tax return and no income taxes are recorded in the financial statements of the Partnership. h. Estimated Fair Value of Financial Instruments - The following disclosure of estimated fair value of the Company's financial instruments is made in accordance with the requirements of Statement of Financial Accounting Standards No. 107, Disclosures About Fair Value of Financial Instruments. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret the market data in order to develop the estimates of fair value. Accordingly, the estimates herein are not necessarily indicative of the amounts the Company could realized in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. Management believes that for cash, accounts receivable, accounts payable, accrued liabilities and other accrued expenses that the carrying amount is a reasonable estimate of fair value. - 7 - 3. INVENTORIES Inventories consisted of the following at December 31:
1995 1994 Copper concentrate $ 135,000 $ 135,000 Warehouse supplies and stores 206,079 361,739 Other - reagents, explosives 45,185 69,023 ---------- ---------- Total inventories $ 541,924 $ 410,102 ========== ==========
4. PROPERTY AND MINERAL INTERESTS Property and mineral interests consisted of the following at December 31:
1995 1994 Plant, equipment and buildings: Crushing and processing plant $ 3,938,962 $ 3,935,880 Underground equipment 2,701,197 2,068,442 Mining and service equipment 1,110,856 1,057,125 Tailing pond 736,978 665,377 Vehicles 154,530 117,651 Buildings 386,547 386,546 Office equipment 174,693 153,147 Road improvements 30,153 30,153 ----------- ----------- Total plant, equipment and buildings 9,233,916 8,414,321 Less accumulated depreciation (4,528,644) (3,730,253) ----------- ----------- Plant, equipment and buildings - net 4,705,272 4,684,068 Mineral property and claims and deferred development costs: Mineral property and claims 954,185 954,185 Deferred development costs 5,126,915 3,459,470 Total mineral property and claims and deferred development costs 6,081,100 4,413,655 Less accumulated depletion and amortization (1,223,383) (900,037) ----------- ----------- Mineral property and claims and deferred development costs - net 4,857,717 3,513,618 ----------- ----------- 9,562,989 8,197,686 Less write-down to net realizable value (2,562,989) ----------- ----------- Property and mineral interests - net $ 7,000,000 $ 8,197,686 =========== ===========
Depreciation expense for the year ended December 31, 1995 and the fourteen month period ended December 31, 1994 totaled $873,517 and $874,513, respectively. Depletion and amortization expense for the year ended December 31, 1995 and the fourteen month period ended December 31, 1994 totaled $323,346 and $337,095, respectively. - 8 - 5. SENIOR DEBT As of December 31, 1995 and 1994, the Partnership owed Union and Continental $4,760,978 and $2,040,418, respectively, as non-interest bearing senior debt with no defined maturity date. Such debt is collateralized by substantially all of the assets of the Partnership. 6. UNION DEBT As of December 31, 1995 and 1994, the Partnership was indebted to Union in the amount of $348,492. The loan bears interest at the prime rate (8.5% at December 31, 1995) plus 2% and does not carry a defined maturity date. Interest is waived for periods in which the Partnership incurs a net loss before interest expense for this debt. Interest has been waived by Union for the year ended December 31, 1995 and the fourteen month period ended December 31, 1994. This debt is subordinated to the Senior Debt. 7. SUBORDINATED DEBT DUE TO PARTNERS As of December 31, 1995 and 1994, the Partnership had subordinated debt due to the partners of $7,319,578 and $5,244,011 to Union and $3,137,264 and $2,247,734 to Continental, respectively. The subordinated debt bears interest at the prime rate plus 2%. Interest is waived for periods in which the Partnership incurs a net loss before interest expense for this debt. Interest has been waived by Union and Continental for the year ended December 31, 1995 and the fourteen month period ended December 31, 1994. The debt is subordinated to the Senior Debt (Note 5) and the Union Debt (Note 6) and does not carry a defined maturity date. 8. COMMITMENT Under an arrangement with the State of Arizona, the Partnership has provided a $45,000 bond to be used for reclamation purposes. In addition, the agreement requires that for each ton of ore mined an additional $.05 will be provided (up to a total of $99,000) for reclamation. Management believes that the amounts provided under this agreement will be sufficient to pay for all reclamation costs. 9. INSTALLMENT PURCHASE In 1994, the Partnership entered into agreements to purchase two pieces of equipment on an installment basis. At December 31, 1995, the remaining liability related to the purchases was $59,579, all due in 1996. The installment agreements are collateralized by the related items of equipment. 10.RELATED PARTY TRANSACTIONS Related party transactions are disclosed throughout the financial statements. Additional related party transactions are as follows for the year ended December 31, 1995 and the fourteen month period ended December 31, 1994:
1995 1994 Management fees to Union $ 60,000 $ 60,000 ======== ======== Reimbursement of expenses incurred by Union on behalf of the Partnership $164,388 $ 36,755 ======== ========
- 9 - Union is entitled to a management fee equal to $12,000 per month in connection with the performance of its duties as managing partner of the partnership. However, the managing partner shall not be entitled to such fee in the event net operating income for any given month, calculated on an accrual basis, is less than $15,000. * * * * * * - 10 - Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There have been no changes of accountants and/or disagreements on any matter of accounting principle or financial statement disclosure during the past 24 months which would require a filing under Item 9. PART III Part III has been omitted from this 10-K Report since Registrant will file, not later than 120 days following the close of its fiscal year ended December 30, 1995, its definitive 1996 proxy statement. The information required by Part III will be included in that proxy statement and such information is hereby incorporated by reference, but excluding the information under the headings "Compensation Committee Report" and "Comparison of Total Shareholders' Return". PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1 Financial statements required by Item 14 are included in Item 8 of Part II. (a) 2 The following is a list of financial statement schedules filed as part of this Report: Report of Independent Auditors on Schedule Schedule II Valuation and Qualifying Accounts & Reserves For Years Ended December 30, 1995, December 31, 1994 and January 1, 1994 All other schedules are omitted because they are not applicable or the information is shown in the financial statements or notes thereto. 36 (a) 3 The following is a list of all exhibits filed as part of this Report: Exhibit 3 1975 Restated Certificate of Incorporation dated May 28, 1975 filed as Exhibit 5 to Form 8-K for the month of May 1975, incorporated herein by reference. Exhibit 3a Registrant's By-laws as amended September 19, 1975 filed as Exhibit 6 to Form 8-K for the month of September 1975, incorporated herein by reference. Exhibit 3b Registrant's Certificate of Amendment of Certificate of Incorporation dated May 24, 1978 filed as Exhibit 1 to Form 10-Q for quarter ended June 30, 1978, incorporated herein by reference. Exhibit 3c Registrant's Certificate of Amendment of Certificate of Incorporation dated May 27, 1987 filed as Exhibit 3c to Form 10-K for the year ended January 1, 1988, incorporated herein by reference. Exhibit 10 Continental Materials Corporation Amended and Restated 1994 Stock Option Plan dated May 25, 1994 filed as Appendix A to the 1994 Proxy Statement, incorporated herein by reference.* Exhibit 10a Revolving Credit and Term Loan Agreement between The Northern Trust Company, LaSalle National Bank and Continental Materials Corporation dated as of February 28, 1996 (filed herewith). Exhibit 10b Form of Supplemental Deferred Compensation Agreement filed as Exhibit 10 to Form 10-Q for the quarter ended July 1, 1983, incorporated herein by reference.* Exhibit 10c Continental Materials Corporation Employee Profit Sharing Retirement Plan Amended and Restated Generally Effective January 1, 1989 filed as Exhibit 10c to Form 10-K for the year ended December 31, 1994. Exhibit 11 Computation of Per Share Earnings (filed herewith). Exhibit 21 Subsidiaries of Registrant (filed herewith). Exhibit 24 Consent of Independent Accountants (filed herewith). Exhibit 24a Independent Auditors' Consent (filed herewith). Exhibit 27 Financial Data Schedule (filed herewith). Exhibit 28 Continental Materials Corporation Employees Profit Sharing Retirement Plan on Form 11-K for the year ended December 30, 1995 (to be filed by amendment). * - Compensatory plan or arrangement (b) Reports on Form 8-K: No reports on Form 8-K were filed during the quarter ended December 30, 1995. 37 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CONTINENTAL MATERIALS CORPORATION Registrant By: /S/Joseph J. Sum ----------------------------- Joseph J. Sum, Vice President, Finance Date: March 27, 1996 ----------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. SIGNATURE CAPACITY(IES) DATE - ------------------------ ------------- ------------- /S/ James G. Gidwitz - ------------------------ James G. Gidwitz Chief Executive Officer and a Director March 27, 1996 /S/ Joseph J. Sum - ------------------------ Joseph J. Sum Vice President and a Director March 27, 1996 /S/ Mark S. Nichter - ------------------------ Mark S. Nichter Secretary and March 27, 1996 Controller /S/ Thomas H. Carmody - ------------------------ Thomas H. Carmody Director March 27, 1996 /S/ Betsy R. Gidwitz - ------------------------ Betsy R. Gidwitz Director March 27, 1996 /S/ Ralph W. Gidwitz - ------------------------ Ralph W. Gidwitz Director March 27, 1996 /S/ Ronald J.Gidwitz - ------------------------ Ronald J. Gidwitz Director March 27, 1996 /S/ William A. Ryan - ------------------------ William A. Ryan Director March 27, 1996 /S/ William G. Shoemaker - ------------------------ William G. Shoemaker Director March 27, 1996 /S/ Theodore R. Tetzlaff - ------------------------ Theodore R. Tetzlaff Director March 27, 1996 38 REPORT OF INDEPENDENT ACCOUNTANTS ON SCHEDULE Our report on the consolidated financial statements of Continental Materials Corporation and Subsidiaries is included on page 25 of this Annual Report on Form 10-K. In connection with our audits of such financial statements, we have also audited the related financial statement schedule listed in the index on page 35 of this Form 10-K. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. COOPERS & LYBRAND L.L.P. Chicago, Illinois March 14, 1996 CONTINENTAL MATERIALS CORPORATION SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (c) (d) for the fiscal years 1995, 1994 and 1993
COLUMN A COLUMN B COLUMN C(1) COLUMN D COLUMN E Additions Balance at Charged to Deductions Balance at Beginning Costs and - End of Description of Period Expenses Describe Period Year 1995 Allowance for doubtful accounts $248,000 $ 60,000 $ 48,000(a) $260,000 Inventory valuation reserve $223,000 $232,000 $219,00 (b) $236,000 Year 1994 Allowance for doubtful accounts $139,000 $148,000 $ 39,000(a) $248,000 Inventory valuation reserve $420,000 $289,000 $486,000(b) $223,000 Year 1993 Allowance for doubtful accounts $258,000 $101,000 $220,000(e) $139,000 Inventory valuation reserve $ 40,000 $398,000 $ 18,000(b) $420,000
[FN] Notes: (a) Accounts written off, net of recoveries. (b) Amounts written off upon disposal of assets. (c) Reserve deducted in the balance sheet from the asset to which it applies. (d) Column C(2) has been omitted as the answer would be "none". (e) Accounts written off, net of recoveries plus $102,000 reserve balance transferred with sale of subsidiary. EX-10 2 EXHIBIT 10(G) REVOLVING CREDIT AND TERM LOAN AGREEMENT Dated as of February 28, 1996 CONTINENTAL MATERIALS CORPORATION, a corporation organized under the laws of the state of Delaware (the "Borrower"), THE NORTHERN TRUST COMPANY, an Illinois banking corporation ("Northern") and LASALLE NATIONAL BANK ("LaSalle Bank)" (Northern and LaSalle Bank referred to individually in this Agreement as a "Lender" and collectively as the "Lenders"), agree as follows: RECITALS: A. The parties hereto have previously entered into that certain Revolving Credit and Term Loan Agreement dated as of April 20, 1992, as amended up to the date hereof through various amendments thereto, the last such amendment being the Fifth Amendment thereto dated as of January 31, 1995 (said Revolving Credit and Term Loan Agreement as so amended being the "Original Agreement"). B. Pursuant to the Original Agreement, the Lenders have issued the following described letters of credit (the "Existing Letters of Credit") for the account of the Borrower: Issuing Lender No. Beneficiaries Northern S262251 St. Paul Fire and Marine Insurance Co. Northern S258180 The Home Insurance Company Northern S250189 CNA Insurance Company Northern S250188 CNA Insurance Company Northern S249912 Insurance Company of North America LaSalle Bank 9210002188 St. Paul Fire and Marine Insurance Co. LaSalle Bank 9200000426 The Home Insurance Company LaSalle Bank 9260137087 CNA Insurance Company LaSalle Bank 9260237088 CNA Insurance Company LaSalle Bank 9260037086 Insurance Company of North America C. The Original Agreement, the promissory notes of the Borrower issued and remaining unpaid thereunder (the "Existing Notes"), the Existing Letters of Credit, and the documents related to or referenced therein are referred to herein as the "Prior Documents". D. The parties to and/or bound by the Prior Documents wish to consolidate and amend and restate the Prior Documents in their entirety in order to provide for certain changes and to restate their agreements with respect to the subject matter hereof. NOW, THEREFORE, the parties hereto amend and restate the Original Agreement in its entirety to read as follows: SECTION 1 DEFINITIONS SECTION 1.1 GENERAL. As used herein: The term "affiliate" means any corporation of which the Borrower owns directly or indirectly 20% or more, but less than 50%, of the outstanding voting stock, or any partnership, joint venture, trust or other legal entity of which the Borrower has effective control, by contract or otherwise. The term "Applicable LIBOR Margin", for purposes of determining the interest rate on a LIBOR Loan, shall mean initially 2% (the "Normal LIBOR Margin"); provided, however, that the Normal LIBOR Margin shall be subject to semi-annual adjustments as follows: If EBITDA, as determined no later than March 31 and September 30 (each, an Applicable LIBOR Margin Reset Date") of each year, for the period of the four fiscal quarters ending at the end of of the fiscal quarter immediately preceding an Applicable LIBOR Margin Reset Date (i.e. fiscal quarters Applicable ending December 31 and June 30) is: LIBOR Margin is: $7,000,000 and above 1.25% $6,000,000 to $6,999,999 1.50% $5,000,000 to $5,999,999 1.75% $3,750,000 to $4,999,999 2.00% Less than $3,749,999 2.50% Not later than twenty (20) days after the Lenders receipt of the quarterly financial statements required by Section 6.2(a) hereof for the quarters ending December 31 and June 30, accompanied by a certificate of the chief accounting officer or Treasurer of the Borrower computing EBITDA for the period of the four fiscal quarters ending on such dates, Northern will determine whether such financial information indicates such a change in EBITDA as would justify a change in the Applicable LIBOR Margin and shall then notify the Borrower and LaSalle Bank of such determination and of any change in the Applicable LIBOR Margin resulting therefrom. Any change in the Applicable LIBOR Margin, and in the rate of interest applicable to LIBOR loans resulting therefrom, shall be effective prospectively as of the first day after the relevant Applicable LIBOR Margin Reset Date, and with such new Applicable LIBOR Margin to continue in effect until the effectiveness of the next redetermination thereof. Any determination of Northern of EBITDA shall be conclusive and binding upon the Borrower and the Lenders provided that it has been made reasonably and in good faith, absent manifest error. If the Borrower fails to timely submit the quarterly financial statements and certificate referred to above, the rate of interest applicable to LIBOR Loans as of the next determination date of the Applicable LIBOR Margin shall be determined and based upon the Default Rate. The term "Borrowing" shall mean the total of Loans of a single type (i.e. LIBOR Loan or Prime Rate Loan) made by the Lenders to the Borrower on a single date and for a single Interest Period. Borrowings of Loans are made ratably from each of the Lenders according to their respective commitments. The term "Business Day" shall mean any day other than a Saturday, Sunday or other day on which banks in Chicago, Illinois are authorized to close, and with respect to LIBOR Loans, a day on which dealings in United States Dollars may be carried on by the Reference Bank in the London interbank eurodollar market. The term "Commitment - Revolving Credit" shall mean each such amount set forth below across from the name of each Lender: Lender Amount Northern $7,250,000 LaSalle Bank $7,250,000 Provided that the Commitment-Revolving Credit of each Lender shall permanently reduce to a maximum of $6,000,000 on June 30, 1997. The term "Commitment - Term Loan" shall mean each such amount set forth below across from the name of each Lender: Lender Amount Northern $2,000,000 LaSalle Bank $2,000,000 The term "EBITDA", with reference to any period, shall mean, on a consolidated basis, the sum of the Borrower's: (i) consolidated net income or loss after all provisions or credits for any Federal, state or other income taxes, plus (ii) Federal, state and other income taxes deducted in the determination of consolidated net income, plus (iii) Interest Expense deducted in the determination of consolidated net income, plus (iv) depreciation and amortization expense deducted in the determination of consolidated net income, and minus (v) any items of gain which are extraordinary items to the extent reflected in the determination of consolidated net income. The term "Fixed Charges" for any Measurement Period shall mean, on a consolidated basis, the Interest Expense and scheduled principal payments (including capitalized lease obligations) of the Borrower. The term "Fixed Charge Coverage Ratio" shall mean, for any period (a "Measurement Period") consisting of the four fiscal quarters of the Borrower ending as of the end of each fiscal quarter of the Borrower, the ratio of Income Available for Fixed Charges to Fixed Charges. The term "Funded Debt" shall mean Indebtedness which by its terms or by the terms of any instrument or agreement relating thereto matures more than one year from, or is directly renewable or extendible at the option of the debtor to a date more than one year (including an option of the debtor under a revolving credit or similar agreement obligating the lender or lenders to extend credit over a period of more than one year) from the date of creation thereof; provided, however, that in any event "Funded Debt" includes all Revolving Credit Loans. The term "Income Available for Fixed Charges" for any Measurement Period shall mean on a consolidated basis, the sum of the Borrower's: (i) consolidated net income or loss before all provisions or credits for any Federal, state or other income taxes, plus (ii) depreciation, depletion and amortization (other than amortization of debt discount expense), plus (iii) Interest Expense, minus (iv) capital expenditures (but excluding therefrom capital expenditures financed with that portion of Revolving Credit Loans converted, or intended or anticipated to be converted, to the Term Loan pursuant to Section 2.2(A) hereof). The term "Indebtedness" of any entity or consolidated group means, without duplication: (i) all obligations, contingent or otherwise, of such entity for borrowed money and all obligations of such entity evidenced by bonds, debentures, notes or other similar instruments; (ii) all obligations of such entity as lessee under leases which have been or should be, in accordance with generally accepted accounting principles, recorded as capitalized lease liabilities; (iii) all guaranties, whether direct or indirect, secured or unsecured, of Indebtedness of another person by such entity or any of its subsidiaries; (iv) net liabilities of such entity under all interest rate swap agreements, interest rate cap agreements, interest rate collar agreements and all other agreements or arrangements designed to protect such entity against fluctuations in interest rates or currency exchange rates; (v) whether or not so included as liabilities in accordance with generally accepted accounting principles, all obligations of such entity to pay the deferred purchase price of property or services, and indebtedness (excluding prepaid interest thereon) secured by a lien on property owned or being purchased by such entity (including indebtedness arising under conditional sales or other title retention agreements), whether or not such indebtedness shall have been assumed by such entity or is limited in recourse; and (vi) all contingent liabilities of such entity in respect of any of the foregoing. For all purposes of this Agreement, the Indebtedness of any entity shall include its pro rata share of Indebtedness of any partnership or joint venture in which such entity is a general partner or a joint venturer, except that any and all Indebtedness of Oracle Ridge Mining Partners ("Oracle Ridge") shall be excluded from the definition of Indebtedness for purposes of this Agreement, if and so long as the Borrower is not the majority owner of Oracle Ridge, Oracle Ridge is not consolidated with the Borrower for financial reporting purposes, and the Borrower is not legally responsible for said Indebtedness of Oracle Ridge. The term "Interest Expense" shall mean, for any Measurement Period of the Borrower, all interest accrued (whether or not actually paid) during such period on Indebtedness of the Borrower and its subsidiaries (determined on a consolidated basis), provided that the term "Interest Expense" also shall include (without limitation) (i) dividends paid on any preferred or special stock issued by the Borrower, (ii) amortized discount in respect to Indebtedness of the Borrower and its subsidiaries issued at a discount and (iii) imputed interest on capitalized lease obligations of the Borrower and its subsidiaries. The term "Interest period" shall mean the period commencing on the date a Borrowing of LIBOR Loans is made and ending on the date, as the Borrower may select, 1, 2, 3 or 6 months thereafter; provided, however, that: (a) the Borrower may not select an Interest Period that extends beyond the Termination Date; (b) whenever the last day of any Interest Period would otherwise be a day that is not a Business Day, the last day of such Interest Period shall be extended to the next succeeding Business Day, provided that, if such extension would cause the last day of such Interest Period to occur in the following calendar month, the last day of such Interest Period shall be the immediately preceding Business Day; and (c) for purposes of determining the Interest Period for a Borrowing of LIBOR Loans, a month means a period starting on one day in a calendar month and ending on the numerically corresponding day in the next calendar month; provided, however, that if there is no numerically corresponding day in the month in which such an Interest Period is to end or if such an Interest Period begins on the last Business Day of a calendar month, then such Interest Period shall end on the last Business Day of the calendar month in which such Interest Period is to end. The term "LIBOR Loan" shall mean a Loan bearing interest at a rate determined by reference to Adjusted LIBOR (as hereinafter defined). The term "Prime Rate" shall mean the rate of interest per year announced from time to time by Northern called its prime rate, which may not at any time be the lowest rate of interest charged by Northern. Changes in the rate of interest resulting from a change in the Prime Rate shall take effect on the date set forth in each announcement. The term "Prime Rate Loan" shall mean a Loan bearing interest at a rate determined by reference to the Prime Rate. The term "Reference Bank" shall mean Northern. The term "subsidiary" means any corporation, partnership, joint venture, trust, or other legal entity of which the Borrower owns directly or indirectly 50% or more of the outstanding voting stock or interest, or of which the Borrower has effective control, by contract or otherwise. The term "Tangible Net Worth" means, at any date, net stockholders' equity, minus goodwill, patents, trademarks, service marks, trade names, copyrights, and all other intangible assets and all items that are treated as intangible assets under generally accepted accounting principles. The term "Termination Date" shall mean February 15, 1998, subject to any extension thereof pursuant to Section 2.1(A) hereof. The term "Unmatured Event of Default" means an event or condition which would become an Event of Default with notice or the passage of time or both. SECTION 1.2 APPLICABILITY OF SUBSIDIARY AND AFFILIATE REFERENCES. Terms hereof pertaining to any subsidiary or affiliate shall apply only during such times as the Borrower has any subsidiary or affiliate. SECTION 1.3 ACCOUNTING TERMS. Except as and unless otherwise specifically provided herein, all accounting terms in this Agreement shall have the meanings given to them by generally accepted accounting principles and shall be applied and all reports required by this Agreement shall be prepared, in a manner consistent with generally accepted accounting principles consistently applied. SECTION 2 LOANS SECTION 2.1 REVOLVING CREDIT LOANS. Subject to the terms and conditions of this Agreement, each Lender, severally and not jointly, agrees to make loans to the Borrower, from time to time from the date of this Agreement through the Termination Date, at such times and in such amounts, not to exceed the amount of each such Lender's Commitment - Revolving Credit, at any one time outstanding, as the Borrower may request (the "Revolving Credit Loan(s)"). During such period, the Borrower may borrow, repay and reborrow hereunder. Each borrowing shall be in the amount of at least $25,000.00 or the remaining unused amount of the Commitment - Revolving Credit. Notwithstanding the generality of the foregoing, neither Lender shall make any Revolving Credit Loans under this Agreement or the Revolving Credit Note (as hereinafter defined) if at any time the sum of: (a) the aggregate principal amount outstanding under the Revolving Credit Notes and due such Lender plus (b) the aggregate face amount of all Letters of Credit (as hereinafter defined) issued by such Lender for the benefit of the Borrower and any drawn and unpaid amounts thereunder equals or exceeds such Lender's Commitment - Revolving Credit. SECTION 2.1(A) EXTENSIONS OF THE TERMINATION DATE. The Borrower may advise the Lenders in writing of its desire to extend the Termination Date for an additional one year, provided (i) such request is made no later than 90 days prior to such Termination Date, (ii) not more than one such request for the extension of the Termination Date may be made in any one calendar year, and (iii) in no event shall the Termination Date be extended beyond February 15, 1999. Each Lender shall notify the Borrower and the other Lender in writing within 45 days after such Lender receives such request from the Borrower, whether such Lender in its sole discretion agrees to such extension. In the event that a Lender shall fail to so notify the Borrower and the other Lender within such 45 day period, whether it agrees to such extension, such Lender shall be deemed to have refused to grant the requested extension. Upon receipt by the Borrower and all Lenders of the consent of all Lenders within such 45 day period, the Termination Date shall be automatically extended for an additional one year, and Northern shall confirm such automatic extension in writing to the Borrower and LaSalle Bank. In the event the Borrower and all Lenders do not consent to the requested extension of the Termination Date, such Termination Date shall take place as scheduled. SECTION 2.2 REVOLVING CREDIT NOTE. The Revolving Credit Loans shall be evidenced by a revolving credit note (the "Revolving Credit Note"), substantially in the form of Exhibit A, with appropriate insertions, dated the date hereof, payable to the order of each Lender, in the principal amount of the Commitment - Revolving Credit of each such Lender, and with the amounts borrowed and repaid and the balance indorsed on the grid by such Lender. As long as such Lender is the holder of such Revolving Credit Note it may, at its option, in lieu of endorsing the grid, record the amounts borrowed and repaid under and the balance due on the Revolving Credit Note in each such Lender's respective books and records, which books and records may treat each borrowing as a separate Revolving Credit Loan; such endorsement or recording by such Lender shall be rebuttably presumptive evidence of the principal balance due on each Revolving Credit Note. Subject to Section 2.2(A) hereof, the principal of each Revolving Credit Note shall be payable in full on the Termination Date. SECTION 2.2(A) CONVERSION OF PORTIONS OF REVOLVING CREDIT LOANS. At any time on or before June 30, 1997, the Borrower may advise the Lenders in writing (the "Conversion Notice(s)") of its election to convert up to $1,250,000 of each Lender's Revolving Credit Loans to such Lender's Term Loan. Any Conversion Notice must be delivered to the Lenders no later than June 15, 1997, and not more than one such election may be made. The Conversion Notice must specify: (i) the amount of each Lender's Revolving Credit Loans to be converted to such Lender's Term Loan (the "Converted Amount", which cannot exceed $1,250,000 and which must be the same amount for each Lender); and (ii) the date on which the Converted Amount is to be converted to the relevant Term Loan, which date (the "Conversion Date") cannot be less than seven nor more than thirty days after the date on which the Conversion Notice(s) is received by the Lenders, but in any event can be no later than June 30, 1997. Any Conversion Notice(s), and the election set forth therein, is irrevocable, but is ineffective if an Event of Default has occurred and is continuing on either the date of the Conversion Notice(s) or the Conversion Date. From and after the Conversion Date, the Converted Amount payable to each Lender shall be and become part of the Term Loan payable to such Lender, and is repayable and bears interest as set forth herein and in the Term Note of such Lender. From and after the Conversion Date, each Lender's Commitment - Revolving Credit is permanently reduced by $1,250,000. SECTION 2.3 LETTERS OF CREDIT. Subject to the terms of this Agreement, each Lender shall issue stand-by and/or commercial letters of credit for the account of the Borrower (collectively, the "Letter(s) of Credit"), from time to time from the date of this Agreement through the Termination Date or such later date as may from time to time be agreed upon in writing by the Borrower and the Lenders, with a maturity date on any Letter of Credit no later than the Termination Date, at such times and in such amounts, as the Borrower may request, up to a maximum amount not in excess of: (a) $14,500,000 minus (b) the aggregate amount of Revolving Credit Loans outstanding under the Revolving Credit Notes minus (c) the unexpired portion of all outstanding Letters of Credit and any amount drawn under any such Letters of Credit (including without limitation, any draft drawn under a Letter of Credit and accepted by such Lender for which the Lender has not been reimbursed). At any time the Borrower determines that it desires the issuance of a Letter of Credit, the Borrower may request such Letter of Credit from the Northern, which request shall be in writing and irrevocable as to the Borrower and, subject to the terms hereof and Northern's internal rules regarding the issuance of letters of credit, Northern will issue a Letter of Credit for one-half the face amount requested by the Borrower. At the time Northern receives a request by the Borrower for the issuance of a Letter of Credit, Northern will inform LaSalle Bank in writing of the request and, subject to the terms hereof and LaSalle Bank's internal rules regarding the issuance of letters of credit, LaSalle Bank will issue a Letter of Credit for one-half the face amount requested by the Borrower. Notwithstanding the generality of the foregoing, neither Northern nor LaSalle Bank will issue a Letter of Credit unless the other Lender agrees in writing to simultaneously issue an identical Letter of Credit. The Borrower shall execute, and be subject to, such documentation in form and substance as may be required by Northern and LaSalle Bank. The Borrower shall pay each Lender its standard fees, charges, commissions, and discounts in connection with any Letter of Credit or any draft drawn under any Letter of Credit, which, subject to the terms and provisions of the forementioned documents, is three-quarters of one percent (3/4%) per annum for each Letter of Credit with a $250.00 minimum, said fee(s) being payable quarterly in arrears. Any draft drawn under a Letter of Credit not paid on or before its maturity shall constitute a Revolving Credit Loan and shall bear interest at the rate and be payable as provided for other Revolving Credit Loans. The Borrower shall not request the issuance of any Letter of Credit and the Lenders shall not issue any Letters of Credit at any time when the face amount of all unexpired Letters of Credit issued by all Lenders (including without limitation, any draft drawn under a Letter of Credit and accepted by any Lender for which the Lender has not been reimbursed), exceeds $5,000,000. For all purposes hereof, each Existing Letter of Credit shall be deemed to be a Letter of Credit issued hereunder. SECTION 2.4 TERM LOAN. Subject to the terms and conditions of this Agreement, each Lender, severally and not jointly, agrees to lend to the Borrower, and the Borrower agrees to borrow from each Lender, on the date hereof, the amount of each Lender's Commitment - Term Loan (the "Term Loan"; the Revolving Credit Loans and the Term Loan, collectively, the "Loans"). Any amount of Term Loans repaid may not be reborrowed. SECTION 2.5 TERM NOTE. The Term Loan shall be evidenced by a term note (the "Term Note"; the Revolving Credit Notes and the Term Notes, collectively, the "Notes"), substantially in the form of Exhibit B, with appropriate insertions, dated the date hereof, payable to the order of each Lender, in the principal amount of the Commitment - Term Loan of each such Lender. The Term Loan and Term Note of each Lender is payable in seven (7) consecutive principal payments consisting of six (6) equal consecutive principal payments of $250,000 each, each payable on the 15th day of each June and December of each year beginning with the first such date to occur after the date of the Term Loan, and a seventh (7th) and final principal payment of $500,000 and all then unpaid principal, such seventh (7th) and final payment due in full on February 15, 1999. Provided, however, that if and when any Converted Amount is added to the Term Loans of each Lender pursuant to Section 2.2(A) hereof, that portion of such Term Loans is payable as follows: commencing on the first semi- annual principal payment date (June 15 and December 15) after the Conversion Date, and continuing on each such principal payment date thereafter, each principal payment of the Term Loan and Term Note then due shall be increased by an amount equal to ten percent (10%) of the Converted Amount, with the then unpaid principal of the Converted Amount and all then unpaid principal of the Term Loan being due in full on February 15, 1999. SECTION 2.6 GUARANTY. The Loans and all of the Borrower's other liabilities, obligations and indebtedness to each of the Lenders, direct or indirect, absolute or contingent, due or to become due, now or hereafter existing with respect to principal, and interest accrued thereon, whether under this Agreement or any other agreement with either or both of the Lenders or note payable to either or both of the Lenders, shall be guaranteed by: (a) Transit Mix Concrete Co., a Colorado corporation ("Transit Mix"), by execution and delivery of a Guaranty in the form of Exhibit C hereto with appropriate insertions (the foregoing Guaranty, and all amendments, restatements, and replacements, if any, thereto or therefor, collectively, the "Transit Mix Guaranty"); (b) Phoenix Manufacturing, Inc., an Arizona corporation ("Phoenix"), by execution and delivery of a Guaranty in the form of Exhibit D hereto with appropriate insertions (the foregoing Guaranty, and all amendments, restatements, and replacements, if any, thereto or therefor, collectively, the "Phoenix Guaranty"); (c) Williams Furnace Co., a Delaware corporation ("Williams"), by execution and delivery of a Guaranty in the form of Exhibit E hereto with appropriate insertions (the foregoing Guaranty, and all amendments, restatements, and replacements, if any, thereto or therefor, collectively, the "Williams Guaranty"); and (d) Castle Concrete Company, a Colorado corporation ("Castle"), by execution and delivery of a Guaranty in the form of Exhibit F hereto with appropriate insertions (the foregoing Guaranty, and all amendments, restatements, and replacements, if any, thereto or therefor, collectively, the "Castle Guaranty"). SECTION 3 INTEREST AND FEES SECTION 3.1 INTEREST. The Borrower may elect that each Borrowing of Loans be made by means of a Prime Rate Loan or a LIBOR Loan; provided, however, that there shall not be more than six Borrowings of LIBOR Loans outstanding at any time. (a) Prime Rate Loans. Each Prime Rate Loan made by the Lenders shall bear interest on the unpaid principal amount thereof from the date such Loan is made until maturity (whether by acceleration or otherwise) at a rate per annum equal to the Prime Rate from time to time in effect. (b) LIBOR Loans. Each LIBOR Loan made by the Lenders shall bear interest on the unpaid principal amount thereof from the date such Loan is made until maturity (whether by acceleration or otherwise) at a rate per annum equal to the sum of the Applicable LIBOR Margin from time to time in effect plus the Adjusted LIBOR. "Adjusted LIBOR" means, for any Borrowing of LIBOR Loans, a rate per annum determined in accordance with the following formula: LIBOR Adjusted LIBOR = 100% - Eurodollar Reserve Percentage "LIBOR" means, for an Interest Period for a Borrowing of LIBOR Loans, the rate of interest per annum (rounded upwards, if necessary, to nearest 1/100 of 1%) at which deposits in U.S. dollars in immediately available funds are offered by the Reference Bank at approximately 11:00 a.m. (London, England time) two (2) Business Days before the beginning of such Interest Period by prime banks in the interbank eurodollar market for a period equal to such Interest Period and in an amount equal or comparable to the principal amount of the LIBOR Loans scheduled to be made by the Lenders as part of such Borrowing. "Eurodollar Reserve Percentage" means, for any Borrowing of LIBOR Loans, the daily average for the applicable Interest Period of the maximum rate at which reserves (including, without limitation, any supplemental, marginal and emergency reserves) are imposed during such Interest Period by the Board of Governors of the Federal Reserve System (or any successor) under Regulation D on "eurocurrency liabilities," as defined in such Board's Regulation D, (or in respect of any other category of liabilities that includes deposits by reference to which the interest rate on LIBOR Loans is determined or any category of extension of credit or other assets that include loans by non-United States offices of any Lender to United States residents) subject to any amendments of such reserve requirement by such Board or its successor, taking into account any transitional adjustments thereto. For purposes of this definition, the LIBOR Loans shall be deemed to be "eurocurrency liabilities" as defined in Regulation D. (c) Rate Determinations. Northern shall determine each interest rate applicable to the Loans hereunder, and its determination thereof shall be conclusive and binding except in the case of manifest error. SECTION 3.2 MINIMUM AND MAXIMUM BORROWING AMOUNTS. Each Borrowing of Prime Rate Loans (other than an L/C Refinancing Borrowing) shall be in an amount not less than $25,000 or any larger amount that is an integral multiple of $25,000. Each Borrowing of LIBOR Loans shall be in an amount not less than $500,000, or any larger amount that is an integral multiple of $100,000. SECTION 3.3 BASIS OF COMPUTATION. Interest on all Loans shall be computed for the actual number of days elapsed on the basis of a year consisting of 360 days, including the date a Loan is made and excluding the date a Loan or any portion thereof is paid or prepaid. SECTION 3.4 INTEREST PAYMENT DATES. Accrued interest on Prime Rate Loans shall be paid on the fifteenth (15th) day of each March, June, September and December of each year, at maturity and upon payment in full, beginning with the first of such dates to occur after the date of the first such Loan hereunder. Accrued interest on LIBOR Loans shall be paid on the last day of the applicable Interest Period and at maturity and, if the applicable Interest Period is longer than three months, on each day occurring three months after the date such LIBOR Loan is made. After maturity, whether by acceleration or otherwise, accrued interest on all Loans shall be paid upon demand. SECTION 3.5 DEFAULT RATE. If the Borrower is in default under any of the financial requirements set forth in Section 6.4 hereof, or if any payment of principal on any Loan or other monetary obligation is not made when due (whether by acceleration or otherwise), such Loan or other monetary obligation shall bear interest, after as well as before judgment, from the date such payment was due until paid in full, payable on demand, at a rate per annum (the "Default Rate") equal to: (a) with respect to any Prime Rate Loan, the sum of two percent (2%) plus the Prime Rate from time to time in effect; and (b) with respect to any LIBOR Loan, the sum of two percent (2%) plus the rate of interest in effect thereon at the time of such default until the end of the Interest Period applicable thereto and, thereafter, at a rate per annum equal to the sum of two percent (2%) plus the Prime Rate from time to time in effect; and (c) with respect to other monetary obligations for which a Default Rate is not otherwise specified, the sum of two percent (2%) plus the Prime Rate from time to time in effect. SECTION 3.6 CLOSING FEE. The Borrower agrees to pay each Lender, on the date of the initial Loans hereunder, an amount equal to one-eighth of one percent (1/8%) of the aggregate of such Lender's Commitment - Revolving Credit and Commitment - Term Loan. SECTION 3.7 COMMITMENT FEE, REDUCTION OF COMMITMENT. The Borrower agrees to pay each Lender a commitment fee (the "Commitment Fee") of three-eighths of one percent (3/8%) per year on the average daily unused amount of each Lender's Commitment - Revolving Credit. The Commitment Fee shall commence to accrue on the date of this Agreement and shall be paid on the fifteenth (15th) day of each March, June, September and December in each year, beginning with the first of such dates to occur after the date of this Agreement, at maturity and upon payment in full. At any time or from time to time, upon at least ten days' prior written notice, which shall be irrevocable, the Borrower may reduce each Lender's Commitment - Revolving Credit in the amount of at least $25,000.00 or in full, provided, however, that all such reductions of Commitment -Revolving Credit shall reduce the Commitment - Revolving Credit of each Lender on a pro rata basis based on the Commitment - Revolving Credit of each Lender immediately prior to such reduction. Upon any such reduction of any part of the unused Commitment - Revolving Credit, the Commitment Fee on the part reduced shall be paid in full as of the date of such reduction. SECTION 4 PAYMENTS AND PREPAYMENTS. SECTION 4.1 PAYMENTS. All payments and prepayments of principal, interest, closing fees and Commitment Fee shall be made in immediately available funds to each respective Lender at its main banking office in Chicago, Illinois. SECTION 4.2 MANNER OF BORROWING. The Borrower shall give Northern written or telephonic prior irrevocable notice (a "Borrowing Notice") by 11:00 a.m., Chicago, Illinois time, (i) on the date at least three (3) Business Days prior to the date of each requested Borrowing of LIBOR Loans and (ii) on the date of any requested Borrowing of Prime Rate Loans. Each such notice shall specify the date of Borrowing, which must be a Business Day, the aggregate amount of the requested Borrowing, the type of Loans to comprise such Borrowing and, if such Borrowing is to be comprised of LIBOR Loans, the Interest Period applicable thereto. Northern will then notify LaSalle Bank in writing or by telephone by 12:00 noon on the date of receipt of the foregoing notice (which such notice to LaSalle Bank, if it relates to Revolving Credit Loan Borrowings constituting Prime Rate Loans, may be made before or after Northern has funded its 50% portion of such requested Loans) and, if such notice requests the Lender to make LIBOR Loans, Northern shall give notice to the Borrower and to LaSalle Bank of the interest rate applicable thereto promptly after Northern has made such determination. LaSalle Bank, on the date of Borrowing of any Revolving Credit Loan, shall remit 50% of any requested Revolving Credit Loan to the Borrower's account, except to the extent such Borrowing is either a reborrowing, in whole or in part, of the principal amount of a maturing Borrowing of Loans (a "Refunding Borrowing") or an L/C Refinancing Borrowing, in which case each Lender shall record the Loan made by it as a part of such Refunding Borrowing or L/C Refinancing Borrowing, as the case may be, on its books or records or on a schedule to the appropriate Note, and shall effect the repayment, in whole or in part, as appropriate, of its maturing Loan or reimbursement obligation through the proceeds of such new Loan. At the time Northern has made a Revolving Credit Loan, LaSalle Bank shall be deemed to have funded its 50% share of such Revolving Credit Loan and the obligation to remit to Northern on such day its 50% of the Revolving Credit Loan shall be absolute and irrevocable. Each borrowing from the Lenders under this Agreement shall be made on a pro rata basis of their respective Commitment - Revolving Credit and Commitment - Term Loan. Each payment and prepayment made by the Borrower shall be made to the Lenders pro rata on the basis of the respective amounts of the Loans outstanding immediately prior to such payment or prepayment. In the event the Borrower fails to give notice pursuant to this Section 4.2 of the reborrowing of the principal amount of any maturing Borrowing or of a Borrowing to refinance a reimbursement obligation with respect to a Letter of Credit (an "L/C Refinancing Borrowing") and has not notified Northern by 11:00 a.m. (Chicago time) on the day such Borrowing matures or such reimbursement obligation becomes due that it intends to repay such Borrowing or such reimbursement obligation with funds not borrowed hereunder, the Borrower shall be deemed to have requested a Borrowing of Prime Rate Loans on such day in the amount of the maturing Borrowing or of the reimbursement obligation then due, which new Borrowing shall be applied to pay, as the case may be, the maturing Borrowing or reimbursement obligation then due. Each LIBOR Loan shall mature and become due and payable by the Borrower on the last day of the Interest Period applicable thereto. SECTION 4.3 CHANGE IN CIRCUMSTANCES, ETC. (a) The Borrower agrees to pay to each Lender such amounts as will compensate each Lender for any increase in the cost to such Lender of making or maintaining any Loans hereunder or of maintaining its Commitment - - Revolving Credit to make Revolving Credit Loans hereunder, caused by any change in any reserve, tax, capital guidelines, special deposit, or similar requirement with respect to assets of, deposits with or for the account of, or credit extended by, or commitments extended by, such Lender which are imposed on such Lender and which are caused by any change in law, treaty, rule, regulation (including, without limitation, Regulation D of the Board of Governors of the Federal Reserve System), any interpretation thereof by any governmental, fiscal, monetary or other authority charged with the administration thereof or having jurisdiction over such Loan or such Lender, or any requirement imposed by any such authority, whether or not having the force of law. Such additional amounts shall be payable on demand. Such Lender's calculation of such additional amounts shall be final and binding absent manifest error. (b) Notwithstanding any other provisions of this Agreement or any Note, if at any time after the date hereof any change in applicable law or in the interpretation thereof makes it unlawful for any Lender to make or continue to maintain LIBOR Loans or to give effect to its obligations as contemplated hereby, such Lender shall promptly give notice thereof to the Borrower, with a copy to the other Lender, and such Lender's obligations to make or maintain LIBOR Loans under this Agreement shall terminate until it is no longer unlawful for such Lender to make or maintain LIBOR Loans. The Borrower shall prepay on demand the outstanding principal amount of any such affected LIBOR Loans, together with all interest accrued thereon and all other amounts then due and payable to such Lender under this Agreement; provided, however, subject to all of the terms and conditions of this Agreement, the Borrower may then elect to borrow the principal amount of the affected LIBOR Loan from such Lender by means of a Prime Rate Loan from such Lender that shall not be made ratably by the Lenders but only from such affected Lender. (c) If on or prior to the first day of any Interest Period for any Borrowing of LIBOR Loans: (i) Northern advises the Borrower that deposits in United States Dollars (in the applicable amounts) are not being offered to it in the interbank eurodollar market, for such Interest Period, or (ii) either Lender advises the Borrower that LIBOR as determined by Northern will not adequately and fairly reflect the cost to such Lender of funding its LIBOR Loans for such Interest Period, then, until Northern notifies the Borrower that the circumstances giving rise to such suspension no longer exist, the obligation of the Lenders to make LIBOR Loans shall be suspended. SECTION 4.4 FUNDING INDEMNITY. In the event any Lender shall incur any loss, cost or expense (including, without limitation, any loss of profit, and any loss, cost or expense incurred by reason of the liquidation or re-employment of deposits or other funds acquired by such Lender to fund or maintain any LIBOR Loan or the relending or reinvesting of such deposits or amounts paid or prepaid to such Lender) as a result of: (a) any payment (including prepayment) of a LIBOR Loan on a date other than the last day of its Interest Period for any reason, whether before or after default, and whether or not such payment is required by any provisions of this Agreement, or (b) any failure (because of a failure to meet the conditions of borrowing or otherwise) by the Borrower to borrow a LIBOR Loan on the date specified in a Borrowing Notice, then, upon the demand of such Lender, the Borrower shall pay to such Lender such amount as will reimburse such Lender for such loss, cost or expense. If any Lender makes such a claim for compensation, it shall provide to the Borrower, with a copy to the other Lender, a certificate executed by an officer of such Lender setting forth the amount of such loss, cost or expense in reasonable detail (including an explanation of the basis for and the computation of such loss, cost or expense) and the amounts shown on such certificate shall be deemed rebuttably presumptive evidence of the correctness thereof. SECTION 4.5 DISCRETION OF LENDERS AS TO MANNER OF FUNDING. Notwithstanding any other provision of this Agreement, each Lender shall be entitled to fund and maintain its funding of all or any part of its Loans in any manner it sees fit, it being understood, however, that for the purposes of this Agreement all determinations hereunder shall be made as if each Lender had actually funded and maintained each LIBOR Loan through the purchase of deposits in the relevant market having a maturity corresponding to such Loan's Interest Period and bearing an interest rate equal to LIBOR, for such Interest Period. SECTION 4.6 PREPAYMENTS. The Borrower shall have the privilege of prepaying without premium or penalty and in whole or in part (but, if in part, then: (i) in an amount not less than $250,000 and in integral multiples of $25,000 in the case of Prime Rate Loans, and in an amount not less than $500,000 and in integral multiples of $100,000 in the case of LIBOR Loans and (ii) in an amount such that the minimum amount required for a Borrowing pursuant to Section 3.2 hereof remains outstanding) on any Business Day upon prior notice to the Lenders which must be received by the Lenders by no later than 11:00 a.m. (Chicago time) on the date of such prepayment in the case of Prime Rate Loans and by no later than 11:00 a.m. (Chicago time) on the date three Business Days in advance of the date of such prepayment in the case of LIBOR Loans, such prepayment to be made by the payment of the principal amount to be prepaid and, in the case of LIBOR Loans, any compensation required by Section 4.4 hereof. Partial prepayments of any outstanding type of Loan shall be applied to the various Borrowings thereof in the inverse order of their maturity. Partial prepayments of the Term Loans shall be applied to installments thereof in the inverse order of their maturity. Unless otherwise designated by the Borrower, prepayments shall be deemed paid with respect to the Revolving Credit Loans which are Prime Rate Loans. SECTION 4.7 MANDATORY REPAYMENT. If at any given time from and after the date of this Agreement, the amount of Revolving Credit Loans plus all outstanding and unpaid Letters of Credit issued by all Lenders exceeds the then aggregate amount of the Commitments- Revolving Credit of all Lenders, THEN the Borrower shall immediately repay to the Lenders that amount necessary to reduce the unpaid and outstanding principal amount of the Revolving Credit Loans such that the amount of Revolving Credit Loans plus all outstanding and unpaid Letters of Credit issued by all Lenders is equal to or less than the then aggregate amount of the Commitments-Revolving Credit of all Lenders. All repayments of principal under this Section 4.7 shall include interest accrued to the date of repayment on the principal amount repaid. SECTION 5 REPRESENTATIONS AND WARRANTIES To induce each Lender to make each of the Loans, the Borrower represents and warrants, and at the time the Borrower requests or accepts any Loan, the Borrower shall be deemed to represent and warrant, to each Lender that: SECTION 5.1 ORGANIZATION. The Borrower is a corporation existing and in good standing under the laws of the state of Delaware; any subsidiary is a corporation duly existing and in good standing under the laws of the state of its formation as indicated on Exhibit G; the Borrower and any subsidiary are duly qualified, in good standing and authorized to do business in each jurisdiction where, because of the nature of their activities or properties, such qualification is required and failure to qualify could have a material adverse effect on the Borrower and its Subsidiaries taken as a whole; and the Borrower and any subsidiary have the power and authority to own their properties and to carry on their businesses as now being conducted. SECTION 5.2 AUTHORIZATION; NO CONFLICT. The borrowings hereunder, the execution and delivery of the Notes and the performance by the Borrower of its obligations under this Agreement and the Notes are within the Borrower's corporate powers, have been authorized by all necessary corporate action, have received all necessary governmental approval (if any shall be required) and do not and will not contravene or conflict with any provision of law or of the charter or by-laws of the Borrower or any subsidiary or of any agreement binding upon the Borrower or any subsidiary. SECTION 5.3 FINANCIAL STATEMENTS. The Borrower's audited consolidated financial statement as at December 31, 1994 and its unaudited consolidated financial statement as at September 30, 1995, copies of which have been furnished to both Lenders, have been prepared in conformity with generally accepted accounting principles applied on a basis consistent with that of the preceding fiscal year, and accurately present the financial condition of the Borrower and any subsidiary as at such dates and the results of their operations for the respective periods then ended. Since the date of those financial statements, no material, adverse change in the business, properties, assets, operations, conditions or prospects of the Borrower or any subsidiary has occurred of which each Lender has not been advised in writing before this Agreement was signed. There is no known contingent liability of the Borrower or any subsidiary which is known to be in an amount in excess of $100,000.00 which is not reflected in such financial statements or in Exhibit I hereto or of which the Lenders have not been advised in writing before this Agreement was signed. SECTION 5.4 TAXES. The Borrower and any subsidiary have filed or caused to be filed all federal, state and local tax returns which, to the knowledge of the Borrower or any subsidiary, are required to be filed, and have paid or have caused to be paid all taxes as shown on such returns or on any assessment received by them, to the extent that such taxes have become due (except for current taxes not delinquent and taxes being contested in good faith and by appropriate proceedings for which adequate reserves have been provided on the books of the Borrower or the appropriate subsidiary, and as to which no foreclosure, distraint, sale or similar proceedings have been commenced). The Borrower and any subsidiary have set up reserves which are adequate for the payment of additional taxes for years which have not been audited by the respective tax authorities. SECTION 5.5 LIENS. None of the assets of the Borrower or any subsidiary are subject to any mortgage, pledge, title retention lien, or other lien, encumbrance or security interest, except for: (a) current taxes not delinquent or taxes being contested in good faith and by appropriate proceedings; (b) liens arising in the ordinary course of business for sums not due or sums being contested in good faith and by appropriate proceedings, but not involving any deposits or advances or borrowed money or the deferred purchase price of property or services; (c) to the extent specifically shown in the financial statements referred to above; and (d) liens existing on the date hereof as listed in Exhibit H hereto. SECTION 5.6 ADVERSE CONTRACTS. Neither the Borrower nor any subsidiary is a party to any agreement or instrument or subject to any charter or other corporate restriction, nor is it subject to any judgment, decree or order of any court or governmental body, which may have a material and adverse effect on the business, assets, liabilities, financial condition, operations or business prospects of the Borrower and its subsidiaries taken as a whole or on the ability of the Borrower to perform its obligations under this Agreement or the Notes. Neither the Borrower nor any subsidiary has, nor with reasonable diligence should have had, knowledge of or notice that it is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any such agreement, instrument, restriction, judgment, decree or order. SECTION 5.7 REGULATION U. The Borrower is not engaged principally in, nor is one of the Borrower's important activities, the business of extending credit for the purpose of purchasing or carrying "margin stock" within the meaning of Regulation U of the Board of Governors of the Federal Reserve System as now and from time to time hereinafter in effect. SECTION 5.8 LITIGATION AND CONTINGENT LIABILITIES, No litigation (including derivative actions), arbitration proceedings or governmental proceedings are pending or threatened against the Borrower which would (singly or in the aggregate), if adversely determined, have a material and adverse effect on the financial condition, continued operations or prospects of the Borrower or any subsidiary, except as set forth (including estimates of the dollar amounts involved) in Exhibit I hereto. SECTION 5.9 SUBSIDIARIES. Attached hereto as Exhibit G is a correct and complete list of all subsidiaries and affiliates of the Borrower. SECTION 5.10 PURPOSE. The Borrower shall use the proceeds of the Loans to refinance the amounts owing under the Prior Documents, for working capital purposes, and for general corporate purposes, including capital expenditures. SECTION 6 COVENANTS Until all obligations of the Borrower hereunder and under the Notes are paid and fulfilled in full, and as a condition precedent to the Borrower requesting the Term Loans and any Revolving Credit Loan, the Borrower agrees that it shall, and shall cause any subsidiary to, comply with the following covenants, unless the Lenders consent otherwise in writing: SECTION 6.1 CORPORATE EXISTENCE, MERGERS, ETC. The Borrower and any subsidiary shall preserve and maintain its corporate existence, rights, franchises, licenses and privileges, and will not liquidate, dissolve, or merge, or consolidate with or into any other corporation, or sell, lease, transfer or otherwise dispose of all or a substantial part of its assets, except that: (a) Any subsidiary may merge or consolidate with or into any one or more wholly-owned subsidiaries; (b) Any subsidiary may sell, lease, transfer or otherwise dispose of any of its assets to the Borrower or one or more wholly-owned subsidiaries; and (c) The Borrower may liquidate, dissolve, sell, lease, transfer, or otherwise dispose of the net assets of any subsidiary whose net assets constitute ten percent (10%) or less of the Borrower's consolidated net assets. For purposes of this Section 6.1(c), the Borrower's consolidated net assets shall be determined immediately prior to any such liquidation, dissolution, sale, lease, transfer, or other disposition, and the ten percent limitation applies on a cumulative basis to all such dispositions during the period beginning on the date hereof and ending on the Termination Date. SECTION 6.2 REPORTS, CERTIFICATES AND OTHER INFORMATION. The Borrower shall furnish to each Lender: (a) Interim Reports. Within 45 days after the end of each quarter of each fiscal year of the Borrower, a copy of an unaudited financial statement of the Borrower and any subsidiary prepared on a consolidated basis consistent with the audited consolidated financial statements of the Borrower and any subsidiary referred to above, signed by an authorized officer of the Borrower and consisting of at least (i) a balance sheet as at the close of such quarter and (ii) a statements of earnings and cash flows for such quarter and for the period from the beginning of such fiscal year to the close of such quarter. (b) Audit Report. Within 100 days after the end of each fiscal year of the Borrower, a copy of an annual audit report of the Borrower and any subsidiary prepared on a consolidated basis and in conformity with generally accepted accounting principles applied on a basis consistent with the audited consolidated financial statements of the Borrower and any subsidiary referred to above, duly certified by independent certified public accountants of recognized standing satisfactory to the Lender, accompanied by an opinion without significant qualification. (c) Certificates. Contemporaneously with the furnishing of a copy of each quarterly report provided for in this Section, a certificate dated the date of such quarterly report and signed by either the President, the Chief Accounting officer or the Treasurer of the Borrower, to the effect that no Event of Default or Unmatured Event of Default has occurred and is continuing, or, if there is any such event, describing it and the steps, if any, being taken to cure it, and containing (except in the case of the certificate dated the date of the annual report) a computation of, and showing compliance with, any financial ratio or restriction contained in this Agreement, and also containing a description of the amount and type of capital expenditures which are excluded from capital expenditures pursuant to the parenthetical in clause (iv) of the definition of Income Available for Fixed Charges. (d) Reports to SEC and to Shareholders. Copies of each filing and report made by the Borrower or any subsidiary with or to any securities exchange or the Securities and Exchange Commission, except in respect of any single shareholder, and of each communication from the Borrower or any subsidiary to Borrower's shareholders generally, promptly upon the filing or making thereof. (e) Notice of Default, Litigation and ERISA Matters. Immediately upon learning of the occurrence of any of the following, written notice describing the same and the steps being taken by the Borrower or any subsidiary affected in respect thereof: (i) the occurrence of an Event of Default or an Unmatured Event of Default; or (ii) the institution of, or any adverse determination in, any litigation, arbitration or governmental proceeding which is material to the Borrower or any subsidiary on a consolidated basis; or (iii) the occurrence of a reportable event under, or the institution of steps by the Borrower or any subsidiary to withdraw from, or the institution of any steps to terminate, any employee benefit plans as to which the Borrower or any of its subsidiaries may have any liability. (f) Subsidiaries. Promptly from time to time a written report of any changes in the list of its subsidiaries. (g) Other Information. From time to time such other information, financial or otherwise, concerning the Borrower or any subsidiary as either Lender may reasonably request. SECTION 6.3 INSPECTION. The Borrower and any subsidiary shall permit each Lender and its agents at any time during normal business hours to inspect their properties and to inspect and make copies of their books and records. SECTION 6.4 FINANCIAL REQUIREMENTS. Until all of the obligations of the Borrower under this Agreement and the Notes are fully paid and performed, neither the Borrower nor any subsidiary will, unless at any time both Lenders shall otherwise expressly consent in writing: (a) Fixed Charge Coverage Ratio. Permit the Fixed Charge Coverage Ratio, as determined as of December 28, 1996 and as of the end of each fiscal quarter thereafter of the Borrower's fiscal year, in all instances for the period of the four fiscal quarters then ending, to be less than 1.0:1.0; (b) Current Ratio. Permit the ratio of consolidated current assets to current liabilities (with current liabilities not including the final installment on the Term Loans due on February 15, 1999) as determined as of the end of each fiscal quarter of the Borrower's fiscal year, to be less than 1.75:1.0; (c) Tangible Net Worth. Permit the Borrower's consolidated Tangible Net Worth, determined as of the end of each fiscal quarter of the Borrower's fiscal year, to be less than $24,000,000, plus fifty percent (50%) of the Borrower's cumulative consolidated net income (disregarding losses) for all periods subsequent to December 28, 1994); and (d) Leverage Ratio. Permit the Borrower's ratio of (i) consolidated Funded Debt as at the end of each fiscal quarter of the Borrower's fiscal year, to (ii) EBITDA for the Measurement Period ending at the last day of such quarter, to exceed 2.75:1.0 as at the end of each fiscal quarter through September 30, 1996, and 2.5:1.0 as at the end of each fiscal quarter thereafter. SECTION 6.5 INDEBTEDNESS, LIENS AND TAXES. The Borrower and any subsidiary shall: (a) Indebtedness. Not incur, permit to remain outstanding, assume or in any way become committed for Indebtedness in respect of borrowed money, except (i) Indebtedness incurred hereunder or to either Lender; (ii) Indebtedness existing on the date of this Agreement shown on the financial statements furnished to both Lenders before this Agreement was signed; (iii) other Indebtedness existing on the date hereof as listed in Exhibit J hereto; (iv) other Indebtedness to which the Lenders give the Borrower prior written consent; and (v) Indebtedness in the aggregate amount not greater than 5% of the Tangible Net Worth of the Borrower at any time or from time to time. (b) Liens. Not create, suffer or permit to exist any lien or encumbrance of any kind or nature upon any of their assets now or hereafter owned or acquired, or acquire or agree to acquire any property or assets of any character under any conditional sale agreement or other title retention agreement, but this Section shall not be deemed to apply to: (i) liens existing on the date of this Agreement which are listed on Exhibit H hereto or of which the Lenders have been advised in writing before this Agreement was signed; (ii) liens of landlords, contractors, laborers or supplement, tax liens, or liens securing performance or appeal bonds or other similar liens or charges arising out of the Borrower's business, provided that tax liens are removed before related taxes become delinquent and other liens are promptly removed, in either case unless contested in good faith and by appropriate proceedings, and as to which adequate reserves shall have been established; and (iii) liens securing borrowings or advances from the Borrower to wholly-owned subsidiaries. (c) Taxes. Pay and discharge all taxes, assessments and governmental charges or levies imposed upon them, upon their income or profits or upon any properties belonging to them, prior to the date on which penalties attach thereto, and all lawful claims for labor, materials and supplies when due, except that no such tax, assessment, charge, levy or claim need be paid which is being contested in good faith by appropriate proceedings and as to which adequate reserves shall have been established, and as to which no foreclosure, distraint, sale or similar proceedings have commenced. (d) Keep Well Agreements. Except as set forth in Exhibit I hereto, not assume, guarantee, indorse or otherwise become or be responsible in any manner (whether by agreement to purchase any obligations, stock, assets, goods or services, or to supply or advance any funds, assets, goods or services, or otherwise) with respect to the obligation of any other person or entity, except by the endorsement of negotiable instruments for deposit or collection in the ordinary course of business and except as permitted by this Agreement. SECTION 6.6 INVESTMENTS AND LOANS. Neither the Borrower nor any subsidiary shall make any loan, advance, extension of credit or capital contribution to, or purchase or otherwise acquire for a consideration, evidences of indebtedness, capital stock or other securities of, or all or substantially all of the assets of, any person in an aggregate amount greater than $1,500,000 (as determined for the period beginning on the date hereof and ending on the Termination Date), except that the Borrower and any subsidiary may: (a) purchase or otherwise acquire and own short-term money market items; (b) extend credit upon customary terms to their customers in the ordinary course of their business; and (c) extend credit to officers and employees in accordance with policies in effect on the date of this Agreement of which the Lenders have been advised in writing. SECTION 6.7 CAPITAL STRUCTURE AND DIVIDENDS. Neither the Borrower nor any subsidiary shall purchase or redeem, or obligate itself to purchase or redeem, any shares of the Borrower's capital stock, of any class, issued and outstanding from time to time, provided, however, that the Borrower may purchase an amount of shares of the Borrower's capital stock in a total amount not to exceed $1,000,000 in the aggregate (as determined for the period beginning on the date hereof and ending on the Termination Date); or declare or pay any dividend (other than dividends payable in its own common stock or to the Borrower) or make any other distribution in respect of such shares other than to the Borrower. The Borrower shall continue to own, directly or indirectly, the same (or greater) percentage of the stock of each subsidiary that it held on the date of this Agreement, and no subsidiary shall issue any additional securities other than to the Borrower. SECTION 6.8 MAINTENANCE OF PROPERTIES. The Borrower and any subsidiary shall maintain, or cause to be maintained, in good repair, working order and condition, all their properties (whether owned or held under lease), and from time to time make or cause to be made all needed and appropriate repairs, renewals, replacements, additions, betterments and improvements thereto, so that the business carried on in connection therewith may be properly and advantageously conducted at all times. SECTION 6.9 INSURANCE. The Borrower and any subsidiary shall maintain insurance in responsible companies in such amounts and against such risks as is usually carried by owners of similar businesses and properties in the same general area in which the Borrower or its subsidiaries operate. The Lenders agree that the Borrower may self-insure certain risks and that the levels of such self-insurance shall be reasonably and prudently determined solely by the Borrower. SECTION 6.10 USE OF PROCEEDS. (a) General. The Borrower and any subsidiary shall not use or permit any proceeds of the Loans to be used, either directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of "purchasing or carrying any margin stock' within the meaning of Regulations U or X of the Board of Governors of the Federal Reserve System, as amended from time to time. If requested by either Lender, the Borrower and any subsidiary will furnish to such Lender a statement in conformity with the requirements of Federal Reserve Form U-1 to the foregoing effect. No part of the proceeds of the Loans will be used for any purpose which violates or is inconsistent with the provisions of Regulation U or X of the Board of Governors. (b) Tender Offers and Going Private. Neither the Borrower nor any subsidiary shall use (or permit to be used) any proceeds of the Loans to acquire any security in any transaction which is subject to Section 13 or 14 of the Securities Exchange Act of 1934, as amended, or any regulations or rulings thereunder. SECTION 6.11 PURPOSE. The Borrower shall use the proceeds of the Loans as set forth in Section 5.10 above. SECTION 7 CONDITIONS OF LENDING The obligation of each Lender to make the Term Loan and each of the Revolving Credit Loans is subject to the following conditions precedent: SECTION 7.1 DOCUMENTATION; FIRST LOAN. In addition to the conditions precedent set forth in Section 7.2 hereinbelow, the obligation of both Lenders to make the Term Loan and the first Revolving Credit Loan is subject to the conditions precedent that both Lenders shall have received all of the following, each duly executed and dated the date of this Agreement, in form and substance satisfactory to the Lenders and their counsel, at the expense of the Borrower, and in such number of signed counterparts as each Lender may request (except for the Notes, of which only the original of each shall be signed): (a) Revolving Credit Note. Revolving Credit Notes in the form of Exhibit A, with appropriate insertions, each payable to each Lender for the face amount of such Lender's Commitment - Revolving Credit; (b) Term Note. Term Notes in the form of Exhibit B, with appropriate insertions, each payable to each Lender for the face amount of such Lender's Commitment - Term Loan; (c) Resolutions. A copy of a resolution of the Board of Directors of the Borrower authorizing or ratifying the execution, delivery and performance, respectively, of this Agreement, the Notes and the other documents provided for in this Agreement, certified by the Secretary of the Borrower; copies of the resolutions of the Board of Directors of each subsidiary authorizing or ratifying the execution, delivery and performance of its guaranty, certified by its Secretary; (d) Articles of Incorporation and By-laws; Good Standing Certificates. A copy of the articles of incorporation and by- laws of the Borrower and each subsidiary, certified by the Secretary of the Borrower and each subsidiary, respectively, or, in lieu thereof, certification by the Secretary of the Borrower and each subsidiary that there have been no changes to said articles of incorporation and by-laws since the date(s) when certified copies thereof were last furnished to the Lenders; good standing certificates issued by the Secretary of State of each state in which the Borrower or such subsidiary is incorporated and qualified to do business; (e) Certificates of Incumbency. A certificate of the Secretary of the Borrower and each subsidiary certifying the names of the officer or officers of the Borrower or such subsidiary authorized to sign this Agreement, the Notes, its guaranty and the other documents provided for in this Agreement to be signed by the Borrower and such subsidiary, together with a sample of the true signature of each such officer (the Lender may conclusively rely on such certificate until formally advised by a like certificate of any changes therein); (f) Guaranties. The Transit Mix Guaranty in the form of Exhibit C, with appropriate insertions; the Phoenix Guaranty in the form of Exhibit D, with appropriate insertions; the Williams Guaranty in the form of Exhibit E, with appropriate insertions; and the Castle Guaranty in the form of Exhibit F, with appropriate insertions; (g) Certificate of No Default. A certificate signed by the President, the Chief Financial Officer or the Treasurer of the Borrower to the effect that: (i) no Event of Default or Unmatured Event of Default has occurred and is continuing or will result from the making of the Term Loan and the first Revolving Credit Loan; and (ii) the representations and warranties of the Borrower contained herein are true and correct as at the date of the Term Loan and the first Revolving Credit Loan as though made on that date; (h) Opinion of Counsel to the Borrower and Subsidiaries. An opinion of counsel to the Borrower and its subsidiaries to such effect as the Lenders may require; and (i) Miscellaneous. Such other documents and certificates as the Lender may request. SECTION 7.2 REPRESENTATIONS AND WARRANTIES: NO DEFAULT. (a) Representations and Warranties. At the date of the Term Loan and each Revolving Credit Loan, the Borrower's representations and warranties set forth herein shall be true and correct as at such date with the same effect as though those representations and warranties had been made on and as at such date. (b) No Default. At the time of the Term Loan and each Revolving Credit Loan, and immediately after giving effect to the Term Loan and each Revolving Credit Loan, the Borrower shall be in compliance with all the terms and provisions set forth herein on its part to be observed or performed, and no Event of Default or Unmatured Event of Default shall have occurred and be continuing at the time of any Loan, or would result from the making of any Loan. SECTION 7.3 SUCCEEDING LOANS. The application by the Borrower for any Revolving Credit Loan other than the first shall be deemed a representation and warranty by the Borrower that the statements in Section 7.2 are true and correct on and as of the date of each such Loan. SECTION 8 DEFAULT SECTION 8.1 EVENTS OF DEFAULT. Each of the following occurrences is hereby defined as an "Event of Default": (a) Nonpayment or Non-Compliance with Financial Requirements. The Borrower shall fail to make any payment of principal, interest, or other amounts payable hereunder when and as due, or shall fail to be in compliance with any of the Financial requirements set forth at Section 6.4 hereof; or (b) Default under Related Documents. Any default, event of default, or similar event shall occur or continue beyond any applicable grace or notice period under any instrument, document, note, agreement, or guaranty delivered to either Lender in connection with the Loans, or any such instrument, document, note, agreement, or guaranty shall not be, or shall cease to be, enforceable in accordance with its terms; or (c) Cross-Default. There shall occur any default or event of default, or any event which might become such with notice or the passage of time or both, or any similar event, or any event which requires the prepayment of borrowed money or the acceleration of the maturity thereof, under the terms of any evidence of indebtedness or other agreement issued or assumed or entered into by the Borrower or any subsidiary or under the terms of any indenture, agreement or instrument under which any such evidence of indebtedness or other agreement is issued, assumed, secured or guaranteed, and such event shall continue beyond any applicable period of grace; or (d) Dissolutions, etc, The Borrower shall fail to comply with any provision concerning its existence or that of any subsidiary or any prohibition against dissolution, liquidation, merger, consolidation or sale of assets; or (e) Warranties. Any representation, warranty, schedule, certificate, financial statement, report, notice or other writing furnished by or on behalf of the Borrower to either Lender is false or misleading in any material respect on the date as of which the facts therein set forth are stated or certified; or (f) Change in Control. A transfer of or an accumulation of a majority of the outstanding capital stock of the Borrower shall be acquired, directly or indirectly, by a person or entity, or group of persons or entities acting in concert, who own on the date hereof less than 5% of such voting stock; or (g) ERISA. Any reportable event shall occur under the Employee Retirement Income Security Act of 1974, as amended, in respect of any employee benefit plan maintained for employees of the Borrower or any subsidiary; or (h) Litigation. Any suit, action or other proceeding (judicial or administrative) commenced against the Borrower or any subsidiary, or with respect to any assets of the Borrower or any subsidiary, shall threaten to have a material and adverse effect on the future operations of the Borrower or any subsidiary; or a final judgment or settlement shall be entered in, or agreed to in respect of, any such suit, action or proceeding and said final judgment or settlement is for or in an amount which would have a material adverse effect on the Borrower and its subsidiaries taken as a whole (but excluding in any event from this clause (h) the Lee claim referenced in Exhibit I hereto); or (i) Noncompliance with this Agreement. The Borrower shall fail to comply with any material provision hereof, which failure does not otherwise constitute an Event of Default, and such failure shall continue for thirty days after notice thereof to the Borrower by either Lender or any other holder of a Note; or (j) Guaranty. Any guaranty of the Loans (specifically including but not limited to the Transit Mix Guaranty, the Phoenix Guaranty, the Williams Guaranty and the Castle Guaranty) shall be repudiated or become unenforceable or incapable of performance; or (k) Voluntary Bankruptcy. The Borrower or any subsidiary shall file a petition or answer or consent seeking relief under Title 11 of the United States Code, as now constituted or hereafter amended, or any other applicable federal, state or foreign bankruptcy law or other similar law, or the Borrower or any subsidiary shall consent to the institution of proceedings thereunder or the filing of any such petition or to the appointment or taking possession of a receiver, liquidator, assignee, trustee, custodian, sequestrator or similar official of the Borrower or any subsidiary; or (l) Involuntary Bankruptcy. There shall be entered a decree or order by a court constituting an order for relief in respect of the Borrower or any subsidiary under Title 11 of the United States Code, as now constituted or hereafter amended, or any other applicable federal, state or foreign bankruptcy law or other similar law, or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or similar official of the Borrower or any subsidiary or of any substantial part of their respective properties, or ordering the winding-up of or liquidation of the affairs of the Borrower or any subsidiary and any such decree or order shall continue unstayed and in effect for a period of forty-five (45) consecutive calendar days; or (m) Insolvency. The Borrower or any subsidiary shall become insolvent or shall fail or be unable to pay its debts as they mature, shall admit in writing its inability to pay its debts as they mature, shall make a general assignment for the benefit of its creditors, shall enter into any composition or similar agreement, or shall suspend the transaction of all or a substantial portion of its usual business. SECTION 8.2 REMEDIES. Upon the occurrence of any Event of Default set forth in subsections (a)-(j) of Section 8.1 and during the continuance thereof, the Lenders may declare the Notes and any other amounts owed to the Lenders, including without limitation any accrued but unpaid Commitment Fee, to be immediately due and payable, whereupon the Notes and any other amounts owed to the Lenders shall forthwith become due and payable. Upon the occurrence of any Event of Default set forth in subsections (k)-(m) of Section 8.1, all of the Notes and any other amounts owed to both Lenders, including without limitation any accrued but unpaid Commitment Fee, shall be immediately and automatically due and payable without action of any kind on the part of either Lender or any other holder of a Note. Upon the occurrence of any Event of Default, any obligation of either Lender to make Loans shall immediately and automatically terminate without action of any kind on the part of either Lender until such Event of Default is waived by the Lenders, if ever. The Borrower expressly waives presentment, demand, notice or protest of any kind in connection herewith. The Lenders shall promptly give the Borrower written notice of any such declaration, but failure to do so shall not impair the effect of such declaration. No delay or omission on the part of the Lenders or any holder of a Note in exercising any power or right hereunder or under such Note shall impair such right or power or be construed to be a waiver of any Event of Default or any acquiescence therein, nor shall any single or partial exercise of any power or right hereunder preclude other or further exercise thereof, or the exercise of any other power or right. SECTION 9 MISCELLANEOUS SECTION 9.1 WAIVER OF DEFAULT. The Lenders may, by written notice to the Borrower, at any time and from time to time, waive any default in the performance or observance of any condition, covenant or other term hereof, or any Event of Default, which shall be for such period and subject to such conditions as shall be specified in any such notice. In the case of any such waiver, the Lenders and the Borrower shall be restored to their former position and rights hereunder and under the Notes, respectively, and any default or Event of Default so waived shall be deemed to be cured and not continuing; but no such waiver shall extend to or impair any right consequent thereon or to any subsequent or other default or Event of Default. SECTION 9.2 NOTICES. All notices, requests and demands to or upon the respective parties hereto shall be deemed to have been given or made when deposited in the mail, postage prepaid, or when sent if sent by facsimile, addressed: (a) if to the Borrower to 225 West Wacker Drive, Chicago, Illinois 60606 (Attention: Treasurer) (b) if to Northern to 50 South LaSalle Street, Chicago, Illinois 60675, (Attention: Joseph M. Kunze, Vice President) (c) if to LaSalle Bank to 120 South LaSalle Street, Chicago, Illinois 60603, (Attention: Michael Foster, Senior Vice President) or to such other address as may be hereafter designated in writing by the respective parties hereto. SECTION 9.3 NONWAIVER: CUMULATIVE REMEDIES. No failure to exercise, and no delay in exercising, on the part of either or all of the Lenders of any right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies of the Lenders herein provided are cumulative and not exclusive of any rights or remedies provided by law. SECTION 9.4 SURVIVAL OF AGREEMENTS. All agreements, representations and warranties made herein shall survive the delivery of the Notes and the making of any Loan hereunder. SECTION 9.5 SUCCESSORS; PARTICIPATIONS. This Agreement shall, upon execution and delivery by the Borrower, and acceptance by the Lenders in Chicago, Illinois, become effective and shall be binding upon and inure to the benefit of the Borrower, the Lenders and their respective successors and assigns, except that the Borrower may not transfer or assign any of its rights or interest hereunder without the prior written consent of all Lenders. The Lenders may, without notice or consent of any kind, sell, assign, transfer or grant participations in all or any of the Loans. In such event each and every immediate and successive assignee, transferee or holder of or participant in all or any of the Loans shall have the right to enforce this Agreement, the Notes, and all of the other document or instrument executed in connection herewith, by suit or otherwise, for the benefit of such assignee, transferee, holder or participant as fully as if such assignee, transferee, holder or participant were herein by name specifically given such rights, powers and benefits, but the Lenders shall have an unimpaired right, prior and superior to that of any assignee, transferee or holder to enforce this Agreement, the Notes, and all of the other documents or instrument executed in connection herewith for the benefit of the Lenders or any such participant, as to so much of the Loans as it has not sold, assigned or transferred. SECTION 9.6 CAPTIONS. Captions in this Agreement are for convenience of reference only and shall not define or limit any of the terms or provisions hereof. References herein to Sections or provisions without reference to the document in which they are contained are references to this Agreement. SECTION 9.7 SINGULAR AND PLURAL. Unless the context requires otherwise, wherever used herein the singular shall include the plural and vice versa, and the use of one gender shall also denote the others where appropriate. SECTION 9.8 COUNTERPARTS. This Agreement may be executed by the parties on any number of separate counterparts, and by each party on separate counterparts; each counterpart shall be deemed an original instrument; and all of the counterparts taken together shall be deemed to constitute one and the same instrument. SECTION 9.9 FEES. The Borrower agrees, upon demand of the Lenders, to pay or reimburse the Lenders for all reasonable costs, expenses (including attorneys' fees and legal costs and expenses, and time charges of attorneys who may be employees of either of the Lenders, in each case both in and out of court and in original, appellate and bankruptcy proceedings), and disbursements incurred or paid by the Lenders in connection with the preparation, negotiation, documentation, administration, amendment, modification, waiver or interpretation of this Agreement, and/or in enforcing or preserving its rights hereunder or under the Notes or any document or instrument executed in connection herewith. Notwithstanding the foregoing, the Borrower shall not be obligated to pay expenses of the Lenders pertaining to any lawsuit initiated by the Lenders if the Lender's complaint shall be dismissed with prejudice or if judgment shall be rendered, in whole, against the Lenders (and shall not be reversed on appeal). SECTION 9.10 CONSTRUCTION; PROVISIONS SEVERABLE, This Agreement, the Notes and any document or instrument executed in connection herewith shall be governed by, and construed and interpreted in accordance with, the internal laws of the State of Illinois, and shall be deemed to have been executed in the State of Illinois. If any term or provision of this Agreement, the Notes, or any other documents or instrument executed in connection herewith shall be unenforceable or invalid, such unenforceability or invalidity shall not render any other term or provision hereof unenforceable or invalid, and all other terms and provisions of this Agreement, the Notes, and any other documents or instrument executed in connection herewith shall be enforceable and valid. SECTION 9.11 SUBMISSION TO JURISDICTION; VENUE. To induce the Lenders to make the Loans, as evidenced by the Notes and this Agreement, the Borrower irrevocably agrees that, subject to the Lender's sole and absolute election, all suits, actions or other proceedings in any way, manner or respect, arising out of or from or related to this Agreement, the Notes or any document or instrument executed in connection herewith, shall be subject to litigation in courts having situs within Chicago, Illinois. The Borrower hereby consents and submits to the jurisdiction of any local, state or federal court located within Chicago, Illinois. The Borrower hereby waives any right it may have to transfer or change the venue of any suit, action or other proceeding brought against the Borrower by the Lenders in accordance with this Section. SECTION 9.12 SET-OFF. At any time and without notice of any kind, any account, deposit or other indebtedness owing by either Lender to Borrower, and any securities or other property of Borrower delivered to or left in the possession of either Lender or its nominee or bailee, may be set off against and applied in payment of any obligation hereunder (whether as Loans or Letters of Credit), whether due or not. The Lenders hereby agree that if either shall, through the exercise of any right of counterclaim, set-off, banker's lien, or otherwise, receive payment of a proportion of the aggregate amount of principal and interest due with respect to its participation in the Loans that is greater than the proportion received by the Lenders in respect of the aggregate amount of principal and interest due with respect to its pro rata share in the Loans, the party receiving such proportionately greater payment shall increase (the "Set-Off Increase") its Commitment - Revolving Credit or Commitment -Term Loan (which it shall be deemed to have done simultaneously upon receipt of such payment) in the Revolving Credit Loans or Term Loan, respectively, so that all such recoveries of principal and interest with respect to all Loans and Letters of Credit shall be on a pro rata basis. If at any time either Lender is required to return or refund all or any part of a payment, then after its refund or repayment, its increased Commitment - Revolving Credit or Commitment Term Loan shall be computed as if it had never received such payment. SECTION 9.13 DOCUMENTATION. Both Lenders represent, warrant, and covenant to the other Lender that: (a) In making its decision to enter into this Agreement and the Notes: (i) it independently has taken whatever steps it considers necessary to evaluate the financial condition and affairs of the Borrower; (ii)it has made an independent credit judgment; (iii) it has not relied upon any representation by the other Lender; and (iv) neither Lender shall be responsible or liable to the other Lender for any statements in or omissions from this Agreement, the Notes, or any other document or instrument executed by the Borrower or by and among the Borrower and the Lenders and document or instrument received by either Lender from the Borrower or concerning the Borrower, and (b) With respect to the Loans and Letters of Credit and so long as any portion of the Loans and Letters of Credit, respectively, remains outstanding, each Lender will continue to make its own independent evaluation of the financial conditions and affairs of the Borrower. SECTION 9.14 LENDERS. Northern and LaSalle Bank agree that any action taken pursuant to this Agreement, the Notes or any other document or instrument executed in connection herewith by Northern will be taken by Northern only after written receipt by Northern from LaSalle Bank of an agreement and consent to such action by LaSalle Bank. Except to the extent such actions result from the gross negligence or willful misconduct of Northern, Northern will not be liable to LaSalle Bank for any action taken or omitted to be taken pursuant to this Agreement, the Notes and all other document or instrument executed in connection herewith. Nothing in this Agreement, the Notes and all other document or instrument executed in connection herewith shall make or be deemed to make the relationship of Northern and LaSalle Bank hereunder a fiduciary relationship or be deemed to make Northern the agent hereunder or owe any fiduciary obligations to LaSalle Bank. Northern and LaSalle Bank agree that neither Lender may amend, waive, alter or agree to any other modification of this Agreement, the Notes and all other documents or instruments executed in connection herewith without the prior written consent and agreement of the other Lender. SECTION 9.15 MERGER AND INTEGRATION. Commencing as of the date of this Agreement, this Agreement, the Notes, the Letters of Credit, the Guaranties referred to herein, and the other documents and instruments referred to herein contain the entire agreement among the parties hereto and thereto with respect to the subject matter hereof and thereof, and specifically supersede, amend and restate in their entirety the Prior Documents and the commitments thereunder shall be deemed terminated. Notwithstanding the foregoing and without limiting any other rights that may have accrued under the Prior Documents prior to the date hereof, all rights of the Lenders under the Prior Documents to payment under the Prior Documents that have accrued or arose on or prior to the date hereof, shall survive the termination of commitments under the Prior Documents, and the principal amount of all advances made under the Prior Documents shall not, however, be deemed paid in full but rather transferred as provided herein. All Notes issued hereunder are, to the extent of such outstanding indebtedness, in substitution for, and not in repayment of, the principal indebtedness evidenced by the Original Agreement. CONTINENTAL MATERIALS CORPORATION By: /s/ Joseph J. Sum -------------------- Its: Vice President THE NORTHERN TRUST COMPANY By: /s/ Joseph M. Kunze -------------------- Its: Vice President LASALLE NATIONAL BANK By: /s/ Michael Foster -------------------- Its: Senior Vice President EX-11 3 EXHIBIT 11 COMPUTATION OF PER SHARE EARNINGS for the fiscal years ended 1995, 1994 and 1993 (Dollar amounts in thousands, except per-share data)
1995 1994 1993 ------- ------- ------- Primary earnings per share: Net earnings $ 681 $ 1,385 $ 40 ======= ======= ======= Weighted Average Shares Outst anding: Common Shares 1,129 1,140 1,164 ======= ======= ======= Primary Earning Per Share $ .60 $ 1.21 $ .03 ======= ======= ======= Fully Diluted Earnings Per Share: Net Earnings $ 681 $ 1,385 $ 40 ======= ======= ======= Weighted Average Shares Outstanding: Common Shares 1,129 1,140 1,164 ======= ======= ======= Fully Diluted Earnings Per Share $ .60 $ 1.21 $ .03 ======= ======= =======
Notes: Common stock equivalents are excluded from the primary earnings per share weighted average shares outstanding on the face of the Consolidated Statements of Operations and Retained Earnings in 1995 because they are antidilutive and in 1994 and 1993 because there were none outstanding at either year end. Fully diluted earnings per share for 1995 are not disclosed on the face of the Consolidated Statement of Operations and Retained Earnings because they are antidilutive. There were no options outstanding at either year end 1994 or 1993. The above weighted average shares outstanding can also be used to compute the primary and fully diluted earnings per share for continuing operations, discontinued operations and extraordinary loss. EX-21 4 EXHIBIT 21 EXHIBIT 21 SUBSIDIARIES OF REGISTRANT Registrant has no parent; see proxy statement for Registrant's principal shareholders. The following are Registrant's subsidiaries which are included in the consolidated financial statements: Name of Subsidiary State or Other (Each Owned 100% by Registrant Jurisdiction Except as Otherwise Stated) of Incorporation Castle Concrete Company Colorado Continental Catalina, Inc.* Arizona Continental Copper, Inc. Arizona Continental Quicksilver, Inc. Idaho Continental Uranium, Inc. Colorado Edens Industrial Park, Inc. Illinois Phoenix Manufacturing, Inc. Arizona ProSoft International, Inc.** Colorado Transit Mix Concrete Co. Colorado Williams Furnace Co. Delaware * owned by Continental Copper, Inc. **owned by Transit Mix Concrete Co. EX-24 5 EXHIBIT 24 EXHIBIT 24 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statement of Continental Materials Corporation and Subsidiaries on Form S-8 (File No. 33- 23671) of our report dated March 14, 1996 on our audits of the consolidated financial statements and financial statement schedule of Continental Materials Corporation and Subsidiaries as of December 30, 1995 and December 31, 1994, and for the three years in the period ended December 30, 1995, which reports are included in this Annual Report on Form 10-K. COOPERS & LYBRAND L.L.P. Chicago, Illinois March 27, 1996 EX-24 6 EXHIBIT 24(A) EXHIBIT 24(a) INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in this Registration Statement No. 33-23671 of Continental Materials Corporation and subsidiaries on Form S-8 of our report dated March 4, 1996, relating to the financial statements of Oracle Ridge Mining Partners, (which expresses an unqualified opinion and includes an emphasis of a matter paragraph relating to the production at the mine being halted in February 1996, as the partners reassess their plans for the mine, including a possible sale to a third party), appearing in this Annual Report on Form 10-k of Continental Materials Corporation and subsidiaries for the year ended December 31, 1995. DELOITTE & TOUCHE LLP Tucson, Arizona March 27, 1996 EX-27 7 EXHIBIT 27
5 1,000 12-MOS DEC-30-1995 DEC-30-1995 1,074 0 12,158 259 14,657 30,095 14,613 38,079 47,223 14,785 0 0 0 663 26,618 47,223 75,560 75,560 58,497 60,573 13,269 0 812 906 225 681 0 0 0 681 .60 .60 IS NET OF ALLOWANCE IS NET OF ACCUMULATED DEPRECIATION
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